Daniel Kennedy Murphy - Fidelity National Financial, Inc. William Patrick Foley - Fidelity National Financial, Inc. Raymond R. Quirk - Fidelity National Financial, Inc. Anthony J. Park - Fidelity National Financial, Inc. Michael J. Nolan - Fidelity National Financial, Inc..

Mark C. DeVries - Barclays Capital, Inc. John Campbell - Stephens, Inc. Jason S. Deleeuw - Piper Jaffray & Co. Mark Douglas Hughes - SunTrust Robinson Humphrey, Inc.

Geoffrey Murray Dunn - Dowling & Partners Securities LLC Chris Gamaitoni - Autonomous Research US LP Kevin Kaczmarek - Zelman & Associates Karan Ahooja - Eminence Capital LP Bose George - Keefe, Bruyette & Woods, Inc..

Ladies and gentlemen, thank you for standing by. Welcome to the Fidelity National Financial 2017 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time.

As a reminder, this conference is being recorded and will be available for replay after 1:30 Eastern Time today through May 11. You may access the AT&T Teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 421930. Those numbers once again are 1-800-475-6701 with the access code 421930.

I would now like to turn the conference over to your host, Mr. Dan Murphy. Please go ahead..

Thank you. Good morning, everyone, and thanks for joining us for our first quarter 2017 earnings conference call. Joining me today are our Chairman, Bill Foley; CEO, Randy Quirk; President, Mike Nolan; CFO, Tony Park; and EVP, Brent Bickett. 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. 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.

Let me now turn the call over to our Chairman, Bill Foley..

Thank you, Dan. The first quarter was a strong start to 2017. We generated 11.1% adjusted pre-tax title margin, our strongest first quarter pre-tax title margin since 2013. Additionally, adjusted pre-tax earnings of $175 million was the largest amount of first quarter adjusted pre-tax title earnings in the history of the company.

I will let Randy go into more details on the performance of our title insurance business. Black Knight continues to perform to our expectations, generating revenue of $256 million and adjusted EBITDA of $114 million, for a 46% adjusted EBITDA margin.

FNF's Black Knight ownership stake is currently worth approximately $3.4 billion or more than $12 per FNF share. We are continuing to focus on completing the necessary filings, shareholder votes and other closing conditions for the Black Knight distribution. We remain on track and expect a third quarter closing of the Black Knight distribution.

Additionally, the Black Knight senior notes that FNF guaranteed were repaid last week and therefore the guarantee no longer exists. Last week, we completed an amendment and extension of our FNF credit facility, pushing the maturity on the $800 million currently undrawn facility to April 2022.

We do expect to borrow $300 million on the facility to fund our senior note maturity on May 15. During the first quarter and in early April, we repurchased in individually negotiated transactions $61 million of face value of our 4.25% convertible notes due in 2018.

The total purchase price was approximately $134 million, with $82 million having been settled in the first quarter and the remaining $52 million settled in early April. This eliminates the need to issue approximately 1.4 million shares of FNF stock if the notes had been converted.

Finally in March, we were successful in redomesticating our three major underwriters to the State of Florida. This allowed us to take special dividends from the three underwriters totaling $280 million on March 15. I'll now turn the call over to Randy Quirk to discuss the title insurance business..

Thank you, Bill. As Bill mentioned, this was another strong quarter for our title operations. We expected the residential purchase in commercial markets to drive our performance in 2017 and they did just that in the first quarter.

Residential open and closed purchase orders increased by 6% and 11%, respectively, in the quarter and total commercial revenue grew by 6% versus the strong first quarter of 2016.

We expect seasonal acceleration on the title business over the next few quarters and look forward to continued strong industry-leading performance from our title insurance business. For the first quarter, total open orders averaged approximately 7,600 per day, with January at 7,200, February at 7,600, and March increasing to nearly 8,000.

As I mentioned, purchase orders opened per day increased by more than 6% for the first quarter. Total open orders were 8,150 per day for the month of April, and purchase orders opened per day grew by more than 5% over April of 2016. We experienced consistent growth in our direct and agency channels, as each grew by 10% over the first quarter of 2016.

