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Lender Processing Services, Inc. reported first quarter 2013 net income of $53.9 million or 63 cents per share versus $47.1 million or 56 cents per share in the year-ago quarter. The year-over-year increase in earnings was primarily attributable to the successful execution of its strategy of delivering advanced technology-driven solutions in accordance with the evolving requirements of the mortgage industry.

Excluding the non-recurring items, adjusted earnings for the reported quarter were $55.5 million or 65 cents per share versus $49.5 million or 59 cents per share in the year-earlier quarter. The quarterly adjusted earnings were in line with the Zacks Consensus Estimate.

Total revenue decreased 2.9% year over year to $471.7 million, primarily driven by lower Default Services revenue owing to reduced industry foreclosure volume, partially offset by higher revenue from Technology, Data, and Analytics (TD&A) and Origination Services. The quarterly revenues marginally exceeded the Zacks Consensus Estimate of $471 million. Operating income increased 6.7% year over year to $99.4 million, buoyed by higher contributions from TD&A and Origination Services.

Segment Performance

Revenues for the TD&A segment stood at $193.6 million in the reported quarter, up 10.4% year over year, driven by higher revenues across all sub-segments. While revenue from Servicing Technology sub-segment climbed 6.8%, due to growth in loan portfolio, Origination Technology rose 17.7% on higher industry origination volume. Default Technology sub-segment revenue was up 16.0% due to higher professional services revenue and market share gains, partially offset by lower foreclosure referral volumes. Revenue from Data and Analytics increased 15.5% primarily due to contract wins.

Revenues for the Transaction segment fell 11.0% from the prior-year quarter to $278.0 million. The downside in revenues was primarily due to 31.4% drop in Default Services revenue from low industry foreclosure activities, partially offset by 12.0% increase from Origination Services. Overall operating income for the segment stood at $50.5 million versus $52.3 million in the year-ago quarter.

Liquidity

At quarter-end, Lender Processing had adequate liquidity with cash and cash equivalents of $88.4 million and $398 million available under its credit facility. Long-term debt (excluding current portion) was $1054.7 million.

Net cash used in operating activities aggregated $97.5 million in the reported quarter, compared to net cash provided by operating activities of $90.1 million in the year-ago quarter.  The year-over-year decrease was primarily due to settlement fees for legacy legal and regulatory matters. Adjusted free cash flow for first quarter 2013 was $49.5 million compared to $68.7 million in the prior-year quarter, largely due to changes in working capital.

Outlook

For the second quarter of 2013, management expects adjusted earnings per share in the range of 63 cents–67 cents and revenues of $460 million–$480 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. Also, the recent conclusions of many of the company’s legal matters allow it to focus more on growth and innovation to create new opportunities for the company.

Lender Processing currently has a Zacks Rank #4 (Sell). Other players in the industry include formidable names such as Fiserv, Inc. (FISV - Analyst Report), Green Dot Corporation (GDOT - Snapshot Report)  and Jack Henry & Associates Inc. (JKHY - Snapshot Report), all carrying a Zacks Rank #2 (Buy).

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