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Edited Transcript of CLGX earnings conference call or presentation 27-Feb-19 4:00pm GMT

Q4 2018 Corelogic Inc Earnings Call

SANTA ANA Mar 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Corelogic Inc earnings conference call or presentation Wednesday, February 27, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dan L. Smith

CoreLogic, Inc. - IR Officer & Senior VP - Information Solutions Group

* Frank D. Martell

CoreLogic, Inc. - President, CEO & Director

* James L. Balas

CoreLogic, Inc. - CFO

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Conference Call Participants

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* Bose Thomas George

Keefe, Bruyette, & Woods, Inc., Research Division - MD

* Edward Christopher Gamaitoni

Compass Point Research & Trading, LLC, Research Division - MD & Assistant Director of Research

* Geoffrey Murray Dunn

Dowling & Partners Securities, LLC - Partner

* Glenn Edward Greene

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Jason Scott Deleeuw

Piper Jaffray Companies, Research Division - VP & Senior Research Analyst

* Jeffrey P. Meuler

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* John Robert Campbell

Stephens Inc., Research Division - MD

* Kevin Michael Kaczmarek

Zelman & Associates LLC - Head of Data and Analytics

* Oscar D. Turner

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Stephen Hardy Sheldon

William Blair & Company L.L.C., Research Division - Analyst

* William Arthur Warmington

Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the CoreLogic Fourth Quarter 2018 Conference Call. Today's conference is being recorded. (Operator Instructions)

I'll now like to turn the conference over to Dan Smith, Investor Relations. Please go ahead.

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Dan L. Smith, CoreLogic, Inc. - IR Officer & Senior VP - Information Solutions Group [2]

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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 2018. Speaking today will be CoreLogic's President and CEO, Frank Martell; and CFO, Jim Balas.

Before we begin, let me make a few important points. First, we've posted our slide presentation, which includes additional details on our financial results on our website.

Second, please note that during today's presentation, we may make forward-looking statements within the meaning of the federal securities laws, including statements concerning our expected business and operational plans, performance outlook and acquisition and growth strategies and our expectations regarding industry conditions. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings, including the most recent annual report on Form 10-K and the subsequent 10-Qs. Our forward-looking statements are based on information currently available to us, and we do not intend and undertake no duty to update these statements for any reason.

Additionally, today's presentation contains financial measures that are non-GAAP financial measures. A reconciliation of these non-GAAP measures to their GAAP equivalents is included in the appendix to today's presentation.

Unless specifically identified, comparisons of fourth quarter financial results to prior periods should be understood on a year-over-year basis, that is in reference to the fourth quarter of 2017.

Finally, please limit yourselves to one question with a brief follow-up. We will take additional questions at the end of the call, as time permits.

Thanks, and now let me introduce our President and CEO, Frank Martell.

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [3]

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Thank you, Dan, and good morning, everyone. Welcome to CoreLogic's Fourth Quarter and Full Year 2018 Earnings Call. I'll lead off today with a recap of our 2018 operating performance and some key takeaways. Jim will follow and summarize our fourth quarter and full year 2018 financial results and provide commentary on our first quarter and full year 2019 financial guidance, we'll then wrap up the call with a Q&A session.

CoreLogic delivered a strong set of results, both operationally and financially, in 2018 despite the second straight year of significant U.S. mortgage market headwinds.

In line with our long-term strategic plan, which calls for the creation of market-leading solutions, underpinned by unique data-driven insights, we continued to scale our core mortgage operations, expanded our insurance, international and platform's footprint, accelerated the transformation of our AMC and initiated the exit of certain noncore software units. In addition, we invested in existing and next-generation capabilities with a particular focus on data structures and visualization, technology platforms as well as advanced automation techniques, which we expect will set the foundation for future growth and margin expansion. We also reduced our costs significantly through productivity and higher levels of automation.

I believe one of the more significant takeaways from 2018 and the past several years has been our continuing durability of our business model, which is built around critical market-leading insights and solutions in North America and increasingly globally.

Since the great recession, we have progressively reduced the impact of down cycles and U.S. mortgage market unit volumes on our financial results. Our ability to outperform the market over time is primarily attributable to the benefits of the continued shift in our revenue mix towards must-have bundled solutions and expansion into nonmortgage adjacencies. We've also benefited from our relentless push for operating leverage and productivity.

Our 2018 revenues were down about 3% compared with an estimated 15% drop in overall U.S. mortgage market unit volumes. In 2018, it was the seventh straight year our core mortgage operations outperformed overall market trends. Over the past 2 years, CoreLogic delivered positive organic growth, higher margins and strong free cash flow despite an estimated 35% drop in U.S. mortgage market volumes.

In 2018, we successfully expanded our non-U. S. mortgage footprint to almost 40% of our revenues. We expect that our non-U. S. mortgage revenues will increase to over 40% exiting 2019 as we continue to grow revenues from our insurance and spatial solutions, international and other non-U. S. mortgage volume-sensitive businesses, wind down certain noncore software units and accelerate the transformation of our AMC. As a matter of strategic intent, we are targeting to eventually grow our non-U. S. mortgage footprint to at least 50% of our total revenues.

CoreLogic's continuing growth into the new verticals as well as our global expansion have been made possible in large part because of the scale and market leadership of the company's core U.S. mortgage market businesses, including tax payment processing, flood zone determinations, credit and borrower insights and collateral valuation. These businesses leverage common technology and back-office infrastructure and data repositories.

During 2018, our core mortgage operations continued to gain scale and build market leadership through the provision of bundled solution packages that leverage our data-driven insights and unmatched service and quality. We also introduced new and/or enhanced products and drove productivity to boost margins.

The U.S. housing and mortgage markets are the largest consumer of residential property data and information services, and our market leadership is essential to maintaining scale and operating leverage. We estimate that 7 out of 10 mortgages originated in the U.S. during 2018 utilized one or more of our underwriting insights.