Direct revenue benefited from a 3% increase in closed orders and a 7% increase in the fee per file, primarily driven by the high percentage of purchase closed orders. On the agent side, $85 million or 19% of our agency premiums were generated by agents signed subsequent to January of 2015. We had a great start to 2017 in the commercial business.

Total commercial revenue of $224 million was a 6% increase over the first quarter of 2016, driven by a 2% decrease in closed commercial orders and a 9% increase in the fee per file. National commercial revenue of $127 million grew by 5%, as closed orders increased by 6% and the fee per file fell by less than 1%.

We remain confident that 2017 should be another good year for our commercial operations. The total fee per file of $2,148 increased by 6% over the first quarter of 2016, as 58% of closed orders were purchase-related versus 55% in the first quarter of 2016. The increase in commercial fee per file also benefited the total fee per file.

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

Thank you, Randy. We generated $1.9 billion in total revenue in the first quarter, with Title generating nearly $1.6 billion in total revenue, Black Knight contributing $256 million in total revenue, and our Corporate and Other segment generating $63 million, which is predominantly the real estate brokerage and CINC revenue.

Adjusted pre-tax title earnings were $175 million, a $33 million or 23% increase over the first quarter of 2016. The first quarter adjusted pre-tax title margin was 11.1%, a 130 basis point increase over the first quarter of 2016. Adjusted net earnings were $118 million or $0.42 per diluted share.

First quarter net cash flow used in operations was $11 million versus net cash flow provided by operations of $73 million in the first quarter of 2016.

The primary drivers of the decrease in cash flow from operations, despite stronger earnings were, A, the $65 million consent order settlement at ServiceLink and, B, a $60 million swing in the timing of our biweekly payroll run.

The Title segment generated $1.6 billion in total revenue for the first quarter, a 9% increase over the first quarter of 2016. Direct title premiums and agency premiums both increased 10%. Personnel costs increased by 8% and other operating expenses grew 1%, both lower than the 10% increase in title premiums.

FNF Group debt outstanding was $2.5 billion at March 31, with nearly $1.6 billion of that debt at Black Knight. Our debt-to-total-capital on a consolidated basis was 27% at quarter-end. On an FNF-only basis, the debt-to-cap ratio was 16%.

Our claims paid of $51 million were $1 million lower than our provision of $52 million for the first quarter, and we continue to provide for claim losses at 5% title premiums. Our provision rate against all title premiums plus escrow fees is 4.25% for industry comparison purposes and closer to 4% for all title-related revenue.

Finally, our FNF Group investment portfolio totaled $4.7 billion at March 31. From a regulated standpoint, we have $1.8 billion in statutory reserves, $1.2 billion in regulated cash and investments, and $750 million in secured trust deposits, for a total of approximately $3.8 billion in regulated cash and investments.

From an unregulated perspective, we have $400 million of unregulated cash at FNF Group as of March 31.

There's $300 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..

Thank you. Your first question comes from the line of Mark DeVries from Barclays. Please go ahead..

Yes, thank you.

So, with the spin of the Black Knight shares still on track for 3Q, Bill, I was hoping to get your updated thoughts on kind of what your plans are for use of excess capital, cash and you have to take up leverage post the spend?.

We've been giving that a lot of thought. The Title group and really FNF, which is now just going to be a – it's just going to be a title company with ancillary businesses and services. There are various acquisitions that can be made in the real estate brokerage area that we could follow up, that we could execute against.

We have a plan of – an automation plan with regard to fully automating the escrow closing, real estate purchase process from the realtor all the way through the closing with the lender. We're working on Black Knight on that software development program.

But then obviously we get the – we'll have the opportunity once the convertible notes are taken care of, of either increasing the dividend or engaging in a pretty aggressive stock buyback program. So that's sort of the – that's really sort of the plan.

Buy some title agencies and keep on executing against our real estate brokerage initiatives, some software initiatives that we have, and stock buybacks and dividends..

