Fidelity National Financial Inc (FNF) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the FNF 2013 Q3 earnings call. (Operator Instructions.) I'll now turn the conference over to your host, Dan Murphy. Please go ahead, sir.

Thanks, good morning, everyone and thanks for joining us for our third-quarter 2014 earnings conference call. Joining me today are our Chairman, Bill Foley; CEO, Randy Quirk; President, Brent Bickett; CFO, Randy Park; and our Black Knight CEO, Tom Sanzone. We'll begin with a brief strategic overview from Bill, Randy will then review the title business, and Tony will finish with a review of the financial highlights. We'll then open it up for your questions and finish with some concluding remarks from Bill.

Please note that we are only focused on FNF on this call and will take questions related to FNF only. We do have a freight FNFV call at 10.00 AM today. This conference call may contain forward-looking statements that involve a number of risks and uncertainties, statements that are not historical facts including statements about our expectations, hopes, intentions, or strategies regarding the future are forward-looking statements. 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 10K and other filings with the SEC.

This conference call will be available for replay via webcast at FNF.com, and through phone replay beginning at 11.00 AM eastern time today, through next thursday, November the 6th. That replay number is 800-475-6701 and the access code is 338005.

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

Thanks, Dan.

This a stable quarter for our title business as our consistent focus on operational efficiency metrics allowed us to generate a 14.7% pretax margin. A 50-basis point sequential improvement over the second quarter of 2014. We continue to believe that we can show further margin improvement in a stable order environment and even higher margins as mortgage credit becomes more readily available, and the residential real estate market continues to improve.

Black Knight, our technology subsidiary, had another very strong quarter, generating total revenue $214 million. On a year over year basis, revenue growth was 11%. The adjusted EBITDA margin was 42.3% and was an 130-basis point sequential improvement over the second quarter of this year. Black knight is generating significant momentum in the business, with recent contract signed that included Green Tree, executing a multi-year MSP contract, Stearns and Synovus signing multi-year Empower contracts, and RealEC signing contracts for closing insight with three of the nation's largest five lenders.

Additionally, the sales pipeline remains strong with numerous MSP, Empower, Closing Insight and Data contracts expected over the next several quarters. We expect a strong fourth quarter and are very excited about our revenue and EBITDA prospects for 2015 and 2016.

I'll now turn the call over to Randy Quirk to discuss the title insurance business.

Thank you, Bill.

The third quarter was a relatively stable quarter from a title order perspective, as open orders declined approximately 6% sequentially from the second quarter and closed orders increased 2% sequentially. Because of this relative stability, we were able to increase our pretax margins by 50 basis points sequentially from the second quarter of this year.

For the third quarter, total open orders averaged 7,500 per day with July at 7,700, August at 7,400 and September also at 7,400. Of the 7,500 total open orders per day, approximately 6,000 were at FNT, and 1,500 were at ServiceLink. The mix towards purchase transactions remained relatively stable in the third quarter, with 60% of third quarter open orders related to purchase transactions, 69% of FNT open orders were purchase related, and 77% of the ServiceLink open orders were refinanced-related.

In October, total open orders per day have averaged more than 7,600 with particular strength in the last two weeks where we averaged 800 open orders per day, as refinancing volumes have increased with the decline in mortgage rates. We had another strong commercial title quarter generating $136 million in national commercial revenue, a 13% increase over the third quarter of 2014 as the fee per file of $10,600 grew 12%, and closed orders of $12,800 increased 2%.

Sequentially, commercial revenue grew by 18% from the second quarter. We're also encouraged that open national commercial orders increased by 8% over the third quarter of 2013. Additionally, we have begun to capture the impact of local commercial orders from our direct title operations inn addition to the national commercial revenue we currently report.

For the third quarter, total combined direct commercial revenue was $225 million. The fee per file in the third quarter was positively impacted by the continued mix favoring purchase transactions, as well as another strong commercial title quarter, and probable home price appreciation. The total fee per file of $2,066 increased 14% versus the third quarter of 2014. The FNT fee per file of $2,306 also increased by 14% over the third quarter of 2013, and ServiceLink's fee per file of $1,052 was a 6% increase over the prior year.

