Daniel Kennedy Murphy - Treasurer, Senior VP & Head-Investor Relations William P. Foley, II - Chairman-FNF & BKFS, Vice Chairman-FIS Raymond R. Quirk - Chief Executive Officer Anthony J. Park - Chief Financial Officer & Executive Vice President Brent Bannister Bickett - President.

Jeremy Campbell - Barclays Capital, Inc. Eric Beardsley - Goldman Sachs & Co. Chas Tyson - Keefe, Bruyette & Woods, Inc. John Campbell - Stephens, Inc. Mark Douglas Hughes - SunTrust Robinson Humphrey, Inc. Chris Gamaitoni - Autonomous Research US LP Alexander Veytsman - Monness, Crespi, Hardt & Co., Inc.

Geoffrey Murray Dunn - Dowling & Partners Securities LLC Jason S. Deleeuw - Piper Jaffray & Co (Broker) Kevin Kaczmarek - Zelman & Associates Ryan Byrnes - Janney Montgomery Scott LLC.

Ladies and gentlemen, thank you for standing by. And welcome to the FNF 2015 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Dan Murphy. Please go ahead..

Thanks. Good morning, everyone. And thanks for joining us for our third quarter 2015 earnings conference call. Joining me today are our Chairman, Bill Foley; CEO, Randy Quirk; our President, Brent Bickett; our CFO, Tony Park; and Black Knight CEO, Tom Sanzone.

We'll begin with a brief strategic overview from Bill, Randy will review the Title business, 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 Foley. Please note that we are only focused on FNF on this call.

We'll have a separate FNFV call at 10 AM today. 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.

These 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 11 AM Eastern Time today through November 4. The replay number is 800-475-6701 and the access code is 370124. Let me now turn the call over to our Chairman, Bill Foley..

Thanks, Dan. We generated a 14.9% adjusted pre-tax title margin this quarter, essentially at the lower end of our normalized title margin target range, but 400 basis points better than the next – than our nearest competitor. The commercial market remains very strong.

The residential purchase market continues to steadily improve and the residential refinance market has been declining, although a recent drop in rates may provide a further period of improving refinance volumes.

We're pleased with our title margin performance this quarter, but to consistently reach and move higher in our 15%to 20% normalized pre-tax title margin target range, we need to see continued improvement in the residential purchase market.

Additionally, as we enter the seasonally slower fourth quarter, our title margins will have to absorb the cost and more lengthy closing process resulting from the new TILA-RESPA closing disclosure requirements.

Black Knight continues to meet and exceed our expectations, generating 9% revenue growth and $105 million of adjusted EBITDA and nearly a 45% adjusted EBITDA margin in the third quarter. FNF's Black Knight ownership stake is currently worth approximately $2.9 billion or more than $10 per FNF share.

And we believe that a publicly-traded Black Knight will continue to be a source of value creation for FNF shareholders in the future. During the third-quarter, we consistently repurchased 50,000 shares of FNF stock a day other than during our Blackout period which around late July second quarter earnings release.

For the quarter, we repurchased 2.35 million shares at a total cost of about $88 million. I'll now turn the call over to Randy Quirk to discuss the title insurance business..

Thank you, Bill. The third quarter was another strong performance for our title business as we again led the industry with a 14.9% pre-tax title margin. This quarter was somewhat of a transition from the second quarter as closed refinance orders continued to decline, falling by nearly 20% sequentially from the second quarter of this year.

In addition, our revenue mix shifted to more of a lower margin agency business in this quarter, with agency making up 55% of gross title premiums in the third quarter versus 52% in the second quarter of this year.

Finally, despite the sequential reduction in opened and closed orders for the second quarter, we elected to maintain higher staffing levels than we normally would due to the preparation for the implementation of the new TILA-RESPA closing disclosure beginning in October.

For the third quarter, total open orders averaged approximately 8,030 per day, with July at 8,000 per day, and August and September at 8,050 per day, as refinance open orders – opened declined in July and then showed slight improvement in August and September.

Of the 8,030 total open orders per day, approximately 6,600 were at FNTG and 1,430 were at ServiceLink. Purchase orders opened in the third quarter increased by approximately 8% and closed purchase orders increased by approximately 11%.

The mix towards purchase transaction was approximately 58% for opened orders and nearly 60% for closed orders during the quarter. Additionally, FNTG opened purchase orders, which excludes ServiceLink, increased 9% over the third quarter of 2014.