Okay. Thanks. That's helpful. And then, Randy, I think you indicated in your comments that you're optimistic that we'll have another good year in 2017 in commercial. I was hoping you could just provide a little more detail there, kind of what your thinking is.

Does that mean kind of up year-over-year from a revenue perspective or what exactly does that contemplate?.

Well, as you know, last year we finished with the second best year ever and then we came out quite strong here in the first quarter. Our NCS group, our National Commercial Group's revenue was up significantly and our local commercial is a little bit flat over prior first quarter of last year, but it's very early in the year.

So we expect to do really as well as we did last year in 2016. The experts are estimating a slight fall-off in revenue in the commercial arena in 2017, but so far, we're coming out real strong. Our operators are looking at multiple – multi-state transactions as a big energy play. All the segments in commercial are good.

So we're actually very, very optimistic. We're very pleased with the start locally and with our commercial units, and we look forward to having another excellent year..

Okay.

And how is the – and then presumably the pipeline for the larger sized deals in commercial, which I guess presumably was behind some of the strength and the average fee per file there, is that pipeline shaping up quite well as you look out at least to the second quarter?.

Mark, it's Mike. It actually is. We had pretty broad performance, both in segments and geographies in our commercial space, particularly in national. And multi-family was very strong, office was strong, energy, as Randy mentioned, health care. And we saw a bit of a resurgence in multi-site transactions.

We had a few good multi-site closings in the first quarter and a pretty good pipeline of multi-sites that we didn't really have as much in 2016. If you look at the variance in 2016 and 2015, it probably was less multi-site transactions. So we're encouraged to see some new energy, if you will, in that space.

And our national open orders for the first quarter were up 9% over last year. So we're encouraged about what that could mean as we move into second and third quarters..

Great. Thank you..

Thanks..

Your next question comes from the line of John Campbell from Stephens. Please go ahead..

Hey, guys. Congrats on the quarter and good start to the year..

Thank you..

It looks like you guys had pretty healthy balance growth out of both agency and direct. It looked like the orders were solid, especially the purchase orders. I mean, that was running ahead of the market and the peers.

What exactly drove that? Was it geographic mix or was it kind of maybe acquired rev to some extent?.

I think some of it is geographic mix. The West Coast, which is where we have the lion's share, perhaps 60% of our direct operations in the west, the West California, those markets are very strong in terms of the purchase market. And then with – on the agency side, we've been signing new agents, we've been expanding our share with agents.

That's really the mid part of the country and the east. So they've both been running quite well but driven very much by this purchase side of the market..

Okay..

A couple of years ago, we set a goal for ourselves to increase our agency market penetration by 3% net gain. And we received the numbers for 2016 in March, and our net increase in agency share was 1%. So one-third of the way to our two-year goal or two-and-a-half year goal. So that's part of it.

We are signing agents, we are developing additional systems to be more competitive in the marketplace, and we continue – we believe we'll continue to see that agency penetration increase. Frankly, we see no reason if we have a 42% national market share in direct operations that we shouldn't have a 42% national market share in agency.

And that's a goal that we're going to have over the next five years or six years to get to that point..

Okay. That's helpful. And then you guys haven't been at a 16% debt-to-cap since like pre-crisis. I think 3Q 2007 was the last time we saw that.

As we think about post spend and kind of freeing up the balance sheet, just given the cost of debt, given your history with deals, I mean, it sounds like there could be maybe something coming down the pipeline, but just curious. If I think about your cash and then the excess debt capacity, I'm getting to about $1 billion or so of dry powder.

Bill, could you just run us through again kind of where your head's at as far as share repurchase versus M&A and then talk about kind of your pipeline? It sounds like you guys are looking to get maybe a little bit more into the real estate brokerage space. You guys could buy, I imagine, a lot of rev there. But just curious overall..

Yes. One thing we're going to do this time is we're not going to stray from the basic goal of remaining a title insurance-based business.

