Operator: Hello, and thank you for joining the Stewart Information Services Q3 2026 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 today's conference over to Brian Glaze, Chief Accounting Officer. Please go ahead.
Brian Glaze: Thank you for joining us today for Stewart's Q3 2026 Earnings Conference Call. We will be discussing results that were released yesterday after the close. Joining me today are CEO Fred Eppinger and CFO David Hisey. 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.
Brian Glaze: 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 Eppinger: Thank you for joining us today for Stewart's Q3 2026 Earnings Conference Call. Yesterday, we released the financial results for the quarter. I will kick off today's call with an overview of our outlook for housing, followed by a review of our performance for the period, and strategic direction broadly by business. I will then turn the call over to David so he can provide further commentary on our performance for the quarter. In Q3, the market began to set a new lower bottom for residential housing.
Fred Eppinger: The market was primarily driven by the rapid escalation in the 30-year mortgage rate throughout the quarter. In August, the 30-year rates moved higher than the same period a year prior. The rapid increase continued the rates around 7.5% into October.
Fred Eppinger: As we've seen in the past few years, buyers will very quickly move to the sidelines in a situation where rates meet or exceed 7%, or when rates move up very quickly. In Q3, we experienced both these scenarios, resulting in a below 4 million existing home sales for two of the three months in the quarter, a decrease of about 3% to 4% year-over-year in August and September. We believe the residential market conditions will continue to decay into the next quarter.
Fred Eppinger: Considering this outlook, we will be very focused on managing our business investments and expenses while continuing to capitalize on some of the market opportunities this disruptive market will create. In Q3, we delivered adjusted earnings per share of $1.33. Year-to-date total operating revenue was up 22%, and adjusted EPS growth was up 8%.
Fred Eppinger: For the quarter, growth slowed to 13%, and our adjusted EPS delivery was below last year's Q3 as we saw decreased margins in some of our businesses due to rapidly decreasing residential volume off historic lows. Our national commercial services business continued to deliver solid performance with overall commercial growing 9%. While the growth was less than our recent run rate, our order growth is strong, and our competitive position continues to improve.
Fred Eppinger: We did see a number of closings shift to Q4, which is not uncommon in the changing market. We continue to be very positive on our improving competitive position and our future growth opportunity. In Q3, we also welcomed Tower Title to the family, expanding our commercial energy and infrastructure team capabilities for servicing the telecommunications space.
Fred Eppinger: The acquisition of best-in-class talent has remained our strategic growth priority for the national commercial services, and the addition of Tower Title as well as the strategic hires we executed last quarter will help us further bolster this business for the long-term success as these new hires ramp up in their seats and begin to convert business in the coming quarters.
Fred Eppinger: We have had a lot of momentum in this space in the last three years, and we will continue to encounter some tough comparables for ourselves given the outsized growth we have had. Overall, we remain positive under the large commercial and continue to see growth across multiple asset classes, though that growth is often lumpy given the timelines and transaction sizes. Our direct operations bear the brunt of the slowing residential market and drove the majority of our margin reduction in Title.
Fred Eppinger: Overall, our direct Title operation business unit grew consolidated residential refi to mainstream commercial by 1% in the Q2 compared to the same time frame last year. We saw residential volumes decrease by 3% and refi shrink 7%. That was offset by our mainstream commercial delivering 11% growth. Our growth plan for this business remains focused on strengthening our position in attractive MSAs through organic and inorganic efforts, and continuing to grow mainstream commercial.
Fred Eppinger: In 2026, we have seen more opportunities present themselves in attractive geographies. Given market conditions, we will still focus on pursuing these opportunities, but we are sharpening our pencils even further to ensure they fit in our long-term financial goals. In the Q3, we announced the acquisition of Rattikin Title, one of the oldest and well-respected title agencies in Texas, servicing Fort Worth.
Fred Eppinger: This transaction is a great example of a strong strategic fit for Stewart as it strengthens our position in the Dallas-Fort Worth marketplace, giving us a Fort Worth stronghold. Our centralized title operations, which are included in our direct title revenue summary, includes our centralized refinance, institutional business, and reverse business. In the Q3, we welcomed ProTitleUSA and DocSolutionUSA to this organization.
Fred Eppinger: The addition of these companies, along with our existing offerings, expand our scale to the title services for investors and capital market clients. In the Q3, we grew this business 20% for these businesses. Finally, moving to our international operations. We focused on profitably growing our business. In the Q3, we saw a slight deceleration of our non-commercial revenue by 1%.
Fred Eppinger: However, we have grown our revenue in this business unit by 4% year to date, which is solid, given the Canadian residential marketplace has been decelerating existing home sales since September of 2025. On the commercial front, we delivered $7.3 million in revenue, consistent sequentially with the Q2, up behind the Q3 of 2025 as we had a handful of very large transactions that closed the Q3 last year.
Fred Eppinger: We believe we are on the right track in our international operations, and we will continue to build on our strong positions in these markets and continue to grow share. Turning to agency services. In the Q3, we saw net revenues by 11% compared to the Q3 of last year. We are pleased with this given that the agents confront the same challenged residential market as our direct operations.
Fred Eppinger: We are focused on growing this business through winning the business with new agents and expanding wallet share of existing agents, with the emphasis on 15 target states in addition to the expansion of our commercial footprint for agency. We continue to make good progress on these priorities with residential premiums up 7% and commercial premiums up 25% in Q3 when compared to the same time frame last year.
Fred Eppinger: As mentioned last quarter, we took advantage of some market disruption and expanded our agency team, which we have and will continue to see the benefit of as they ramp up and settle into their positions. While increasing market challenges will put pressure on future growth, we believe our ability to shift shares should continue. Turning to our Real Estate Solutions business.
Fred Eppinger: In Q3, we grew revenue by 68% and 7% after removing the impact of two acquisitions we made this year, MCS and NAN. Our adjusted pre-tax margin slipped from 11.3% last year to 10.5% this year. The margin was driven by a significant slowdown in orders and revenue from existing accounts in Informative Research, our credit data business, and in appraisal.
Fred Eppinger: From a strategic perspective, we remain focused on continuing to expand our coverage and servicing of the top 300 lenders. Our suite of products and services is in good position in giving us even a greater ability to cross-sell to win business.
Fred Eppinger: I am pleased that we are able to maintain our double-digit margins in these conditions and believe we will get to low to mid-teen margin delivery through the execution of our strategic priorities in a more stable residential market environment over the next two to three quarters. I believe we are setting a new floor in the residential market that will likely continue into the next quarter.
Fred Eppinger: We will react to market changes by taking needed actions, but we will be careful to retain the resources needed to serve our clients and react to opportunities I believe will come from this disruption. We remain focused on being a resilient company that has a growing portfolio of operations that will deliver shared growth and improving margin performance over the next two to three years. Thank you for your time, attention, and interest in Stewart as an enterprise.
Fred Eppinger: We are dedicated to being the premier title and real estate services company. I am proud to share that in Q3, we delivered our seventh dividend increase in just under six years, raising our annual dividend from $2.10 a share to $2.20 a share. We are committed to strengthening and growing the company for continued long-lasting success while confronting the current challenging conditions. To our customers and agents, thank you for your trust and dedication to Stewart.
Fred Eppinger: We are committed to serving you with excellence. To the Stewart team, I want to thank you for your dedication and perseverance. It takes considerable effort to grow a company, and even more so to confront such challenging residential housing conditions. Thank you for your commitment to the company. I look forward to seeing where we can take this company together.
Fred Eppinger: David, I'll now turn it over to you to provide an update on the results.
David Hisey: Good morning, everyone, and thank you, Fred. I want to thank our employees and customers for their continued support and partnership as we navigate this even more challenging real estate market, with 30-year mortgage rates over 7% since mid-September. Yesterday, Stewart reported Q3 2026 net income of $30 million, with diluted EPS of $0.98, compared to the prior year's quarter net income of $44 million and diluted EPS of $1.55.
David Hisey: On an adjusted basis, Q3 net income was $41 million, or diluted EPS of $1.33, compared to net income of $47 million, or diluted EPS of $1.64 last year. Appendix A of our press release shows adjustments to our consolidated and segment results, primarily related to acquired intangible amortization, acquisition-related expenses, and net realized and unrealized gains, which were used to evaluate operating performance.
David Hisey: In the Title segment, operating revenues increased $31 million or 5%, primarily driven by higher agency and direct commercial revenues. Title operating expenses increased 6%, primarily due to higher revenues and higher employee costs related to select growth investments, while beginning to address the market transition that Fred spoke about. Title pre-tax income in Q3 was $47 million, compared to $62 million last year, while on an adjusted basis, pre-tax income was $52 million, compared to $61 million last year.
David Hisey: In our direct Title business, direct Title revenues increased $6 million or 2%, primarily due to increased commercial transactions. Domestic commercial revenues increased $7 million or 9%, as closed orders improved 18% across multiple asset classes, while average fee per file decreased 8% to $16,300 due to reduced transaction sizes with less data center and energy activity. Domestic non-commercial revenue increased slightly by $3 million or 2%.
David Hisey: Total international revenues were down $4 million or 10%, due primarily to a large commercial transaction last year. On our agency operations, gross agency revenues increased $25 million or 7%, reflecting growth across a majority of our key agency states, including Florida. Net of agent retention, agency revenues improved $5 million or 8% compared to last year.
David Hisey: On title losses, title loss expense for Q3 increased primarily due to higher title revenues, while the title loss ratio was 3.4% comparable to last year. We expect our title losses to average from mid-3% to 4% over a year. In our Real Estate Solutions segment, total revenues increased $80 million or 68%, primarily driven by the MCS acquisition and growth in our credit information and valuation services operations.
David Hisey: RES adjusted pre-tax margin increased by $7 million or 56%, compared to $13 million last year, while adjusted pre-tax margin was 10.4% compared to 11% last year.
David Hisey: On our consolidated operating expenses, our employee cost ratio improved to 26% compared to 27% last year, primarily due to higher operating revenues, while the other operating expense ratio increased to 29% compared to 24%, primarily due to revenue growth in our Real Estate Solutions segment, which typically incurs higher service costs as a percent of revenue and as our Real Estate Solutions segment grows as a percentage of total revenue.
David Hisey: Our financial position remains solid and well-positioned to support our customers, employees, and the real estate market. Total cash and investments was approximately $300 million in excess of statutory reserve fund requirements. Total Stewart stockholders' equity was approximately $1.7 billion, representing book value of approximately $55 per share.
David Hisey: Net cash provided by operations was $47 million compared to $93 million last year, primarily due to lower net operating income and timing of payments related to operating liabilities. Again, thank you to our customers and employees for their continued support. We remain confident in our ability to serve the real estate markets. I will now turn the call over to the operator for questions.
Operator: Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. Our first question today comes from Bose George with KBW. Your line is open.
David Hisey: Good morning, Bose.
Bose George: Hey, Lowell, good morning. Actually, first, just on the commercial side. You guys noted some timing in terms of deals getting pushed out.
David Hisey: Yeah
Bose George: Can you quantify that? Also, are you seeing any broader signs of slowdown in the commercial pipeline, either on higher rates or specifically for the data centers, anything just related to political opposition at the local levels?
Fred Eppinger: Yeah. It's multiple millions that got pushed, Bose. It was meaningful to the quarter. Again, there's no indication it won't close in Q4, but there was some movement. Interesting enough, our pipeline, and you can see from the open orders and stuff, records in commercial, has been really strong for us. I have heard in the marketplace and clearly among agents, I've heard of a slower in the small commercial market.
Fred Eppinger: We have not seen it in our numbers yet, but there is talk that particularly the small business more debt-oriented, there is some slowing. On the data center thing, we have not seen any slowdown at all. Again, it's hard to know what could have been, I guess, considering all the noise you see in the marketplace, but it's a pretty robust portfolio that we see. Again, we haven't seen any slow.
Fred Eppinger: For us, what's odd about us as you know, the last two years we've doubled commercial, so we have a lot of quarters last year that we grew over 40%, 50%. So some of our comparisons are a little odd for growth, but I really like the flow we're seeing. We have the best team we've ever had.
Fred Eppinger: I've been able to make some investments over the last year here, so I continue to see growth opportunity there for the company in the next couple of years.
Bose George: Okay, great. Thanks. Actually, I might have missed the first part, but just on the amount that got pushed, did you give a dollar amount? I sort of missed what you said right at the
David Hisey: I didn't give a specific, but it's multiple million. It's a few million. It's a handful of million. So it's not a small amount, and it's
Bose George: Okay
David Hisey: a handful of transactions.
Bose George: Okay. Okay, great. Actually, just switching over to the Services segment, can you just help us think about the drivers of the increase in expense relative to the revenues? Can you remind us how much of the segment is impacted by rates? You mentioned just the margin outlook for that segment, and how much of that, to the extent we have, say, the market remains at this level into next year, does that change that? Can you just remind us what you said for margins for next year
Fred Eppinger: Yeah
Bose George: for that segment?
Fred Eppinger: Sure. What I have been saying, the portfolio we have, as you know, that portfolio is really made up of three pieces. It is made up of the appraisal business, the credit data, and then the default business. In all three of those now, we are the top three, four players. So we have critical mass, and again, there are some things happening in all those spaces around the importance of technology, and I feel good that we are going to continue to see consolidation and share growth there.
Fred Eppinger: The two that are very sensitive to the residential rate environment are appraisal and the data. The complicating factor, by the way, is that it is worse than just closes. So we have had historical cancellations this quarter, probably up to 15% of the transactions. We have had a big decrease in mortgage applications.
Fred Eppinger: The way in data, for example, in the credit data, we get paid both when the mortgage application gets opened, right? Because some of our work is done in verification of the quality of the credit, et cetera. Then we get paid again at the close, right? So that as the market goes down, you obviously have less revenue. What I call same-store growth. So we have had some new accounts, so we have still continued to grow a little bit.
Fred Eppinger: But we have seen about 6%, 7% reduction in same-store volume, which is the combination of the amount closed files, as you can imagine, but also more cancellations. We have seen a decrease in just the opening of mortgage apps. So that is where your margin goes.
Fred Eppinger: Because if you lose two-thirds of your revenue, which is kind of how to think about it, between the opening of the application and then the closing, as those things cancel, you can see that your revenue is going to go down. In appraisal, same thing. Although we don't do a lot of pre-work in appraisal, most of that work is done afterwards, so you don't have a lot of wasted costs. But we've seen in those two businesses, 4% or 5%, the appraisal part, reduction of volume with our current customers.
Fred Eppinger: That's why the volume. The margin is in that 10%, 10.5%, right? But all I need is a normalized market. I don't need it to go all the way back. I just need it to stabilize so you don't have these deltas and changes, because the changes are what cost you.
Fred Eppinger: Because you're carrying the expense and because you're doing some of the work, and then it goes away. Again, what I've said is that business, even at a 4.1, 4.2 kind of existing home sales, that's going to be about a 13%, 14% margin business. We built the scale. We got the nice mix between the three businesses. This dip is going to, for the next couple of quarters, we're going to see this kind of, in my view, kind of at this level of margin in that business. But I like the long term.
Fred Eppinger: It's a more stable part of our portfolio because of the mix we have now. Again, that's why I say it'll migrate back up, I would say, after the next couple, 2 quarters.
Bose George: Okay. That's helpful.
Fred Eppinger: As you put out
Bose George: Sorry, go ahead.
Fred Eppinger: As you put out that information on FHA delinquencies in some of your reports that are over like 11%, although they have been stabilizing. But the roles to foreclosure are just sort of getting started, and that is where the property preservation business helps. So it is a bit of an offset to what Fred was talking about.
Bose George: Okay, great. But even in a flattish market next year, the margins go back up a few points as this lag kind of goes away.
Fred Eppinger: Yes, I believe so.
Bose George: Okay.
Fred Eppinger: And again, there is a bunch of interesting changes with VantageScore, which we can get in at some point, that is going to position us really well to consolidate and grow share in that market because we have a very unique product and solution for those that transition to them. So I feel very good about the credit data business over the long haul.
Bose George: Okay, great. Thanks a lot.
Operator: Thank you. Once again, if you would like to ask a question, please press star and one on your keypad now. We will go next to Oscar Nieves with Stephens Inc. Your line is now open.
Oscar Nieves: Yeah. Good morning.
Fred Eppinger: Good morning.
Oscar Nieves: My first one is on the recent acquisitions that you announced, the one at the end of Q2 or right at the beginning of Q3 and the ones at the beginning of September. Just wondering if you could walk us through those acquisitions and what we should expect them to add to revenue and earnings and how big those deals were and when they close or if they closed already.
Fred Eppinger: Sure.
David Hisey: Go ahead, Mitch.
Fred Eppinger: Yeah. Hey, Oscar. We did three so far of size this year. We did the appraisal one back in, I think it was April, Nationwide Appraisal, NAN. That just rolls into our Stewart Valuation Intelligence business. The appraisal business that Fred talked about, it just gives a scale. That is one of the things that got us up to now being like a top 3 player there. The other two are in title. ProTitle goes into the CTS segment that Fred talked about. Those both closed on 9/1.
Fred Eppinger: Then Tower Title that he also talked about. They just basically go into their respective businesses, right? CTS will get ProTitle. Commercial will get Tower, and they just add to those businesses. But we said that we typically buy those kind of businesses, that these are title businesses, so 4x to 6x EBITDA.
Fred Eppinger: These are higher margin, so think you are maybe on the higher end. If you just think about all the money we had to deploy at year-end between NAN and these other two, we basically deployed $150 million. You can sort of back into what economics you might be able to get out of that. You will see the acquisitions number in our 10-Q, so it will all be public.
David Hisey: I would say to you, the last two were kind of late in this quarter and had
Fred Eppinger: They were kind of one.
David Hisey: Yeah. It was marginal impact at all on the quarter. In both cases, again, to me, they are really important because Tower gives us this additional capability and infrastructure where I think we are going to have sustained growth in the business, and it covers an area that we were light. On the ProTitle, which is the whole institutional business, one of the things I am doing in the centralized title business is to create a less volatile I am not a big refi guy.
David Hisey: So our centralized title is really a portfolio specialty centralized title. These bring more of the institutional business to us. I feel good about all of these.
Oscar Nieves: Yeah. Super helpful. My next one is, Bill Pulte has made some tweaks recently that have impacted title stocks. There is a lot of nervousness around potential extension to the title waivers. Any incremental commentary on that point?
Fred Eppinger: Yeah. Again, I think what has been said, particularly about the pilot, is kind of old news. Essentially what they did is they expanded the number of lenders that are in it. The coverage is roughly the same. It is a very small subset of refi that is included in the title space. Again, we will see how it plays out. I keep saying if it tests out, the whole thing is going to be pricing, if that makes sense.
Fred Eppinger: We are not really big in the refi market, and I do not think there are many scenarios that I want to be big in the refi market, given the volatility of that business and the low margins that are in it. Again, I do not see it. There is no big expansion from where we are, but the number of, again, lenders that are participating is a little bit bigger.
Fred Eppinger: So again, it does not have much impact on us.
David Hisey: Oscar, the other thing to keep in mind is if you look at our refi orders, like Fred said, we do not really have much in that centralized lender. Most of our refi orders came from customers that we issued a prior Stewart policy on, and they are out in our field operations. So stuff like this does not really impact them that much.
Oscar Nieves: Makes sense. I guess my last one, are you seeing any AI and automation show up in margins yet? Especially as you mentioned earlier that you expect a challenged market over the next few quarters.
Fred Eppinger: Yeah, it's interesting. It's a great question, Oscar, because I'm feeling pretty bullish on our AI initiatives. I think the financial impact is going to take 18 months to kind of see kind of the robust financial impact, although we are seeing it today, particularly in the search area. Again, we've got some really interesting things that we're doing there.
Fred Eppinger: I think the search area is the place where there's the greatest opportunity for efficiency and accuracy and what I consider better turnaround time, for instance, for our agents, which I think matters to the combined economics. So yeah, I'm pretty bullish. The other thing, obviously, we did the Virtual Underwriter, and we have now limited it to our agents, which actually helps their efficiency in work when they do the clearing of title and the underwriting of policies as an agent.
Fred Eppinger: Again, I think I mentioned to you, we have over 100 initiatives, and frankly, there's 50 that are penciling already operationally that we track returns on.
Fred Eppinger: It's early days, but it is, in my view, going to be helpful, particularly if you see the residential market sit at 4/1 longer, which I think people are talking about. I think over the next four to six quarters, it's going to be very helpful to us to manage expenses. Again, I think it also is really good about quality, some of the quality of delivery, and some of the consistency of turnaround, which is really what, particularly the agency channel, they really appreciate.
Oscar Nieves: Thank you. Very helpful.
Operator: Thank you. Once more, if you would like to ask a question, please press star and one on your keypad now. At this time, there are no additional questions in queue. I will now turn the meeting back to Fred for any additional or closing remarks.
Fred Eppinger: I want to thank everybody for their interest in Stewart and appreciate you joining us on the call.
Operator: Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