In the first three weeks of October, total open orders per day averaged approximately 7,600 and FNTG purchase-related orders grew by 8% over October. We had another very strong quarter in our commercial business, generating $258 million in total commercial revenue, a 15% increase over the third quarter of 2014 and equal to the second quarter of 2015.

As we only began tracking total local commercial orders and fee per file in January of 2015, we were not able to compare those total metrics to the prior year. However, national commercial revenue of $146 million increased by approximately 7% as the fee per file grew by 13% and closed orders decreased by 5%.

The commercial title market continues to perform extremely well and the fourth quarter is usually the strongest commercial quarter of the year. The total fee per file of $2,133 increased by 3% versus the third quarter of 2014.

With the increase in refinance openings in August and September, we may not see much of an increase in the fee per file in the fourth quarter unless the commercial fee per file outweighs the impact of an expected modest increase in refinance closings in the fourth quarter.

As we enter the normally seasonal fourth quarter, we would expect to be reducing head count as we see the seasonal slowdown in order accounts later in the quarter. This fourth quarter may be somewhat different than normal as we move through the potential staffing impact of the transition to the new TILA-RESPA closing disclosures.

As always, we'll continue to monitor order and staffing metrics to maximize profitability in our title business. Let me now turn the call over to Tony Park to review the financial highlights..

Thank you, Randy. We generated more than $2 billion in revenue in the third quarter, with title generating approximately $1.8 billion in total revenue and Black Knight contributing $234 million in total revenue. Adjusted net earnings were $171 million or $0.60 per diluted share.

The title segment generated $1.8 billion in total revenue for the third quarter, a 19% increase over the third quarter of 2014. Direct title premiums increased 13%, while agency premiums increased by 23%. Personnel costs increased by 14%, which is more than we would normally see from a 13% increase in direct premiums.

As Randy mentioned, personnel costs were somewhat negatively impacted by additional staffing in anticipation of the TILA-RESPA implementation. Other operating expenses increased by 18%, primarily driven by $46 million in commission expenses related to the Pacific Union real estate brokerage operation.

Pacific Union also contributed approximately $57 million to the escrow and other revenue line. Excluding the commissions, other operating expenses increased by 5% versus the third quarter of 2014.

ServiceLink produced revenue of $220 million, adjusted EBITDA of $30 million, and adjusted EBITDA margin of 14%, adjusted pre-tax earnings of $27 million, and an adjusted pre-tax margin of 12%.

ServiceLink continues to manage its cost structure to maximize profitability in response to the lower refinance and default volumes and seek revenue streams that are more related to residential purchase transactions. Black Knight generated third quarter revenue of $234 million and adjusted EBITDA of $105 million, an adjusted EBITDA margin of 44.7%.

FNF group debt outstanding was $2.6 billion, with nearly $1.7 billion of bad debt at Black Knight. Our debt-to-total capital on a consolidated basis was approximately 29% on September 30, as we continue to move toward attaining a 25% consolidated debt-to-cap ratio. The decline in consolidated equity from the distribution of J.

Alexander's and the stock repurchase activity somewhat slowed the decline in consolidated debt-to-cap in the third quarter. On an FNF only basis, excluding Black Knight and FNFV, the debt-to-cap ratio was below 18%.

Total title claims paid were $70 million during the third quarter, a decrease of approximately $11 million or 14% from the third quarter of 2014. We made the decision to lower the provision level to 5.5% for the entire third quarter. Even with the lower provision of $65 million, total claims paid were nearly equal to the provision.

We expect 2015 full year claims paid to be approximately $280 million. Finally, our FNF Group investment portfolio totaled approximately $4.8 billion at September 30.

From a regulated standpoint, we have approximately $1.7 billion in statutory reserves, $1.5 billion in regulated cash and investments, and approximately $700 million in secured trust deposits for a total of approximately $3.9 billion in regulated cash and investments.

From an unregulated perspective, we have approximately $540 million of unregulated cash at FNF Group as of September 30.

There is also approximately $225 million in consolidated cash and investments at Black Knight and ServiceLink, and approximately $100 million in cash at subsidiaries, both of which are restricted by minimum working capital, other regulatory requirements or to let those businesses run themselves autonomously.

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

Certainly. Okay. And your first question, it comes from the line of Jeremy Campbell of Barclays. Please go ahead..

Yeah. Thanks, guys. So, you consistently say that there's a tangible strategic value for FNF to have a controlling interest in Black Knight.

Can you just help us quantify that benefit to FNF for us or maybe show us where in the P&L it manifests itself?.

This is Brent speaking, Jeremy. I'll answer your question. It's in our core business. So the mortgage industry is where Fidelity sits. The synergies that we can attain by cross-selling our settlement services with our Black Knight customers is strong.

