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Lender Processing Services, Inc. (LPS)
Q2 2011 Earnings Call
July 26, 2011 8:00 AM ET
Parag Bhansali – EVP, Corporate Development
Lee Kennedy – Chairman, Interim President and CEO
Thomas Schilling – EVP and CFO
Carter Malloy – Stephens
Glenn Greene – Oppenheimer Securities
Kevin McVeigh – Macquarie Capital
Vincent Lin – Goldman Sachs & Co.
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At this time, I would like to turn the conference over to Mr. Parag Bhansali, EVP of Corporate Development. Please go ahead, sir.
Thank you. Good morning and welcome to LPS’s second quarter 2011 earnings conference call. Joining me today to review LPS’s second quarter results are Lee Kennedy, Chairman and Interim CEO and Tom Schilling, CFO.
Our discussion today will contain some references to non-GAAP results in order to provide a more meaningful presentation and comparison to prior period financials. Reconciliations between GAAP and non-GAAP results have been provided in the earnings release which is available on our website. Similar to prior quarters, we’ll be using a slide presentation to facilitate today’s review of second quarter results and guidance for the third quarter as well as some qualitative comments about full-year 2011. These slides are on our website as well for easy reference. At this time, I would like to remind you that some of the comments made on today’s call will contain forward-looking statements. These statements are subject to various risks and uncertainties as described in our earnings release, 10-K and other filings with the SEC. The company expressly disclaims any duty to update or revise those forward-looking statements, including quarterly guidance.
With that, I’ll turn the call over to Lee.
Thanks, Parag, and good morning, everybody. Thanks for joining us today. I’ll kick-off today’s call with a brief summary of second quarter results, followed by an update on key customer wins and initiatives, our progress in resolving the regulatory and legal issues facing LPS and conclude with the review of my key priorities for the next few months. Tom Schilling will follow with a detailed review of the second quarter financial results, including key business strength and guidance for the third quarter.
First regarding second quarter results, trends in the mortgage industry remained volatile in the second quarter, as industry origination volumes slowed materially, compared to prior year. While regulatory issues at the federal and state level caused most major lenders to pull back meaningfully on foreclosure actions. Although we have quickly and carefully adjusted staffing levels consistent with the reduced volumes, it clearly remains a very difficult environment. These adverse trends materially impacted second quarter financial results, and will continue to pressure results for the remainder of the year.
If you will please turn to slide four, second quarter operating results were driven by weak volumes in the core origination and default markets. Revenues of $570 million were 12.8% below second quarter of 2010, which was disappointing but better than the 21% year-over-year decline in industry origination volume and the 36% year-over-year decline in default notices.
The difference between the industry volume declines and our second quarter results was driven by continuing market share gains, primarily in our other TD&A segment and steady MSP revenues. The adjusted EBIT margin of 16.5% in the quarter was down substantially year-over-year primarily due to lower volumes, mix-related changes and higher corporate expense, which Tom will discuss in greater detail later on the call. Adjusted free cash flow remained strong and totaled $82 million for the quarter and adjusted earnings per share came in at $0.56.
Next I’ll provide additional information on Jeff Carbiener’s departure. I know that many of you have expressed concerns for Jeff’s health. First, I want to reiterate that Jeff’s decision to step down as CEO was solely his own with the strong support of his doctors, his family, and our Board of Directors. We’d hope that Jeff would have been able to accept a leave of absence to allow time to get well, but unfortunately Jeff and his doctors and family did not believe that this was in his best interest.
Our Board of Directors and management team is very appreciative of the significant contributions that Jeff has made to LPS over the past three years. While we are very disappointed that he will not be able to continue as our CEO, we remain very supportive that his decision to focus on improving his health and we wish him a speedy and complete recovery. Second, we are fortunate to have a highly experienced, antecedent Board of Directors and a strong management team who I am confident will successfully lead LPS during this transition. I’ve had the opportunity to work with many of these individuals over the past several years and I have a great deal of respect for them.
The Board has created a succession committee to manage the search for a permanent CEO. Our efforts are well underway and we are very encouraged with the strong initial interest that we’ve received from qualified, seasoned executives. Although it is difficult to predict how long such a search of this type might take, you should know that it will stay as long as it takes to locate and transition the right individual.