Q1 2023 Stewart Information Services Corporation Earnings Call
Hello, and thank you for joining the steward information.
Services first quarter of 2023 earnings call at this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session.
Directions will be given at that time. Please note today's call is being recorded lastly, yes, we should require operator assistance. Please press start zero.
He is now my pleasure to turn today's call over to your Brian Glaze by Accounting Officer. Please go ahead.
Thank you for joining us today for students.
23.
We will be discussing.
Released yesterday.
Joining me today our CEO .
And see if any of the data.
Please go to it Stuart.
Access elite for this conference.
This fall.
Conference call me.
A few statements that involved.
[noise] uncertainty please refer to the company's press release and other filings with the I C. C for a discussion of the risks and uncertainties it could cause our actual results to differ materially.
During the call we will discuss.
Some measures for reconciliation of these non-GAAP measure.
Please refer to the appendix in today's earnings release.
Which is available on our website at Stewart Dot Com, Let me now turn the call over to frown.
Thank you for joining us today for Stuart's first quarter of 2023 earnings Conference call Dave.
David will review the quarterly financial results in a minute, but before that I would like to cover an overall view of Stewart and the current market.
Our efforts at Stewart over the last three years have focused on fundamentally improving the company's operating performance to better position ourselves on our journey to becoming the Premier tried a services company.
Longterm goal needs to create a <unk> business second try to all real estate cycles and economic conditions.
Aside from the margins global resiliency by improving our scale attracted markets and enhancing I hope of operational capabilities.
Challenging markets like we are currently yeah. It is often difficult with me as long term goals.
However, I am pleased with our progress towards improving our long term performance as in Dallas investments with a need to manage expensive carefully.
Yes, we discussed before we anticipated the first quarter's via our most challenging to prepare for this we took significant actions to manage costs. During the second half of 22 and again in the first quarter of 23.
We've been careful not to take actions that'd be thoughts were threatened our competitive position that long term value creating opportunities. We believe this is a historic cycle.
<unk> to get us through this period is to continue with extra people and remain focused on a long term improvement plan and May I ask you a couple of challenging corners, which is what you're doing.
Early in the first quarter interest rates kick down fairly significantly which resulted in an increase in health and orders. However, order boy and slowed again my ways quickly reversed again in February peeking in mid March.
These challenging market dynamics, along with the impact of seasonality, let us do our lowest court closed order volumes in over 20 years have resulted in an overall loss for the quarter.
We moved into the second quarter interest rates watery, it's likely that we need.
We expect this difficult environment moderately approve of the second quarter, but the challenging what firemen will continue into the second half of 23.
We will continue to be energetic business with a careful balance of cost discipline and investments it skills and capabilities that we will expect would be the best position I spent the longterm.
Although interest rates have declined in the early second quarter interest rates <unk> inventory and housing affordability.
Being hindrances to any quick return to a normal real estate market.
Can you repeat focus I want term strategies enhancing our operating model investments in technology enhanced pleasant experience and improve efficiency of our operations in building scale targeted areas.
We took an additional expense actions this quarter.
Recognize that the strategic investments will will cause our cost ratios are being elevated in this market.
We believe that the long term investments coupled with a thoughtful near term expensive management will improve our structure and financial performance and a long term.
Ah direct operations, we are making progress on our strategy scale attractive bargains.
Even during this challenging market, we continue to evaluate select that they'll go opportunities to increase our scale a footprint give.
Given the market uncertainty, we will make very thoughtful decisions about deployment of capital.
Cause they should've got commercial operations for growth across all our business lines has been a key focus on our journey is these operations are an important component of our overall strategy.
That's what the talent during the past year to aid in achieving these objectives that we believe our focus will create lots of growth of the commercial markets, although we recognise changing financial markets. They create headwinds in the short term.
And our agency business, we have the hate the excellent progress on our deployment of technology and services. They provide credit connectivity ease of use and risk reduction for agent partners as he moved in twenty-three our platform of services for agents are as strong as it's ever been.
I'd see meaningful share growth and our target market.
Oh, the topic of technology, we continue to invest significantly improved technology for the title production process automation and centralization to improve operational efficiencies and capabilities.
You've already made significant progress improving past experience across all channels and rolling out our agency technology platform will significantly enhance as easy to Houston connectivity with agents.
Additionally, significant progress integrating completed acquisitions into our protection systems, which improves our personal experience as well if you're operating efficiencies that we've been building on for the past several years, they're banning integrations will be an important focus for the remainder of 23.
Mmk, Dr card strong financial position well Bessie Opportunistically during this market the behaviors of top priority for.
Are they actually are Walter calls made to generate high or low double digit margins over the cycle.
However, there will be quarters like the first quarter of the fourth quarter 22 requirements will be challenged.
They focus on our strategic plan to building an improved competitive position I'd be more interested in having a difficult operating vartabed function as well through all the states cycles.
We have emphasized growing scale attractive markets across all business and we have made significant progress in improving the customer experience in all channels. While we're encouraged by our improvements in all of our four critical for us.
Talent technology customer experience.
Financial bottle.
Guys work with things that I enjoy is not complete.
Whenever we have seen the results of our efforts to increase your over your market share gains in each of our direct agency and commercial businesses.
Let me finish by reiterating that we will both manage our expenses investments with a practical balance between operating discipline. The current short term market challenges and strengthening Stewart for the long term growth performance.
A strawberry answer 40 shoot the best position to take advantage of the opportunities that this like a will provide.
I'd also like to restate by climate log to review or the real estate market of your abilities to it because the premier title services company.
A tremendous thank you too to our associates and all that hard work into our customers for the T V loyalty and support.
You'll get paid it without update anyone about that results.
Morning, everyone and thank you Fred first I would also like to pay for associates for their amazing service that our customers for their support as fled noted the first quarter saw a continuation of a difficult real estate market and poor consumers settlement low residential inventory high mortgage rates lower commercial real estate.
Activity in tough economic conditions, all contributed to the situation.
Yesterday, she wrote reported a net loss of $8 million or 30, So it's pretty limited share a total revenues of 524 million after adjusting for that realize that unrealized gains or losses. He adjusted first quarter that loss was 7 million or 25 cents per diluted share compared to a net income.
56 million in the first quarter of 2022.
Results for the first quarter were primarily driven by significantly lower revenues caused by volume to qualify lower home sales and refinances.
Total side of revenues in the first quarter decreased 265 million or 37 per cent resolve it in the title segments pretax loss of approximately 1 billion compared to pre tax income of 83 billion during the during the prior year quarter.
Accurate judgements for purchase intangible amortization and other items listed in appendix a of our press release the segments pre tax income was 4 million or one per cent margin compared to a 1 million or 11% margin and 2022.
And our direct title business domestic commercial revenues decreased 24 million or 42 per set primarily due to lower transaction volume in size average commercial fever file is approximately 8300 for the first quarter compared to 12700 for the prior year.
Or domestic.
Domestic presidential revenues were down $70 million or 32% as a result of significantly lower purchasing refinancing transactions. However, residential fever file was approximately 3400, which was 30% higher from last year due to a higher purpose mix.
Total international revenues decreased $16 million or 40 per side, primarily due to lower transaction volumes and our Canadian operations.
Total open and closed ordered as he called them by 37, and 45 per cent, respectively in the first quarter compared to last year.
In line with our direct Hada revenues first quarter revenues from our agency operations decrease of 155 million or 38% compared to last year. The average agency remittance rate decreased to 17.4% compared to 18.1% primarily as a result of.
Geographic mix.
In regard to title losses total title loss express in the first quarter decreased 12 million or 40 per said, primarily driven by lower side of revenues as a percentage of tired of rabbit is the title loss expense was 3.9% compared to four per cent last year for the four year 2020.
Three we expect titled losses to average from 4% to 4.2% of title revenues.
For the real estate solutions Segler pretax income decreased the 1.4 million for the first quarter from 7 million last year, primarily as a result of 30 per cent lower revenues driven by lower transaction volume.
First quarter pretax margin was 2.2 per cent compared to 7.6 per cent last year after adjusting for purchase intangible amortization.
Yeah, Justin pretax margin was 11.5% compared to 14.8% last year.
That's total operating expenses in the quarter decreased 26 per set primarily do the lower class related the revenues and lower instead of compensation.