We're only in we think the early innings of that as Black Knight's been focused on cross-selling amongst itself. So it's very synergistic with our core title business. Also, the way we structured the transaction, I think it gives easy transparency for our shareholders to see the value of Black Knight because we do have the ability to tax-free spin.

So, right now, Black Knight represents just over $10 per share of equivalent value for FNF. So we think that having a publicly traded Black Knight makes it quite easy for our shareholders to see the value and participate in the value creation that we see in Black Knight.

We're also confident – if you participated on the Black Knight earnings call yesterday, their business is strong, the trends remain strong and we're very bullish about where the business is going and we want to be a long-term shareholder..

Sure. And then just to follow-up on that too. So you mentioned it's worth $10 per FNF share. So if we back that out of your share price right now, FNF's like title stock is actually trading at like a 3 PE multiple discount to your closest peers.

So, I know there's value in holding that Black Knight business, but if this valuation gap persists, how long does it make sense for FNF to actually hold its controlling stake in Black Knight?.

And I would also temper the comments too. Keep in mind that Black Knight just went public. And so we're less than six months from it going public. I mean we're very much aware and could do the math at least on a trailing basis. I mean we don't give much credence to forward-looking multiples in our industry. So we have initiated a stock buyback program.

We bought $90 million worth of stock in the third quarter. We're systemically buying it back. If we feel that there's a – truly is a discount to our competitor, we'll continue to buy stock and we'll continue to highlight that value discount, if, in fact, it does exist like you said..

And then, just on top of the buyback too.

Is there a chance that you guys could accelerate that buyback, given that FNF stock looks cheap relative to its peer, or are you kind of limited by that consolidated debt-to-cap, which is kind of out of your control, since most of it's at Black Knight?.

Yeah, and you're right. So, we do have a few limitations that you highlighted. Black Knight does have excess cash sitting on its balance sheet. Under its credit ratios, with its credit agreement, it does get credit for its cash, so they actually get a net debt type of situation.

And they are paying back the debt quickly, although they're also keeping prudent cash reserves to continue to grow their business. Our debt-to-cap ratio, as Tony said, is 29% on a consolidated basis. The rating agencies still do look at us on a consolidated basis, although we are showing them the bits and pieces.

We're showing them FNF Group, which Tony said is south of 20%, excluding Black Knight. So we think it's quite strong. It is Black Knight that's causing our consolidated debt-to-cap ratio to jump up to that 29% range. It's interesting. We bought back $90 million worth of stock in the third quarter. We paid $60 million in dividends.

So we're using a lot of our free cash flow clearly to move it back to our shareholders. So we're not growing our equity base much more. And we don't have any more debt at the FNF level that we can prepay without significant penalty.

So we're moderating that and we do have extra cash at the parent company and we're mindful of where our shares trade and we will respond appropriately..

Great. Thanks, guys..

Okay. Thank you. And the next question, it comes from line of Eric Beardsley of Goldman Sachs. Please go ahead..

Hi. Thank you. Just on the margin expectations, you talked about the need to see a larger purchase market or at least continued growth there.

Is there any way to quantify, I guess, for you to get to the midpoint of your range, whether it's around a 17% to 18% margin, how large the market might need to be?.

Well, I mean this year, the market's about $1.3 trillion. Next year, the MBA is projecting, what, about $1 trillion or so, $1.1 trillion..

Correct..

So we're really at the low end of a real estate market in terms of the overall volume. If – we don't need much to get up to that midpoint range. We had a $1.6 trillion to $1.7 trillion market. We would – it would be there because our company is structured right now to operate very, very efficiently.

A little blip because of the implementation of TILA-RESPA in the fourth quarter, but we'll get through that in the fourth quarter. So we just need a little – a small increase in the purchase market to really hit these numbers. It doesn't take much. A few years ago, we were – it was $2.5 trillion, it was $3 trillion, $4 trillion.

If we have those kind of numbers again, it would be – I don't know, what our margin would be? It might be 25% or 30%..

Got it.

And then, $1.6 trillion to $1.7 trillion, what you think about that as similar purchase refi mix that you have today or is that more of a 75% purchase market that would get you up to the midpoint?.

No, I'd say, it'd be a market like it is today, just increase..

Okay..

Because we have a structure for refis and we have a structure for purchase transactions with our branch system. It's very, very efficient.

I mean, we've gone through seven years of cutting back and trying to respond to the market and be more efficient in implementing a number of software improvements to our title processes, doing some outsourcing or offshoring. So we're really a very efficient company. We just need a little more open market..

