Q1 2024 Stewart Information Services Corporation Earnings Call
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Operator: Please stand by; we're about to begin. Hello and thank you for joining the Stewart Information Services first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session, and instructions will be given at that time. Please note, today's call is being recorded. Lastly, if you should require operator assistance, you may press star zero. It is now my pleasure to turn today's conference over to Cat Bass, Director of Investor Relations. Please go ahead.
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Speaker Change: Hello, and thank you for joining the Stewart information services first quarter 2024 earnings call. At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session and instructions will be given at that time.
Cat Bass: Thank you for joining us today for Stewart's first quarter 2024 earnings conference call. We will be discussing results that were released yesterday after the close. Joining me today are CEO Fred Eppinger and CFO David Hisey.
Speaker Change: Please note today's call is being recorded lastly, if you should require operator assistance you May press Star Zero. It is now my pleasure to turn today's conference over to Cat bass director of Investor Relations. Please go ahead.
Cat Bass: To listen online, please go to the Stewart.com website to access the link for this conference call. This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Please refer to the company's press release and other filings with the SEC for a discussion of the risks and uncertainties that could cause our actual results to differ materially. During our call, we will discuss some non-GAAP measures. For reconciliation of these non-GAAP measures, please refer to the appendix in today's earnings release, which is available on our website at stewart.com. I will now turn the call over to Fred.
Cat Bass: Thank you for joining us today for Stewart's first quarter 'twenty 'twenty four earnings conference call. We will be discussing results that were released yesterday. After the close joining me today are CEO, Fred Eppinger, and CFO, David IV to listen online. Please go to the Stewart Dot Com website to access the link for this conference call is.
Cat Bass: Conference call May contain forward looking statements that involve a number of risks and uncertainties. Please refer to the company's press release and other filings with the SEC for a discussion of the risks and uncertainties that could cause our actual results to differ materially during our call. We will discuss some non-GAAP measures for a reconciliation.
Frederick Henry Eppinger: Thanks, Cat, and thank you for joining us today for Stewart's First Quarter 2024 Earnings Conference call. Yesterday, we released financial results for the quarter, which David will review with you. Before doing so, I'd like to share our thoughts on the current housing environment. I'll also provide updates on our core business lines and our continued progress on important initiatives that we believe will set Stewart up for long-term success. As I've noted previously, the housing market is bouncing along the bottom.
Cat Bass: These non-GAAP measures. Please refer to the appendix in today's earnings release, which is available on our website at Stewart Dotcom, Let me now I'll turn the call over to Fred.
Frederick Henry Eppinger: Thanks, Kathy and thank you for joining us today for Stewart's first quarter 'twenty 'twenty four earnings conference call.
Frederick Henry Eppinger: Yesterday, we released financial results for the quarter, which David will review with you.
Frederick Henry Eppinger: Before doing so I'd like to share our thoughts in the current housing environment.
Frederick Henry Eppinger: Also provide updates on our core business lines and continued and our continued progress on important initiatives that we believe will set steward up for long term success.
Frederick Henry Eppinger: As I've noted previously the housing market is bouncing along the bottom from a macro perspective. This quarter was a continuation of what we have seen in the past several quarters mortgage rates remain elevated hovering just above below 7% during the quarter, which is prolonged low transaction volume sorry industry is facing.
Frederick Henry Eppinger: From a macro perspective, this quarter was a continuation of what we've seen in the past several quarters. Mortgage rates remain elevated, hovering just below 7% during the quarter, which has prolonged the low transaction volumes our industry is facing. A combination of these factors, along with low sales inventory, yields an overall weak housing market.
Frederick Henry Eppinger: The combination of these factors along with low sales inventory yields and overall weak housing market a.
Frederick Henry Eppinger: On previous calls, we shared our expectation that 2024 would be a transitional year for the industry, with 2025 seeing more normal volumes of approximately 5 million units for existing home sales. However, following activity this quarter, we now believe the transition has been slowed, with much of the improvement pushed into 2025 and a more normal market returning in 2026. I am pleased with our progress and our strategic priorities, and we continue to see share gains in most of our businesses.
Frederick Henry Eppinger: On previous calls we shared our expectation that 2024 would be a transitional year for the industry with 22025 seeing more normal volumes of approximately 5 million units for existing home sales.
Frederick Henry Eppinger: Following the activity this quarter, we now believe the transition has been slowed with much of the improvement push into 2025 and a more normal market returning in 'twenty six.
Frederick Henry Eppinger: Pleased with our progress on our strategic priorities and we continue to see share gains in most of our businesses. We remain focused on building an improved competitive position by being more efficient and having a more disciplined operating model that function as well.
Frederick Henry Eppinger: We remain focused on building an improved competitive position by being more efficient and having a more disciplined operating model that functions well throughout all real estate cycles. We are dedicated to growing scale and attractive markets across all lines of our business, and we have made great strides in improving the customer experience in all our channels through upgrades in our technology capabilities and operations. Attracting and retaining key talent is always important, and we have been even more focused on retaining talent in this market so that we have the right team in place as the cycle improves.
Frederick Henry Eppinger: All real estate cycles, we are dedicated to growing scale in attractive markets across all lines of our business and we have made great strides in improving the customer experience in all our channels through upgrades in our technology capabilities and operations attracting.
Frederick Henry Eppinger: Attracting and retaining key talent is always important and we have been even more focused on retaining talent to this market. So that we have the right team in place as the cycle improves and the anticipation of our growth and return to normal home sales volumes. We have also implemented technology to enhance our title production processes and are also working on.
Frederick Henry Eppinger: In anticipation of our growth and return to normal home sales volumes, we have also implemented technology to enhance our title production processes and are also working on the utilization of technology to improve our data management and data access. This progress at more normal production levels will result in a considerable improvement in our delivery costs.
Frederick Henry Eppinger: <unk> of technology to improve our data management and data access this progress at more normal production levels will result in considerable improvement in our delivery cost.
Frederick Henry Eppinger: Our direct operations segment is focusing its growth efforts on expansion in targeted MSAs, and we expect to utilize acquisitions to our advantage to gain share. We have been prudent with our acquisition-related investments in the current environment and routinely evaluate markets in our direct operations where we have the opportunity to increase share and enhance our leadership capability. This has ensured that our deployment of capital provides an acceptable long-term return.
Frederick Henry Eppinger: Our direct operations segment is focusing their growth efforts on the expansion in targeted msas and we expect to utilize acquisitions to our advantage to gain share we've been prudent with our acquisition related investments in the current environment and routinely evaluate markets in our direct dropped operations, where we have the opportunity to increase share and enhance our leadership.
Frederick Henry Eppinger: Capabilities.
Frederick Henry Eppinger: To ensure that our deployment of capital provides acceptable long term returns, while we remain cautious from an acquisition perspective, our long term goals for our direct operations remain the same to grow share and scale and attractive msas.
Frederick Henry Eppinger: While we remain cautious from an acquisition perspective, our long-term goals for our direct operations remain the same, to grow, share, and scale an attractive MSA. Positioning our commercial operations for growth across all commercial sectors remains a critical business priority for us. We are making investments in talent across the commercial operations so that we have the leadership and sales teams in place to achieve our goals. We are also investing in technology to support the commercial operations to allow us to better serve our customers and manage our business more efficiently.
Frederick Henry Eppinger: Positioning our commercial operations for growth across all commercial sectors remains a critical business priority for us we are making investments in talent across commercial operations. So that we have the leadership and sales teams in place to achieve our goals. We are also investing in technology to support our commercial operations to allow us to better serve our customers and manage our business.
Frederick Henry Eppinger: More efficiently.
Frederick Henry Eppinger: Considering the challenging market in the first quarter, our commercial operations performed very well, thanks in large part to our energy sector mix. In the near term, we expect energy to continue to experience solid volumes, as compared to sectors like retail and office, which remain sluggish given the current financial market.
Frederick Henry Eppinger: Considering the challenging market in the first quarter, our commercial operations performed very well do with arch part to our energy sector mix.
Frederick Henry Eppinger: In the near term, we expect energy to continue to experience solid volumes as compared to sectors like retail office, which remains sluggish given the current financial markets.
Frederick Henry Eppinger: Our agency team is focused on driving share gains in attractive agency markets like Florida and Pennsylvania, and it is also focused on growing our support of agents in the commercial sector. We are delivering on our technology roadmap, which will allow us to offer better solutions to our agents, and we are leveraging our technology efforts to drive market share gains by delivering greater connectivity, ease of use, and risk reduction for our agent partners. I am proud that we can offer an enhanced experience to our agents through our upgraded platform.
Frederick Henry Eppinger: Our our agency team is focused on driving share gains in attractive agency markets like Florida, Pennsylvania.
Frederick Henry Eppinger: And it is also focused on growing our support of agents in the commercial space. We are delivering on our technology roadmap, which will allow us to offer better solutions to our agents and are leveraging our technology efforts to drive market share gains by delivering greater connectivity ease of use and risk reduction for our agent partners.
Frederick Henry Eppinger: That we can offer an enhanced experience to our agents to an upgraded platform. Our agency business finished the first quarter solidly considering current market conditions and we are beginning to see some solid share shift in most of our critical markets.
Frederick Henry Eppinger: Our agency business finished the first quarter solidly considering current market conditions, and we are beginning to see some solid share shifts in most of our critical markets. The Real Estate Solutions team is focused on gaining share with the top lenders through cross-selling our products as we leverage our improved portfolio of services to better and more deeply service our lender clients. Our Real Estate Solutions business maintained solid financial results for the first quarter, particularly given market headwinds. We experienced higher revenues as compared to the first quarter of 2023, largely due to our credit data business and former research, which we acquired in 2021.
Frederick Henry Eppinger: The real estate solutions team is focused on gaining share with the top line just through cross selling our products as we leverage our improved portfolio of services to that airport deeply service. Our lender clients are real estate solutions business maintained solid financial results for the first quarter, particularly given market headwinds we used to be.
Frederick Henry Eppinger: Its highest higher revenues as compared to the first quarter and 23, largely due to our credit data business, formerly research, which we acquired in 2021, we are not immune to the market downturn in these businesses, but we were able to offset some of these challenges with share gains.
Frederick Henry Eppinger: We are not immune to the market downturn in these businesses, but we are able to offset some of these challenges with shared gains. We are thoughtfully managing all lines of business and remain prudent with both our expense management and our allocation of investment funds. We have been careful not to take expenditure actions that we feel would threaten our competitive position or take away from the critical initiatives that will help us meet our long-term goals.
Frederick Henry Eppinger: We are thoughtfully manage all lines of business and remain prudent with both our expense management and our allocation of investment funds.
Frederick Henry Eppinger: We have been careful not to take expense actions that we feel would threaten our competitive position for takeaway from the critical initiatives that will help us meet our long term goals, we feel that this financial discipline paired with our investment in customer technologies and focus on growth resulted.
Frederick Henry Eppinger: We feel that this financial discipline paired with our investment in customer technologies and focus on growth resulted in a stronger first quarter as compared to the first quarter of 2013. Even given the difficult market conditions we are now experiencing, I am very pleased that our efforts are yielding results to increase market share gains in our core business line. We believe that our focus on growth across all business and investments and our capabilities should allow us to achieve low double-digit pre-tax margins as we return to more normal five million unit purchase margins.
Frederick Henry Eppinger: And a stronger first quarter as compared to the first quarter of 'twenty three.
Frederick Henry Eppinger: Even given the difficult market conditions, we are now experiencing I am very pleased with our efforts are yielding results through increased market share gains in our core business lines.
Frederick Henry Eppinger: We believe that our focus on growth across all business and investments in our capabilities should allow us to achieve low double digit pre tax margins as we return to more normal 5 billion unit purchase market.
Frederick Henry Eppinger: We maintain our growth as a positive long-term outlook for the real estate market and are confident that Stewart is on a journey to become the premier title services company. We believe in the strength of the company and are committed to investing in ourselves to further fortify Stewart's long-term growth and performance. Our solid financial footing should best position us to take advantage of the opportunities that we believe this cycle will provide. Thank you to our customers and agency partners for your continued support.
Frederick Henry Eppinger: We maintain our growth is a positive long term outlook for the real estate market.
Frederick Henry Eppinger: And are confident that Stewart is on a journey to become the Premier title services company.
Frederick Henry Eppinger: We believe in the strength of the company and are committed to investing in ourselves to further fortify Stewart for long term growth and performance.
Frederick Henry Eppinger: Our solid financial footing should best position us to take advantage of the opportunities that we believe this cycle will provide.
Frederick Henry Eppinger: Thank you for our customers. Thank you to our customer and agency partners for your continued trust. We are committed to doing our best to serve you with excellence.
Frederick Henry Eppinger: We are committed to doing our best to serve you with excellence. Finally, I'd like to express my gratitude to our employees. I'm grateful for your hard work and dedication to Stewart as we work together to create a more resilient company that continually delivers for our customers. David, I will now turn over to you to provide the update on the
Frederick Henry Eppinger: Finally, I'd like to express my gratitude to our employees I'm grateful for your hard work and dedication to Stuart as we work together to create a more resilient company that continually delivers for our customers.
Frederick Henry Eppinger: David I will now turn over to you to provide the update on the results.
David C. Hisey: Good morning everyone, and thank you, Fred. I'm thankful for our associates and their outstanding service and our customers for their steadfast support through this difficult market. As Fred mentioned earlier, residential mortgage rates continue to be in the high 7% area, which is affecting residential transaction volumes, while the economy and work habits are impacting broader commercial activity. Solid performances, however, from our real estate solutions, energy commercial, title operations, and investment operations resulted in an improved first quarter compared to last year.
David: Good morning, everyone and thank you Fred unfavorable for our associates and their outstanding service and our customers for their steadfast support through this difficult market as Fred mentioned earlier residential mortgage rates continue to be in the high high in the 7% area, which is affecting residential transaction volumes.
David: The economy of work habits are impacting broader commercial activity solid performances. However from a real estate solutions energy commercial title operations and investment operations resulted in an improved first quarter compared to last year yesterday Stewart reported first quarter 2024 net income of three.
David C. Hisey: Yesterday, Stewart reported first quarter 2024 net income of $3 million, or $0.11 per diluted share, on total revenues of $554 million. After adjustments for net realized and unrealized gains and losses acquired in tangible amortization and other expenses detailed in Appendix A of our press release, first quarter adjusted net income was $5 million, or $0.17 per diluted share, compared to breakeven results for the first quarter 2023. In the title segment, total operating revenues were slightly lower, decreasing by $6 million, while first quarter pre-tax income was $11 million higher, primarily due to improved investment income and expense management.
Frederick Henry Eppinger: Millions of dollars or 11 cents per diluted share.
Frederick Henry Eppinger: Total revenues of 554 million after adjustments for net realized and unrealized gains and losses acquired intangible amortization and other expenses detailed in an appendix a of our press release first quarter. Adjusted net income was 5 million or 17 cents per diluted share compared to breakeven results.
Frederick Henry Eppinger: For the first quarter 2023.
Frederick Henry Eppinger: In the title segment total operating revenues were slightly lower decreasing by $6 million, while first quarter pretax income was 11 million higher primarily due to improved investment income and expense management after.
David C. Hisey: After adjustments for purchase intangible amortization and other items, the title segment's pre-tax income was $2 million, or 41% higher compared to the prior year quarter, while adjusted pre-tax margin for both quarters was in the low 1% range. On our direct title operations, total open and closed orders in the first quarter increased by 7% and 5%, respectively, compared to the prior year quarter, primarily due to the ramp-up of acquisitions completed in late 2022.
Frederick Henry Eppinger: After adjustments for purchase intangible amortization and other items. The title segment pretax income was $2 million or 41% higher compared to the prior year quarter, while adjusted pre tax margin for both quarters was in the low 1% range on.
Frederick Henry Eppinger: On our direct title operations total opened and closed orders in the first quarter increased by <unk>.
Frederick Henry Eppinger: Seven and 5% respectively compared to the prior year quarter, primarily due to the ramp up of acquisitions completed in late 2022.
David C. Hisey: Domestic commercial revenues increased by $17 million, or 52%, primarily due to energy sector activity, which offset lower commercial transaction volumes. The average commercial fee per file is approximately $13,900 compared to $8,300 from the prior year quarter. Domestic residential revenues declined $15 million or 10% as a result of 5% lower purchase and refinancing volumes and a lower average fee per file. The average residential fee per file was $2,900 compared to $3,400 from the prior year quarter, primarily as a result of lower purchase transactions. Total international operating revenues were stable.
Frederick Henry Eppinger: Commercial revenues increased by 17 million or 52%, primarily due to energy sector activity, which offset lower commercial transaction volume.
Frederick Henry Eppinger: Average commercial fee per file was approximately $13900 compared to 8300 from the prior year quarter.
Frederick Henry Eppinger: Domestic residential revenues declined $15 million or 10% as a result of a 5% lower purchase and refinancing volumes and a lower average fee per file average residential fee per file was 2900 compared to 3400 from the prior year quarter, primarily as a result of lower purchased.
Frederick Henry Eppinger: Transaction mix total international operating revenues were stable.
David C. Hisey: Consistent with lower residential activity, our agency revenues in the first quarter decreased by 8 million, or 3 percent, while the average agency remittance rate was slightly lower due to geographic mix. However, total title loss expense in the quarter was comparable. As a percentage of title revenues, title loss expense was 4% for both the first quarters of 2024 and 2023, and we expect title losses to average in the low to mid 4% range for full year 2024.
Frederick Henry Eppinger: Consistent with lower residential activity our agency revenues in the first quarter decreased by 8 million or 3%, while the average agency remittance rate was slightly lower due to geographic mix.
Frederick Henry Eppinger: Total title loss expense in the quarter was comparable as a percentage of title revenues title loss expense was 4% for both the first quarters 'twenty 'twenty, four and 2023, and we expect title losses to average in the low.
Frederick Henry Eppinger: It's a mid 4% range for full year 2024.
David C. Hisey: Regarding the real estate solution segment, pre-tax income improved $5 million compared to last year, primarily resulting from increased revenues from our credit-related data and valuation services businesses. Pre-tax margin was 8% compared to 2% last year. Excluding acquisition and tangible amortization, adjusted pre-tax margin was approximately 15% compared to 11.5% last year. On our consolidated operating expenses, our employee cost ratio was 32.3%, slightly better compared to 32.8% in the prior year quarter, primarily due to a lower average employee cap.
Frederick Henry Eppinger: Regarding the real estate solution segment.
Frederick Henry Eppinger: Pre tax income improved $5 million compared to last year, primarily resulting from increased revenues from our credit related data and valuation services businesses pre tax margin was 8% compared to 2% last year, excluding acquisition intangible amortization adjusted pretax margin.
Frederick Henry Eppinger: <unk> was approximately 15% compared to 11, 5% last year.
Frederick Henry Eppinger: On our consolidated operating expenses are employee cost ratio was 32, 3% slightly better compared to 32, 8% in the prior year quarter, primarily due to lower average employee counts other.
David C. Hisey: Other operating expenses as a percent of operating revenues were 25.6% in the first quarter of 2024 compared to 23.2 in the prior year quarter, primarily driven by increased expenses related to higher revenues in our real estate solutions and commercial services operations. On other matters, despite the current challenging environment, our financial position continues to be solid for supporting our customers, employees, and the real estate market. Our total cash and investments at the end of the first quarter 2024 were approximately $325 million in excess of statutory premium reserve requirements, while we also have a fully available $200 million line of credit.
Frederick Henry Eppinger: Other operating expenses as a percent of operating revenues were 25, 6% in the first quarter 2024 compared to 23.2 in the prior year quarter, primarily driven by increased expenses related to higher revenues at our real estate solutions and commercial services operations.
Frederick Henry Eppinger: On other matters. Despite the current challenging environment, our financial position continues to be solid for supporting our customers employees and the real estate market, our total cash and investments at the end of the first quarter 'twenty 'twenty four were approximately 325 million in excess of statutory premium reserve required.
Frederick Henry Eppinger: Well, we also have a fully available $200 million line of credit total Stewart Stockholders' equity was approximately 1.3 dollars 6 billion with a book value of approximately 49 per share.
David C. Hisey: Total Stewart stockholders' equity was approximately $1.36 billion, with a book value of approximately $49 per share. Net cash used in operations improved to $30 million compared to $51 during the prior year quarter, primarily as a result of improved first quarter results and lower liability payments.
Frederick Henry Eppinger: Net cash used in operations improved to 30 million compared to 51 during the prior year quarter, primarily as a result of improved first quarter results and lower liability payments.
David C. Hisey: Lastly, we greatly appreciate our customers and associates, and we remain confident in our service to the real estate markets. I'll now turn the call back over to the operator for questions. Thank you.
Frederick Henry Eppinger: Lastly, we greatly appreciate our customers and associates and we remain confident in our service to the real estate markets I'll now turn the call back over to the operator for questions.
Operator: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. We will pause for just a moment to assemble the questions in queue. We'll go first to Bose George with KBW.
Speaker Change: Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: You may remove yourself from the queue at any time by pressing star two.
Frederick Henry Eppinger: Once again that is star one to ask a question and start to to remove yourself.
Frederick Henry Eppinger: We will pause for just a moment to assemble the questions to queue.
Frederick Henry Eppinger: We will go first to Bose George with <unk>.
Bose Thomas George: segment. Can you just talk about the sustainability of, you know, the run rate that you guys did this quarter?
Bose Thomas George: Good morning Bose.
Bose Thomas George: Okay segment can you just talk about the sustainability of the run rate that you guys did this quarter.
Frederick Henry Eppinger: I think our services business is very much sustainable. We have, again, as you know, built out our portfolio of products, and we've had it together probably for about three or so quarters, four quarters, and it's now getting some nice traction in our ability to kind of cross-sell that portfolio. We also have some really interesting solutions in our data operation, IR, something called a verification waterfall that has gotten a lot of traction. So I think, you know, you could always lose an account or so, but I feel like we repositioned ourselves in that market pretty nicely, and we should be able to sustain that kind of run rate.
Speaker Change: It does.
Bose Thomas George: Oh, Okay, I'm, sorry, what was I missed the beginning so yeah I think our our services business is very much sustainable we have.
Bose Thomas George: Again as you know, we built out our portfolio of products and we've had it together probably for about three or so quarters four quarters.
Bose Thomas George: And it's now getting some nice traction and our ability to kind of solve for cross sell that portfolio. We also have some really interesting solutions and our data operation IR.
Frederick Henry Eppinger: South Dakota verification waterfall that has gotten a lot of traction. So I think you can always lose an account or so but I feel like we've repositioned ourselves in that market pretty nicely and we should be able to sustain that kind of run rate.
Bose Thomas George: Okay, great, thanks. And then just given the moving rates and then your commentary, Fred, on the cadence of the housing recovery, you know, how do you see your margins trending over the next sort of 12 to 18 months?
Speaker Change: Okay, great. Thanks, and then just given the move in rates and then your commentary Fred just on the cadence of the housing recovery, how do you see margins trending over the next sort of 12 to 18 months Yeah. That's a great question. So.
Frederick Henry Eppinger: Yeah, that's a great question. So, you know.
Frederick Henry Eppinger: I believe that we're going to be better. I think we're going to bounce back from the bottom a little bit. I think we'll be better. And I think our margins will kind of improve, if you will, as the market gives us a little bit more growth. I don't think that the target we talk about, you know, that eleven and a half twelve area that I'm pretty confident that we could get to in a five million dollar purchase market is probably not going to occur until we get to that twenty six timeframe if we get up to that level. So it kind of depends on the speed and the movement in that direction.
Bose Thomas George: No.
Frederick Henry Eppinger: I believe that we're going to be better I think we'll get a bounce off the bottom a little bit I think will be better and I think.
Frederick Henry Eppinger: Our margins will improve if you will as the market gives us a little bit more growth I don't think that the target. We talk about you know that 11, and a half 12 area that I'm pretty confident that we could get to in a $5 million purchase market is probably not going to occur until we get to that 26.
Frederick Henry Eppinger: Time frame.
Frederick Henry Eppinger: If we get up to that level. So it kind of depends on the speed and the movement in that direction and as I've mentioned before we do.
Frederick Henry Eppinger: And as I've mentioned before, we, you know, as you know, Bose, we took some expense actions and some reallocation of resources at the end of the last year. What I did is I looked at some geographies and offices and shut them down because we couldn't see, given this kind of more prolonged period of this kind of volume, I couldn't see, I didn't have transparency to those being what we wanted them to be.
Frederick Henry Eppinger: No Bose, we've taken we took some expense actions and some reallocation of resources at the end of the last year. What I did is we looked at some geographies in offices.
Frederick Henry Eppinger: And shut them down because we couldnt see given this kind of more prolonged period of this kind of volume I Couldnt see I didn't have transparency to those being what we wanted them to be.
Frederick Henry Eppinger: And we have the benefit of some of those actions, but I don't think we're going to be taking, I don't think there's a need to, or I don't think we should take any additional cost actions now. So essentially, we have what I would consider a little bit of excess capacity in our system. So, you know, somebody asked me at the last call, which I thought was a great idea.
Frederick Henry Eppinger: And where we have the benefit of some of those actions, but I don't think we're going to be taking I don't think there's a need to or I don't think we should.
Frederick Henry Eppinger: Take any additional expense actions now so essentially we have what I would consider a little bit of excess capacity in our system. So as as volume comes.
Frederick Henry Eppinger: Our margins will improve with that increase so.
Frederick Henry Eppinger: Somebody asked me at the last call, which I thought was a great question. If this year was flat to last year, when we do a little bit better and the answer is yes. So if you think about the margins. We ended up with last year and a little bit better performance. We have I think even in a kind of flat or marginally up market.
Bose Thomas George: Okay, great. That's helpful. Thanks a lot.
John Robert Campbell: We'll go next to John Campbell with Stevens, Inc.
Bose Thomas George: We will do better from a margin perspective than we did last year by a point or two.
John Robert Campbell: Morning, John. How are you, ma'am? Doing well.
John Robert Campbell: So.
John Robert Campbell: Okay, Great. That's helpful. Thanks, a lot.
John Robert Campbell: Okay.
John Robert Campbell: We will go next to John Campbell with Stephens, Inc.
John Robert Campbell: Doing well, doing well. I want to follow back on Bose's question on the real estate solutions segment. I mean, I think the strength there probably isn't getting the airtime it probably deserves as investors. I mean, this quarter, it was up, looks like 35% sequentially versus 4Q. Obviously, the mortgage market didn't see that type of lift. So maybe you could first talk about why or how you're able to buck that, you know, the typical mortgage market seasonal trend.
Speaker Change: Hey, guys good morning.
John Robert Campbell: Good morning, John how are you doing well doing well I wanted to follow back up on <unk> question on the real estate solutions segment, I mean, I think the strength.
John Robert Campbell: There probably isn't getting the airtime it probably deserves a investors I mean this quarter. It was up it looks like 35% sequentially versus <unk>, obviously, the mortgage market didn't see that type of left so maybe if you could first talk to why or how youre able to Buck that you know the typical mortgage market seasonal trend and then Fred if I could maybe double click on the business mix, maybe where youre seeing.
John Robert Campbell: And then Fred, if we could maybe double-click on the business mix, maybe where you're seeing the most share gains. And I don't know if you have it on hand, but if we can maybe talk about the mix of revenues, what your largest businesses are, what your fastest growing businesses are, just in any incremental color there.
John Robert Campbell: The most share gains.
John Robert Campbell: And I don't know if you have it have it on hand, but if we could maybe talk to maybe the mix of revenues, what's your largest businesses or whats your fastest growing businesses are just any incremental color there.
Frederick Henry Eppinger: Yeah. So, Jonah, to me, what's interesting is we created this business, right? So, as you know, when we started in 2019, 2020, we only had about $30 million in the services business. And unlike the big Fs, we didn't have a portfolio of services.
Speaker Change: So so so Jonathan it's.
Frederick Henry Eppinger: For me what's interesting is we created this business right. So as you know when we started in 2019 2020, we only had about $30 million.
Frederick Henry Eppinger: The services business.
Frederick Henry Eppinger: Unlike the big apps, we didn't have a portfolio of services and we bought <unk>.
Frederick Henry Eppinger: And we bought notarization capability, we bought appraisal capability, and we bought this kind of credit data capability, okay? And those are the big pieces of what we're talking about. And what's interesting is when you put all that together, and what happens is you have a single product with some of these partners.
Frederick Henry Eppinger: <unk> capability, we bought appraisal capability and we bought this kind of credit.
Frederick Henry Eppinger: Data capability okay.
Frederick Henry Eppinger: And those are the big pieces of what we're talking about.
Frederick Henry Eppinger: And what's interesting is when you assemble that.
Frederick Henry Eppinger: And what happens is you have a single product, but with some of these partners, but now that we have it all together and we're good counterparty and you know how vendors care about having a good counterparty. We're now the third alternative for these guys is that until the jet significant company and so our ability to cross sell those three.
Frederick Henry Eppinger: But now that we have it all together, and we're a good counterparty, and you know how vendors care about having a good counterparty, we're now the third alternative to these guys. That's a legit, significant company. And so our ability to cross sell those three kinds of service categories with lenders is all fair game, right? And I would also say because of the little cyber events last year, it made lenders think about making sure that their shelf space, you know, was spread properly to protect themselves.
Frederick Henry Eppinger: <unk> kind of service categories.
Frederick Henry Eppinger: These lenders is all fair game right and I would also say because of the little cyber events of last year. It made lenders think about making sure that their shelf space.
Frederick Henry Eppinger: Spread properly.
Frederick Henry Eppinger: Protect themselves and so all of that is kind of coming together.
Frederick Henry Eppinger: And so all of that is kind of coming together for us to keep focused on trying to grow the business. Informative research is a big chunk of what we're talking about. It is both kind of a traditional mortgage credit business, but it's also, we've created some, they've created some wonderful solutions to save the lenders money during the mortgage process. And we've had really good luck with adoption.
Frederick Henry Eppinger: For us to keep focused on trying to grow the business.
Frederick Henry Eppinger: Formative research is a big chunk of what we're talking about it is both kind of the traditional <unk> credit business, but it's also.
Frederick Henry Eppinger: We've created some they've created some wonderful solutions are just.
Frederick Henry Eppinger: Just save lenders money during the mortgage process and we've had really good luck with the adoption so.
Frederick Henry Eppinger: So as I look forward, I see continued growth in that business, which is to say it's half of that business. But I also see others following suit, coming along with it as we move out. Now again, to your point, it's a tough market. I mean, we all know what the mortgage market and the refi market are.
Frederick Henry Eppinger: So as I look forward I see continued growth in that that business, which is say it's half of that business.
Frederick Henry Eppinger: But I also see the others following suit coming along with it.
Frederick Henry Eppinger: As we cross sell now again to your point, it's a tough Mark I mean, we all know what that.
Frederick Henry Eppinger: That with the mortgage market in the refi market is and so.
Frederick Henry Eppinger: And so it is down, but we are in a position of repositioning ourselves. So I'm very confident. The other thing you see, I think I've said this on a couple of calls. It's sensitive.
Frederick Henry Eppinger: It is it is down but we are we're in a position to repositioning ourselves if you will.
Frederick Henry Eppinger: I'm very confident the other thing you see I think I've said this a couple of calls.
Frederick Henry Eppinger: It's sensitive we needed to get more volume.
Frederick Henry Eppinger: We needed to get more volume into the platform to help our margins, and you've seen that too, right? We're in a pretty good place, both cash margins and gap margins there now because we've kind of got to the critical mass, if you will, in some of those businesses. So I think we're in a good spot. And I like it just because, you know, again, our really well-respected competitors all have that position, and we were the only one of the three that didn't kind of didn't have this portfolio. And now I think we're becoming highly respected in that area, and it's important for us overall to have it.
Frederick Henry Eppinger: Into the platform to help our margins and you've seen that too right. It's it's we're in a pretty good place.
Frederick Henry Eppinger: Both cash margins and GAAP margins, there now because we've kind of got to that critical mass. If you will in some of those businesses. So.
Frederick Henry Eppinger: I think we're in a good spot and I like it just because.
Frederick Henry Eppinger: Again, our really well respected competitors all have that position and we were the only one of three that didn't kind of didn't have this portfolio now I think we're becoming highly respected in that area and it's important for us overall to have it.
John Robert Campbell: Yeah, that's great, Keller. I appreciate that, Fred. And the big Fs? I don't know if I've heard that term yet.
Speaker Change: Yeah, that's great color appreciate that.
Speaker Change: And the Big <expletive> I haven't I don't know if I heard that term yet that's solid.
Frederick Henry Eppinger: That's solid. So just kind of staying on that subject, you just mentioned that the cyber incidents did make some lenders kind of rethink that vendor diversification process. So I'm curious, are you seeing that also in the core title agency channel, or are you hearing that from agencies? So that's a great question. So people ask that.
John Robert Campbell: Just kind of staying on that subject you just mentioned that the cyber incident did make some lenders kind of rethink that vendor diversification process. So.
Frederick Henry Eppinger: I'm curious are you seeing that also in the core title agency channel or are you hearing that from Athens.
Speaker Change: Great question, so when people ask so.
Frederick Henry Eppinger: People ask that. So, traditionally, in our business, not in the lender's space, we always think about risk management, and they have multiple places. I just think in the lender's space, we're just more legit now. So it just gave us a reason to share a little bit.
Frederick Henry Eppinger: Traditionally in our business.
Frederick Henry Eppinger: Lender always think about risk management and they have multiple places I, just think with the lenders space, which is what the jet now. So it just gave US a reason to share a little bit and I don't think it's we're not talking about overwhelming volumes or anything, but but to your point an agency.
Frederick Henry Eppinger: And I don't think it's, you know, we're not talking about overwhelming volumes or anything, but to your point about agency, What's interesting about our space is that it was less sensitive to risk management at the agent level than it should have been, and there were way too many agents that gave most of their business to one of the underprivileged, much more than you would see in PNC. And we've been talking about this with agents for three straight years because it doesn't make sense to me.
Frederick Henry Eppinger: What's interesting about our space is that it is with less sensitive to risk management at the agent level, but it should be and it was way too. Many agents that gave most of their business to one of the underwriters are much more than you would see in P&C and we have been talking about this stage about the agents for three straight years.
Frederick Henry Eppinger: It doesn't make sense to be.
Frederick Henry Eppinger: And it's not everybody. A lot of them do, but a lot of them don't. And what's happened, in my view, is the amount of dialogue we're having with agents now about giving what I would say is our fair share of their business, the better agents in the country, because they want to just be a little bit safer, you know. What is it?
Frederick Henry Eppinger: And it's not everybody a lot of them too, but a lot of them don't.
Frederick Henry Eppinger: And what's happened in my view is the amount of dialogue, we're having with agents now about giving what I would say is our fair share of their business the better agents in the country.
Frederick Henry Eppinger: Because they want to just be a little bit safe.
Frederick Henry Eppinger: A third, a third, a third, or 50-50. But again, you'd be surprised how many agents were 80-20 or 100-0, given it's just good business practice to be more balanced. And so we are, you know, we are unfairly advantaged in that shift because we're the smallest of the group, right? So, you know, that shift is going to benefit us as long as we deliver and we focus on good execution. We should be able to do it.
Frederick Henry Eppinger: Or is it a third a third a third or 50 50, but again you'd be surprised how many agents were 80 20 or 100 zero.
Frederick Henry Eppinger: It's just good business practice to be.
Frederick Henry Eppinger: More balanced and so we are unfairly.
Frederick Henry Eppinger: Unfairly advantaged in that shift because we're the smallest of the group right. So that shift is going to benefit us as long as we deliver and we focus.
Frederick Henry Eppinger: On good execution, we should be able to do it and what I'm seeing is that dialogue has started it takes time it takes time and by the way because the market is so low.
Frederick Henry Eppinger: And what I'm seeing is that dialogue is starting; it takes time, it takes time. And by the way, because the market's so low, you know, it's hard to share with a new partner when you don't have a lot of, you know, you have a lot of mouths to feed, and you don't have a lot of business.
Frederick Henry Eppinger: It's hard to share with a new partner when you don't have a lot of you have a lot of mouths to feed and you don't have a lot of business. So as the business grows I think our momentum and share shift will increase actually because they'll have more business and feel more.
Frederick Henry Eppinger: So as the business grows, I think our momentum and share shift will increase actually because they'll have more business and feel more comfortable with sharing more. So I just think that trend has got people thinking a tad more strategically. I think people overstate the impact in the short term. I don't think the impact in the short term is that much at all. But the impact over the long term could be somewhat material.
Frederick Henry Eppinger: Comfortable.
Frederick Henry Eppinger: With with sharing more so.
Frederick Henry Eppinger: I think that trend has got people thinking a tad more strategically I think people overstate the impact in the short term I don't think that the impact in the short term is that much at all but the impact over the long term could be somewhat material.
Speaker Change: Okay. Thanks for taking my questions and congrats on a continuously sounds Scott.
Frederick Henry Eppinger: Thanks.
Frederick Henry Eppinger: As a reminder that is star one if you would like to ask a question again star one.
Frederick Henry Eppinger: Go next to Geoffrey Dunn with Dowling partners.
Speaker Change: Good morning, Jeff.
John Robert Campbell: Okay, thanks for taking our questions and congrats on continued success, guys.
Speaker Change: Good morning.
Speaker Change: I was wondering if you could provide an update on.
Speaker Change: Your geographic targets right now for potential M&A I know you've been focused on the Midwest, Some south southwest and the.
Operator: As a reminder, that is Star 1. If you would like to ask a question again, that is Star 1. We'll go next to Jeffrey Dunn.
Geoffrey Murray Dunn: West Coast.
Geoffrey Murray Dunn: Where are the where is that next tier of Msas that you are looking to build up scale and in particular can you talk a little bit more about California, and the effort to become more direct.
Geoffrey Murray Dunn: Morning, Jeff. Hey, good morning.
Geoffrey Murray Dunn: I was wondering if you could provide an update on your geographic targets right now for potential M&A. I know you've been focused on the Midwest, some South, Southwest, and West Coast. Where are the next tier of MSAs that you're looking to build up scale, and in particular, can you talk a little bit more about California and the effort to become more direct?
Speaker Change: Yeah. So.
Speaker Change: Again I don't.
Geoffrey Murray Dunn: Think about think about target markets, a little different from direct and agency. So in agency. There is a number of what we'd like to grow a lot of states. Most states have good relatively good economics.
Geoffrey Murray Dunn: But there are 14 states in particular that have attractive economics that were sub scale or under share represented.
Geoffrey Murray Dunn: They tend to be in the southeast because we're pretty big in the northeast as some of the Midwest.
Frederick Henry Eppinger: Yeah, so again, I don't think about target markets a little differently from direct and agency. So in agency, there's a number of ways we like to grow in a lot of states. Most states have good, relatively good economies. But there are 14 states in particular that have attractive economies that we're subscale or undershare represented in. They tend to be in the southeast because we're pretty big in the northeast. There are some in the midwest; Pennsylvania is one of those.
Frederick Henry Eppinger: Pennsylvania is one of those.
Frederick Henry Eppinger: And so there's a 14, Texas is one of those Florida is one of those so in agency. It has a lot to do with the.
Frederick Henry Eppinger: The economic profile of the splits and other fees and services et cetera, and so.
Frederick Henry Eppinger: No.
Frederick Henry Eppinger: That's kind of what we got to get done and Florida is the poster child of that for us on the direct side.
Frederick Henry Eppinger: And so there are 14, Texas is one of those, Florida is one of those. So in agency, it has a lot to do with the economic profile of the splits and other fees and services, etc. And so that's kind of what we got to get done. And Florida is the poster child for that. On the direct side, it's a little different, right?
Frederick Henry Eppinger: It's a little different right so.
Frederick Henry Eppinger: About 150, Msas and we did a lot with about 40 of them as the market gets better.
Frederick Henry Eppinger: And there'll be more transaction opportunity.
Frederick Henry Eppinger: <unk> 35 were sold and I'm, particularly interested in that are kind of core markets.
Frederick Henry Eppinger: So I talked about the 150 MSAs. We did a lot with about 40 of them. As the market gets better and there'll be more transaction opportunities, there's 35 or so that I'm particularly interested in that are kind of core markets, places like Nashville, that would be one of those places. And so that's one category. The second category is once you've got a good established position in a city, you can do satellite opportunities.
Frederick Henry Eppinger: Places like Nashville that would be one of those places.
Frederick Henry Eppinger: And so that's one category. The second category is once you've got a good established position in a city.
Frederick Henry Eppinger: You can do satellite opportunities so.
Frederick Henry Eppinger: San Antonio is a great example of that for us.
Frederick Henry Eppinger: Dallas is a great example for US we have a very good position, but there are parts of the suburbs that have real opportunities and so you could do smaller fill it. So I would say there is kind of as I say $30 40 core markets I think we could make a significant move on and then there's a bunch more that there are fill ins that we would focus on Europe.
Frederick Henry Eppinger: So San Antonio is a great example of that for us. Dallas is a great example for us. We have a very good position, but there are parts of the suburbs that are real opportunities. And so you could do smaller fill-ins.
Frederick Henry Eppinger: And so I would say there's kind of, as I say, 30, 40 core markets that I think we could make a significant move on. And then there's a bunch more that are fill-ins that we would focus on. Your point on California, I just want to be clear. I don't see us growing in California much. We are kind of a niche player, if you will. We're targeted in certain places.
Frederick Henry Eppinger: On California, I, just want to be clear I don't see us growing California, much and we are kind of a niche player. If you will were targeted in certain places will be there forever will.
Frederick Henry Eppinger: It will be good where we are.
Frederick Henry Eppinger: We're quite a ways behind and you got the two leaders are well entrenched its almost exclusively a direct market as you know because the economics are so skewed toward that direction and I don't want to burden ourselves, we're not going to burn our way into.
Frederick Henry Eppinger: We'll be there forever. We'll be good where we are, but we're quite a ways behind. And you have the two leaders who are well entrenched. It's almost exclusively a direct market, as you know, because the economics are so skewed toward that direction.
Frederick Henry Eppinger: California, So I don't think of that as a high priority for the company going forward as far as growth well run it well we will solidify the positions we have we'll invest in our people there, but I don't see that as a big part of the growth.
Speaker Change: Okay alright, thank you.
Frederick Henry Eppinger: Yes.
Speaker Change: And at this time as there are no further questions in the queue I'd like to turn the conference back over to the presenters for any additional or closing comments.
Frederick Henry Eppinger: And I don't want to burn ourselves. We're not going to burn our way into California. So I don't think of that as a high priority for the company going forward as far as growth is concerned. We'll run it well. We'll solidify the positions we have. We'll invest in our people there, but I don't see that as a big part of the plan.
Speaker Change: I just wanted to thank everybody for joining us and having interest in Stuart. Thank you.
Speaker Change: Thank you again that concludes today's Stewart information services first quarter conference call. At this time you may disconnect. Thank you for your participation and have a great day.
Geoffrey Murray Dunn: Okay. All right. Thank you.
Operator: And at this time, as there are no further questions in the queue, I'd like to turn the conference back over to the presenters for any additional or closing comments.
Geoffrey Murray Dunn: [music].
Operator: Yes.
Operator: Yeah.
Operator: [music].
Frederick Henry Eppinger: I just want to thank everybody for joining us and having an interest in Stewart. Thank you. Thank you. Again, that concludes today's Stewart Information Services first quarter conference call. At this time, you may disconnect. Thank you for your participation and have a great day.
Frederick Henry Eppinger: Hum.
Frederick Henry Eppinger: [music].
Frederick Henry Eppinger: Oh, Oh Oh.
Frederick Henry Eppinger: Hum.
Frederick Henry Eppinger: [music].
Frederick Henry Eppinger: Hum.
Frederick Henry Eppinger: Hmm.
Frederick Henry Eppinger: [music].
Operator: Thank you. Again, that concludes today's Stewart Information Services first quarter conference call. At this time, you may disconnect. Thank you for your participation, and have a great day.
Operator: Okay.
Operator:
Operator: Uh huh.
Operator: [music].
Operator: Alright.
Operator: [music].
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