Ocwen Financial Corporation
Q1 2013 Earnings Call Transcript

Published: 2 May 2013

[Operator:]

Good morning and welcome to the Ocwen First Quarter Earnings Call. (Operator Instructions). After the presentation we will conduct a question-and-answer session. (Operator Instructions). Today’s conference is being recorded. If you have any objections you may disconnect at this time. I would now like to turn the meeting over to Mr. John Britti, CFO of Ocwen Financial. Sir, you may begin.

[John Britti:]

Thank you, operator. Good morning everyone and thank you for joining us today. My name is John Britti and I’m Executive Vice President and Chief Financial Officer of Ocwen Financial Cooperation. Before we begin I want to begin I want to remind you that slide presentation is available to accompany our remarks. To access the slides log onto our Website at www.ocwen.com, select Shareholder Relations, then under Events and Presentations you will see the date and time for Ocwen Financial First Quarter 2013 Earnings. Click on this link when done click on Access Event. As indicated on Slide 2, our presentation may contain certain forward-looking statements pursuant to the Safe Harbor Provisions of the Federal Securities laws. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology. They may involve risks and uncertainties that could cause the company’s actual results to differ materially from the results discussed in the forward-looking statements. Our presentation also contains references to normalized results and adjusted cash flow from operations, which are non-GAAP performance measures. We believe these non-GAAP performance measures may provide additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures should be viewed in addition to and not as an alternative for the company’s reported results under accounting principles generally accepted in the United States. For an elaboration of the factors I just discussed, please refer to the risk disclosure statement in today’s earnings release, as well as the company’s filings with the Securities and Exchange Commission including Ocwen’s 2012 Forms 10-Q and 10-K. If you would like to receive our news releases, SEC filings and other materials, please email Linda Ludwig at [e-mail]. Joining me today for the presentation today are Bill Erbey, our Chairman; and Ron Faris, President and Chief Executive Officer. Now I will turn it over to Bill Erbey. Bill?

[Bill Erbey:]

Thank you, John. Good morning and thank you for joining today’s call. This morning I would like to discuss an issue that has been raised by our shareholders what happens to Ocwen’s business model as the economy gets better. After my comments, Ron will review our recent acquisitions and provide an update on our operations, and then John will review our financials liquidity position and specifically address how adjusted cash flow from operations is calculated. By way of perspective, adjusted cash flow from operations grew once again in the first quarter as depicted on Slide 4, even after incurring transaction costs associated with the Homeward and ResCap acquisitions. With a full quarter of ResCap, the boarding of the Allied transaction and potential additional transactions this year, we’re optimistic that adjusted cash flow from operations will remain very strong. As we have discussed before, the fact that our cash flow exceeds earnings is an indicator of the quality of Ocwen’s earnings, reflecting both our successes as a servicer and our conservative accounting policies. I do not subscribe to the notion that as the economy gets better Ocwen will not continue to grow. Ocwen has historically demonstrated the ability to grow throughout the economic cycle. As you can see on Slide 5 over the past 13 years, Ocwen has grown its servicing book of business at an average rate of 36%. In the past year alone, we’ve acquired more than $370 billion of servicing UPB, growing our portfolio by 377%. This remains true for the first quarter as well where we are seeing a sizeable increase in our new business pipeline. We are currently tracking $375 billion worth of active opportunities that we expect may close in the next twelve months. As you’ve heard me say on prior calls we believe we are still in the middle rather than near the end of a consolidation opportunity that has been brought about by the mortgage crisis. We believe the overall size of the opportunity over the next two to three years is at least $1 trillion. Things continue to look to sell off for sub service non-core servicing assets. Several national and regional banks are developing strategies to shed non-core servicing assets to reduce regulatory burdens and cost associated with servicing delinquent portfolios and refocus on their core bank franchise. We are in discussion with these banks and we expect to communicate progress regarding these potential opportunities during the course of this year. Later Ron will provide some additional detail regarding our pipeline. Beyond this robust near and medium term pipeline an improving economy is in itself a powerful potential driver of earnings and cash flow growth for Ocwen. Primarily because of the significant embedded value on a non-prime portfolio. The left hand bar on Slide 6 shows the free cash flow we expect to generate over the next ten years with our baseline assumptions for delinquency reductions and prepayment rates assuming the economy continues to generate slow growth. As you can see we believe our portfolio can produce about $7.2 billion in net cash flow over the next ten years with zero new acquisitions which one might describe as conservative. It also assumes a modest return on invested capital of 5% on re-invested cash which is about the same rate as on our term debt. Notice that in the tenth year operating cash flow is still over $300 million most of which is net income. Again this is true with semi no new acquisitions. The middle bar on Slide 6 shows cash flow and it’s an area where economic recovery drives down to delinquencies by 50% by the end of 2014. In this scenario we also assume both lower and voluntary pre-payments that the fault of prepayments and higher market interest rates to combine to reduce CPR by 50%. The impact of these changes would increase ten year cash flow largely from higher earnings from 31% to $9.4 billion. Moreover if one were to assume that we could reinvest cash at a 15% return the cash flow generation jumps by another 26% to $11.8 billion. Under this last scenario Ocwen’s cash flow would be over $900 million in year ten and would continue at a high level well into the future. Turning to Slide 7 we know two immediate opportunities, prime mortgages and reverse mortgages. Ron, will cover these in more detail later but I would mention that we are making solid progress on developing a funding mechanism for prime MSRs and we’re excited about the long-term growth prospects of the reverse sector given current demographic trends. With respect to longer term opportunities a non-prime lending market is likely to re-emerge. Let me state clearly our intent is not to have non-prime loans on our balance sheet. Demand for non-prime lending has never been greater. It’s estimated that less than 25% of American households can afford a new prime mortgage. However, the challenges in creating the responsible product are equally great. Naturally, a re-emergence of this market would be a significant source of growth for Ocwen. Additionally, we’re actively engaged in evaluating acquisition targets in adjacent spaces where we can deploy our process and launch mitigation expertise. We are primarily focused on accretive acquisitions, which we can purchase through a combination of our free cash flow and utilizing excess borrowing capacity. At present we have – we are considerably less leveraged than the industry and one could argue that we are even less leveraged than it appears. First, with the exception of a small percentage, Ocwen carries its MSRs at lower of cost or market or low-com, rather than a fair market value. As a result, Ocwen will never show earnings write up on over 90% of its owned MSR portfolio and furthermore, we amortize these MSRs. Actually we have been amortizing our non-prime MSRs at a rate of 18%, which is above actual CPRs of 14% creating excess value not shown in our earnings or on our balance sheet. As of March 31, 2013, the fair value of our MSRs exceeds the carrying value by about $276 million, as shown on Slide 8. Fair market value is estimated using average industry costs to service that are about 70% higher than Ocwen’s costs on nonperforming loans. If we were to use our actual servicing costs to value MSRs, our MSR value would be another $867 million higher. Second, Ocwen only recognizes services fess as collected rather than accruing delinquent servicing fees. At the end of the first quarter of 2013, Ocwen had over $500 million in delinquent servicing fees that, unlike many other servicers, have not been recognized as revenue and are not on our balance sheet. Third, with respect to acquired advances, we believe our accounting policies are conservative and that they do not pull earnings forward. For example, when we purchases advances at a discount, say at 95% of face value. We do not pull the discount into earnings as those advances are collected and then put new advances on the books at 100% of face value. Since top performing servicers typically resolve approximately 60% of advances in the first year, this practice accelerates earnings into the first year following an acquisition. If Ocwen had paid exactly the same overall practice for Homeward and ResCap but acquired the advances at a discount while paying more for the MSRs, we would have accelerated approximately $100 million of additional after tax earnings in this manner over the next 12 months. Rather, to the extent we acquired advances at a discount; we amortize the earnings over the life of the MSRs. These three items are excellent examples of deferred earnings for Ocwen. In combination, they are greater than the total earnings that we have reported over the past several years that will turn into future earnings and stockholder’s equity. Overall, Ocwen is well positioned for considerable future growth, our servicing platform is the most efficient in the business, our current portfolio provides years of strong cash flow and earnings production, and our ability to execute and finance significant transactions is second to none. Before turning it over to Ron, let me discuss how we think about the allocation of the considerable cash we expect to generate. We continually evaluate how to optimize returns on divested capital and create maximum value to shareholders. Given our excellent growth prospects, the top priority use of cash is to fund further acquisition. Nevertheless, our internal and external ability to generate cash has reached a point where we may soon have excess cash beyond acquisition opportunities. In that case we would consider returning excess cash to shareholders via stock buyback. Prior to commencing any stock buyback we expect to issue a customary press release announcing the program and providing further details. I will now turn the call over to Ron to talk more about our operational performance and an update on integration of recent acquisitions. Ron?

