Stewart Information Services Corporation

Hello, and thank you for joining the Stewart Information Services third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the 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, again, please press star zero. It is now my pleasure to turn today's conference over to Brian Glaze, Chief Accounting Officer. Please go ahead, sir.

Thank you for joining us today for Stuart's third 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 Heineke. To listen online, please go to the Stuart.com website to access the link to 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 risk 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 third quarter 2023 earnings conference call. Yesterday, we released financial results for the quarter, and David will review these in a minute. Before doing so, I'd like to update you on our view of the market and our continued progress on important initiatives that we believe will set Stewart up for long-term success. This quarter, we are proud to celebrate 130 years in business. as a pioneer in the title industry and also coming up on our 30 years as a listed company on the New York Stock Exchange. These milestones caused me to reflect on the last four years, and looking back, I see that we have made great strides in fundamentally improving Stewart's operating and financial performance to better position ourselves for an even more prosperous future. Although the current economic environment continues to pose significant short-term challenges, we have materially improved our business, creating a strong and more resilient enterprise that will thrive over a full real estate cycle. Even in light of the current economic environment, we continue to intensely focus on our journey to become the premier title service company. We are managing through a challenging environment where we believe mortgage rates will remain elevated into 2024. Rates increased throughout the third quarter to around 7.5%, where they were previously in the high 6% range at the close of the second quarter. Higher mortgage rates continue to impact transaction volumes, and we find ourselves at historic lows for sale of existing homes. At an industry level, we experience historically low purchase volumes combined with low existing home listing inventory, which has kept pricing strong. As we look forward, we see 2024 as a transition year to a more normal market in 2025, and believe the next six months will continue to be very challenging given the macroeconomics laid on top of the typical seasonal impacts. While we have significantly improved the underlying financial and operational performance of the company, there is more we can and will do. And it is critical we remain focused on improving margins, growth, and resiliency through improved scale and attractive markets and enhancing our operational capabilities. In this challenging environment, it is easy to lose focus on achieving long-term goals. However, I am extremely pleased with the dedication we have shown in making progress on our enterprise initiatives during the third quarter and in our progress toward improving our long-term performance. Maintaining a strong financial position, even in this current environment, gives us flexibility to continue to pursue these investments and take advantage of opportunities as they arise. We have continued to manage costs thoughtfully and have taken targeted cost actions where appropriate. We have been careful not to take actions we felt would threaten our competitive position and long-term value-creating opportunities. We believe that the real estate cycle will begin to normalize later in 2024, and the best path forward for Stewart to get through this period is to continue investing in our people and remaining focused on our long-term improvement plans. I believe we have done a good job of balancing strong financial discipline with targeted investments, and we will continue to be very diligent with our expense management during this difficult moment in the cycle. We remain focused on enhancing our operating model, investments in technology to enhance the customer experience and improve efficiency of our operations and building scale in targeted areas. These strategic investments will cause our cost ratios to remain elevated in a market with low transaction volumes, but will set us up for better overall performance in the future. We believe that these long-term investments, coupled with thoughtful near-term expense management, will improve our structure and financial performance for the long term. We routinely re-evaluate markets in our direct operations where we have the opportunity to increase share and enhance our leadership strength. Given the market uncertainty, we have been more selective in our investment decisions to make sure our deployment of capital provides long-term returns, and I believe we will maintain this conservative approach through the first half of 2024. We remain positive on the commercial market, even though we believe certain sectors will remain challenged in the near term due to changing financial markets. Sectors such as energy remain strong for us while we see ongoing challenges in sectors like office and multifamily properties. Growth in all sectors of our commercial operations is an important component of our overall strategy and positions our commercial operations growth across all business lines has been a key focus of our journey. 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 our commercial operations to allow us to better serve our customers. And we believe our strategies will create long-term growth in the commercial markets for us. In our agency business, we are leveraging our technology to drive market share gains. Both in this quarter and throughout the year, we have excellent progress on the deployment of technology and services that provide a significantly improved customer experience for our agents. This enhanced 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 have begun to see meaningful progress in our target markets such as Florida, Pennsylvania, and the overall commercial market. In real estate solutions, we are seeing share gains as we leverage our improved portfolio of services to better and more deeply serve our lender clients. So while we are not immune to the market downturn of these businesses, we've been able to offset some of this with our share gains. A significant part of our investments is focused on improving our technology for the title production process automation and centralization to improve operational efficiencies and capabilities. Our investments have already resulted in significant progress to improving our customer experience across all channels. An example of this is the one I just mentioned in our agency technology platform, which significantly enhances ease of 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 data. We are pleased with the significant progress we have made on this this year, and in the more global production levels, we will see considerable improvement in our delivery cost. We continue to integrate our acquired entities into production and other systems. This helps us to improve our overall customer experience and offers operating efficiencies that we've been building on for the past several years. Integrating the remaining acquired companies is an important priority, and we expect to complete the majority of our integration efforts by mid-next year. Improving our financial strength by growing margin has been a significant focus of our journey. We've made good progress on this effort, and we are aware that returns remain depressed during this phase of the cycle. The investments I've mentioned, many of which have material been implemented, should allow us to achieve low double-digit margins as we turn to a normal $5 billion unit purchase market. And specifically, the initiatives that we prioritize this year should improve margin by about 200 basis points in a normal market. While we are encouraged by improvements in talent and in technology and customer experience, and our financial model, we know that work persists and the journey is not complete. We may focus on a strategic plan of building an improved competitive position by being more efficient and having a disciplined operating model that functions well throughout all real estate cycles. We have emphasized growing scale and attractive markets across all our lines of business, and we have made great strides in improving the customer experience in all our channels. Retaining key talent is always important. We've been even more focused on retaining talent through this market so that we have the right team 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, commercial, and real estate service businesses. Let me conclude by reiterating that we have been managing the balance of our expenses and investments thoughtfully to be mindful of necessary operating disciplines for the current market challenges while also remaining dedicated to strengthening Stewart's long-term growth and performance. Our solid financial footing should best position us to take advantage of the opportunities that this difficult cycle will provide. Finally, I remain positive on the long-term view of the real estate market and the ability of Stewart to become the premier title services company. Our associates have worked diligently throughout these challenging times, and I appreciate all they have accomplished. And I also want to thank our customers for their continued loyalty and support. David will now update everyone for the results.