Lender Processing Services Inc. ( LPS - Analyst Report ) reported third-quarter 2012 adjusted earnings per share of 71 cents, in line with the Zacks Consensus Estimate. Earnings per share spiked 20% from the year-ago level.

On a GAAP basis, earnings per share were 69 cents, up from the earnings of 48 cents recorded in the year-earlier quarter. The increase was attributable to the rise in demand for company’s technology solutions, low interest rates ensuing strong refinance activity and profit from ongoing expansion investments.

The company’s total revenue decreased 1.3% year over year to $512.7 million and missed the Zacks Consensus Estimate of $514.0 million.

Operating income in the quarter increased 19.4% year over year to $112.4 million.

Technology, Data and Analytics Segment (TD&A)

Third-quarter revenues for the TD&A segment were $192.0 million, up 11.2% year over year. The growth was attributable to increase in revenues across all business lines, with major contribution from Origination Technology and Default Technology.

The 28.3% increase in Default Technology revenue reflected the strong demand during the quarter and market share gains in 2011. Origination Technology revenue experienced 25.3% surge due to new client implementation and increase in transaction volumes.

Adjusted operating income for the segment was $60.4 million, up 2.9% year over year. The upside can be credited to higher contribution from growth in income across all sub-segments.

Transaction Services Segment

Revenues for the Transaction segment dipped 7.9% from the prior year quarter to $320.7 million. The downside in the segment revenues was primarily attributable to 22.5% dip in Default Services revenue partially offset by 15.7% increase from Origination Services.

Default Services performance was hit by lower transaction volumes while the performance of Origination Services was buoyed by higher refinance origination volumes. In the reported quarter, Origination Services and Default Services recorded revenues of $154.1 million and $166.7 million, respectively.

Overall adjusted operating income for the segment upped 15.0% to $64.2 million mainly due to favorable revenue mix, discreet cost management and higher origination volumes.

Liquidity

At quarter end, cash balance of the company was $160.7 million while long-term debt, net of current portion was $1,074.5 million.

Outlook

For the fourth quarter of 2012, management expects adjusted earnings per share within 65 –69 cents. Management expects revenues to remain in the range of $475 – $495 million.

Our Take

We remain impressed with the continuous growth trajectory at Lender Processing. Its origination business is also progressing. Management is viewing its TD&A segment as a major growth driver in future, on the back of its continuous strong performance. Moreover, the company is focused on strengthening the balance sheet position, as management initiated a senior debt refinancing to reduce the interest rate in the reported quarter.

While 2012 looks to be another challenging year, management remains focused on market share expansion, leverage strong cash flow and position itself to capitalize on market recovery. However, its Default services revenue continues to pose a challenge.

Lender Processing competes with FTI Consulting Inc. ( FCN - Analyst Report ) , and currently carries a Zacks #2 Rank, which translates into a short-term Buy rating. We maintain our long-term Outperform recommendation on the stock.