Daniel Kennedy Murphy - Senior Vice President and Treasurer William P. Foley - Chairman, Chairman of FNF Holding and Chairman of Executive Committee George P.

Scanlon - Chief Executive Officer Anthony J. Park - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Raymond R.

Quirk - President

Mark C. DeVries - Barclays Capital, Research Division Geoffrey M.

Dunn - Dowling & Partners Securities, LLC Brett Huff - Stephens Inc., Research Division DeForest R. Hinman - Walthausen & Co., LLC Ryan O'Steen - Keefe, Bruyette, & Woods, Inc., Research Division

Thanks, and good morning, everyone, and thanks for joining us for our Second Quarter 2013 Earnings Conference Call. Joining me today are our Chairman, Bill Foley; George Scanlon, our CEO; Randy Quirk, our President; and Tony Park, our CFO.

We'll begin with a brief strategic overview from Bill, a business overview from George, and Tony will finish with a review of the financial highlights. We'll then open the call for your questions and finish with some concluding remarks from Bill.

This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our expectations, hopes, intentions or strategies regarding the future 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 financial and operating results 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 the risks and other factors detailed in our press release dated yesterday and in the statement regarding forward-looking information, risk factors and other sections of the company's Form 10-K and other filings with the SEC.

This conference call will be available for replay via webcast at our website at fnf.com. It will also be available through phone replay beginning at noon Eastern Time today through August 15, 2013.

The replay number is (800) 475-6701 and the access code is 297732. Let me now turn the call over to our Chairman, Bill Foley.

Thanks, Dan. The second quarter was another great quarter for our title insurance business.

We generated a 16.5% adjusted pretax title margin, the highest quarterly pretax title margin we have achieved since 2003, an a historic year for mortgage originations. However, the recent increase in the 10-year treasury rate has impacted refinance order volumes over the last 2 months, and we have gone into an expense reduction mode to minimize the near-term impact on earnings.

I will let George discuss this in more detail. On May 28, we announced the signing of an agreement to acquire Lender Processing Services, or LPS.

The go-shop period ended on July 7 with no other bidders emerging. We continue to work through the filing and approval processes toward an expected fourth quarter closing.

The major open items are responding to the second request from the FTC, which we expected, completing the various required state filings and finalizing and filing the S-4 registration statement with the SEC. The financing for the acquisition is in place as we completed an amendment and extension of our existing $800 million revolving credit facility, pushing maturity date out to July of 2018 and closed on a new $1.1 billion 5-year delayed draw term loan in July.

We have also begun an internal preliminary assessment of synergy opportunities and remain confident that we will be able to exceed our original target -- our original stated target of $100 million of synergies. Let me now turn the call over to our CEO, George Scanlon.

Thank you, Bill, and good morning, everyone. The second quarter results continue to highlight the earnings power of our title business.

With an improving residential purchase market and strong refinance order closings, we were able to generate a 16.5% pretax title margin compared to 14.5% in the prior year. In the second quarter, we continued to see the strengthening in the resale market as our residential purchase orders opened grew 11% versus the second quarter of 2012 and closed purchase orders increased 13% over the prior year.

In contrast, our residential refi orders opened fell 5% versus the second quarter of 2012, while closed refi orders increased to 12% over the prior year. Our commercial title business continues to perform well, generating 9% revenue growth over a strong second quarter of 2012.

We produced operating EPS of $0.68 per share before the negative $0.07 impact from onetime charge related to an employment litigation matter and LPS acquisition-related expenses. While we remain encouraged by the performance in our commercial and residential purchase businesses, the nearly 100-basis-point increase in the 10-year treasury rate in the second quarter adversely impacted refinance orders during June and July.

We responded to that decline in open refinance orders by reducing headcount by nearly 670 positions over the past 6 weeks. As we have consistently demonstrated in the past, we will closely monitor productivity and operating metrics with discipline and adjust expense levels to current market volumes to mitigate the impact to earnings associated with the transitioning market.

Title pretax earnings of $223 million grew by $81 million, or 42% over the second quarter of 2012 on strong revenue growth and margin expansion. Commercial title business contributed $112 million in revenue, driven by a 15% increase in the commercial fee for file, offset by a 6% decline in closed orders.

