Fidelity National Financial Inc (FNF) 2013 Q4 法說會逐字稿

Welcome to the FNF 2013 fourth-quarter earnings conference call.

(Operator Instructions)

As a reminder this conference is being recorded in will be made available for replay starting after 1 PM Eastern time today running through February 20 at midnight. You may access AT&T replay service at anytime by dialing 1-800-475-6701 and entering the access code 316606. International participants may dial 1-320-365-3844. Those numbers are once again, 1-800-475-6701 or 1-320-365-3844 entering the access code 316606. I would now like to turn the conference over to our host, Dan Murphy. Please go ahead.

Thank you, everyone for joining us for our fourth-quarter 2013 earnings conference call. Joining me today are our Chairman, Bill Foley; CEO, Randy Quirk; President, Brent Bickett; and CFO, Tony Park. We will begin with a brief strategic overview from Bill, Randy will then provide a review of the Title business, Brent will provide an overview over a significant portfolio Company investments, and Tony will finish with a review of financials. Will open the call for your questions and finish with some concluding remarks from Bill.

This conference call may contain forward-looking statements that involve a number of risks and uncertainties; statements that are not historical facts including statements about our expectations, hopes, intentions, or strategies regarding the future are forward-looking statements. Forward-looking statements are based on Management's beliefs as well as assumptions made by an 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.

Thanks, Dan. The fourth quarter was a solid pace to a year of transitioning in our Title Insurance business as we continue to move from a refinance driven market toward what appears to be a more purchase driven market. While this quarter witnessed the majority of the revenue impact from the steep decline in refinance Title orders that began during the summer, we were still able to generate an 11% adjusted pre-tax Title margin through the fourth quarter, a nearly 14% for the full year 2013.

After more than a seven month process, we were able to successfully close the acquisition of LPS on January 2 of this year. As we had previously disclosed LPS and our ServiceLink business has been combined and are operating through two new entities. Black Knight Financial Services consisting of the mortgage technology and data analytics business from LPS, while the ServiceLink holdings consist of the combined mortgage transaction services business including both centralized refinance operations and the default management business.

The long process of closing, gave us the opportunity to explore the cost synergy opportunities in more detail. At this point we have recognized the estimate $150 million in annualized run-rate synergies and are targeting $225 million in total cost synergies. These synergies are in addition to reductions to staff and operations due to the decline in refinance market.

We are very excited about the future of Black Knight and ServiceLink companies and look forward to their contributions to continued success of FNF. On January 31, we announced that our Board of Directors approved a plan to create a tracking stock for portfolio investments. We will contribute these portfolio company investments into a subsidiary, Fidelity National Financial Ventures, and created and distributed a class of shares to FNF shareholders that tracks the performance of FNFV.

The primary portfolio company investments that will be contributed to FNFV includes: FNF equity interest in Remy International; American Blue Ribbon Holdings are -- one of our restaurant companies; J. Alexander's, also restaurant company; Ceridian, the payroll processor; Comdata; and Digital Insurance. FNF also intends to provide $200 million in financial support to FNFV comprised of $100 million in cash and $100 million in an inner-company loan upon the formation of the tracking stock.

The net asset value of FNFV's portfolio company investments, including the financial support from FNF, is approximately $1.2 billion or $4.50 per FNF common share. We believe the separating the portfolio company investments into a tracking stock will provide greater transparency and clarify both the inherent value of our portfolio company investments and cash earnings capabilities of our core real estate technology and mortgage services businesses.

Importantly, once the tracker is distributed all future non-core acquisitions will be funded by FNFV. While FNF's free crash flow will be used to reinvest in our core businesses, repay debt, pay dividends, and repurchase shares. Our ultimate goal is to help investors more easily value our Company and maximize returns for all of our shareholders.

I'll turn the call over to Randy Quirk to discuss the Title business.

Thank you, Bill. We expect to transition from a refinance driven market to a purchase driven market continued in the fourth quarter. 55% of open orders and 56% of closed orders were purchase-related in the fourth quarter. Both significant increases from the 32% of open orders and 33% of closed orders that were purchased-related in the fourth quarter of 2012.

Total open order accounts defined each month during the quarter driven by the decline in refinance orders. For the fourth quarter, open orders averaged 6,200 per day with October at 6,800, November at 6,500, and December averaging 5,300. We averaged more than 7,100 open orders per day for the month of January assisted by the LPS acquisition but also by an increase refinance orders in the last two weeks of January.

