Fidelity National Financial, Inc. (FNF)

FNF 
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Fidelity National Financial Inc. (FNF)

March 21, 2013 1:30 pm ET

Executives

George P. Scanlon - Chief Executive Officer

Analysts

Brett G. Gibson - JP Morgan Chase & Co, Research Division

Presentation

Brett G. Gibson - JP Morgan Chase & Co, Research Division

Okay. We're going to get started here. My name is Brett Gibson, fixed income researcher at JPMorgan. We are pleased to announce the final presentation in this room for the day, and that's Fidelity National Financial, the largest title insurance company in the United States. Representing Fidelity National is George Scanlon, the company's Chief Executive Officer, which he has served at since 2010. Prior to that, he served as the Chief Operating Officer of Fidelity National and prior to that, was Executive Vice President of Finance at FIS.

And with that, I will turn it to George and we thank him for being here.

George P. Scanlon

Thank you, Brett, and good afternoon, everybody, and thank you for being here today.

Starting off, obviously, with the forward-looking statements, so we've got presentations outside the room in case you didn't get the chance to pick one up. But you can read that at your leisure.

As Brett mentioned, we're the nation's largest title insurance company. We are the most profitable company in the industry as well by a significant margin. And we look at ourselves, while we're an insurance company and regulated, insurance represents a small part of our total expense base, and we look at us as a company that is a fairly sensible way to play the recovery in real estate, both Commercial and Residential.

We do diversify outside of Title insurance. As the largest player we're limited by, and I trust to expand and, frankly, with our national presence, there are no gaps in our markets. So there's not a reason to be that acquisitive on the Title side, but we do diversify and have a successful track record of going outside of Title insurance and generating above-average returns for our shareholders.

You can see by this slide that there are a lot of brands here. Above the blue line represents the various title company underwriters. We've chosen to maintain these brands in each of our markets, so typically in urban markets, these brands compete against one another, as well against -- as well as outside competition.

Below that American Blue Ribbon Holdings is the holding company for our casual restaurant brands and J. Alexander's is the holding company for our upscale brands. And then below that, we've got a series of investments on a smaller scale. Ceridian and Remy and Cascade are minority owned or partially-owned investments. And then Digital as a company, we acquired at the end of December.

On a revenue basis, you can see that in '12, we grew our revenues from just under $5 billion to $7.2 billion. That was principally driven by the consolidation of ABRH and Remy when we gained majority ownership of those. You can see our earnings more than doubled, our margins expanded by over 300 points and our EPS went up over $1 share to $2.68 a share. Cash flow grew dramatically to $620 million. And we're entering the phase in our cycle where our claims, payments are in a descending trend and our earnings are in an uptrend. And so our cash flow over the next few years should expand and be meaningful.

Our balance sheet, we've got over $5 billion in our investment portfolio. You can see we grew our book value per share over $4 to almost $21, and our reserve for claim losses is about $1.8 billion and we continue to provision about 7% of our Title Premiums and our trends have been in the 5.5% range over the last 4 years. But we're still paying down those big years '05, '06 and '07, which for the industry were the major claim years.

Our balance sheet is very healthy. We've got about a $1.3 billion in debt. About over $300 million of that is associated with our restaurant operations in Remy, which we consolidate but we do not guarantee or backstop any of that debt. So on the Title side, we're about $900 million to $950 million in debt.

Just organizationally, we get a lot of questions as we diversify into other businesses outside of Title as to whether that's a distraction or not. So we highlight this chart to emphasize the really independent nature of our different operations. You can see on the left side, Randy Quirk runs our Title business. He's been there 36 years.

Hazem runs our casual restaurant business. Lonnie runs our upscale business. Jay Pittas runs Remy and Stuart runs Ceridian. And these gentlemen don't even know each other. So from an operating perspective, there's really no synergy benefit among them. We prefer to maintain that independence so that when opportunities come to exit, it's a cleaner break for us and the acquiring company. And we found that, that separate governance and oversight allows us to succeed in our portfolio investments.

So we are the largest Title insurance company. These are brands you may or may not be familiar with. Most people don't know the Title insurance company that is protecting them. Our relationships tend to emanate from real estate brokers and lawyers, depending upon the markets you're in. And it does vary by state.

As a regulated company, our rates are either promulgated by the state or filed. Typically, there's no meaningful rate differentiation among the competition. And we like the idea of internal competition because as you'll see in a minute, the combined nature of our industry does limit the number of competitors. And competitively, we find that competing among each other helps us optimize our performance and retain our revenue base.

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