Second quarter commercial open orders were essentially flat with the prior year period. Overall, open order accounts were strong in the first few months of the quarter, however, we did experience a significant drop off in refinance open orders in June.

Overall, open orders averaged 10,500 per day for the second quarter with April averaging 11,100; May, 10,900; and June, averaging 9,400. The month of July averaged 8,100 open orders per day.

Refi transactions averaged 6,100 per day in April, 5,900 in May and fell to 4,400 in June, falling further to 3,300 in July. The mix shifted toward purchase transactions during the quarter with April and May at about 40% purchase transactions, June at about 48% of the total transactions with the 8% growth in purchase offset the steep decline in refi transactions.

For the full second quarter, 42% of total title orders opened were purchase transactions. As I mentioned earlier, overall purchase orders opened and closed per day increased by 11% and 13%, respectively, in the second quarter versus the prior year as the strength we saw in the purchase market in the first quarter accelerated in the second quarter.

For the month of July, purchase orders opened increased 17% over July 2012 with purchase transactions accounting for 54% of total open orders. Purchase orders closed grew 22% over July of 2012, with purchase transactions accounting for 46% of total closed orders.

As our mix changes and becomes more heavily weighted to purchase transactions, it is important to note that on average, we earn twice the revenue on a purchase transaction versus a refinance transaction. So the growth in our fee for file will help mitigate the adverse impact to revenue of an overall decline in orders.

Shifting to our other businesses, the restaurant group produced operating revenue of $347 million and adjusted EBITDA of $23 million, for an adjusted EBITDA margin of 6.7%, a 140-basis-point sequential improvement from the first quarter of 2013. Same-store sales were up nearly 1% at ABRH, as all concepts improved except for a 1% decline at O'Charley's.

The J. Alexander's same-store sales increased 3.3%.

We continue to make progress at O'Charley's as the newly remodeled stores continue to outperform their local competition. The June rollout of Free Pie Wednesday has been an early success, averaging a mid-double digit increase in guests counts and sales on Wednesday, one of the slowest days of the week.

We remain on track to exceed the original $20 million synergy target by the end of 2013. Overall, the restaurant group contributed pretax earnings of $5 million for the second quarter.

Remy generated operating revenue of $284 million and adjusted EBITDA of $31 million for an adjusted EBITDA margin of 11.1%. An unfavorable volume mix in OEM and hybrid sales was partially offset by favorable aftermarket volume.

Remy's stock hit a 2013 high of $20.98 yesterday, valuing FNF's investment at more than $340 million, or nearly $1.50 per share to FNF. Overall, Remy contributed pretax earnings of $4 million for the second quarter.

Our minority-owned investment, Ceridian, generated quarterly revenue of $375 million, essentially flat with the prior year quarter, and EBITDA of approximately $107 million for an EBITDA margin of nearly 29%, a 400-basis-point improvement over the prior year period. Our 33% share of Ceridian's quarterly loss was $5 million.

Finally, Digital Insurance completed 6 acquisitions during the first half of 2013, and in the second quarter, generated revenue of nearly $16 million, an EBITDA of $4.7 million, an EBITDA margin of 29%, reflecting strong growth over the prior year. We are excited about the successful assimilation of these acquisitions and the future growth prospects for Digital.

Let me now turn the call over to Tony Park, to review the financial highlights. Tony?

Thank you, George. FNF generated nearly $2.3 billion in revenue in the second quarter compared to $1.7 billion in the second quarter of 2012 as total title revenue grew by $221 million or 16%.

The restaurant group added $347 million in total revenue and Remy added $280 million. Net earnings were $139 million, or $0.61 per diluted share, and cash flow from operations was strong at $253 million.

Consolidated results include a onetime $20 million pretax charge related to an employment litigation lawsuit and $2.5 million of pretax deal expenses related to the announced signing of a definitive agreement to acquire LPS. Combined, those had a $0.07 negative impact on fully diluted EPS.

So we achieved adjusted EPS of $0.68 per diluted share in the second quarter. The title segment generated nearly $1.6 billion in operating revenue for the second quarter, a 16% increase from the second quarter of 2012.

Direct title premiums grew by more than 15%, driven by a 10% increase in closed orders and a 4% increase in the fee for file. Agency premiums grew by 21% over the prior year as the agent count has stabilized over the past 12 months.