FNT alone had 5,300 open orders per day in January and the combined ServiceLink operations contributed 1,800 open orders per day. The mix continued to shift to more purchase each month during the fourth quarter with October and November at 54% and December averaging 56%. For the month of January, purchase transactions made up 53% of total open orders.

We had another impressive quarter in the Commercial Title Insurance business generating $146 million in revenue, a 2% decline from the strong fourth quarter of 2012. As the average fee per file of $11,400 grew by 5% and closed orders of $12,800 declined by 6%. We are also encouraged that open Commercial orders increased by 2% over the strong fourth quarter of 2012. The fee per file in the fourth quarter was positively impacted by that continue mix shift toward purchase as well as home price appreciation and the strong Commercial Title quarter.

The total fee per file of $2,082 increased to 33% versus the fourth quarter of 2012 of $1,565. An increased sequentially 15% versus the third quarter 2013 fee per file of $1,807. Also excluding our National Commercial revenue, the fee per file was $1,676, a 28% increase over the private quarter, and a 7% sequential improvement from the third quarter of 2013. With a significant decline of refinance volumes in the second half of 2013, we focused on our cost structure and staffing in the field offices.

During the fourth quarter we reduced headcount in our operations by more than 700 positions. Split relatively evenly between our local offices and ServiceLink although the percentage reduction at ServiceLink was much larger at 26% of total ServiceLink positions. From our peak of May 2013, staffing levels at 12,250 we reduced staffing by nearly 2,400 or more than 19%. With ServiceLink seeing more than 50% reduction in staffing over that time period. In the month of January, we removed an additional 300 positions in our FNT operations.

Let me now turn the call over to Brent Bickett to review our portfolio investment companies.

Thanks, Randy. The Restaurant Group produced operating revenue of $371 million and adjusted at EBITDA of $26 million for the fourth quarter. Increases of 4% and 37% respectively over the fourth quarter of 2012. The Restaurant Group's fourth-quarter adjusted EBITDA margin was 7%, [170] basis point improvement from the fourth quarter 2012. For 2013, the restaurant group produced operating revenue $1.4 billion and adjusted EBITDA of $81 million, increases of 55% and 103% respectively over 2012.

Notably despite the economic and weather challenges in the Casual Dining Category, the turnarounds story of O'Charley's continues to improved as it generated its first positive quarterly same store sales growth under our ownership in the fourth quarter of 2013. Remy generated operating revenue of $293 million and adjusted EBITDA of $38 million for the fourth quarter, an increase of 7% and decrease of 5% respectively versus the fourth quarter of 2012. Fourth quarter adjusted EBITDA margin was 13%, 160 point decline from the fourth quarter of 2012. Remy stock traded recently above $21 valuing FNF's investment at approximately $350 million.

On a combined basis, Ceridian and Comdata generated quarterly revenue of $377 million and EBITDA of approximately $97 million decreases of 2% and 4% respectively versus the prior-year period. The EBITDA margin of 26% was consistent with the prior year. Our 32% share of Ceridian and Comdata net loss of $7 million. With $7 million Ceridian took a combined $7 million charge related to the write-off of deferred tax asset, debt extinguishment cost, and transaction cost related to the business separation of Comdata.

Finally Digital Insurance generated revenue of $19 million and EBITDA $4 million in the fourth quarter 2013 representing an EBITDA margin of 19%. For 2013, Digital Insurance generated revenue of $69 million and EBITDA of $16 million representing a 23% EBITDA margin. Digital Insurance completed six acquisitions during 2013 and we expect that trend of multiple acquisitions to continue in 2014.

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

Thank you, Brent. Our core operations generated nearly $1.4 billion in revenue in the fourth quarter compared to nearly $1.6 billion in the fourth quarter of 2012 as total Title and Escrow revenue declined by $216 million or 14% driven by the previously mentioned decline in refinance orders. Adjusted core net earnings were $94 million or $0.37 per diluted share which excludes $3 million in after-tax purchase price amortization. A $7 million after-tax executive separation charge and $3 million of after-tax expenses related to the LPS acquisition. Core free cash flow was $38 million.

