Lender Processing Services Reports Fourth Quarter and Full Year 2012 Earnings

Fourth quarter 2012 results are adjusted for charges totaling $0.69 per diluted share, including $0.33 per share for estimated legal and regulatory contingencies, $0.18 per share related to the refinancing of credit facilities, $0.07 per share related to income tax adjustments, $0.03 per share related to the disposition of non-core businesses, and $0.08 per share for other non-recurring charges.

Consolidated Fourth Quarter and Full Year Performance

Fourth quarter 2012 revenue was $501.0 million, a decrease of 2.1% compared to the prior year quarter, due to lower Default Services revenue that resulted from a drop in industry-wide foreclosure starts, partially offset by higher revenue in TD&A and Origination Services.  Fourth quarter 2012 operating income on a GAAP basis was $51.9 million and on an adjusted basis was $110.3 million, an increase of 0.7% from the comparable period in 2011 primarily driven by higher contributions from Origination Services. 

Full year 2012 revenue was $2.0 billion, a 0.7% increase from the prior year, due to increased revenue from Origination Services and TD&A, partially offset by lower revenue in Default Services.  Full year 2012 operating income on a GAAP basis was $232.9 million and on an adjusted basis was $435.8 million, an increase of 5.2% from 2011 primarily driven by higher contributions from Origination Services and TD&A, partially offset by lower contributions from Default Services.

Net cash provided by operating activities for the full year 2012 was $434.5 million compared to $477.9 million in 2011, and adjusted free cash flow was $345.1 million compared to $381.2 million in the prior year.   The decrease in adjusted free cash flow resulted primarily from higher capital expenditures and changes in working capital.  Fourth quarter adjusted free cash flow was $92.3 million, compared to $121.5 million in the prior year period.  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.

Technology, Data and Analytics (TD&A)

Revenue for the fourth quarter increased 7.8% from the prior year to $189.3 million driven by growth in all lines of business.  Revenue from Servicing Technology increased 7.2% primarily due to growth in loans and revenue per loan; Origination Technology increased 20.3% due to higher industry refinance volumes; Default Technology increased 3.0% as a result of annualized market share gains achieved in 2011 that were partially offset by lower industry-wide foreclosure volumes; and Data and Analytics increased 6.3%.  Adjusted operating income was $54.8 million compared to $57.6 million in the prior year period due to higher expenses related to growth initiatives and an increase in depreciation.  Adjusted operating margin was 28.9%, down from 32.8% in the prior year quarter due to investment in growth initiatives including origination technology and data and analytics.

Transaction Services

Revenue for the fourth quarter decreased 7.7% from the prior year period to $311.7 million as a result of a 26.0% decrease in Default Services revenue, which was partially offset by a 14.8% increase in Origination Services revenue.  Default Services revenue and operating income decreased as a result of lower industry-wide foreclosure activity and strategic actions to reduce risk and enhance returns.  Origination Services revenue and operating income increased as a result of higher industry refinance volume.  Adjusted operating income was $67.4 million down from $70.7 million in the prior year period due to lower Default Services revenue which was partially offset by higher Origination Services title, escrow and flood revenue.  Adjusted operating margin increased to 21.6% from 20.9% in the prior year period.

Corporate and Other

Net corporate expenses in the fourth quarter of 2012 were $66.0 million compared to $117.2 million in the prior year period, which reflects increases to the legal and regulatory reserve of $47.9 million and $78.5 million, respectively.  Adjusting for these and other non-recurring items, corporate expenses decreased to $11.9 million from $18.7 million in the prior year period as a result of 2011 legal expenses being charged to expense prior to establishing a contingency reserve for the company's legal and regulatory matters.   

 
Outlook

Based on the current environment, the company expects first quarter 2013 revenue to be in the range of $460 million to $480 million and adjusted net earnings per diluted share from continuing operations to be in the range of $0.63 to $0.67.

Earnings Conference Call and Webcast

LPS will host a conference call tomorrow at 10:00 a.m. ET with a live webcast on the Investor Relations section of its website at www.lpsvcs.com.  Earnings information, including this press release and our financial results presentation, is available on the website.  A replay of the webcast will be available on the website shortly after the call where it will be archived for one month.  A replay of the call will be available until February 15, 2013, by dialing 888-203-1112 (access code: 3830545).

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. Lender Processing Services is a Fortune 1000 company headquartered in Jacksonville, Fla., employing approximately 8,000 professionals. For more information, please visit www.lpsvcs.com.

U.S. Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting.  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); "EBIT, as adjusted" or "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