Also excluding our national commercial revenue, the total fee per file was $1,739, an 11% increase over the prior quarter. As we enter the normal seasonally slower late fourth quarter of the year, and the first quarter of 2015, we're anticipating a decrease in open order accounts around the holidays and into the early winter months. We will continue to closely monitor staffing levels in hopes of maximizing margins in our title business during that seasonally weaker time period.

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

Thank you, Randy.

We generated more than $1.7 billion in revenue in the third quarter, with Title generating approximately $1.5 billion in total revenue, and Black Knight contributing $214 million in total revenue. Adjusted net earnings were $145 million, or $0.51 per diluted share.

The title segment generated more than $1.5 billion in total revenue for the third quarter, a 2% decrease from the third quarter of 2013. Direct title premiums declined by 1.5%, and agency premiums declined by 16%, while escrow, title-related, and other fees actually increased by 20%, assisted primarily by the non-title premium revenue from the combined ServiceLink operation. ServiceLink produced revenue of $225 million, adjusted EBITDA was $34 million, and adjusted EBITDA margin of 15%, adjusted pretax earnings of $29 million, and an adjusted pretax margin of 13%.

Black knight generated third quarter revenue of $141 million and adjusted EBITDA of $91million, an adjusted EBITDA margin of more than 42.3%, which is a 130 basis-point sequential improvement from the second quarter of 2014. Debt outstanding declined to $2.8 billion, as we repaid $200 million under our credit facility during the third quarter. We expect to pay off the remaining $100 million balance on our credit facility, and $100 million on our term loan during the fourth quarter. This will leave us with a total of $1 billion of the original $1.4 billion borrowed for the LPS acquisition in January, 2014.

Our debt to total capital on a consolidated basis, which is how the bank, credit, and term loan facilities calculate it, was 32% at September 30, and we expect it to be at or below 30% at year end 2014. Total title claims paid were $81 million during the third quarter, a decrease of $22 million or 21% from the total quarter of 2013. We expect full year claims paid to be approximately $310 million, which would be a 23% decrease from total claims paid in 2013.

We have realized $296 million in LPS run rate synergies as of the end of September and have revised the full program target up slightly from $315 million reported last quarter to $325 million. We realized $69.7 million of total synergies in the third quarter, including $62.5 million, which directly benefited pretax earnings.

Finally our FNF investment portfolio totaled nearly $4.5 million at September 30. From a regulated standpoint, we have $1.8 billion in statutory reserves, $1.5 billion in regulated cash and investments, and approximately $700 million in secured trust deposits, for a total of approximately $4 billion in regulated cash and investments. From an unregulated perspective, we have approximately $180 million of unregulated cash at core FNF as of September 30. There's also approximately $150 million in consolidated cash and investments at Black Knight and ServiceLink, and approximately $75 million in cash at subsidiaries that is restricted by working capital or other requirements.

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

(Operator Instructions) Our first question will come from Mark DeVries with Barclays. Go ahead, please.

Yes, thanks. Bill, I was hoping you could provide some context around why Green Tree decided to move to MSP. People who follow Walter were surprised by that. They've always indicated they had strong service platform. I guess what I'm wondering, is this is an indication that for the players that aren't already on MSP, kind of the industry standard, that they see too much regulatory risk from keeping their own system? And if so, do you think that represents an opportunity for -- to get some more wins like this?

Yes, thanks for the question. That is a good question because the regulatory risk that the lenders are now viewing is on the horizon, especially with the August state coming forward, is a real issue for these companies. I have Tom Sanzone on who is the CEO of Black Knight. I thought TOm might be able to respond directly to that question, if that's okay Tom?

Sure. Mark, Green Tree and Black Knight of course have been partners for quite sometime. They've actually run the MSP platform and their GP platform as well and this deal is really just a further expansion of our relationship. It's been successful and now, we're expanding that relationship. To your point around what I would say is a macro trend to go to an MSP-type platform, that's really driven by our client's main focus on continuing to raise the bar on managing and mitigating risk and improving efficiencies and I would say that trend has been going for the last few years.

Okay, great. Is there anything you can share with us about the economics of this contract?

We don't publish the economics of specific deals.

Okay. Is it -- should we think it's consistent with kind of your general, you know, $10 of annual revenue per loan that you get on the platform?

I can't talk about specific deals.

Yes, you're right in the ball game, Mark.

Okay, great. And just a separate point, Bill, I think last quarter you kind of set an aspirational goal of 10%, year-over-year revenue growth that you were hoping you could get out of Black Knight. You're another quarter further in and it sounds like there have been some -- you cited a few wins. Can you update your thoughts about how you feel about that aspirational goal here?

No, I believe 10% is our minimum goal, our minimum target. We should be able to achieve it. We hit 11% year-over-year in the past quarter. The only thing that may defer some revenue growth is that many of these contracts we're signing are long-term implementation situations. So during that implementation, we have a lot of deferred revenue, and of course the EBITDA doesn't flow through until we actually get the contract, get the particular product implemented with the lender or with the company that we've entered the contract with. At the present time, we feel like our pipeline is very full and we have a lot of key events that are occurring between now and August of next year, and as a result we're really focusing now on execution as opposed to new contracts. But that doesn't -- that does not slow down our 10% goal on revenue growth.

Okay, great. Thank you.

Your next question is from Eric Beardsley with Goldman Sachs.

Hi, thank you. Just on Black Knight again, as you grow that business, how should we expect the EBITDA margins to develop, particularly for the non-MSP business?

Our margins have been of fairly constricted in the data and analytics so we expect a significant margin improvement in data and analytics. We believe we can continue to get margin expansion. We did get 130 basis points this past quarter. Tom, do you have any thoughts about continued margin, margin expansion?

Well, we have a very strong pipeline in our origination business, particularly the RealEC business, but also in Empower and lending space. And so we believe that the new deals that come online will have significant margins as well. So we believe we'll continue to improve that.

Okay. Is the new business higher or lower than the MSP business overall?

In total, it's lower than the MSP business.

Okay. And then just on the investment income and the title segment, it looks like that fell off, not including the investment losses. Just wondering how we should think about the run rate there moving forward?

Yes, I think what you have -- what you see in the quarter is pretty consistent with what we would expect, at least for the foreseeable future. Certainly yields have been impacted year-over-year by the low rate environment. There's nothing unusual in that line item. So that's probably a pretty good gauge for the future.

Got it. And just lastly, you could just comment again on what you're seeing thus far in October, particularly on the purchase residential side?

Sure. This is Randy Quirk. You know, the purchase side has been very consistent throughout second and third quarter. A little bit of softening in September, but good in July and August. About the same level in October. So we are anticipating purchase at about the same run rate, taking into consideration the back end of the quarter when you hit the seasonality of the fourth quarter.

Okay, so that's down, I guess -- closed orders were down purchased roughly 5% year-over-year excluding default?

Just slightly, yes, about 5%.

Okay, great, thank you.

Thank you, and we'll go next to Bose George with KBW. Go ahead, please.

Morning. First just a question on your free cash flow. It was very strong, quite a bit stronger than EBITDA in the third quarter versus the second quarter. Is there kind of a free cash flow conversion ratio that would be good for us to think about? And can you talk about the main drivers in improvement in free cash flow quarter over quarter?

Yes, so cash flow overall in our core business, about $292 million, obviously driven by net income and loss provision and then offset by claims payments. Of course, claims payments were down year-over-year, and we expect that trend to continue as we move into next year. And then, of course, we add back depreciation amortization, which is significant given the purchase price amortization on the LPS acquisition. And then we kind of have a bucket of a lot of other items. And those can move back and forth, Bose, from one quarter to the next. A lot of working capital items. They were favorable in Q3, positive in prepaids, positive in taxes and accounts payable. But again, those can fluctuate. They were -- it was stronger than it was in the second quarter, and quite a bit stronger than it was year-over-year, up against the third quarter of 2013. If you go into the fourth quarter, we would expect, again, strong cash flows. But as you'll recall, first quarter is pretty difficult in terms of cash flow. We have a lot of year-end incentive payments that get paid in the first quarter, so that's usually a weaker period.

Okay, great, that's helpful. In terms of on an annual basis, like an EBITDA to cash flow conversion ratio, is there a range that we can think about?

I don't know. I don't have a good measure for you right now in terms of how that converts, but that's something I can think about. I mean, generally speaking, it should be fairly consistent, but let me think about that and make sure I'm not missing something.

Okay, great. Thanks. And next let me switch to Black Knight for a second. In terms of servicers, does it make a difference to servicers if the portfolio is delinquent or not, in terms of using MSPs? Is it-- They're kind of agnostic?

They're really pretty agnostic in terms of whether they use MSPs. They're long-term contracts, they're signed. the loans go into default, and we have our default suite of products that we continue to cross-sell to those servicers. We do deal with a number of sub-servicers, and the sub-servicers generally speaking are dealing with loans that are in default. But the large lenders, no, I wouldn't say that's -- I would not say that being in default is really relevant. It's just long-term contracts, consistent revenue. I mean, it's a great business. It's a terrific business.

Okay, great. And one more on Black Knight. In terms of the big users that are left, you guys have mentioned Bank of America, I guess Citi, Nationstar. Is there-- are there other users that could-- are there other users that are still big potential candidates for MSP?

Really the largest ones are Citi and B of A. Those other ones that we're working hard just trying to continue to develop our relationships with. And we're hopeful that at some point, we'll be able to have--tell you about some progress we're making. But the progress isn't-- we have nothing to report at this time. Tom, in terms of other servicers, I mean we're really -- I mean we're really just a dominant player. There's just--Do you have any--about any other ideas, Tom?

No, I mean we've made significant progress, obviously, this year and over the last couple years in growing that business and we think there is more opportunity. There are some big players there. And also we are looking to expand our business into some more of the consumer loans like the HELOC loans and other areas of potential growth for us in MSP. So we're very engaged with the clients and some of it is timing-oriented and we'll keep pushing.

Great. Thanks a lot.

Thank you, our next question is from Mark Hughes with SunTrust. Go ahead, please.

Thank you, good morning. Could you talk about the priorities for next year for free cash flow? How much more debt you might pay down with the other uses you might find for the free cash?

Yes, I mean, we've targeted first to get below 30%. And we expect to be very close to that target point by the end of this year. I think we would then look to next year to continue to pay that down if there weren't competing priorities. Clearly, we'll pay our dividend. We pay a nice healthy dividend. We just raised that 6% the other day. So first and foremost, we'll pay the dividend. We'll continue to pay down debt, and whatever other opportunities might show up, then we'll pursue those.

I think at some point next year, once we get this -- the debt-to-cap down below 30%, we have as Tony mentioned, we did raise the dividend, it's logical for us to take a good look at a stock buy-back program. I mean, I've felt since we did the Black Knight transaction that we've got too many shares outstanding and I'd like to reduce that number of shares. So that's going to be something we'll take a hard look at around mid-year. Once we've--just get next year a little more under control, we get throughout synergies, we get through these payments were making, and we're really looking forward to the first quarter of next year of having less noise in our financial statements. We're all tired of the synergy bonus payment here, the synergy, the severance, the transaction payments related to Black Knight. So I believe, like our shareholders, we're all focused on the same thing, which is let's get clean quarters beginning the first quarter of next year. Is that fair enough, Tony?

Yes.

And then one other question, just on the refi volume that you've seen lately or through October. Can you give us a sense of how that looks year-over-year?

Yes. The -- first of all we've seen a significant run-up in the refi share in the last three weeks with interest rates coming down below 4%. We don't know how long that will last, but that's been federal good for us. So we were fairly consistent going through the third quarter and then, we look back, we'll be jumping up in October. Year-over-year, on the open and closing side, it's off significantly. Obviously, the first half of 2013 was very, very strong on the refinance side, falling off as we move through the back end of 2013, and then continuing on it as a lower level as we move through 2014. Its--in some markets, the year-over-year, the market has been off 60%,70%/

But now you've lapped that, and presumably it's up in October?

Yes, it is up in October. We're running in October about 8,000 open orders, and refis have accounted for most of that increase. In fact, In the last week, our orders--open orders increased by 500. Primarily because of the refinance activity.

Thank you.

Thank you. We'll go now to Chris Gamaitoni with Awe to know mouse. Please ahead.

Good morning, thanks for taking my call. Could you explain the difference -- you mentioned $69.7 million in the quarter, and then, $62.5 million direct benefit. What's the difference between those 2 numbers?

Yes, that's just the capitalized cost avoided, basically. So its a --the expense piece was $62.5 million. You get to $70 million or $69.7 million from CAPEX that--It's a cash savings. It's just not a P&L savings.

Okay. And can you give us a sense of the split between the segments on how that's being allocated?

Yes, so rough numbers out of the $63 million, call it, that impacted the income statement in the third quarter, ServiceLink had about $25 million of that. Black knight had about $16 million, and there was an additional $12 million that's Black Knight/ServiceLink corporate. So that's kind of equally shared between those two businesses, and then finally, FNF parent had about $10 million of that.

Okay. Perfect. On the--just as you noted for the implementation period, It might take a long process. How do you deal with implementation costs? Are those deferred until the revenue is received?

Yes.

Okay. And then in the -- you know, it looked like the non-MSP businesses were very strong. Was there any kind of odd issues in there? Like a large consulting contract or anything like that, or was it just pure core growth?

The only thing that was a little bit unusual, there was about a $3 million or $4 million term fee on an Empower contract, that the--there was a merger between a couple of users and/or banks, and they elected not to implement Empower. So that was a positive benefit in the third quarter. Now, we expect the fourth quarter will exceed third quarter EBITDA, and we won't have any term fees. So that was kind of the only unusual occurrence in the third quarter.

Perfect. And then can you give us some clarity on the financial impact of closing insight? What type of--like, Am I using that for-- Is that just for retail, just correspondent? What type of revenue does that drive? Just trying to get a sense about it. It seems a pretty big growth driver in the future.

It is going to be significant. Tom, do you want to tackle that one?

Yes, with some exceptions that revenue starts to -- started to come in already, But, the majority of it will hilt after August 1st of next year and it'll be significant to the bottom line.

Okay. And then just on the tax rate, I think it was around 39% this quarter, what's kind of the go-forward and tax rate we should be using?

Yes, so the tax rate actually, I think it bumped up above 40%, which seems high. I'll try not to get too far in the weeds here. But when you're looking at pretax earnings, the line item for all the segments, that's 100% of the earnings. Yet if you look at the income tax expense line item, that reflects 100% of taxes for our 100% owned companies. But roughly 2/3 of the taxes for our partnerships, which is Black Knight and ServiceLink. So you almost have an apples and oranges comparison. Normally, you would think well then tax expense rate or tax rate should be lower in that calculation. And that's a true statement, except that we've incurred losses at those two partnerships during the year from transaction costs. So from a GAAP standpoint, those entities have incurred losses, and so of course, that flips that into a 40+% rate. The fourth quarter, you should probably project something similar, probably a little up from where we are at about 43% for FNF Core. But then next year, as you no longer have those losses at those two majority-owned companies, I would target 34% or 35% as a good estimate for 2015.

Perfect. Thank you.

Thank you our next question comes from Jason Deleeuw with Piper-Jaffray. Please go ahead.

Yes, thank you, and good morning. So the non-MSP revenue that was up, I was wondering if that's, like an indication that you're getting stronger cross-sell activity? And if you could just give us an update on your cross-sell activities.

Our cross-sale activities are very strong. Data and analytics are sort of now really right in the middle of our cross-sale activities, and, well, Tom, I think maybe you should address this because RealEC is significant or Closing Insight. I mean, we sell one product and we try and sell-- instead of selling a product, we try and sell four or five products.

Yes, one of the things that we've done this year is we've had a focus on cross-sale. We used to go to the market, for the most part in channels, but now we go as one Black Knight team. And what we're doing, and it's been successful to date, is we have our core MSP business which is obviously an excellent business for us with, you know, the top lending institutions in the country. So anywhere where we have an MSP relationship, we're now going to market and addressing the clients with our origination capabilities and our data and analytics capabilities. So we've -- we go to market with all of our business heads to the client, and we've been able to get significant progress in multi-product sales.