Got it. And then, can you talk a little bit about the agent strategy moving forward? There was some nice growth there this quarter.

I'm just wondering how you're going about that?.

Yeah. This is Randy. Yeah. We actually did have some real nice growth in the agency revenue here in the third quarter. All the markets hit pretty well for us, the Southeast, the Upper Midwest, the Florida markets, New York. So we had some really good momentum coming out of the second quarter and it rolled into the third quarter.

In terms of our strategy, we continue to look to grow our agency base with good, high quality agents, low claim type relationships, profitable relationships. And we've been pushing that pretty hard over the last year.

So it could be paying off to some degree here in the third quarter, but the strategy is to attract and maintain good quality agency relationships..

Got it.

And the splits there, was that just a function of geographic mix?.

Yes, it was. It just depends on where those increases came in from. So it's a geographical mix..

Great.

And just lastly, I guess if you could share any early trends of what you've seen in terms of the October refi market relative to last quarter?.

October is running about how we finished the third quarter. So we're holding fairly steady at this point. We're only three weeks into October. The refinances actually picked up, as we did move through the third quarter.

A little blip last week where the order volume on a per day basis came up, but it's – so it's running pretty steady with a little bit of an upside at this point..

Okay, great. Thank you..

Great. Thank you. And the next question, it's from the line of Bose George of KBW. Please go ahead..

Hey. This is actually Chas Tyson on for Bose. I just want to talk about the national commercial revenues that continued to grow nicely, but the growth rate year-over-year decelerated a little bit and it was a little bit lower than some competitors in the market.

How do you feel about the competitive environment out there and how does it look going into a seasonally strong 4Q in the next couple of quarters in 2016?.

Well, we think just we've been doing pretty well. We hit record quarters every quarter this year. Our revenue year-over-year is up 13%. We've got a great fee per file. We have our multiple brands particularly in some of the major markets in the country where we have very high end commercial premiums.

So we're pretty strong and we're – there's a couple of large transactions coming down the pike, one in New York, one over in the Upper Midwest. They're getting some attention. And we have the opportunity with our multiple underwriters to get two or three bites of that apple. So we're real confident, strong quarter – fourth quarter coming up.

And again, we've been hitting record activity just by every quarter. So we think we're very well-positioned and we're quite confident..

And, Chas, it's Brent. One other comment to add to Randy's. We had $225 million of commercial revenue in Q3 last year, which was an exceptional quarter and the growth rate we experienced in Q3 was, I think, far in excess of our competitors.

And we still added another $35 million on top of it this year to another record quarter and we had an exceptional second quarter. So we see no signs that we're losing share. Again, there's no perfect information on it, but it seems like it's actually going the other way and coming towards us..

Makes sense.

And if you guys are able to, I guess, get a bite of the apple on a couple of those large transactions that have been announced recently in either 4Q or 1Q, should we think that the growth rate for commercial should meaningfully accelerate in those two quarters or how noticeable should it be, I guess?.

Well, obviously, the title providers have not been selected. That's kind of a long-term play. We don't know really the nature of the transactions or when they're likely to close, but we'll certainly be at the table..

Okay. And then just one more on the resi fee per file, just curious how you guys see that playing out next year. I know that overall market is forecast to be down, but the purchase mix should be higher and I think home price appreciations is forecast to be somewhat limited by a couple of different market observers.

So I'm curious how you guys – how we should be thinking about that as we're modeling?.

Well, the wildcard is obviously the commercial. MBA is projecting approximately another 10% in the purchase market next year. That would shift our mix probably over to 70-30. It depends on what happens with interest rates. So we'll get more out of the residential side. So there's a little bit of room to – a little room for growth as we go through 2016..

Okay. Thank you..

Okay. Thank you. And the next question, it's from the line of John Campbell of Stephens. Please go ahead..

Hey. Thanks, guys. Randy, back to the questions around agency. I mean, that was obviously a really good growth in the quarter. You guys talked a little bit about wanting to gain that I think you said 500 bps or so of agency market share back at your Analyst Day.

Can you talk a little bit about kind of where you guys stand now and then how long do you think it takes to kind of hit that boogie over time?.

Well, you really get a good shot at measuring or analyzing agency revenue year-over-year once a year and that's typically in the first quarter. So you can reflect on what took place in 2015 versus 2014. But we do see – it's two ways to do it.

One is to increase share through additional sales and obviously good products and services put in front of the agents, and the other part is just to garner more share from existing agents. And based on our internal tracking, we see that we are gaining more traction and more share with existing agents. So it is a process.