So while Black Knight was a great company and it got us ServiceLink back, which was important to us from a national platform, the reality is that Black Knight trades at a much different multiple than Fidelity National Financial trades for. So there are M&A opportunities. We're always looking.

The CINC transaction was an example of one that we did last summer that we believe is going to enhance our basic title branch operations and our county operations throughout the country as we continue to roll that out.

We also believe that we've come upon something with regard to the software development program we have underway with Black Knight to develop an end-to-end program from the moment, the time the realtor gets the listing to the time when the transaction closes and we interface with the lenders.

So it's going to be acquisitions in those areas, plus some agency acquisitions, larger agency acquisitions. We're going to try and stay away from the $1 million and $2 million and $3 million acquisitions, but look to larger acquisitions that will expand our market share in various states, which may be under-served by other underwriters.

And then, honestly, you'll probably see a defined stock repurchase program that will be consistent and will be happening every – there'd be a daily share repurchase program and it will be fairly aggressive. We've moved away from the stock repurchase program lately because we're spinning off Black Knight.

And if we repurchased right now, we're basically paying $12 a share as basically be – is dilutive because we're buying that Black Knight valuation. So, once the spin-off happens, then we have a lot of flexibility and we can certainly put some more leverage on the company because 16% historically is way under kind of our base number of 25%.

So we're going to be in a very, very enviable position as we move forward..

That makes sense. Thanks, guys..

Thanks, John..

Your next question comes from the line of Jason Deleeuw from Piper Jaffray. Please go ahead..

Thanks, and good morning. I think the first quarter title margins were very impressive, and just wondering – you absorbed the decline in refinance volumes.

So just kind of wondering – can we expect continued margin expansion through the year since you've absorbed the decline already in the first quarter and still expanded margins nicely?.

Yes, we will have margin expansion. It was a very good first quarter at that 11.1%. Certainly better than what we experienced in the first quarter of 2016. But with the refinance business coming in, those open orders have stabilized really at consistent run rate for the last three months or four months.

But the purchase continues to build sequentially each month through the first four months of the year. So we did anticipate the fall-off in refinances. We made our staffing adjustments in the back end of the fourth quarter and through the first quarter here.

So with the expenses in control, stabilized refinance, a good commercial market and growth in the purchase market that we have seen for the last four months, we'll get up into our target, which has typically been 15% and beyond that. So, certainly the next two quarters should be very good.

At the back end of the year, it seasonally falls off a bit, but that's when we see the strong commercial. But we will be expanding our margins here through the second quarter and third quarter..

Great. Thanks for all that color. And then on the provisioning, sounds like the apples-to-apples kind of comparison to peers is 4.25% or even closer to 4%, including the escrow revenue.

Just wondering what you're seeing with claims now? Is it possible that we could see lower provisioning?.

Yes, Jason. It's Tony. As you said, and as we've talked about in prior quarters, the trends in claims has been favorable really for a couple of years now, if not more, in terms of what we've been looking at, not just the performance of the recent vintages but less adverse development if you go back several years to the 2005 through 2008 period.

As you mentioned, we provided at 5% for the quarter, but if you adjust that to add escrow and other title, it's more like 4%. The 2010 through 2016 expected ultimate loss ratios are actually running below our 5% provision rate currently. In fact, some of those are even below 4%.

If you take the average of those seven years, it's 4.2% of premium, just premium. So it's well below our 5% that we're currently provisioning. We'll continue to keep an eye on 2005 through 2008. Those years clearly are becoming more and more mature.

And if we don't see any more adverse development in those years, there's a possibility that the provision level comes down even maybe 50 basis points below the 5%..

Great. Thanks for that. And just quickly on the last question, the dividend payout ratio, you're going to have a ton of free cash flow coming here. It sounds like you freed up some more with the title subs.

So just wondering what the thoughts are on the dividend payout ratio once we get past the Black Knight spin?.

Well, we've – we believe that it's better to be consistent and have a consistent dividend payment rate as opposed to doing a special dividend. You get a quick pop and then sort of it goes away and everyone forgets about it. But we have consistently raised our dividend over the last several years.

