JACKSONVILLE, Fla. – August 2, 2012 – Lender Processing Services, Inc. (NYSE:LPS), a leading provider of integrated technology and services to the mortgage and real estate industries, today announced financial results for the second quarter of 2012.
Second Quarter Highlights
- Revenue of $533.2 million, up 7% from prior year
- GAAP operating loss of $22.8 million and net loss of $37.9 million or $0.45 per diluted share, reflecting an increase to legal and regulatory reserve of $1.19 per diluted share
- Adjusted net earnings of $64.5 million, up 34% from prior year
- Adjusted earnings per diluted share of $0.76, up 36% from prior year
- Adjusted EBITDA margin of 27.3%, up 464 basis points from prior year
- Adjusted free cash flow of $114.9 million, up 41% from prior year
“LPS’ exceptional second quarter operating performance reflects the successful execution of our strategy to deliver superior technology-driven solutions to our customers,” said Hugh Harris, president and chief executive officer of LPS. “Today, LPS is an improved company with an ongoing commitment to achieve the Gold Standard for regulatory compliance in our industry and in support of our clients. We continue to move forward as a trusted provider of critical technology and business services for the mortgage industry.”
“We delivered operating results that exceeded our outlook while generating very strong free cash flow and further strengthening our balance sheet. Our adjusted EBITDA margin increased to 27%, up almost four percentage points sequentially,” said Tom Schilling, chief financial officer. “Strong performance in Origination Services, fueled by higher refinance volumes, and in Technology, Data and Analytics, combined with sequential improvement in Default Services, contributed to the positive quarter.”
Added Schilling, “We continue to make progress toward resolving legal and regulatory matters related to past practices including our settlement with the Missouri Attorney General announced today. This progress enabled us to further refine our legal and regulatory reserve, which was increased in the second quarter. Our significant cash flow and liquidity allow us to continue to execute our capital allocation strategy while addressing these estimated legal costs.”
Second quarter 2012 adjusted results exclude the impact of an increase to the legal and regulatory reserve of $144.5 million, or $1.19 per diluted share. Second quarter 2011 adjusted results exclude a charge of $0.28 per diluted share primarily related to asset impairment charges on discontinued operations as well as the impact of cost reduction initiatives. Adjusted net earnings also include an add-back for the after-tax impact of purchase price amortization totaling $0.02 per diluted share in the current quarter and $0.03 per diluted share in the second quarter of 2011.
Second quarter 2012 adjusted operating income increased 34.4% to $121.7 million, adjusted net earnings increased 34.3% to $64.5 million and adjusted earnings per diluted share increased 35.7% to $0.76, compared to the prior year quarter.
Net cash provided by operating activities for the second quarter of 2012 increased to $141.2 million from $111.7 million in the same period in the prior year. Adjusted free cash flow for the second quarter of 2012 increased to $114.9 million from $81.8 million in the prior year primarily due to higher net earnings. Adjusted free cash flow is defined as net cash provided by operating activities minus certain non-recurring expenses and additions to property, equipment and computer software.
During the quarter, the company reduced debt by $54.1 million, paid regular quarterly dividends of $8.5 million and ended the second quarter with cash of $138.5 million, up $34.8 million from the prior quarter.
Technology, Data and Analytics Segment (TD&A)
Revenue for the Technology, Data and Analytics segment increased to $186.1 million in the second quarter 2012 from $170.6 million in the prior year quarter. The 9.1% increase was primarily driven by increases in Servicing Technology from higher recurring revenue and data access fees, in Origination Technology resulting from increased refinance volumes, and in Default Technology due to the annualization of new customer implementations from 2011. Adjusted operating income increased to $57.9 million from $56.1 million in the second quarter of 2011, primarily as a result of higher income from Servicing and Default Technology partially offset by lower income from Data and Analytics.
Transaction Services Segment
Revenue for the Transaction Services segment increased 5.1% to $347.4 million from $330.6 million in the second quarter 2011. Origination Services revenue increased 42.4% to $150.7 million from the prior year quarter as a result of higher refinance origination volumes. Default Services revenue decreased 12.5% to $196.6 million from the prior year quarter primarily reflecting lower transaction volumes. Adjusted operating income increased 41.6% to $76.0 million from $53.7 million in the second quarter of 2011, while adjusted operating margin increased to 21.9% from 16.2% reflecting higher Origination Services revenue and favorable revenue mix resulting in improved operating leverage.
Corporate and Other
Adjusted net corporate expenses in the second quarter of 2012 decreased to $12.2 million from $19.2 million in the same period last year primarily as a result of legal-related expenses incurred in 2011 prior to establishing a loss contingency reserve for ongoing legal and regulatory matters.
Based on the current environment, the company expects third quarter 2012 revenue to be in the range of $500 million to $520 million and adjusted net earnings per diluted share to be in the range of $0.68 to $0.72.
Earnings Conference Call and Webcast
LPS will host a conference call tomorrow at 10:00 a.m. ET with a live webcast on the Investor Relations section of its website at www.lpsvcs.com
. Earnings information including this press release and supplemental material is available on the website. 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 call will be available until August 10, 2012, by dialing 888-203-1112 (access code: 6080848).
About Lender Processing Services
Lender Processing Services (NYSE: LPS) delivers comprehensive technology solutions and services, as well as powerful data and analytics, to the nation’s top mortgage lenders, servicers and investors. As a proven and trusted partner with deep client relationships, LPS offers the only end-to-end suite of solutions that provides major U.S. banks and many federal government agencies the technology and data needed to support mortgage lending and servicing operations, meet unique regulatory and compliance requirements and mitigate risk.
These integrated solutions support origination, servicing, portfolio retention and default servicing. LPS’ servicing solutions include MSP, the industry’s leading loan-servicing platform, which is used to service approximately 50 percent of all U.S. mortgages by dollar volume. The company also provides proprietary data and analytics for the mortgage, real estate and capital markets industries.
LPS is headquartered in Jacksonville, Fla., and employs approximately 8,000 professionals. The company is ranked as the 877th largest American company in the Fortune 1000 in 2012. For more information, please visit www.lpsvcs.com.
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 “EBITDA” (GAAP operating income plus depreciation and amortization); “EBITDA, as adjusted” (EBITDA adjusted for the impact of certain non-recurring adjustments, if applicable); “EBIT, as adjusted” or “adjusted operating income” (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” or “adjusted EPS 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 and other 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 measures. A reconciliation of these non-GAAP measures to related GAAP measures is included in the attachments to this release.
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 enforcement proceedings, 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; the impact of continued delays in the foreclosure process on the timing and collectability of our fees for certain of our services; 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 and other filings with the Securities and Exchange Commission.
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