Lender Processing Services' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Lender Processing Services, Inc. (LPS)

Q2 2012 Earnings Call

August 3, 2012 10:00 AM ET

Executives

Nancy Murphy – VP, IR

Hugh Harris – President and CEO

Tom Schilling – EVP and CFO

Analysts

Darrin Peller – Barclays

Julio Quinteros – Goldman Sachs

Carter Malloy – Stephens

Glenn Greene – Oppenheimer

Kevin McVeigh – Macquarie

John Kraft – DA Davidson

Greg Smith – Sterne Agee

Ty Lilja – Feltl & Company

Presentation

Operator

Welcome to the Lender Processing Services Second Quarter 2012 Earnings Conference Call. 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.

I would now like to turn the conference over to Nancy Murphy, Vice President, Investor Relations. Please go ahead.

Nancy Murphy

Thank you, Jerica. Good morning and welcome to Lender Processing Services second quarter 2012 earnings conference call. With us today are Hugh Harris, President and CEO; and Tom Schilling, CFO, to review the second quarter 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 reenter the queue if you would 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. I’m going to start with an overview of the second quarter and then Tom Schilling, our CFO, will walk you through our financial performance. Finally, we’ll open the call up to questions.

First, let me just say we are very pleased to report strong second-quarter operating performance, including a 7% increase in revenue to $533 million and a year-over-year 36% increase in adjusted earnings per share to $0.76. Both the TD&A and Transaction Services segments generated positive performance in the second quarter.

Our GAAP net earnings were obviously impacted by the increase in our reserve of the legal contingencies. We increased this reserve because we’ve gained greater clarity over the potential resolution of legal and regulatory issues related to the past practices. We continue to make progress toward resolving these matters, and I’d like to highlight a few of the most significant.

First, we announced yesterday, we’ve settled all our legal issues with the Missouri Attorney General’s office. This settlement includes a dismissal of all criminal charges filed against DocX. Second, an motion to dismiss in the Nevada Attorney General’s case was granted in part which resulted in the scope of the suit being significantly narrowed. In addition, as it relates to the consent order, the independent third-party we have engaged has begun work on the final document execution phase.

These items combined with greater clarity on other legal and regulatory matters have resulted in our ability to better estimate the cost of resolving these issues. As a result, we have increased our legal reserve by $145 million in the quarter. Tom will offer additional commentary on this in his prepared remarks. It continues to be one of our top priorities to resolve issues around these past practices in a way that is in the best interest of our company, our customers, our shareholders, and our employees.

Today, LPS is an improved company with an ongoing commitment to achieve the gold standard for compliance in our industry and a support of our customers. We have made and continue to make investments in our people and infrastructure to ensure best in class compliance, risk management, and business processes. We’re also taking what we’ve learned through this process and using this knowledge as we build new solutions and work with our customers.

I continue to spend a significant amount of my time with our customers, with employees and other industry participants. These meetings consistently reinforce for me the importance of LPS technology solutions to help our clients address operational challenges, compliance requirements, and efficiency needs. I’m more confident now than ever that our core technologies will continue to drive for LPS – drive growth for LPS over the long term.

We continue to have many opportunities to grow our servicing technology businesses. While MSP already processes over 50% of the nation’s first mortgages, we are striving to create deeper relationships with these existing clients by expanding our offerings. Another opportunity for us with existing clients is adding home equity loans to MSP. Home equity today represents an addressable market of approximately 18 million loans. We’re currently in the process of converting two customers with approximate 240,000 home equity loans from competitive platforms. We expect this to be an attractive longer-term opportunity as services move forward business process enhancements.

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