Normally we've raised it – we make an announcement after our October board meeting. So that's two board meetings from now. We just concluded our April/May board meeting.

And that'll be at a point in time when the Black Knight spin has been effective, when the FNFV has been detached from FNF, although it already is a separately traded publicly company, but it will be completely detached with a different name and different board and so on.

So if I were to be guessing, I'd just look at the past history to define what's going to happen in the future. And normally we raise the dividend in October at our October board meeting. And we'll give it a good look because we'll have a good understanding of our cash on hand or cash flow. We'll be at a 16% debt-to-cap.

I mean, pretty – as I said earlier, pretty enviable position for a company to be in. That's making strong – that has some tailwinds behind it, is making good money, and has great cash flow..

Great. Thank you very much..

Your next question comes from the line of Mark Hughes from SunTrust. Please go ahead..

Yes. Thank you.

I think you may have alluded to this, but the recent trend in refi orders per day, has it held pretty steady in April compared to Q1?.

Yes, it has, as it's been consistent for almost five months. We're running about 2,500 per day. So it's been very stable. We actually anticipated a little bit more of a fall off as we moved through the first quarter and it just wasn't there.

So that's helpful to us in that it's easier to manage to that because typically the swings in refinances is what involve all of your staffing additions and then when you need to reduce the staff. So a stable refi works very well for us because our expenses are in check..

Understood. Thank you..

Your next question comes from the line of Geoffrey Dunn from Dowling & Partners. Please go ahead..

Thanks. I've got a few for you. Bill, first, what's the strategy behind the broker play? I'm trying to understand maybe the risk.

If you start getting bigger in the broker space, do other brokers choose not to direct business your way? Or is this more defensive in some markets against somebody like a Realogy who has their own title operation? What is the ultimate strategy here and how do you think about the risk there?.

I'll tell you, we have a very strong management group in our real estate brokerage operation. They're performance oriented, they make good margins, they're demanding of their agents, and you really hit on it a bit, it is – in large part, it's defensive.

We have other title insurance companies and Realogy that either own title insurance companies or agents or title insurance companies that own brokerage companies. And we really haven't seen any impact from the acquisitions we've made to date and they've been primarily in California.

The California agent is pretty independent and is basically tied to a sales rep or an escrow officer. So we haven't seen that – we haven't seen any negative or adverse development relative to being in the real estate business. We also are very interested in adding value to our real estate agents by – through our CINC, our Commissions Inc.

acquisition that we did last summer, and the training that goes on with some of these smaller groups of agents that are high velocity. And then we're very focused, as I said, on the software development program to see if we can develop a truly integrated front to back end system, closing system.

And we believe we could really disrupt the marketplace if we were to accomplish that mission..

On the defensive aspect, we've seen this before. Countrywide had its own agent and its own agents didn't like it.

So how – is Realogy a different risk here?.

I don't see them as a – I mean, they're kind of in a different ballgame. You know, they do try and control a lot of real estate transactions through their real estate brokerage company. But agents are pretty independent. They can lock out our sales reps for making calls on a particular office. But our sales reps just catch them outside.

And once there's that – once there's an escrow open, they go in and they talk to the agents.

I don't know, Mike, do you have any thoughts on that?.

No. I would agree. I think that you find that the agents, particularly the stronger agents, are very independent. And the – in certain markets I think it's very defensive, but it gives us an opportunity to get better access potentially to those agents where we have broker relationships..

Okay. And then, Tony, can you just go over kind of the pro forma debt structure right now? I want to make sure I'm following the different – couple different developments over the last couple months and understand where we stand on a pro forma basis now..

Yes. So right now if you look at the stand-alone FNF Group, absent Black Knight and absent FNFV where it's 16%, we have debt coming due May 15. We plan, as you heard in Bill's comments, we plan to borrow on our revolver to pay off that debt. And then possibly go into the markets post Black Knight spin.