[Ron Faris:]

Thank you, Bill. I will cover three topics this morning. First, I will provide more detail on our operating results and new business pipeline. Second, I will review our recent acquisitions and provide an update on integration. And lastly, I will provide an update on our success in helping homeowners and reducing delinquencies. Let me start with a review of the first quarter. Slide 9 highlights our results. We generated record revenue of over $400 million, which is up 147% compared to the first quarter of 2012 and up 72% over last quarter. As a result, our net income of $45.1 million is more than double Q1 2012 net income. It is off from last quarter because of the large anticipated transition related expenses which netted to over $50 million in Q1 and that John will cover in more detail later. Normalized pre-tax earnings were over $100 million, representing a 90% increase over Q1 2012 and a 22% increase over last quarter. Note that these results do not have a full quarter of the ResCap portfolio in them as we closed that transaction on February 15, but do include some incremental borrowing costs as we built up cash for the Allied purchases that closed in April. On a per share basis we reported $0.31 per share in the first quarter 2013 which is more than double the $0.14 per share we posted in the first quarter of 2012. The first quarter of 2012 also included substantial transition related expenses from the Litton transaction. For more details on our financials, please refer to Ocwen’s first quarter 2013 10-Q which we expect to file early next week. While ResCap and Homeward are larger, and as we have said all along, take longer to fully integrate, we expect to see the same overall improvement in operating results that we experienced following the portfolio acquisitions of Litton, Saxon, Chase and Home Eq. Our track record of delivering positive results against large newly acquired delinquent portfolios is without rival. To date, the Homeward and ResCap integrations are proceeding according to plan. On April 15, the last set of loans were transferred off of the Homeward servicing platform. Most had been moved in February and March. This rapid integration of almost $80 billion of UPB onto Ocwen’s platform demonstrates the unique scalability of our technology. It also enables us to complete in Q2 our various cost takeouts associated with this specific acquisition. With each large integration, we have improved the servicing transfer process, and the Homeward integration has been our best executed transfer to date. As has been the case with our other acquisitions, we expect to see revenue on the Homeward portfolio begin to ramp up and costs to ramp down. As part of our overall integration plan, Homeward and ResCap’s Dallas operations are being consolidated and we are closing Homeward’s operations in Jacksonville, Florida. As previously announced, we are maintaining a presence in the former ResCap locations in Iowa, Pennsylvania and California. The ResCap acquisition was in part aimed at improving Ocwen’s position in prime loan servicing, and it has delivered against this promise almost immediately. We successfully bid for over $85 billion of Fannie Mae and Freddie Mac MSRs from Ally Bank. $82 billion of these MSRs were closed in April. The remainder will come in over the next few months as Ally closes out its origination pipeline and sells the servicing rights to Ocwen. Both the Homeward and ResCap acquisitions have enabled Ocwen to significantly improve our GSE, Ginnie Mae, master servicing and compliance experience and expertise. The overall quality, capability and scale of our Servicing business is now unparalleled. Because the full integration of the former ResCap servicing portfolio will not begin until Q3, the anticipated ramp up in revenue and decline in costs will come more slowly than with the Homeward portfolio. On the origination side, the Homeward Correspondent Lending business blended 2.4 billion loans in the first three months of 2013. The margins on correspondent have fallen over the past several months, and we expect margins are currently in the 10 to 15 basis point range. We continue to believe that this business is an efficient vehicle for adding prime loan servicing to our portfolio. However, volumes and profit will fluctuate depending on market conditions. We expect our second quarter volume from correspondent lending will be below Q1 as a result of increased price competition. In the first quarter of 2013 Ocwen generated approximately $8.4 million in HARP related revenue through our own retail channel and via partnership arrangements, which is up from just over $1 million last quarter. The ResCap and Ally portfolios add nearly $190 billion of Freddie Mac, Fannie Mae and Ginnie Mae servicing to our overall portfolio. As a result, we expect our HARP and other recapture volume should rise rapidly in coming months. We are currently seeing recapture rates for HARP refinances of 60% to 70%, making HARP prepayments a net positive for our earnings. Our newly acquired Reverse Mortgage business, Liberty Home Equity Solutions that is based in Sacramento, is expected to perform ahead of expectations. We have already made progress toward improving their cost of funding, and we should be able to improve their cost structure and broaden the services they provide. We do expect the HUD and – that HUD and FHA will trim the program in the next few months in response to the latest actuarial report on the FHA insurance fund. Nevertheless, we expect the changes will make the product more sustainable and more attractive over the long term. As Bill mentioned earlier, our current pipeline of opportunities include approximately $375 billion. Included in this pipeline is about $50 billion of sub servicing and about $325 billion or MSR acquisitions. We are well down the path on $5 billion to $10 billion of the sub servicing which could begin boarding in the next two to three months. We are also in advanced discussions on various MSR opportunities representing approximately 25% or the MSR pipeline. Although we don’t expect these deals to close until the third quarter even if we are successful in our negotiations. The overall pipeline includes both private label and GSE servicing. It is also primarily