Q4 2024 Stewart Information Services Corp Earnings Call
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Hello and thank you for joining the Stewart Information Service's 4th quarter and full year 2024 earnings call.
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Thank you for joining us today for Stuart's 4th quarter 2024 earnings conference call. We will be discussing results that were released yesterday after the close. Joining me today, our CEO Fred Eppinger and CFO David Heisey. 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 SCC for a
discussion of the risks and uncertainties that could cause some of 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. Let me now turn the call over to Fred.
Thank you for joining us today for Stuart's 4th quarter 2024 earnings conference call.
Yesterday we released the financial results for the quarter, which David will review with you shortly.
Uh, I'd like to address 3 topics in my remarks today. First, I will share my reflections on the progress we made on our journey in 2024. 2nd, I will share our view on the continued challenged housing market and finally I'll offer some commentary on our strategic direction by business.
Uh, before jumping into these discussions, I wanted to take a moment to acknowledge all of those who have been affected by the wildfires across California.
Our thoughts are with the many communities impacted by the devastation of these fires have caused.
While we are fortunate to say that we did not have offices or employees impacted. We have and will continue to find ways to support these communities in our efforts in their efforts to rebuild.
Well, I am very pleased with the earnings and revenue growth we saw in the 4th quarter. I'd like to take a few minutes and reflect on the progress we made in 2024 to further fortify the company and to build resilience in our position.
In 24 we grew revenues by 10% and adjusted debt earnings by 42%.
While confronting a multiple decade low housing market.
These annual results show we are making real progress on our growth plans and have created leverage in the system.
That we can capitalize on when the market returns to normal levels.
In 2024 we took a significant step forward, uh, to fortify our position as a destination for top talent.
This dedication is why US news World Report recognizes as one of the best companies to work for in 2425.
We welcome countless new families to the company through hiring a best in class talent across the organization.
We have a really strong set of leaders at the helm.
Some of which have assumed position this year, which is a direct result of our thoughtful succession plan. Our leadership team, in my view, is now one of the best in the industry and is in a strong position to take the company forward.
I am suck. I am excited about having the opportunity to work with his team over the next few years to take the company to the next level.
Moving forward, some of the highlights of our businesses, our commercial services team stood up dedicated to hospitality and affordable housing teams. We branded our energy team to energy and infrastructure to more accurately reflect the extensive offerings we now provide to our clients in energy renewable infrastructure projects including data centers.
All of this structure was put in place while growing domestic commercial revenues by 38%.
we've made in that business in Q4 we more than doubled the revenue we made in the entire year of 2019, this segment.
Across the organization, we have dedicated some of our energy to improving infrastructure including technology upgrades both internally and to our customers we have made great headway of building our operational leverage to global centralization centers and have strong leverage in the system to capitalize on when the market returns.
In the 3rd quarter 2024, we announced a 4th annual cash dividend increase to $2 per share to reiterate our strength and commitment to shareholders. Finally, I, I'd be remiss. I did not mention that in 2024 we donated over a million dollars for the title Foundation to 100 scholarship recipients and over 900 organizations serving the communities we live and work in.
So it's in section 2 when we have given $2.9 million to our foundation to the communities we live and work in. I'm so proud of all the progress we have made on our journey and the real effort we have made in progressing the goals of the company in 24.
Turning to the 4th quarter results. I want to know, um.
The
I'm very pleased with the results of the quarter given market conditions macro perspective, the the 4th quarter was the first year over year improvement. We have seen an existing home sales that was proceeded by 37 months of negative year over year trends.
We also now know that even with more positive print in Q4.
A year, 24 existing home sales were down relative to 23. They can get making the last two years the lowest housing markets we've experienced in several decades.
Even with the positive Q4 the market housing market still needs significant improvement in order to get back to the historically normal 5 million housing.
15 homes sold annually.
And while we are pleased to see the movement of existing home sales, we believe this to be a point in time trend given the brief rate drop in September.
The latest pending home sales data also substantiates this outlook as it is down year over year and, and less than expectations.
