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Lender Processing Services (LPS)

Q4 2012 Earnings Call

February 8, 2013 10:00 a.m. ET


Nancy Murphy - VP, IR

Hugh Harris - President and CEO

Tom Schilling - CFO and EVP


Darrin Peller - Barclays Capital

Carter Malloy - Stephens Inc.

Paul Thomas - Goldman Sachs

Glenn Greene - Oppenheimer

Greg Smith - Agee Sterne, Agee & Leach



Good day everyone, and welcome to the Lender Processing Services' Fourth Quarter 2012 Earnings Conference. As a reminder, today's conference is being recorded. Your participation on this call is implied consent. If you do not wish to be recorded, then please disconnect at this time. Now I would like to turn the conference over to Nancy Murphy. Please go ahead, ma’am.

Nancy Murphy

Good morning, and welcome to Lender Processing Services' fourth quarter 2012 earnings conference call. Hugh Harris, CEO and Tom Schilling, CFO are with us today to review results and answer your questions. To allow time to field questions from participants, we ask that you please limit yourself to two questions and then re-enter the queue if you like to follow up. Before we get started, I would like to remind you that our earnings release and the slide presentation we will use to facilitate today's discussion are available on the Investor Relations section of our website.

I would also like to remind you that we may make forward-looking statements during today's call and those statements are subject to various risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including our 10-K, most recent 10-Q and our earnings release. We do not undertake any duty to update or revise those forward-looking statements, including quarterly guidance. In addition, our discussion today will contain references to non-GAAP results in an attempt to provide a more meaningful presentation in comparison to prior periods. Reconciliations between GAAP and non-GAAP results have been provided in the earnings release.

Now I'll turn the call over to Hugh.

Hugh Harris

Thank you, Nancy. Good morning and thank you for joining our call today. Before I turn to the business of our call, I like to open on a personal note. I am very happy to be back in the LPS full time and I deeply appreciate all of the well wishes I received while I was out. I’d also like to thank Dan Scheuble, Bill Griffin, Tom Schilling, Todd Johnson and Johnny Cash (ph) and the entire management team at LPS who assumed greater responsibilities while I focused on my recovery. The strong financial results that we reported are testimony to the strength and depth of our team.

Let me begin my formal remarks this morning with an overview of the business during the fourth quarter and full year 2012. Tom Schilling, our CFO will then address our financial performance. Later we will open the call up to questions.

LPS delivered strong operating results in the fourth quarter and for the full 2012. Record revenue in the technology, data and analytics and origination services segments was driven by strong client demand for technology-driven solutions to respond to the new industry requirements. Our EBITDA margin increased by more than a point to 27%, reflecting our focus on how to turn businesses.

Strong cash flow, a hallmark of the LPS business model, continued with our fourth consecutive year of free cash flow exceeding $340 million. These strong results validate the LPS business model and the progress we’re making to enhance the mortgage value chain. In addition to our positive financial results, we’ve made significant progress on resolving legal matters related to legacy issue. We’ve now reached settlements with 49 State Attorneys General and the District of Columbia, as well as settling other key legal matters.

As a result of these settlements, LPS increased its legal and regulatory reserve in the fourth quarter about $48 million. Together these settlements put many issues related to past business practices behind us and we can now focus 100% of our efforts to capture the many opportunities we see in the marketplace through our leading technology solutions that our clients want and need.

I would like to note that we did not lose a single client because of these issues related to past practices. Our clients continued to view us as a trusted advisor as we worked together to address the challenges of this industry. In addition, we announced yesterday that our Board of Directors approved $100 million share repurchase program. This action reflects our confidence in the future of our business and our commitment to delivering value and returning cash to our shareholders over the long term.

Looking forward, LPS is pursuing many strategic initiatives to capitalize on growth opportunities in the rapidly evolving mortgage marketplace. We’re investing in our technologies to help our clients meet the new regulatory and business process requirements. New regulations, including the finalization of CFPB rules and the new regulations on the Dodd-Frank are generating increased demand for our solutions. As our clients work to meet these requirements, the demand for innovative technology, data and services is increasing.

No one in the industry is better positioned than LPS to meet these needs from a technology perspective or a trusted advisor. Illustrate this point, last week we hosted a conference call to discuss the recent CFPB rulings and the solutions LPS has to address these changing regulations. More than 475 clients participated in that call. We are also continuing to invest in our servicing platform to add value for our clients and further expand our market leadership.

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