That's great. And the EBITDA margins target for black knight, is that still mid-40s? And then if you guys could give us a sense for your long-term plans and vision for Black Knight? That would be helpful

Well, mid-40s is a good target for us on Black Knight. I mean, that's just significant margin. I mean that's --It's just a great margin business and every time we sell something to an existing customer or cross-sell a product, many times the margins on that cross-sell are very significant because the costs are already embedded. We are undertaking significant data analytics initiatives that-- And we'll have a number of interesting announcements over the next three to six months in that business. We really are trying to become a utility in data and analytics rather than -- and provide information to customers and be a trusted source for those customers. So that's a change from the past with regard to the way LPS approached the market. Tom, how about anything else you can think of?

Yes, I think as far as long-term strategy we have a new product strategy called LoanSphere, which is really what we're looking to do is integrate our whole product line from almost presales into origination, into servicing, into default, and hopefully at some point into Capital Markets. And we want to have, basically the desktop environment that can process the business across the entire life cycle of the loan where implementing work flow and rules-based technologies, which really help the lenders automate their business processes front to back. So if you think about it, we're looking to put business process automation platform on top of an MSP. We already have it in originations, and link all that together so that you could theoretically buy our product line across the life cycle and seamlessly integrate the process. So that's the long-term strategy for Black Knight. And we're starting to make progress in the last couple of years on building the desktop and workflow products, and we're expanding on those as we go forward.

Great. And then on title, with a purchase-driven market, less volatile market with the refis down, can you talk about your view now on sustainable title margins in this type of a market?

Sure. As you know, it's been pretty consistent for the last two quarters. We're running 14.7% now. I believe we ran 14.2% or 14.3% in the third quarter. I think--I expect more of the same. It's-- You can improve your margins in a level and consistent market that we have now. Again I already mentioned the impact of the fourth quarter. In addition to that, commercial revenue will play large particularly as we come into the back end of the year with the commercial finish. But we can always do better at it. We're very diligent on our staffing issues as we move through these quarters. So we're going to continue to focus and push the margins up. But I think we're at a pretty good run rate at this point in time.

Okay. Thank you very much.

Thank you. We now have a question from John Campbell with Stephens Inc. go ahead, please.

Hey, guys, good morning. If you guys could just maybe give us an update? And Randy, I believe you just kind of touched on this. But if you could give us an update on commercial trends and the early stages in 4Q. And then for the next year, I know you guys don't have a crystal ball, but the commercial business, I mean, I guess it's been on an upswing for a few years now so I'm sure that the comps are getting tough here. But what type of growth would you be satisfied with out of commercial next year? And maybe if you could just give us a view of where we are in the cycle? Thanks.

Well, you know, we're -- we've got 18 pure commercial operations around the country. Then we have another 30%, 40% of commercial activity embedded in our local operations. We check with these folks on a regular basis and they're all very, very strong on the future of commercial. We're about five years into an improving run in the commercial market and our folks tell us the expectations are it will continue. This 2014 should finish very, very strong. And we're anticipating we would outperform 2013. So where are we in the cycle? We don't-- We can't tell you how far this goes. But our guys, whether it's multifamily, industrial, energy is very, very strong. In Texas (inaud) structures, buildings, multi site. There's not really a segment of the market or even any geographical part of the country that isn't seeing robust commercial markets. When you get into Texas, it's just incredible what's taking place down there. So, we like what we see, and we're maximizing opportunity with our multiple brands.

Okay, that's very helpful. And just one more on title. What percent of orders are cash sales now and kind of how has that trended over the last several quarters?

You know it's still in that 30%, 35% market. We see is it as about a third. And it's been a fairly consistent trend, particularly in areas like south Florida where there's a lot of money coming in from South America and other parts of the globe. So still running about a third of the market. And we expect that will continue.

Okay. Great, thanks for taking our questions, guys.

Thank you. And next we have Ryan Byrnes with Janney capital. Please go ahead.

Thanks, good morning, everybody. Just had a question that's kind of a free cash flow perspective. Paid losses looks like they'll be down anywhere from $90 million to $100 million this year. Can we expect that trend to continue in 2015, as you get further away from the bad accident years?

Yes, the trend will continue probably not at the same rate. We're approaching about a $300 million run rate and I wouldn't be at all surprised if that got down into the $250-ish range. Keep in mind, total cash paid over the last five years-- let me make sure I say this right, the last five policy years total claims expected to be paid is under $1 billion. The five policy years preceding that was about $3.25 billion. So if you just think about that in terms of claims experienced, not only higher loss ratios but certainly much larger premium years, we're entering a period where cash is -- cash flows are going to be significantly stronger because we have so much less cash coming out on claims payments.

Okay, great. And then just one for Tony. As you guys continue to deleverage with your free cash flow, when should we expect the interest expense to start showing some improvement as well?

Yes, that'll continue to show improvement. Our borrowing rate is pretty low, obviously, but yes, as we get down below 30% in terms of a debt-to-cap ratio, we'll see benefits on the interest expense and that'll continue to trend down as we continue to pay it down. I don't have the specific magnitude of that currently, but it's simple math. I think the rate is roughly 2% on the outstanding debt.

Okay, great. Thanks, guys.

Thank you. Our next question is from Kevin Kaczmarek with Zelman and associates, go ahead please.

Regarding the data and analytics contracts you expect to sign over the next couple quarters, does this relate to leveraging some of the proprietary data that you guys have? And how can we think about the financial impact of these contracts?

Well, the investment has been made in terms of having -- of developing the database throughout the-- throughout counties across the United States. So that investment was made by LPS but they just never really sold it. And what Tom has been successful in doing is converting those non-sales into sales, but not doing it in such a way that we are actually the entity that sells the data to the consumer or to the lender. We're really now selling to third parties and are becoming a utility. Tom, do you want to add to that?

Yes, basically we're -- we put a lot of investment in the prior years in setting up kind of the engine room to produce the records data, the property records data. And now what we're doing, we want to be a supplier to a number of providers in the market of that core data. And we have, you know, we had that investment so as we do incremental sales of that data, the incremental cost is not significant, and it's a valuable product to the client.

Okay. So once the revenue comes on, it sounds like it's pretty sticky.

Very sticky.

Okay. Thanks.

Thank you. We have a question from Karan Ahooja with Eminence Capital.

Hey guys, a couple questions. Just on the non-controlling interest expense, that was bigger than I was expecting. Just curious how I should-- how we should be modelling that going forward.

Yes, it's a tough one to model. Non-controlling interest relates to obviously, the piece of the business that we don't own, Black Knight being about 33% and ServiceLink being about 35%. But what-- the way we show our segments is based on how we run the business, not based on GAAP legal entity segments. So we do have some inter-company interest expense and inter-company interest income embedded within the core corporate columns. So you're missing some of the GAAP pieces that would allow to you model that. So that's probably something that I can't really help you with right now, but it's something that you almost have to do retroactively, I would say.

Okay, got you. I'll follow up with you guys on that. And the other thing, just in terms of the deal that you guys have won on Black Knight, would you will think you have an annualized revenue of closed? That might be a helpful way just to think about kind of the things you're announcing that seem pretty exciting.

We're closing a lot of transactions. Tom, how do you respond to that one?

Well, I mean there--as you mentioned before, Bill, there are times over the next probably 6 to 18 months, you know, the decision you could make on whether we want to give a full year impact of those deals, we haven't done that prior.

Got you. And I would just suggest going forward, I mean, it sounds like there's a lot of opportunity, but as it's going to be a lagging impact, it just would be helpful maybe on a quarterly basis something to add in terms of annualized revenue you've won, obviously not implemented. But Okay, nice numbers on Black Knight. Thanks a lot.

Thank you, and we have no further questions in cue. Mr. Foley, please go ahead with any closing remarks.

Thank you, the last several quarters have highlighted our ability to increase margins in the title business when we have relative stability in title over volumes. We continue to believe that we show further margin improvement in a stable order environment and even higher margins as mortgaged credit becomes more readily available and the residential real estate market continues to improve. We expect a very strong fourth quarter from Black Knight, and we're very excited about the revenue growth prospects for 2015 and 2016. Thanks for joining us this morning.

Thanks 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.