The Title segment generated more than $1.3 billion in Title and Escrow revenue for the fourth quarter; a 14% decrease from the fourth quarter of 2012. Direct Title premiums declined by 18% driven by a 41% decrease in closed orders offset somewhat by the 33% increase in the fee per file. Agency premiums declined by 5%. Title segment personnel costs declined by $39 million or 8% versus the fourth quarter of 2012 while other operating expenses declined by $48 million or 16%. $34 million of the fourth quarter decline in other operating expenses came at ServiceLink. Total personnel and on other operating expenses combined declined by 11% slightly lower than the 14% decline in total Title and Escrow revenue.

As mentioned earlier we have combined LPS and ServiceLink and are operating those businesses through Black Knight and ServiceLink and we will begin reporting the results of the first quarter. Although they were not included in our results for the fourth quarter, Black Knight, the mortgage technology company, had pro forma revenue of $186 million and adjusted EBITDA $70 million. And ServiceLink had combined pro forma revenue of $272 million and adjusted EBITDA of $34 million.

Debt outstanding, excluding ABRH and Remy, was $984 million with no FNF maturities until May 2017. Additionally there were no borrowings under our $800 million credit facility as of December 31. Remy and the Restaurant Group had debt of $340 million with $272 million from Remy and $68 million from the Restaurant Group. FNF does not provide any corporate guarantee of the debt of either Remy or the Restaurant Group.

Our debt to total capital ratio was 20% as of December 31. Our outstanding debt did increase after the closing of the LPS acquisition with the funding of our $1.1 billion term loan, a $300 million borrowing under our existing credit facility and Black Knight assumption of $600 million and 5.7% LPS senior notes. We expect our debt to total capital ratio to be near 35% at the end of the first quarter. Total Title claims paid were $100 million during the fourth quarter, a decrease of $31 billion or 24% from the fourth quarter 2012. We expect to begin 2014 by continuing to provide for future claims at 7% provision level. We will evaluate our provision level as we move through 2014.

Finally our investment portfolio totaled nearly $5.8 billion at December 31. From a regulated standpoint we have nearly $1.8 billion in statutory reserves, $1.5 billion in regulated cash and investments, and approximately $600 million in secured trust deposits for a total of nearly $3.9 billion in regulated cash and investments. From an unregulated perspective we have $360 million in minority equity investment which is primarily our Ceridian investment and approximately $1.1 billion in unregulated cash and investments for a total of approximately $1.5 billion in unregulated cash and investments.

A large portion of that unregulated cash was used in the LPS acquisition as we have approximately $250 million of unregulated cash as of January 31. There's also approximately $200 million in consolidated cash and investments at Remy, the Restaurant Group and other subsidiaries that is necessary for their operations. And approximately $200 million in cash at subsidiaries that is restricted by minimum working capital or other requirements.

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

(Operator Instructions)

We'll go to the line of Eric Beardsley Goldman Sachs please go ahead. Mr. Beardsley, your line is open.

Hi, you might have mentioned this, but I am not sure if you give the exact details. But what was be LPS revenue and pre-tax income for the fourth quarter?

Yes, we did mention that and broke it down into the two pieces. The Black Knight, which is the technology business had revenue of $186 million and adjusted EBITDA $70 million, and the combined ServiceLink businesses which is both the ServiceLink business from the FNF side as well as the LPS Transactions Services business, had pro forma revenue of $272 million and adjusted EBITDA $34 million.

Great, and on a pre-tax earnings basis do you have that?

I do not.

Great, and then just secondly, I guess we're pretty early in February here but if you've see any trend thus far, how to perform relative to January?

Sure, this is Randy. We have seen the orders start to move back up. You know you have to get through the last couple of weeks of December when the orders fall off very dramatically, and it takes a week or two for those to coming back up.

But they have come back up to a levels of probably the early part of November. We have seen in the last two or three weeks a little uptick on the refinance side. So a looks like we could be at the beginning of what we fully expected as orders start gradually coming back as you move back to the backend of January into February. And then the expectation is to get the resale activity going in February into March get the resale bounce that is pretty traditional for us.

Great, thanks.

Thank you, will go to the line of Mark with Berkeley please go ahead.

Thanks, my first question is around the synergy target of to $225 million, could you give us a sense of how quickly you expect to ramp to that level? And also whether you see any additional potential upside above that?

Sure. Well we increased the estimate, of course, from $100 million to $225 million because we are very successful really right out-of-the-box in attaining significant synergies. As we've gone into the two businesses, we are seeing a number of additional opportunities which we did not really include in our original synergy target. So we are at $150 million plus right now.

