Q2 2025 Stewart Information Services Corp Earnings Call
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Hello and thank you for joining the Stewart Information Services, second quarter 2025 earnings call. At this time. All participants are in a listen-only mode. Later, you will have an opportunity to ask a question during the question and answer session, instructions 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 the today's conference over to cap bass director of investor relations. Please go ahead
Thank you for joining us today. For Stuart's, second quarter 2025 earnings conference call. We will be discussing results that were released yesterday after the close. Joining me today are CEO, Fred effinger, and CFO, David heisy to listen online? Please go to the stuart.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, let me now, turn the call over to Fred.
Fred Effinger: Uh, thank you, thank you for joining us today for the Stewart's second quarter 2025 earnings conference call.
Fred Effinger: Yesterday, we released the financial results for the quarter, which David will review with you shortly.
Fred Effinger: I will open the call with some thoughts on the current housing market conditions followed by a dive into our second quarter results, and some insight into the progress. We are making on our strategic growth initiatives.
Fred Effinger: Before discussing these initiatives, I want to express my our success sympathies to those affected by the recent weather events across the country.
Fred Effinger: Our hearts go out to those affected by the July, 4th flooding in Texas, our home state.
Fred Effinger: While our employees were not directly impacted by this Monumental flood. We know that countless families were we have and will continue to find ways to support rebuilding efforts in Central Texas.
Fred Effinger: We are very pleased with our second quarter results, as they demonstrate our ability to significantly, grow, both revenue, and earnings in a stubbornly challenged housing market.
Fred Effinger: Market, uncertainty and affordability challenges have kept buyers at Bay as they wait.
Fred Effinger: Further Clarity on near-term economics.
Fred Effinger: The spring selling season has fallen flat with existing home sales down roughly 1% compared to the second quarter of 2024.
Fred Effinger: The inventories have improved in volume and quality over the past several months, which could be a precursor to some improvement in the market.
Fred Effinger: All these levers are helping cool price. Appreciation which was around 1 and a half percent of the quarter as compared to about 3%, for the first quarter, and over 4 and a half percent, for the fourth quarter and 24.
Fred Effinger: While the current market Outlook, it's difficult to predict given the current market activity. We expect to see some improvement in the second half of the Year relative to 2024 however the magnitude and timing of this Improvement remains unclear.
Fred Effinger: In a largely flat housing market. I am very pleased with the strong results for the second quarter and our continued momentum across all of our businesses. We grew revenues by 20% and adjusted EPS by 48%, compared to the second quarter of 24.
Fred Effinger: In the direct operations of business, which is most immediately. Feels the effects of a challenge residential housing market. We grew 6% overall and we remain focused on growing share and Target msas and and micro markets, both organically and inorganically.
Fred Effinger: We expect Acquisitions will be a big driver of our growth plans for this business. Going forward and maintain a warm pipeline of Targets. In addition, we are focused on expanding small commercial within direct operations. And our investments are having significant impact. As we delivered, 36% growth rate in this quarter over the last year in small commercial and direct operations.
Fred Effinger: Growth in our National Commercial Services. Business continue to be strong. If you ever by increasing penetration in a number of geographic, markets and asset classes. Our continued growth will be driven by Target investments in Talent.
Fred Effinger: Thoughtful investments in our talent will allow us to expand our Network and keep in our capabilities, more geographies and asset classes in order to leverage our distinctive underwriting capability.
Fred Effinger: We have made great progress in expanding, our commercial teams with industry-leading talent and will continue to strategically do so in the foreseeable future.
Fred Effinger: And the second quarter we grew our domestic commercial businesses by 46% relative to the second core of last year year to date. Domestic Revenue has grown 43% when compared to the first half of 24.
Fred Effinger: Well, energy continues to be a strong asset class for us. We have also experienced solid growth across most of our asset classes and we are steadfast in our pursuit of growth across all commercial asset classes.
Fred Effinger: Our agency service business, also delivered very strong results. Our team remains focused on expansion through sheer gains and attractive markets through Edition new agents and expanded share with existing agents.