seasoned, higher delinquency and higher touch servicing which is our strength. We are well positioned from a capacity and readiness standpoint to handle additional servicing some of which will simply be replacing normal run off. Before I move on I’d like to acknowledge the hard work and dedication through the integration process of the people that have come over to Ocwen from Liberty, Homeward, and ResCap. We are very pleased with the quality of the people who have joined us from these entities. Slide 10 shows our trend for delinquencies since mid-2010 on various portfolios. As you can see we continue to make progress in bringing down delinquencies for the acquired portfolios. The pace of improvement on acquired portfolios continues to meet or exceed our expectations. The Homeward portfolio just completed boarding onto Ocwen’s platform and ResCap was just closed so they are not yet on this chart. Ocwen’s overall 90+ delinquency rate at March 31, 2013 was 15% representing a substantial drop from the prior quarter. Most of the decline is a result of the much lower delinquency rate on the ResCap portfolio which has a significant GSE and Ginnie Mae component. The delinquency rate on our prime loan portfolio as of the end of the quarter was only 5% compared to non-prime delinquencies of 25%. The Ocwen legacy portfolio continued to improve this past quarter. Overall delinquencies excluding Homeward and ResCap were down from 25.6% to 24%. This decline was mirrored by improvements in individual portfolios. With the Litton portfolio delinquencies falling 1.7%, the newer Saxon portfolio falling 1.6% and the Chase portfolio down 2.4%, total modifications for the quarter were 24,184 across all portfolio including the 45 days we owned the ResCap assets and modifications with 34% of the total. In the quarter 71% of the modifications completed on Ocwen’s legacy platform included some principle reduction with 26% of those modifications being our proprietary shared appreciation modification. Over the past 15 months the average reduction in monthly payment on modified loans was just over $600. Principle reduction modifications on the ResCap and Homeward portfolios represent less than 2% of total modifications on these platforms. We expect to see substantial improvements in modification rates as loans move on to the Ocwen platform and our programs to benefit consumers and loan investors take hold. Ocwen’s innovation in loss mitigation shows up in our superior results versus the industry. On Slide 11 we have updated data showing Ocwen’s performance compared to others on loans in subprime private label securities. We have broken the PLF data into Ocwen and non-Ocwen portfolios. As you can see, Ocwen has widened its performance gap versus the rest of the market by both modifying more loans and having fewer modified loans that are delinquent. Ocwen has modified 56% of its portfolio compared to only 47% from other subprime servicers. Getting more borrowers into loan modifications is a critical component of our ability to drive down delinquencies. Ocwen has also had better performance on modifications with those that are 60 or more days delinquent at only 26% compared to the non-Ocwen servicer re-default rate of 37%. Our better performance is a direct function of our industry-leading technology platform and the innovative use of psychological principles that enable Ocwen to deliver modification programs that increase both borrower acceptance rates and adherence. This analysis is consistent with multiple third-party studies that show Ocwen modifies more loans and has lower re-defaults. Our results are equally impressive when evaluating our success in getting loans to cash flow. Slide 12 shows the percentage of subprime borrowers that have made ten or more payments in the past 12 months. As the chart shows, 74.1% of Ocwen borrowers made ten or more payments compared to only 65.9% for other servicers. This means more cash flow to RMBS investors and lower advance rates for Ocwen. Most importantly, however, it means that more families remain in their homes because of our efforts. At Ocwen we take our jobs very seriously because we know that our success as a company is not just measured in dollars, rather it is best measured by the number of families we have helped to keep their homes through difficult times. In the past 15 months Ocwen has helped over 100,000 families to get sensible modifications enabling borrowers to work through their problems and avoid foreclosure. We cannot help every borrower with a modification, but we want to try in every case that it makes sense. Even for those where modifications is not an option, Ocwen has enhanced its programs of assisted short sales and cash for relocation assistance to ease the transition for those borrowers that simply cannot afford to stay in their home. Foreclosure is always a bad outcome for borrowers, investors and Ocwen. Prepayments on the overall portfolio averaged 20.1% in the quarter but that was compared to a 24.1% CPR for prime loans and only 13.9% for non-prime loans. As you can see on Slide 13, historical CPRs for Ocwen’s non-prime loans are relatively stable and declining in recent months. As we have noted before, most of the prepayments for non-prime loans are as a result of involuntary prepayments related to foreclosure or principle modifications. Our newly boarded portfolios – on newly boarded portfolios, Ocwen’s modification activities and ability to move loans through foreclosure contemporarily accelerate prepayments. Voluntary prepayments are typically under 5% for non-prime loans. The historical prepayment rates for prime portfolios are far more volatile. On Slide 14 we show historical prepayments for both Ocwen’s relatively small prime portfolio and ResCap’s much larger prime portfolio. You will note that Ocwen’s portfolio only recently has seen a large increase in prepayments. This is purely a function of HARP refinance activity that we have induced through our marketing efforts. As discussed earlier, such HARP prepayments are positive for both near-term and long-term earnings, as we earn fees on the HARP origination and get back a lower note rate loan with a borrower who is typically underwater on their mortgage. Now I would like to turn the call over to John Britti.