We believe that we're going to be at least $180 million to $190 million by the end of the first quarter. We should be at $225 million or greater by the end of the second quarter. And the next quarterly conference call, when we talk about -- when we update the synergy situation and we'll then be in a position to give you a revised target. We just didn't want to get too far ahead of ourselves right now.

Okay great that's very helpful. And then on the tracking stock, can you talk about what impact if any, or limitations that may place on your ability to monetize your non-core investments? Particularly during the next six months, do you estimate you'll need to complete that process?

It's not going to -- if we have the opportunity to, for example, do an IPO with one the restaurant companies, or there is a situation of a sale of public offering of one of the other companies, we will not slow anything down because of the tracking stock. We will continue to look at all opportunities. And we have gotten a few inquiries on particular businesses after we announced the formation of the tracking stock.

Nothing has come to duration as of yet. But we won't be slowed down just by the fact that we are forming this tracking stock because we view -- and assuming nothing does sell between now and the issuance of the tracker, the whole purpose of the tracker is to monetize those investments and reinvest funds and distribute cash and or stock to our shareholders at various points in time of various tracking instruments. So you're going to find that tracking stock will be a very vibrant vehicle in terms of shareholder value creation and shareholder -- distributions to shareholders.

It's an interesting concept. It really came to us from an existing shareholder and I won't mention who it is, I do not have permission to do that. But it was a terrific idea and we implemented the idea, and the process of implementing the idea. And the more we get into it, the more excited we are about the tracking stock.

Okay great, and then just one last question on expenses. You have done a great job in the past year of taking out expenses as volumes of order accounts of pullback. If refi activity remains muted in this year, could you give us a little sense of how much more room there is on the title side to take out additional expenses?

We hope there will not be any. (laughter) But Randy has this targets of openings -- files openings for employee and closings per employee, and we have always run our business by metrics. And as a closings per employee fall and the openings per employee, obviously the openings for employee are our first indicator, we take out staff.

We're into a seasonal market and we believe that the resale market will accelerate beginning in the spring and summer as rates are containing to be muted. But if the volumes fall or the resale market does not develop as we believe it will, there will be more cost saves.

Okay I appreciate the color thanks.

And we will go to the line of Geoffrey Dunn with Dowling & Partners, please go ahead.

Thanks. Good morning. First, given your projected cash flow for the year, can you give us an idea of the amount of debt you think you can retire in the course of 2014?

I think Tony has a pretty good handle on that.

Yes, I think what we modeled at top level, assuming what we can take upstream from our underwriters during the course of 2014 we feel like we can retire the $300 million borrowed under the revolver and take out, I believe it was a couple hundred million maybe $300 million off the term loan, the $1.1 billion term loan. So that is what we targeted at this point for 2014.

Great and then, Bill, I had a question to follow up on the $225 synergies. First are those synergies being run off the 3Q expense basis that we saw, or did the actions start occurring before that? And then second, is that a net synergy number, meaning net of any reinvestment, or could that number be knocked down in reality is you maybe reinvest some of that into the business?

Well to answer the first question, we began tracking synergies about August 8 of this past year. And those synergies came both on the FNF side and at the OPS side, but we really had control of the FNF side. And they are synergies that were deal-related and not volume related that the ServiceLink business or the LSI businesses.

These are net synergy numbers. For example, one of the synergies is a decrease in stocks option expands and employee bonus expense. There are going to be bonuses and there are going to be stock option expenses going forward, but it is the net number, so that is an example of how we netted things out.

The other thing we have done is when we've added a person that becomes a negative synergy, so that if we took out the CEO at LPS and that Chief Operating Officer, but we added a CEO at some salary level, it was a net number between those three individuals. So we're trying to be very straightforward on the synergy tracking. We do get audited by a third-party. We know our shareholders are happy for us to get these synergies, but they want them to be correct.

Okay and then just so we can triangulate this, can you give us an idea the run rate savings were at the end of that third quarter, as a comparison to the $150 million now?

Tony has it.

Most of it was in the fourth quarter but it was about $50 million that we had realized through closing, and then the other $100 million was really in the month of January.

Okay and as we think about just the pro forma, how -- is that hundred basically attributable to the LPS side coming in, meaning it's -- the $50 million is already in the FNF run rate at the end of the year, the $100 million is incremental to our 2014 models?

The $50 million will be split between FNF and LPS. There is probably a bit more on the FNF side when you went into everything.

And then the $100 million is totally Black Knight. We have not really achieved any FNF synergies. We have some FNF synergies coming that will be -- some will be hitting in the first quarter of this year.

But the LPS or Black Knight synergies were really things that happened -- a lot of them happened day one. I mean we were ready. My two CEOs of the two respective businesses had their marching orders, our CFO is down that Black Knight was right behind them, and I mean things happened immediately. Including the CEO of LPS, who is a good guy, but wanted to move on. And that Chief Operating Officer, the CFO, the Director of -- the fellow who was running the analytics business I mean it just went right down the line. The Controller, the Chief Administrative Officer -- goes all the way down the line, and there is a lot more to come, obviously.

Okay so not to belabor this -- so maybe the right way to think of it is relative to the last LPS numbers we saw probably stripped out maybe $30 million of synergies on the FNF side, there is call it almost $200 million of synergies relative to the third quarter FNF -- I mean third quarter LPS and year-end FNF numbers?

I think you're math is right.

Okay great thank you.

(Operator Instructions)

Will go to the line of Brett Huff with Stephens Incorporated go ahead.

Good morning, guys. You had mentioned purchase market assumptions, I think Bill you mentioned it. I know you guys don't explicitly make forecasts, but can you give us a directional goal-post how you think the world looks as we roll through this year in terms of unit volume increases for purchase?

Of course the MDA as I said is going to be a poor -- not as good a year. We started seeing good resale increases last year and as the market has improved we are continuing to see activity in a lot of the high velocity states. And high velocity, I'm really referring to California, Florida, Texas, Arizona, Nevada, states where people move in and they buy houses, and they start getting price appreciation.

I can't put a percent -- Randy may be able to help you with thoughts on level of increases this year that he believes are going to happen.

Yes, Bill, we are seeing in -- Bill had mentioned -- some of the large metropolitan areas where there seems to some traction on that resale sale side, particularly in California, Texas have been very strong. They were and currently, probably, 78% of their volume right now is resale.

Florida has started to pick up, South Florida is getting strong, so we think our mix right now is maybe 55%, pushing towards 60% resale and that could over the course of the next six months, with appropriate action and appreciation that looks like it could be coming toward the purchase market. It could roll up another 10%. But it is -- we're getting a sense that there is some momentum there. It just is still pretty early in the year.

So you're saying that 10% number is a unit volume or you -- on purchase, are you guys including house price appreciation in that too?

Yes, unit volume and also in the mix.

Okay so all in. And then the 11% title pre-tax margin we thought was nice, you guys split up the business a little bit differently, I think, just given the changes that are going on. Was a corporate -- sorry the cost allocated to FNT apples to apples to the way it has been allocated in the recent past or was there some shifting around that we need to be aware of that that's not an apples to apples numbers on that title pre-tax?

Hi Brett, it's Tony. It's apples to apples; it is exactly as you seen it before so that FNT column is the title segment.

What we do differently, as you can probably see in our segment reporting, is we have got two corporate and other segments. We have got the core, if you will, corporate other and then we've got the portfolio corporate and other, and that is really a separation. It's either a direct allocation for people or expenses that directly relate to one or the other of the segments, or if we did not have a direct allocation then we typically allocated based on revenue.

And so you will see some of it is just of 70% 30% allocation with 70% going to core; 30% to the other. And again, the FNF corporate is primarily departments such as CEO, CFO, Chief Legal Officer, M&N, Investor Relations and a few others, so it's not a significant bucket.

Okay that's helpful. And then on the tracking stock, I just want to make sure -- I don't want to beat this to death but I want to make sure I get it. So I understand, Bill, you said if you monetize something between now and when that starts, that value attributes to the FNF corporate parent and you can pay down debt or do whatever you need to do as I understand it.

Once that tracking stock is made and you've put the assets in there, when you monetize that asset by -- or whatever happens and the stock or that tracking entity gets the money, can that money -- you said that money gets distributed to folks that own the stock. Does any of that -- how does it get back to FNF to pay down the debt, or does it never do that once is in the tracking stock?

We really feel once it's in the tracking stock that's where it stays. In distributions would be made to shareholders of the tracker or it'd be retained for further portfolio investment. So if it there were to be in IPO of one of the restaurant companies and funds were received from that IPO, those funds -- and it would be fairly modest -- those funds would probably stay in the trackers, as opposed to being distributed.

However, if we have in an investment that has mature and we feel like we've done everything we can do with that particular investment, and we want to spin it off, that would be a direct benefit to the tracker shareholders. They would receive those particular shares of stock, and then could do what they want to do with that investment.

In terms of -- will you guys see any -- will the corporate parents see any proceeds when that thing is formed, or is that -- so you won't see any economic value particularly from that when it's formed?

The corporate parent will really not see any economic value. The corporate parent actually is going to contribute as initial cash flow, $100 million of cash, and provide a line of credit for $100 million so that tracker can fund -- continue to fund raise acquisitions for additional insurance if that were necessary, or make other acquisitions we think are opportunistic.

But obviously our acquisition strategy is going to be somewhat muted going forward because we will not have full resources of FNF. The basic resource of FNF are going to be utilized to -- as money flows up from Black Knight or from the Title Insurance underwriters is going to be used to pay down debt, it's going to be used to pay dividends, to buy back shares, or to make core investments in technology primarily related to the Black Knight asset.

Okay that's helpful. And then two quick questions on -- there is a lot of debt on the Ceridian HR and Ceridian Comdata pieces. When you guys think about that, how do you allocate that debt if we're thinking about the value of each of those entities individually?

It is allocated now because the companies are separated. So Comdata is actually a separate company owned by the same shareholders that own Ceridian. So, we have gone through that process to prepare Comdata for its own future.

The ballpark debt is roughly $3.4 billion $2.2 billion on the Comdata data piece and $1.2 billion on the payroll piece.

Can you do that same number for BKFS and ServiceLink? Do you guys separated down to that level?

We did.

I don't know that I have

We separated the equity in terms of being $1 billion per entity, and then the debt was also -- was it disproportionate? I think we need to give it -- we have it right here.

Those are all the questions I have. I can get off and just wait until you guys get it.

We will come back to the question.

Thank you.

Will go to the line of Ryan Burns with Janney Capital, please go ahead.

Great, thanks for taking my question. Sorry to belabor this fact, but I just wanted to make sure I understand the synergies as they have already been presented. Have any of the synergies flown through to the bottom line in the third and fourth quarter for either LPS or for FNF?

Well they've gone through the bottom line but normally the synergies were one time expenses in the case of personnel so -- Tony do you want?

Of the pre-closed synergies that we talked about of $50 million, if you assume -- those were taken out evenly across the course of the fourth quarter, then arguably you have about $25 million of that $50 million benefit that would show up in the bottom line of the combined organization, being some of it in FNF because of the ServiceLink businesses, and some of it in the Black Knight businesses, the LPS business.

Okay great. And then quickly, I think you guys had mentioned the loss ratio going forward, it seems to be stuck in that 7% range. I haven't seen your 10K yet, but I imagine there is probably a little bit of reserve strengthening from previous years. Just want to figure out how much longer you expect that dynamic to happen.

We're watching that obviously pretty closely. It's been at 7% for several years now as you mentioned. Trends have been very favorable for us. Payments continue to trend down. In fact $100 million paid in the fourth quarter of 2013 is the lowest fourth-quarter that I think we have seen in many years.

The expectation is as plain counts have trended well off of where they were a year ago and especially major claims, which we defined as $2.5 million or greater, is dramatically down from where it was even a year ago. We expect payments to continue to trend down below the $400 million that we paid in 2013. And so I would not be surprised if somewhere -- when we get to position where we are very comfortable in our auditors and actuaries are very comfortable with our carry amount, that we will probably trend that 7% down, I believe, 50 basis points probably 100 basis points.

We like to be conservative in this area we don't like to be volatile and bounce it around. So that is why we have held it at 7% to make sure we are well through the challenging years where we had high ratios and, frankly, huge premiums where a lot of policies were issued. But those years are well in the past now; those years of 2006, 2007 and 2008 are the distant past, and so we are getting more and more comfortable as we move along.

Okay great. Thanks for answering my questions.

We have no further questions in queue I'll turn it back over to Mr. Foley for closing remarks.

Thank you very much. Just a response to the earlier questions regard to the split of debt between Black Knight Financial Service and ServiceLink, there's about $2.2 billion allocated to Black Knight Financial Services and $1.1 billion allocated to ServiceLink. So it's about a two to one ratio, the total debt being $3.3 billion. Have I got that right, Brent?

That's correct.

So that's our debt allocation. I want to thank all of you for being with us today. We're excited about our Core Title Mortgage Technology and Transaction Service businesses as we enter 2014.

As always, we'll look to maximize profitability in all of our businesses and continue to strive to create as much value as possible for shareholders. Thanks for being with us today.

Thank you and ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.