Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fidelity National Financial Inc (FNF, Financial) reported strong adjusted pretax earnings of $324 million in the title segment, with an industry-leading adjusted pre-tax title margin of 16.2%.
- The company has made significant investments in innovative technologies and data, enhancing operational efficiency and customer experience.
- FNF's F&G segment achieved record gross sales of $4.4 billion for the second quarter, a 47% increase over the prior year.
- Commercial volumes remained steady and resilient, with direct commercial revenue of $511 million in the first six months.
- FNF has a strong balance sheet with $696 million in cash and short-term liquid investments at the holding company level as of June 30.
Negative Points
- Elevated mortgage rates and housing affordability continue to hamper US home sales, impacting the title business.
- Refinance volumes remained stable at low levels, averaging about 1,000 opened orders per day.
- Total orders opened in July were down 7% versus June, indicating a potential slowdown in activity.
- The company reported net recognized losses of $88 million in the second quarter, impacting overall net earnings.
- There were no share repurchases in the second quarter due to continued market uncertainty.
Q & A Highlights
Q: Tony, on your commentary related to the higher cash paid claims moving forward? How are you thinking about the 4.5% loss provision rate?
A: Anthony Park, CFO: The 4.5% feels comfortable and is probably a little conservative. Historically, our run rate for developed claims is closer to 4%. We had a couple of fraud claims in 2023 that skewed the numbers, but overall, we feel good about the current provision rate.
Q: On the title field staff, how are you thinking about staffing levels and excess capacity?
A: Michael Nolan, CEO: We feel like we're in a good position on staffing. We have adjusted more staff out while adding about 250 people through recruiting and acquisitions. We'll follow the direction of the orders and use overtime first if volumes increase, with the ability to add staff as needed.
Q: Can you provide some commentary on July orders and any insights into August?
A: Michael Nolan, CEO: In July, refi orders were up 7% over the prior July, likely due to rates trading down about 30 basis points. No specific commentary on August yet.
Q: How should we think about other operating costs in the third quarter?
A: Anthony Park, CFO: We've worked hard to reduce our footprint and other operating costs. About 50% of these costs are variable and 50% are fixed. Facility savings are durable, and we don't see the need to add back new leases significantly.
Q: What's the thinking in terms of the tempo of buybacks?
A: Anthony Park, CFO: We are looking at our cash flow generation to cover dividends, interest expenses, and acquisition capital. Once we exceed $800 million to $900 million in cash flow generation, the Board may consider resuming buybacks.
Q: What was the July experience in commercial open orders, and how should we think about the back half of the year?
A: Michael Nolan, CEO: July commercial open orders were down 4% over last July, but overall, open orders are up 4% through July. We see potential for a stronger second half, possibly exceeding last year's commercial direct revenue of just under $1.1 billion.
Q: Do you feel comfortable about the mid-teens margin guide for the full year?
A: Michael Nolan, CEO: If we see better volumes in the second half, there's an opportunity to outperform last year's margins. We are optimistic about the potential for a more normal market in 2025, which could move us up in the 15% to 20% margin range.
Q: Any updated thoughts on potentially spinning out F&G?
A: Anthony Park, CFO: The Board is very pleased with F&G's performance, which has been a complement to the title business. While there's optionality, the current focus is on continuing to grow AUM and leveraging the strong leadership team.
Q: Is there a scenario where the dividend from F&G could increase over the next couple of years?
A: Anthony Park, CFO: F&G has the capacity to periodically grow the dividend while funding growth. This could lead to an increase in the dividend over time.
Q: How will the recent move in rates impact F&G's sales going forward?
A: Chris Blunt, CEO F&G: We've hedged out about two-thirds of our floating rate exposure, so we expect less impact from rates coming down. There's a lot of cash on the sidelines, which could lead to even more demand for our products. We have the capacity to reprice products quickly in a volatile environment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
