Q2 2019 Earnings Call

July 25, 2019

Greetings and welcome to the first American Financial Corporation second quarter earnings Conference call.

Operator: Greetings, welcome to the First American Financial Corporation Q2 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A copy of today's press release is available on First American's website at www.firstam.com/investor. Please note that the call is being recorded and will be available for replay from the company's investor website and for a short time by dialing 877-660-6853 or 201-612-7415, and enter the conference ID 13692064. We will now turn the call over to Craig Barberio, Vice President, Investor Relations, to make an introductory statement.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

A copy of todays press release is available on first Americans website at Www Dot first I am dot com.

Forward Slash Investor. Please note the call is being recorded and will be available for replay on the company's investor website and for a short term short time by dialing 870 766 06853.

For 20161 to 7415 and enter the conference I'd 1369 to the Euro six four.

Well now turn the call over to Craig Barbaria, Vice President Investor Relations to make an introductory statement.

Craig Barberio: Good morning, everyone, welcome to First American's Earnings Conference Call for Q2 2019. Joining us today will be our Chief Executive Officer, Dennis Gilmore, and Mark Seaton, Executive Vice President and Chief Financial Officer. Some of the statements made today may contain forward-looking statements that do not relate strictly to historical or current fact. These forward-looking statements speak only as of the date they are made, and the company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these risks and uncertainties, please refer to this morning's earnings release, risk factors discussed in our Form 10-K, and subsequent SEC filings.

Good morning, everyone and welcome to first Americans earnings Conference call for the second quarter of 2019.

Joining us today will be our chief Executive Officer, Dennis Gilmore, and marketing Executive Vice President and Chief Financial Officer.

Some of the statements made today may contain forward looking statements that do not relate strictly to historical or current fact.

These forward looking statements speak only as of the date. They are made and the company does not undertake to update forward looking statements to reflect circumstances or events that occur. After the date. The forward looking statements are made.

Risks and uncertainties exist that may cause results to differ materially from those set forth in any forward looking statements.

For more information on these risks and uncertainties. Please refer to this morning's according to many factors discussed in our Form 10-K , and subsequent SEC filings.

Craig Barberio: Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. For more details on these non-GAAP financial measures, including presentation with, and reconciliation to, the most directly comparable GAAP financials, please refer to this morning's earnings release, which is available on our website at www.firstam.com. I will now turn the call over to Dennis Gilmore.

Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the Companys competitors.

For more details on these non-GAAP financial measures, including presentation with and reconciliation to the most directly comparable GAAP financials. Please refer to this morning's earnings release, which is available on our website at www Dot first am dot com.

I will now turn the call over to Dennis Gilmore. Thank you Craig Good morning, and thank you for joining our call.

Dennis Gilmore: Thank you, Craig. Good morning. Thank you for joining our call. I'll begin with a review of our Q2 results and then discuss our outlook for the remainder of 2019. The company delivered outstanding financial results Q2. Q2 earnings were $1.64 per share, or $1.58 per share, excluding net realized investment gains. Low interest rates continue to strengthen the purchase market, drive substantial growth in refinance activity, and support a healthy commercial market. The title segment delivered a record pretax margin of 17%, or 16.5%, excluding net realized investment gains. Strong expense management and growth in our investment income drove improvements in our earnings and margin. The title segment's revenues were flat. Our refinance revenues were up 34%.

I'll begin with a review of our second quarter results and then discuss our outlook for the remainder of 2019.

The company delivered outstanding financial results this quarter.

Second quarter earnings were $1.64 per share or $1.58 per share excluding net realized investment gains.

Well when interest rates continue to strengthen the purchase market.

Drive substantial growth in refinance activity that support a healthy commercial market.

The title segment delivered a record pre tax margin of 17%.

Our 16.5%, excluding net realized investment gains.

Strong expense management and growth in our investment income drove improvements on our earnings and margin.

The title segment's revenues were flat.

Well, we finance revenues were up 34% a purchase revenues declined 2% and improvement from recent trends our commercial revenues were down 2%.

Dennis Gilmore: Our purchase revenues declined 2%, an improvement from recent trends, and our commercial revenues were down 2% compared with last year, in line with our expectations. Our specialty insurance segment delivered strong results, driven by performance of our home warranty business, which had lower claim losses due to lower claim frequency and severity. The overall segment benefited from a decline in the loss ratio to 56.4%, driving a pretax margin of 12.8%, compared with 8.4% last year. As we previously announced, we have completed our investigation into the consumer impact of our recent information security incident. Though the investigation identified only 32 impacted consumers, we take seriously our responsibility to keep our customers' information secure, and we regret the concerns this incident caused. Turning to the outlook.

Compared with last year in line with our expectations.

Our specialty insurance segment delivered strong results driven by performance of our home warranty business, which had lower claim losses due to the lower claim frequency and severity.

The overall segment benefited from a decline in the loss ratio to 56.4% driving a pre tax margin of 12.8% compared with 8.4% last year.

As we previously announced we have completed our investigation into the consumer impact of our recent information security incident.

No the investigation identified only 32 impact to consumers.

We take seriously our responsibility to keep our customers information secure and we regret the concerns this incident cost.