Consolidated employee costs as a percentage of operating revenues increased to 33% compared to 24% in last year's quarter, primarily due to lower operating revenues and twenty-three other operating expenses as a percent of operating revenues were twenty-three per said which was comparable.
Last year on other matters, our financial position remains strong to support our customers employees and the real estate market. At March 31, 2023 are total cash and investments are approximately 340 million over statutory premium requirements and we also have a fully avail.
200 million dollar wireless credit facility total stockholders equity attributable Stewart at the end of the quarter was approximately 1.35 billion in our book value per share was approximately $50.
Lastly, cats use it operations of 51 million compared to net cash provided the operations of 35 million last year, primarily driven by the first quarters that loss.
We are always grateful for our customers and associates, we advocate for everybody's safety and prosperity remain confident our support our real estate markets now turn the call back over to the operator for questions.
Yeah and at this time, if you would like to ask a question. Please press star.
We will take our first question.
George which can be that'd be it. Please go ahead.
One of those yet again.
Yeah. Good morning, actually I wanted to ask about the margin I mean, it might be a tough question, but just given the you know the <unk> the challenging backdrop on both residential and commercial and assuming that persist for much of this year. You know what can we think about in terms of the margins of business can generate.
[noise], yeah, but I I'm still convinced look out.
For the next six to eight quarters will end up averaging kind of that high single digit double Beach I do think the question is kind of how it evolved this year.
And I think we all have abused is gonna improve material into the second half of the year I think if you think about it now I would say over the last six weeks I think it's gonna be a more moderate improvement in the second quarter, but it will improve what's interesting for us is that.
Close the orders were down 50 per cent of January 48, I think in February and then four in March can be made money in March.
So I think we're much better company I think we can manage ourselves and I think the margins and improved dramatically two year I, just think that'd be walking on water.
Improvement in the second quarter, then maybe we fought six weeks ago because of the volumes, but but.
If you look at last year, when we had a tough fourth quarter. We ended at the eight I think it will be a little less than that this year at the back half improves but I think we've got you know we we have a lot of leverage cause one of the things that we we have capacity in the system and so as the volume comes in we won't be adding a lot of resource right. So we.
Have a lot of leverage in where we are in the portfolio is a lot better cause I look at it historically.
At work House, and kind of where we are and I think we're bouncing off the bottom now and we're poised to do a lot better for the rest of the year.
Okay. That's that's great. That's very helpful. Thanks, and then just the real estate solutions segment.
What's a good way to think about the run right. There like how much of that is transaction dependent persons that person is not.
Yeah, Hey, Buzz, it's David it's it's pretty transaction, depending on if you think about the merits of businesses.
God, the propstream businesses as a subscription business. So that's not as transaction dependent on other people coming in and out of that business.
Pentagon, what's happening in the market.
So that's less transaction dependent but the other businesses appraisal crowded you know those are those are transaction dependent and so that was what you really saw it and this.
In this quarter and some of those businesses transactions hit hit hit pretty hard you know, we we have had some pretty good success in the credit business with differentiated in the market and I think in general that businesses doing well relative to the market.
Participate in the family.
A lot of education program or one of the 10 or so folks that were selected for that so those are the kinds of things that will really help that business sorta be durable and better than some you know as as the market improves.
But that's the way to maybe think about that puts and takes so I'd say a good amount you know over half this transaction dependent and then you know you've got some stuff this last transaction.
Okay. That's helpful. And then just the increase in that segment over last quarter was that just sort of you know some of the acquisitions kicking in.
Well, we did have a small account check acquisition in the first quarter, we had a abdominal benefit from that but we did also have some customer wins and and so I think it was a combination of those yeah. We we've had we had some good momentum and a couple of those businesses around products that actually helped lenders.
Save money and the mortgage process and so we are actually we have a little bit of growth happening in a couple of those businesses right now.
Okay, great. Thanks, a lot.
Okay.
And we will take our.
Campbell, what Stephen King. Please go ahead.
Hey, guys good morning.
Good morning.
Hey, I'm going back to the question and this is for Friday, or maybe maybe David here, but probably do you talk to the leveraged for controlling the model.
I don't think you need to add.