[John Britti:]

Thank you, Ron. Today on the call I will cover two areas. First, I will provide more detail on financial results for the first quarter 2012 including our tax accrual, normalization analysis and calculation of adjusted cash flow from operations. Second, I will discuss our funding and liquidity, including the impact of HLSS on our financials. As you can see on Slide 15, normalized pre-tax earnings for the fourth quarter were $101.4 million. There are three normalizing adjusters. Ocwen incurred $38.2 million of transition related expenses related to the Homeward, ResCap and Ally transactions. These expenses include such things as severance cost, legal expenses and the cost of transitioning loans onto the Ocwen platform. The normalization does not reflect the eventual impact of full integration and rationalization particularly at ResCap. Margins will improve substantially over time as they have with past acquisitions. The second normalizing item is $17 million of expense related to the early termination of our previous 15 year secured term loan as part of funding our new $1.3 billion senior secured term loan for the ResCap acquisition. It includes acceleration of original issue discount and other originated cost with a $328.6 million that remained on the prior term loan. The final adjustment is a negative adjustment of $5.1 million for sold operations. Most of this adjustment relates to the net impact of businesses sold to outsource. It also includes an adjustment for the net effect of loans we currently subservice that will transfer to Quicken in a few months as part of the Ally transition. In Slide 16 we break down the normalizing adjustments across the detailed line items of the income statement. As Bill mentioned earlier, Ocwen’s amortization assumes a higher rate than actual prepayment. This impact is most pronounced for the non-prime MSRs. If Ocwen had used actual prepayment rates over recent month to amortize our non-prime MSRs, Ocwen’s pre-tax income would have been $12 million higher for the quarter. Ocwen continues to benefit on an average basis from its Ocwen mortgage services restructure. Ocwen’s total effected tax rate was 12.1% in the quarter. The total rate was influenced by an increased percentage of operations in the United States at Homeward and ResCap. We expect the total percentage of US based operations to adjust down over time as we consolidate operations and move assets onto the Ocwen platform. Turning to liquidity; Ocwen ended with quarter with $663.4 million in cash on the balance sheet having fully borrowed against the base lines. We were fully borrowed in preparations for the closings of Ally and Liberty transactions in April. Our adjusted cash flow from operations metric shown on Slide 4 is a relatively straight forward calculation from the cash flow statement that you’ll find in our 10Q. I’ve gotten questions regarding this calculation so please bear with me as I go through how it is calculated. Slide 17 shows a mockup of our consolidated statement of cash flows. The calculations starts with the net cash flow from operating activities which was $401.9 million. From that we subtract the portion of advanced reduction that is match funded with debt. Next go to the line labeled decrease in advances and match funded advances which was $186.4 million. Each quarter we determine the percentage of advances funded with debt based on our actual funding efficiency in the quarter. In the first quarter of this year 73% of advances were match funded liabilities. The remainder were funded with equity. So we subtract 73% of the $186.4 million or $136.1 million from net cash flow from operating activities of $401.9 million to get our adjusted net cash flow from operations of $266 million. We expect that our funding efficiency in the second quarter will improve closer to 80% as we have re-engineered some of our advanced funding lines with the ResCap transaction. In addition to raising our funding efficiency we’ve also lowered our effective rate of financing advances on our balance sheet to approximately 3%. If we choose to sell advances to HLSS our effective planning rate for advanced debt falls down to 2% and becomes permanent. With respect to HLSS let me walk through the high level effects of HLSS on our branches. For the assets sold to HLSS so far the advances represent 85% of the assets sold. The advances are treated as a true sale under GAAP accounting while the MSRs sold are treated as financing and Ocwen continues to recognize all servicing fees and ambulatory revenue. Revenue retained by HLSS is booked by Ocwen as interest expense. HLSS’s advanced financing replaces Ocwen’s advanced financing so interest expense moves from the match funded liability category into the other interest category on Ocwen’s reported financials. There is additional interest expense at Ocwen representing compensation for the capital HLSS provides Ocwen when they purchase the MSRs and fund the advance haircut. In the first quarter of 2013 interest expense pertained HLSS was $44.6 million which is in line with the prior guidance of $44 million. After considering the advanced financing cost that Ocwen would have borne as the assets sales to HLSS the net increase to Ocwen’s interest expense is $19.2 million which represents approximately a 7% cost of capital to Ocwen on the $1.1 billion of cash provided by HLSS. The net cost is closer to 5% when taking into account deferred tax assets accelerated by the sale to HLSS. In addition to the $1.1 billion of cash proceeds these sales remove $3.1 million of match funded liabilities from Ocwen’s book. This freed up borrowing capacity allowing Ocwen to fund deals from Chase, Saxon, Homeward, ResCap and Ally that have added about $350 billion of UPB. For Q2 2013 we are expecting a modest increase in the interest expense related to HLSS to $47 million. In March Ocwen sold rights to MSRs on $15.9 billion of UPB and $703 million of advances to HLSS. A full quarter of this deal accounts for the increase we anticipate. We also expect a somewhat smaller sale in the second quarter as we are likely to need financing for additional transactions. A last point on funding is we believe we have substantial capacity to fund further growth without raising new equity capsules. Because of our access to cash from HLSS and because we are under-levered relative to our peers we believe that between HLSS and additional debt capacity we display another $6 billion of capital without raising additional equity. Thank you. I would now open it up for questions. Operator?

[Operator:]

Thank you. We will now begin the question and answer session. (Operator Instructions). Our first question today is from Brad Ball with Evercore. Your line is open.

[Brad Ball:]

Hi. Thanks. So you get $663 million in cash on the balance sheet and I think as you described the pipeline about $80 billion in UPB that could close in the third quarter. You’ve got advanced discussions against that. How much cash would you need for that amount of MSR acquisition? What I am trying to get really at, Bill, is how close do you think you are to being at a position of heading access cash to return to shareholders?

[Bill Erbey:]

We’re not going to comment on that particularly and the particular transaction. But when one looks at it when we’re generating close to $1 billion or free cash flow a year and we’re substantially under-levered, between the leverage and the amount of free cash flow we generate a year it’s almost equal to our total book net worth. So obviously we would have to grow at an extraordinary rate. Even if you look at the past year we grew 377% and we didn’t have to issue new equity to do so. So I do think at some point in time we will have, unless our growth rate continues at unprecedented levels, we will have a reasonable substantial amount of excess cash to deploy.

[Brad Ball:]

Okay. And then in the pipeline that you described where you have advanced discussions, how does that break out between private label and GSE?

[Bill Erbey:]

Again, we’re not going to really get into that. I think in my comments I did indicate that most of what we’re looking at, even whether it’s GSE or private label, is more seasoned higher delinquent type portfolios as opposed to freshly originated prime product. But for competitive reasons I don’t think it makes sense to get into any more details.

