Q2 2024 Stewart Information Services Corp Earnings Call
Questions will be given at that time. Please note today's call is being recorded lastly, if you should require operator assistance. Please press star zero. It is now my pleasure to turn today's conference over to <unk> director of Investor Relations. Please go ahead.
Speaker Change: Thank you for joining us today for <unk> second 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 Heidi to listen online. Please go to the fewer dot com website to access the link for the conference call.
This conference call may contain forward looking statements that involve a number of risks and uncertainties. Please refer to the Companys 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.
A reconciliation of these non-GAAP measures. Please refer to the appendix in today's earnings release, which is available on our website at <unk> Dot Com, Let me now turn the call over to Brad.
Speaker Change: Thank you for joining us today for sure the second quarter of 2024 earnings Conference call Yesterday, We released financial results for the quarter, which David will review with you shortly.
Brad: Like to kick off the call by sharing our outlook.
Brad: Healthy market, followed by an update on the progress we're making on each of our businesses.
David: I am very pleased with our results. This quarter, we have continued to make great progress on our strategic initiatives and are winning share in multiple businesses.
Brad: These are difficult to pull off and normal market much less an environment that we're in now.
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Speaker Change: The housing market has remained depressed much longer than most people anticipated that Stewart has maintained our competitive edge by improving our financial and operational positions. We remain confident that we are well positioned to capitalize on improving market conditions.
Brad: Our view of the current housing market has not materially changed this quarter. We continue to experience a very suppressed housing market through a combination of factors such as the continuation of elevated mortgage rates rising pulp prices and low but slowly returning housing inventory.
Brad: The market continues to bounce on the bottom where existing home sales every month for the last year have been worse, except for one in the prior the only exception was January of this year, which was flat relative to last year.
Brad: To further illustrate how choppy market conditions on a recent day.
Brad: Data shows that the overwhelming majority of the top 25 msas in the country are experiencing increased inventory year over year, yet coming sales are down.
Brad: In June we saw a seasonally adjusted run rate of $398 million of existing homes for sale, a 5% reduction from the prior year.
Brad: This has been a very recently there has been a very recent improvement in sentiment around interest rates and inventory continues to enter the market, but buyers are still exercising extreme caution.
Brad: There are of course for fuel transactions occurring as homes are being bought and sold given various life events, but many consumers continue to remain in a holding pattern given the current headwinds.
Brad: We expect 2025 will be the transitional year, helping shepherd us back to a more normal market, which we see as characterized is around 5 million existing homes annually.
Brad: So we are poised to capitalize on an improving market, but are diligently banning ourselves like the year will be flat to down.
Brad: We do believe that the next three quarters will be interesting because we monitor things like CK reports and rate cuts and the results of the upcoming election.
Brad: So we will be prepared to capitalize on any improvement.
Brad: Turning towards our operations, we remain focused on delivering an improved competitive position by executing upon a disciplined operating model. While also identifying efficiencies to prepare ourselves for a market rebound we are dedicated to growing scale and attractive markets across all our lines of business that we have been great.
Brad: Advances on improving our customers' experience in all channels through upgrades to our technology capabilities in operations.
Brad: We've implemented technology to enhance our title production processes and are working on deals is utilizing technology to improve our data management and access.
Brad: We continue to focus on attracting and retaining key talent and we know that Stuart is the vessel for industry, leading talent to grow with us as the market improves.
Brad: Our direct operations segment.
Stuart: His focus is there expansion efforts are targeted msas and we expect to utilize both acquisitions from thoughtful organic growth to drive share gains.
Stuart: Routinely evaluate markets to ensure we have a view of the most attractive markets for growth and leadership and we have limited our acquisition related investments in the current environment, but it maintain award pipeline to prepare ourselves for improving the improving market.
Brad: Even though we are currently cautious about acquisitions, which are still very positive.
Brad: About the outlook for opportunities as the market normalizes and we have not deviated from our long term goals for this business, which is to grow share and scale of attractive msas.
Brad: In commercial our results for the last two quarters reflect our focus on increasing share in our commercial operations.
Speaker Change: This quarter, we introduced our dedicated hospitality team that are do national affordable housing team through the acquisition of all of Europe title Agency.
Speaker Change: Investments and talent across our commercial operations. So that we have the leadership operations and sales teams in place to achieve our goals.
Speaker Change: We're also investing in technology to support our commercial operations to allow us to better serve our customers and manage our business more efficiently.
Speaker Change: Expect our commercial transit transaction momentum to continue.
Brad: But we know that near term commercial market challenges they present themselves depending on the outcomes on outcomes with rate cuts of the upcoming election.
Brad: Our agency team remains focused on driving share gains in attractive agency markets. We are focused on our <unk> target states and are seeing very good progress in a number of states even in the current market conditions.
Brad: Specifically, we see good leverage from an improved support services as well as our enhanced ability to serve commercial agents.
Brad: <unk> success comes from a lot of basic blocking and tackling we see the opportunity for continued momentum.
Brad: Real estate solutions team is focused on gaining share with the top lenders through new innovative solutions and cross selling of our products as we leverage our significantly improved portfolio of services to better serve our lender clients.
Brad: Our real estate solutions businesses.
Brad: Solid financial results and growth in the second quarter, particularly given the market we've seen significant growth in new clients as compared to the second quarter of last year, mostly coming from some innovative solutions in our credit information evaluation services and our pretax income results you can see that we are experiencing an increase in customer.
Speaker Change: I'm going to be talking about the the the the the the the the the the the the the the
Speaker Change: Acquisition expenses as we as a board or to a significant number of new clients. These expenses will normalize towards the end of the year.
Brad: Current market peaks cross selling our business in this space a bit challenging we've been able to offset some of the challenges by gaining share from logistic clients with new client introductions, our momentum should give you as we have significant cross sell opportunities available to build upon over the next couple of years as the market firms.
Speaker Change: Unknown Speaker 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Brad: We are thoughtfully managing all our lines of business every being intentional on our investments and expense management, we have been careful not to take expense actions that we feel would threaten our competitive position of our takeaway from the critical initiatives that will help that help us meet our long term goals.
Speaker Change: Close, but we are focused on close across all businesses at work where we are.
Brad: To invest in our key.
Brad: Capabilities that will allow us to achieve low double digit pre tax margins as we return to a more normal.
Brad: 5 billion unit purchase market.
Speaker Change: We maintain a positive long term outlook for the real estate market and are confident that Stewart is on a journey to become what we call the Premier title services company.
Speaker Change: We believe that the strength of the company and are committed to fortifying Stewart for long term growth and performance.
Speaker Change: NASA Jet Propulsion Laboratory, California Institute of Technology
Speaker Change: Our solid financial footing should best positioned to take advantage of the opportunities that we believe that this cycle will continue to provide.
Speaker Change: Thank you for our customer and agent partners for your continued trust Youre committed to doing our best to serve you with excellence.
Speaker Change: Finally, I would like to express my gratitude to our employees and I'm thankful for your dedication to Stuart as we work together to create a more resilient company that can truly delivers for our customers and I am, particularly grateful to our Houston area employers that have maintained our standard level of service excellence by person going through very difficult period.
Speaker Change: And with the recent weather events.
Speaker Change: David I will now turn it over to you to provide the update on our results.
David: Good morning, everyone and thank you Fred I appreciate the outstanding service of our associates and continued support of our customers through this difficult period.
David: As Fred noted historically low residential and commercial real estate activity persisted during the quarter caused our results to be similar to last year's quarter yesterday Stewart reported second quarter net income was $17 million or 62 cents per diluted share on total revenues of 610.
Speaker Change: Adjusted for net realized and unrealized gains and losses acquired intangible amortization and other expenses as presented in appendix a of our press release second quarter. Adjusted net income was $25 million or <unk> <unk> per diluted share compared compared to $26 million or.
Speaker Change: <unk> 94 per diluted share in last year's quarter.
Speaker Change: In the title segment total operating revenues improved $29 million or 6% driven by higher revenues from our agency operations, while direct title revenues were similar to the prior year quarter.
Speaker Change: <unk> pre tax income decreased $2 million or 6%, primarily due to the lower agency remittance rate caused by geographic mix.
Speaker Change: After adjustments for purchase amortization and other items. The title segment pretax income was $38 million, which was 2% higher compared to the prior year quarter with adjusted pre tax margins callable.
Speaker Change: On our direct title business total opened orders in the second quarter were 2% better while total closed orders were comparable.
Speaker Change: Our domestic commercial operations continue to produce solid results with higher revenues of approximately $10 million or 23%, primarily driven by improved transaction size and volume and energy industrial and multifamily asset classes.
Speaker Change: Average commercial fee per file improved 17% to 13500 compared to 11600 last year.
Speaker Change: Domestic residential revenues decreased $15 million or 8%, primarily driven from lower fee per file.
Speaker Change: It was a lower purchase transaction mix.
Speaker Change: Total international operating revenues improved $3 million or 10%, primarily due to increased volumes at our Canada operations.
Speaker Change: On title losses total title loss expense in the second quarter increased 7% consistent with the increase in product revenues as a percent of title revenues title loss expense was 4% for both second quarters 'twenty four and 'twenty three we expect title losses to average.
Speaker Change: In the low to mid 4% range for the full year 'twenty four rigs.
Speaker Change: Regarding the real estate solutions segment pre tax income improved $2 million compared to last year, primarily resulting from increased revenues from our credit related data and valuation services business pretax margin was five.
Speaker Change: 5% in the second quarter compared to $4 six last year, excluding acquisition intangible expense in sales tax assessment charge adjusted pretax margin was 11, 5% compared to 14, 5% in the prior year quarter, the boarding of new customers and scaling the business.
Good morning, everyone and thank you Fred I appreciate the outstanding service of our associates and continued support of our customers through this difficult period as Fred noted historically low residential and commercial real estate activity persisted during the quarter caused our results to be similar to last year's quarter.
Speaker Change: It had an impact on margin as Fred noted in his comments on our consolidated operating expenses are employee cost ratio in the second quarter improved to 35% from 33 nine last year, primarily driven by lower incentive compensation and average employee counts on.
Yesterday <unk> reported second quarter net income was $17 million or <unk> 62 per diluted share on total revenues of $602 million adjusted for net realized and unrealized gains and losses acquired intangible amortization and other expenses as presented in appendix a of our press release.
Speaker Change: Our other operating expense ratio increased to $25 nine compared to 24% in the prior year quarter, primarily driven by increased credit information and services expenses in our real estate solutions business.
Speaker Change: On income taxes, our second quarter effective tax rate was approximately 31% higher than our historical tax rate primarily as a result of income source from international operations, which have a higher average income tax rate relative to the rest of the operations.
Second quarter, adjusted net income was $25 million or 91 cents per diluted share compared compared to $26 million or 94 per diluted share in last year's quarter.
In the title segment total operating revenues improved $29 million or 6% driven.
Speaker Change: On other matters, our financial position remains solid to support our customers employees and the real estate market. During this difficult environment, our total cash and investments at the end of the second quarter was approximately $310 million in excess of statutory premium requirements.
Driven by higher revenues from our agency operations, while direct title revenues were similar to the prior year quarter.
The segment's pre tax income decreased $2 million or 6%, primarily due to the lower agency remittance rate caused by geographic mix.
Speaker Change: Also have a fully available $200 million lot of credit facility.
Speaker Change: Total Stewart stockholders equity at June 32024 was approximately one $3 6 billion with a book value of approximately <unk> 49 per share net cash provided by operations in the second quarter was $21 million compared to $35 million last year, primarily as a result in <unk>.
After adjustments for purchase amortization and other items. The title segment pretax income was $38 million, which was 2% higher compared to the prior year quarter with adjusted pre tax margins comparable.
On our direct title business total opened orders in the second quarter were 2% better while total closed orders were comparable.
Speaker Change: Trade accounts receivable consistent with revenue growth.
Our domestic commercial operations continued to produce solid results with higher revenues of approximately $10 million or 23%, primarily driven by improved transaction size and volume and energy industrial and multifamily asset classes.
Speaker Change: Lastly, thank you again to our customers and associates, we remain confident in our service to the real estate markets I will now turn the call back over to the operator for questions.
Speaker Change: Gentlemen, thank you and to our phone audience joining today, if you would like to ask a question. Please press star and one on your telephone keypad pressing star among the place your line into the queue and we will take your questions wanted to time once again, ladies and gentlemen that is star one on your telephone keypad. If you would like to ask a question. We will hear first from the line of <unk>.
Average commercial fee per file improved 17% to 13500 compared to 11600 last year.
<unk> residential revenues decreased $15 million or 8%, primarily driven from lower fee per file.
Speaker Change: <unk> <unk> at <unk>.
With a lower purchase transaction mix.
Speaker Change: Hey, guys. Good morning morning, or you get it done.
Total international operating revenues improved $3 million.
Speaker Change: Fred maybe just first one on market share.
10%, primarily due to increased volumes at our Canada operations.
Speaker Change: If I look at the noncommercial line looks like.
On title losses total title loss expense in the second quarter increased 7% consistent with the increase in title revenues as a percent of title revenues title loss expense was 4% for both second quarters, 'twenty, four and 'twenty, three and we expect title losses to average.
Speaker Change: Purchase side relative to our estimate it was a little bit lighter.
Speaker Change: Can you just maybe talk about what you saw on that front anything market specific note are aiming competitors doing this quarter.
Speaker Change: No great.
Speaker Change: Great.
Speaker Change: So yes, there's a couple of things I feel good about it as I look at kind of our share in that area of the Reds area across the board kind of holding our own but there's a couple of exceptions.
In the low to mid 4% range for the full year 'twenty four rigs.
Regarding the real estate solutions segment pre tax income improved $2 million compared to last year, primarily resulting from increased revenues from our credit related data and valuation services business pretax margin was five four.
Speaker Change: That happened, particularly this quarter. So if you remember at the end of the year.
Speaker Change: As well as I did it again this quarter.
Speaker Change: Shut some offices down in some micro markets.
Speaker Change: Our outlook was that we're going to stay down longer and I have some sub scale markets, where I felt it was appropriate to manage our kind of margin in our approach that we took some action and so your thought of the fourth quarter.
5% in the second quarter compared to $4 six last year, excluding acquisition intangible expense in sales tax assessment charge adjusted pretax margin was 11, 5% compared to 14, 5% in the prior year quarter.
Speaker Change: While it was a $1 billion plus sentence would take too long and I did the same thing this quarter. So there's some surgical staff that we've done on some of the micro markets that it's working its way through the other thing I would say if you look at the NAR stuff.
<unk>, new customers and scaling that business had an impact on margin as Fred noted in his comments on our consolidated operating expenses are employee cost ratio in the second quarter improved to 35% from $33 nine last year, primarily driven by lower incentive compensation.
Speaker Change: MSA and the top 10.
Speaker Change: Decreases in pending home sales.
Speaker Change: Number of those markets are our biggest markets. So places like Houston was the number one in that San Antonio.
Asian and average employee counts.
On our other operating expense ratio increased to $25 nine compared to 24% in the prior year quarter, primarily driven by increased credit information and services expenses in our real estate solutions business.
Speaker Change: Within the top four so so there is some things we shared but I feel good we're kind of holding our own.
Speaker Change: Those markets, but we did take some actions.
Speaker Change: In my view to ensure the margin. We are we have a lot of great growth initiatives in our res business in kind of our what we call our direct rental business, where we're doing things like growing kind of main street commercial and employer embedding that in our offices. We've got some really interesting things going on micro markets with OCA.
Income taxes, our second quarter effective tax rate was approximately 31% higher than our historical tax rate primarily as a result.
Of income source from international operations, which have a higher average income tax rate relative to the rest of the operations on.
Speaker Change: Panic hiring and team so I'm not really worried about it and I feel pretty secure that over the next couple of years perhaps.
Other matters, our financial position remains solid to support our customers employees and the real estate market. During this difficult environment, our total cash and investments at the end of the second quarter was approximately $310 million in excess of statutory premium requirements and we also have a fully available $200 million.
Speaker Change: <unk> share in the res market than we do today, but there are some tweaks that we are doing.
Speaker Change: I want to make sure that we're managing ourselves in a market that continues to be down a little now okay.
Speaker Change: Okay, Great that's super helpful.
<unk> credit facility.
Speaker Change: And then on the M&A comment I was.
Total Stewart stockholders equity at June 32024 was approximately one $3 6 billion with a.
Speaker Change: Curious on the cautious approach here.
Speaker Change: That is that more of a function of where the bid ask spread is today or something else because now I would've thought that the current environment, probably bright for acquisitions, just given that we're sort of at the trough right versus waiting for sort of an improvement in the market.
Book value of approximately <unk> 49 per share net cash provided by operations in the second quarter was $21 million compared to $35 million last year, primarily as a result in trade accounts receivable consistent with revenue growth.
Speaker Change: That's a great. It's exactly what you said so if the trading price. So usually we what's great about what we've been able to do it is between getting to a fair price with an earn out you can get it.
Lastly, thank you again to our customers and associates, we remain confident in our service to the real estate markets I will now turn the call back over to the operator for questions.
Speaker Change: If the person selling things that could give you before they could get captured if they can't they can't.
Speaker Change: Every single transaction done has been accretive and it's a great way to set it up the problem right. Now is most agents are making very little money.
Speaker Change: And so it's hard to bridge the expectations of value expectations.
Speaker Change: With earn outs and so they don't feel as good we don't feel good. So in my view you just kind of have a little bit of normalization.
Speaker Change: In the run rate and a little bit more transparency about the outlook.
Speaker Change: And it'll be fine.
Speaker Change: And so again, we'll.
Speaker Change: Living transaction sure, but it tends to be because somebody has retired and they have to do it or whatever or you have some unique transparency to their pipeline.
Speaker Change: Because they are a niche or something like that so.
Speaker Change: We fully expect that comes back we're having a lot of great conversation.
Speaker Change: It's frankly, and so theres a lot of people that have rethought their position given the downturn in distress that kind of going through so I think there's going to be lots of opportunities.
Speaker Change: But I think it's really a little light.
Speaker Change: And we will continue to be a little light for the next couple of quarters because of the clear.
Speaker Change: It's really just that it is it got it.
Speaker Change: You will get there, but we have a little bit of that same thing right. After 'twenty, one where people wanted to get paid like it was 21.
Kind of margin in our approach that we took some action and so your thought of the fourth quarter as well.
Speaker Change: Right.
Speaker Change: It could be duplicated and it took us a while to settle till then.
It was a $1 billion plus 700 would take 2 million I did the same thing this quarter. So there's some surgical staff that we've done on some of the micro markets that is working its way through the other thing I would say if you look at the NAR stuff.
Speaker Change: We could get it.
Speaker Change: We've got the right kind of valuation that we did and we'll do it again, so I'm not really worried about it.
Speaker Change: Okay, Great and then just last one on your long term margins I know that you said you can get to the low double digits in a normalized market.
MSA and the top 10 kind of decreases in pending home sales.
Speaker Change: Maybe just talk to us about how much of that lift is in your control versus just the overall market normalizing right because I'm asking because I think while the low double digit margin doesn't seem that far fetched I think it would be helpful. For your thoughts here and for investors to hear against you delineate between an STC being sort of a show me story.
Number of those markets are our biggest markets. So places like Houston was the number one in that San Antonio.
Within the top four so so there is some things we shared but I feel good we're kind of holding our own in those.
Speaker Change: And then sort of a set it and forget it started back.
<unk> markets, but we did take some actions.
Speaker Change: Okay.
Speaker Change: Yes, great question and again the reason I talk about it is because I have great confidence in the work we've done so we have what I would consider excess capacity.
My view to ensure the margin. We are we have a lot of great growth initiatives in our res business in kind of our what we call our direct.
In our res business, where we're doing things like growing kind of main street commercial and employee.
Speaker Change: In our direct operations right, that's where our most of our fixed costs are that's where our distributed offices are that's where a lot of our revenue is and the reality is because of the work we've done.
<unk> that in our offices, we've got some really interesting things going on micro markets with organic.
Hi, Rick and team so I'm not really worried about it and I feel pretty secure that over the next couple of years.
Speaker Change: Any growth back toward normal market.
Speaker Change: Lot of it gets to the bottom line right you can so those margins I talked about the fact that in 2021, while we were showing 13 five.
More share in the Reg market than we do today, but there are some tweaks that we're doing because I want to make sure that we're managing ourselves in a market that continues to be down a little.
Speaker Change: Part of that was fake because the marginal contribution of such a robust market was really high because we're using overtime and that wasn't sustainable but I just wanted to.
Okay, Great that's super helpful.
And then on the M&A comment I was little.
Speaker Change: One my guess is we were in the 10% kind of margin. The work we've done since then.
Curious on the cautious approach here.
Speaker Change: Particularly in some of the search work centralization I believe that number is now 11, 5%.
Speaker Change: 12.
Speaker Change: $5 million purchase market, which comes from the utilization of the capacity we've created in our system.
Speaker Change: That will come through in the market just get some normal.
Speaker Change: And again it has a lot to do with the structure of how direct works in the offices and how much. The workflows is centralized snack I would also tell you we've done a heck of a job managing in a down market, we changed kind of our.
Speaker Change: Financial discipline.
Speaker Change: Discipline and structure and so in the 10 years previous to our journey before I got here.
Speaker Change: The most we ever made in any given period was 5% margin. While we just went through the worst.
Speaker Change: Market effort one of the worst market is at 35 years at 389, and we're at 5%. So I also feel good about our.
Speaker Change: <unk> ability to manage our margins, but I feel that the market now what's controllable by us.
Speaker Change: We've done a lot off the operating model the variable I think more of the costs, making sure that kind of the way we manage the discipline of staffing is there so yes.
Speaker Change: Yes.
Speaker Change: Journey from here to the numbers I'm talking about.
Speaker Change: <unk> had some help from that now with the exception of that with the exception of that is we are gaining share in some of our other businesses right. So.
And we will continue to be a little light for the next couple of quarters because of the clear what you said.
Speaker Change: The reality is in things like our services business. If we can continue to gain share and mature a watch bigger larger business because that business was $30 million from years ago is now 350, and I think it has an opportunity to double again as we continue to cross sell et cetera. So there's other things that I think regardless.
It's really just that it isn't it.
We will get there, but we have a little bit of that same thing right. After 'twenty, one where people wanted to get paid like it was 21.
I think that it.
It could be duplicated and it took us a while to settle so that we can.
Speaker Change: It may not have to get all the way to five and has to be better than horrible, but with a little bit of improvement will also get some benefit from some of the growth. We're seeing there in an agency, where we are literally growing share.
You get the.
The right kind of valuation that we did.
We'll do it again, so I'm not really worried about it.
Great and then just last one.
Speaker Change: Many states so.
On your long term margins I know that you've said you can get to the low double digits in a normalized market.
Speaker Change: Again, the market, we need the market to get to the full.
Can we just talk to us about how much of that lift is in your control versus just the overall market normalizing right because I'm asking because I think while the low double digit margin doesn't seem that far fetched I think it would be helpful. For your thoughts here and for investors to hear against to delineate between an STC being sort of a show me story versus.
Speaker Change: Opportunity that I talked about I need if you just normalize a little bit.
Speaker Change: But for US again, our model right now the problem we have is.
Speaker Change: You guys aren't going down, 5% or 3% to 5% and so you're overcoming the additional work you have to do to make up for that lost volume against your fixed cost basis. So.
Sort of a set it and forget it story.
Speaker Change: I feel good about it I'm confident in it.
Yes, great question.
And again the reason I talk about it is because I have great confidence in the work we've done so we have what I would consider excess capacity.
Speaker Change: But.
Speaker Change: I'd Love, a little help with let's say it that way.
Speaker Change: Yes.
Speaker Change: That makes a lot of sense alright. Thanks, guys can you are you seeing anything yes.
Our direct operations right, that's where our most of our fixed costs are that's where we're distributed offices are that's where a lot of our revenue is and the reality is because of the work we've done.
Speaker Change: Yes, thank you very very much.
Speaker Change: Next we'll hear from Bose George K VW.
Speaker Change: Hey, guys. Good morning, just wanted to follow up.
Speaker Change: Good morning, just wanted to follow up on the margin again, just given the trends right now and I think you sort of.
Any growth back towards normal market a lot of it gets to the bottom line right you can see.
Speaker Change: In your outlook comments as well, but does it look like this year.
So those margins I talked about the fact that in 2021, while we were showing 13 and a half.
Speaker Change: <unk> trends continue the margin is going to look kind of similar to what you guys did last year.
Speaker Change: Yes, that's the way I think about it so if the market.
Speaker Change: Steve.
Steve: Wherever you are today.
Steve: Tad better with the market down a little bit.
Speaker Change: We'll be about where we were last year.
Speaker Change: And it's.
Speaker Change: It is what it is we just got to tread water on the <unk> I think we still stay at this kind of decreasing a little bit.
Speaker Change: <unk>.
Speaker Change: It's kind of going to be relatively similar to what we made last year now that the comparisons are a little odd because if you remember last year.
Speaker Change: The third quarter, there was a couple of very robust quarters. It meant the world came to that right.
Speaker Change: The comparisons are a little bit month to month.
Speaker Change: Kind of interesting, but I think the way you articulated it is.
Speaker Change: Similar from last year's kind of.
Speaker Change: The way, we think about that.
Speaker Change: Okay. Great. That's helpful. And then is there much can do now that the cost cutting side or is it as you kind of said in your earlier comments.
Speaker Change: A little help from the market and Youll kind of business.
Speaker Change: For that.
Speaker Change: Yes, great.
Speaker Change: Great question.
Speaker Change: I keep saying.
Speaker Change: But we're kind of running out of things that make sense, we've done some surgical thing.
Speaker Change: As I said this quarter and a little bit.
Speaker Change: The year on some micro markets.
Speaker Change: I Couldnt see the long term view of getting where we needed to.
Speaker Change: But for the most part we're actually kind of were there.
Speaker Change: We are trying to offset.
Speaker Change: By being smart about prioritization the investments, we're making because we are making.
Speaker Change: Kind of a number of investments in some of the businesses that we've talked about with commercial.
Speaker Change: Whether it's what we're trying to do.
Speaker Change: Some of the services businesses, particularly to ramping up clients.
Speaker Change: You to gain share in mature large bigger larger business and that business was $30 million from years ago is now 350, and I think it has an opportunity to double again as we continue to cross sell et cetera. So there's other things that I think regardless.
Speaker Change: We're trying to make sure because of trade offs on other places to manage it but to your point I think that his description there isn't there isn't there's no magical.
Speaker Change: Placed flat chapter whenever we're talking 20 months.
It may not have to get all the way to five and has to be better than horrible, but with a little bit of improvement will also get some benefit from some of the growth. We're seeing there in an agency, where we are literally growing share.
Speaker Change: Decreasing market too.
Speaker Change: Find a lot of expense opportunity.
Speaker Change: Yes.
Speaker Change: Okay, great. Thank you.
Speaker Change: And once more towards an audience that is star one if you would like to ask a question. We will hear next from John Campbell Stephens, Inc.
Speaker Change: Many states so.
Again, the market, we need the market to get to the full.
John Campbell: John Good morning, Hey, guys good morning.
Opportunity that I talked about I needed to just normalize a little bit.
John Campbell: Okay. So I wanted to touch on real estate solutions honestly really good results there congrats on the progress.
But for US again, our model right now the problem we have is.
Speaker Change: You guys aren't going down, 5% or three years to 5% and so you're overcoming the additional work you have to do to make up for that lost volume against your fixed cost basis. So.
Run off a few of the standouts you talked to kind of broader market share Im hoping you guys can help maybe a little bit with the modeling so first.
John Campbell: <unk>.
Speaker Change: Maybe to help on the transactional mix.
Speaker Change: I feel good about it I am confident in it.
Speaker Change: Good.
Speaker Change: Versus contractual and then secondly.
But.
Speaker Change: I'd Love, a little help with let's say at that.
John Campbell: Maybe for David if you can double kick them.
David: Double click on the commentary around Onboarding costs I want to see.
That makes.
Speaker Change: It makes a lot of sense alright, thanks, guys can you see anything.
Speaker Change: Yes, thank you very very much.
Speaker Change: To what extent that normalizes this year it sounds like just maybe just a mismatch of revenues versus cost as you onboard. So maybe you could help there on the call great Sean.
Speaker Change: Next we'll hear from Bose George K VW.
Speaker Change: Hey, guys. Good morning, just wondering what are you good.
Sean: Good questions.
Speaker Change: Good morning, just wanted to follow up on the margin again.
Speaker Change: So if you look at our portfolio.
Speaker Change: The trends right now and I think you've sort of.
Speaker Change: It's a place where there's a little bit of a standout right now.
Speaker Change: In your outlook comments as well, but does it look like this year.
Speaker Change: It is kind of are some of the data solutions, we call one of the project called verification waterfall.
Speaker Change: <unk> trends continue the margin is going to look kind of similar to what you guys did last year.
Speaker Change: And so we have a really nice.
Speaker Change: Yes, that's the way I think about it so if the market.
Speaker Change: Uptick in new clients that we're onboarding.
Speaker Change: Got it.
Speaker Change: Wherever you are today.
Speaker Change: It's quite a few and so.
Speaker Change: Tad better with the market down a little bit.
Speaker Change: We'll be about where we were last year.
Speaker Change: It's transactional by its nature, but it is kind of selling data.
Speaker Change: And it's.
Speaker Change: No.
Speaker Change: Insight too and so what you'll see is because of that there is a big ramp up.
Speaker Change: Onboarding costs.
Speaker Change: To integrate that new clients hit to your systems. There is a bunch of data to get access to to buy and transition into the solution, you've got kind of a ramp up of servicing personnel.
Speaker Change: And so.
Speaker Change: There's a little pressure.
Speaker Change: On margin as we have kind of the.
Ed: Significant growth right Ed.
Speaker Change: And I would also say our first quarter solutions margin was probably a little high we had some one time things that happened that made it a tad high so but I do think as.
Speaker Change: As we get to the end of the year and things normalize a little bit the margins will go up a little bit right and so I think we went from mid teens to low double digit and I can see it.
Speaker Change: Getting into that 12 13 again at the end of the year depends on the mix of all of those solutions that we sell now.
Speaker Change: It's hard to predominantly we predict that because if the market comes back a little bit some of our other services will grow a little bit more too so but it is very much.
Speaker Change: Explicit like we know exactly what we're doing we know the returns on those clients. We know what the ramp up expenses are there is a little bit of like there's been some data input cost increases in that world. We're now passing on to our clients that had some time delay.
Speaker Change: Also in that mix, a little bit, but I'm really quite excited about our services business because what we're doing is we'll get really good traction in a market, that's still quite anemic and down particularly for lenders.
Speaker Change: I mentioned in my transcript and I believe as to that business.
Speaker Change: We had a $30 million business, we would have a 300 million visits with multiple products of that shift.
Speaker Change: Typically lenders like a conflict commuters a counterparty risks so they like to have people in that business with the balance sheet and we werent participating it was really the big boys that were participating and then some private companies.
Speaker Change: Campbell at Stephens, Inc.
Speaker Change: Over time as the market gets just a tad better our ability to cross sell as even though to get better because their markets their availability will get bigger and they tend to use multiple players on their shelf space. So we're living on a do a period of new client growth.
John: John Good morning.
John: Hey, guys good morning.
Speaker Change: Okay. So I wanted to touch on real estate solutions honestly really good results there congrats on the progress.
Speaker Change: You rattled off a few of the standouts you talked to kind of kind of broader market share I'm, hoping you guys can help maybe a little bit with the modeling so first.
Speaker Change: Which will transition to kind of cross sell of growth as we go forward here over the next few quarters.
Speaker Change: Maybe help them transactional mix if it's transactional.
Versus contractual and then secondly.
Speaker Change: Pretty bullish.
Speaker Change: On a business that's why I talked about it I believe it's going to continue some of the trends we're seeing there.
Speaker Change: Maybe for David if you can double double click on the commentary around onboarding costs I want to see.
Speaker Change: Now I'll give the seasonal so.
Speaker Change: There is some <unk>.
Speaker Change: To what extent that normalizes this year it sounds like just maybe just a mismatch of revenues versus cost as you onboard. So maybe you could help us there at all.
Speaker Change: Seasonal nature to that.
Speaker Change: But I like where.
Speaker Change: We are in Iclusig the margins.
Speaker Change: Sure.
Speaker Change: Durable Blackhawk normalize at the end of year as we just everybody gets to be a more normal percentage of what the revenue.
Speaker Change: Two quick questions.
Speaker Change: So if you look at our portfolio.
Speaker Change: It's a place where there's a little bit of a standout right now.
Speaker Change: Hey, John This is a clear I would just add a couple of things there.
Speaker Change: Is trying to are some of the data solutions recall, one of the project called verification waterfall.
Speaker Change: We're trying to get a sense on transactional versus more like subscription and the subscriptions probably only at around the 15% or so of revenue range. Most of that business is transactional and also just to give a little more color on the cost. So if you think about bringing on a big bank or lender.
Speaker Change: And so we have a really nice.
Speaker Change: The uptick in new clients that we're onboarding.
Speaker Change: It's quite a few.
Speaker Change: And so it's.
Speaker Change: It's transactional by its nature, but it is kind of selling data and insight to.
Speaker Change: You have to set up a service right. So you need account reps to give them what they need to run their business.
Speaker Change: And so what you'll see is because of that there is a ramp up we had a we.
Speaker Change: Ramp up of Onboarding costs.
Speaker Change: So youre ramping a decent amount of people, particularly for bringing on a big account.
Speaker Change: To integrate that new clients. It to your systems. There is a bunch of data to get access to to buy and transition into the solution you got kind of a ramp up of servicing personnel.
Speaker Change: Yes.
Speaker Change: But again I like the margins today frankly.
Speaker Change: I think they'll normalize and get a little bit better going forward. So I.
Speaker Change: The grid a pretty good spot there.
Speaker Change: And so there's a little pressure.
Speaker Change: That's very helpful.
Speaker Change: On margin as we have kind of.
David: David the 85% transactional it does sound like maybe Thats reoccurring I guess, where you are setting up a team around these guys is going to be seasonal and it's going to move on with the housing market, but generally when you're walking that lender.
Ed: Significant growth right Ed.
Speaker Change: I would also say our first quarter solutions margin was probably a little high we had some one time things that happened that aided a tad high so but I do think as we get to the end of the year and things normalize a little bit the margins will go up a little bit right and so.
Speaker Change: It's pretty secure revenue correct.
Speaker Change: Yes.
Speaker Change: Correct.
It varies by service so like on the credit side, you tend to get the lion's share of the business on the appraisal side its spread around more.
Speaker Change: We went from mid teens to low double digit and I can see us getting into that 12 13 again at the end of the year depends on the mix of all of those solutions that we sell now.
Speaker Change: But yes once you sign an account you're getting their business and their business then varies by the market.
Speaker Change: Okay helpful. And then last one from me just total other opex.
Speaker Change: It's hard to presumably they predict that because if the market comes back a little bit some of our other services will grow a little bit more too so but it is very much.
Speaker Change: It's grown at a much faster rate than revenues last two quarters. It sounds like that the real estate solution. The onboarding costs as part of that obviously you took the actions on office closure. So I'm guessing maybe there was a little bit of excess.
Speaker Change: Explicit.
Speaker Change: What we're doing we know the returns of those clients.
Speaker Change: No with the ramp up expenses are there is a little bit of like there's been some data input cost increases in that world. We're now passing on to our clients that had some time delay. That's also in that mix, a little bit, but I'm really quite excited about our services business because what we're doing.
Speaker Change: Obviously, our excess office or facility costs.
Speaker Change: Maybe if you can help talk through the extent of the savings from those office closures and it does sound like that you expect.
Speaker Change: Mismatched to normalize and I don't think solutions segment. So just any kind of high level thoughts on overall total opex.
Speaker Change: Sure.
Speaker Change: Again, the core office closings were only about $1 million and a half.
Speaker Change: As we get really good traction in a market, that's still quite anemic and down particularly for lenders.
Speaker Change: And then severance I think it was 500000 so so.
Speaker Change: I mentioned in my transcript and I believe as to that business.
Speaker Change: That's about two so it is not.
Speaker Change: It's not a huge amount one of the interesting things John just to clarify what else is in there which is relatively significant.
Speaker Change: At a $30 million business, we would have a $300 million visits with multiple products in depth.
Speaker Change: Typically lenders.
Speaker Change: We've had a tremendous growth of commercial.
Speaker Change: Like a conflict of interest of counterparty risks so they like to have people in that business with the balance sheet and we werent participating it was really the big boys that were participating and then some private companies.
Speaker Change: And a lot of that commercial is big energy and.
Speaker Change: And in Big energy.
Speaker Change: A lot of outside search.
Speaker Change: Over time as the market gets just a tad better our ability to cross sell as even though to get better because their markets their availability will get bigger and they tend to use multiple players on their shelf space. So we're living on a do a period of new client growth.
And data work and we've had a pretty severe ramped up in our commercial operations and.
Speaker Change: Weed out.
Speaker Change: We upsized our purchase of data and some of the outside third party search because a lot of this energy stuff is a rural places, which we don't have our own feet on the street or.
Speaker Change: Which will transition to kind of cross sell of growth.
Remote locations, where you're using a third party to make sure. We're accessing data so that a lot of the ramp up.
Speaker Change: As we go forward here over the next few quarters, and so I'm pretty bullish on that business. That's why I talk about it I believe it's going to continue some of the trends we're seeing there.
<unk> is also in that switch in services and it's in commercial and on the commercial side one of the interesting things is a little bit of a mismatch right. So if you ramp up you would provide all those services you pay for all the service because there are period expenses, but the revenue from those don't come to those transactions close so we have a really nice pipe.
Speaker Change: Now get a seasonal so.
Speaker Change: Some season.
Speaker Change: Seasonal nature to that.
Speaker Change: But I like where.
Speaker Change: We are in Iclusig the margins.
Speaker Change: Normal Blackhawk normalize at the end of year as we just they embody gets to be a more normal percentage of what the revenue.
Line of business and commercial is going to continue through the year that we ramped up our search and outside third party cost. So it's really it's dash and its the real estate serve better by far the two places where those businesses are growing pretty materially and they both have input.
Speaker Change: Hey, John This is a clear I would just add a couple of things there.
Speaker Change: Trying to get a sense on transactional versus more like subscription and the subscriptions probably only at around the 15% or so of revenue range. Most of that business is transactional and also just to get a little more color on the cost. So if you think about bringing on a big bank or lender.
Costs.
Better in that category. So the margins are good when you look at it you break it down but those businesses. The margins are great but in both cases. There is also a tad bit of timing, because I ramp up or so fast right. So.
Speaker Change: You have to set up a service team right. So you need account reps to give them what they need to run their business.
Little bit of a delay.
And some of the revenue generation.
Speaker Change: So you are ramping a decent amount of people, particularly for bringing on a big account.
Earnings generation for both those things so I'm very comfortable with the line of sight to the so the margin of those business.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: But again I like the margins today frankly.
And the reason for those but it is really if I think about our model. If you look at the beginning of the year do you think about our model and year guys model versus where we are what's different.
Speaker Change: They will normalize and get a little bit better going forward. So.
Speaker Change: I think we're at a pretty good spot there.
Speaker Change: Okay, that's very helpful.
Dana: Dana at the 85% transactional it does sound like maybe that's reoccurring I guess, where you are setting up a team around that these guys are going to be seasonal and it's going to move on with the housing market, but generally when you lock in that lender.
What's different is we felt that the market was going to grow five or so percent right out of lifestyle. A lot. So our core business was going to expand where we have excess capacity that has shrunk 5% over through the year and continue to flat, but what we've done is we've grown significant share in these other businesses.
Speaker Change: It's pretty secure revenue right.
Speaker Change: Correct.
Speaker Change: Varies by service so like on the credit side, you tend to get the lion's share of the business on the appraisal side its spread around more.
Speaker Change: And so we've we've offset the shrinkage of the market by growth of these other businesses, but those are the businesses have different profiles and their economics right and so part of that profile is this other expense category, which has been towards these businesses that have grown nicely for us.
Speaker Change: But yes once you sign in a channel you're getting their business and their business then varies by market.
Speaker Change: Okay helpful. And then last one for me just total other opex.
Speaker Change: It's grown at a much faster rate than revenues last two quarters. It sounds like that the real estate solution to onboarding costs as part of that obviously you took the actions on office closures. So I'm guessing maybe there was a little bit of excess.
Just changed the profile of our expense base, but again.
Speaker Change: Very comfortable with the margins in both places and the fact that we're going to have.
Over time, you can see margins because of the time.
Speaker Change: Obviously excess office or facility costs. So maybe if you can help talk through the extent of the savings from those office closures and it does sound like that you expect.
That helps ending at all.
No that's perfect. Thanks for all the color guys appreciate it thanks.
And ladies and gentlemen, we'll take just another moment to allow star and one from our phone audience for anyone who has a question. This morning.
Speaker Change: Mismatched to normalize and I don't think solutions segment. So just any kind of high level thoughts on overall total opex.
Just take another moment star and one ladies and gentlemen.
Speaker Change: Sure.
Speaker Change: Again, the office closings were only about $1 million and a half.
Speaker Change: And then severance I think it was 500000 so.
And having no signals from our phone audience I will turn the floor back to Mr. Ettinger for any additional or closing remarks.
Speaker Change: That's about two so it is not.
Speaker Change: It's not a huge amount one of the interesting things John just to clarify what else is in there which is relatively significant.
I would also like to thank everybody for your interest in Stewart during our call. Thank you so much.
John: Had a tremendous growth of commercial.
Ladies and gentlemen, this does conclude today's teleconference, and we do thank you all for your participation you may now disconnect your lines.
John: And a lot of that commercial is big energy.
John: And in Big energy.
John: You do a lot of outside search.
John: And data work and we've had a pretty severe ramped up in our commercial operations and so.
John: Upsized, our purchase of data and some of the outside third party search because a lot of this energy stuff is a rural places, where we don't have our own feet on the street or.
John: Remote locations, where you're using a third party to make sure. We're accessing data so that a lot of the ramp up.
Speaker Change: <unk> is also in that switch in services and it's in commercial and on the commercial side one of the interesting things is a little bit of a mismatch right. So if you ramp up you would provide all those services you pay for all the services are period expenses, but the revenue from those don't come to those transactions close so we have a really nice pie.
John: Line of business in commercial that's going to continue through the year that we've ramped up our search and outside third party costs. So it's really it's dash and its real estate served better by far the two places where those businesses are growing pretty materially and they both have input.
John: Costs.
John: Better in that category. So the margins are good but when you look at it you break it down by those businesses. The margins are great but in both cases. There is also a tad bit of timing because of the ramp up was so fast right. So.
John: Little bit of a delay.
John: And some of the revenue generation.
John: Earnings generation for both those things so I'm very comfortable with the line of sight to the so the margin of those business.
Speaker Change: And the reason for those but it is really if I think about our model. If you look at the beginning of the year do you think about our model and your guys' model versus wherever you are what's different.
Speaker Change: I think what's different is we felt that the market was going to grow five or so percent right out of lifestyle. A lot. So our core business was going to expand where we have excess capacity that has shrunk 5% through the year and continued flat, but what we've done is we've grown significant share in these other businesses.
John: And so we've we've offset that shrinkage of the market by growth of these other businesses, but those are the businesses have different profiles and their economics right and so part of that profile is this other expense category, which is the importance of these businesses that are growing nicely for us.
John: Just changed the profile of our expense base, but again.
John: Very comfortable with the margins in both places and the fact that we're going to have over time enhance the margins because of the time.
John: If that helps any at all.
Speaker Change: Yeah, that's perfect. Thanks for all the color guys appreciate it thanks.
Speaker Change: And ladies and gentlemen, I will take just another moment to allow star and one from our phone audience for anyone who has a question. This morning.
John: Just take another moment star and one ladies and gentlemen.
John: And having no signals from our phone audience I will turn the floor back to Mr. Ettinger for any additional or closing remarks.
Mr. Ettinger: I would also like to thank everybody for your interest in Stewart during our call. Thank you so much.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference, and we do thank you all for your participation you may now disconnect your lines.
John: No.
John: Okay.
Speaker Change: Uh huh.
John: Uh huh.
John: Hum.
John: Sure.
John: Uh huh.
John: Mhm.