Thank you for standing by. Welcome to the FNF 2017 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

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

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

We will 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 will 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.

This conference call will be available for replay via webcast at our website at fnf.com. It will also be available to phone replay beginning at 1:30 PM Eastern Time today through November 1. The replay number is 800-475-6701 and the access code is 430331. Let me now turn the call over to our Chairman, Bill Foley..

Thank you, Dan. The third quarter was another strong performance from our title business as we generated adjusted pre-tax title earnings of $287 million and an adjusted pre-tax title margin of 15.3%. I will let Randy go into more details on the performance of our title insurance business.

Happily we closed the tax-free distribution of Black Knight on September 29, as FNF shareholders received 0.3066322 shares of Black Knight common stock for each share of common stock they own. Black Knight is now a stand-alone public company, with no FNF ownership.

We also made significant progress on the FNFV exchange transaction during the quarter and have now set a shareholder vote and closing date of November 17, for the exchange of the FNFV tracking stock for Cannae Holdings common stock.

Once the exchange is completed, FNF will again be eligible for potential index inclusion, including the S&P 500, and Cannae Holdings will be a legally separate public company. We made two technology acquisitions aimed at the real estate broker and agent markets in the third and fourth quarter.

The most recent was the acquisition of a majority interest in SkySlope, the leading provider of digital transaction management and closing solutions to real estate professionals.

SkySlope’s cloud-based digital transaction management platform is used by over 1500 brokerages covering 5000 offices, covering the 140,000 agents to initiate approximately 1.5 million real estate transactions over the past year.

SkySlope will broaden FNF’s service offerings to real estate professionals and further advance our strategy of providing a suite of best of breed technology assets and help real estate agents and brokers gain more customers and more efficiently close transaction.

The other acquisition was Real Geeks, a provider of customer relationship management platform and other SaaS-based internet marketing solutions for real estate professionals in the United States and Canada.

Real Geeks is a great complement for our existing CINC business, while CINC focuses on elite real estate teams, Real Geeks focuses on elite single agents at a lower price point. We believe the combined capabilities of Real Geeks and CINC will allow us to provide valuable technology solutions to a much larger universe of our real estate customers.

During the third quarter, we repurchased approximately 42 million face value of the 4.25% convertible notes for approximately $115 million in individually negotiated transactions.

Today we have repurchased 230 million shares of face value of the convertible notes for a total purchase price of $549 million, leaving 70 million of the notes currently outstanding. The represents the repurchase of more than 7 million shares of FNF stock.

Finally yesterday our board declared an increased quarterly cash dividend to $0.27, an 8% increase from the previous quarterly cash dividend of $0.25, as we continue to seek ways to return increased value to our shareholders. I will now turn the call over to Randy Quirk to discuss the title business..

Thank you Bill. As Bill mentioned this was another strong quarter for our title operations.

The residential purchase and commission markets continued to drive our performance in the third quarter as residential opened and closed purchase orders per day increased by approximately 4% and 7% respectively in the quarter, and total commercial revenue grew by 7% versus the third quarter of 2016.

Overall we generated $287 million in adjusted pre-tax title earnings and a 15.3% adjusted pre-tax title margin. We look forward to continuing strong industry-leading performance from our title insurance business. For the third quarter, total open orders averaged just over 7950 per day, with July at 7950, August at nearly 7900, and September at 8050.

As I mentioned, purchase orders opened per day increased by 4% for the third quarter. Total opened orders were 7600 per day for the first three weeks of October and purchase orders open per day grew by 4% over the first three weeks of October of 2016.

We experienced stability in our direct and agency channels as direct premiums were nearly even with the prior year, and agency premiums increased by just under 1% over the third quarter of 2016.

Direct revenue benefited from the 18% increase in fee per file primarily driven by the higher percentage of purchase closed orders, offset by a 15% decrease in closed orders. On the agent side, $119 million or nearly 17% of our agency premium were generated by agents signed subsequent to January of 2015.

We did have some revenue impact in the third quarter due to the hurricanes in Texas and Florida as we lost several business days from offices being closed due to those storms. We anticipate that most of that revenue will be deferred into future quarters as we are already seeing a carryover in closings in revenue into October.