Additional expense is the revenue rebuilds, you're just trying to get a better grip on those incrementals. It would be helpful. If you guys maybe provide the all in fixed cost level as it stands right now or if you're not able to provide that maybe just talk broadly to the Mexico six first favorable cause now and maybe how do you expect that the chef from here.
Yeah.
Obviously.
Have strict fixed cost right to during the.
20, or 30 per cent, yeah, it's sort of sort of 20 to 36, then you've got you know sort of the infamous 40 to 50 70 variable and then you know the the 30 to 40 of true variable in the challenge is always managing the Saturday variable exactly what I would say the judge the personnel.
Wives raped you hear about 50 per cent of course, you can't cut 50 per cent of your resource Personel on strike until you gotta be really careful about how you manage your resources and protect the capabilities of the institution. So what I would say that we've been very thoughtful and we've done a lot of action.
I think about it as we have excess capacity in that semi variable component that'd be retained to take advantage of the market as it comes back and so therefore, what you see is.
Choice in this business right on the way up your margin your <unk>. Your marginal margin is higher right, because you're you're managing kind of that semi verbal today's point fixed way and that will increase and then at some point you hit it in overtime Hope, we dated 21, and if you don't have resources. It really gets exaggerated as furnishing market. So again the way I look.
At it is that you know.
I want to know if the bottom here very good job I really applaud our team and being creative across the board I being thoughtful about expenses in every dimension and look forward that incremental revenue helps us tremendously on margin I, just think it's gotta be a tad slower than we thought before I did the second quarter.
What you're seeing is what like 10 years down at spread wide at the darn.
Inventory has been a little bit hesitant to go up although I saw that we yesterday with a tad better if it was like October level, but but it's kind of a freeze over time and I'm still pretty encouraged by the end of the year next year next coarseness as a transition.
Period, and again I'll reiterate what I said, but you would get 40% and or account in March and we made some money right.
This this company historically would have never been able to do that this company for 100 years, we never made money in the first quarter. So we have the unfortunate enough to do that in the last three years and you look at our portfolio and how we manage ourselves and I think we have a lot of leverage on the way up here. We just got it we just gotta keep managing ourselves characters Friday it's.
The challenge Martin.
Makes sense, that's really good color I appreciate that and then on commercial obviously a lot of uncertainty out there I think an investor attention is really shifting towards commercial obviously, it's if you guys can maybe talk to the order pipeline, which you guys are seeing a film March you know the open order down 40% kind of what you're seeing if you've got any insights into April and then.
You could just talk broadly to the mix and the fever, maybe what you're expecting around for your profile. There's gonna be continued pressure is there you close out with with you.
Go ahead dude.
Yeah, John I mean, it's I think what you're seeing is <unk> book is not inconsistent with what you're seeing in the market generally you've got you know our offices, obviously challenged although some mark is not as challenged as others I hit the major Metro officers tend to major Metro said to be a little more chat.
Primarily because they are still more work from home and so we haven't seen like in New York and places like that you know the bigger transactions come back in and you're saying that in the lower fee or file I think as you get into some of the smaller markets as it's not as bad of a story on office. Although then.
There you have to you know to.
See what's gonna happen with all the regional banks cause they've got a big credit provider that sector. Yeah. We saw a lot of a lot of energy deals at the end of the year I think there's still a lot of activity there will pricey.
Yeah, some of those mature enclosed here over the coming year and then.
You know, it's sort of it's sort of a mixed bag I mean, you're seeing decent stuff in retail multifamily had been really strong it's slipping a little bit, but generally stronger than the than the rest and you know industrials backed off a little bit right because they're just they're just as I'm as much activity as it was during the pandemic.
But still generally strong. So you know I think it's a combination of those things and then what's happening in the capital markets and then people trying to adjust to caffery changes in their lifetime valuation, that's causing that slowing the one if there is a slightly positive thing you know deal certain namely.
Getting pushed not careful.
And so we just have to see how that all develops and so hopefully as as there's more clarity on evaluation and capital financing those little actually close right and and and that'll make you you.
Results in a better outcome, but but should that situation not a change that it will continue to be challenged yeah. So I think we're I don't think it's it's like the Red Mark and I think it's again, we we we planning on it being down a little bit. We were we were fortunate enough to gain share last year and commercial we've done we've had some good progress energy practice.
Busy as it's ever been good it's a little bit choppy lumping, because when the closings are.
So what are the interesting things we have a we have probably a higher portfolio when our centralized commercials smaller deals and I think the uncertainty around the regional banks is a little bit of pause.
Some of that markets and so there is a little bit I think kicking out.
Some of that so we.
Kind of think we're gonna have you know this downturn is gonna be real for awhile and and we'll see I think the back half of the year.
Some better results, but it's it's interesting for US we we are really busy and a couple of these segments as busy as we've ever been and so it's interesting to me I feel pretty good about the business by the end of the year again towards the end of the year, but it is kind of a very uncertain all this stuff.
Hit the back because we see this week is Ah it makes all that stuff a little bit on Sir.
But you also drawn after thinking about it into dimensions, it's not always sector specific but it's type of activity. So you know new developments sales and then refinance is right and you you do have that 1.5 trillion maturity ladder, mainly this year or next year, that's gonna provide some.
Support commercial.
And then it's just a question of what happens with that right you have a lot of restructuring, which do you have some default.
Is it looks like now with all the reach of everybody reporting, even though people might be increasing reserves a lotta those loans are still for for banks right, which would.
Which could be positive because it might mean, you could actually refinance those that have to restructure the fall.
Yeah. That's super helpful. That's great insights appreciate the guys at last one for me just how.
How housekeeping question, but David on the on the other orders I know M&A, certainly I'm, calling from that but if you've had a pretty big step up there if you could maybe talk to.
Seasonality of those other orders as well as what that kind of average V for violet.
[noise], Oh, others, primarily or reverse business through F. N C and yeah, I mean, that's gonna approximate more not exactly because of transactions are a little bit smaller, but it's going to be closer to a purchase transaction that are ready for the ads transaction.
Okay, and then and that's what my fever, possibly point empties and Alexander point.
Yeah, well, it's not as seasonal arrive because it's you can do that if you have equity in your hair, it's more a function of getting a hold of the customer and closing the low so it's not as seasonal it in markets like this where you have a lot of bills or the equity is actually a good market. It's just you know.
That market's been been changing along with some of the originators being sold repossession that kind of thing you've also got new originators coming in so I think it's more fog sit on the volume side of what's happening with the originators that it has the opportunity from an equity at an age perspective.
Okay makes sense thank God.
Thanks, John .
And just out there.
That is star and one I'm gonna attach Samsung we will take our next question from Jeffrey Dahmer.
Please go ahead.
<unk> Thanks, good morning.
So I'm not sure if I'm gonna ask this right but.
Commercial market, obviously, we're going through a big downturn cycle here, but with what's going on with the office space do you have concerns if there's any kind of secular shift happening and I asked that more because of the you mentioned about investing in commercial talent. You know is your commercial talent for example focused on certain sectors and you could've made an investment in in some of your specialize in office.
Now that's not necessarily the right investment is that something we have to worry about if office doesn't come backwards your talent commercial talent more.
Flexible across the various sectors you site it's.
It's a good question because it is actually more flexible like Barack it's very geographically.
The things that this company was historically as we were very skewed to New York.
On a commercial side and we didn't have the breath geographically.
And so it it actually [laughter] diversifying away from office in some ways, our office like development and so I feel really good about it frankly, we we get some energy focused acquisition, because it's kind of one of our underwriting capabilities. It's obviously because of what's happening cause some opportunity there, but it's been very much.
A geographic and obviously, there's some obvious places whether it's industrial over the warehouse of the data centers stomach here's some natural places that we focused on giving what the trends were and so I feel pretty good about what we've done I I would say the way I think about it we we primarily were very weak.
Certain geography's at our coverage.
And and growth markets that were important to cover and that's how we thought about so I actually think we're pretty well positioned.
Office thing since the pandemic everybody expected. It I mean, this is something new and the other thing and the Secretary city versus the primary city.
And my view was also something that kind of.
Kind of do when you anticipated as you thought about staffing approach, but one of the interesting things about us as we've always had a great reputation from an underwriting point of view the issue because of our uncertainty of being for sale quote unquote three years ago and the notion of our cat. We have had a lot less capital back then we were all of it the third.
Player we were irrelevant, but we were the last one that I went to say it. We're now very relevant to the question is do we have the right capabilities at the rate markets to attack the business and by the way I would also say that is true the direct offices at the low end of commercial where we we we didn't have as many people dedicated to that segment as we do.
Need to have it will have going forward, because that's gotta be a vibrant segue for most.
Look at all of our secondary cities. It's it's it's still the most powerful thing. So again I think we did thoughtful about this Saturday and I'm not worried about that necessarily office thing or are you visit the retail it held up a little bit more than we expected retail was the other one.
Everybody anticipated was you know you work at a a log into retail.
And so we were pretty thoughtful about how we thought about adding resources.
Right and then.
You you've mentioned a few times balancing expense management with longer term investments, but how long can you sustain that balance you know you you could paint a scenario that you know maybe maybe mortgage rates start loosening up but if the consumer starts running into economic pressure you know.
Estimates for Jason's this year next year could still prove optimistic and it looks like the spring selling season, starting off soft.
At what point do you have to start cutting muscle or do you just kind of bear down and and Ah and endurance.
Yeah.
I feel like again I do feel like we're best off the bottom and it's a great question. So what would a couple of things I referred to fight.
I kind of about $18 million to $20 million direct edify.
As.
Discretionary investments in long term stuff for the year. That's all five of course, so I could've made a little bit of time.
Posted you know.
Oh It was gossip are kind of the data management stuff. We're doing we're doing some we we we kind of work on kind of centralization and we've had some stuff we're doing on balancing where we do our search for work and the cost of delivery of search working and if I look at those.
Those initiatives give you probably have a couple you know I I believe a couple hundred basis points of improvement in March and over the next 18 to 24 months.
And their discretion.
And but we were well into what might've been the right thing to do with some case you could characterize them as we're catching up to our opposite composition competition and that's what I was referring to those discretionary there's another way to think about it which is we have taken we've taken a natural reaction is anybody that we compete against.
The issue is my view is that.
I don't think there's a lot of great alternatives to go for.
I think there's always good hygiene gas and as things shifted commercial gets weaker than rather you know there's sort of things we could do on a targeted basis, but we've got kind of what I feel is appropriate and if it would be so if we went a lot further down where the market is going to be down to 50 per cent.
Continuously you gotta rethink that but the whole industry is gonna have to think that so I don't I again.
It'll be because of the seasonality of us.
More so than others.
Like we I think we manage our expenses, while I think we're good place to actually have increasing marching through the rest of the year. So I feel okay without the other point I would make as I mentioned at the last call, but what place I feel like we were.
Just have it the F. Yet is our interest in escrow.
And when we when we first started the journey we look.
To get back in and.
And as you go short money with like a quarter point. So nobody was interested in deposits, we're working hard at creating partnerships with a couple of bags to make sure. They were strapping on our you know.
A billion dollars of escrow some interest return, which again changes are margin at this level of volume.
And so I think we can do get that done by the end of the year and it kind of helps our profile.
Relatively materially.
Instead of just that's the one lever kind of I I believe we need to.
Aggressively accent that we have as far as the portfolio stuff one of the other questions. Today was our data business has been growing and and.
And that took more stable already got a low volume like this and so I think we're doing some things on the offensive side that will enhance our margins if they hit the market stayed at this level. So I I actually think is almost all scenarios.
What if it enhanced margins two years, so I hope I feel pretty good about where we are but again, it's something we work at pretty hard and I wanted to mention the 20, because it's an explicit decision. We've made I made the right decision makers B I R that is.
He's got a tremendous because if you prove it you know I think somebody at previous call probably that approve it is if you don't have wrong you don't get the full benefit of those improvements in efficiency, but we'll get to a level of volume suit here that those will be more transparent.
I feel that the one thing.
Alright, Thanks, that's really good color.
Thank you.
And it appears that there are no further questions at this time I'll turn the call back over to the management So closing remarks.
I want to thank everybody for joining us for this quarter's call. Thank you so much for your attention.
Thank you for your participation you may disconnect.
Time.
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