Stewart Information Services Corporation

Hello, and thank you for joining the Steward Information Services second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions 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.

Thank you for joining us today for Stewart's second quarter 2023 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 Heisey. To listen online, please go to the steward.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.

Thank you for joining us today for Stewart's second quarter 2023 earnings conference call. David will review the quarterly financial results in a minute, but before we get into the financial results that were released yesterday, I want to update you on our view of the market and our continued progress on important initiatives that we believe will set Stewart up for success in the long term. During the last three to four years, we have focused on fundamentally improving Stewart's operating performance and launching us on a journey to become the premier title services company. While the current economic environment poses significant challenges, we have materially improved our business, creating a strong and more resilient business that will thrive over a full real estate cycle. But we also know there is more that we can do. And it is critical for us to remain focused on improving margins, growth, and resiliency to improve scale in attractive markets and enhancing our operational capabilities. In difficult markets such as the current one, it is often easy to lose focus on achieving these long-term goals. However, I'm very pleased with our progress on these enterprise initiatives during the second quarter and the amount of progress toward improving our long-term performance. Given the continued volatility in the market, we have balanced investments in these initiatives, and we need to manage expenses very thoughtfully. As we've discussed before, we are not surprised that the challenging economic environment continued into the second quarter. Although interest rates declined early in the second quarter, they increased throughout the remainder of the quarter, and the 30-year mortgage interest rate now hovers around 7%. As would be expected, the increase in rates has offset some of the typical seasonal increases in residential order volumes that are expected during the summer months. Fortunately, we have seen modest increases in the transaction volumes during the second quarter after experiencing a historic low in the first quarter. The demand for new homes is strong, although listings for existing homes remains very low. We expect the challenges of this environment to continue throughout 2023. We have managed costs carefully throughout this market while focusing on our long-term strategy, which requires a careful balance between investing in initiatives and managing expenses. We have been careful not to take actions that we felt would threaten our competitive position and long-term value-creating opportunities. We believe that the real estate cycle will rebound in 2024, and the best path forward for Stewart to get through this period is to invest in our people and remain focused on our long-term improvement plan while managing through a few challenges quarters. We remain focused on our long-term strategy, enhancing our operating volume, investments in technology to enhance customer experience, improve efficiency of our operations, and build in scale and targeted areas. We recognize that these strategic investments will cause the cost ratios to remain elevated in the market with exceptions to those transaction lines. We believe that these long-term investments, coupled with thoughtful near-term expense management, will improve our structure and financial performance in the long term. In our direct operations, going to scale and attractive markets remains a priority. We are routinely reevaluating markets where we have the opportunity to increase share and enhance our leadership strength. Given the market uncertainty, we have been more selective in our decisions in order to ensure our deployment of capital makes sense for the long term. Positioning our commercial operations for growth across all our business lines has been a key focus of our journey, as those operations are an important component of our overall strategy. We are making investments in talent so that we have the leadership in place to achieve these objectives. We are investing in technology to support the commercial operations to allow us to better serve our customers. And we remain optimistic about commercial, but as we discussed last quarter, the commercial environment remains uncertain in the short term due to changing financial markets. Certain commercial sectors, such as energy, remain very strong for us, but we see ongoing challenges in sectors like office and multifamily. However, we believe our focus will create long-term growth in the commercial markets. In our agency business, we are leveraging our technology to drive market share gains. We have made excellent progress on our deployment of technology and services to provide a significantly improved agent experience for Stuart. This experience includes greater connectivity, ease of use, and risk reduction for our agent partners. We are pleased that our platform of services for agents is as strong as it's ever been, and we've begun to see meaningful progress in target markets such as Florida and agency commercial and others. A significant component of our investments is focused on improving our technology for the title production process automation and centralization to improve operational efficiencies and capabilities. We've already made significant progress improving the customer experience across all channels and are rolling out our agency technology platform, which significantly enhances easy use and connectivity with agents. Another area of priority as we work to improve our operating efficiency is the centralization and digitization of our title plans. During the quarter, we have made significant progress on our roadmap of integrating completed acquisitions into our production and other systems, which improves the customer experience as well as the overall operating efficiencies that we have been building on for the past several years. Integrating the remaining required companies is a top priority for the balance of 23. Maintaining a strong financial position is always important, but even more during a market like this. Our strong financial position, like we currently have, allows us to make opportunistic investments. Financially, our long-term goal remains to generate high single and low double-digit margins over the cycle. Over the cycle, there will be high and low quarters, as evidenced in the first quarter. However, the modest increases in transaction volumes, margins improve significantly, as indicated by our second quarter results. In addition, the investments we have been discussing once fully implemented should allow us to achieve low double-digit margins over the cycle. While we are encouraged by improvements in talent, technology, and customer experience in our financial models, work remains to be done, and the journey is not complete. We may focus on a strategic plan of building an improved competitive position by building more efficient and having a disciplined operating model that functions well throughout all real estate cycles. We have emphasized growing scale in attractive markets across all lines of our business, and we have made significant progress in improving customer experience in all our channels. Retaining key talent is always important, and we have been even more focused on retaining talent through this market so that we have the right thing in place as the cycle improves. Our efforts are yielding results through increased year-over-year market share gains in each of our direct, agency, and commercial businesses. Let me conclude by reinforcing that we have been managing our expenses and investments with sensible balance between operating discipline and current short-term market challenges and strengthening Stewart for long-term growth and performance. A strong financial footing should best position us to take advantage of the opportunities that this cycle will provide. Finally, my positive long-term view of the real estate market and the ability of Stewart to become the premier title service company has not wavered. Our associates have worked hard throughout these challenging times, and they appreciate all they have accomplished. And I also want to thank our customers for their continued loyalty and support. David will now update anyone on the results.