Total commercial revenue of $250 million, was a 7% increase over the third quarter of 2016, driven by a 5% increase in closed orders and a 2% increase in the fee per file. National commercial revenue of $138 million grew by 6% as the closed orders increased by 12%, more than offset by a fee per file decline of 5%.

The total fee per file of $2,368 increased by 18% over the third quarter of 2016 as 65% of closed orders were purchase-related versus 54% in the third quarter of 2016. Let me now turn the call over to Tony Park to review the financial highlights..

Thank you, Randy. We generated $2 billion in total revenue in the third quarter, with title generating nearly $1.9 billion in total revenue and our corporate and other segment generating $115 million, which is predominantly the real estate brokerage and Commissions Inc. revenue.

Adjusted pre-tax title earnings were $287 million, an $8 million or 3% decrease from the third quarter of 2016. Adjusted net earnings were $197 million or $0.71 per diluted share, which includes the discontinued operations results of Black Knight.

The title segment generated $1.9 billion in total revenue for the third quarter, less than a 1% increase over the third quarter of 2016. Total title and escrow revenue was essentially flat with the prior year. Personnel costs increased by 6%.

The biggest component of the personnel increase were the recent Title Guaranty of Hawaii and Hudson & Marshall acquisitions that added approximately 500 positions. We've had success in recruiting revenue producers from other title companies, and we also hired staff in the second quarter to handle the higher volume of purchase transactions.

Also with the Property Insight realignment with Black Knight at the beginning of 2017, we now record those related expenses and personnel costs versus other operating expenses in the prior year.

Other operating expenses declined by 8% as the variable expenses in title plant usage and cost of sales and ServiceLink declined with a decrease in opened and closed orders and valuations in field services businesses as compared with the third quarter of 2016.

FNF debt outstanding was $762 million at quarter end for a debt to total capital ratio of 14%. Our claims paid of $60 million were $4 million lower than our provision of $64 million for the third quarter, and we maintained our loss provision rate of 5% of title premiums for Q3.

Finally, our FNF investment portfolio totaled $4.5 billion at September 30. From a regulated standpoint, we have $1.4 billion in statutory reserves, $1.5 billion in regulated cash and investments and $900 million in secured trust deposits for a total of approximately $3.8 billion in regulated cash and investments.

From an unregulated perspective, we have $200 million of unregulated cash at FNF as of September 30.

There's $250 million in cash and investments at ServiceLink and other subsidiaries and $150 million in equity investments, all 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. [Operator Instructions] Your first question comes from the line of Jason Deleeuw from Piper Jaffray. Please go ahead..

Thanks for taking the question. I was wondering if we could get an update on the benefits on the escrow deposits, the benefits from higher interest rates.

Was there a meaningful benefit this quarter? Are you not yet through the floors, I guess, on those rates? And can you just update us with what the amount you have on deposit right now – where that stands?.

I think the total, including the 1031 exchange business, is about $12 billion. So I think you have about $8 billion in our title and escrow business, and about $4 billion in our 1031 exchange business. We are earning a better rate in the 1031 exchange business and that's above 100 basis points.

We're still earning – we still haven't seen much movement in the overall escrow balances. We were – or we are earning a rate that's a little higher than the short-term rates currently, so we probably don't see a meaningful lift there until maybe another 50 basis points or so in short-term rates moving..

Got it.

Thanks, and then when we think about your debt to cap ratio lower than, I believe, what you've laid out as targets, I mean, how can we think about some of the actions you can do to increase that? And what would you use the capital for?.

Well, Jason, in terms of our debt to cap ratio, it is lowered this time with the distribution of the Black Knight shares and the pass-through of those – of their indebtedness up into our balance sheet.

We have some acquisitions that we're thinking about and looking at if we were to – we do need to replace our bond that we paid off out of our line of credit last April or May. We also, of course, want to retire the balance of our convertible debt. And that's – these get taken care of sometime by April of next year.

And so I think you can expect to see us do a bond issuance at some point. We're trying to work through having the rating agencies come in and take a look at our balance sheet and look at what we're doing and what we propose to see if we can get an upgrade.

They're hard to come by these days, but we have a very strong and now fairly simple balance sheet.

So you could expect to see a kind of replacement bond issuance and I think that last bond was at $250 million Brent or...?.

$300 million..

$300 million. And that will still keep us on a strong debt to cap position..