[Brad Ball:]

Okay. And can you give us a sense as to what the average servicing revenue margins were on the ResCap business that come on during the quarter?

[Bill Erbey:]

I think we may issue supplemental disclosures to help folks understand a little bit better the various components. Obviously our portfolio has gotten knowledge larger and far more diverse but rather than go into that I think that we prefer to issue some supplemental disclosures to help people really parse through it.

[Ron Faris:]

Keep in mind it was only there for 45 days. The revenue will ramp up naturally in the second quarter and it will be there for a full quarter.

[Brad Ball:]

Would that supplemental disclosure be in the queue that is coming out next week?

[Bill Erbey:]

It may. We’ll either issue it in the queue or we’ll issue it separate.

[Brad Ball:]

Okay. And then separately on originations. Could you talk a little bit more about your retail strategy. You mentioned HARP briefly. How much do you think within your existing book is actually HARP-able and are you planning to use HARP as a way to ramp up retail and be more significant in the retail channel this year?

[Ron Faris:]

Well, I think as far as retail or direct to consumer goes really our sole focus, I’m not talking about reverse mortgage right now, I’m just talking about forward mortgages, really our sole focus is on building up a platform that can handle part finance opportunities as well as any other recapture opportunities that might exist. So that is a capability that we’ve made good progress on in the first quarter since our acquisition of Homeward at the end of December and will continue to improve as the year progresses. Because we have a substantial portfolio now of HAMPable assets we will continue to utilize certain strategic partnerships to kind of supplement our own capabilities so that we can more fully benefit form that opportunity as the year progresses.

[Brad Ball:]

And can you give us a sense as to how big the HARP opportunity is in your existing book now with ResCap on board?

[Bill Erbey:]

I don’t think we’re prepared to give guidance on that, although I would say as we mentioned earlier, we do expect it to ramp up substantially and I think you get a good picture of how rapidly its rising given that we went from just over $1 million to almost $8.5 million of revenue quarter to quarter. I think that kind of growth is likely to continue through the end of the year but we’re not giving specific guidance.

[Brad Ball:]

Okay. Thank you.

[Operator:]

Our next question comes from Mike Grondahl with Piper Jaffray. Your line is open.

[Mike Grondahl:]

Yeah, thanks for taking my questions, guys. The first one. Could you just talk a little bit about the macro drivers that increased the pipeline from $250 billion to $375 billion? Just kind of what’s driving that?

[Bill Erbey:]

I can start off and then Ron or John can finish off with regards. It’s a continuing trend that we’ve been speaking about in that the banks are really refocusing most of them are refocusing, on their core customers, ones that have multiple banking relationships with that bank. I think it’s also a realization that they are not cost effective. That dealing with more delinquent portfolios and we’re more cost effective for them basically to sell that servicing. So I don’t think it’s anything different than that I think it’s just more players, existing players in many cases increasing their focus on that, and secondly additional banks to come to that realization.

[John Britti:]

And Mike, the other thing I’d add to that is when we put together a pipeline I think as we’ve discussed in the past we try to attach specific transactions that we see in the marketplace. We may attach some discount to deals that we don’t make, or molds that we would either count them as zero or count them at a very low percentage. Generally speaking we try to attach it to general transactions that we see in the marketplace. That increase in our pipeline is not so much driven by macro although it certainly in a broad sense, our pipeline always will; it is specific that we see transactions that have not materialized. Literally we have specific areas or items that we’re looking at now.

[Mike Grondahl:]

Will they have, in other words, they’ve ripened.

[John Britti:]

Yeah.

[Bill Erbey:]

Everybody has different levels of attachment for a pipeline as to when they put in their pipeline. We’re just simply saying that these transactions have matured to a point we feel much more comfortable with them.

[Mike Grondahl:]

Great. And then typically post acquisitions it takes you guys a little while to get to like a 60% operating margin. How should we be thinking about you guys returning to that level over the next couple of quarters?

[Ron Faris:]

So I think, Mike, I mean you should look at, I mean on the Homeward portfolio which is heavily weighted towards private label and the fact that we’ve completed the transfer of the loans onto the Ocwen platform, which is a big milestone, you really can just look at the prior deals that we’ve done, whether it be Litton or others, and sort of follow a same type of trending. ResCap is a little bit different. Obviously it’s a much heavier weighted towards prime than many of our other acquisitions so there’s going to be some different dynamics there. And as I mentioned in my prepared remarks, we don’t expect that full transition to start to begin until early in the third quarter and it’s a transition that will take time. So that ramp up will be slower and because of the mix between prime and sub-prime, it may not get all the way to the same types of margins that you’ve seen on the purely non-prime portfolios. But I think you should also remember to look, keep look at, the capital that we deployed and the return that we expect to deploy on capital, and the guidance we’ve given on that in the past, as maybe even a better way to look at it.

[Mike Grondahl:]

Okay. And then just lastly, thanks for the added disclosure on all the cash flow. It’s very helpful and maybe I’ll just ask Bill. Bill, what would an ideal acquisition be for you right now? I mean, you have all that cash. Besides more servicing, is there anything else that you think is ideal?

[Bill Erbey:]

No, we’re looking at other opportunities where we believe we can deploy our intellectual capital to that industry and by and large those, just without going through any specifics, we’re looking at acquisitions whereby we can use, almost exclusively, cash and borrowing capacity, which still permits us to do a fairly large acquisition with regard to that. And we’re also looking at acquisitions that have somewhat the same financial characteristics that we like at Ocwen, which means that they’re, either today or through what we think we can do with the business, make them highly, make them very large cash generators. So we’re, and this has been a process we’ve been looking at for over a year. Even though we see lots of things changing there are generally all these new ideas get incubated for a considerable period of time before we execute on them. But I think there’s very interesting opportunities out there.

[Mike Grondahl:]

Okay. Great. Thanks, guys.

[Ron Faris:]

And Mike, just so we’re clear, too, the significant cash balance that we held at the end of the quarter we incurred some costs in ramping up to that level and it took space of the acquisitions in April of the Ally portfolio in particular. I don’t want anybody to think we’re carrying that much excess sort of cash into the next quarter. It was deployed early in the quarter and future acquisitions will come from the cash that we generate going forward as well as, as Bill mentioned, we’re under-levered compared to others in the industry so we can lever up if need be for acquisitions.

[Bill Erbey:]

Yeah. Just to put it into perspective, three quarters of the Ally transaction and the entire Liberty transaction closed on April 1. What we held on March 31 was gone, a big chunk of that was gone or into investments by April 1, and the remaining portion of the Ally deal closed on April 15. So it was deployed very rapidly.

