Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stewart Information Services Corp (STC, Financial) reported a net income of $17 million for Q2 2024, with adjusted net income of $25 million.
- Total operating revenues in the title segment improved by $29 million, driven by higher revenues from agency operations.
- Domestic commercial operations saw a 23% increase in revenues, primarily due to improved transaction size and volume in energy, industrial, and multifamily asset classes.
- The company has made significant investments in technology to enhance title production processes and improve data management and access.
- STC has successfully onboarded a significant number of new clients in its Real Estate Solutions segment, leading to solid financial results and growth.
Negative Points
- The housing market remains depressed, with existing home sales down 5% from the prior year.
- The title segment's pretax income decreased by 6%, primarily due to a lower agency remittance rate caused by geographic mix.
- Total title loss expense increased by 7%, consistent with the increase in title revenues.
- The company's effective tax rate for Q2 2024 was approximately 31%, higher than the historical tax rate due to income sourced from international operations.
- STC has limited its acquisition-related investments in the current environment, citing challenges in reaching value expectations with earn-outs.
Q & A Highlights
Q: Can you discuss the market share performance in the non-commercial line, particularly on the purchase side?
A: We have maintained our market share overall, but there were some specific actions taken, such as shutting down offices in subscale markets to manage margins. This has affected our market share in those areas temporarily. However, we are confident in our growth initiatives and expect to increase our market share in the residential market over the next few years. β Fred Eppinger, CEO
Q: Why the cautious approach to M&A in the current environment?
A: The primary issue is the bid-ask spread. Many agents are making very little, making it hard to meet value expectations with earn-outs. We expect more opportunities as the market normalizes and have ongoing conversations with potential targets. β Fred Eppinger, CEO
Q: Can you elaborate on the long-term margin goals and how much is within your control versus market normalization?
A: We have excess capacity in our direct operations, and any market growth will significantly impact the bottom line. We have also improved our operating model and financial discipline, which should help us achieve low double-digit pre-tax margins in a normalized market. β Fred Eppinger, CEO
Q: Given current trends, will margins this year be similar to last year?
A: If the market remains as it is, our margins will be similar to last year. We are managing expenses carefully but need some market improvement to see significant margin growth. β Fred Eppinger, CEO
Q: What is driving the increase in other operating expenses, and how do you see this evolving?
A: The increase is primarily due to growth in our commercial operations and real estate solutions, which have higher input costs. We expect these expenses to normalize as we continue to onboard new clients and ramp up operations. β David Heidi, CFO
Q: Can you provide more details on the transactional versus contractual mix in the Real Estate Solutions segment?
A: About 85% of the business is transactional, but much of it is recurring as we set up service teams for new clients. The remaining 15% is subscription-based. β David Heidi, CFO
Q: How do you see the onboarding costs in the Real Estate Solutions segment normalizing?
A: Onboarding costs are high initially due to integrating new clients and ramping up service teams. We expect these costs to normalize by the end of the year, improving margins. β David Heidi, CFO
Q: What are the expected savings from recent office closures?
A: The savings from office closures are relatively small, around $2 million annually. Most of our cost management efforts are focused on prioritizing investments and managing operational expenses. β Fred Eppinger, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
