Executive Summary

Q2 delivered stable topline and stronger profitability: revenue $1.61B (-2% YoY) and adjusted EPS $1.27; Title adjusted pretax margin 11.9% and Home Warranty adjusted pretax margin 15.2% .
Mix tailwinds and cost control offset muted transaction activity; ARPO rose across purchase and commercial; investment income moderated as escrow/1031 balances declined .
Management maintained full-year stance: modest revenue growth and title margins similar to 2023; near-term outcome hinges on Commercial recovery in 4Q; Q3 title margins expected to seasonally ease from Q2 peak .
Strategic tech initiatives advanced: Sequoia automated purchase underwriting pilot launched in April; Endpoint/instant decisioning margin drag improved to ~140 bps from ~150 bps; longer-term efficiency and customer-speed benefits expected .
Estimates context: S&P Global consensus comparisons were unavailable due to data-access limits this cycle; traders should focus on H2 Commercial pipeline, deposit/escrow mix defense, and Sequoia execution as stock catalysts.

What Went Well and What Went Wrong

What Went Well

Margin resiliency: Title adjusted pretax margin 11.9% (vs. 12.6% LY); Home Warranty adjusted pretax margin 15.2% (vs. 12.9% LY) despite soft volumes .
Pricing/mix tailwinds: Average revenue per order increased (Total ARPO $3,818 vs. $3,516 in Q1); commercial ARPO rose to $11,720 (vs. $9,989 in Q1) as price discovery progressed .
Tech progress: “We successfully launched an ongoing pilot…Sequoia…with a goal of rendering an insurable title decision for at least 50% of residential properties,” positioning for speed/efficiency and potential revenue opportunities .

What Went Wrong

Persistent macro headwinds: Purchase spring selling season “disappointing” (closed orders up <1% YoY); open purchase orders down ~3% in early July; affordability and high rates constrained demand .
Investment income pressure: Title investment income fell to $126M (-$16M YoY) on lower average escrow/1031 balances; H2 guide at ~$120M per quarter as HomePoint deposits rolled off on July 1 .
Commercial uncertainty: Closed commercial orders -2% YoY; company cautious on Q3 but optimistic for a rebound in Q4; H2 performance is key to meeting full-year margin objective .

Financial Results

Consolidated performance

Metric	Q4 2023	Q1 2024	Q2 2024
Revenue ($USD Billions)	$1.429	$1.425	$1.612
Net Income ($USD Millions)	$34.1	$46.7	$116.0
Diluted EPS ($)	$0.33	$0.45	$1.11
Adjusted EPS ($)	$0.69	$0.45	$1.27
Adjusted Pretax Margin (%)	6.1%	4.1%	10.7%
YoY Revenue Growth (%)	-15%	-1%	-2%
Revenue vs S&P Global Consensus	N/A (unavailable)	N/A (unavailable)	N/A (unavailable)
EPS vs S&P Global Consensus	N/A (unavailable)	N/A (unavailable)	N/A (unavailable)

Note: S&P Global consensus estimates were unavailable this cycle; comparisons to consensus could not be provided.

Segment and major line items

Metric	Q4 2023	Q1 2024	Q2 2024
Title Segment Revenue ($USD Billions)	$1.321	$1.320	$1.522
Title Adjusted Pretax Margin (%)	7.5%	4.8%	11.9%
U.S. Commercial Revenue ($USD Millions)	$171.6	$142.8	$176.7
Home Warranty Revenue ($USD Millions)	$98.8	$105.2	$106.8
Home Warranty Adjusted Pretax Margin (%)	19.9%	18.8%	15.2%
Title Investment Income ($USD Millions)	$132.0	$116.7	$125.7

KPIs and operating drivers

KPI	Q4 2023	Q1 2024	Q2 2024
Title Orders Opened (U.S. direct)	124,600	155,500	169,600
Title Orders Closed (U.S. direct)	100,600	102,700	124,700
Purchase ARPO ($)	$3,421	$3,360	$3,605
Refinance ARPO ($)	$1,284	$1,151	$1,206
Commercial ARPO ($)	$11,001	$9,989	$11,720
Total ARPO ($)	$3,899	$3,516	$3,818
Title Loss Provision Rate (% of premiums)	3.0%	3.0%	3.0%
Home Warranty Claim Loss Rate (%)	43.6%	41.7%	45.8%
Debt-to-Capital (%)	28.6%	30.3%	29.7% (22.5% ex. secured)
Share Repurchases (Shares/$)	328,863 / $17.7M	58,600 / $3.5M	752,000 / $41M; +281,000 through 7/23 ($15M)