And then we did buy back some of our convertible bonds during the quarter. And I think we mentioned that as well, $61 million of face, I think $134 million of cash that – $82 million of which was settled in Q1 and then the other $52 will be – or was settled in in the early part of April.

So 16% pro forma, and to the extent we take down any more converts, that number obviously comes down..

And is there any thought instead of terming out the revolver, a swap? Or are you pretty sure you're going to go to terming it out at some point?.

I think it's likely that we would look if the markets were strong post-spin that we would look to do another bond if the markets and the interest rates are correct..

Okay. And then last one is a technical question, Tony.

In terms of the max limitation per day for buyback, what's your rough estimate given your trailing average volume?.

I don't think it's a number that we will hit. I think it's a very high number..

We have 14.4 million shares available under our authorization. So we have plenty of room there currently. We were in the market at 50,000 per day before we announced the Black Knight and FNFV transactions. So, yes, I think we have plenty of room above that..

Okay.

So when you say aggressive, Bill, are you thinking more than the 50,000 before?.

Yes..

All right. Great..

We love the cash. And the best thing we can do for our shareholders is reduce our share count, which is 280 million or so. And with it getting rid of the convert, that helps a bit. And it gets rid of kind of an overhang that we have sitting that is due in 2018. So we're working hard on that.

But we're going to be, as I said, in an enviable position of having low debt-to-cap and having quite a bit of cash on hand to be flexible with. So it's going to be fun..

Okay. Great. Thank you..

Your next question comes from the line of Chris Gamaitoni from Autonomous Research. Please go ahead..

Thanks for taking my call. Most of my questions have been answered. I'll just follow up with a housekeeping.

On the technology platform that you mentioned, is that something that we'll notice in the margin or will more of that expense be capitalized? Or is it just so small it just won't really matter to be a real expense level?.

Yeah, it's going to be – it'll be capitalized. It'll be on a contract basis with Black Knight. Black Knight owns a business called eLynx, which is a software system that integrates with lenders for their mortgage originations. And our goal is to combine our Commissions Inc.

software platform with this eLynx platform to basically end up with a DocuSign equivalent, but control the real estate transaction with the moment in time that the broker receives the listing all the way through closing with the escrow, including all the closing services involved plus integrating with the various lenders that are funding the transaction.

So it's an ambitious program. It's not going to happen overnight. But we do have it underway, and it's an area of focus for us. And frankly, we believe over the next two years or three years, four years, it's a disrupter in the marketplace..

Okay. That sounds good. And do you have any color on refi? The level staying flat is relatively impressive.

Is there a mix shift between kind of rate and cash out, or can you not see that in your orders?.

We can't really see that. But what we do know, historically, is that the refi mix doesn't fall much below 25%. So it could soften if they do move rates in the second quarter, third quarter. But we are pleased that it's held so far. But we can't really get beyond that..

Okay. Thank you so much..

Your next question comes from the line of Kevin Kaczmarek from Zelman & Associates. Please go ahead..

Hey, guys.

Concerning your comments on M&A in the title agent space, is there going to be a focus on specific order types, say purchase or refi, when you're looking at acquisitions? And could you maybe look at some sizable commercial title agent acquisition?.

Our focus to date has been more supplementing existing operations. But recently we've made a couple of more significant acquisitions.

And the goal would be to go to these secondary markets that perhaps are not on people's radar screens and there's a generational element in place where the grandfather started the firm, the father ran the firm and the son is running the firm, but they're ready for a generational change and they're ready for some new ownership and new leadership.

And so we are really looking at, I'd say, Midwestern states in particular. Western states – states in the West and Northwest. We're fairly well covered in Colorado. Texas is a difficult market just because of the way the title insurance market is structured, and New York is always difficult.

So it's more of a Midwestern, Western play that we're interested in. And we don't normally announce them unless they're sizable, but we are continuing to make a number of different acquisitions and what they do is they grow our domestic – our direct operations market share.