It's tough put a one year tag on it. We are signing more agents and at the same time, we have canceled agents that are lagging in terms of profitability or claims issues. But it's just a – it's a one to three year process and we're well underway.

And again, it might be there's some of this activity in the third quarter other than just being a good agency quarter really for the industry could be a result of our efforts that we talked about a year ago..

Got it. And then just from our conversations with some folks in the industry with regards to TRID, some guys are saying that that's going to basically pressure some of the agency channel, maybe for the smaller end guys.

Do you see that impacting the space and maybe offering up some M&A opportunities as we get into 2016?.

Well, yes we do. We think that there could be some opportunities. TRID for us as well as the agents has been expensive. We've been preparing for it well over a year. We've had retooled our systems. We trained our best people. We trained over 5,000 of our excellent closers and escrow officers. And so an agent is going to have the same issue.

Now, some of the agents are very, very well prepared. They've done their work and they're, in fact, in some cases consolidating and acquiring each other. And then other agents in some areas are interested in talking to us and have been talking with us. We have made some small acquisitions and we'll continue on.

So, we think there's going to be some real good opportunities. And we're all about growth and building out our footprint and taking advantage of any opportunities to add to our system. So, yeah, there just could be some opportunities out there..

Got it. And then, Tony, I think this goes back to Jeremy's share buyback question, but I just want to make sure I get this right. You said $540 million in unregulated cash and I think you said $225 million at Black Knight and ServiceLink.

So what is technically gest at the FNF holdco or maybe more specifically, what's readily available for share repurchase?.

Yeah. So, John, roughly $500 million – a little more than $500 million is sitting at the parent company readily available. If you roll it forward through the end of the year, our best estimates are another $120 million or so in dividends, both from underwriters as well as non-underwriter subsidiaries.

And then, we have our common dividend and interest expense. So, collectively, those are about $70 million. So that leaves us at about $550 million. We also have a dividend – an underwriter dividend actually that rolls over to the first day of 2016 of $55 million.

So, call it $600 million that we have in our coffers and then depending on how much money we spend on buyback that's kind of the residual..

Excellent. Thanks for the color..

Okay. Thank you. Next question from the line of Mark Hughes of SunTrust. Please go ahead..

Yeah. Thank you.

Could you make an effort to calculate the impact of those higher expenses on 3Q and any guidance on how might that impact fourth quarter as well, just those increased headcounts ahead of TILA-RESPA?.

The increased expenses is kind of rolled out through the year in terms of really as – just in terms of training as we've gotten close to the rules being implemented. We just made a decision not to be as aggressive as we typically would be coming out of the third quarter into the fourth quarter with our staff reductions.

So, what we're looking at really is just a short-term productivity issue as we go through probably November and into December, when, in fact, you actually get to the closing point of the new rules with slight delays. So, it's hard to quantify it in a given quarter and it's really mostly labor-related in terms of the expense.

We have – even though we're not been as aggressive, we have eliminated about 150 positions in the last eight weeks. So already we're starting to bring this down. But it'll roll out through the third quarter.

It's very difficult to quantify because we don't know how complicated the backend of these transactions are going to be, but it's going to be a short – it's really going to be a short-term event..

I think you had suggested that with 13% direct title growth, you wouldn't have normally expected 14% increase in personnel.

What would you normally have expected, 10%?.

Maybe 10%, or maybe even a little less than that, maybe 7% or 8%..

Okay.

And then with the kind of full implementation being near the end of the quarter, does some of your revenue does that get pushed out into 2016? Should we sort of think that there's a good chance that revenue might not look quite as good as your order trend because of that?.

Well, you may get a little bit of – get a rollover into the first quarter. That wouldn't surprise us.

You have a typical closing cycle of 45 to 60 days on a purchase transaction and that might just take a little bit longer to close that transaction or even in the event of a purchase – a 30-day purchase, with the back and forth of the new documents that might add a little bit.

But it would add – it would push into the fourth quarter from the back end of the – push into the first quarter from the back end of the fourth quarter that traditionally slows down anyhow. So we don't see a lot of disruption, but some could push over into the first quarter..

Right, not a disruption, but maybe a little revenue impact?.

It could be, yeah..

Okay. Thank you..

Thank you. Next question from the line of Chris Gamaitoni of Autonomous. Please go ahead..

Good morning. Thanks for taking my call. I just wanted to follow up on the title commentary specifically. The commentary was you needed growth in the purchase market. Home sales are expected to be up 6% next year, purchase volume up 10%, taking into account total volumes down 10%.

