Lender Processing Q2 Earnings In Line

Zacks

Lender Processing Services, Inc (LPS) reported second quarter 2013 net income of $19.1 million or 22 cents per share versus net loss of $37.9 million or 45 cents per share in the year-ago quarter. The rebound to profit from the year-ago loss was primarily attributable to the successful execution of its strategy and elevated refinance activity during the quarter.

Excluding the non-recurring items, adjusted earnings for the reported quarter were 65 cents per share versus 79 cents in the year-earlier quarter. The quarterly adjusted earnings were in line with the Zacks Consensus Estimate.

Total revenue decreased 8.7% year over year to $468.9 million. The fall was primarily due to lower Default Services revenues, partially offset by higher revenues from Technology, Data and Analytics (TD&A), and Origination Services. The quarterly revenues marginally missed the Zacks Consensus Estimate of $468 million. Adjusted operating income decreased 18.3% year over year to $98.4 million owing to the decline in Default Services.

Segment Performance

Revenues for the TD&A segment stood at $194.0 million in the reported quarter, up 5.8% year over year. While revenues from Servicing Technology sub-segment climbed 5.4% on the back of growth in loan portfolio, Origination Technology rose 14.7% on higher industry origination volume. Default Technology sub-segment revenues were down 1.8%, reflecting lower professional services revenues and market share gains, partially offset by lower foreclosure referral volumes. Revenues from Data and Analytics increased 13.3%, primarily driven by higher demand for loan products data and predictive analytics. Adjusted operating income for the segment increased 6.5% year over year to $59.6 million.

Revenues for the Transaction segment fell 16.8% from the prior-year quarter to $274.9 million. Origination Services revenues increased 4.4% to $157.4 million driven by higher refinance volumes. Default Services revenues decreased 34.6% year over year to $117.4 million due to lower foreclosure activity. Overall adjusted operating income for the segment stood at $51.1 million, down 33.3% year over year.

Liquidity

At quarter-end, Lender Processing had adequate liquidity with cash and cash equivalents of $142.5 million and $398.1 million available under its credit facility. Long-term debt (net of current portion) was $1,041.4 million.

Net cash provided by operating activities aggregated $104.0 million in the reported quarter compared with $127.8 million in the year-ago quarter. Adjusted free cash flow for second quarter 2013 was $77.7 million.

Merger

On May 28, 2013, Lender Processing and Fidelity National Financial, Inc. (FNF) entered into an agreement by virtue of which Lender Processing would be acquired by Fidelity National Financial.

Outlook

For the third quarter of 2013, management expects adjusted earnings per share in the range of 51 cents – 55 cents and revenues of $415 million–$435 million.

Lender Processing is well positioned to enhance the mortgage value chain and deliver innovative technology, data and expertise to its clients. Going forward, the rapidly growing mortgage landscape continues to create new requirements for its clients.

Lender Processing has a Zacks Rank #4 (Sell). Other stocks that look promising and are worth considering now in the industry include EVERTEC Inc (EVTC) and  Heartland Payment Systems, Inc (HPY), both carrying a Zacks Rank #2 (Buy)
 

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