Normally the agents that we are buying are underwritten by multiple underwriters when we acquire the agent. The other underwriters are displaced. So it increases our national market share in that way. And it hurts the other underwriters. So it's kind of a perfect storm.

It's a good way to use our cash, and we're buying these companies at four times to five times EBITDA. So it's fairly low risk..

Okay.

And can you give us a sense of maybe how much you acquired last quarter in terms of the number or dollar volumes?.

I don't think we did much last quarter. We have a few coming down this quarter that would be in that....

This is Mike. I think in the last 10 months or 12 months, we did 14 or 15 title agent acquisitions, and then we had another three or four escrow kind of acquisitions in the West and probably spent about $125 million on those..

Okay. I guess one last one.

How fast is the CINC revenue growing at this point?.

Pretty good.

Do you have any idea, Randy?.

Yes. The CINC revenue is great. It's also one of these businesses is a little bit seasonal. So, as we've come out of the end of the year into the first part of the year, it's growing. Through our sales network with the title company, we're making good referrals over there. So they're boarding customers.

There's a little bit of a lag time between when our customers board and the revenue actually hits; it takes two months or three months. But with the market coming alive on the purchase side, CINC revenue will grow..

All right. Thanks a lot. That's all I had..

Your next question comes from the line of Karan Ahooja from Eminence Capital. Please go ahead..

Hey, guys. Great quarter. I just had a few questions I wanted to ask on. First is in terms of housing price appreciation, how does that directly correlate to the fee per file? Obviously, you don't give that specific disclosure, but if you could talk about that sensitivity, it would be great..

Well, we've seen actually our fee per file has gone up somewhat commensurate with the appreciation, again, in our direct operations, predominantly in the Midwest and the West, with the West being the real hot market. Some of those markets are appreciating at 10% and above.

So we're catching a lot of the increase in the fee per file out of California, Arizona, Oregon and Washington. But we're really running hand-in-hand with what's taking place in the marketplace, and we expect we'll continue to do so.

Some part of it also has been over the last 9 months, 12 months, we've made some incremental adjustments in our rates, again, particularly in the direct operations in the states. So we're getting some benefit of that also, as we've hit the first quarter, and we'll continue on through 2017..

Got you. And I want to ask on that too.

But just staying with the HPA side for one second, if you have a given 5% increase in housing prices, what do you think your capture rate on that is?.

It's probably 50%, I would say, flow-through because we have incremental pricing. So probably half of it goes through in our fee..

Got you. And then on the rate increase side that you mentioned, FAF talked about that as well.

Are the states they're talking about ones where you've already done it or you guys likely to come and – go ahead and match them? How would you sort of describe where we are in terms of increasing prices on – or rather -?.

Well, we've already done a lot of our work as we moved through 2016. There were a few that hit in the first quarter here, but I wouldn't say we're done. I mean, we try to stay current with – which in today's world, the complexity of the transactions and the TRID regulations, et cetera. So you're never really done.

We look at it on a case-by-case, state-by-state basis. But we have a lot of our work behind us at this point..

Got you. And then just moving on to rate sensitivity. Just curious whether it be on the 10-year or the short-end part of the curve.

Where do you benefit if rates are rising?.

Well, we don't really know the answer to that one except that it could influence the purchase market. It could get some people thinking about buying a home before the rates go up any higher. So there might be some upside there. It won't do much for the refis obviously, but the refis have already settled out.

So the people who will continue to refinance their properties will be doing so irregardless of or maybe short of a dramatic rate increase. But we're not finding now that it's kind of settled out that it's affecting the refis a whole lot. Obviously that....

My question is actually more about the float revenue. I think about $4.5 billion. Like if you have a 50 basis point increase in short-term rates, but does that flow through? It's more on that sensitivity..

Yes. So maybe the first 50 basis points or so doesn't flow through at all, Karan, because we already get a, call it, a non-market favorable spread on those float balances. But if it bumps up above 50 basis points, then really we do get the benefit. And the numbers are more like $12 billion when you consider our investment property exchange business.

So we do have a lot of off-balance sheet escrow balances that would benefit from something probably greater than a 50 basis point increase..