Fred Effinger: We presume growth across all states but we are laser focused on 15 states that would allow us to capture significant scale and growth. We have also enhanced our agency commercial capabilities and are seeing strong Traction in supporting our agents in their commercial work, our agent servicing C, team delivered strong second quarter results growing 25% when compared to the second quarter of 24. Again it that's in a relatively flat residential Market which likely demonstrates continued shared gains in agency residential and Commercial
Fred Effinger: We will continue to build a momentum. We have made in the recent years, in our, for our agents, in order to differentiate our services and better our offerings for our agent partners.
Fred Effinger: our Real Estate Solutions business continues to gain traction growing Revenue, 22% when compared to the second quarter of last year primarily due to higher revenues, from our credit information evaluation Services business,
Fred Effinger: Our margins, improved sequentially and were slightly down relative to the second quarter of 24. We expect margins in our lender lender services to normalize in the low teens range for the remainder of the year.
Fred Effinger: We expect to grow the Real Estate Solutions, business line by gaining, share, with top lenders, and cross selling our products as we leverage our improved portfolio of services.
Fred Effinger: Cross-selling in this kind of current market conditions poses. Some challenges, however, we are pleased. We to see shared gains with both existing clients and new client. Introductions
Fred Effinger: And we expect continued momentum in this space as the market improves.
Fred Effinger: We are also proud to announce that propstream of real estate data and analytics platform and our Real Estate Solutions segment acquired batch leads and batch dialer in early July.
Fred Effinger: This acquisition allows us to combine profit streams property data and engineering and marketing tools. With bachelor's Advanced AI driven tools and contact dialer.
Fred Effinger: This combination will offer customers best-in-class Nationwide, real estate data intelligence and enhanced lead targeting, and unified Outreach platform. All In 1 place.
Fred Effinger: Moving to our international business.
Fred Effinger: We are focused on broadening our Geographic presence in Canada and increasing our commercial penetration.
Fred Effinger: Non commercial direct and Commercial direct Revenue by 6% compared to the prior year. We believe we can continue to build our strong position these markets and continue to grow share.
Fred Effinger: Overall, uh, we remain dedicated to strengthening our businesses, by improving our scale, and improving our competitive position in each business.
Fred Effinger: We remain focused on growth even in the challenge market and we feel poised to capitalize on improvements when the market returns to normal level.
Fred Effinger: We continue to be thoughtful about our investments in ourselves and in pursuit of smart growth for each of our business lives.
Fred Effinger: I want to close by thanking our employees. This
Fred Effinger: Is for their dedication and focus. It's interesting that over the last few weeks, I've been able to visit large number of offices and and met with over a thousand of our colleagues in person.
Fred Effinger: And I was struck by the positivity and energy everywhere. I visit.
Fred Effinger: Especially given the difficult market conditions. We all compete in, and I want to thank them for driving our journey to be the premier Title service provider
Fred Effinger: and finally, to our many new and long-term customers,
Fred Effinger: I want to thank you for trusting us to deliver with consistency and excellence.
Fred Effinger: So with that David, I'll turn it over to you to provide the update on the results.
David Heisy: Good morning, everyone. And thank you, Fred. I appreciate our employees and I'm thankful for our customers. I share Fred sympathies for those affected by recent weather events. The real estate market remains challenged with mortgage rates in the high sixes, an existing single family home sales around 15-year lows,
David Heisy: Yesterday Stewart reported second quarter, net income of 32 million or a dollar 13 per diluted share based on revenues of 722 million. Appendix a of our press release shows adjustments primarily related to the net realized and unrealized gains and losses and acquired intangible asset. Amortization that we use to measure operating performance on an adjusted basis. Second quarter, net income was 38 million or dollar 34 cents per diluted share compared to 25 million or 91 cents per diluted, share last year.
David Heisy: In the title segment. Operating revenues in the second quarter improved, 96 million or 19% driven by both our direct and agency title operations, this resulted in a title pre-tax income Improvement of 16 million or 48% after adjustments for purchase and tangible and amortization and other expenses, the title segment, adjusted pre-tax income was 52 million, which was 14 million or 35%,
David Heisy: Better than last year, while adjusted pre-tax margin, improved 1% to 8.5.
David Heisy: On our direct title business second quarter total open and closed orders improved due to higher commercial, refinancing and real estate. Investor activity. Domestic commercial revenues, increased 24 million, or 46%, due to strength and breadth in the energy data center, Hospitality industrial Land Development and multifamily asset classes.
David Heisy: Domestic commercial, average fee, per file, increased 25% to 16,900 compared to 13,500 last year, domestic residential fee per file. Slightly declined to 2,900 compared to 3,000 last year primarily due to a higher mix of brief financing and real estate investor orders. International results, improved modestly, while our agency with our agency operations, gross agency, revenues increased 61 million or 25% on improved volumes and our key agency States, while net agency revenues, improved 9 million or 21%,
David Heisy: On title losses, our total title loss expense in the second quarter increased slightly to 22 million due to increased title revenues. Partially offset by our overall. Favorable claims experience, the title loss ratio for the second quarter. Improved to 3.6% compared to 4.2% last year. We expect our title losses to average around 4% for the full year 2025
David Heisy: Ships.
David Heisy: Adjusted pre-tax margin for the second quarter was 10.9%, which is improved sequentially and from q4's low point. We expect our margins to be in the low teens as these relationships mature.
David Heisy: On our Consolidated operating expenses. Our employee cross ratio improve improved to 30% versus 31% last year. While our other operating expense ratio improved to 25% from 26% primarily due to higher, operating revenues on other matters. Our financial position remains solid to support our customers employees and the real estate market. During this challenging environment, our total cash and Investments were approximately 390 million in excess of our statutory premium reserve requirements. While we also have a fully available 200 million line of credit total Steward, stockholders Equity at June 30th was approximately 1.4 billion with a book value of $51 a share net cash provided by operations, improved by 32 million in the second quarter compared to last year again. Thank you to our customers and employees.
David Heisy: And we remain confident in our service to the real estate markets. I'll now turn the call over to the operator for questions.
Speaker Change: The question, please press the star and 1 on your telephone keypad. You may remove yourself from the Queue at any time by pressing star 2 once again that is star and 1 to ask a question and we will pause for just a moment to allow any questions to queue.
Speaker Change: We will take our first question from Bose George with KBW. Please go ahead.
Bose George: Good morning, this is good morning. Um, so first, just on Commercial you obviously had another, you know, very good commercial quarter. Can you discuss what you're seeing in terms of the commercial pipeline in July? And also, you know, last year in the second half of the Year, obviously commercial ran to quite a bit, um, you know, in this given that the year of your comps, obviously, get a little bit harder, just curious how we should think about, you know, your expectations for the back half of this year and Commercial revenues um you know year-over-year
Bose George: So, I feel good about the pipeline, there's a lot of activity. Um, and so again, do I think we're going to sustain, 45% of growth know? Um, but I do, I think we can grow and grow out more than the market. Yes,
Bose George: Um, and um, we have good visibility to Pipeline and the breadth of the pipeline is good too. So, uh, I do a pretty good about it. The other thing Bose about us for commercial. Um, we're also very, uh, focused on it. What I call Main Street commercial small commercial within the direct operation, uh, and we've seen nice growth there too. Which is a segment that we kind of gave up on almost observing some of the, troubled times of the company. And so, that's coming back nicely. Um, so I, I'm, I'm pretty comfortable that we will continue to see growth in commercial, but you're absolutely right to see to talk about the comparisons from last year. And, and, you know, we're, we're at a very Hefty number, uh, which will probably come in a little bit. But I I feel confident that, uh, the, the momentum will continue.
Speaker Change: Okay. Okay, great. And then actually switching over to, um, the residential, on the the agent premiums, um, you know, they were up 25% versus a direct of 14. Can you remind us? Is there a any timing issue their agent versus direct? Or is it just strength know, but give it to the agency, again. I think what's happened on agencies is twofold. 1, um, is we've been able we've been resourcing up
A little bit now that our value proposition, uh, has been good, you know, both our servicing and some of these uh, capabilities on Commercial. We've been we've added staff in some of these targeted states, which has started to get some traction. And also, if you remember, we we weren't very good at delivering commercial, uh, to, uh, to the agents outside of New York, really? And so, we created both an ability to do what we call, kind of a concierge service for agents to really help that particularly on things that might be multi-state. And the and some direct issue capability for them on places they don't have licenses and that's taken off. So, so we have both nice Geographic growth because of of resource and we have the, um, the commercial penetration, that's that's increased. So I I like the momentum there. We had. I think that growth of 14 last quarter announced 21. So again we got to be at that 25 level. Uh it could Bounce Around
Speaker Change: Momentum because of the initiatives we're taking um to grow our position.
Speaker Change: Okay, great, that's helpful. Thanks. And actually just 1 more on the, on the agent, the, um, the agent retention rate, you know, it looked like that. Um, I guess declined about a point is that like, is that just geography, that's driving that or yeah, it's a 100% geography, and
Speaker Change: and if you look at us versus everybody else,
Speaker Change: It is.
Speaker Change: Really driven by Flora.
Speaker Change: Um, and that is, you know, we've made some progress but we're still in the
Speaker Change: 5 6% share range where our competitors in the 20 plus all of the 3. The Big 3 are all 20 plus uh share and that drives that retention. There's a couple other states that are that are more, um, but the profitability of every state is good so I don't I don't worry about it. It's just the, the splits kind of drive that in Texas. For instance, is, we've got a nice growth in Texas, which is good attractive, but that's a much Lower. Split. It's like a 15. So again, it's it's just the geographic mix same with Ohio. We've had really good growth, so I'm comfortable with that is because we've had
Speaker Change: increase, you know, that the margin has has gotten better as we've grown because remember that's also a
Speaker Change: a business where there's more fixed costs. So
Speaker Change: Growth is very helpful to your margin. Um because so much of the work is, is Barren by the agent. Uh and so really good. Uh continued margin profile as we grow. So I I'm I'm good with the mix but I'd like to see more
Speaker Change: In the mix too. So, yeah, yeah. Okay, great. Thanks a lot.
Thank you. And your next question comes from Jeffrey Dunn with Dowling and partners, please go ahead.
Jeffrey Dunn: Hey morning, Jeff.
Jeffrey Dunn: Good morning. Um, I got a couple questions for you, I guess. First. Um,
Jeffrey Dunn: What is the rough breakdown of your domestic commercial business between what you're labeling? Small versus National Commercial.
Jeffrey Dunn: Yeah, about 19 million in this quarter about 19 of the total.
Jeffrey Dunn: Would be what I call small.
Jeffrey Dunn: Right, so of the 74 domestic about 19 and what I'm excited about that is that um you know we we basically opened our Capital was short with a company was troubled. We we basically centralized what the commercial we did and we did very little in the offices. So we were advocating kind of the we were giving to the big guys all the, what I would say 20 million and down kind of business that you you have in the uh, in in the, you know, single state, you know.
Jeffrey Dunn: Mix used projects and some of these places and particularly in offices, outside, the big cities, right? So, you know, the Austin's of the worlds or the Columbus's of the world or the, you know. So, what's happened now is we've done a really nice job investing and setting and and providing skills. Now, what's interesting is, we had some of the skills resent or present in the offices, but we haven't really kind of focused on it. And so, um, that's really starting to get some nice traction for us. And I, I really think that's an important part of our go forward plan because it helps dramatically kind of the, you know, our margin profile uh, in the direct operations as well, right? So it because it you're using your capex as capacity more effectively and it gives you some um you know, higher margin business.
Speaker Change: And then on the residential business, can you remind us?
Speaker Change: The premium relationship between a purchase deal and a refi deal, as well as the margins that typically go with those.
Speaker Change: Sure. So, so a retail deal is kind of somewhere about 3,000.
A refi is somewhere between a 10000 and 1400 some, you know, to differs whether it's centralized or distributed or whatever and what state it's in. Um and you know, the margin on residential is pretty consistent.
Speaker Change: Where is refi is bounces all over the place because it depends on your capacity in the office, right? And you're doing it with excess capacity uh because the the margin is going to be lower if you have excess capacity.
Speaker Change: So again, it's and and think about refi for us. So refi is just upside for us. Unlike everybody else in the industry. I we only have 3% of our Revenue at refi and less in earnings.
Speaker Change: It's all upside.
Speaker Change: Parties for us to get our margins up, our consistency of earnings up and our growth up. So I look at refi as just future upside. I and I, and by the way, I don't I don't need it to get to 15%, share that. I talked about. I don't need it to get to 12% returns. So as other people kind of think about the you know it's coming and going it doesn't for me it doesn't really affect our profile. Now this quarter is a great example where some of our big competitors are going to get a little bit boost more Boost from refi. You can see it in the numbers where we, we're not going to get that because we don't there's a whole segment of some of the big players that we're not present in and I haven't really focused on it. Um but again over time we'll get more of it but I'll be it'll be from a position of a more stable company with higher margins and I'll be happy to do it but but that's kind of where we are with refund.
Speaker Change: Which is why by the way, when people talk about the pilot the impact on us is kind of nothing. And and and and by the way, the the pilot these latest announcements are actually very positive to me because what it looks like is they're refining. There's an option in the model that includes a title policy, maybe cheaper, maybe with different coverages with Curative, which is what we recommended at the beginning, which they went to a more tech only. And if that pilot works and there's margins in it with that approach, we can do that because we have the same technology and the same workflows that we could triage that stuff like that too. So,
Speaker Change: For me, refi is just a potential, you know?
Speaker Change: Additional.
Positive thing for us in the future if we want to pursue it more aggressively. So um I'm I'm feeling good about what we have but I'm I'm fine that it's a small percentage of our business too. So
Speaker Change: Um, given the pile of comments, you just made.
Speaker Change: I know it's been bumping around a little bit not not a lot of traction at this point but do you have any sense as to how the pilot is pricing?
Speaker Change: Uh, I
loans that go through without a with with waves Title Insurance versus your product. Yeah, I don't, I don't, we're not that close and obviously the waived in my view is not the best solution for the lenders, right? Because it kicks a lot of issues around. If you're not going to do any Curative, there's going to be some real issues that transaction later transactions. And so, uh, again, I don't I know what the tech pricing is and I don't frankly don't even know on the this new model. What the whole pricing is which is something that we'd have to come out of it and they'd have to prove that they could actually do that.
Speaker Change: Successfully. Um, but I do like to me anything that retains the policy
Speaker Change: And retains Curative. Now it's probably be highly automated, right? And because it's a segment of the of the policies that is less risky if you will or or but. But again, that's a much better solution for lenders in my view and and and probably gets to the same. You can give a little bit of a, a lower price, right? Uh, to that. Um, so but I don't we don't, we're not participating in it, we just know about it and we've been watching it closely and try to pay attention to it to make sure, uh, if we want to participate later, uh, if it, if it gets through, uh, to know, if we would do it. So,
And then that last question is, is another mixed question. Can you update us on the mix of the primary segments, with an Rees being prop, stream, info research, and, and the core offerings, and, and the margins that go with those 3 buckets? Yeah. So with that business, you have the data kind of business that what we call IR a Data Business and that that's got the verification waterfall and all the credit Tri, merge credit stuff in it. We have appraisal which is a big piece of the business, um, and those are the 2 biggest Revenue, right? Those are really the 2 big ones. Um, and prophecy is much smaller but it's a nice value, added product. But those, those All We Believe can get to that 12%, you know, consistent in a down Market that can get to that 12%, um, kind of cash.
Speaker Change: Margin and in a good Market that should get more closer to 1415. If we had a little bit more volume because they also have they all have some fixed cost coverage issues when you're at this low volume. So, um,
Speaker Change: So there again, the whole business, in my view can can carry that. We had a little bit of bumpiness with the ear, um, with the, the data costs. And how we we priced some of this in a bundled fashion, to capture some value. Um, and what's going to end up happening, we'll end up this year, right around where we ended up last year between 11 and 12. I guess.
By the cycle. Um, it's just that we've been able to have enough margin on a cash basis to sustain a little bit higher margin in those businesses.
Speaker Change: Okay, great. Thank you.
Bose George: Thank you and we will take the next question from Bose George with KBW. Please go ahead.
Speaker Change: And just a quick follow-up. The, uh, the investment income line was, uh, up a decent amount. Was there anything unusual there?
Yeah, but I mean, we're still running about 6 of that, a quarter is the escrow earnings and then the rest, you know, and you see this in other places too, right? As as you're rolling investments into the higher yield environment, you get a little bit more on on that on that. So that's mainly the reason it's going up as well as, you know, we had a little bit of increase in balances. Yeah. And but it was over time.
Speaker Change: again we we're not seeing the impact yet um but this commercial as a percentage of our business
Speaker Change: As that gets bigger, that's helpful, right? Because of the flow that comes with that, right? Um, and we have to, we have to capture it. Um, but we've gone from about 10% of our business entitled being commercial to 13, um, which is helpful and I would tell you the other place we need to push on, is with that. Should be be able to grow our 1031 business which we, we haven't recognized.
Speaker Change: That yet. Um, but we
Speaker Change: We need to, we need to get after that and grow their business because that should be connected to this growth and Commercial as a part of our business. So,
Speaker Change: as David said, mostly what we had to do is we had to recapture Esco with these Partnerships with banks that they value the deposits.
Speaker Change: And we got to keep doing that. And as we grow, obviously those balances grow and so there's a little bit, but the other piece here is making sure we capture because the, the additional kind of. It's a little bit disproportionate on Commercial. So we should, if we can do a good job there, we should over time, see a little bit of of growth there too, which hasn't has a materialized yet but could so okay. And but that that number we I mean we should think of that number as kind of base case and kind of grow from there. Um, when we think of modeling, yeah, I mean obviously if yields it's very yields rivet right? So yeah, yeah, right. I mean, if you have 2 ray Cuts, let's just say for the rest of the year. You're going to feel that a little bit in the escros. Um, but you know, ours, ours aren't hair trigger because they're more, negotiated, but you're definitely going to have some downward pressure. But then as you as you roll your Investment Portfolio, that's going into things that are a lot better than during
Speaker Change: Co years.
Speaker Change: Yeah, yeah. Okay, great. Thanks for the call.
Speaker Change: Thank you.
Speaker Change: And it appears.
Speaker Change: That time I will now turn the meeting back to Fred eppinger.
Fred Eppinger: Yeah, thank you for the call. I, um,
Fred Eppinger: 1 of the things that I would. Uh, close by saying is there was a great question, 2 quarters Ago, by 1 of the analysts uh, that said, you know, if the market doesn't grow at all like, what can the company do?
Fred Eppinger: And I think the way I answered is I said, I think because of our momentum, we could grow 10% Topline and 20% bottom line in that kind of environment.
Fred Eppinger: Um if you look at the 6 months so far, we're up about 16% and about 49% in earnings. I don't know if we can sustain something like that but what I know is that our businesses have some nice momentum right now. And if we see focused on what we're trying to accomplish, we should be able to grow a little bit more than the market.
Fred Eppinger: And continue to leverage our earnings and, and I'm really proud of what this quarter was not because of this quarter, but because of the work that our folks did to build a capabilities over the last couple of years to get to this point where I think we can sustain a little bit more than the market. Not probably what this quarter was. But
Fred Eppinger: Um, sustain a little bit better than the market. So I'm, I'm, I'm very pleased with where we are positioned as a company. So thank you so much for the attention today. And, uh, and uh, thank you.
Fred Eppinger: Thank you.
Speaker Change: Does that conclude today's presentation, thank you for your participation. You may disconnect at any time.