However, you have taken an existing home sales in the 4th quarter shows us that demand is very strong, even in light of smaller than normal inventories significant home price appreciation and higher mortgage rates. Over the last year, we have gradually shifted our expectations for the return to normal given the alonged market conditions. In 25, 2025, we expect the housing market to remain very choppy, given the prolonged expectations around rates.
We currently expect the first quarter to be very first half of the year to be very challenging and a more a transition of more normal existing home sales will start at the beginning of the second half of the year. There are a number of factors we cite here such as steadily increasing inventory and the effects that could have on temperate or steady price appreciation the continuing pressure cooker on demand and the moving past election uncertainty that said, the continuation of the elevated mortgage rates will likely keep
being at bay for the first few months.
In commercial, uh, we see the market growth we saw that we saw in the first in the last half of this year to probably continue, but while we have growth, it will be much lower than we saw in 201 and 22.
Try to teach business our our direct operation segment has most immediately felt the impact of stifled residential housing. We have remained diligent in managing our direct operation segment protect our core of the market and the margin we've been focused on expansion efforts and targeted MSAs to both organic and inorganic means.
And keep a pulse on all the markets we are in as well as those we are not to ensure we are operating to our fullest potential across the country.
Choppy market conditions have slowed acquisition related activity recently. However, we made very positive about the future outlook for opportunities and maintain a warm acquisition pipeline in preparation for an improved market.
We've also pursued small commercial penetration in our direct operations and I've seen 15% growth in that segment of direct offices in 24.
Our top priority in this business is to grow our share in attractive markets both organically and through acquisitions in target markets to structurally improve margins and enhance the resilience of our earnings.
Our commercial services business has been a strong performer in the last several quarters as we feel the positive effects of our efforts to grow our share in critical geography of industry sectors. We've made a lot of investments in talent across a commercial operations so that we have the right people in place to maximize our growth potential.
Our 4th quarter results reflect that progress we've made to bring you top talent, serve our customers well and pick up our fair share of the market. We expect our commercial transaction momentum to continue but but manage ourselves with the near term commercial headwinds in mind.
It's just as we try to stay ahead.
Our agency team remains focused on driving sheer gains and attractive agency markets by adding new agent partners as well as growing our share of existing agents.
We are focused on improving our position in 15 target states and have seen solid progress in the majority of these states.
Our improved technology integration support services and enhanced abilities around servicing commercial agents allow us to stand out with our agents. We continue to innovate for our agent customers uh every day and I'm proud of our recent launch of Connect Clothes.
Which is a title production system built specifically to cater to our attorney agents.
This is a solution technology tool focused on pro agents for efficiency and economics.
We will continue to build on all of the movements and we have made in recent years for our agents in order to differentiate our services and better our offerings for agent partners.
A real estate solutions business continues its growth story as shown by 4th quarter results. Our margins in the 4th quarter were dampened a bit by some one time impacts such as startup costs for new customers and some timing of data contracts. however, we expect to sustain or improve the low T margins we have seen in the last couple of years.
The team is focused on gaining share with top lenders and cross selling our products as we leverage our approved portfolio of services.
Cross selling and current market conditions poses some challenges. However, we continue to see gains from both existing clients and new client introductions we expect continual momentum in this space as the market improves.
Our international businesses, we remain focused on growing our Canadian business by improving our geographic reach.
As well as increasing our commercial presence.
Where we saw 17% growth this year.
Our significant growth in real estate solutions and commercial services has resulted in an increase in our other operating expense ratios.
Real estate solutions other operating expenses are higher percentage of due to the use of outside services and data and in commercial we encounter higher outside data and search feeds to service our customers. We expect those two trends to continue, and we will continue to grow those lines of business.
Overall we would be diligent in managing our operations to ensure we can achieve both near and long term goals.
We are dedicated to growing share and all of our businesses and we remain steadfast in our pursuits to position each business for growth. We believe in our direction and maintaining our beliefs that we will achieve low double digit pre-tax margins with the macro market returns so historically normal levels.
Which would characterize as a $5 million purchase market.
Want to thank all of our customers for their continued trust and partnership. We are committed to doing the best and to serve with excellence.
And finally, I want to thank our steward team for their loyalty and continued dedication to excellence. It's been an honor to lead the company over the last 5 years, and I could not be proud of the progress we have made on our journey. I look forward to seeing where we can grow together.
David, I'll now turn it over to you and provide an update of the results.
Good morning everyone and thank you Fred. I appreciate the excellent service of our employees and I'm grateful for the community support of our customers. Let me also express my sympathies for those impacted by the California wildfires. As Fred noted, the market continues to be challenging with existing single family home sales at multi-decade lows and mortgage rates in the 7% area.
Yesterday Stewart reported 4th quarter net income of $23 million or 80 cents per diluted shares on total revenue of 666 million. The Appendix A of our press release presents a suggested primarily related to net realized and unrealized gains acquired intangible amortization and other expenses that we use to measure operating performance. On the adjusted basis, 4th quarter net income was $32 million or $1.12 dollars for diluted.
share compared to 17 million or 60 cents per diluted chair in the 4th quarter 2023.
In the title segment, operating revenues increased 60 million or 12% for improved performance in our commercial residential and agency title operations. Tidal seg with pre-tax income increased 18 million or 65% primarily due to higher revenues. After adjustments for pur amortization, severance and office closure expenses, the segments 4th quarter adjusted pre-tax income increased to 51.
versus 31 million last year while adjusted pre-tax margin and improved to approximately 9% compared to 6% last year.
On our direct title business total open orders increased slightly compared to the prior year quarter while closed doors and improved 15% primarily driven by higher domestic commercial and refinancing transactions.
Our domestic commercial operations generated in another so result improving revenues by 28 million or 50% primarily driven by higher transaction size and volume from broad asset classes led by the Energy multifamily and office sectors.
Domestic commercial average fee per file increased 33% to 190,600 compared to 140,800 in the prior quarter.
Domestic residential average fee per file decreased 8% to 2900 compared to 3200 in the prior year quarter due to lower trans purchase transaction that.
With our agency operations 4th quarter gross and net agency revenues both improved 6% or 17 and 3 million respectively consistent with the direct title trend.
On title losses total total loss expense in the 4th quarter was comparable to the prior year quarter as favorable claim experience offset higher tidal revenues.
The 4th quarter title loss ratio improved to 3.7% compared to 4.1% last year for the 4 year 2024, the title loss ratio was 3.9 compared to 4.1 last year.
We expect title losses to be in the low 4% range for 2025.
Regarding the real estate solution segment operating revenues improved by 26 million driven by higher revenues that our credit related data evaluation services businesses, however, pre-tax income declined as vendor price increases occurred prior to customer contract renewals and elevated employee costs as we continue to grow customer relationships.
As Fred noted, we expect to be in the low teens cash margin.
Area as these relationships mature.
Excluding acquisition intangible amortization adjusted pre-tax income was 6 million 7.4% margin in the fourth quarter compared to 7 million or 12% margin last year.
Or to consolidated operating expenses are employee cost ratio included the 31% compared to 32% last year primarily due to higher revenues.
Our other operating expense ratio increase to 25% as our mix of real estate solutions and commercial revenue increase as those businesses have hired third party costs.
On other matters our financial position continues to be solid to support our customers, employees, and the real estate market during this continually challenging environment at year end our total cash and investments were approximately 380 million in excess of our statutory premium reserve requirements. In addition, we have a fully available 200 million line of credit facility total steward stockholders equity in December 31, 2024 was approximately 1.4.
or book value of approximately 51 per share. Our net cash from operations was 68 million, which is 29 million higher compared to the prior year quarter as approved as a result of improved net income.
Again, thank you to all our customers and employees and we remain confident in our service to the real estate markets. I'm now turn back to the operator for questions.
Thank you. And at this time if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing 2.
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And we will take our first question from Bo George with KBW. Please go ahead.
One of those, everyone.
of activity.
Yeah, so we, well it's it's
Fun, the market is off really choppy right now. There's a lot of unsuring, frankly, that entered.
Uh, in the last month or so, but our view is that it'll be single digit, you know, kind of sort of low end of single digit growth in commercial right now that's what we think, um, for the market I'm talking, um, uh, but there's a, you know, it's um a very uncertain, but we see to your point that
The the second half of the year was better than the first half of the year last year, and we see the continuation of those trends a little bit, although it's, it's very, you know, it's a little bit more uncertain right now.
Um
Uh, but, but we're positive it'll be in a positive territory we believe, um, and, and again it's gonna be very sector oriented, um, you know, because I think there's gonna be continue real robustness around like data centers and.
That that things like that.
OK, and so for now just to think about it as modest growth on a year to year basis is given just the uncertainty that's in the market so that that's what I believe and get our pipeline's been fine and as you know the those transactions take a lot longer so we have more transparency in the short shorter window because we have a lot of stuff in the pipeline, so, um, we feel good about kind of what transpired this year.
OK, great. And then actually uh in the real estate solution segment, um, you know, I guess, uh, the, they, they noted the uh the repricings that are likely to happen. I mean, in terms of the margins on that sort of, you know, normalizing. Does that happen fairly soon in 2025, or is there a little bit of a transition, great great question. So there, there really is two pieces and you it was a little choppy this year because of the, you know, such large growth.
There's two pieces of that kind of bump in the night here in the 4th quarter. One is we have, you know, start up costs for these big transactions. We have a number of new clients coming on and if the timing doesn't hit exactly right you have all these expenses without any revenue, so that that'll take care of itself very quickly, uh, at in the quarter. The other is this pricing, so the end of the 3rd quarter of this industry, you tend to have a lot of the input costs around data come in so those increases, you know, for the credit bureaus and
bike and stuff, um, they were relatively material and we've been working with our clients right to get those embedded into the contracts and so we, I feel very good the teams were done a really good job and so those uh pricing uh changes have been started in for it this week actually, so, uh, to go get into start building into uh our our uh those client relationships so I think that's relatively rapid improvement, and as I said, I
I think this year is gonna be a little bit better up for the full year. My guess is that business.
Uh, it will get about 1 point better, you know, I think it's that 12 it'll be 13 or something, uh, cash margin because it's it, it's settling, you know, uh, we're growing and it's settling, um, and I should answer that question long term two votes because you've asked that before in my view of the gap, you know, when I did that 11.5% in the normal 5 million market. That market also that we have that business has a lot of cyclicality to it, right, so our appraisal business of notization business our data business is all, you know, very cyclical or whatever.
35 year low so I fully expect that thing from a gap point of view to get to where it is now to a full 10% margin and I think the cash margin in those business when we get to a more known market will be mid at least got here they they've even a little higher than the gene cash so I feel good about where we are. I like the, the margins that we're generating the the cash margins, uh, but I think as the market recovers, they have a shot that business should get better, um.
I don't see that big improvement in the market occurring in the next 6 months, I think that.
We're going to start moving in that direction in the back half of the year.
Oh, OK, that's very helpful, thanks.
Thank you and as a reminder if you would like to ask a question, please press the star and one on your telephone keypad now.
And we will take our next question from John Campbell with Stevens. Please go ahead.
Good morning John. Hey guys, good morning. Uh, congrats on a great close of the year, uh, solid quarter.
Um, OK, let's, let's stay on commercial here, um, I'm, I'm just looking at, um, maybe some of your competition here. It looks like you're gonna maybe outgrow, um, both your skilled guys, uh, by about 3 X on a year or so.
I know there's some nuances there, Fred. You've talked, you know, often about
Asset class exposure kind of mixed shift, um, I, I wanna get your best sense. I know this is probably tough to unpack, but your best sense for um share games versus um maybe your your your unique exposure.
That's a great, it's a great question John because I, I, as you know, I talked a little bit about energy, and I thought, well, I don't know the books of everybody else, um, our, our age, our energy book, uh, this year grew kind of its percentage hits 35 or so percent of our book higher probably uh that used to be about 18.
OK, uh, and, um, and, and.
What's happened obviously is a surge of some of that in that category and some of the alternative energy, um, particularly solar and, and frankly some of the infrastructure stuff that we that's in that category for us, so I, I.
I believe that part of our outsized growth is our mix.
Um, I don't know how much I know our competitors do that stuff too, uh, but I've said that because we, I think that's part of it, but I will tell you, uh, that when I look at the 10 next categories, our growth is, is 50%.
So, um, we've invested a lot of people and people and sectors and segments to match up with our great underwriting capability and as like I said, you know, with the company had issues and, and was sold our capital was about half as much as it is now, and we were for sale so with the uncertainty, uh, we didn't get our fair share of the market, uh, because of that, and now we're starting again, so we get to your point, my view is we've gone somewhere.
a 9% of the market to 14% of the market or something it's been pretty material and I, I think most of it is sustainable, but again, the reason I say that about the energy is that to your point, if we're out if our mix in in that category bigger than others, we're probably getting the benefit of the, you know, of the growth of that, right? So say that to back down a little bit, uh, in a more normalized market, but, but there's no question when I look at every single category.
Um, we are, we are, we've grown much bigger than the mark, much better than the market, which tells me that underlying we're doing, we're doing that and and again we should right we we we we have as much underwriting capacity as anybody, but we're so much we were, we started this journey at like, as I said, 9% share which was not, you know, be sure you better spread a risk of in the commercial space if we can invest properly and have the right capabilities matched up with the market so uh.
I'm encouraged by what we've done, but again, I'm happy to say that some of it is the benefit of the mix that's occurred in the industry.
OK, that's very helpful. I appreciate that. And then David, um, historically I think maybe the last 2 or 3 years you kind of talked or expected, uh, like low to maybe mid, mid 4% loss revision rate, um, obviously you've been pretty consistently below that, um, it sounds like now you just mentioned low 4%, so maybe tightening that range a bit, but maybe if you could talk to uh uh maybe your past expectations, what, what you built in that maybe didn't occur that maybe you expected or maybe it was overly conservative just
More commentary on that and kind of also what you're seeing on the back book and lost trends.
Yeah, John, I mean, I think it's just really a combination of the mix and so um you know we had had a little bit more elevated going back a few years because of some of the international exposure, I think that's moderated a little bit and then you know the thing that you always have to be concerned about and that's that's why we try to be a little um you know a little more balanced and things and so you can have these what we call jumbo or large claims come in and the timing of those is hard to predict and so you know.
I'd say it's a combination of just overall favorable macros and then some of the higher loss items haven't been hitting as much and that's why you've seen the better performance recently, but those are always out there, right? So you have to be prepared for, yeah, so I think a guidance is still gonna be in that row 4, right? OK, that's it right number.
OK, and the last one for me on the investment income just in sense for a broad range of excitations over the next quarter or two.
Yeah, I think, um, you know, we've we've been in that 13 million range we were a little bit better in Q4 we just had some, you know, a little bit better volume on some of our escrows and things like that, I think with we've been able to hold, you know, keep in mind if you're looking at us versus First American we're not hair triggered or rate because we don't trade off the money market because we're not a bank and so our rates are negotiated assume that the banks always give themselves a little cushion in that negotiation.
And, and so because of that, you know, we, we don't necessarily go down as quickly as rates do and so we've been able to basically hold and so I think unless you were to have a, you know, really big extra drop in rates and right now what's 11 to 2 maybe 3 for the year sort of the range of betting, um, you know, we should be able to hold pretty well at the levels we're at.
OK, excellent thanks guys.
Thank you
Thank you. And it appears that there are no further questions at this time. I will now turn the program back to our presenters for any additional or closing remarks. I want to thank everybody for your interest in, in Stewart. Thank you so much.
Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.
Mhm.
Mhm