Got it. Thank you..

Your next question comes from the line of [indiscernible] from Zelman & Associates. Please go ahead..

Hi, good morning. Thanks for taking the question. I guess, first question on the storms. You mentioned you think there was some impact in the third quarter and that might unwind in the fourth. You're starting to see that already.

Any way to quantify that or give us a sense of how much the business would have been in the storm-impacted areas?.

Sure. This is Randy. We've – it's been difficult to really quantify that. As you know, the storms came through Texas in mid-August and then came through Florida in the early part of September. We have pretty significant market share. We're up pretty close to 30% in Florida, 35% in Texas.

Also in Texas in the affected areas, we're running 40% or 50% – 40 or 50 branches. We looked at the revenue on a per day basis, looked at the end of the month what might have fallen off. And we're really giving you an estimate here, but it was in the ballpark of $10 million. That's on our direct side.

What has been a little more difficult to quantify is what the impact would be on the agency side, but it could be some part of that or half of that. So anyhow, it's really a ballpark because there is so many moving parts with these storms. We had a lot of offices that were closed for a few days up to a week.

We had a few that were flooded out, employees working out of their homes. And so a lot of the closings got stalled. Now we're already seeing in October that the closings have come back – actually, the openings have snapped back to where we expected they would be and the revenue has come back in October.

So we're playing catch-up but we don't know what hits in the fourth quarter and what spills over into the first quarter. In terms of any falloff, we think it's going to be minimal in terms of the transactions that ultimately don't close. So it is – in both the states, there's a feeling that we're pretty close to being back to normal..

Okay. That's great.

On the acquisitions that have been done thus far, can you just give us a rough number on revenue contribution in the fourth quarter and then how that might filter into next year as well and if you could just split between the segments?.

I think Title Guaranty of Hawaii is at a run rate of $60 million or $70 million annually, so that's probably a good number to use. Hudson & Marshall, I'm not sure.

Do you?.

$20 million annually – $20 million to $25 million annually..

Yes. And those were the significant ones in the title segment..

Okay.

And then last question, just you mentioned kind of the debt refinancing and you might see the issuance there, any update on how we might think about share repurchases now with Black Knight spending complete?.

Yes. I mean, we've raised the dividend. That's one of the ways we're going to return value to our shareholders and that's something we've been doing pretty consistently over the last 3, 4, 5 years once we got through the Great Recession. And now it is time to start repurchasing shares.

I've always been an advocate of a consistent sort of daily repurchase program of a certain amount of shares per day and not try and play the market, not try and make large purchases unless there's happens to be a large seller that would disrupt the market.

So we're right now evaluating and looking at the level of daily share repurchases we'd start engaging in just as our blackout period over, which I think is I think on Monday, the blackout period is over. And so you can expect to see us begin the repurchase program as early as Monday..

I appreciate it guys. Thank you..

And your next question comes from the line of Mark DeVries from Barclays. Please go ahead..

Hi, thanks. First question is on the new dividend.

Should we consider this a new kind of dividend payout ratio that you feel comfortable with and, therefore, any kind of future increases would be kind of consistent or proportionate with any kind of earnings growth you'd expect?.

Well, that's certainly one of the ways we look at the dividend program. One of the things that's happened, of course, is that our investment profile has changed considerably.

With FNFV being distributed – I mean, it is a separate public company but having been recast as an completely independent public company, there won't be any need for the fund utilization for those kind of investments any longer out of FNF.

And now with Black Knight being distributed, we're really a title insurance company with some technology assets in the real estate space developing a platform we've talked about. So that's kind of where we are. So you might see a little larger payout ratio going forward. We didn't want to get ahead of ourselves.

We thought if we had a $0.02 increase per quarter it was a good return to our shareholders. We certainly could have done more. But next year in October, our board meeting is the time when we normally take a look at this and we'll see how the earnings are next year, and we'll again re-evaluate the dividend.

And our goal is continue to increase the dividend payout, return to our shareholders consistently, and so we never have to take a step back..

Okay, that's helpful.

Would you consider using some of your excess cash to buy out the minority interest in ServiceLink that you don't own?.

That's an ongoing negotiation with our partner. And frankly, when we bought ServiceLink, we got a great return on Black Knight and our partner got a great return on – under Black Knight investment. But the ServiceLink business immediately started turning down, the loan origination business, and the refi business turned down pretty quickly.

So it's a valuation question that we would have to have a negotiated value for their 20% or 20.1% interest in ServiceLink. It is something we should actually – we should own 100% of, and we need to take care of that. But we have – time is on our side..

Okay, fair enough.

Sorry if I missed this, but could you just provide us an update on how the pipeline is looking for the commercial business?.

Yes. It's Mike, Mark. Pipeline is very strong. We've had a great commercial year so far. We're up 7% year-over-year. And on the open order side for the first nine months of the year, the variance is less than 1% and that's really carried through now for two years and nine months. So we feel good about the pipeline that we should finish the year strong.

We're coming off our two best years in commercial, and I think this year is going to finish up right in line with those two years. Can't quite tell you if it'll be the best year, the second best year, but it's going to be pretty darn close..

Okay, great. That is it from my questions; although just want to congratulate Bill on the phenomenonal early success of the Golden Knights. And also suggest that you guys ever decided to do an investor day again that you host it in Vegas..

That is actually a great idea, and [indiscernible]..

Thanks..

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

Thanks, good morning.

Bill, are you guys still contemplating an investment into FNFV?.

We are.

Do you have the number, Tony?.

Yes. At the closing and it's in the materials, FNF is going to make a $100 million equity investment based upon a two or three day average as we get to that distribution date. And then FNF will also maintain the existing undrawn $100 million line of credit, and that's at a 4.5% interest rate..

Okay.

And is that investment being done at the holdco or opco?.

We have capacity in our underwriters because it is a common stock. So we're still determining where that cash can come from. But we probably intend to do maybe a little bit of both..

Okay.

And then, Tony, what is the opco dividend expectation for the fourth quarter?.

I think it's about 100 and – call it $180 million.

You mean a dividend upstream to parent?.

Correct..

About $180 million..

Okay. And then last question, Bill.

I know you're still evaluating on the buyback, but is your expectation that the systematic plan would exceed the previous 25k a day that we saw?.

It will at least be the 25k a day or at least be the 25k a day..

Thanks..

[Operator Instructions] You have a question from the line of Bose George from KBW. Please go ahead..

Hi, guys. Good morning.

Actually just to follow up on the earlier commentary on the hurricane impact, you know, that $10 million you mentioned on direct revenues, can we assume the expenses were already in place when that kind of comes in at sort of 100% margin business – I mean, revenue?.

Sure, absolutely. The work has been done on those transactions already. We're figuring it's an 80% margin or profitability with that – associated with that revenue..

Okay, great.

And then just switching over to the acquisition opportunities in the data segment of real estate professionals, could you help us sort of size – are there other opportunities there? Is this something that we could see become more meaningful over time?.

That was more of a build-out of the platform. We have most of the pieces in place. And now it's a matter of integrating SkySlope with our CRM solutions and kind of having a front-to-back solution for our real estate customers that completely ties in and is seamlessly integrated with our escrow and title closing system.

So we have a doc prep set of software that's being developed and going to be utilized. So we're going to have a full end-to-end solution. But we've kind of bought the pieces over the last six or seven months that we needed – or last year that we really needed to develop this platform..

Okay, great. Thanks and then just one on the corporate earnings – segment earnings going forward. Just wanted to make sure we had that number.

It's a little noisy with the Black Knight spend this quarter, so what's corporate earnings going to be on a run rate basis going forward?.

Yes. Bose, it's Tony. Yes, if you look at the corporate segment, you're right, there's some noise.

But most of that noise is after our pre-tax earnings, so the Black Knight piece would be the discontinued operations, the non-controlling interest and then the add-back related to discontinued operations about $22 million adjusted after-tax or about $0.08 impact was Black Knight.

Now don't assume that those are the same results that Black Knight reports. They have different add-backs. They have different tax rates, and obviously, a different noncontrolling interest number. So the adjusted earnings without Black Knight is $0.63 earnings per share.

On a pre-tax basis, adjusted pre-tax, that $13 million is a pretty good number, at least for the second and third quarters when we have the strength of our real estate brokerage businesses kind of at their peak. That is a seasonal business. It's less – it's smaller in Qs 4 and 1.

So I would say that $13 million – somewhere, that $13 million to $15 million pre-tax adjusted loss is probably a pretty good run rate for you..

Okay, great. Thanks..

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

Thanks, and kind of following up on the non-title-related investments in the real estate and the technology platforms.

Should we just simply think of those as enhancements or designed to enhance the title operations rather than trying to build a new business within FNF? And should we then expect at some point some benefit to the title revenue or market share, I guess, and then possibly also on the margins with the expenses?.

Well, I mean, our goal is to be seamlessly integrated with our real estate customers with a kind of disrupting platform to our competitors, and we believe we're very close to doing that. And we're going to be fully integrated with our title and escrow operations.

We are already seeing a flow of business based upon our CINC acquisition of over a year ago and the development of additional customers that use the CINC platform that then migrate and start utilizing the Fidelity National Title or Chicago Title as a business partner. So we haven't defined it. We haven't tracked it separately. We know it's happening.

But we believe it's going to be – if we're successful, we believe it's going to be significant in terms of increasing our market share..

Great. Thank you..

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

Hi, thanks guys, and I definitely want to second the recommendation for an analyst day in Vegas. That will be nice. But Bill, I just – just to kind of piggyback on Jason's question there, you know, there's a couple of guys in the industry that seemed like they're trying to build out the same kind of digital end-to-end platform.

Can you maybe tell us how you think yours is going to be different? Why yours might have an edge over theirs?.

Well, we started out with really having that title and escrow component, which our competitors do not have.

And by integrating with our real estate customers and really managing that transaction for our real estate customers from the point in time that they do their forming for listings, to the listing, to the purchase contract and receipt, to the escrow, if we can completely seamlessly integrate that, we have the – we are the end product that the other competitors really don't have.

I mean, you have DocuSign, but we're going to have our own DocuSign service that's going to be completely embedded within the SkySlope and integrated with CINC and Real Geeks. We intend to also have an offering that certain non-RESPA-related businesses, pool services or termite inspection, they can be ordered directly off this same platform.

And so we're just at the front edge of this but the SkySlope acquisition really gives us the technology platform that gets integrated with all these other businesses and they already have a DocuSign equivalent for the real estate piece of the business. So it's now just a matter of the title side.

So I just believe we have an edge, but we're not trying to build it all internally. We really want to go out and buy companies that had the assets that we could then integrate. And we're trying to make sure that we bought companies with the right management that would be on board for the plan and the program, and we believe we've accomplished that.

So that's kind of all – we're early on but we're actually ahead of schedule because I thought it might take another year or so before we got to this point where we actually had the pieces in place..

Okay, that's helpful.

And then as I think about the mortgage origination side of it, I mean, is that a direct connection into like a Black Knight's in power? Or is that going to be agnostic where you can kind of connect into any origination system?.

Well, we have this is – that was....

eLynx..

eLynx that's owned by Black Knight that is the mortgage – that has a mortgage origination component that we also are going to integrate. And if they're on eLynx, then they can also be – they can be seamlessly integrated with the entire platform.

So we want to be agnostic in terms of the mortgage application, then we wanted to be broad based so it includes many different customers. But we're probably going to use eLynx as our connectivity piece to the mortgage industry..

Okay, that's interesting. And then – and Tony, I want to make sure I got this.

I think you've commented on this, but the total personnel cost in title, I think it was up like 6% or so year-over-year versus kind of flattish rev, was that Property Insight or was that from the distribution of Black Knight?.

Well, there were a number of pieces. We talked about the acquisitions of Title Guaranty of Hawaii and Hudson & Marshall. We talked about heavy recruiting activity that we've had success in the second and third quarters.

We talked about the change in mix of business, going for more of a refi-driven business in last year's third quarter to a purchase-driven business this year. And the Property Insight piece, which was really a flip between operating expenses when we were buying the service from Black Knight, it was an operating expense.

And now that we've realigned that and taken those employees back to FNF, it's a personnel expense. So it's really about $4 million of a flip between other operating and personnel..

That makes sense. Okay, thanks guys..

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

Thank you. The third quarter was another strong performance in our title business. As we move through the remainder of 2017 and into 2018, we will continue to strive to maximize earnings from our operations and remain the most profitable title insurance company in the country. Thanks for joining us today..

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..