Another highlight of 2018 was the successful scaling of our platforms businesses that help to efficiently connect key constituencies in the housing ecosystem. These platforms are a distribution vehicle for unmatched data and analytics and provide high-margin annuity revenue streams in real estate, the public sector and insurance and mortgage underwriting.

Our acquisitions of FNC, Mercury Network and à la mode are great examples of how we use smart scaling plays to build out a unique, leading-edge, end-to-end collateral valuations platform that now connects almost 1,000 lenders, 300 AMCs and 50,000-plus appraisal professionals.

In addition, the combination of Symbility, which we acquired in late 2018, and our existing underwriting and geospatial data and analytics capabilities as well as our property-related data assets allow CoreLogic to provide our clients and the insurance industry with new and unique insights into underwriting property and natural hazard risk coverage while effectively processing claims.

In December of 2018, we announced our intention to accelerate the transformation of our AMC operation by increasing the use of data-driven analytics, further automating critical workflows and upping the utilization of our in-house staff appraiser model. The acceleration is expected to deliver improved client satisfaction, reduced appraiser turn times, enhance quality and increase productivity. Once implemented, our transformation program is expected to result in improved underlying organic growth trends and higher profit margins.

Over the past year, we raised the level of investment in our current and next-gen technology and data platforms and operational capabilities. There is a particular focus, included our state-of-the-art integrated data and analytics platform, the development of our leading-edge data repository as well as the migration to the Google Cloud Platform and building out AI, automation and related tools. These investments position us to be the logical long-term strategic partner for our clients as we drive to enhance and, in some cases, transform mortgage and insurance underwriting as well as property valuation, risk management and monitoring solutions.

Adjusted EBITDA totaled $493 million in 2018. Adjusted EBITDA margin was 28%, which is up from 2017. It's notable that we boosted our adjusted EBITDA margin in 2018 despite the tapering of U.S. mortgage volumes and the investments I just discussed. We achieved this feat by driving our top line mix towards higher-margin revenue sources and capturing the benefits of cost-reduction programs and operating leverage. In addition, our durable and cash-generative business model allowed us to deliver a free cash flow conversion rate in line with our long-term targeted levels.

As our long-term investors know, we have established track record of successfully driving productivity in the push towards first-quartile levels of operational excellence. In this context, I'm pleased to confirm that we reduced our run rate costs in 2018 by more than $20 million by consolidating facilities, managing staffing costs, outsourcing certain activities and other operational improvements. We expect to lower run rate costs by an additional $20 million in 2019. These reductions support our goal of achieving at least 30% adjusted EBITDA margins by 2020 based on a normalized U.S. mortgage market and after accounting for the transformation of our Valuation Solutions offerings and the wind down of the legacy noncore software business.

One final point. Jim will talk about our capital allocation and return policy and resulting value creation in a couple of minutes, but as you can see from our 2018 and our 2019 plan, we believe that the repurchase of significant quantities of our common shares remains an important vehicle to reward our long-term shareholders.

To sum it up, 2018 was another year of foundational progress for CoreLogic and remain positioned for future success. I want to thank all of our employees, our clients and our shareholders for their continued support as the CoreLogic team successfully executes against our vision of creating a scaled, innovated, data-driven enterprise that delivers unique, must-have solutions.

Thanks for joining us today. Jim will now discuss our financial results.

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James L. Balas, CoreLogic, Inc. - CFO [4]

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Thanks, Frank, and good morning, everyone. Today, I'm going to discuss our fourth quarter and full year 2018 financial results and then provide updated views on current market trends, capital return and financial guidance for 2019.

As Frank mentioned, CoreLogic delivered a strong operating and financial performance in 2018. Fourth quarter and full year 2018 financial highlights included: first, continued market outperformance of mortgage market trends; second, overachievement of our cost management and productivity targets; third, full year margin expansion of 160 basis points despite significant market headwinds; fourth, strong generation of free cash flow levels, which allowed us to invest in our future while funding $90 million in voluntary term loan repayments; and finally, the repurchase of 500,000 of our common shares, which brought our full year total to 2.3 million and reduced our total share account by about 3%.

Full year 2018 revenues totaled $1.79 billion and were down 3% compared to 2017. Operating income from continuing operations totaled $223 million and was down 7% as cost productivity benefits and favorable revenue mix partially offset mortgage market headwinds, increased investment spending and an $8 million noncash impairment charge related to the planned exit of certain noncore software units.

Net income from continuing operations was $122 million, down 18%, reflecting a onetime benefit of $38 million recorded in 2017 attributable to the U.S. Tax Cuts and Jobs Act.

Full year adjusted EBITDA totaled $493 million and adjusted EPS was $2.72 per share. Adjusted EBITDA was at the high end of our 2018 guidance range.

The balance of my comments on 2018 results relate to our fourth quarter performance. Fourth quarter revenues totaled $403 million compared with $454 million in the same 2017 period. During the quarter, U.S. mortgage market volumes declined by an estimated 25% on lower refinancing and home sales activity.

PIRM revenues fell 7% from 2017 levels to $168 million due to lower weather-related natural hazard revenues, the impact of lower mortgage volumes and unfavorable foreign currency translation.

UWS revenues totaled $239 million, down 14% from 2017 levels as benefits from market outperformance and higher collateral valuation platform revenues partially offset mortgage market unit declines and lower AMC volumes.

Operating income from continuing operations totaled $29 million for the fourth quarter compared with $65 million in 2017. Lower operating income was principally attributable to the impact of a 25% decline in origination unit volumes, lower weather-related natural hazard revenues, higher investment spend and a noncash impairment charge discussed previously.

Fourth quarter net income from continuing operations sold $13 million, a decline of $52 million when compared to 2017. The decline was primarily driven by the previously described 2017 tax benefit and 2018 noncash impairment charge.

Diluted EPS from continuing operations totaled $0.16 for the fourth quarter of 2018 compared with $0.78 in 2017. Adjusted EPS totaled $0.48 compared with $0.55 in the fourth quarter of '17.

Adjusted EBITDA totaled $103 million in the fourth quarter compared with $117 million in the same prior year period. The year-over-year reduction in adjusted EBITDA resulted principally from lower revenues and higher levels of investment on data and technology capabilities, partially offset by productivity benefits.

PIRM segment adjusted EBITDA totaled $41 million compared to $50 million in 2017. UWS adjusted EBITDA was $71 million, in line with the prior year total of $72 million.

Finally, we continue to generate significant levels of free cash flow. For the 12 months ending December 31, 2018, free cash flow totaled $258 million, a 52% conversion rate of last 12 months' adjusted EBITDA. Our 2018 conversion rate included a previously disclosed legal settlement recorded in 2017 but paid in 2018 for $17 million and a benefit from a contract amendment that accelerated revenue recognition by approximately $23 million. Excluding these 2 discrete items, our conversion rate would have been 58% for 2018.

Our relentless focus on operational productivity and building scaled and unique solutions has resulted in a durable and cash-generative business model. Over the past 8 years, we have repurchased approximately $47 million or 41% of our common shares for approximately $1.4 billion. In 2018, we repurchased 2.3 million or 3% of our outstanding shares for $109 million. Additionally, we made $90 million in voluntary debt repayments to manage our debt levels while still providing for growth through internal investment and acquisitions. In 2019, we plan to repurchase an additional 2% to 3% of our outstanding share count.

As demonstrated by our 2018 performance, our long-stated capital allocation strategy remains in place. We will continue to reinvest in product development, productivity and cost management programs, and we will opportunistically repurchase our common shares while managing our debt levels.

I will close my prepared remarks today with a discussion on our 2019 financial guidance. For the full year of 2019, we expect to generate revenues of between $1.62 billion and $1.68 billion, adjusted EBITDA of $450 million to $480 million and adjusted EPS of $2.25 to $2.55.

Our guidance includes the following important assumptions: first, we expect U.S. mortgage unit volumes to decline 5% from 2018 levels; second, realized savings totaling $20 million from ongoing cost management and productivity programs; and third, the previously announced acceleration of our AMC transformation program and the wind down of certain noncore software platforms is expected to unfavorably impact our 2019 revenues between $70 million and $100 million and adjusted EBITDA by $10 million to $15 million. For a complete list of our key assumptions, please refer to our press release dated February 26, 2019.

In terms of the first quarter of 2019, we expect U.S. mortgage market volumes to be 15% lower relative to 2018 levels. As a result, based on seasonality and our current view of origination unit volume trends, we believe that adjusted EBITDA should be approximately $85 million to $95 million for the first quarter.

We achieved solid operating and financial results in 2018, and we believe we are well positioned to continue to deliver strong financial results in 2019. As Frank mentioned earlier, CoreLogic remains focused on achieving 30%-plus adjusted EBITDA margins in 2020 based on a normalized U.S. mortgage market and after accounting for the build-out of our Valuation Solutions platform and a wind down of the noncore software units. We expect to achieve our margin goals through a combination of profitable growth, favorable revenue mix as well as business model transformation and cost productivity.

Thanks for your time today. I will now turn the call back over to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question today from Bose George from KBW.

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Bose Thomas George, Keefe, Bruyette, & Woods, Inc., Research Division - MD [2]

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Can I just ask about the bridge between the $493 million of EBITDA you did this year and what you're guiding to next year? Because if I take out the $15 million of legacy EBITDA, the $4 million of net forex and then offset by the $20 million of cost saves, it's kind of back up to the 2018 level. So is the decline really being driven by volumes?

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James L. Balas, CoreLogic, Inc. - CFO [3]

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In terms of the bridge on EBITDA from '18 and '19, you have to factor in the $23 million that we had for the rev rec with that contract amendment. We also have the market that we've articulated in the assumptions. I don't know if you picked up the rev rec, Bose, that might be the delta. There's also FX included in our assumptions. We're expecting the top line impact to be approximately $10 million with an EBITDA impact of about $4 million. And then, of course, you have the announcement around the businesses we announced in December.

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Bose Thomas George, Keefe, Bruyette, & Woods, Inc., Research Division - MD [4]

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Okay. Yes, I think the revenue recognition was the piece I missed. And then just in terms of the range of $450 to $480 million, is that the timing of the legacy that's -- exit that's mainly driving that range? Or is there anything else in there?

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James L. Balas, CoreLogic, Inc. - CFO [5]

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Correct.

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [6]

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Bose, are you talking about the size of the range? Or what's your...

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Bose Thomas George, Keefe, Bruyette, & Woods, Inc., Research Division - MD [7]

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Yes, the size of the range, yes. The factors driving the size of that range.

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [8]

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Yes, we normally do a $25 million-ish range, so it's not that much bigger. But the big moving part is the time line there because you have clients involved and operational transitions involved.

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Operator [9]

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Next, we'll hear from Chris Gamaitoni with Compass Point.

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Edward Christopher Gamaitoni, Compass Point Research & Trading, LLC, Research Division - MD & Assistant Director of Research [10]

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What was the FX headwind that you called out for the PIRM segment in the quarter?

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James L. Balas, CoreLogic, Inc. - CFO [11]

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PIRM FX was about a couple of million dollars top line, and then you'd apply like 1/3 margin to it.

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Edward Christopher Gamaitoni, Compass Point Research & Trading, LLC, Research Division - MD & Assistant Director of Research [12]

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Can you give us an update on -- I think previously you stated that a lot of the productivity investments you're making in technology, et cetera, will really kind of kick in, in 2020. How do we think about in terms of magnitude of that benefit, whether it be on the expense line or the revenue line?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [13]

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Yes, so there is a big ramp in 2020, Chris. This is Frank. We -- so if you look at the couple of initiatives, particularly the -- we have an automation program going on in our tax operation and the Google Cloud initiative. Those are implementations that have happened really over '18, a little bit over '17, but '18, '19, with the benefits flowing through in 2020. So those are two of the biggest examples of what would be lifting the impact of the productivity actions in 2020 versus what you're seeing '18 and '19.

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Edward Christopher Gamaitoni, Compass Point Research & Trading, LLC, Research Division - MD & Assistant Director of Research [14]

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Yes, I was just wondering relative sense of magnitude versus the $20 million benefit in 2019.

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [15]

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I think you're going to see, well, significantly north of that. We don't really forecast 2020, but I'd say you're talking about maybe a doubling of the $20 million run rate.

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Edward Christopher Gamaitoni, Compass Point Research & Trading, LLC, Research Division - MD & Assistant Director of Research [16]

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Okay. And just getting back to the 30% margin target. I guess first question is, what's the latest thought on normalized mortgage market? And like, are we in one right now? Or do we need to see growth from here in the overall -- the macro mortgage market?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [17]

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Yes, I think the mortgage market is under transition right now. Obviously, it's hard to tell. We talked about normalized mortgage market in the 1 5 to 1 7 range 3 years ago. I think that still feels about right to me in terms of -- and of course, that's a dollar expression of that, but it kind of feels right to me. I think the challenge right now is that in a market, as you know, in '18, it was about twice as bad as we had originally forecast. I think a lot worse than most people have forecast going into the year. So we're calling 5% in '19. We'll see where that goes. I think there's still some open questions there, but I think 5% is probably a good call at this point. So we're managing through that. I think the important thing is we're at 20 -- margin absorbing essentially a 35% reduction in our core market where we make a lot of money. So we've actually been able to overcome that and still keep that margin up at 27%, 28%. So we feel pretty good about that and feel pretty good that, that's a good baseline to shoot into 2020 with and hit the target.

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Edward Christopher Gamaitoni, Compass Point Research & Trading, LLC, Research Division - MD & Assistant Director of Research [18]

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Okay. And just a follow-up to that. When you say after accounting for the wind down effects of the data platform and transformation of UWS relates to that margin, I'm just trying to figure out what that means. Like, are we talking about lost EBITDA? Or like, I would assume cost related to that would be taken out of -- through adjustments. So I'm just trying to understand what that means.

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [19]

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No, we're just -- we have -- I'd say they're -- as you said, they're kind of adjusted out. I don't know what they'll be when they actually -- everything shakes out. But by and large, we have -- there's a timing -- probably the biggest element is the timing element of it because the AMC in particular is a lot of revenue but not so much profit. So how that plays out will have some effect to it. I don't think that's a material portion of that discussion, honestly. But it's still a bit of a -- still just a bit of an unknown, but it's not a material moving part, I don't believe, on the bottom line.

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Operator [20]

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Next, we'll hear from Jason Deleeuw with Piper Jaffray.

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Jason Scott Deleeuw, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [21]

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I was hoping to get some color on the segment revenue and margin outlooks for 2019. Is there any help you can kind of give us because we've had some of the revenue growth rates and the margins kind of move around a lot in each of the segments? And just wondering if you can kind of help us think about the segments for the full year.

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James L. Balas, CoreLogic, Inc. - CFO [22]

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Yes, we -- as you know, we generally don't guide at the segment level, but what we have said in the past is we expect as we target the 30% margin, you would see lift in both segments.

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Jason Scott Deleeuw, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [23]

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Okay. And then when I think about kind of the business going forward and organic growth -- revenue growth drivers, where are the growth investments being made right now across the business where we can expect to see more -- faster organic revenue growth as we head into the next couple of years?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [24]

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Yes, Jason, that -- it's Frank. And so I think one of the good examples of that is what I talked about, which is the platform business. Very strong margin business that we've assembled and integrated. So it's kind of a seamless end-to-end that connects on the collateral valuation side. Despite the mortgage market, we actually -- that business grew last year at a good margin. So that's a good example of where we see growth in those platform areas. We see growth in, I think, in insurance, spatial, analytics as well. I think we see growth in some of the mortgage businesses as well, organically. So I think going forward, it's a good diversification mix. But some of the bigger ones would be in insurance and spatial area. I think we still have some growth in international as well. Those have been traditional growth areas for us. In addition, I do still think there is the platform side, and then a couple of other ones that I think you look at the alternative credit area as an example and our realtor solutions there, which was a very significant benefit in terms of growth and margin expansion in 2018. We think that'll continue as well. So I know that's 4 or 5 different areas. But I think the good news is there's -- we're not really riding a single horse, there's a number of different ones. And I think that we think that, collectively, we can be in the middle kind of single-digit range as we get through this cycle in housing.

I would say the cycle is pretty unique in history. You haven't seen an economic expansion like this in the housing market going the other way. Some of that's fundamentals and pressure points in the market, and we expect that to eventually release a bit. But I think you saw that particularly in '18 where you saw the market down 15%, and also, along with that, a lot of pressure on the underwriters and the servicers in terms of their own margins as well and their spending pattern. So that should release, though, as we get through this time period and into 2020.

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Operator [25]

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Next, we'll hear from Jeffrey Meuler with Baird.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [26]

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Just as we think about, I guess, 2019 being a rebase year and exiting some noncore solutions. So I guess, just the first question on just understanding the timing of the rebates. The decisions announced around the AMC transformation and exiting the noncore software and the revenue and EBITDA headwinds that you've embedded into 2019 guidance, does that fully cover it? Or is there incremental headwinds beyond 2019 into 2020 that we should be contemplating? And then the related question, I guess, is this a final cleanup of anything today that you envision being anywhere close to noncore? We're kind of ripping the Band-Aid off and giving the full rebase in, or are there other solutions that -- and I understand your business in the market is dynamic, but are there other solutions that are potentially still something that you would consider noncore over the next couple of years?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [27]

