JACKSONVILLE, Fla. – October 25, 2011 – Lender Processing Services, Inc. (NYSE:LPS), a leading provider of integrated technology and services to the mortgage and real estate industries, today reported consolidated revenues of $532.1 million for the third quarter of 2011, a decrease of 13.8% compared to the prior year quarter, and net earnings of $40.5 million, or 48 cents per diluted share, as compared to $78.7 million, or 85 cents per diluted share in the prior year quarter.
Adjusted net earnings for the third quarter of 2011 totaled $49.4 million, or 59 cents per diluted share, as compared to $82.2 million, or 89 cents per diluted share in the third quarter of 2010. Adjusted net earnings reflect the add-back for purchase price amortization, which totaled 3 cents per diluted share in the current year quarter and 4 cents per diluted share in the prior year quarter. Additionally, the current year quarter excludes a charge totaling 6 cents per diluted share relating to the write-off of certain debt issuance costs in connection with the Company’s recently completed debt refinancing, and a charge of 2 cents per diluted share relating to the loss on disposition of a non-core operation.
“Despite difficult market conditions and sustained challenges in the broader macro-economic environment, LPS, with its strong market presence and broad-based, technology-driven solutions for the mortgage and real estate industries, remains well-positioned for the years ahead,” said Hugh Harris, president and chief executive officer of LPS.
“Sequentially, our Loan Facilitation business benefited from historically low interest rates, while our Mortgage Processing business had another positive quarter. Other TD&A continued to perform well as a result of market share gains, however, Default Services continued to be impacted by broader industry foreclosure delays,” added Tom Schilling, executive vice president and chief financial officer of LPS.
Operating income of $89.8 million in the current year quarter decreased from $145.1 million in the prior year period primarily due to lower year-over-year origination and default volumes as well as from higher corporate legal and compliance-related expenses.
On a year-to-date basis, cash provided by operating activities increased to $329.6 million from $291.7 million in the prior year period. Adjusted free cash flow (net cash provided by operating activities less certain non-recurring charges and additions to property, equipment and computer software) for the first nine months of 2011 was $259.6 million as compared to $207.6 million for the prior year period and was higher primarily due to contributions from changes in working capital.
Technology, Data and Analytics (TD&A)
Revenues for the TD&A segment increased to $193.7 million during the current year quarter from $187.9 million in the prior year period primarily due to higher professional service revenues in our Mortgage Processing division. Operating income of $62.6 million decreased from $68.2 million in the prior year period primarily due to lower income in our Desktop and Other Software and Services offerings, partially offset by higher contributions from Data & Analytics.
Loan Transaction Services (LTS)
Revenues for the LTS segment declined to $340.2 million during the current year quarter from $431.1 million in the prior year period. In spite of a 23.0% decline in total market originations as reported by the Mortgage Bankers Association, revenues in our Loan Facilitation Services group decreased on a year-over-year basis by just 14.7% to $141.1 million primarily due to lower industry volumes.
Additionally, the continued slowdown in the initiation of foreclosure proceedings impacted our Default Services group where revenues decreased by 25.0% to $199.1 million in current year quarter. The decrease in revenue in our Default Services group was consistent with RealtyTrac’s report of a 27.4% decline in default notices as compared to the prior year quarter. Operating income for the LTS segment declined mainly due to lower contributions from Default Services, and to a lesser extent, from Loan Facilitation Services.
Corporate and Other
Net corporate expenses in the third quarter of 2011 increased to $34.0 million from $19.8 million in the prior year quarter primarily due to higher legal and compliance-related expenses.
The Company noted that it had completed the refinancing of its senior secured credit facilities during the third quarter. The available authorization under the Company’s share repurchase program remained unchanged at $95.1 million.
Outlook
“While the origination market did improve during the quarter, we remain concerned about broader macro-economic conditions and ongoing industry-specific pressures. However, LPS’ leading technology, strong customer relationships and deep industry knowledge ensure the Company is well-positioned for the future,” said Schilling. “Given the current environment, we expect fourth quarter 2011 revenue to be in the range of $510 million to $520 million, adjusted earnings to be in the range of 57-59 cents per diluted share and adjusted free cash flow to be in the range of $60 million to $70 million.”
Use of Non-GAAP Financial Information
U.S. Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements. In addition to reporting financial results in accordance with GAAP, LPS reports several non-GAAP measures, including “EBIT, as adjusted” (GAAP operating income adjusted for the impact of certain non-recurring adjustments, if applicable), “adjusted net earnings” (GAAP net earnings adjusted for the impact of certain non-recurring adjustments, if applicable, plus the after-tax purchase price amortization of intangible assets added through acquisitions), “adjusted net earnings per diluted share” (adjusted net earnings divided by diluted weighted average shares), and “adjusted free cash flow” (net cash provided by operating activities less additions to property, equipment and computer software, as well as non-recurring adjustments, if applicable).
LPS provides these measures because it believes that they are helpful to investors in comparing year-over-year performance in light of certain non-recurring charges, and to better understand our financial performance, competitive position and future prospects. Non-GAAP measures should be considered in conjunction with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP net earnings. A reconciliation of these non-GAAP measures to related GAAP measures is included in the attachments to this release.
Conference Call and Webcast
LPS will host a conference call to discuss these results on Wednesday, October 26, 2011, at 8:00 a.m. ET. Interested parties are invited to listen to the live webcast by logging on to the Investor Relations section of the Company’s website at
www.lpsvcs.com. Supplemental materials will be available on the website. Those wishing to participate via the conference call may do so by calling 866.823.5035. A replay of the webcast will be available on the website shortly after the call where it will be archived for one month. A replay of the conference call will be available through November 2, 2011, by dialing 888.203.1112 (access code: 9248950).
About Lender Processing Services
Lender Processing Services, Inc. (LPS) is a leading provider of integrated technology, services and loan performance data and analytics to the mortgage, consumer lending, capital markets and real estate industries. LPS offers solutions that span the mortgage continuum, including lead generation, origination, servicing, workflow automation, portfolio retention and default, augmented by the company’s award-winning customer support and professional services. Almost half of all U.S. mortgages are serviced using LPS’ Mortgage Servicing Package (MSP). For more information about LPS, visit
www.lpsvcs.com.
Forward-Looking Statements
This press release contains forward-looking statements that involve a number of risks and uncertainties. Those forward-looking statements include all statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements are based on management's beliefs, as well as assumptions made by and information currently available to management. Because such statements are based on expectations as to future economic performance and are not statements of historical fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The risks and uncertainties to which forward-looking statements are subject include, but are not limited to: our ability to adapt our services to changes in technology or the marketplace; the impact of adverse changes in the level of real estate activity (including among others, loan originations and foreclosures) on demand for certain of our services; our ability to maintain and grow our relationships with our customers; the effects of our substantial leverage on our ability to make acquisitions and invest in our business; the level of scrutiny being placed on participants in the foreclosure process; risks associated with federal and state inquiries and examinations currently underway or that may be commenced in the future with respect to our default management operations, and with civil litigation related to these matters; changes to the laws, rules and regulations that regulate our businesses as a result of the current economic and financial environment; changes in general economic, business and political conditions, including changes in the financial markets; the impact of any potential defects, development delays, installation difficulties or system failures on our business and reputation; risks associated with protecting information security and privacy; and other risks and uncertainties detailed in the “Statement Regarding Forward-Looking Information,” “Risk Factors” and other sections of the Company’s Form 10-K, the Company’s subsequent reports on Form 10-Q and other filings with the Securities and Exchange Commission.