Lender Processing Services, Inc. : Lender Processing Services Reports Third Quarter 2013 Earnings

Adjusted EPS of $0.51

JACKSONVILLE, Fla., Oct. 22, 2013 /PRNewswire/ --  (NYSE: LPS), a leading provider of integrated technology, data and services to the mortgage and real estate industries, today announced third quarter 2013 GAAP net earnings of $35.5 million, or $0.41 per diluted share, compared to $58.3 million, or $0.69 per diluted share, in the prior year quarter. 

Third Quarter Highlights

• GAAP EPS of $0.41 reflects a charge totaling $0.09 per diluted share for severance costs, merger related costs, and legal and regulatory contingencies
• Adjusted EPS of $0.51, excluding charge and reflecting add-back for purchase accounting amortization
• Adjusted EBITDA margin of 24%
• Adjusted free cash flow of $56 million, or $0.65 per diluted share

"LPS continues to successfully execute our technology-driven strategy recently signing a five year commitment with a major mortgage servicer to convert a minimum of 500,000 loans to the MSP servicing system.  In addition, we are beginning to benefit from investments in our origination technology platforms as we recently signed a top ten mortgage lender," said Hugh Harris, president and chief executive officer of LPS.  "Our unique combination of scale, expertise and innovation continues to define LPS as a leader in technology-driven solutions for the evolving mortgage industry."

"We also continue to adjust to changing market dynamics including lower mortgage refinance volumes, declining foreclosure activity, and the cost of implementing new mortgage industry regulations," added Harris.

Chief Financial Officer Tom Schilling commented, "LPS delivered solid third quarter adjusted earnings of $44 million or $0.51 per share and strong adjusted free cash flow of $56 million, while continuing to invest in our core technology and data platforms.  We are rigorously managing expenses to mitigate the impact of the sharp decline in Origination and Default Services transaction volumes as we have in prior market cycles."  

Third quarter 2013 revenue was $419.0 million, a decrease of 15.8% from $497.5 million in the prior year quarter primarily due to lower contributions from Origination and Default Services.  Third quarter 2013 GAAP operating income was $63.4 million, a decrease of 43.3% from $111.9 million in the prior year quarter.  Adjusted operating income was $76.2 million, a decrease of 31.9% from the prior year quarter, primarily due to a decline in contributions from Origination and Default Services.   During the third quarter, the Company lowered its effective tax rate to reflect the realization of various tax planning initiatives.  Third quarter 2013 adjusted net earnings were $44.0 million, or $0.51 per diluted share, compared to $60.0 million, or $0.71 per diluted share in the prior year quarter. 

Adjusted results from continuing operations in the third quarter 2013 exclude a pre-tax charge of $12.8 million, or $0.09 per diluted share after-tax, including $0.06 per share for severance costs, $0.02 for estimated legal and regulatory contingencies, and $0.01 for costs related to the pending merger with Fidelity National Financial, Inc. 

Net cash provided by operating activities for the third quarter of 2013 was $101.1 million, while adjusted free cash flow was $56.0 million, a decrease from $69.2 million in the prior year period primarily due to lower 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.   

The company ended the third quarter 2013 with cash of $203.2 million and credit facility availability of $398.1 million.  The legal and regulatory accrual was $86.6 million at the end of the third quarter 2013.

Technology, Data and Analytics (TD&A)

Revenue for the third quarter 2013 was $183.4 million, a decrease of 3.0% from $189.0 million in the prior year quarter.  Revenue from Servicing Technology increased 1.8% from the prior year quarter due to higher loan counts and professional services and decreased 3.1% sequentially primarily due to lower transactional usage volume on the platform.  Origination Technology revenue decreased 8.3% from the prior year quarter due to lower refinance transaction volume on the Loan Quality Gateway platform.  Default Technology revenue decreased 14.5% from the prior year quarter due to lower foreclosure referral volumes.  Data and Analytics revenue decreased 1.4% primarily due to lower transactional volumes.  Adjusted operating income was $49.4 million, a 15.2% decrease from $58.3 million in the prior year quarter primarily due to lower revenue and increased operating expenses driven by continued investment in technology and data platforms. 