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Yes, Jeff. So I think, as you rightly pointed out, I mean, it's a little bit of a moving target. I would say, specifically, as it relates to the AMC, which is the biggest -- if you talk about revenue impact, again, it doesn't -- when we're talking about in terms of the reset on the AMC, it's not so much a profit issue. There's some profit, but it's more of a revenue issue. And that's more a good example for the markets kind of moved, and the value in that business has moved a bit. So we are aggressively responding to that. I think there is a lot of value in taking that business towards a focused in-house staff panel model with a high automation factor and a high-touch service model, and that's the direction we're going in. That will reduce the size of that initially. We think, in the longer term, it'll be a better growth platform for us. So that's probably the biggest moving part. On the software piece of it, those were legacy businesses, primarily the LOS platform that we had that we kind of bought many, many, many years ago, and it's very long contract cycles. We don't think that we can get the scale necessary, and it doesn't add enough value to our data-driven model that we're focused on through a content play. So we think that, that makes a lot of sense just to -- if you said kind of rip the Band-Aid off and move on there. That's a little bit more at a profit level involved and the numbers that Jim provided, but from revenue, it's less than AMC from an impact perspective. Other areas, I don't see any -- I don't anticipate there is any surprises there. I don't think that -- and I think the portfolio we have today of products and services, they are more tightly integrated from an operational and an infrastructure perspective. They all feed off a common repository. So I don't think that, that's a -- you'll see many surprises there.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [28]

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And other incremental financial headwinds from the decisions already announced in 2020, or does the 2019 guidance fully account for what the ultimate run rate impact will be?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [29]

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I would say that from a -- probably the only area is revenue and the AMC piece of it, where -- that's a bigger number. Again, not a profit impact, but a bigger number. And that's a -- we're embedded in the operations of these clients. So it's more of the, a, are they -- do they want to adopt a new model or not; and b, how long it takes to reorder the workflows to accommodate, either a yes decision or no decision. So I would expect, though, the AMC piece to runoff, do what it's going to do, really pretty much in '19 and '20. So I don't see -- I see the bigger impact in '19 would lessen in 2020. I don't think it'll be 0, but I think it'll be significantly less.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [30]

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Okay. And then just second question. Trying to kind of understand once we rebase the growth potential of the company and you're talking about mid-single-digit growth, and you listed out a lot of growth drivers that should be present today, so I understand it's a tough selling environment for your core mortgage business, but just what are the offsets? Like, are there -- because it seems like there has to be some offsets today to get to flat because some of those noncore businesses I would expect to have some underlying organic growth. So just beyond it being tough to sell maybe new solutions into the core mortgage business, are there other revenue streams that are serving as headwinds? Are there current solutions that your mortgage clients are using less that you're not adjusting out when you do your adjusted organic growth estimate? I'm just trying to, I guess, get from maybe flattish to low single digit to bridge it to what hopefully can be a mid-single-digit growth business on a sustainable basis once you get to a new normal.

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [31]

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Yes, I don't think there's any -- there's nothing unusual in terms of the organic growth pattern. I mean, I think you just have to be realistic. The fact that the housing market itself -- and I would say we talked mortgage, but it's a broader challenge in the overall housing market for things like supply and affordability, et cetera. So there's a lot of -- there has been a lot of challenges in the market that I think have suppressed organic growth. I think the fact that we were able to generate some organic growth in '18, albeit smaller than our normal pattern, I think was a pretty strong indication of the strength of the business model we have. And I do think that we have plenty of -- as I articulated in the discussion earlier with Bose, I think we have -- there are a lot of operational -- or sorry, there's a lot of products and services that will grow, like the platform business, that should continue to grow and perhaps accelerate in terms of growth. So I don't see any structural issues that wouldn't -- would impede our ability to eventually get to the middle single digits growth rates quite honestly. So I don't -- I just -- I think it's more of a function where the housing market is headed the last couple of years, which is a very significant drop in activity that I think not only CoreLogic but everybody else has kind of worked through.

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Operator [32]

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John Campbell with Stephens Inc. has our next question.

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John Robert Campbell, Stephens Inc., Research Division - MD [33]

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If you guys could, could you maybe help us size up what the Symbility contributions are for 2019? And then I think you guys maybe had a deferred revenue haircut with à la mode. So just curious about how much of a uplift you expect to get there as well.

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James L. Balas, CoreLogic, Inc. - CFO [34]

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Yes, Symbility was about CAD 40 million. It's a stand-alone public company in Canada, so roughly $30 million on the top line.

And then the haircut on à la mode was fairly modest. It wasn't a huge number. It's not a big player in the grand scheme of things.

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John Robert Campbell, Stephens Inc., Research Division - MD [35]

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Okay. So I mean, if I just run the math, I just want to make sure I'm getting this right. So for the guidance, if I add in the revenue headwinds that you guys call out, if I back out the $23 million of onetime revenue recognition for 2018, I get -- and back out the inorganic revenue, I'm getting to about negative 3% at the midpoint for organic growth. Is that right?

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James L. Balas, CoreLogic, Inc. - CFO [36]

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For the quarter?

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John Robert Campbell, Stephens Inc., Research Division - MD [37]

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For the full year.

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James L. Balas, CoreLogic, Inc. - CFO [38]

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For the year. For the full year, no. There is some embedded growth in the 2019 guidance, so negative 3% does not sound correct to me.

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John Robert Campbell, Stephens Inc., Research Division - MD [39]

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Okay. Can you kind of isolate or maybe just suss out what the implied organic growth is within 2019?

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James L. Balas, CoreLogic, Inc. - CFO [40]

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It's in line with what we've been doing historically on average, I would say.

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John Robert Campbell, Stephens Inc., Research Division - MD [41]

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Okay. And what was organic growth in the quarter?

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James L. Balas, CoreLogic, Inc. - CFO [42]

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In the fourth quarter?

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John Robert Campbell, Stephens Inc., Research Division - MD [43]

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Yes.

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James L. Balas, CoreLogic, Inc. - CFO [44]

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It was flat essentially. We had a dampening effect from the AMC and then also the weather-related impact to organic growth.

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John Robert Campbell, Stephens Inc., Research Division - MD [45]

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Last question for me. If you guys can maybe elaborate a little bit more on the margin pressure on PIRM, how much of that was just incremental investment spend versus the revenue decline?

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James L. Balas, CoreLogic, Inc. - CFO [46]

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It was -- so on PIRM, you had a couple of things really hitting it. You had the market, obviously. There is a little bit of mortgage impact in that segment, and then you also had weather impact on year-over-year basis. You just didn't see the weather go through in the fourth quarter like you did in the prior year. You also had a little bit of FX, which I mentioned earlier on one of the questions.

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Operator [47]

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Our next question comes from Stephen Sheldon with William Blair.

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Stephen Hardy Sheldon, William Blair & Company L.L.C., Research Division - Analyst [48]

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Just, first, within the platform and workflow app that you've assembled in valuations, so FNC, Mercury and à la mode. I think you talked about those growing top line in 2018 and outpacing the broader mortgage market. But yes, I was just curious to get your view on the runway for continued growth in those businesses looking out over the next few years. And when do you expect the majority of both revenue and profit in the valuations business to come from those assets kind of starting in 2019 versus the AMC?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [49]

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Sure. Yes, so first of all, I think it's a terrific business and I think we're really proud of the team and the way they've integrated that business. And I think some of the upside has come through the connection points and providing a seamless platform and then putting our data in there. That business also, by the way, provides access to data assets that we can use in our repository. So I think that's something that we can build off of. My view is we have some additional growth areas in that business that will help us to move forward. We are taking some share, but we also have things like we've expanded into processing title orders, as an example, versus just valuations. And we have other services like that, that can be tied on to that platform. And as I talked about in my script, I mean, one of the great things is we touch so many different constituencies that our ability to cross-sell there is significant. So we feel good -- we feel really good about that business. I think as we talked about the mix of the valuation business, to your last point, we talked about getting to 50% platform, 50% appraisal. I think depending on how the AMC goes, we could get beyond 50% as we move forward. That's a distinct possibility. So we're certainly right on in terms of the 50% target, and probably actually more so than 50%.

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Stephen Hardy Sheldon, William Blair & Company L.L.C., Research Division - Analyst [50]

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Okay, that's helpful. And then a follow-up. I guess in the PIRM segment, and I know there's some exposure to mortgage trends and weather events, but they kind of swing a little bit. With an expected 5% mortgage unit decline, would you expect to see organic growth in both property insights and insurance and spatial in 2019?

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James L. Balas, CoreLogic, Inc. - CFO [51]

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Yes, we do expect to have growth from those two.

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Operator [52]

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Next, we'll hear from Kevin Kaczmarek with Zelman & Associates.

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Kevin Michael Kaczmarek, Zelman & Associates LLC - Head of Data and Analytics [53]

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Can you go into a little bit more detail on the AMC transformation? And what types of appraisal work you'll be pursuing versus what you were pursuing previously?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [54]

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Yes, I think that, Kevin, we are focused on, really, our -- one of the biggest things is moving to a model that -- where we leverage to a much greater degree our in-house panel and focus on where we think we can -- we could get adoption of automation and analytical tools into that group more quickly than perhaps with an independent panel model. Today and historically, we've used a blended model. Mostly, AMC has used almost a completely independent panel model.

We bought a company called eTech in the U.K. eTech is one of the big providers of automation services to the appraisal industry in the U.K. We're actually taking their platform and injecting it into our workflow. We think that can cut cycle times down significantly. So we're really looking to get a much more automated, much more, as I described, higher-touch model where we can turn things around quicker, look at the outputs and the content that's being outputted as part of the process. And then we think we can leverage the fact that we have à la mode and some other -- the -- which is the desktop solution for most realtors or the majority of the realtors in the U.S. So we think that we can do some work there as well. So I think that, that is going to be a higher price point, quite honestly, than traditionally we charge. So some of the revenue attrition that we have projected will be that people will be that people will self-select out that perhaps don't need that higher touch model or don't feel they need the value that we can offer. We're fine with that because I think that the lesson learned here is that we think there's more value in a higher-touch, more-focused model than there is in trying to be the same as everybody else, maybe just a little bit better than everybody else. So we're looking at that.

And then how do we make progress quicker, given the market conditions that we face? I think when we put together the AMC pack -- piece a couple of years ago, the market was projected to grow, it has shrunk. That's a fact. So we need to deal with that and I think look at the relative value that can be extracted through the different models that we -- and I think the model we selected is actually a good one.

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Kevin Michael Kaczmarek, Zelman & Associates LLC - Head of Data and Analytics [55]

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And when you think about approaching the new lenders, new customers for the appraisal services, does this mean you just won't be approaching certain lenders because they are not willing to go with the higher-touch model altogether? Or does that mean you'll be focusing more on specific originations or specific products within a given lender? I guess, I'm trying to figure out what side of the market are you now targeting with the higher price point.

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [56]

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Yes, so to answer your question, we have -- we touch most lenders. So we will be approaching the market -- everybody in the market. We're not going to select out lenders that we wouldn't approach. We're going to approach people. And I think it's incumbent on us to sell the value creation. There's definitely value in delivering much more quickly. There's definitely value in delivering a higher-quality product. So I think from that perspective, there is significant value in there. And it's really up to us to make sure that our customers understand that and appreciate that. And I think they'll pay more or at least a significant percentage of them will pay more, and I think that will result in the kind of economics that we're looking at there. There's some geographies, there's some areas that it's tough for different factors. But I think in the vast majority of areas, I think that we have a compelling value proposition, and we'll sell it to whoever wants to buy it.

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Operator [57]

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Next, we'll hear from Bill Warmington with Wells Fargo.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [58]

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So I wanted to ask about the 2019 revenue guidance. And if you could talk us through the adjustments to get to an apples-to-apples constant currency organic revenue growth that's embedded in the 2019 guidance. I know we have FX that you've pointed out, the revenue recognition phaseout in some of the businesses. I just want to make sure I'm getting to what the actual embedded organic level is on an apples-to-apples basis.