[Mike Grondahl:]

Right. Yeah. You had use for that money at the end of March.

[Bill Erbey:]

Yes. That’s right. We’re not carrying a lot of excess cash.

[Operator:]

Our next question comes from Bose George with KBW. Your line is open.

[Bose George:]

Yes. Good morning. My first question is just on the operating expenses. If we exclude that one time transaction charge is the number you had this quarter a reasonable run rate for the second quarter?

[Bill Erbey:]

Yeah. No, we have not included in those transition expenses all of the synergies and other take-outs that we expect to achieve as time goes on here. It may be closer to the second quarter but as the quarters go on we’ll continue to get more efficiencies and ramp down our cost as each quarter goes out beyond that.

[Bose George:]

The dollar amount in the portfolio is stable could be flat next quarter and potentially trend down a little bit?

[Bill Erbey:]

In terms of absolute dollars?

[Bose George:]

Yes. Think of the absolute dollars, just quarter over quarter. Again, assuming nothing else changes.

[Ron Faris:]

You’re referring to the expenses?

[Bose George:]

Yes, the spending – of the expenses?

[Ron Faris:]

Well, a good example would be I mean, the Ally business that we have on the books today is, we’ve already got all the costs for these 45 days of the quarter, but we’ll be getting much higher revenues out of that next quarter, and so I think the margins for that business will improve. But I think, as a run rate, it’s difficult because we are making substantial changes as the integration progresses and it’s hard to tease out all of those in the normalizing adjustments.

[Bose George:]

Okay. Actually, let me switch to the revenue side and in terms of the revenue outlook, I mean if you think that ResCap basically was on for half the quarter, for this quarter, is that the way to think about what happens to the revenue line next quarter?

[Ron Faris:]

Yeah, I think that combined with the fact that now that the Homeward acquisition is fully transitioned, I mean you can look at the ramp that we’ve had on the other deals like Litton and others and we should start to see later in the quarter, a ramp up in the Homeward revenue as our programs take hold. But definitely, the biggest driver in the next quarter will be the fact that ResCap will be on there for the entire quarter as opposed to just the 45 days.

[Bill Erbey:]

And also Ron, Ally will be on there, Ally will be on there as an MSR as opposed to sub-servicing. We had zero revenue from the MSRs on Ally in the second quarter.

[Bose George:]

Okay. Great. And then actually, do have a number for the average servicing portfolio for the quarter?

[John Britti:]

Excuse me, excuse me, and as Ron said, you would expect to see that our revenue for MSR on the non-prime would come more in line with Ocwen’s historical numbers.

[Bose George:]

Okay. That makes sense. And yeah, do you have a number for that average servicing portfolio for the quarter?

[Bill Erbey:]

Well, the average total service assets was about 340 billion, but I think that they’ll need some supplemental disclosure to really help you go through that in any meaningful fashion because that number is obviously made up of various components. The breakdown between agency, or sorry, sort of prime or non-prime, is maybe a little more helpful. It’s about 270 billion of prime assets now, total, and almost 200 billion of non-prime. But we’ll give, like I said, we’ll give more disclosure as time goes on otherwise I think you’ll, it’s very difficult to track through these various pieces.

[Bose George:]

Okay. Great. Thank you.

[Bill Erby:]

John, excuse me, Bose asked a question about what was the average servicing on our books for the quarter. It wasn’t...

[John Britti:]

Yeah, that’s 340 billion.

[Bill Erby:]

Okay, fine. Thank you.

[Operator:]

Your next question’s from Hugh Miller with Sidoti. Your line is open.

[Hugh Miller:]

Hi, good morning. I appreciate you taking my call, questions. A question about kind of seeing the down tick in the non-prime pre-payment speeds, can you just talk about what you’re seeing that’s driving that. Is it solely just a function of tight credit to that particular borrower or is it, are there other kinds of forces at play?

[Ron Faris:]

There’s virtually no reason, there’s virtually no voluntary pre-payments of that, of the non-prime book. I mean you have, most of that is, most all of that is simply default related. So as the portfolio, as we drive delinquencies down, and there’s less loans that are delinquent, we would expect that number to continue to fall because those borrowers for example that have been modified are generally modified into lower, much lower interest rate loans. Sometimes 2% and 3% coupon and they’re many times if not underwater from an LTV standpoint, they’re at 95 or 100 LPB which – and they have lower, they have poor credit scores which makes it extremely difficult for them to prepay in this market, anytime soon. So we would expect that we will continue to see improvement or lower run off of the non-prime portfolio as the portfolio continues to age.

[Hugh Miller:]

Got you.

[Bill Erbey:]

And one thing, if you look at the older portfolio that we sold to HLSS, that’s running at about a 12.6% CPR whereas our is running at 13.9%, and that differential is the new product that we add on from the other, from Homeward et cetera, where we’re able to basically modify the loans and bring them more current. But that modification of $0.06 of principal forgiveness actually gets embedded in prepayments. So as those portfolios begin to get more current, the actual natural rate of repayment falls.

[Hugh Miller:]

Okay. Very helpful there. And just in your commentary about kind of the improvement in some of the margins following the ResCap acquisition, how that might be different than Homeward? I understand obviously, you’re servicing a different kind of asset, but can you just delve in a little bit as to why there should be a difference in kind of your ability to timing of seeing that improvement?

[Ron Faris:]

Yeah, so there’s two things going on. First off, in most of our other acquisitions we rapidly moved the loans from the prior servicing platform onto the Ocwen platform. And the reason that’s important is because that platform is more efficient. It also has embedded in it the ability to more quickly roll out the various loss mitigation, delinquency reduction initiatives that we have which drives down advances, which just naturally reduces operating costs. So for the ResCap portfolio that transition is not going to begin until early in the third quarter and will not be completed until maybe at its earliest late in the first quarter of 2014. So that will slow down our ability to both reduce the operating cost and bring it more in line with our historical operating cost. It will also slow down our ability to ramp up some of our delinquency reduction programs that would reduce advances and reduce just operating cost when you’re dealing with performing loans. So that’s part of it. The other thing is the mix and the fact that a big chunk of that portfolio is prime and the margins are different there. They’re smaller on a prime portfolio than they are on a non-prime portfolio. So that also needs to be taken into account.

[Hugh Miller:]

Sure. I understand that.

[John Britti:]

One thing we might want to explain, Ron, is that the reason we’re going slower with ResCap is because ResCap is an outstanding prime servicer for the GSEs and they’ve built a lot of software around their base of the core servicing system that’s unique to ResCap. We’re actually replicating that software or, shall we say, incorporating the elements of that software into the Real Servicing platform and that’s taking us a little bit of time to do that. Once that’s done any future large prime acquisitions would simply follow the same way we do with non-prime and that we would simply move them over very quickly.

[Hugh Miller:]

Very good color there. I appreciate that. And then as we just take a look at the lending portion of the business and looking at the margins we saw in the quarter, obviously as you guys are able to generate some scale in that business how should we be thinking about the potential for margin expansion over the longer term? And where you might be targeting there?

[Bill Erbey:]

Margins are primarily a function of how we mark the loans. For those of you who have been on these calls for a while realize that we have a healthy respect for volatility of prime MSRs. And I think one could argue that we’ve marked them conservatively at the low end of third party marks. So those margins can be, there’s a wide range of what those margins could be, depending on simply how you account for them, and our election has been to take the most conservative mark out there. That’s principally what’s driving margins.

[Hugh Miller:]

Okay. Thank you.

[Operator:]

Our next question is from Kevin Barker with Compass Point. Your line is open.

[Kevin Barker:]

Good morning. Could you speak about the potential for HAMP modification fees, going forward, if it was extended out to 2015, just like HARP given the shift in your portfolio to more prime loans and how you think that will play out?

[Bill Erbey:]

Well I think the thing to look at is just look at the length, the percentage of loans that are delinquent in the overall portfolio. It doesn’t really matter whether they’re prime or non-prime, it’s just take the delinquency rate, which I think we’ve shown here relative to the whole portfolio. That gives you a sense as to how much opportunity there is. Obviously as these programs age, whether it’s HARP or HAMP you know, do you do start to eventually get into some burnout? But I think just look at the size of the delinquent portfolio and where you think that’s going, and that will give you some sense as to what that opportunity would be if it continues on past the end of this year.

[Kevin Barker:]

Okay. And then theoretically, if you were to stop doing acquisitions this year and just generate a free cash flow, how much of you stock do you think you could possibly, potentially buy back at current prices?

[Bill Erbey:]

Well, you can take, I mean at a very conservative estimate, Kevin, you could take the cash flow we generated in the first quarter. And keep in mind, we have half of, Ally hasn’t boarded, I mean all of Ally essentially hasn’t turned into an MSR and half of ResCap was, ResCap was only there for half of a quarter and we haven’t taken expenses down. So I think that, that’s a very conservative outlook on that so that’s well over $1 billion a year. And you know we are probably half the leverage that everyone, you know we probably have half the leverage we could carry.

[Kevin Barker:]

So theoretically, you could buy back North of 20% of your stock right now, given all of the cash flow that you?

[Bill Erbey:]

Yeah, without borrowing...

[Ron Faris:]

But only, let me repeat, we’ve got such enormous growth opportunities that the prospect that we’re going to deploy our cash primarily to buy back stock is remote.

[Kevin Barker:]

Yeah, I understand. It’s just how much theoretically is embedded in your platform, as it stands right now? There’s a tremendous amount of value to just buying back the stock.

[Ron Faris:]

Yes.

[Kevin Barker:]

And the excess cash.

[Ron Faris:]

Right.

[Bill Erbey:]

Right, we have great opportunities that look – you know it’s really interesting to see how much money we make versus book value. So there are very high rates of return for us to plan our cash into acquisitions. But we always do have the opportunity to you know if we don’t just to buy back shares. So I think we’re – I like the position we’re in. It’s always nice to be, particularly in the mortgage business. Trust me, over 30 years the one thing you want to be is cash flow positive because when the world – if you have a credit crisis and you’re not cash flow positive, you’re not around.

[Kevin Barker:]

And then going back to the question, Bose’s question earlier about operating senses, you know outside of where the run rate is right now, at what point outside of acquisitions, at what point would you see the operating senses peak given where you stand right now and all the portfolios that you’re boarding over the next several quarters and the ResCap transition. At what point would you say you’re going to hit peak operating expenses if you stop doing acquisitions?

[Bill Erbey:]

If we stop doing acquisitions now we’re already at peak.

[John Britti:]

Yeah. I think – well, Bill, I think maybe you know it’s a little tough to tell. I think the second quarter leads early on and it may be the peak because we have the full quarter of the ResCap you know. Or the last cap of the first quarter was where we are at the peak and it will just go down from here. So from where we are at the end of the quarter it will go down from here.

[Bill Erbey:]

I mean one color I could add to this is just take one – I’ll just give you one estimate of expenses. Today with these acquisitions we’ve taken on – we currently have seven full data centers. The data centers for Ally and Homeward cost us $160 million a year. Now that’s not to say that we won’t have some additional expenses. But the simple rationalization of those data centers and those contracts you know today costs us about $160 million.

[Kevin Barker:]

That’s very helpful. Thank you, Bill.

[Operator:]

Our next question’s from Chris Gamaitoni with Millennium Partners. Your line is open.

[Chris Gamaitoni:]

Thanks for taking my call. I have a clarification question on the cash flow. Of the $266 million of adjusted operating cash, $151 million of that was from the sale of mortgages. I mean I assume the offset is in the financing side where you offer the correspondent banks, or mortgage lending where you buy the loan, sell it forward. So shouldn’t I net that out to kind of get to a free cash flow number?

[John Britti:]

I’m sorry. Where did you...

[Bill Erbey:]

Which one are you referring to?

[Chris Gamaitoni:]

I’m referring to the net cash provided by loans held for sale activities, which is the forward sale of the correspondent loans, but the acquisition costs on a cash basis on the correspondent channel are in financing costs. So that’s a net offset. So your free cash flows, you exclude that, correct?

[Bill Erbey:]

In this case, most of that line, I think, actually was sale of home loans that we had on our balance sheet. So it is actually free cash flow.

[Chris Gamaitoni:]

Okay. And then on the...

[Bill Erbey:]

Going forward, you’re right. We probably would net that out. But that’s not what that line represents for the most part.

[Chris Gamaitoni:]

Okay. If we’re thinking about – can you clarify? You have a lot of taxes in different jurisdictions now. Would you have to pay an additional tax differential if you had to repatriate the cash to be US? Or is it already in the US?

[Ron Faris:]

The cash sits in the US and we’ve actually worked on that whole issue of how one uses that cash... Firstly, you can use the cash to buy anything you want to buy with it. Right? So there’s no additional tax in terms of purchasing additional acquisitions of products. And there’s certainly a large portion of that tax – a large portion of that cash we believe, based on work we’ve done in the last couple of weeks, is available to repurchase shares without having to pay an excess tax on it.

[Chris Gamaitoni:]

Okay, thanks. Thank you for that clarification. And are you going to provide any guidance on GAAP earnings? I mean, you’ve given kind of a ten-year outlook in cash, but even in the next two years or any type of period for GAAP earnings?

[Bill Erbey:]

No. We don’t currently plan to provide specific guidance on earnings.

[Ron Faris:]

Let me clarify in the amount of cash that is not subject to tax, is north of a half of $1 billion, we believe. And there are other steps we can take to further increase the size of that.

[Chris Gamaitoni:]

Okay. Thank you so much.

[Operator:]

Our next question is from Kyle Rhoades with Bank of America. Your line is open.

[Kyle Rhoades:]

Good morning. I work with Ken Bruce at Banc of America, and I just had a clarification question about the lending margins. I believe during your prepared remarks you quoted 10 to 15 basis points. I assume that that’s being quoted in price, right, not in rate?

[Ron Faris:]

Yeah. That’s in price. Yes, that’s right.

[Kyle Rhoades:]

Okay. And that’s net of expenses or gross?

[Ron Faris:]

Net of expenses and that’s just for the correspondent lending business, not of the retail margin.

[Kyle Rhoades:]

That is not the retail margin.

[Ron Faris:]

Right.

[Kyle Rhoades:]

But do you think that, that has probably come under additional pressure in Q2?

[Ron Faris:]

The correspondent margin?

[Kyle Rhoades:]

Yes.

[Ron Faris:]

Yes. Or I should say it remains the same as it was probably at quarter end.

[Kyle Rhoades:]

Which is at the low end of that range or even lower than that?

[Ron Faris:]

I think seven to 15 basis points is still a good estimate. As I think Rob pointed out, where you’re going to see the change from quarter to quarter is in volume, not so much in margin.

[Kyle Rhoades:]

Okay. Great. Thank you so much.

[Operator:]

Our next question is from Orin Kramer with Boston Provident. Your line is open.

[Orin Kramer:]

Apologies. Bill?

[Bill Erbey:]

Yeah, Orin. Hi.

[Orin Kramer:]

Look here. First of all I appreciate your trying to translate the business into cash earnings and eliminate all these artificialities that come out of the gap. I just wanted to be clear. The $9.4 billion assumes a 5% return on cash which means you cannot achieve any acquisitions which are materially accretive and it does not include the effects of any future cap raises from HLSS and it does not include anything that might arise from the advanced negotiations that you cited or whatever share that $1 trillion that’s going to move that happens to come your way.

[Bill Erbey:]

That is correct.

[Oren Kramer:]

Got it.

[Bill Erbey:]

And you still have a company at the end of that period that’s making – it has $300 million of excess cash flow a year. Most of that is profit.

[Oren Kramer:]

Great. Thank you.

[Operator:]

Our next question is from Henry Coffey with Sterne Agee. Your line is open.

[Henry Coffey:]

Yeah. Good morning. Thanks for taking my question. Two unrelated subjects. First, as you look at this Allied Servicing portfolio, the GSE book, and think about your origination business, is the thought process to actively build out a retail platform based essentially on that customer list or are you just going to narrow in on the HARP opportunities? And I know you probably said before but how much sort of HARM-able business do you think is inside those acquired assets?

[Bill Erbey:]

Well, it’s definitely going to be focused on refinancing where appropriate the existing GSE book, and in the near term at least the biggest opportunity there is related to HAMP. So definitely in the short term the opportunity is HAMP. Longer term as HAMP fades away, it’s still I think important to have that recapture capability to protect your portfolio, which is what we are well along now in building up. So that’s what we’re trying to do. Again, we’re not really giving a lot of guidance on how much of the portfolio is HAMPable. I think it’s fair to say that the deal we did last year, which you saw started to have significant ramp up in prepayment fees, because we started our marketing for HAMP to that portfolio has a good deal of opportunity in it, cause it’s a seasoned portfolio and it has some higher coupon loans in it. The Freddie Mac component of the ResCap business that we acquired is a seasoned portfolio with some high coupon loans in it. And I think it’s got still a lot of opportunity for HAMP. The Ally Bank is – there are HAMPable opportunities in it, but it is more newer originations. I would say is also some of the lower coupon, because it’s new origination product. So that maybe not as much as some of those other portfolios, but there still is a big portfolio. There’s opportunities in there for sure.

[Henry Coffey:]

Then just to help us with that, Ron, in either the queue or future schedule, are you going to give us more granularity on the servicing asset so we can kind of figure out on our own what the cost space is and the refi opportunities and other dynamics of the assets are going to be? Because you’ve got a very different business mix now.

[Bill Erbey:]

I think we’ll definitely give details on the breakout of the prime and the – what’s prime, what’s nonprime, and what the delinquency characteristics of those portfolios looks like. I’m not sure how much at this point in addition to that we’ll be providing, but we’ll obviously try to make it as clear and as concise as we can for you.

[Henry Coffey:]

And I know obviously from the dialogue on the call, stock buybacks are very much top of mind, as is I think we all figured out your cash flows, which are quite significant. Is the thought process to really continue to reinvest in growth opportunities and keep the buyback as kind of a secondary option? Or is it more likely at some point you’ll take a view and say okay we’re going to put X cash flows into buyback and maybe 80% of the cash flows into growth. We have to set a weight for this process to really work its way through safe to next year.

[Bill Erbey:]

We’re continuing to evaluate a number of different opportunities, Henry, hopefully in the not too distant future we’d have a great bit more clarity about what we want to do with that. We’re still evaluating a number of things and we’re not really prepared yet to say exactly what we’re going to do. But it’s certainly more in front of us just from the strip because we said we actually for the first time said if we were to do it we’d put out a press release.

[Henry Coffey:]

This is a wonderful first class kind of problem to have so thank you for all the clarity you’ve given us on this.

[Bill Erbey:]

Thank you.

[Operator:]

There are no more questions.

[John Britti:]

Thank you very much, everyone. Have a great day. We appreciate the questions.

[Operator:]

Thank you for speaking on the conference. The conference has concluded. You may disconnect at this time.