Ladies and gentlemen, thank you for standing by, and welcome to the FNF 2017 Second Quarter Earnings Call. During today’s conference call, phone lines are in a listen-only mode. We will have an opportunity for question-and-answer session. [Operator Instructions] And as a reminder, today’s conference call is being recorded. At this time, I would like to turn the conference over to our host, Treasurer, Dan Murphy. Please go ahead.

Thank you, and good morning, everyone, and thanks for joining us for our second 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 up 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 fnf.com. It will also be available through phone reply beginning at 1:30 PM Eastern Time today through July 27. The replay number is 800-475-6701 and the access code is 426236. Let me now turn the call over to our Chairman, Bill Foley.

Thank you, Dan. The second quarter was another strong performance from our title business, as we generated adjusted pre-tax earnings of $310 million, and the largest amount of quarterly adjusted pre-tax earnings since 2003. I will let Randy go into more detail on the performance of our title business. We also announced two acquisitions during the second quarter. The first was Hudson & Marshall, a full-service auction company and one of the nation’s top real estate and property auction providers. FNF and H&M will partner to further enhance the services FNF can provide to our strong lender servicer and real estate relationships. Additionally, H&M will be powering ServiceLink Auctio, a full-service auction platform that will be fully integrated with ServiceLink suite of products and technologies. We also announced the acquisition of Title Guaranty of Hawaii, the oldest title insurance company in the State of Hawaii, which also carries about a 50% market share in Hawaii. We have had more than a 30-year relationship with Title Guaranty and we’re excited to welcome them into the FNF family. We also committed to an investment related to CF Corp’s announced acquisition of Fidelity & Guaranty Life. Our plan is to invest approximately $135 million directly in CF Corporation common stock and a $100 million into preferred issuance, yielding 7.5% plus about $2.3 million pending warrants. We have seen a 20% appreciation in our commitment, which will be funded in sometime in the second – sometime in the fourth quarter. During the second quarter, we continued to repurchase our 4.25% convertible notes due in 2018 into individually negotiated transactions. To-date, we have repurchased $187 million in face value of the convertible notes for a total purchase price of $434 million, leaving $111 million of the notes currently outstanding. This eliminates the need to issue approximately 5 million shares of FNF and 1.7 million shares of FNFV common stock, if the notes have been converted. There are rules around this type of repurchase, which preclude us from seeking to buy further convertible notes in the near-term. We made significant progress in the Black Knight distribution during the second quarter, with several milestones achieved. We announced the receipt of the private letter ruling on May 10, signed a formal agreement with Black Knight on June 8, filed the preliminary Registration Statements on Forms S-4 and S-1 with the SEC on June 13 and June 21, respectively, received comments from the SEC on July 10, and filed Amendment Number One to Forms S-1 and S-4 with the SEC on July 18. Once the SEC declares a Registration Statements on Forms S-1 and S-4 effective, we can mail the proxy to shareholders and then have the shareholder vote at the earliest 20 business days after the mailing. We still expect a third quarter closing for the Black Knight distribution. Let me now turn the call over to Randy Quirk to discuss the title insurance business.