Kind of what's the mix that gets you to that 15% to 20% range? And you mentioned your overall market, but I would have thought that the purchase market mix is just as important, if not more?.

Well, I think you're right. They're both important. When you get to that 70% purchase market, you're getting us some real good revenue off of your closings. Where you get the additional lift though is with the market that is larger than what we're seeing here today.

So very difficult to quantify what part is more important than the other, but really both of those are in play..

Thank you. And then, the non-controlling interest in the title segment increased from 1 million to 11 million quarter-over-quarter.

Just wondering what drove that and how we think about that line item in the future?.

Yeah. The non-controlling interest in the title segment was 1 million for the quarter. It's 11 million on consolidated core, but 10 million of that comes from Black Knight. So it was only 1 million in title and that relates to the 21% interest in ServiceLink that we don't own..

Okay, perfect. Thank you..

Okay. Thank you. And the next question comes from the line of Alex Veytsman of Monness, Crespi. Please go ahead..

Yeah. Good morning, guys. Just wanted to ask about the commercial business, I mean how do you see it trending over the next several quarters? I mean, we've seen it mid teens this quarter.

What are some of the catalysts that you're seeing in the foreseeable future?.

Well, as we already said the fourth quarter is seasonally the strongest quarter of the year. And then, typically, after you have that fourth quarter, you have a first quarter that's a little bit weaker at least on a sequential basis.

What seems to be driving the market in the third quarter and it has been the case through most of the year is available capital in the market, a lot of foreign investment that is coming in, most of – all of the segments are strong, maybe being led right now by the multifamily segment and the office properties.

And the projections are for 2016 to be potentially even a stronger year or at least as good as 2015 and potentially even a stronger year than 2015. So, you got to get into 2016 to see it before you can put it in the bank, but the momentum is there, the trends are there, the interest is there.

And there's just a lot of money flowing into the commercial market here this year and it looks like it would continue into 2016, and actually the projections are even potentially beyond into 2017..

Got it. Got it.

And then, do you expect further improvement in the commercial fee for file down the road?.

Well, it's hard to say because it depends on the size of the transactions. It's not necessarily a game where it continues to go up every quarter or every year, but the potential is there based on the size of some very large transactions that we see coming through our pipeline..

Good. Thank you, guys..

Thank you. Next question from the line of Geoffrey Dunn of Dowling Partners. Please go ahead..

Thanks. Good morning. I think this one is probably for Tony.

What is the weighted average volume restriction on your daily buyback relative to the 50,000 that Bill cited for the quarter?.

Is it 100,000?.

Yeah, something like that..

It's roughly – Geoff, I don't have the exact number. My recollection last time we looked at was something about twice that, about 100,000..

So you definitely have room relative to the 3Q pace to increase that buyback..

Right..

Great. Thanks..

Thank you. Next question from the line of Jason Deleeuw of Piper Jaffray. Please go ahead..

Thanks, and good morning..

Good morning..

Since you guys are – it sounds like you're getting a little bit more aggressive in the agent channel, can you just help us think about the margins in the agent channel versus the direct channel, and how you think about the margin difference? Like, generally agent is lower I believe, so how do you think about that mixing in some lower margin business versus just growing the overall business and just growing pre-tax dollars of title earnings?.

Yeah. So the way it breaks down, because we recognize agency revenue on a gross premium basis and we have roughly a 23%, 24%, 25% split where we keep that and the agent keeps the balance, obviously, the gross margin is going to be a lot smaller on the agency side than it is the direct side.

We run – when we loaded in with overhead costs, we run about 8% to 9% of margin on the agency business on a gross premium basis, whereas – and this is – this doesn't include any corporate allocation. And that compares probably to about a 25% margin on the direct side. But if you go on net dollars, they're pretty comparable.

And it isn't that we focus to grow one versus the other. We try to get as much business out of whatever market we have. As you know, there are agent driven geographies and there are direct driven geographies.

And certainly, we're very strong in certain direct markets in the West, in Texas, in the Midwest, but as you make your way further East, we really have strengthened the agency side in the Southeast, Florida and South Carolina, move up the Eastern Seaboard, Pennsylvania, and New York and New England.

So, we're very strong in the agency business as well as in Texas in those particular markets..

Thanks. That's very helpful.

And then sticking on the margins, when we think about this 15% to 20% pre-tax title margin target range, and you guys talked about the purchase mix needing to be higher to help you get higher up in that range, can you just remind us and help us think about the margin differential from a purchase and the refi residential transaction?.

