LPS Road Show Presentation June 2008


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LPS Road Show Presentation June 2008

  1. 1. Lender Processing Services June 2008
  2. 2. Forward-Looking Statements This presentation will contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward- looking statements. Forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. Because such statements are based on expectations as to future economic performance and are not statements of fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The risks and uncertainties which forward-looking statements are subject to include, but are not limited to: general political, economic, and business conditions, including the possibility of intensified international hostilities, acts of terrorism, and general volatility in capital markets; failures to adapt our services to changes in technology or in the marketplace; consolidation in the mortgage lending or banking industry; security breaches of our systems and computer viruses affecting our software; a decrease in the volume of real estate transactions such as real estate sales and mortgage refinancings, which can be caused by high or increasing interest rates, a shortage of mortgage funding, or a weak United States economy; the impact of competitive services and pricing; the ability to identify suitable acquisition candidates and the ability to finance such acquisitions, which depends upon the availability of adequate cash reserves from operations or of acceptable financing terms and the variability of our stock price; our ability to integrate any acquired business’ operations, services, customers, personnel; the effect of our substantial leverage, which may limit the funds available to make acquisitions and invest in our business; changes in, or the failure to comply with, government regulations, including regulatory changes or reform related to RESPA, appraisal practices and privacy obligations; and other risks detailed in the Risk Factor section in the Form 10. 2
  3. 3. Agenda • Transaction Overview • LPS Overview • Business Review • Financial Review • Summary 3
  4. 4. Transaction Overview • FIS and LPS have unique and distinct businesses – Different customers, markets, management • Current joint structure may not maximize full potential of both businesses – limits ability to leverage operations, technology and product development – leads to internal competition for investments and resources – hinders strategic flexibility • Spin-off from FIS creates an independent publicly traded company – Market leading mortgage processor – Over 1,000 financial institution clients, including 39 of the 50 largest banks in the US • Pure play reduces complexity for investors LPS is Well Positioned to Succeed as a Stand-Alone Public Company 4
  5. 5. LPS Overview Investment Highlights • One of the largest providers of technology, processing, data and outsourced services to mortgage lenders • Leading market positions in technology based solutions: – #1 U.S. provider of Mortgage Processing Services – #1 U.S. provider of Centralized Settlement Services – #1 U.S. provider of Mortgage Default Solutions • Industry’s most comprehensive range of integrated applications and services • Deep and long term relationships with nations top lenders – On average, LPS top 10 customers have been with us for 18 years and utilize 17 of 29 services • Strong organic growth and Free Cash Flow • Significant scale with 2007 pro forma revenue and EBITDA of $1,690.6 million and $526.7 million, respectively Industry Leader with Growing Market Share 5
  6. 6. LPS Overview Evolution of LPS Lien release – DOCX Lien release – DOCX Analytics expertise – AFT Analytics expertise – AFT Enhanced flood and tax services Enhanced flood and tax services Data delivery at POS technology Data delivery at POS technology Automated title decisioning tool – DecisionStream – DecisionStream Automated title decisioning tool – Streamlined Title – Streamlined Title Web services Web services Loan origination platform Loan origination platform Web-based closing technology Web-based closing technology – Empower – Empower – ClosingStream – ClosingStream 2001 2002 2003 2004 2005 2006 2007 2008 Electronic delivery of settlement services – ELS Electronic delivery of settlement services – ELS Comprehensive industry Comprehensive industry Automated end-to-end servicing and loan boarding Automated end-to-end servicing and loan boarding databases – McDash databases – McDash – MSP and ELI – MSP and ELI Process, invoice and Process, invoice and Appraisal, property valuation and title and closing – LSI Appraisal, property valuation and title and closing – LSI imaging management imaging management – Mortgage Desktop – Mortgage Desktop Acquire Acquire Build Build Strong Competitive Position & High Barriers to Entry 6
  7. 7. LPS Overview Market Metrics Originations Foreclosures (in millions) (in thousands) Mortgage Volume – Loans Outstanding (in millions) Lender Processing Services 7
  8. 8. LPS Overview Growth Drivers Leveraging Leveraging Extending Technology Extending Technology Comprehensive Solutions Comprehensive Solutions Leadership Position Leadership Position • Drive market share gains • Desktop expansion • Extend product penetration • DecisionStream and ClosingStream • Expand usage • RealEC Expanding Current Expanding Current Pursuing Selected Pursuing Selected Service Offerings Service Offerings Acquisitions Acquisitions • Capital markets • Watterson Prime • Data and analytics • Applied Financial Technology • Fraud solutions • McDash Focused on Strong Profitable Growth 8