Thank you, Bill. As Bill mentioned, this is another strong quarter for our title operations. The residential purchase market and commercial markets continue to drive our performance in the second quarter, as residential open and closed purchase orders increased 6% and 9%, respectively, in the quarter, and total commercial revenue grew by 7% versus the second quarter of 2016. Overall, we generated $310 million in adjusted pre-tax title earnings, a 16.2% adjusted pre-tax tile margin, and a 17% adjusted pre-tax tile margin in our distributed title operations, which excludes ServiceLink. We look forward to continuing strong industry-leading performance from our title insurance business. For the second quarter, total open orders averaged a consistent 8,200 orders per day, with April at 8,150 per day, May at more than 8,200 per day, and June at 8,200 per day. As I mentioned, purchase orders opened per day increased by more than 6% for the second quarter. Total open orders were 7,900 per day for the first two weeks of July and purchase orders opened per day grew by 7% over the first two weeks of July in 2016. We experienced consistent growth in our direct and agency channels, as direct premiums grew by 6% and agency premiums increased by 5% over the second quarter of 2016. Direct revenue benefited from a 15% increase in the fee per file, primarily driven by a higher percentage of purchase closed orders somewhat offset by an 8% decrease in closed orders. On the agent side, $92 million, or 13% of our agency premiums were generated by agents signed subsequent to January of 2015. We had another strong commercial quarter. Total commercial revenue of $261 million was a 7% increase over the second quarter of 2016, driven by a 7% increase in the fee per file. National commercial revenue of $148 million grew by 3%, as the closed orders increased by 15%, more than offset the fee per file decline of 10%. The total fee per file of $2,428 increased by 15% over the second quarter of 2016, as 67% of closed orders were purchase-related versus 58% in the second quarter of 2016. The increase in the total 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 $2.3 billion in total revenue in the second quarter, with title generating nearly $1.9 billion in total revenue, Black Knight contributing $242 million in total revenue, and our Corporate and Other segment generating $133 million, which is predominantly our real estate brokerage and CINC revenue. adjusted pre-tax title earnings were $310 million, a $10 million, or 3% increase over the second quarter of 2016 and the largest quarterly adjusted pre-tax title earnings since 2003. While the adjusted pre-tax title margin was 16.2%, our distributed title operations generated a 17% adjusted pre-tax title margin equal to the second quarter of 2016. Adjusted net earnings were $207 million, or $0.75 per diluted share. The Title segment generated $1.9 billion in total revenue for the second quarter, a 5% increase over the second quarter of 2016. Total title and escrow revenue increased by 5%, as direct title premiums grew by 6%, agency premiums increased 5%, and escrow title-related and other fees grew by 4%. Combined personnel costs and other operating expenses grew 5%. FNF Group debt outstanding was $2.4 billion, with nearly $1.6 billion of that debt at Black Knight. Our debt-to-total-capital on a consolidated basis was 25% at June 30. On an FNF-only basis, the debt-to-cap ratio was 14%. Our claims paid of $57 million, or $8 million lower than our provision of $65 million for the second quarter, as we continue to provide for claims at 5% of title premiums. Finally, our FNF Group investment portfolio totaled $4.7 billion at June 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 $300 million of unregulated cash at FNF Group as of June 30. There is $100 million in cash and investments at each of Black Knight and ServiceLink. Approximately $100 million in cash at other subsidiaries and $200 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] And our first question today comes from the line of Mark DeVries with Barclays. Please go ahead.

Yes, thanks. So the stocks had quite a run this year, and it’s obviously a little bit less cheap today than it when we last talked after – during 1Q earnings. So, Bill, I just be interested to get updated thoughts on, as you think kind of post-Black Knight spend, the relative attractiveness of buying back stock with excess cash versus some of the other alternatives?

Well, thanks for the question. What I – the way we really look at it is that we need to get into a sustained stock repurchase program. And it would be a certain amount of shares per day on a continuing basis, so that would be able to suffer through some blackout periods around earnings releases. But we really haven’t changed our opinion about our capital allocation strategy. We want to look at our dividend and we want to continue to examine increasing that dividend on a consistent basis. So that our shareholders can continue to receive value. And stock repurchase is going to be a key component. We just haven’t done much of that, or any of that lately, because every time we buy a share of FNF stock, and in fact, would be diluting ourselves by Black Knight. So we’ve just deferred that, but we still continue to – we continue to think our stock is a good value. We believe it’s a good way to allocate our capital and we’re going to continue to focus on acquisitions that are real estate title insurance-related in order to grow our business such as the Title Guaranty acquisition and Hudson & Marshall acquisition. So we really haven’t changed our mind. First, we’re going to get an adjustment down in the price when we do the Black Knight distribution of $12 to $13 a share. Does that answer your question.

It does. Yes, thanks. That’s helpful.

Thank you. Our next question comes from line of Bose George with KBW.

Hey, guys, good afternoon. Actually, first, your headcount increased by about 300. We didn’t see that last 2Q. Was there anything meaningful driving the headcount increase?

Yes, Bose, this is Randy. In the second quarter, we really saw the increase on the residential side, the purchase side. In the first quarter, we eliminated, I think, it was 180 positions, as we went through the January and February seasonal slowdown. So we needed to get staffed up. As we went through the second quarter now, we see closed orders have increased second quarter over the first quarter by about 30%. So we needed to add people. As we go through the third quarter, we’ll get to closings on the residential side. And as we get to the back into the third quarter, we’ll start looking at the staffing adjustments going into the fourth quarter. But we were prepared. As of the end of the second quarter, positioned ourselves, because of what was a 30% fall-off on the refinance side. But the purchase side, the real estate or the residential side, the purchase side is a lot of touches a little more complicated. So we needed to get the people onboard to take care of the customers.

Okay, that makes sense. Thanks. And then just on the free cash flow, can you just talk about what drove the strength of that relative to year-ago quarter?

Yes, Bose, I mean, a lot of the components are the same in terms of earnings. Our claims paid obviously were down a little bit. But some of the others, there was probably a $100 million impact on some working capital items that frankly, those kind of ebb and flow throughout the year. It was still a very strong quarter at over $400 million. But – so with those working capital adjustments, maybe they gave us an additional $50 million that we didn’t see in the prior year second quarter.

Okay, thanks. And just one modeling question. In terms of the non-controlling interest, is that a primarily Black Knight, or is ServiceLink a bit of that? And just why was that down this quarter?

Yes, I mean, it’s best probably to look at the segments, and yes, it’s primarily Black Knight, given that there’s a 45% non-controlling interest. ServiceLink has very little impact on the bottom line because of the purchase price amortization that impacts net earnings or pre-tax earnings. There’s almost no impact there. So it’s really, it’s primarily Black Knight.

Okay, great. Thanks.

And our next question will come from the line of John Campbell with Stephens.

Hey, guys, good morning.

Good morning.

Congrats on another strong quarter. But on the commercial trends, I’d say, you guys have been, I guess, cautiously optimistic that it hang on this year, and it looks like it’s been up pretty nicely over the last two quarters. If I look at the back-half of last year, it looks like you’re going to be lapping some easier comps. But just curious about updated thoughts on the forecast and whether you guys think that you can keep the commercial business elevated throughout the rest of this year?

Sure, John, it’s Mike. We’re really seeing a lot of strength across really multiple geographies and multiple segments in the commercial space. And you’re exactly right, that it’s been a really steady strong market. But we will continue to focus on our local commercial. We’ve been adding sales resources, as we’ve talked about in the past. We’re seeing that coming through very well for us. And in our national space, we have 21 national commercial offices spread across the country. 14 of the 21 are ahead of last year on revenue, and the seven in our turf are a couple of closings away of being in the same boat. So it’s just – it’s a very good commercial market, and we’re very well-positioned, both locally and nationally to take advantage of it.

Okay, thank you. That’s helpful. And then, Tony, on the corporate rev, it jumped up a bit this quarter. Can you unpack some of the components of that revenue there, and then maybe if you could help us with that kind of good run rate going forward?

Yes, John. So the only anomaly there in the corporate revenue, because that as you know, our real estate brokered revenue, as well as our Commissions, Inc. revenue. Commissions, Inc. runs roughly $15 million a quarter and that’s been fairly consistent. I think, it’s up about 42% year-over-year, but we didn’t buy them until, I believe August of last year. But we did have – the real estate group was on a one-month lag in terms of closing their books. And we accelerated them this quarter to get them on real-time reporting. So we actually have the month of March included in the quarter to get them to a June close, if you will. So it added about $25 million to that revenue number. It – the month of March was still kind of seasonally slow, so there wasn’t any profit impact from that. But you do see about $25 million of additional revenue in that line item.

Okay, that’s helpful. And then this might be too granular, it might not make too much of a difference. But could you help us breakout what the true corporate costs are versus some of the costs that are tied to that revenue?

Yes, I mean, we used to run about $30 million of adjusted pre-tax loss in that corporate column. You see that’s come down to $21 million. And a few things – few items that impact that, interest expense has come down because of the repurchase on the convert, so that’s down $3 million or $4 million and will be down even more as we get a full run rate into Q3. But the rest of the impact, I would say, would be better performance out of the real estate group and Commissions, Inc. group. So I guess the – I guess, that sort of helps you with the costs side. We can probably go offline, if you want, if you wanted more precision on the individual cost components.

Okay. No, that’s helpful. Thanks, guys.

Thank you. Next, we’ll take questions from the line of Jason Deleeuw with Piper Jaffray.

Yes, thanks for taking my question. On the margins and thinking about the margins going forward, I understand that ServiceLink is a drag on the margins right now. But if we can continue to get revenue growth, can the overall margins be flat, or even up as we start to kind of lap the more tough – the tougher volume comps and kind of right-size the expenses for the rest of the year?

Yes, this is Randy, again. As we go into the third and fourth quarter, if we see the mix of business continue to go in favor of the purchase market in the title group, excluding ServiceLink on – in the West, about 70% of the transactions are purchased. in the east about 80% of the transactions are purchased. So and there’s still room. The markets are pretty tight over in the west, although there’s a lot of volume. So if commercial holds and we get a little more action on the residential side, we should be able to improve the margins.

Good. Thanks for that. And then on the agent channel, the growth flowed to 5% year-over-year. It had been double digits for a while, anything to call out kind of expectations going forward, if we just kind of met kind of a slower growth period now for that channel?

Jason, it’s Mike. A couple of things there. One, as you know, we’ve done a number of acquisitions of agents. So, you’re taking, at least, potentially some revenue that would show up in the agency channel and move it over to the direct channel. We also have a pretty big unit inside the agency that primarily services refinance business. And of course, that’s off as the markets falling off. So, I don’t know if growth organically a slowing. We’re still signing agents. We signed 148, I believe, agents in the second quarter. That was up from the first quarter about 20%. And so I don’t think organically it’s necessarily slowing. But you’ve got some market changes that are coming.

Great. Thanks for that. And then just two quick ones. The corporate expense, is that all related to FNF title, so upon the spin, corporate expense will be the same. And then also on the purchase price amortization, is that all, it sounds like it’s mostly or not all Black Knight, how should we think about the purchase price amortization add-back kind of going forward after the spin?

Yes. So if you look at the call, as you can see it pretty clearly. You basically had title plus FNF Group corporate, and both of those stay with FNF. The only thing that goes is Black Knight. So the Black Knight column disappears entirely and that’s spun off, but you retain everything else. And you can see that purchase price amortization coincidentally is $23 million in the – our Title segment, $23 million, and our Black Knight segment and then $4 million in our Corporate segment. So we would retain the $23 million, title plus the $4 million in the Corporate segment.

Great. Thank you very much.

The next question comes from the line of Kevin Kaczmarek with Zelman & Associates.

Hi, guys, I just wanted to ask about the acquisitions. I guess, first on Title Guaranty of Hawaii, can you give us some sense of the size there? And whether and what’s the net impact, because it sounds like some revenue might be going from the agents to direct in that acquisition?

We were about – we had about a third – about 30% of the underwriting business from TG of Hawaii, most of it was going to First American and to Old Republic. So it’s going to have an impact on the agency side. But as Mike said, because we converted a partial agent to a direct operation, and it’s a good company. It’s well run. Its EBITDA is in excess of $15 million per annum. And it’s going to be a nice add to us in terms of our profitability and our profit margins and it’s going to allow us to, in fact, really dominate in the state of Hawaii, small state, but high-value properties and lots of commercial business. So we’re pretty – we’re very excited about that acquisition.

I guess how much of their business is commercial, if I’m thinking about the purchase – residential purchase, refi and then commercial split?

I don’t have the number. Do you have the number?

We don’t have the numbers…

It’s not majority commercial, is it?

It’s strong on the commercial side and strong on the homebuilding side also over in Hawaii, so they have a real good residential play over there. And they also have a great branch system. They’ve got in the neighborhood of about 20 branches that are spread out across all of the islands. It’s a company of 300, 350 employees. So as Bill says, it’s very, very significant. We’re very excited about it well-run company. This could be a great add for us.

Okay. And I guess the auction company, will that show up in escrow and other within title or somewhere else and do you have a sense of size on that?

It’s in the Title segment.

In escrow and other line item, yes.

Okay. That – oh, I guess on the overall tax rate seemed a little bit elevated this quarter. There were some items within corporate. What’s a good rate going forward? Should I hang around this quarter’s level, or should we model something like little lower like where we were before?

Yes, Kevin, I think probably 36.5% would be a good model run rate for Q3 and Q4. We were elevated. There was one item. There was a settlement at Black Knight related to the LPS purchase price that was deemed to be purchase price rather than an expense and therefore, nondeductible. So that was a discrete nondeductible item that added about 1.9% to our overall tax rate. So that’s why you see overall the elevated tax rate.

Okay. Thanks a lot. That’s all I had.

Thanks, Kevin.

[Operator Instructions] We’ll go to the line of Geoffrey Dunn with Dowling & Partners.

Thanks. Good morning, guys.

Good morning.

Tony, first, I missed the whole co-cash number. What was that again?

It’s roughly $300 million.

Okay. And then within corporate, I think you are running an elimination related to basically an operation LoanCare for MSP What’s the accounting look like in terms of eliminating that into the third quarter after the spin?

Yes. So I think our overall elimination in the corporate segment that’s a negative revenue and negative expense is running about $13 million or $14 million. And that includes the number of pieces that are activity between title and Black Knight one of which happens to be LoanCare and MSP. I don’t remember the exact fee that LoanCare pays to Black Knight on a quarterly basis. We can get that to you, but obviously that that comes out going forward. And then there’s some other data related purchases that title makes from data and analytics and Black Knight that will go out as well in terms of eliminations. But we’ll have that those figures updated in the next quarter.

Right. But just from an accounting standpoint, I think the expense comes out of title and you only had the elimination there because of the ownership of Black Knight. So we just don’t worry about the elimination going forward and you still have the expenses coming out of title?

That’s right.

Okay. And then in terms of debt, obviously, I think you still have money on the line. You have the convert to consider next year and pro forma you’re under leverage. How do you think about putting on not just debt to maybe turn out the Yellow Sea, but even addressing that convert next year. It seems to me like a pretty meaningful term debt raise should be in the cards for the back-half?

Yes, no absolutely, we have post spin. We’re going to be, as Bill has said, a very enviable position of 14% debt-to-cap, and we’ll have $300 million drawn on the line of credit, which we have now and we’ll look to potentially take that out – term that out post-spin sometime in Q4. And then with the debt cap – debt-to-cap levels where they are, we’re going to sit down with the rating agencies and look to get an upgrade. We feel like we’ve been close in the past with the strength of our balance sheet, but it’s even stronger now at 14%. And then you have to convert comes due officially in August of 18 to the extent we can repurchase some of that prior to we likely will. But if not prior we’ll take it out at that point.

So, I guess. As we think about potential terming out of debt, it sounds like we should really consider the line and not an added amount anticipation of the convert?

Yes, I don’t know that we would – I don’t know that we can commit to a particular debt-to-cap ratio at this point. 14% is obviously very, very low. Tony and Mike need to get in front of the rating agencies and talk to them about debt-to-cap ratio that makes sense to them, but also would allow us to get an upgrade. It’s really where BBB minus is kind of just not really appropriate rating for the type of company we are with just moving back to being a title insurance company and real estate services company. So more will be revealed as we go forward over the next six to nine months. But first goal right now is to get the spinoff at FNFV and to get the spin concluded. And we feel good about the fact we did – we were able to buy back the level of convertible debt that we bought back over the last four or five months. So can’t make a commitment just yet. We need to get in front of the rating agencies.

Okay, thanks.

Thank you. There are no further questions in queue. I’ll turn the conference back over to Mr. Foley for closing remarks.

Thank you. The second quarter is another strong performance by our title business. As we move through 2017, 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.

Thank you. And that does conclude our conference for today. We thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.