Q4 2019 Earnings Call
Good day and welcome to the Stewart information services fourth quarter in fiscal year 2019 earnings conference call and webcast today's call is being recorded.
At this time, all participants have been placed in the listen only mode and the floor will be open for your questions. Following the presentation. You may registered to ask a question at any time by pressing the star and one on your Touchtone phone I would now like to turn the call over to not Otis. Please go ahead.
Good morning, Thank you for joining us today for Stuart fourth.
Quarter 2019 earnings conference call, we'll be discussing results are released yesterday. After the close joining me today, our CEO Fred Eppinger, unless you have heard David I see it wasn't online. Please go to the Stewart Dot Com website to access a win for this conference call I would remind participants this conference call may contain forward looking statements involve a number of.
Then on certainty because such statements are based on an expectation of future financial operating results and are not statements affect actual results may differ materially from those projected the risk and uncertainties are forward looking statements are subject to include but are not limited to the risks and other factors detailed in our press release published yesterday evening and then statement.
Regarding forward looking information risk factors and other sections of the company's form 10-K, another filings with the FCC, Let me now turn the call over to fraud.
Good morning, everybody and thank you for joining US today, let me first make some comments on a quarter.
And then give some added color on the start of stewards long longer.
Our term strategic repositioning.
After that David will discuss our financials.
Oh, the core title operations finished the year well with direct residential continuing to benefit from higher volumes and commercial getting greater penetration and second tier markets.
Our agency group has been working hard to reestablish.
New from agents, we have moved their business during the FNF merger process December would've been the first month that we could really begin to gauge our success in bringing back those agents and it turned out to be a strong month.
Making has cautiously optimistic that our efforts are gaining traction.
That's great traction we anticipated.
That said.
We will be carefully monitoring this trend over the next couple of quarters.
Let me say a few things about our 100 day review and the strict long term strategic repositioning.
Following the completion of our 100 days strategic review, we have begun the true process.
Taking store to more competitive and resilient company.
Based on our work.
I'm, even more confident that we can position stuart to generate longer term growth and much improved margins.
Our work of repositioning Stewart for the future has addressed a number of fronts.
First have probably you're probably seeing from our some of our board senior executive at managerial changes in the press and public.
Filings.
Well the company, we have work to get our team energized Allied and in place and while we have additional work to do and potentially some additional team members to add I would feel we have a talented team prepared to work together and get it done.
But before discussing any changes I want to take.
A moment to thank Matt Morris for everything he has done for the company and specifically for what he has done to ensure smooth transition for me.
I look forward to match contributions as a board member going forward together with our two newest board members, Karen pull out and Manolo Sanchez, who bring a lot of relevant experience to assist us in our journey.
Among several executive level changes during my first thought several months I would like to single out Steve Leszek, who will be guiding our direct operations seems track record of building businesses and sustaining revenue growth margin and cost discipline aligns with our new direction.
In addition to the alignment of our team and talent, we have started to be more.
Dziedzic on our business portfolio and investments ensuring that we are investing in areas, where we can win over the long term.
So from the press release that we've begun this reallocation by closing some locations are reducing our resources and others.
We we reinvesting much of those ongoing savings in areas, where we can lead to long term growth and improved margins.
Following our strategic review, we've identified some areas, where we will have targeted investments to improve our competitive position in each of our businesses and identified important improvements needed around a basic execution.
Finally, there are so important structural changes to our business, we need to invest in around building scale on some key direct markets.
Managing our agency geographic footprint building at attractive commercial business and adding scale to our non title businesses.
Oh, well finish by simply saying the process of turning Stewart into the Premier title services company and improving our financial performance has begun.
You will not be an overnight process, but I remain confident in.
The potential we can to unlock here given the quality of our people brand and financial strength.
David will now update you on the quarter.
Thank you Fred and good morning.
It's nice to have reported total revenues of 506 million operating revenues of 513 million in a breakeven net income.
For the fourth quarter 2019.
During the charges in appendix say of the press release adjusted net income was 21 million with adjusted EPS of 87 cents per share versus adjusted net income of 19 million, an adjusted EPS of 82 cents per share from last year's Q.
Quarter Appendix Asia is the calculation of our adjusted net income and diluted earnings per share, which are non-GAAP measures. These adjustments are primarily comprised of asset impairment charges severance expenses related to our corporate reorganization and office closure costs.
Our title.
Revenues for the quarter improved 11%.
So continued strength in residential activity as well as significant growth in our agency and international businesses.
The title segment generated pre tax income of 20 million or 4% pre tax margin, excluding the charges the segment's fourth.
Quarter, 2019 income was 33 million or 6.5% pre tax margin.
With respect to our direct title business direct residential revenues improved 21% on increased orders offset by reduced fee per file due to higher refinance mix total.
International revenues improved 4 million or 15%, primarily driven by increased volumes from our Canadian operations.
And although commercial activity increased in December commercial revenues declined 5%, primarily on an equal drop in commercial fee per file.
Compared to the fourth.
Fourth quarter 2018, total opened and closed orders grew 31 and 33% respectively.
Regarding our agency business gross revenues increased 10% compared to the fourth quarter 2018 due to higher customer.
At market activity.
Across the enterprise January business activity continues at a strong pace over the prior year period.
Regarding title losses, although our Decemberthirty, one 2019 total balance sheet policy loss reserves remain strong at.
459 million and above the actuarial reserve midpoint, we did experience an increase in title losses in the quarter. This increase was primarily due to losses recorded in portions of our non Canadian International operations and an escrow loss in our commercial business, we expect our year 20.
Btwenty title ratio title loss ratio to be in the low to mid 4% range.
Looking at our ancillary services in corporate segment.
Reported a segment pretax loss was 17 million for the fourth quarter compared to 10 million in the prior year quarter, excluding the charges and.
Net realized losses, the segment's pretax loss would improved to 3 million in the fourth quarter versus 5 million from last year's quarter.
The segment's operating revenues declined by 5 million as our capital markets search business was impacted by order reductions from several customers.
The segment's results for the fourth quarter 18, and 19 included approximately 11, a 9 million respectively of net expenses attributable to parent company in corporate operations with the higher expenses in the fourth quarter night teen primarily caused by the previously mentioned charges.
With respect to consolidated operating expenses employee costs were up 11% compared to the prior year quarter, primarily due to its increased incentive compensation consistent with higher revenues.
Increased employee severance expenses related to the corporate reorganization.
Average employee count was 3% lower in the fourth quarter, 2019, which slightly reduced our salaries expense compared to the prior quarter.
As a percentage of total operating revenues and excluding severance charges employee costs for the fourth quarter night team versus 18 were.
28.8% and 29.4% respectively.
Other operating expenses for the fourth quarter 2019 increased 7% to 94 million from 88 million. This increase was primarily driven by the charges previously noted.
And higher direct title revenues in the fourth quarter 2019, as a percentage of total operating revenues and excluding the non operating charges discussed.
Other operating expenses for the fourth quarter were 16.5% and 19 compared to 17.8.
In the prior year quarter.
Lastly on other matters, our financial position remains strong providing ample fuel for the initiatives spread covered stockholders' equity attributable to Stuart was 747 million at the end of the year cash on balance sheet and our available line of credit of 100 million.
In provide significant an immediate liquidity for initiatives, our debt to capital ratios approximately 12% and our book value per share. This 30 152 at December 31, 2019, net cash from operations for the quarter was 59 million an increase of 19.
Team from the prior year quarter at 166 million for the year about double the prior year.
Now I'll turn it back to the operator to take questions.
At this time, if you would like to ask a question. Please press star and one on your Touchtone phone you can remove.
So from the Q by pressing the pound key again that star in one and we'll take our first question from Bose George with KBW.
Hi, guys. Good morning. Good morning. Good morning, good morning in terms of the charges are they largely done or could we see more charges.
This year and also anything there that could impact your cash.
And on hand or are they just largely noncash charges.
We have bose its David here. So a good majority of a more where non cash the asset impairments in the light, but it was some of the severance charges, obviously theres theres some payments that go with that but the vast majority or non.
Sure they with respect to the future.
Yes, I would say the vast majority are behind us, but as Fred mentioned in his in his opening comments, we are in a journey and there could always be some things that come out of that as we extended the repositioning.
Sorry.
Okay, great. Thanks, and then just in terms of the as you sort of move towards.
Growth profitability et cetera have you started to said sort of margin goals or market share goals or is it a bit early for them. It it's a bit though.
We're obviously setting our sights for some material improvement for obvious reasons and.
Yes.
And so but we are going to.
For us I think more clarity around our proven goals et cetera.
And but.
But it's very clear around here that.
This is a place we want to make sure we are much more diligent about growing and much more diligent about.
Moving on March.
Okay. Thanks, and then I should just one more on your comment about adding scale to the non title businesses can you talk about the outlook. There are there acquisitions, you're looking at or just any color there would be great.
Yes, we have historically, we would head of us.
Spattering of these ancillary businesses.
I would say describe them all about twos, you'll subscale and kind of narrow and.
We've worked hard on the platform is that some really excellent work, creating our platform.
In a couple of our businesses and we think theres an opportunity to grow scale, both organically and inorganically.
And in a couple of them, where we think makes a lot of sets to both grow them and improve our position those those industries. So you'll see a little bit of both frankly.
Okay, great. Thanks, Bose, if I could just add to that because I think the other part of your question was around acquisitions I think there are opportunities.
Securities as you as you're probably aware of the market in services and also in core title and think it's reasonable to assume were relocated those.
Okay, great. Thanks, a lot.
We'll take our next question from Mackenzie Aron.
With Zelman and associates. Please go ahead.
Thanks. Good morning. Good morning, first first question around the commercial business can you just talk about what you're seeing there in the pipeline heading into 2020.
And also if you think there's opportunity to regain share there as well when and how that progresses potentially.
Yep.
Yes, Mackenzie I guess I'll just point to some of the order activity that we have in the appendix and you could see that December order activity with it was actually relatively strong. So I think theres always a little bit of Lumpiness based on deal size of the.
But I think as it sits today.
We're seeing good activity and.
We expect to have a good year commercial this year.
Okay, Great and then.
On the average piece of the profile and the purchase business, it's been kind of flattish.
And I think kind of lagging what your peers have seen can you just talk about as you embark on repositioning some of the geography is.
Should we be expecting that to improving 2020 or what's the outlook there.
Yes, I think thats going to that will track.
You know sort of sort of were business comes from I wouldn't expect in this year a radical change in that number I think over time as as we do some of the repositioning that Fred mentioned, we could see a bit of an uptick but.
Yes, I wouldn't expect to big change this year.
Okay and then.
Last one for me just on on the progress that you're starting to make with agents then regaining some business. There can you just talk a little bit more about how how you're doing that what's the pitch city agents and what the reception has been.
I think it's a couple of folds right I think given the FNF.
Traction period agents I've mentioned before they would think they have to manage their business and there was a lot of fear that they would have way too much concentration.
With Fidelity, and then took action and basically stopped.
A lot of the flow to us or at least redirected some portion of it.
What we're seeing is I think a receptivity.
And for that to go back to where it was and be more committed to us as a company I would also tell you. We're very focused on growing our agency business and have kind of redouble our efforts in some particular geographies and around some product enhancements.
That we will be providing that I think we'll make a difference and so.
I'm pretty bullish on our ability to kind of see a bounce back deck that bounce back continue and I'd like to believe that we were going to be able to continue to grow our share.
And agency nicely in a number of other geography, so we're focused on so.
I feel pretty good and we've actually qualitatively having spent some time with a number of agents.
I feel like we're in good position and kind of improving our position so.
Great great to hear and best of luck.
Thank you.
Okay.
Well take our next question from Geoffrey Dunn with Dowling and partners. Please go ahead. Thank you good morning, good morning.
Fred I was hoping you could get a little bit more color on some of the strategic comments you meant about investing in areas of of execution and capability.
Scaling up your direct and maybe give more focus on your agency footprint can you give some examples on all those fronts of of initiatives you envision.
Yeah. So if you look at us in my view what are the things we haven't done as much as we could.
On the direct side in particular is invest in strength right. We have an enormously strong brand.
And we have.
And my view, a little bit unevenness about where our investment is and where some of our.
Areas.
And the dollar returned for investment in places, where we have a straight on to our brand to leverage and have some strength is enormous and so you could imagine us targeting both organic and inorganic investments in some of those markets, where I feel we have a good brand strength and and again.
Both opportunity and share and so.
You will see us double down in some areas again I would argue it's got to be both organic and inorganic and some of those.
And agency we are platform I think you know we have some really good things, but we kind of gravitated to some markets that I think.
It was less strategic and more just kind of happened and if you will get some of the most attractive markets our ability to kind of invest a little bit and make sure. We go after uneven you know some of these agents we have relationships and other places. They these other markets that are a little bit more attractive we don't have as much penetration so our ability to kind of target a.
Number of agents relationships and go after it on these attractive markets and the result of enhancement of product stuff when process of doing that will make that a little bit easier to go will help us enormously as we kind of.
Move our mix.
About so again.
If I wish to describe our situation right we.
Sure.
A good company, but an inch deepen a mile wide.
And what I'm trying to do is make sure that we are investing in our strengths in places where can really maximize our return and you can imagine that gets that creates a little bit more resilience in our bill its ability to manage through cycles your ability to manage through.
Seasonal changes.
And so.
It's not rocket science at some level, but again, we have one of the strongest brands in the industry and we haven't leveraged it.
And a lot of this is about taking our investments and leverage the brand strength and.
A lot of people could replicate what we're talking about.
Hi, I mean, what we're talking about as.
An established plan. So we talk to whether its agent partners or people that we want to track to the organization either institution companies or individuals our ability to do that as a lot easier than most because of who we are particularly when we do it in areas, where we had some.
Oracle strength that Weve under invested so so again, it's what you saw the recharges was us redirecting some of this invest that.
Both kind of just in staff and expense, but also kind of in some.
Geographic areas, where we could take those savings.
And reinvest them and change the dynamics of our economics pretty fast so.
You'll see it.
That is one of big Bang no, it's not a big bag right. It's a series of targeted shots, but my view is we can move the needle pretty significantly.
Okay. Thanks, and then with.
Services It sounds like maybe there is still some review going on there definitely some businesses that are scalable, but but also some businesses that sounds like maybe you will not be in the future is that is that fair character characterization of where are you currently stand.
We've taken a lot of action already on.
So I feel pretty good about what we're targeting to grow and we have we have clarity on that and I think we can.
Growth essentially what we have our portfolio that we have today.
And so Thats where were go building on the platform. We have today, Okay. And then last question in terms of potential.
Hi Tech activity on the M&A front is that something we should expect funded at the opco level or or do you foresee opportunities that are more corporate funded.
Yes, it could be either.
Because we have available on a credit thats at the corporate there.
Okay.
There's always an ability to issue stock if it makes sense and and then we've got opco money by virtue of the cash so it could take take any form of that whatever makes the most sense in the most efficient.
Okay. Thank you.
Thank you.
Well take our next.
Question from John Campbell with Stephens.
Hey, guys got Carter on for John.
Okay morning morning.
Can we expect to see any share buybacks this year.
No I mean right now what we're focused on with our capital is really building our business.
Our future.
And that's where our greatest return for shareholders will be and essentially enhancing our kind of margin and growth opportunities here and building the company, So thats, where where our focus is on using our capital, particularly right now.
Got it got it.
Real quick on the on the strength in residential.
Are there any particular markets.
Forming better than others.
Yes.
Well I mean, our yet not not to be cohere anything, but the the performance tends to track you know sort of where the real estate activity is and where are the.
Economy is right you've got certain markets in the West you've got Texas put places like that in that.
Fred's for where we have scale in those markets.
Those tend to be.
What are the best performance.
Sure.
Okay got it thanks, guys. That's all from me.
Thank you.
And again that is star and wanting to ask a question probably we'll take our next question from Deforest Hinman with Walthausen <unk> company.
Hi, good morning, taking the questions good morning.
Yeah, I think in the past you commented about Stuart.
Losing share in the title space is.
It is fourth quarter reflective of us Uh huh.
Detainee, losing are gaining share in your opinion.
Okay.
All right good well, yes, I mean, there's there's not a.
Huge reference point there other than moved out to share data comes out on a lag basis, you can sort of infer how you're doing against some of the order information that gets reported I would say that.
You can look back on that but it seems like we're we're at least hanging in with everybody else.
Okay.
If theres anything going on I guess my bike again my my my point on that is again, we obviously are very focused on profitable building. This company and I think what you're going to see is a consistent.
Growth pattern that we're going to develop in this institution that outgrows the market a little bit because of the way we invest.
The issue is this.
As a straight line from today to there and so ups, obviously, we're still doing some tweaking with the portfolio. We did some obviously some closures of some locations. So I feel we're doing very well and kind of competing very well, but we're not what we're going to be right. I mean, there's still kind of there's some adjustments.
That are going through the numbers and will for the next couple of quarters as we've looked at our portfolio and make sure that everything we're doing makes sense.
But that is our goal was no question and I guess, if I looked at our.
Our markets.
Well were the strongest it's clear that we can do that on a consistent basis I think.
I think strike that.
Brand matters in this business.
So again, we're very focused on getting there, but I would say still some work to do.
Okay.
That's helpful.
And then on the total losses in the fourth quarter ticked up can you can you just give anymore color. There is is there a single significant larger.
Yes, or is it a number of smaller claims or something else.
Well, yes, theres really two elements in the fourth quarter and I think it depends on whether you are trying to bridge the two quarters or you just trying to bridge the fourth quarter to a more normalized loss rate to the bridge to a more normalized loss rate it's basically the.
The largest for loss that we highlight and then there's about $4 million and.
Canadian International on certain products.
The end up pretty much explains.
The fourth quarter to a more normalized loss rate and if you were trying to bridge to last.
Order.
We had a lower we sort of how the reverse happened last quarter, where where experience was what's much better.
Then you have the international Yeah. The escrow loss. So then you have the higher revenue right and so I think between between all that information you should be able to bridge.
The two quarters, and then the quarter to a normalized loss rate.
Okay. Thank you and then it can you think on last call you use color on a October open orders can you tell so January open order activity.
Yeah open order.
Revenue for January strong, it's probably up about 20% over the comparable year period and 19.
Okay. Thank you for taking my questions today, yeah. Thank you. Thank you.
[noise] [noise].
And there appear to me no further questions at this time I'll turn it back to the speakers for any closing remarks.
And I. Thank you for joining us this morning, and your interest in Stewart Goodbye.
This does conclude today's program. Thank you for your participation you may now disconnect.
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