  9. 9. LPS Overview Financial Performance Revenue Growth EBITDA Growth Strong, consistent revenue and EBITDA growth Lender Processing Services 9
  10. 10. LPS Overview Organization 10
  11. 11. Business Review Revenue: $1,690.6mm EBITDA: $526.7mm Technology, Data and Analytics Loan Transaction Services 34% 47% 53% 66% TD&A segment overview LTS segment overview • Mortgage processing services – automates all areas • Loan facilitation services – Settlement services including loan setup, ongoing processing, servicing, including title agency and closing services, traditional accounting and reporting appraisal and appraisal management services, and other • Desktop System – workflow information system used origination services such as real estate tax services and primarily in connection with default management flood zone information • Other software applications – includes mortgage • Default management services – property preservation origination, real estate, and title insurance software services, foreclosure services, and real estate owned • Data and analytics businesses – includes alternative (REO) services property valuations, property records business and advanced analytic services 11
  12. 12. Business Review End-to-End Mortgage Process Origination Lead Management Lead Management Loan Loan Loan Loan Loan Loan Loan Sales Loan Sales Processing Processing Underwriting Underwriting Closing Closing Servicing Quality Control Quality Control Customer Customer Cash Cash Escrow Escrow Loan Boarding Loan Boarding Service Service Management Management Management Management Sale Refinance Default Collections Collections REO REO Foreclosure Foreclosure Bankruptcy Bankruptcy Loss Mitigation Loss Mitigation Management Management Lender Processing Services 12
  13. 13. Business Review Balanced Business Model Cyclical Non-Cyclical Counter Cyclical Default Default Origination Origination Services Services Services Services Technology, Data and Analytics Field Services Field Services Property Valuation Property Valuation Foreclosure/ Foreclosure/ Title Title Bankruptcy Bankruptcy Closing Services Closing Services REO Management REO Management Title Title Mortgage Servicing Platform Loan Origination Software Process, Invoice and Imaging Management Property / Loan Data and Analytics LPS business mix results in balanced revenue stream across volatile mortgage markets. Lender Processing Services 13
  14. 14. Business Review Highly Diversified Revenue FY2005 Revenue Mix FY2007 Revenue Mix Default Services Mortgage Processing Default Services Mortgage Processing 16.1% 23.3% 27.9% 20.0% 13.6% Other TD&A 15.7% 44.9% 38.5% Other TD&A Loan Facilitation Services Loan Facilitation Services Revenue: $1,382.5 million Revenue: $1,690.6 million EBITDA: $ 430.6 million EBITDA: $ 526.7 million EBITDA Margin: 31.1% EBITDA Margin: 31.2% Segment EBITDA margin Segment EBITDA margin Technology, Data & Analytics 44.3% Technology, Data & Analytics 45.7% Loan Transaction Services 29.7% Loan Transaction Services 26.1% Strong revenue growth, robust margins Lender Processing Services 14
  15. 15. Business Review Competitive Landscape – Data and Services First Credit LPS American LandAM Fiserv Bureaus Tax Data Flood Services Appraisal/Property Valuation Title and Closing Services Lien Release AVM Field Services REO Data Services Title Underwriting Default Management Outsource Portfolio Analytics/ Due Diligence Lender Processing Services 15
  16. 16. Business Review Competitive Landscape – Technology First Credit LPS American LandAM Fiserv Bureaus Loan Origination Technology Automated End-to-End Loan Process Web-Based Closing Solution Data Delivery at Point of Sale Automated Title Decisioning Tool Electronic Delivery Technology Automated Order, Track and Delivery Mortgage Servicing Technology Automated End-to-End Servicing Electronic Loan Boarding Web Services Default Management Technology Automated End-to-End Servicing Process Invoice and Imaging Management Lender Processing Services 16
  17. 17. Business Review Key client relationships Revenue ($) $692mm • No single customer 2007 accounted for more than $554mm 10% of FY2007 revenue 2006 • Average length of $463mm relationship is 18 years Depth 2005 • Average number of LPS services utilized is 17 100 138 170 # of services Breadth Wilbur Bank of Barclays/ JPMorgan JPMorgan Ross/ Washington Wells America HomEq CitiGroup Countrywide Chase Chase/ HSBC Option Mutual Fargo TOTAL EMC One YE 2007 Total LPS Services 23 13 15 16 15 16 19 16 19 18 170 (Out of 29) YE 2006 Total LPS Services 23 10 8 10 10 8 18 16 18 17 138 (Out of 29) Lender Processing Services 17
  18. 18. Business Review Market Size* TD && A TD A Loan Facilitation Loan Facilitation Default Default 19% 25% 17% 81% 75% 83% Total Market = $2.2B Total Market = $2.4B Total Market = $2.7B LPS Market Share Attractive growth opportunities in all areas * 2007 data; Source: company and industry estimates Lender Processing Services 18
  19. 19. Business Review Favorable Market Dynamics Centralized Lending Increased Market Share • Large banks are gaining market share • Trend to centralize and outsource • Increased direct lending versus wholesale operations and correspondent channels • Drives higher volumes to LPS Flight to Quality Streamlined Product Solutions • Changing credit market conditions are • Good fit for automated solutions driving lenders to focus on higher quality in a centralized environment borrowers • Valuations, Streamlined Title, • More stringent underwriting controls Web-based closings • Increased demand for better tools to mitigate • Development of predictive models and long-term risk indicators of future loan performance Need to Reduce Internal Costs Low-Cost Provider • Focus on reducing servicing costs • Scale • Increase efficiency through technology • Domain expertise and integrated solutions • Integrated data, technology and services (MSP and Desktop) Lender Processing Services 19