Yeah. So, the way we run our residential operations, we really have a combination of residential purchase, residential refinance and commercial – local commercial and regional commercial running through those operations.

We don't have people that specifically handle just one type of transaction, other than at ServiceLink where it's a national refinance platform. So, we don't have a cost accounting breakdown as to how many hours or how much time our individual people spend on each of those. So, we don't have an exact margin for each of those businesses.

But generally speaking, commercial is going to be the highest, pre-tax margin at roughly 30%, and then with residential, we believe getting twice the fee typically on a residential purchase as we get on a residential refinance, we feel like the cost are twice that.

So, the residential purchase should be a stronger margin than the refinance, but refinance is good margin too, especially when we get it in large volumes..

And then sticking on the margins with commercial, the national deals versus the lower local deals, is there a big difference in margins there?.

Not really. We get really good margins. We had $258 million in overall commercial business in the quarter, which was the same as what we had in the second quarter, very strong. But we get roughly 30%-plus margin in the national and we believe we get that similar impact at the local and regional level..

Thanks. And then last question is on title acquisition opportunities that you guys have mentioned.

Just wondered if you can give us some update there, are you still seeing opportunities and how you're thinking about that?.

Yeah, actually, we're seeing a lot of opportunities, a lot of interesting transactions. Our goal is to fill out our branch system where we're not strong. So, states like Wisconsin, Illinois, Texas, where we can easily expand our branch system and we have some support for the branch system already are good acquisition targets.

But we're seeing a lot of activity. We're seeing activity in the West in terms of escrow office operations and we're seeing good title and escrow opportunities in the rest of the country. So, while the acquisitions are not large, they're numerous and we're very active in expanding our platform and making acquisitions.

And as Randy said in terms of agency, the growth in the agency side, we made a case internally to again start expanding our agency base and we're targeting that and we're being pretty aggressive about it.

We're trying to pick good agents, but we're trying to pick larger agents that really appreciate the strength of our balance sheet, understand all the things we do at the table when we start dealing with them..

And in terms of catalyst for acquisitions, is it just in terms of getting the sellers to move or is it just you're not quite there yet on the valuations, or how's that dynamic?.

Well, we try and stay with the 3 to 6 time EBITDA acquisition multiple. It depends on the transaction where the operation is located.

I'd say what, one thing that is happening is there's a generational aspect going on where a lot of these title agents are kind of moving through the bounding generation and some of them are having trouble with succession, and that creates an opportunity for us. And so that's really part of our acquisition strategy.

Take a look at the guys who started their business 30 years ago and that want to retire and want to have a monetization event, and we're getting good response..

Thank you very much..

Okay. Thank you. And the next question, it comes from the line of Kevin Kaczmarek of Zelman. Please go ahead..

Hey, guys. Just one more question on agent. Do you have any sense of the product mix this quarter? So I guess, given the – it seems like it was a bit lumpy, given the acceleration, and the split was lower, and you mentioned strength in New York.

Is it possible that there's some big New York transactions that came through the agent channel? Just trying to get a sense of how much of this will flow through the future periods..

Well, yes, large transactions coming through the third quarter, as well as the second and looks like in the fourth quarter. But the industry mix is close to our mix, probably closer to 60/40 on the purchase side, but very similar to our own title insurance companies..

And then, if you're talking about commercial, because I don't know exactly what mix you're talking about, but commercial is about 27% commercial in our agency channel versus about 33% commercial in our direct channel..

Okay. That's helpful. Thank you.

And regarding the repurchases, as you mentioned your repurchasing systematically, but I guess how are they weighted throughout the quarter, or do you have a period end share count that we should use as a starting point for our forecast going forward?.

It's in our release, Kevin. I think it's 270, something like that (44:29).

All right. Great..

And we just bought those – I think we'd say, we bought the 50,000 shares everyday that we could. We get blacked out for a period of time, but we were literally 50,000 exactly every day that we were able to buy this quarter..

Okay, great. Thanks. That's all I had..

Okay. Thank you. Next question from the line of Ryan Byrnes of Janney. Please go ahead..

Thanks. Good morning, guys. Just had a question maybe for Randy.

Just trying to figure, if you guys could maybe ballpark me the absolute dollars you guys has spent for kind of this – the closing document changes in 2015, not just the quarter but for the year?.

We've tried to put that together in anticipation of the question. And it's been spread out over the course of the year. What we did – and again, like I had mentioned earlier, it's primarily labor expense.

