JACKSONVILLE, Fla. – October 29, 2012 – Lender Processing Services, Inc. (NYSE:LPS), a leading provider of integrated technology and services to the mortgage and real estate industries, today reported consolidated revenue of $512.7 million for the third quarter of 2012, a decrease of 1.3% from the prior year quarter, and GAAP net earnings of $58.3 million, or $0.69 per diluted share, an increase of 44% from the prior year quarter.
Third Quarter Highlights
- Technology, Data and Analytics revenue of $192.0 million, up 11% from prior year
- Adjusted earnings per diluted share of $0.71, including $0.02 per share loss from discontinued operations
- EBITDA margin of 26.7%, up 460 basis points from prior year
- Adjusted free cash flow of $69.2 million in the third quarter and $252.8 million year-to-date
- Initiated debt refinancing to lower cost of capital and further strengthen the balance sheet
- Completed conversion of 240,000 home equity loans to the MSP Servicing Technology platform
“Our strong third quarter results demonstrate LPS’ continued delivery of high-value, technology-driven solutions to our clients to meet evolving compliance, loan quality and efficiency requirements,” said Hugh Harris, president and chief executive officer of LPS. “Our proven business model consistently generates strong cash flow allowing LPS to invest in innovative solutions that enhance the mortgage lending value chain, enable our clients to succeed, and drive long-term value for our shareholders through sustainable growth.”
“The positive quarterly results were driven by increased demand for LPS’ technology solutions, record low interest rates resulting in strong refinance activity and the benefits of ongoing investments to expand our platforms. Technology, Data and Analytics is our growth platform for the future, and we are very pleased with its strong performance this quarter,” commented Chief Financial Officer Tom Schilling. “Strong margins and cash flow resulted from our focus on high-return core markets, disciplined cost management and favorable revenue mix.”
Operating income for the third quarter increased 19.4% to $112.4 million from the prior year period, while the operating margin increased to 21.9% from 18.1% in the third quarter of 2011.
Net cash provided by operating activities for the third quarter of 2012 was $85.7 million compared to $102.7 million in the prior year period, and $303.6 million in the first three quarters of 2012 compared to $329.6 million in the same period in 2011. Adjusted free cash flow for the third quarter of 2012 decreased to $69.2 million from $76.6 million in the prior year due to changes in working capital, which offset the increase in 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.
Technology, Data and Analytics Segment (TD&A)
Revenue for the Technology, Data and Analytics segment for the third quarter increased 11.2% from the prior year to $192.0 million as a result of growth in all lines of business. Revenue from Servicing Technology increased 4.0% primarily due to loan growth on the MSP platform; Default Technology revenue increased 28.3% primarily reflecting market share gains achieved during 2011 and strong demand for professional services; and Origination Technology revenue increased 25.3% due principally to higher transaction volume on the Loan Quality Gateway platform resulting from elevated refinance activity and new client implementations. In addition, Data and Analytics revenue increased 7.5% driven by greater demand for data to support elevated origination volume. Third quarter operating income increased to $60.4 million from $58.7 million in the same period in 2011 as a result of higher income from all TD&A sub-segments.
Transaction Services Segment
Revenue for the Transaction Services segment for the third quarter decreased 7.9% from the prior year period to $320.7 million. Origination Services revenue increased 15.7% to $154.1 million from the prior year as a result of higher refinance origination volume that generated increased title and escrow orders, partially offset by lower appraisal volume as the Company exited lower margin contracts. Default Services revenue decreased 22.5% to $166.7 million from the prior year quarter primarily reflecting lower transaction volumes due to industry-wide foreclosure delays. Operating income increased 15.0% from the prior year quarter to $64.2 million, while the operating margin increased 400 basis points to 20.0% reflecting higher Origination Services contributions, favorable revenue mix and prudent cost management.
Net corporate expenses in the third quarter of 2012 decreased to $12.1 million from $20.3 million in the prior year period primarily as a result of current period legal-related expenses being charged against our previously established legal and regulatory reserve.
Balance Sheet and Capital Resources
During the third quarter, the company initiated a debt refinancing to lower the cost of capital and further strengthen the balance sheet by extending the maturity of long-term debt and reducing secured debt. The Company commenced an offering of $600 million of Senior Notes due 2023 at a coupon of 5.75% issued at par value. The net proceeds, along with cash on hand, is being used to repay $609 million of outstanding debt including $362 million of 8.125% Notes due 2016 and $247 million of Term Loan B under its senior credit facility, and pay fees and expenses. The refinancing will result in annual net interest expense savings of approximately $9.0 million. The Senior Note offering was completed on October 12, 2012.
The legal and regulatory accrual decreased by $6.7 million during the current quarter to $196.4 million, due to the payment of expenses that were previously recognized in our legal and regulatory reserve established in prior quarters. No reserves for legal and regulatory matters were added during the third quarter.
The company ended the third quarter with cash of $160.7 million compared to $138.5 million in the second quarter 2012.
Based on the current environment, the company expects fourth quarter 2012 revenue to be in the range of $475 million to $495 million and adjusted net earnings per diluted share to be in the range of $0.65 to $0.69.
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 our financial results presentation, 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 November 6, 2012, by dialing 888-203-1112 (access code: 4041948).
About Lender Processing Services
LPS (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. Lender Processing Services is a Fortune 1000 company headquartered in Jacksonville, Fla., employing approximately 8,000 professionals. 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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