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James L. Balas, CoreLogic, Inc. - CFO [59]

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Well, I think I've already highlighted this, but to get to the bridge from '18 to '19, you -- first and foremost, you need to account for the onetime contract amendment rev rec charge, and that was about $23 million. So that hits both revenue and EBITDA. Then market 5% down, we are saying it's approximately 5% down. So there is a little, call it, 1% or 2% up or down that's factored in there. There's the decision on the businesses in December that we outlined for the $70 million to $100 million, and then the $10 million to $15 million on the EBITDA side and then the FX. Those are the -- really, the key components to kind of reverse into what the implied growth rate could be.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [60]

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All right. So for that 1% to 2%, so the mortgage impact you're saying is about 100 to 200 basis points off the -- off of that, just to be clear?

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James L. Balas, CoreLogic, Inc. - CFO [61]

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I'm sorry, can you repeat that, Bill?

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [62]

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I was just confirming that the revenue impact of the down 5% volumes on mortgage would be 100 to 200 basis points. Is that the way to interpret what you just said? Or...

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James L. Balas, CoreLogic, Inc. - CFO [63]

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Let's see. I mean, if you are 5%, that's going to be roughly $48 million to $50 million of top line, somewhere in that range.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [64]

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Yes, okay. And then as my follow-up, the -- I just want to ask about the 2020 margin target, hitting 20 -- 30% or better. The forecast for 2020 from the MBA is for the volumes to be flat. That's better than '19, but it's not a great environment. And I think getting rid of Dorado and the less attractive AMC business, I think that'll help, and then you have cost savings as well. But it seems -- still seems like there's a fairly decent gap there. So what are the thoughts in terms of how you close that gap? And is M&A part of that equation?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [65]

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This is Frank. Thanks for the questions. Just before I hit the margin, just on organic growth, just so it's clear, we expect to get pricing -- positive pricing increase in '19. We also expect to get some share gains. So I think the same drivers of organic growth remain intact. So we do expect to get some points of organic growth, just to be clear, in 2019. And I don't think that any of that changes from what we've had in the last couple of years.

I think in terms of your question on 2020, we need kind of $50 million to $60 million, $70 million. We think that through the things you described in terms of the mix -- because there is a mix shift, and I think if you look at the business, that's very significant implications for our margins, number one. I think number two, because we are taking share and we do have -- we're taking share in some high-growth areas, I think we're going to see the margin pick up there.

The tax automation program, the Google Cloud migration, those things are very significant dollar wise. Those are very large undertakings if you're talking about the entire tech stack moving to the public cloud, and you know the economics of that. So I think there are a number of those key initiatives. And then we have a wrap to other things that we do every year, headcount management and stuff like that. The facilities' consolidations and those things are ongoing. So I think that we have the plans in place. We're acting on most of them. That's why we talk about the fact that I think if the market doesn't go against us, I think that we have -- we're going to get to those targets. So I don't think there's -- we're overly concerned about that. But the market has surprised everybody in the last couple of years, so we'll see how that goes. But I think that in the absence of any really negative downside there, I think we have a great shot at it.

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Operator [66]

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Next, we'll hear from Glenn Greene with Oppenheimer.

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Glenn Edward Greene, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [67]

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I just want to go back to the AMC transformation. And I just better -- want to better understand it myself and how that sort of ties in and reconciles with the client diversification drags that you've been experiencing from, obviously, Wells Fargo, maybe a little bit Bank of America. I guess the question is, how much of a headwind would you have seen in 2019 anyway versus how much is sort of you're doing on your own that sort of -- to change the business mix? I don't know if my question is making sense, but I just want to understand how the two of those reconcile.

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [68]

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Yes, so a couple of things, Glenn. One is that we have been diversifying. We got probably 15%, 20% of our volumes planned for '19 that would be in the diversification category before the reset that we're talking about. So I think that's been okay. I think if you look at the fourth quarter of last year, part of the revenue challenge we had was really AMC revenues coming down very -- much more quickly because there was some swinging around the volume allocation. So that's something that, that volatility should lessen, which is a good thing. But I will tell you this that the move to this new model will significantly reduce the impact of these diversification programs. It may accelerate the volume declines in some clients and not others. I don't -- we don't know that yet, but it depends on who's up for the model and who's not. So -- but I think that the revenue decline in the AMC we are projecting in the guidance is significantly more than we would've experienced had we just gone business as usual.

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Glenn Edward Greene, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [69]

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Okay. And then I don't know if you would, but you could you parse that $70 million to $100 million? How much is from the software wind downs versus the AMC impact?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [70]

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I'd say it's probably -- my guess is probably it's much more significant on the AMC side. Honestly, I'd say that it's probably 1 quarter, 3 quarters software versus AMC.

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Glenn Edward Greene, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [71]

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And then the one thing that was -- sort of stood out is the UWS margin performance in the quarter was pretty phenomenal, up 370 basis points despite a 14% revenue decline. Can you help us understand that? Is that was largely mix? And if that's the case, should we see sort of a similar directional level of margin improvement in '19?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [72]

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Yes, look, I'll make 3 points. One is I'll give the team a tremendous amount of credit. We have a great team. I'd say that that's number one. Number two is that, certainly, there was a very, very significant mix element there. I mentioned the -- you've got the -- obviously, the AMC revenue in there. So that fell off significantly, and there's no -- there's not any really profit associated with that. And then I think productivity has been a very significant benefit there. We have really automated quite a bit of the workflow in those businesses. We've also integrated more tightly around the infrastructure. That goes more broadly across the company, but the infrastructure platforms are kind of singular now versus multiple, so we've gotten the benefit from that. So it's really the mix where we've had revenue attrition in the AMC. I would say that, also, we've had revenue growth in the platform side of it as well, so that's been a double whammy there. I think also, we've had very significant automation benefits and other productivity benefits as well.

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Operator [73]

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Next, we'll hear from Geoffrey Dunn with Dowling & Partners.

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Geoffrey Murray Dunn, Dowling & Partners Securities, LLC - Partner [74]

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Somewhat following up after that question. As we think about your outlook for the first quarter, at least on the year-over-year comp basis, you'd expect UWS do a bit better just with mix shift, although how much, given the fourth quarter, I'm not quite sure. But can you talk about how to think about the comp year-over-year in PIRM? Again, it's -- I'm finding it a bit difficult trying to come together with a picture of how the margin developed in the coming year, given what we just saw in the fourth quarter and the guidance for 1Q.