Turning to the outlook the strong economy, and lower mortgage rates continue to drive improvement in the market.

Dennis Gilmore: The strong economy and lower mortgage rates continue to drive improvement in the market. We are encouraged by July's open order trend. Purchase orders are up 4%, driven by strength in new home orders. Refinance orders are up 65%, which bodes well for the residential market in the second half of the year. In addition, we expect continued strong performance from our commercial business. Although the anticipated reduction of the fed funds rate will impact our investment income, given current market business conditions and the efficiencies of our operation, we expect to deliver strong financial results in the second half of the year. I'll now turn the call over to Mark for a more detailed review of our financial results.

We are encouraged by July's open order trend.

Purchase orders were up 4% driven by strength in new home orders.

Refinance orders are up 65%, which bodes well for the residential market and the second half of the year. In addition, we expect continued strong performance from our commercial business.

Although the anticipated reduction of the fed funds rate will impact our investment income given current market business conditions and the efficiencies of our operation we expect to deliver strong financial results in the second half of the year I'll now turn the call over to Mark for a more detailed review of our financial results.

Thank you Dennis.

Mark Seaton: Thank you, Dennis. In the title insurance and services segment, direct premium and escrow fees were up 1% compared with last year. This increase reflects a 1% increase in the average revenue per order, with the number of direct title orders closed flat relative to last year. The average revenue per order increased to $2,620, primarily due to higher residential real estate values, partially offset by a shift in the mix of direct revenues to lower premium refinance transactions. The average revenue per order for purchase transactions increased 3%, while the average revenue per order for commercial transactions increased 1%. Agent premiums, which are recorded on approximately a one-quarter lag relative to direct premiums, were down 3%. The agent split was 78.9% of agent premiums.

In the title insurance and services segments direct premium in escrow fees were up 1% compared with last year.

This increase reflects a 1% increase in the average revenue per order with a number of direct title orders closed flat relative to last year.

The average revenue per order increased to $2620.

Primarily due to higher residential real estate values, partially offset by a shift in the mix of direct revenue to lower premium refinanced transactions.

The average revenue per order for purchase transactions increased 3%, while the average revenue per order for commercial transactions increased 1%.

Agent premiums, which are recorded on approximately a one quarter lag relative to direct premiums were down 3%. The agent split was 78.9% of agent premiums.

Mark Seaton: Information and other revenues totaled $198 million, down 4% compared with last year. The decline was primarily due to lower revenues from the company's centralized lender businesses and international operations. Investment income within the title insurance and services segment was $71 million, up 37%. The increase resulted from higher average balances and rising short-term interest rates that drove higher interest income in the company's investment portfolio and cash balances. Short-term rates impact our escrow deposits, operating cash, 1031 exchange business, and our bank, where we held $4.2 billion in cash and debt securities as of 30 June. Personnel costs were $423 million, down 1% from the prior year. The decrease was due to lower salary expense, driven by lower average headcount during the quarter.

Information and other revenues totaled 198 million down 4% compared with last year. The decline was primarily due to lower revenues from the companys centralized lender businesses and international operations.

Investment income within a title insurance and services segment was 71 million up 37%.

The increase resulted from higher average balances and rising short term interest rate that drove higher interest income and the companys investment portfolio and cash balances.

Short term rate impact or its sort of positive operating cash penthirty when exchange business and our bank, where we held 4.2 billion in cash and debt securities as of June 30.

Personnel costs were $423 million down 1% from the prior year. The decrease was due to lower salary expense driven by lower average head count during the quarter.

Mark Seaton: Other operating expenses were $194 million, down 4% from last year. The decline was due to lower production and office-related expenses. The provision for policy losses and other claims was $44 million, or 4.0% of title premiums and escrow fees, unchanged relative to the prior year. The current quarter rate reflects an ultimate loss rate of 4.0% for the current policy year, with no change in loss reserve estimates for prior policy years. Pretax income for the title insurance and services segment was $233 million in Q2, compared with $210 million in the prior year. Pretax margin was 17.0%, compared with 15.3% last year. Excluding the impact of net realized investment gains and losses, pretax margin was 16.5% this quarter, compared with 15.1% last year.

Other operating expenses were $194 million down 4% from last year. The decline was due to lower production and office related expenses.

The provision for title policy losses, and other claims was $44 million or 4.0% a title premiums and escrow fees unchanged relative to the prior year. The current quarter rate reflects an ultimate loss rate of 4.0% for the current policy year with no change in loss reserve estimates for prior policy years.

Pre tax income for the title insurance and services segment was 233 million in the second quarter compared with $210 million in the prior year pre tax margin was 17.0% compared with 15.3% last year, excluding the impact of net realized investment gains and losses pre tax margin was 16.5% this quarter compared with 15.1% last year.

Mark Seaton: Net expenses in the corporate segment were $19 million, up 7% compared with last year. This quarter, we incurred $1.7 million related to the information security incident. Expenses associated with the incident are recorded in the corporate segment. Although we will incur additional expenses related to this incident, we expect them to be immaterial. The effective tax rate for the quarter was 18.4%, lower than our normalized rate of 24%, primarily due to the resolution of state tax matters from prior years. Cash provided by operations was $267 million, up from $211 million in the Q2 2018. In April 2019, we entered into a new five-year, $700 million senior unsecured credit agreement.

Net expenses in the corporate segment were $19 million up 7% compared with last year.

This quarter, we incurred 1.7 million related to the information security incident.

Expenses associated with the incident are recorded in the corporate segment.

Although we will incur additional expenses related to this incident, we expect them to be immaterial.

The effective tax rate for the quarter was 18.4% lower than our normalized rate of 24% primarily due to the resolution of a state tax matters from prior years.

Cash provided by operations was 267 million up from $211 million in the second quarter of 2018.

In April 2019, we entered into a new five year $700 million senior unsecured credit agreement.

Mark Seaton: As of June 30th, outstanding borrowings under the facility totaled $160 million. Notes and contracts payable on our balance sheet totaled $730 million as of June 30th, which consists of $547 million of senior notes, $160 million on our credit facility, $18 million of trust deed notes, and $5 million of other notes and obligations. Our debt-to-capital ratio as of June 30th was 18.4%. I would now like to turn the call back over to the operator to take your questions.

As of June Thirtyth June Thirtyth outstanding borrowings under the facility totaled 160 million.

No 10 contracts payable on our balance sheet totaled 730 million as of June Thirtyth, which consists of 547 million of senior notes 160 million on our credit facility 18 million of trustee notes and $5 million of other notes and obligations our debt to capital ratio as of June Thirtyth was 18.4%.

I would now like to turn the call back over to the operator to take your questions.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes to the line of Mark DeVries from Barclays. Please-

Thank you we will now be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

One moment, please while the poll for questions.

Our first question comes the line of Mark Devries from Barclays. Please.

Yes. Thanks.

Mark DeVries: Yeah, thanks. Mark, how should we think about expenses in the back half of the year? I know you guys had, you know, late last year, early this year, been cutting costs and then had the surge in refinance activity that obviously helped the margin, you know, this quarter. Should we expect, all other things being equal, a little bit of pressure on the margin as you need to staff up, or are you in a good position right now on the expense side?

Mark how should we think about.

Expenses in the back half of your I know you guys had no late last year early this year been been cutting costs and then how the surge in refinancing activity that obviously helped the margin.

You know this quarter should we expect all other things being equal a little bit of pressure on the margins you need to staff up or.

Where are you in a good good position right now and expense.

Yes, Mark this is actually done it so yes, we did to manage our expenses aggressively in the second half and our headcounts down 8% from last year.

Dennis Gilmore: Yeah, Mark, this is actually Dennis. We did manage our expenses aggressively in the second half. Our headcount is down 8% from last year. Right now, our staffing levels out there are lean relative to our current order activities. We continue to utilize our seasonal workforce very aggressively. We're utilizing temps and overtime. Right now, with the current order volumes, we do not expect to increase our headcount significantly in Q3.

Right now our staffing levels I'd say, our lean relative to our current quarter activities and we continue to utilize our seasonal workforce very aggressively we are utilizing thompson overtime. So right now and with the current order volumes, we do not expect to increase our headcount significantly in the third quarter.

Okay great.

Mark DeVries: Okay, great. Are there any kind of residual issues that you need to deal with here from the information security issues that we need to think about?

And then are there any any kind of residual issues that you need to deal with here.

From from information security issues that we need to think about.

Dennis Gilmore: Really, I put them in two buckets. We'll have, you know, we'll have some small costs roll through in Q3, but our intent will not to be to highlight them. Because of the headline nature of what happened, we'll be very actively, aggressively defending the lawsuits, and we work cooperatively with the regulators. That, that'll be the tail event.

I really I put it in two buckets, we'll have we'll have some small cost will throw in the third quarter, but aren't that will not to be to highlight them.

We'll actively because of the headline nature of what happened.

We will be very actively aggressively defending lawsuits and we work cooperatively with the regulators so that will be the tail event.

Okay got it all right. Thank you.

Mark DeVries: Okay, got it. All right. Thank you.

Dennis Gilmore: Mm-hmm.

Our next question comes line of Bose George from KBW. Please proceed with your question.

Operator: Our next question comes the line of Bose George from KBW. Please proceed with your question.

Mark Seaton: Hey, guys. Good morning. Actually, just wanted to follow up on the sort of margin outlook, really, for the back half of the year and for the year. I mean, your historic range, you've talked about the 11 to 13. You know, with the expenses potentially pretty stable in the back half of the year, I mean, could you know, hit the 14 level for the full year?

Hey, guys good morning.

I actually just wanted to follow up on the sort of expand margin outlook really for the back half of the year and for the year.

I mean, your historic range, you've talked about the 11 to 13.

You know with the expenses potentially pretty stable in the back half of the year.

I mean could you hit the 14 level for the full year.

Dennis Gilmore: Yeah. I probably won't give you an exact number, but, you know, we, I think, as you know, we've been very focused on growing our margin over the last 5 years, and we've been successful, really, regardless of the market outlook. I think when we enter the second half right now, purchase is going to be less of a headwind, which is good for us. There's no question we're benefiting from, I would call it, a little bit of a surprise from the refinance, and we have a very strong commercial market going forward. Right now, sitting here, we think we can exceed last year's margin in 2019.

Yes, I, probably won't give you an exact number but we I think as you know we've been very focused on growing the margin over the last five years and we've been successful really regardless of the market outlook.

And I think when we enter the second half right now purchase is going to be less of a headwind which is good for us and there's no question. We're benefiting from I would call a little bit of a surprising to refinance and we have a very strong commercial market going forward. So right now sitting here, we think we can exceed last year's margin and 19.

Mark Seaton: Okay, great. Thanks. Actually, just on the other segment, the corporate segment, you know, what's a good run rate for the, you know, just the ex-expenses out of that segment? Bose, it's Mark. When you look, you know, historically, we've been really, really consistent at $18 million a quarter. I mean, there's not a lot of volatility. This quarter, we were $19 million because, again, we pushed all the costs of the information security incident there. I think somewhere between $18 and $19 over the next few quarters is a good assumption.

Okay, great. Thanks, and then actually just on the other segment the corporate segment, what's the good run rate for the.

You know just the expenses out of that segment.

Bose its mark so when you look historically, we've been really really consistent.

18 million a quarter I mean, there's not a lot of volatility this quarter, we were $19 million because again, we pushed all the.

Cost of the information security incident, there so.

I think it's somewhere between 18 and 19 over the next few quarters is a good assumption.

Dennis Gilmore: Okay, thanks. Actually just on the specialty insurance segment, you know, can you talk about the outlook there, in, just in terms of the margins?

Okay. Thanks, and then actually just on the specialty insurance segment.

Can you talk about the outlook there.

It just in terms of the margins.

Yes, I think we will continue to improve there also we had a very strong second quarter for our home warranty business.

Mark Seaton: Yeah, I think we'll continue to improve there also. We had a very strong Q2 for our home warranty business. Our claims frequency and severity were down there. We did get a little bit benefit from the weather in Q2. Q3 typically will be another more difficult quarter for that business. I think we'll do well, and our P&C continues with its turnaround efforts. I think we'll have another good second half to the year for the specialty group. Okay, great. Thanks.

But our claims frequency and severity were down there, we did get a little bit benefit from the weather.

And the second quarter.

Third quarter typically it will be another more difficult quarter for that business, but I think we'll do well and our PNC continues with its turnaround efforts. So I think we'll have another good second half to the year for the special group.

Okay, great. Thanks.

Our next question.

Operator: Our next question. Our next question comes to the line of Jason Deleeuw from Piper Jaffray. Please proceed with your question.

Our next question comes from.

Sorry.

Our next question comes line of Jason Dulgheru from Piper Jaffray. Please proceed with your question.

Hi, Thanks for taking the question and good work on the quarter.

Jason Deleeuw: Thanks for taking the question and good work on the quarter. Question on the 11% to 13% title pretax margin goal. I know it's a couple of years old, but when would you update that? How are you thinking about that, kind of when you're thinking about the long-term margin potential of the company? If you could just kind of give us some of your high-level thoughts on that margin range, and, you know, when would you consider adjusting that range?

Question on the 11% to 13% a title pre tax margin goal I know, it's a couple of years old but.

Would you.

When would you update that or how are you thinking about that kind of when you're thinking about the long term margin potential of the company.

If you could just kind of give us some of your high level thoughts on that margin range and when would you consider adjusting that range.

Thanks for the question, Jason what I would say is when we when we first develop that range at Investor Day last year, we talked about this 11% to 13% margin entitle, but that assumes a mortgage market of one for one aid with about a 25% refine mix.

Mark Seaton: Well, thanks for the question, Jason. What I would say is, when we first developed that range at Investor Day last year, we talked about this 11% to 13% margin in title, but that assumes a mortgage market of 1.4 to 1.8, with about a 25% refi mix. That's kind of where 2019 is turning out to be. Now, we're operating kind of at the high end or even exceeding that level for a couple of reasons. One is investment income has been higher than we thought, and the second thing, I think, is commercial has been better than what we thought versus, you know, when we were back in Investor Day.

And that's kind of where 2019 is turning out to be now we're operating I'm kind of at the high end or even exceeding that that level for a couple of reasons. One is investment income has been higher than we thought and the second thing I think its commercial has been better than what we thought versus when we were back in Investor day, and so I think we'll kind of wait till the year plays out then we'll we'll we'll considering that we will consider updating the range you know perhaps next year.

Mark Seaton: I think we'll kind of wait till the year plays out, and then we'll consider it, and we'll consider updating the range, perhaps next year.

Okay. Thanks for that and and then on the investment income and it looks like we will get a fed rate cuts. What are you expecting in terms of a fed rate cuts and just interest rates and any investment income dollars is there any help you can give us some thinking about that going forward.

Jason Deleeuw: Okay, thanks for that. On the investment income, it looks like we will get a Fed rate cut. What are you expecting in terms of Fed rate cuts and just interest rates and the investment income dollars? Is there any help you can give us in thinking about that going forward?

So initially when the fed started raising rates you know we'd guidance to this 12 million the increase in our annualized investment income for every rate increasing we've actually gotten more like 15 million and that's what we've guided the last several quarters, just because mainly because our balances have risen.

Mark Seaton: Initially, when the Fed started raising rates, you know, we guided to this $12 million increase in our annualized investment income for every rate increase. We've actually gotten more like $15 million, that's what we've guided the last several quarters, mainly because our balances have risen, right? We've really consistently got $15 million of annualized income every time the Fed has risen. The question is, what happens when the Fed cuts, which is widely expected? You know, it's hard to say exactly, but we feel like we can beat that $15 million. We don't think it's going to go down quite that much for a couple reasons. One is just the strategic nature in which we manage our deposits.

Right. So we've really consistently got 15 million of annualized income Everytime definitive has risen now the question is what happens when when the fed cuts, which is widely expected and.

It's hard to say exactly but we feel like we can we can beat that 15 million. We don't think its going to go down quite that much for a couple of reasons one is.

Just the strategic nature in which we manage our deposits and the second one is really in the last six months Weve gone to more of a fixed rate strategy and some of our portfolio specifically the banking or insurance company and so we've shifted from floating rate securities to fixed rate, which I think is going to help us. So now as we sit here today.

Mark Seaton: The second one is really in the last 6 months, we've gone to more of a fixed rate strategy in some of our portfolios, specifically the bank and our insurance company. We've shifted from floating rate securities to fixed rate, which I think is going to help us. Now, as we sit here today, you know, if the Fed cuts, we're expecting somewhere between, like, a $12 to $15 million decrease in our investment income, and that assumes the deposit levels are, you know, steady, consistent where they are today.

You know, it's a fed cuts, we're expecting somewhere between like a 12 to 15 million.

Decrease in our investment income and that assumes the deposit levels or.

You know steady consistent where they are today.

That's very helpful. Thanks, and just a last question on the commercial your National commercial revenue was down a little bit your large competitors was was up a little bit.

Jason Deleeuw: That's very helpful. Thanks. Just the last question on the commercial. Your national commercial revenue was down a little bit. Your large competitors was up a little bit. Is there anything going on with market share or just kind of timing of deals? Did anything get shifted quarter-to-quarter? Any color on kind of the commercial revenue trends?

Is there anything going on with market share or just kind of timing of deals and anything get shifted quarter to quarter. It any color on kind of the commercial revenue trends yeah. Thanks for the question Yeah, We had a very good commercial quarter and actually and done.

Dennis Gilmore: Yeah. Thanks for the question. Yeah, we had a very good commercial quarter, actually. We started the year, we actually thought we'd be down a little in commercial as we got it to. We're actually performing better than that. Specifically to the quarter, it was a timing issue. We did not close a few large deals that will probably spill over into Q3. Regarding market share, actually, we think we're picking up market share right now. Overall, very strong fundamentals in commercial. We think we'll have another very good second half to the year.

We started the year, we actually thought we'd be down a little in commercial as we guided last year, and we're actually performing better than that specifically to the quarter. It was a timing issue. We had we did not close a few large deals it will probably spill over into the third quarter and regarding market. You actually think we're picking up market share right. Now. So overall very strong fundamentals in commercial we think we'll have another very good second half of the year.

Jason Deleeuw: Okay. Thank you very much.

Okay. Thank you very much.

Operator: Our next question comes from the line of Mark Hughes from SunTrust. Please proceed with your question.

Our next question comes line of Mark Hughes from Suntrust. Please proceed with your question.

Mark Hughes: Thank you very much. On the other operating expenses, anything on the data capture or processing front, that you're getting some incremental efficiencies that are helping to drive that down, that may be more durable, you may see more of it?

Thank you very much on the other operating expenses anything on the data capture or processing front I'm not sure if you're getting some incremental efficiencies that are helping to drive that down that maybe maybe more durable you may see more of it.

Hi, Mark.

Mark Seaton: Hi, Mark. you know, I would say that we are getting some benefit on some of the, you know, the automation that we've put into some of our processes, specifically on the centralized refi business. I wouldn't say it's, you know, material at this point. you know, when you look at our overall title segment, the cost savings is not significant, but it's, we're still early in that, and we hope it'll, you know, grow over time.

No we.

I would say that we are getting some benefit on some of the the automation that we put in to some of our processes specifically on the centralized re Fi business I wouldn't say, it's you know material at this point. So you know when you look at our overall title segment. The beyond the cost savings is not significant but we but we're still early in that and we hope it will grow over time.

Dennis Gilmore: Yeah, I would only add, the early returns for this automation effort we've rolled out in our central group is good, and it's absolutely helping us deal with the current volume surge, and I think those benefits will grow over time.

Yeah, and I would only add the early returns for this automation efforts, we've rolled out in our Central group is good and it's absolutely helping us deal with the current volume surge.

And I think those benefits will grow overtime.

And then the.

Mark Hughes: The, in the specialty business, the decline in frequency and severity, would you say that was weather perhaps, or just normal variability? Do you think underwriting made a difference in the quarter?

In the specialty business the decline in frequency and severity.

Would you say that was whether perhaps or a.

There are just normal variability do think under underwriting or made a difference in the quarter.

Dennis Gilmore: It's, you know, great question. It's really all of the above. We continue to do a very good job in underwriting. We continue to do a very good job in claims management, and we had some benefit from a relatively mild weather pattern so far in some of our key markets. It's all of the above.

Yes, great question, it's really all of the above we continue to do a very good job in underwriting we continue to do a very good job in claims management and we had some benefit from the relatively mild.

Weather pattern, so far and some of our key markets. So it's all of the above.

Mark Hughes: Finally, the July purchase orders are up, and looking at your early commentary last year, I think you were down 1% through this period. I assume the comparisons just get easier from here. Any way to comment on kind of the trajectory as when you reflect on how last year played out on purchase orders?

And then finally the July purchase orders are up and looking at your.

Early commentary last year.

I think you were down 1% through this.

Period.

The I assume the comparisons just get easier from here any way to comment on kind of the trajectory is that when you reflect on how last year played out on purchase orders.

Dennis Gilmore: Yeah, thanks for the question. No question, it's getting better for us right now. I think the spring selling season, I would classify it, as really in line with our expectations, maybe slightly better, actually. You know, when we started the year, we had actually controlled our costs very aggressively, thinking we were going to go through the resetting of the market. I think that's still happening. Sitting here today, the economy is still very strong for us. I think the housing's really moving to that more balanced position in our opinion. You know, early in July, we're up 4%, but a lot of that's being driven by the volatility of new homes. Our new homes are up a lot right now.

Yeah, Yeah. Thanks for the question no question, it's getting better for US right now I think the spring selling season I would classify it as really in line with our expectations, maybe slightly better actually when we started the year, we had actually controlled our costs very aggressively thinking we were going to go through the resetting of the market I think thats still happening, but sitting here today. The economy is still very strong for us.

I think the housing is really moving to that more balanced position in our opinion.

Early in July were up 4%, but but a lot of that's being driven by the volatility of new homes, our new homes are up a lot right now.

Dennis Gilmore: What's really interesting to us is the resale is up 1% right now, so far in July, which is a really good sign, and we're entering the back half of our comps get a lot easier. All in all, we think actually, the purchase will be definitely less of a headwind going into the second half.

What's really interesting to us is the resales up 1% right now so far in July which is a really good sign and we're headed we're entering the back half of their comps get a lot easier. So all in all we think actually the purchase will be definitely less of a headwind going into the second half.

Thank you.

Soham Bhonsle: Thank you.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Chris Gamaitoni from Compass point. Please proceed with your question.

Operator: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes to the line of Chris Gamaitoni from Compass Point. Please proceed with your question.

Operator: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes to the line of [Chris Gamaitoni from Compass Point]. Please proceed with your question.

Matt Garrioso: Hi, good morning. This is Matt Garrioso on for Chris. Thanks for taking the question. Just one on centralized lender. You noted lower revenue year-over-year, despite the spike of refis. Is there anything to call out here, or, could you expand on some commentary? Thanks.

[Analyst] (Compass Point): Hi, good morning. This is Matt Garrioso on for Chris. Thanks for taking the question. Just one on centralized lender. You noted lower revenue year-over-year, despite the spike of refis. Is there anything to call out here, or, could you expand on some commentary? Thanks.

Hi, Good morning. This is Matt so on for Chris. Thanks for taking my question just one on centralized lender you noted lower revenue year over year. Despite the spike of revised is there anything to call out here.

Could you expand on some commentary thanks.

Yes, so our refining business large centralized lender business isn't just originations, which are kind of refining title orders. We also have other businesses in there, including default and default continues to decline.

Mark Seaton: Yeah. Well, our centralized lender business isn't just, you know, originations, which are kind of refi title orders. We also have other businesses in there, including default, and default continues to decline. It's really just a mix of default versus our origination business.

So it's really just a mix of default versus origination business.

Thanks.

Matt Garrioso: Thanks.

[Analyst] (Compass Point): Thanks.

Mark Seaton: Thank you.

Thank you.

Operator: Our next question comes from the line of Mackenzie Aron from Zelman & Associates. Please proceed with your question.

Our next question comes line of Mackenzie Aron from Zelman and Associates. Please proceed with your question.

Mackenzie Aron: Thanks. Good morning. Just one question on the capital situation, given that the debt to cap is at somewhere at the low end of the 18% to 20% target you all have talked about. Can you just talk about how you think about the opportunity right now, whether it's to increase the dividend or look at buybacks, or if there are strategic acquisition opportunities on the table? How are you thinking about capital allocation over the next year or so?

Thanks, Good morning.

Just one question on the capital situation given the debt to cap is that somewhere at the low end of that 18% to 20% target you all talked about.

Can you just talk about how you think about the opportunity right now whether it's to increase the dividend or look at buybacks or if they're strategic acquisition opportunities on the table. How are you thinking about capital allocation over the next year or so.

Sure Mckenzie I'll start with that.

Mark Seaton: Sure, Mackenzie, I'll start with that. First of all, you know, when we talk about a target debt to cap of 18% to 20%, and we are at the low end of that range, which is a good, comfortable place to be, I think, at this point in the cycle. You know, at the end of the day, we're trying to invest as much as we can in our core business, either through organic projects that will, you know, help build a moat around our business or through M&A. If we can invest at adequate returns for our shareholders, organically or through M&A, we'll do that all day long. To the extent that we can't, we pay dividends, and occasionally we buy back shares. The dividend is something that's really important to us.

First of all we're talking about our target debt to cap of 18% to 20% and we are at the low end of that range, which is a good comfortable place to be I think at this point in the cycle.

At the end of the day, we're trying to invest as much as we can in our core business either through organic.

Projects that will help build a moat around our business or through through M&A.

And if we can invest.

At adequate returns for our shareholders organically or through M&A, we will do that all day long.

And to the extent that we can't we paid dividends and occasionally we buy back shares the dividend is something that's really important to us we've been raising it very aggressively really since probably the last five years or even longer. So we want to pay a healthy dividend, it's really important to us we buy back stock and occasionally not frequently but occasionally.

Mark Seaton: We've been raising it very aggressively, you know, really since probably the last five years or even longer. We want to pay a healthy dividend. That's really important to us. We buy back stock occasionally, not frequently, but occasionally. That's kind of like, you know, our thought process going forward. We like the debt to cap where it is right now based on where we are in the cycle.

And so those are the that's kind of my thought process going forward, but we like we like the debt to cap where it is right now based on where we are in the cycle.

Dennis Gilmore: Yeah, I'd only add on the deal front. It's been relatively a quiet first half of the year for us, but we've actually got a pretty healthy pipeline of deals we're evaluating right now. Our strategy, just so everybody's clear, is pretty consistent. We're looking to acquire title agencies in key markets. We're looking to buy data and information companies to help with title automation. We're looking at either acquisitions or minority investments, a little outside of our core, but very complementary to title. Good pipeline, and as always, we'll be disciplined on our deployment as long as we can get the returns.

I'd only add on the deal front, it's been relatively quiet first half of the year for us, but we've actually got a pretty healthy pipeline of deals. We're evaluating right now and our strategy is just so everyone is clear is pretty consistent we're looking to acquire title agencies in key markets were looking to buy data and information companies to help a title automation and we're looking to either acquisitions or minority investments a little outside of our core of a very complementary the title. So good pipeline and as always we'll be disciplined on our deployment as long as we can get the returns.

Mackenzie Aron: Great. Thank you.

Great. Thank you.

Mark Seaton: Thank you.

Thank you.

Operator: Our next question comes the line of Jack Micenko from SIG. Please proceed with your question.

Our next question comes line of Jack that's missing co from ESI Ji. Please proceed with your question.

Soham Bhonsle: Hey, good morning, guys. This is actually Soham Bhonsle on for Jack this morning. My first question was on average revenue per order. The growth there seemed to slow a little bit this quarter, just given the refi mix. In your comments, you also showed some confidence around commercial volumes going forward. Are you calling for better commercial volume to maybe offset some of that refi mix impact? How should we sort of think about that dynamic going forward?

Hey, Good morning, guys. This is actually saw mostly on for Jack This morning.

So my first question was on average revenue per order the growth there seemed to slow a little bit this quarter, just given the refi mix.

But in your comments you offer so showed some confidence around commercial volumes going forward.

So are you calling for better commercial volume to maybe offset some of that re fi mix impact how should we sort of think about that dynamic going forward.

Well, if you're looking at kind of like our title segment.

Mark Seaton: Well, if you're looking at kind of like our title segment, average revenue per order, including all the business lines, you know, we expect it to decline next quarter just simply because of the mix of refi versus purchase. Obviously, refis are doing well. We're going to close more refis next year, and that's going to put some pressure on our refi per order. Typically in Q4, it rises because commercial is a strong quarter, usually in Q4. We think it could rebound in Q4. The way we look at it and manage the business, we don't really look at kind of the consolidated fee profile. We break it out, purchase, refi, and commercial, and look at it by individual business lines.

Average revenue per order, including all the business lines.

We expect it to decline next quarter, just simply because of the mix of refining versus purchase obviously refunds are going well when close more refinance next year and that's going to put some pressure on our refining per order and then typically in the fourth quarter it rises because commercial.

Is a strong quarter, usually in the fourth quarter and so we think it could rebound in the fourth quarter.

We don't <unk> the way, we look at it and manage the business. We don't really look at kind of the consolidated fee per file we break it out purchase refining and commercial and looked at it by individual business lines.

Mark Seaton: This quarter, our purchase, average fee profile was up 3% versus last year, mainly just because housing prices have continued to risen. I think that was in line with our expectations. Our refinance fee profile was up 15% versus last year, which is up more than it typically is for, just because, again, housing prices are rising. We've raised rates a little bit, but I think the refi fee profile of 15% has really been a big benefit to us. Finally, commercial, the fee profile was flat just because the size of the deals that we're doing in Q2 were similar to what they were last year. That's more of how we look at it on a, you know, fractured basis.

And this quarter our purchase.

Average fee per file was up 3% versus last year, mainly just because housing prices have continued to vision.

And so I think that was in line with our expectations, our refinance fee per file was up 15% versus last year, which is up.

More than it typically is for just because again housing prices are rising we've raised rates a little bit, but I think the refi fee per file of 15% as it has been a big benefit to us and finally commercial the fee per file was was flat just because the size of the deals that we're doing in the second quarter were similar to what they were last year. So thats more of how we look at it on a.

You know fractured basis.

Soham Bhonsle: I guess, sort of just piggybacking off of that longer-term, I mean, average revenue per order, sort of where is that trend? Do you see that sort of in the, you know, mid-single-digit range or low single digits? Where do you sort of see that going?

I guess sort of just piggybacking off of that longer term commercial fee per average revenue per order.

Sort of where that trend do you see that sort of in the.

Mid single digit range or low single digits, where do you sort of see that going.

You're talking about when you when you lump purchasing commercial and Wi Fi altogether, just the commercial side sorry.

Mark Seaton: You're talking about when you, when you lump purchase and commercial and refi all together?

Soham Bhonsle: Just the commercial side, sorry.

Mark Seaton: I'm sorry, just commercial. It really all depends on the size of the deals. We're still in a really strong commercial environment. Our fee for filing commercials is consistently been out for probably six, seven years now. It's been decreasing, you know, so I would say low, low single digits is probably somewhat what we would expect.

Oh, I'm, sorry, just commercial.

It really all depends on the size of the deals.

We were still in a really strong commercial environment or fee per file in commercials consistent we've been up for probably six seven years now.

And so its been decreasing so I would say low low single digits is probably somewhat when we would expect.

Carter: Okay, thank you.

[Analyst] (Stephens Inc.): Okay, thank you.

Okay. Thank you.

Mark Seaton: Yeah.

Our next question comes the line of John Campbell from Stephens. Please proceed with your question.

Operator: Our next question comes the line of John Campbell from Stephens. Please proceed with your question.

Carter: Hey, thanks, guys. This is Carter on for John. One more quick question on the purchase market. Is there anything to call out from a geographical standpoint, or is the volume coming pretty broad-based?

[Analyst] (Stephens Inc.): Hey, thanks, guys. This is Carter on for John. One more quick question on the purchase market. Is there anything to call out from a geographical standpoint, or is the volume coming pretty broad-based?

Hi, Thanks, guys is as Carter on for John .

One more quick question on the purchase market is there anything to call out from a geographical standpoint or is the volume come pretty pretty broad based.

Hi.

Dennis Gilmore: Thanks for the question. The West, I would say, is still probably a trailing. Central is a little stronger right now. Again, we're looking for definitely less headwinds going into the second half. I think our comps get a lot easier. I think from a modeling perspective, probably pretty broad-based, but the West has probably still got the most pressure.

Thanks for the question.

The West I would say is still probably a trailing central is.

Little stronger right now.

But again, we're looking for a pretty.

Definitely less headwinds going into the second half I think our comps get a lot easier so.

I think from a modeling perspective, probably pretty broad based but the west is probably still got the most pressure.

Carter: Okay, got it. Thank you. Real quick, on the capital allocation, is there a specific reason why you prefer paying the dividend over buying back stock? If you can provide a little more color on the decision-making process behind that.

[Analyst] (Stephens Inc.): Okay, got it. Thank you. Real quick, on the capital allocation, is there a specific reason why you prefer paying the dividend over buying back stock? If you can provide a little more color on the decision-making process behind that.

Got it. Thank you and then real quick on the capital allocation.

Is there a specific specific reason why you prefer being the dividend over over buy back stock and.

You can provide a little more color on the decision making process on that.

Well I think the dividend I mean, we're we're a strong cash flow generating company and we we have a lot of really attractive investment opportunities in our business, but the reality is we generate more cash flow than we have opportunities and that's.

Mark Seaton: Well, I think the dividend. I mean, we're a strong cash flow generating company, and we have a lot of really attractive investment opportunities in our business. The reality is we generate more cash flow than we have opportunities, and that's why we pay a dividend. You know, it's something we've done. It's something that we wanna. It's a good discipline to have. As a company, we want to return capital back to our shareholders consistently, our primary method is dividends, and that's something we're gonna continue to do. I think we, you know, typically, every so often when there's dislocations in the market, we repurchase shares, and we're always looking for those opportunities. Primarily, we're focused on dividends because we want to return capital on a regular, consistent, quarterly basis.

That's why we pay a dividend and it's something we've done it's something that we want to it's like a disciplined to have.

As a company we want to return capital back to our shareholders consistently and so our primary method is dividends and that's something we're going to continue to do I think we you know typically every so often when there was dislocation in the market we repurchase shares and we're always looking for those opportunities, but primarily we're focused on different because we want to return capital on on a regular consistent quarterly basis.

Carter: Got it. That's helpful. Thanks, guys.

[Analyst] (Stephens Inc.): Got it. That's helpful. Thanks, guys.

Got it that's helpful. Thanks, guys.

Mark Seaton: Thank you.

Thank you.

Operator: That's all the time we have for questions today. That concludes this morning's call. We'd like to remind listeners that today's call will be available for replay on the company's website, or by dialing 877-660-6853 or 201-612-7415, and enter the conference ID: 13692064. The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.

That's all the time, we have for questions today that concludes this morning's call we'd like to remind listeners that today's call will be available for replay on the company's website or by dialing 87766, 06853 or 20161 to 7415 and enter the conference I'd 13692 064.

The company would like to thank you for your participation. This concludes today's conference call you may now disconnect.

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