Additionally, agency profitability increased as the second quarter agent split improved to 75.7%. Title segment personnel costs increased by $52 million, or 12%, versus the second quarter of 2012, and other operating expenses grew by $8 million, or 3%, both of which are significantly lower than the 15% increase in direct title premiums and the 16% increase in total title operating revenue.

The net effect was a 16.5% pretax title margin, an improvement of approximately 200 basis points versus the second quarter of 2012. Debt outstanding, excluding ABRH and Remy, was $981 million, with no FNF maturities until May 2017.

Additionally, there continued to be no borrowings under our $800 million credit facility as of June 30. Remy and the restaurant group had debt of $363 million, with $274 million from Remy and $89 million from the restaurant group.

FNF does not provide any corporate guarantee on the debt of either Remy or the restaurant group. Our debt to total capital ratio was 22% at June 30, including the Remy and restaurant group debt.

Total title claims paid were $108 million during the second quarter, an increase of $7 million, or 7% from the second quarter of 2012. We expect to continue to provide for future claims at a 7% provision level in 2013, and we also expect claims paid to decline in the second half of 2013.

Finally, our investment portfolio totaled nearly $5.3 billion at June 30. From a regulated standpoint, we have nearly $1.8 billion in statutory reserves, $1.6 billion in regulated cash and investments, and approximately $700 million in secured trust deposits, for a total of more than $4.1 billion in regulated cash and investments.

From an unregulated perspective, we have $380 million in minority equity investments, which is primarily our Ceridian investment, and approximately $500 million in unregulated cash and investments for a total of approximately $900 million in unregulated cash and investments. There is also approximately $100 million in consolidated cash at Remy, the restaurant group and other subs that is necessary for their operations and approximately $200 million in cash at subsidiaries that is restricted by minimum working capital or other requirements.

Let me now turn the call back to our operator to allow for any questions.

First question is on the 3,300-or-so order count, refi order count you mentioned for July. Were you seeing any signs that, that was stabilizing towards the back half of the month or is it still -- looks like it's falling here.

Yes, I'd say, Mark, this is George, that it's stabilizing at that level right now. We saw, obviously, the fall off from June, but it's holding over the last few weeks at that level.

Okay, great. And then I guess in refi -- sorry, in the commercial segment, you saw, I guess, on a year-over-year basis, order counts were flat, but obviously, the fee for file was up, is that kind of indicative what you're seeing in the pipeline whereas transactions are kind of flattish, but you're getting a larger loan size that's driving that fee higher?

Well, the outlook for commercial remains very good for the balance of the year, and we're seeing a lot of good deals come through. It's hard to make any generalization based on one quarter.

But we do see a strengthening in the fee for file as the mix of higher dollar projects comes through. But I wouldn't read too much into the flattening in the year-over-year order counts.

I think, again, the outlook for the second half of the year is pretty strong among our commercial sales people.

Okay, great, that's helpful. On the headcount reduction that you announced, the 670, any color you can give us on what kind of impact that might have on expenses, where the cuts came from, were these some of the temporary hires you did in the first half of the year?

Anything on that would be helpful.

Yes, obviously, we're responding to the decline in order levels, and we did bring in a lot of temporary people to handle the spike we saw coming into the year. And so, in our ServiceLink operations, which are more weighted toward refi originations, we've seen a disproportionate reduction, but we're looking at all our operations.

And they do vary on how dependent they were on the refi market. So clearly, those that had a higher concentration of refi transaction orders are going to be reducing headcount.

Some locations, frankly, are not reducing headcount because they didn't really benefit from refi and they're seeing a lot of purchase order activity.

Okay, got it. Just one last question.

On LPS, are there any adjustments to the amount of debt that you're looking to issue as a result of the change in the deal terms, the roughly 1/3 estimate?

I'd say not at this time, Mark.

First, obviously, you saw a pretty big shift in the mix in June and in July as well. And just reflecting in the second quarter, saw a pretty good jump in the fee per file, that's one of the harder things to always try to figure out and triangulate where that could go.

Can you give any color as to the level at which you think that could climb to, if we go to, say, a 1/3 purchase -- sorry 2/3 purchase, 1/3 refi? And I'm looking, specifically, just at the direct fee per file, if you can strip out commercial so we can get a cleaner view?