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James L. Balas, CoreLogic, Inc. - CFO [75]

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In terms of the first quarter, the big weight will be obviously the market. There'll be some other elements as well that helped us get to the range that we provided. And the market, if you think about it, the majority does impact UWS. There is a little bit in the PIRM. And then the other thing to factor is the announcement from December, that $10 million to $15 million. You'll start to see that in the first quarter. So that will also hit the UWS segment, if that helps you from a modeling perspective.

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Geoffrey Murray Dunn, Dowling & Partners Securities, LLC - Partner [76]

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But that is a lower-margin business. So net-net, that would increase, wouldn't it?

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James L. Balas, CoreLogic, Inc. - CFO [77]

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It is. Well, if you're --

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Geoffrey Murray Dunn, Dowling & Partners Securities, LLC - Partner [78]

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Okay. So you have a margin tailwind from...

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James L. Balas, CoreLogic, Inc. - CFO [79]

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If you flow-through that $10 million to $15 million, I'd probably do it in pretty equal parts throughout the year is what I -- was the gist of it, whereas the revenue will probably be subject to the timing that Frank articulated earlier.

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Geoffrey Murray Dunn, Dowling & Partners Securities, LLC - Partner [80]

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Okay. And then how about specifically on PIRM? You had a -- the margin, at least against our expectation, was a bit softer in the fourth quarter than we expected. You did 28.5% a year ago. How do we think about any sequential seasonal development or comp against last year and thinking about the margin for that segment in Q1?

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James L. Balas, CoreLogic, Inc. - CFO [81]

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The market is a continuation in the first quarter of what we saw last year. And if you recall, first half of 2018 was a pretty good year. We got off to a good start, and then the expectation of the market changed rather dramatically. So we're kind of seeing that same market condition flowing through into the first quarter, and that's why you have that tough comp in the first quarter. And then the expectation is, the market will -- the market comps will not be as dramatic in the outgoing quarters. So it's just kind of a flow-through. I would assume fairly similar continuation of the fourth quarter into the first quarter. But I think you'll have a little bit more challenge in UWS due to what I mentioned earlier, market plus kind of those -- the impact to the AMC and the software units.

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Geoffrey Murray Dunn, Dowling & Partners Securities, LLC - Partner [82]

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Okay. And then just the last question. When we think about your -- you indicated 2% to 3% expectation on the buyback. You do still have cash flexibility after that. Should we think about the delta there being additional voluntary repayments on the debt lines?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [83]

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Yes, we -- Geoff, this is Frank. We are focused on truing back the debt. We made about $90 million of voluntary prepayments last year. You're going to -- we're going to continue to make voluntary payments as well this year. So yes, largely to answer your question.

The other thing, on PIRM, just -- I would just say that if you're looking at quarter-to-quarter, especially the first quarter and the fourth quarter, which are seasonally low, part of the fourth quarter was -- we -- the investments that I mentioned in terms of data platforms and some of the other things actually tend to be more weighted towards the PIRM segment, which skews the margin -- if you are looking at quarters to quarters, skews the margin a little bit as well. So just you want to factor that in. I think the fourth quarter, we were going to pedal to the metal despite the mortgage market itself because I want to make sure that we drive investments in things like AI and data visualization, that kind of thing. So as we talked about on third quarter release, we upped the R&D spending. A lot of that actually impacts both the corporate segment but also PRIM (sic) [PIRM] versus the UWS segment, so just keep that in mind.

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Geoffrey Murray Dunn, Dowling & Partners Securities, LLC - Partner [84]

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Is there any way to quantify the drag that had in 4Q '18 versus maybe 4Q '17?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [85]

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Other than -- no, other than to say it's significant because last year, our initiatives were significantly more. The ones I've talked about, actually grew in significance over really the balance of 2018. So 2017, comparing the like -- apples and apples, relatively little spending on things like the data platform, the visualization engine, that kind of stuff. So it was a very -- if you're looking at '17 to '18, fourth quarter was a significant change.

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Operator [86]

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We'll now hear from Oscar Turner with SunTrust.

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Oscar D. Turner, SunTrust Robinson Humphrey, Inc., Research Division - Associate [87]

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So I just had a question on Symbility. I was wondering now that you own 100%, do you expect anything with regards to the go-to-market to change there? And also, can you give some color on how we should think about the long-term growth opportunity in that segment?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [88]

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Yes, a couple of things, Oscar. One is, we think that -- we owned about 1/3 of that company for quite a long time and we had a strategic relationship for quite a long time, but it's not the same as being part of a unified company. So I think this allows us to go-to-market more seamlessly. I think it gives us better credibility in the North American market, which is -- particularly on the claims side. So I think this will open up growth vistas for us that were not necessarily open before. So -- and if that's the case, it's a very significant opportunity for the company.

I'd say the second thing about Symbility is that they have a good footprint in Western Europe, and we think that we have a good footprint in Australia and New Zealand. So we think the combination of the international piece is also attractive for us as well. So we really like the Symbility transaction. They've got a great team, they've got a great technology platform, and we see a lot of upside there. We just think -- we need to execute, and we think we can.

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Oscar D. Turner, SunTrust Robinson Humphrey, Inc., Research Division - Associate [89]

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And how should we think about timing of, I don't know if there's any replatforming to be done or integration?

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Frank D. Martell, CoreLogic, Inc. - President, CEO & Director [90]

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Yes, that's not going to be that significant because, as I mentioned earlier, we've had an operational and strategic alliance for quite a number of years. So I don't -- I think probably if there's investment or other things, it'll probably be more focused on boosting the international footprint -- sorry, not platform, but footprint, and obviously, the expense related to going to market in the U.S. in particular on the claims side. But that's not going to be all that meaningful in the grand scheme of things.

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Operator [91]

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That will conclude today's question-and-answer session. The conference has now concluded. Thank you for attending today's presentation