Transaction Services

Revenue for the third quarter 2013 was $235.5 million, a decrease of 23.6% from $308.5 million in the prior year period.  Origination Services revenue was $120.9 million, a decrease of 21.5% from the prior year period due to a decline in mortgage refinance volumes resulting in lower title, escrow and appraisal revenue.  Default Services revenue was $114.6 million, a decrease of 25.8% from the prior year period due to lower foreclosure activity, which reflects the decline in seriously delinquent mortgages as the U.S. economy and housing market strengthened, as well as from strategic actions to align risk and return resulting in the non-renewal of certain contracts.  Adjusted operating income was $37.1 million, a decrease of 43.6% from $65.7 million in the prior year period due to lower revenue.

Corporate and Other

Adjusted net corporate expenses in the third quarter 2013 were $10.3 million, a decrease of 14.9% from $12.1 million in the prior year period.          

Merger Agreement

On May 28, 2013, LPS and Fidelity National Financial, Inc. (NYSE: FNF) executed an Agreement and Plan of Merger pursuant to which LPS would be acquired by FNF. The agreement was approved by the Board of Directors and is subject to customary closing conditions. Those conditions include the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the approval of LPS and FNF stockholders and approvals from applicable federal and state regulators.

Conference Call

Due to the pending acquisition by Fidelity National Financial, Inc., LPS will not host a conference call.

About

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. is a Fortune 1000 company headquartered in Jacksonville, Fla.  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 and reporting.  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); "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.

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. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking statements are the following: the ability to consummate the proposed transaction with Fidelity National Financial, Inc. ("FNF"); the ability to obtain requisite regulatory and stockholder approval and the satisfaction of other conditions to the consummation of the proposed transaction with FNF; the ability of FNF to successfully integrate LPS' operations and employees and realize anticipated synergies and cost savings; the potential impact of the announcement or consummation of the proposed transaction on relationships, including with employees, suppliers, customers and competitors; FNF and  LPS are subject to intense competition and increased competition is expected in the future; LPS' ability to adapt its services to changes in technology or the marketplace; the impact of changes in the level of real estate activity (including, among others, loan originations, and refinancings in particular, and foreclosures) on demand for certain of LPS' services; LPS' ability to maintain and grow its relationship with its customers; the effects of LPS' substantial leverage on its ability to make acquisitions and invest in its business; the level of scrutiny being placed on participants in the foreclosure business; risks associated with federal and state enforcement proceedings, inquiries and examinations currently underway or that may be commenced in the future with respect to LPS' default management operations, and with civil litigation relating to these matters; changes to the laws, rules and regulations that regulate LPS' 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 LPS' business and reputation; and risks associated with protecting information security and privacy. Additional information concerning these and other factors can be found in LPS' filings with the Securities and Exchange Commission ("SEC"), including its most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.  LPS assumes no obligation to update the information in this communication, except as otherwise required by law.  Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof and LPS undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

										Exhibit A
LENDER PROCESSING SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
				Three months ended September 30,				Nine months ended September 30,
				2013		2012		2013		2012
				(In thousands, except per share data)
Revenues				$        418,981		$         497,451		$       1,359,522		$       1,496,622
Expenses:
	Operating expenses			316,923		361,351		1,006,923		1,099,538
	Depreciation and amortization			25,870		24,241		78,596		71,608
	Legal and regulatory charges			2,445		-		54,011		144,476
	Exit costs, impairments and other charges			10,334		-		12,035		-
		Total expenses		355,572		385,592		1,151,565		1,315,622

										Exhibit B
LENDER PROCESSING SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
								September 30,		December 31,
								2013		2012
								(In thousands)
Assets
Current assets:
	Cash and cash equivalents							$        203,207		$      236,241
	Trade receivables, net of allowance for doubtful accounts							233,322		274,783
	Other receivables							6,344		3,800
	Prepaid expenses and other current assets							37,216		41,541
	Deferred income taxes							88,090		127,742
		Total current assets						568,179		684,107
Property and equipment, net								121,542		126,633
Computer software, net								272,714		245,271
Other intangible assets, net								18,978		23,670
Goodwill								1,109,304

										Exhibit C
LENDER PROCESSING SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
								Nine months ended September 30,
								2013		2012
								(In thousands)
Cash flows from operating activities:
	Net earnings							$        108,494		$          67,545
	Adjustments to reconcile net earnings to net
		cash provided by operating activities:
			Depreciation and amortization					78,580		73,407
			Amortization of debt issuance costs					3,141		3,317
			Asset impairment charges					785		3,812
			Gain on sale of discontinued operations					-

																							Exhibit D
LENDER PROCESSING SERVICES, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION - UNAUDITED
(In thousands)
					YEAR-TO-DATE				QUARTER														YEAR ENDED
					Q3-2013		Q3-2012		Q3-2013		Q2-2013		Q1-2013		Q4-2012		Q3-2012		Q2-2012		Q1-2012		12/31/2012
1.		Revenues - Continuing Operations
		Technology, Data and Analytics:
			Technology		$   523,286		$   503,790		$  168,596		$  177,265		$  177,425		$  174,110		$  173,985		$  168,515		$161,290		$     677,900
				Servicing Technology	346,552		331,207		113,621		117,264		115,667		114,818		111,572		111,284		108,351		446,025
				Default Technology	100,959		101,790		30,911		33,425		36,623		34,762		36,163		34,051		31,576		136,552
				Origination Technology	75,775		70,793		24,064		26,576		25,135		24,530		26,250

																										Exhibit E
LENDER PROCESSING SERVICES, INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL INFORMATION - UNAUDITED
(In thousands, except per share data)
								YEAR-TO-DATE				QUARTER														YEAR ENDED
								Q3-2013		Q3-2012		Q3-2013		Q2-2013		Q1-2013		Q4-2012		Q3-2012		Q2-2012		Q1-2012		12/31/2012
1.		Operating Results - Continuing Operations
		Consolidated
			Revenues					$    1,359,522		$ 1,496,622		$      418,981		$      468,880		$      471,661		$    501,029		$      497,451		$      513,377		$      485,794		$   1,997,651
			Operating Income (Loss), as reported					207,957		181,000		63,409		45,120		99,428		51,935		111,859		(24,065)		93,206		232,935
			Adjustments:
				Legal, Regulatory and Other Charges (1)				66,046		144,476		12,779		53,267		-		58,401		-		144,476		-		202,877
			Operating Income, as adjusted					274,003		325,476		76,188		98,387		99,428		110,336		111,859		120,411		93,206		435,812
			Depreciation and Amortization					78,596		71,608		25,870		26,652		26,074		25,136		24,241		23,453		23,914		96,744
			EBITDA, as adjusted					$       352,599		$    397,084		$      102,058		$      125,039		$      125,502		$    135,472		$      136,100		$      143,864		$      117,120		$      532,556
					Operating Margin, as adjusted			20.2%		21.7%		18.2%		21.0%		21.1%		22.0%		22.5%		23.5%		19.2%		21.8%
					EBITDA Margin, as adjusted			25.9%		26.5%		24.4%		26.7%		26.6%		27.0%		27.4%		28.0%		24.1%		26.7%
		Technology, Data and Analytics
			Revenues					$       571,021		$    547,593		$      183,391		$      194,000		$      193,630		$    189,312		$      188,994		$      183,282		$      175,317		$      736,905
			Operating Income, as reported					168,768

																										Exhibit E - Continued
LENDER PROCESSING SERVICES, INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL INFORMATION - UNAUDITED
(In thousands, except per share data)
								YEAR-TO-DATE				QUARTER														YEAR ENDED
								Q3-2013		Q3-2012		Q3-2013		Q2-2013		Q1-2013		Q4-2012		Q3-2012		Q2-2012		Q1-2012		12/31/2012
2.		Net Earnings - Reconciliation
			Net Earnings (Loss)					$       108,494		$      67,545		$        35,480		$        19,084		$        53,930		$        2,814		$        58,304		$       (37,880)		$        47,121		$        70,359
			Adjustments - Continuing Operations:
				Legal, Regulatory and Other Charges, net (1)				41,158		100,624		7,599		33,559		-		34,676		-		100,624		-		135,300
					Total Adjustments to Continuing Operations			41,158		100,624		7,599		33,559		-		34,676		-		100,624		-		135,300
			Adjustments - Discontinued Operations:
				Impairment, Restructuring and Disposal Charges, net				1,079		-		-		1,079		-		2,494		-		-		-		2,494
					Total Adjustments to Discontinued Operations			1,079		-		-		1,079		-		2,494		-		-		-		2,494
			Adjustments - Non-operating:
				Debt Refinancing Charges, net (2)				-		-		-		-		-		15,445		-		-		-		15,445
				Income Tax Adjustments (3)				-		-		-		-		-		5,621		-		-		-		5,621
					Total Non-operating Adjustments			-		-		-		-		-		21,066		-		-		-		21,066
			Net Earnings, as adjusted					150,731		168,169		43,079		53,722		53,930		61,050		58,304		62,744		47,121		229,219
			Purchase Accounting Amortization, net (4)					3,430		5,866		951		912		1,567		1,712		1,712		1,733		2,421		7,578
			Adjusted Net Earnings					$       154,161		$     174,035		$        44,030		$        54,634		$        55,497		$      62,762		$        60,016		$        64,477		$        49,542		$      236,797
			Adjusted EPS - Continuing Operations					$            1.82		$          2.11		$           0.51		$           0.65		$           0.66		$         0.74		$           0.72		$           0.79		$           0.60		$           2.85
			Adjusted EPS - Discontinued Operations					(0.02)		(0.05)		-		(0.01)		(0.01)		-		(0.01)		(0.03)		(0.01)		(0.05)
			Adjusted EPS - Consolidated					$            1.80		$          2.06		$           0.51		$           0.64		$           0.65		$         0.74		$           0.71		$           0.76		$           0.59		$           2.80
			Diluted Weighted Average Shares					85,569		84,774		85,984		85,560		85,144		85,106		84,948		84,578		84,567		84,857
3.		Cash Flow - Reconciliation
			Cash Flows from Operating Activities:
				Net Earnings (Loss)				$       108,494		$      67,545		$        35,480		$        19,084		$        53,930		$        2,814		$        58,304		$       (37,880)		$        47,121		$        70,359
				Adjustments to reconcile net earnings to
					net cash provided by operating activities:
						Non-cash adjustments		156,996		93,650		29,204		37,379		90,413		24,978		49,196		7,022		37,432		118,628
						Working capital adjustments		(157,885)		142,375		36,445		47,554		(241,884)		103,100		(21,816)		158,693		5,498		245,475
							Net cash provided by operating activities	107,605		303,570		101,129		104,017		(97,541)		130,892		85,684		127,835		90,051		434,462
				Capital expenditures included in investing activities				(86,117)		(72,197)		(30,679)		(27,298)		(28,140)		(41,131)		(22,220)		(26,258)		(23,719)		(113,328)
				Free Cash Flow				21,488		231,373		70,450		76,719		(125,681)		89,761		63,464		101,577		66,332		321,134
				Payment of Legal, Regulatory and Other Charges, net (5)				161,678		21,434		(14,454)		947		175,185		2,491		5,746		13,335		2,353		23,925
			Adjusted Free Cash Flow					$       183,166		$     252,807		$        55,996		$        77,666		$        49,504		$      92,252		$        69,210		$      114,912		$        68,685		$      345,059
			Adjusted Free Cash Flow Per Diluted Share					$            2.14		$          2.99		$           0.65		$           0.91		$           0.58		$         1.08		$           0.82		$           1.36		$           0.81		$           4.07
			Diluted Weighted Average Shares					85,569		84,774		85,984		85,560		85,144		85,106		84,948		84,578		84,567		84,857
			Notes:
			(1)	Reflects the impact of charges taken on various legal and regulatory matters, as well severance, asset impairment and facility lease impairment charges.
			(2)	Charge related to the refinancing of our bonds and senior credit facilities during 2012.
			(3)	Primarily reflects the impact of non-cash adjustments related to equity forfeitures from severance and restructuring initiatives.

SOURCE

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