They're probably in the $1,700, to $1,800 range, Geoff. It's probably just a good number to target that mix.

And that would -- it looked to me like the result was just short of $1,700 now. Is that the comparable number to that $1,700 to $1,800 range?

But I'd say drift to $1,800 based on that. I mean, we're still -- we still have a lot of refi orders in the pipeline that we're going to clear in this quarter.

So I think as you get to the fourth quarter when the mix really shifts into purchase, maybe 65% purchase. Randy?

Yes, we're expecting it to get up to about 65%, maybe even 70% by the end of the year and running that fee per file up to $1,750 and pressing beyond that. And in addition to that, the commercial impact at the back end of the year.

Okay. And then can you give a little bit of color on how the ServiceLink volumes compared to your overall volumes?

Yes, ServiceLink is doing 35% to 40% of our refinance volume, 20%, 25% overall, including the -- with the operations, including the refi and the resale mix.

And then last, Tony, I just missed the details on Digital Insurance. Did you give some P&L items?

Geoff, this is George. I actually did.

The -- and the revenue for the quarter was $16 million, EBITDA of $4.7 million. So they're operating at just under 30% EBITDA margin.

And we expect that revenue to grow in the second half of the year as we integrate these acquisitions. We're looking at some other deals as well.

And we're targeting that to be in the $70 million to $75 million revenue range for the full year 2013.

The -- we were impressed with just sort of the organic pretax margins, and I guess, my first question is, it looks to us like you had about 40% title pretax incremental margins year-over-year. And I'm wondering what are your thoughts on the sustainability of that even as we head into a time with lower refis but also knowing that you guys are cutting FTEs, at least, appropriately on the way down.

Are those sustainable even through to the difficult demand curve we're facing?

Well, Brett, I think the revenue will rebalance as the mix changes. So and again, if you look to the outlook for next year with the fairly significant drop in refi, offset by some improvement in the purchase market, we'll have lower revenues.

So the objective is to manage the shift in orders in a way that mitigates the downside impact to margins. And there's maybe a little lag in that.

So I wouldn't look -- I don't know how you're thinking about that 40%. Generally, when we have revenue growth, we do keep around 40% to the bottom line.

But in this market we're transitioning. We're trying to stay ahead as much as we can with the cost side.

So next year, if you believe those numbers, it's almost an easier year to manage because it's a more stable year, and you'll be able to see the incremental margin effect there. But the second half of the year, particularly, the fourth quarter, is going to be a down quarter year-over-year because we had such a lift in refi in the second half of last year.

And so just needed to think about that as we make this transition in the market.

Sure. And then long term, I think, you guys have said that you thought high-teens title pretax was in a reasonable sort of normalized scenario case.

You're at 16.5% already. Is high-teens still kind of where you guys are comfortable thinking the long term might be in a more normalized environment or has anything changed on that view?

Well, I think, we've always said that the high-teens assuming that you've got a good commercial market going. Again, we've not been able to manage in a normal market for some time.

So as the market stabilizes, as it comes back to whatever the normal is, and we've said if we get the right mix in a $1.5 trillion market, we can get to high-teens. We do have some upside, we believe, down the road in taking down our provision rate for claims, we're currently at 7.

So that's an upside as well. So could we get to 20?

I think if all of it came together the right way, I think we could. But I'd say, stick with the high-teens in your model at this point.

Okay. And then the growth in agency was outpacing a little bit the growth in direct.

Anything to read in there? Is there a mix shift that we should be thinking about on the revenue line?

I would just add a couple of things, we've seen some pretty good growth in Florida where we have better splits. The agencies stays in Florida and Texas are real strong operations there.

And also we're receiving some good commercial business from our agents, so we get a little bit of a better split on that also. So that would push up the revenue and push up our splits.

Okay because that was going to be my next question, too, so thanks for the splits. And so in terms of thinking about splits, that's obviously a big leverage point to cost.

Based on your answer, is that sustainable or is it -- I guess, as long as Florida continues to be better and the commercial business continues to be better from agents, should we expect that split to remain about where it is or what -- kind of give us a thought near and medium term on that.

Yes, I'd say, Brett, that near and intermediate term, that's a good proxy to use for the agency splits. We get a better split in Florida, and Florida's still lagging behind the recovery because of the congestion in the foreclosure market.