Got you. And then just shifting to margins for a second. You made the point that you'd be above 15%. I wasn't sure, is that for the year or are you talking about sequentially? I think based on the seasonality, Q2 and Q3, it would be hard for them not to be above 15%. So just curious what exactly that commentary meant..

Well, it actually did mean the second quarter and third quarter, and we're off to a very good start in the first quarter. So it depends on where we hit in the 15% range. But as you know, it's certainly a moving target. We do have to watch the impact to interest rates.

We're counting on the purchase to continue to hold and perhaps grow through the first and maybe second buying season of the year, and when we get to the end of the year, we think we'll be in pretty good shape. And the commercial market is a little bit of a wild card, but we feel we're very confident in the commercial market.

So that's going to – that's going to help us as we move through Q2 and Q3..

Got you. And a specific question within margins, as I said, is when I see other operating expenses of one, with revenue of 10, that's just such a wide gap.

Were there low-hanging fruit or was there something you were spending on last year that you lapped?.

So other operating expenses, there's a big part of that that moves with some of our ServiceLink businesses like appraisal and field services because there's such a high proportion of pass-through costs that run through there. Those businesses were a little softer in Q1. Some of that was seasonality.

So that's why you see other operating expenses really not moving up when the personnel costs moved up a little more..

Got you. Okay. And then the last one from me. The question was asked on refi earlier in terms of why it's not down more. I just would love to see if there's any more color you can provide. It just – it seems like the percent of people that are in the money is less.

We've obviously gone through people who at this rate level had made sense not to refi and if they were going do it, they probably were going to – probably did it. So just curious if there's any more color you can provide on why it's holding in there so well..

Well, the only – I could tell you why it's holding for us is, we've just got a real strong footprint in the Western states where most of that refinancing activity takes place. We've got our multiple brands out there, we've got strong teams of salespeople, we've got our centralized solution with ServiceLink. So we're covering a lot of the bases.

As the market comes down, we work a little harder. But we have a pretty good footprint. So that might be the answer for us. I couldn't speak to the rest of the industry..

Got you. Thanks so much..

Thanks..

Your next question comes from the line of Bose George from KBW. Please go ahead..

Hey, guys. Good afternoon. Just wanted to go back to the commercial once again. Just a strong order volume in the first quarter.

Do you think there was some pull-forward there? And then just for the full year, I mean, is it roughly flat volumes what you're thinking?.

Bose, it's Mike. So I'm not exactly sure what you mean by pull-forward, but – as we've talked about before, our commercial orders on both the open and close side have just been remarkably consistent for 2015 and 2016. And again, we're off to a strong start in the first quarter, particularly with national up.

So I don't know that we're pulling orders forward. I think we would anticipate that orders will stay very consistent through the balance of the year.

And similarly, to what Randy was talking about on the refi side, we've really got a broad geographic diversity with our national offices, 21 national offices throughout the country and our 1,300 local locations that are pulling commercial work.

So we feel pretty good about the commercial market that is broad based and not just local but also national..

And just – I mean, I think you might have said this earlier, but just on a year-over-year basis, did you feel like volumes should be about flat?.

Yes. They could be flat to maybe up a little bit. I mean, that's what we're seeing right now. It's hard to call the whole year, but that's what it's looking like right now..

Okay. Thanks. And then actually just one question on the escrow revenues.

Can you just remind us what the seasonality there is?.

Seasonality in the escrow revenue – so they're in lockstep with the title premium. So – because we get an escrow fee when we close a title order. So it's going to be softer in the first quarter, it's going to grow into the second quarter and third quarter, and then come down a little bit in the fourth quarter. That's the typical seasonal year..

Yes. Okay. Thanks..

And at this time, there are no further questions. I'd like to turn the call over to Mr. Foley..

Thank you. First quarter was a strong start to 2017. As we move through this year, we will continue to strive to maximize earnings from our operations and remain the most profitable title insurance company in the country. Thanks for being with us..

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect..