First American Corporation (New)

Greetings and welcome to First American Financial Corporation third quarter 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. forward slash investor. Please note that this call is being recorded and we will 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 13749447. We will now turn the call over to Craig Barberio, Vice President, Investor Relations, to make an introductory statement. Please go ahead.

Good morning, everyone, and welcome to First American's earnings conference call for the third quarter of 2024. Joining us today on the call will be our Chief Executive Officer, Ken DiGiorgio, 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 facts. 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 yesterday's earnings release and the risk factors discussed on our Form 10-K and subsequent SEC filings. Our presentation today also 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 width and reconciliation to the most directly comparable GAAP financials, please refer to yesterday's earnings release, which is available on our website at www.firstam.com. I would now like to turn the call over to Ken DiGiorgio.

Thank you, Craig. In the third quarter, we benefited from measured improvement in market conditions. Our adjusted revenue was up 4%, the first year-over-year growth we've experienced since the second quarter of 2022. And our adjusted earnings per diluted share were $1.34, an increase of 10%. Title premiums and escrow revenues were up across all key business lines, but most notably in our commercial division, where revenues were up 19%, also the first increase since the second quarter of 2022. Growth in commercial revenue was driven by a sharp increase in the fee profile, to which an 80% increase in large transactions contributed. In the purchase market, demand started to pick up late in the quarter with a decline in mortgage rates to around 6% ahead of the Fed's 50 basis point cut in mid-September. Demand, however, softened as mortgage rates backed up 50 basis points soon after the Fed meeting and other factors impacting affordability persisted. As a result, our closed purchase orders per day this quarter declined 2% compared with last year. While continued, albeit moderating, home price appreciation was one of the factors that negatively impacted affordability. It did drive an increase in our average revenue per order and a resulting 3% increase in our purchase revenue. Closed refinance orders were up 12% in the third quarter, with transaction activity increasing as the quarter progressed. The improved order flow, combined with a higher fee profile, resulted in a 20% increase in our refinance revenue. Although our title segment investment income declined this quarter compared with last year, it grew sequentially as we began to realize the benefit of our investment portfolio rebalancing project. Mark will discuss that in greater detail in his remarks. Our home warranty segment delivered an adjusted pre-tax margin of 7.7%. down from 9.3% last year. Though a slight improvement in the claims rate helped the margin, we deliberately increased marketing spend in our direct-to-consumer channel. This direct-to-consumer investment is expected to drive increased profitability as the lifetime value of new contracts is realized over time. As we've discussed on prior calls, we are committed to developing innovative proprietary technologies that promise to boost our productivity and enhance the customer experience in ways that will create a sustainable competitive advantage. We believe, however, that an opportunity exists to reduce our technology spend without compromising on this commitment by centralizing, standardizing, and simplifying our technology operations. We have already implemented certain changes that have reduced cost, and we expect to realize additional benefits as we make further progress in this effort. Turning to the outlook for the remainder of the year, we expect challenging conditions in the purchase market to persist. For the first three weeks of October, our open purchase orders are down 3%, though our open resale orders are up 1.4%. The refinance market should continue to improve, though off a low base. Our refinance business accelerated in the first three weeks of October with open orders up 76%. And we remain optimistic that the commercial business will perform well in the fourth quarter, given higher term refinancing demand, continued progress on price discovery, and our own robust pipeline of large transactions. As we indicated last quarter, we expect that modest revenue growth for the full year of 2024 will enable us to achieve title margins similar to what we posted in 2023. We now have stronger conviction in that outcome given the recent performance of our commercial business and the increase in interest income resulting from our portfolio rebalancing project. The first year-over-year growth in revenue in nine quarters that I mentioned earlier coupled with our expectation that affordability challenges will gradually abate, also make us cautiously optimistic that we are in the beginning stage of a new cycle that will drive further improvement in 2025. While we have been operating through a cyclical downturn since the Fed began its historic interest rate hike cycle in early 2022, our operating strength and strong balance sheet has enabled us to make meaningful investments in our business while maintaining our commitment to return capital to shareholders. Since the beginning of 2022, we have repurchased 10 million shares for a total of $574 million at an average price of $57.74 per share. During this same period, we have also increased the common stock dividend by 6% to an annual rate of $2.16 per share. In closing, I would like to comment on the widespread damage and devastation that the recent hurricanes inflicted across several southeastern states. Many of our employees and the communities in which they live have endured profound hardships. While we are grateful that all of our people are safe, we know that many now face the difficult task of recovery. I want to thank our people for all they have done to lend a hand to those impacted and to reiterate our company's commitment to support our people and their communities. Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results.