  20. 20. Financial Review Technology, Data & Analytics Segment Overview Revenue Drivers • Mortgage processing services – • Mortgage processing services – Typically automates all areas of loan servicing, fee per month per loan on file. Recurring including loan setup and ongoing revenue, long-term contracts, high switching processing, customer service, accounting costs. and reporting. • Desktop System – workflow information • Desktop System – Activity fees per system that assists customers in managing foreclosure. To be expanded to other business processes and connectivity used mortgage servicing business processes. primarily in connection with default High switching costs; clients typically use management. LPS exclusively. • Other software applications – include • Other software applications – License, mortgage origination, real estate, and title maintenance and professional service fees. insurance software. • Data and analytics businesses – includes • Data and analytics businesses – alternative property valuations, property Transaction, activity and subscription fees. records business and advanced analytic services, which assists customers in their loan marketing or loss mitigation efforts. Lender Processing Services 20
  21. 21. Financial Review Technology, Data & Analytics Historical Revenue Historical EBITDA ($MM) ($MM) $570 $525 $547 Mortgage Processing Other TD&A Lender Processing Services 21
  22. 22. Financial Review Loan Transaction Services Segment Overview Revenue Drivers Loan facilitation services: Loan facilitation services: • Settlement services – title agency and • Transaction driven closing services • Origination services paid by lender and • Appraisal services – traditional appraisal ultimately, primarily borne by customer and appraisal management services • Other origination services – real estate tax services and flood zone information Default management services: Default management services: • Property preservation services – designed • Transaction driven to preserve value of properties securing • Various services related to defaulted and defaulted loans foreclosed properties, paid by lender • Foreclosure services – includes access or vendor to a nationwide network of independent attorneys, document preparation and recording and other services • REO services – covering real estate to which our customers take title and seek to sell following default Lender Processing Services 22
  23. 23. Financial Review Loan Transaction Services Historical Revenue Historical EBITDA ($MM) ($MM) $1,126 $901 $820 Loan Facilitation Services Default Services Lender Processing Services 23
  24. 24. Financial Review Key Statistics Revenue ($ millions) EBITDA ($ millions) $1,690.6 $1,382.5 $1,485.0 2005 2006 2007 Free cash flow* ($ millions) Capital expenditures ($ millions) $271.7 $212.4 $180.3 2005 2006 2007 * Net income plus depreciation and amortization less capital expenditures and changes in working capital and other assets & liabilities. As presented in Form 10; includes pro-forma after-tax interest expense of $55.8 million in 2007. Lender Processing Services 24
  25. 25. Financial Review Historical pro forma quarterly data Revenue ($ millions) 2006 2007 2008 Lender Processing Services 25
  26. 26. Financial Review 2008 Adjusted Guidance 2007 2008 (amounts in millions except per share data) Carveout Guidance (1) Revenue $1,690.6 7% – 9% EBIT 424.1 6% – 8% Net Earnings per Diluted Share $2.06 $2.10 – $2.22 Adjusted Earnings per Diluted Share $2.32 $2.34 – $2.46 Free Cashflow $156.6 $193 – $228 Diluted Shares (2) 97.7 97.0 Capital Expenditures $70.6 $65 – $75 Depreciation & Amortization $102.6 $95 Solid start as a stand-alone public company Lender Processing Services 26
  27. 27. Financial Review Long Term Outlook • Grow revenue 6–9% annually 2009–2011 • Expand operating margin on average by 50 bps per year • Target $400–$500 million in debt reduction through 2011 • Indicated dividend of 40 cents/share • Repurchase shares opportunistically • Selectively pursue acquisitions Grow EPS by 12–15% annually 2009–2011 Lender Processing Services 27
  28. 28. Summary • Leading market positions in: – Technology, Data and Analytics – Loan Transaction Services • Revenue growth faster than market • Expanding margins • Attractive dividend • Strong free cash flow Focused on delivering above average returns to shareholders Lender Processing Services 28
  29. 29. Appendix
  30. 30. GAAP to Non-GAAP Reconciliations A. EBITDA Consolidated TD&A LTS Full Year Full Year Full Year Full Year Full Year Full Year Full Year Full Year Full Year 2007 2006 2005 2007 2006 2005 2007 2006 2005 Operating Income 424,062 327,520 317,925 191,629 179,533 162,142 265,573 206,356 210,798 Depreciation and Amortization 102,607 111,858 112,648 68,720 69,581 70,545 28,752 32,177 33,030 EBITDA 526,669 439,378 430,573 260,349 249,114 232,687 294,325 238,533 243,828 B. FREE CASH FLOW Consolidated Full Year Full Year Full Year 2007 2006 2005 Net Income 256,805 201,055 195,705 Add: Depreciation and Amortization 102,607 111,858 112,648 Less: Capital Expenditures (70,552) (70,248) (92,458) (Decrease) Increase in Working Capital (76,418) 29,037 (35,561) Free Cash Flow 212,442 271,702 180,334