But as that inventory ultimately gets released, one way or another, our agents will benefit from that. And our split is better and we'll benefit from that.

And we've been at 76, 24 thereabouts over the last, probably 2 years. It bumped down a little better for us this quarter.

But I think that's a pretty good target is 24% retained.

Okay. And then last question, and, George, you just alluded to this.

As you think about the foreclosures in those states that are judicial, at least, it seems like there's more of an effort to try and get some of those pushed out into the market. When you talk to your bank trading partners, what are you hearing from them in terms of trying -- are they now trying to take steps to accelerate, getting some of the REO business off their books?

Or kind of, where do we stand on getting some of that inventory back out in the market, and how might that impact prices?

Brett, I think there's been more of an emphasis on short sales and releasing the inventory, I think particularly as prices have improved. And there's still a lot of investor activity out there.

So I think the banks are looking to exit in a rational way so they don't disrupt the market, and we're a participant in that. It's just there's still an overhang in Florida, and it's going to take a while to get through.

[indiscernible] charge in the quarter in your footnotes in your Qs and Ks, there wasn't really any disclosures around any material actions, and this one seems somewhat sizable. So could you give us some more color on what's going on with that?

We missed the front half of your question, could you repeat it please?

In the Qs and the Ks, it doesn't -- over the last few quarters, it hasn't disclosed any material legal risks. In this quarter, we booked a $20 million charge, so can you give us more color on what that was and what this charge resolves?

Yes, absolutely. It was a dispute with a former employee about contractual provisions that we felt confident going into trial that we would succeed.

And the jury ruled against us, and we recorded a provision. The trial concluded in the second quarter.

And we are weighing the alternatives at this point in time.

Just 2 quick questions. Your -- the slide deck for your May 28 conference call, you provided a 33% pro forma debt to total capital ratio, can you update that for Q2 numbers, as well as the change in consideration for the LPS transaction?

Yes, we could consider that. We don't have the numbers in front of us right now though.

Okay. And then my second question was can you provide an estimate rough time line when you think you're going to file the registration statements and applications with New York and California Departments of Insurance?

Our target, I guess, would -- right at this point, would be by the end of August. We want to incorporate the second quarter Q numbers from both LPS and FNF into the proxy, and then we're also filing the applications in multiple states, and that process is underway as well.

But I think by the end of August, I think will be our date.

Actually this is Ryan O'Steen on for Bose. Just to circle back on kind of the headcount reduction, and you noted the stabilization that you've seen over the past few weeks, do you feel like you're kind of operating now at reasonable capacity?

Or given that stabilization or do you anticipate the need for further reductions?

Well, I think if you look at our business, there is a seasonality to it. And inevitably, the housing market typically slows in the fourth quarter.

And in all likelihood, it would happen again this year. So we manage the business on a weekly basis, based on orders.

And to the extent the orders decline, whether it's because of seasonality or because refi falls further, we'll continue to make further adjustments.

Okay. And then just a couple quick ones.

Sorry if I missed this when you were going over the data points. Did you have the closed refi orders for 2Q -- sorry, the mix percent of closed refi orders?

Closed refi orders for Q2, 300 and -- those were opened. Yes, 200 and...

For the mix, I think you said it was 42% purchase was opened. Did you have that for closed?

Yes, that's right. Closed was -- I got that number here somewhere.

It's a big number.

Ryan, it's Dan. I can talk to you after the call instead of fishing through numbers.

Just give me a ring and I can walk through whatever ones you want.

Yes, and then just one more quick one. It looks like the corporate level, expenses backing out the one-timers, were up around $20 million or so from 1Q.

Is there a good way to kind of think about the run rate for that line item?

Yes, Ryan, this is Tony. Well, we have Digital Insurance as a new acquisition for the fourth quarter of 2012 so that's in the current quarter numbers, not in the prior.

So we have those expenses as well as, as we mentioned earlier, the employee litigation of $20 million, the LPS transaction cost of $2.5 million. I think a good target for that, the results of the corporate and other segment is probably about a $30 million pretax loss, which does incorporate our run rate interest expense and really some other corporate costs that we have in that segment.

Thank you. The second quarter results continued to highlight the earnings power of our title franchise.

The LPS acquisition will create an even larger, broader, more diversified and recurring revenue base for FNF. Thank you for joining us today.