And what we've done is we've taken people throughout the country off of the frontline, put them into become CFPB experts so we could get our frontline closers trained, our sales people trained, our agents trained, our customers trained and then replace them on the frontline with additional employees.

So we're down to looking at how much per employee, the retooling of the systems was very spread out, some of that work we would have done, anyhow, so very difficult to quantify. But like I said, we've trained 5,000 employees.

I'd say, we have full-time, over the course of the year, 40, 50 people on this project and – but it's been just very, very difficult to quantify. It's been very much a moving target.

And like I said, as we go through the fourth quarter to the first quarter, we'll start pushing people back onto the frontline and ultimately, we'll be back in our – back with our productivity metrics that we're most familiar with..

but would it be safe to say that it could be a material – or I guess, a material tailwind to margins next year without those expenses? I'm just trying to figure out how impactful it could be..

It's going to help..

Yeah..

We're 14.9% this quarter, which is at least 0.5% less than what it should be. And that's kind of the number you can think about because there's a lot of expenses. There's a lot of time and effort – a lot of corporate time and effort. So we're 14.9% in this quarter and that was short.

It was short sixth tenths or so I would guess based upon the people we had to keep in the training and just expensive running around the country and trying to get implemented..

Okay. No, that's great color. And then, Tony, just one more numbers question for you. The tax rate, I can never seem to get it correctly, but it seems like it's kind of stuck in this mid-37%s range.

Is that what we should think about going forward or were there some one-time pressures recently?.

No, that's good. I think we've stabilized at 37% for the last few quarters. And that's a good number for you to use in the fourth quarter as well..

Okay, great. Thanks, guys..

Okay. Thank you. And we have a follow-up from line of Jason Deleeuw of Piper Jaffray. Please go ahead..

Yeah. Thanks for taking my follow-up question. I was just wondering if you guys have any color you can give us on the composition of residential refinance activity.

What's kind of driving it these days? Is it like rate driven? Is it ARMs to fixed? Is there still some government programs helping? Do you have any color you can help us on that residential refi composition?.

Yeah, I think I can give you a little color and it's very interesting, but it's at 4% mark. It's still very interest rate driven. And when the rates drop down below 4% again to 3.97% or 3.93% or 3.87%, we get refinance activity. And when they move up to 4.01% or 4.12%, it slows down.

It's been pretty steady and pretty consistent, but it seems that that 4% mark has been kind of the game changer really on a weekly basis..

Thanks. That's helpful. And then on the debt-to-cap ratio, you are at 29%. You still have the target of getting to 25%.

Can you – is there any sense and timing do you have like you want to be at 25% by a certain period of time or is it just you want to continue to make progress towards 25%?.

It's really been driven by the Black Knight debt. And we have a tax issue that if we prepay the Black Knight debt, it creates a problem up at FNF. So we just need to be patient in terms of bringing down that debt-to-cap ratio.

The real number is about 18% because that's the real debt up at the FNF level and Black Knight is about $1.7 billion or $1.65 billion. And so we're – it's subsidiary debt, it's consolidated, but it's not our obligation. So we're really not that concerned about being 29%, because we're really 18%..

Right..

Exactly.

And I was wondering is when would that tax problem for FNF go away? And could that be a catalyst where you guys could use more of your cash?.

It goes away as Black Knight earns more money, as we create basis. And so we want Black Knight to earn a lot of money and then we can pay down more debt..

All right. Thank you very much..

Thank you..

Okay. Thank you. And you have a follow-up also from Jeremy Campbell of Barclays. Please go ahead..

Hey, guys. Sorry if you guys already covered this, but I didn't hear it.

Given the positive development of your back book, is this a permanent step down in your provision rate?.

Yes. It is. Certainly, permanent for the time being. The activity we've seen on the claims side, as you know, for some time now has been real favorable. We – the recent years, the last five, I would say, recent years have performed very well and continue to perform even better than we estimated.

We were having trouble with 2006 and 2007, but this year we – I'm sorry, this quarter, we didn't have any trouble even with that. So we are very well positioned within our actuarial range at this point. And so 5.5% is the number right now. And frankly, it's even a little higher than what we're seeing and experienced for the last few policy years..

Great.

And so looking ahead to 2016 and 2017, we should be using somewhere around that number then?.

That's what I would use..

Perfect. Thanks, guys..

Okay. Thank you. I have no further questions in queue. Back to you, gentlemen..

Thank you. Both our title business and Black Knight generated strong financial performance in the third quarter. We look forward to maximizing profitability from both businesses in the fourth quarter and beyond. Thanks for joining us this morning..

Okay. Thank you and that concludes our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect..