Stewart Information Services Corporation

and thank you for joining the Stewart Information Services second quarter 2025 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 Kat Bass, Director of Investor Relations. Please go ahead. Thank you for joining us today for Stewart's second quarter 2025 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 Heise. 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. 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 stuart.com. Let me now turn the call over to Fred.

Thank you. Thank you for joining us today for Stuart's second quarter 2025 earnings conference call. Yesterday, we released the financial results for the quarter, which David will review with you shortly. I will open the call with some thoughts on current housing market conditions, followed by a dive into our second quarter results and some insight into the progress we are making on our strategic growth initiatives. Before discussing these initiatives, I want to express our sincerest sympathies to those affected by the recent weather events across the country. Our hearts go out to those affected by the July 4th flooding in Texas, our home state. While our employees were not directly impacted by this monumental flood, we know that countless families were. We have and will continue to find ways to support rebuilding efforts in Central Texas. We are very pleased with our second quarter results as they demonstrate our ability to significantly grow both revenue and earnings in a stubbornly challenged housing market. Market uncertainty and affordability challenges have kept buyers at bay as they wait for the clarity on near-term economics. The spring selling season has fallen flat with existing home sales down roughly 1% compared to the second quarter of 2024. Inventories have improved in volume and quality over the past several months, which could be a precursor to some improvement in the market. The improved inventory is allowing buyers to be more selective, and we are seeing that homes are sitting on the market longer and more homes are trading below listing price. All of these levers are helping cool price appreciation, which was around 1.5 percent for the quarter as compared to about 3 percent for the first quarter and over 4.5 percent for the fourth quarter and 24. While the current market outlook is difficult to predict, given the current market activity, we expect to see some improvement in the second half of the year relative to 2024. However, the magnitude and timing of this improvement remains unclear. In a largely flat housing market, I am very pleased with the strong results for the second quarter and our continued momentum across all of our businesses. We grew revenues by 20 percent and adjusted EPS by 48 percent compared to the second quarter of 24. In the direct operations, a business which most immediately feels the effects of a challenged residential housing market, we grew 6 percent overall, and we remain focused on growing share in target MSAs and micro markets both organically and inorganically. We expect acquisitions will be a big driver of our growth plans for this business going forward, and maintain a warm pipeline of targets. In addition, we are focused on expanding small commercial within direct operations, and our investments are having significant impact as we delivered 36 percent growth rate in this quarter over last year in small commercial and direct operations. Growth in our national commercial services business continued to be strong, driven by increasing penetration in the number of geographic markets and asset classes. Our continued growth will be driven by targeted investments in talent. Thoughtful investments in our talent will allow us to expand our network and deepen our capabilities in more geographies and asset classes in order to leverage our distinctive underwriting capability. We have made great progress in expanding our commercial teams with industry-leading talent and will continue to strategically do so into the foreseeable future. In the second quarter, we grew our domestic commercial business by 46%. relative to the second quarter of last year. Year-to-date domestic revenue has grown 43% when compared to the first half of 24. While energy continues to be a strong asset class for us, we have also experienced solid growth across most of our asset classes, and we are steadfast in our pursuit of growth across all commercial asset classes. Our agency services business also delivered very strong results Our team remains focused on expansion through share gains and attractive markets, through additional new agents, and expanded share with existing agents. We pursue growth across all states, but we are laser-focused on 15 states that would allow us to capture significant scale and growth. We have also enhanced our agency commercial capabilities and are seeing strong traction in supporting our agents in their commercial work. Our agent service CCT delivered strong second quarter results, going 25%, when compared to the second quarter of 24. Again, that's at a relatively flat residential market, which likely demonstrates continued share gains in agency residential and commercial. We will continue to build on momentum we have made in the recent years for our agents in order to differentiate our services and better our offerings for our agent partners. Our real estate solutions business continues to gain traction, growing revenue 22% when compared to the second quarter of last year, primarily due to higher revenues from our credit information evaluation services business. Our margins improved sequentially and were slightly down relative to the second quarter of 24. We expect margins in our lender services to normalize in the low teens range for the remainder of the year. We expect to grow the real estate solutions business line by gaining share with top lenders and cross-selling our products as we leverage our improved portfolio of services. Cross-selling in this kind of current market conditions poses some challenges. However, we are pleased to see share gains with both existing clients and new client introductions. And we expect continued momentum in this space as the market improves. We are also proud to announce that PropStream, A real estate data and analytics platform in our real estate solutions segment acquired Batch Leads and Batch Dialer in early July. This acquisition allows us to combine prostrate property data engine and marketing tools with Batch Leads advanced AI-driven tools and contact dialer. This combination will offer customers best-in-class nationwide real estate data intelligence and enhanced lead targeting and unified outreach platform all in one place. Moving to our international business, we are focused on broadening our geographic presence in Canada and increasing our commercial penetration. In the second quarter of 25, we grew both non-commercial direct and commercial direct revenue by 6% compared Overall, we remain dedicated to strengthening our businesses by improving our scale and improving our competitive position in each business. We remain focused on growth, even in a challenged market, and we feel poised to capitalize on improvements when the market returns to normal levels. We continue to be thoughtful about our investments in ourselves and in pursuit of smart growth for each of our business lines. I want to close by thanking our employees for their dedication and focus. It's interesting that Over the last few weeks, I've been able to visit a large number of offices and met with over 1,000 of our colleagues in person. And I was struck by the positivity and energy everywhere I visit, especially given the difficult market conditions we all compete in. And I want to thank them for driving our journey to be the premier title service provider. And finally, to our many new and long-term customers, I want to thank you for trusting us to deliver with consistency and excellence. So with that, David, I'll turn it over to you to provide the update on this case.

Good morning, everyone, and thank you, Fred. I appreciate our employees and I'm thankful for our customers. I share Fred's sympathies for those affected by recent weather events. The real estate market remains challenged with mortgage rates in the high sixes and existing single-family home sales around 15-year lows. Yesterday, Stewart reported second quarter net income of $32 million, or $1.13 per diluted share, based on revenues of $722 million. Appendix A of our press release shows adjustments primarily related to net realized and unrealized gains and losses and acquired intangible asset amortization that we used to measure operating performance. On an adjusted basis, second quarter net income was $38 million, or $1.34 per diluted share, compared to $25 million or $0.91 per diluted share last year. In the title segment, operating revenues in the second quarter improved $96 million or 19%, driven by both our direct and agency title operations. This resulted in a title pre-tax income improvement of $16 million or 48%. After adjustments for purchase and tangible amortization and other expenses, the title segment's adjusted pre-tax income was $52 million, which was $14 million or 35% better than last year, while adjusted pre-tax margin improved 1% to 8.5. On our direct title business, second quarter total open and closed orders improved due to higher commercial refinancing and real estate investor activity. Invested commercial revenues increased $24 million or 46% due to strength and breadth in the energy data center, hospitality, industrial, land development, and multifamily asset classes. Domestic commercial average fee profile increased 25% to $16,900 compared to $13,500 last year. Domestic residential fee profile slightly declined to $2,900 compared to $3,000 last year, primarily due to a higher mix of refinancing and real estate investor orders. International results improved modestly. While with our agency operations, gross agency revenues increased $61 million or 25% on improved volumes at our key agency states, while net agency revenues improved $9 million or 21%. On title losses, our total title loss expense in the second quarter increased slightly to $22 million due to increased title revenues, partially offset by our overall favorable claims experience. The title loss ratio for the second quarter improved to 3.6% compared to 4.2% last year. We expect our title losses to average around 4% for the full year 2025. Regarding the real estate solution segment, operating revenues improved 20 million or 22 percent, driven by increased revenue from our credit information and valuation services operations, excluding acquisition and tangible amortization, adjusted pre-tax income was 2 million or 15 percent higher. We continue to manage the higher credit information cost of service and are focused on deepening and expanding customer relationships. Adjusted free tax margin for the second quarter was 10.9%, which has improved sequentially and from Q4's low point. We expect our margins to be in the low teens as these relationships mature. On our consolidated operating expenses, our employee cost ratio improved to 30%. versus 31% last year, while our other operating expense ratio improved to 25% from 26%, primarily due to higher operating revenues. On other matters, our financial position remained solid to support our customers, employees, and the real estate market during this challenging environment. Our total cash and investments were approximately $390 million in excess of our statutory premium reserve requirements. while we also have a fully available $200 million line of credit. Total Stewart stockholders' equity at June 30th was approximately $1.4 billion, with a book value of $51 a share. Net cash provided by operations improved by $32 million in the second quarter compared to last year. Again, thank you to our customers and employees, and we remain confident in our service to the real estate markets. I'll now turn the call over to the operator for questions.