Non-GAAP note: Adjusted EPS, adjusted pretax margins and adjusted revenues exclude net investment gains/losses and include purchase-related intangible amortization adjustments as reconciled in the company’s releases .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue Growth	FY 2024	“Modest/low single-digit” expected	Maintained; modest growth needed to deliver margins similar to 2023; ~2% revenue growth implied by CFO	Maintained
Title Segment Margins	FY 2024	Similar to 2023	Maintained; depends on Commercial strength, esp. 4Q	Maintained
Title Investment Income	Q3–Q4 2024	$120–$125M per quarter outlook (Q1 call)	~$120M per quarter for Q3 and Q4; HomePoint deposits rolled off 7/1; possible rate-cut pressure	Lowered to lower end
Effective Tax Rate	Ongoing	Normalized ~24% (context)	~24% normalized; Q2 effective 23.2%	Maintained
CapEx	FY 2024	Down 15–20% YoY from $260M (Q1 call)	No update in Q2; prior view intact	Maintained
Dividend	Quarterly	$0.52 prior year (context)	$0.53 declared in Q2	Increased YoY

Earnings Call Themes & Trends

Topic	Q-2 (Q4 2023)	Q-1 (Q1 2024)	Current (Q2 2024)	Trend
AI/Tech, Automation	Cyber incident impacted Q4 ops; focus on tech resilience	Investing in tech; Endpoint/instant decisioning highlighted; 150 bps margin drag	Sequoia pilot launched; Endpoint/instant decisioning drag improved to ~140 bps; efficiency/revenue opportunity long term	Improving execution; drag easing
Macro: Affordability & Rates	Tough market into 2024	Elevated ~7% mortgage rates; volumes near lows	Spring selling “disappointing”; purchase opens down ~3% in early July	Persistent headwind
Commercial Real Estate	Revenues down sharply YoY	Opens up 1% in Q1; ARPO stabilized	Closed orders -2%; cautious on Q3; optimistic for 4Q rebound; opens +4% 1st 3 weeks of July	Gradual thaw; 4Q critical
Regulatory/Legal	—	DC scrutiny of title fees; industry value case emphasized	CFPB RFI on lender pass-through; Fannie title-waiver debates; FAF positioned via centralized lender program	Active dialogue; watch policy path
Deposits/Investment Income	Higher cost of funds Q4	Mix shift: more savings at 3rd-party banks; guide $120–$125M/quarter	29% of deposits with no economics stabilized; HomePoint deposit exit; ~$120M/quarter H2 guide	Stabilizing; modest H2 pressure
Home Warranty Strategy	—	Strong margin; positioned for growth	Shift emphasis to DTC; profitability builds with renewals	Portfolio mix pivot

Management Commentary

“Market conditions remained challenging in the second quarter, though we benefited from the seasonal pick-up in demand…our title segment delivered an adjusted pretax margin of 11.9%…home warranty…15.2%.”
“We successfully launched an ongoing pilot of [automated underwriting for purchase]…Sequoia…with a goal of rendering an insurable title decision for at least 50% of residential properties.”
“While we maintain our perspective on our full-year performance, our results ultimately depend on the strength of the commercial market in the second half…in particular, the fourth quarter.”
“We think [investment income] will be ~$120 million a quarter for Q3 and Q4…HomePoint deposits left July 1…potential rate cuts would put a little pressure on investment income.”
“We expect our normal seasonal decline in title margins as we progress through the year…Q2 kind of hit the high water mark.”

Q&A Highlights

Home Warranty DTC strategy: pursuing diversification beyond real estate channel; DTC requires upfront investment, profitability improves with renewals .
Sequoia economics: at pilot stage; expected to drive faster decisioning and efficiency; potential revenue upside from speed valued by customers .
Commercial cadence: management more cautious on Q3 despite modest open-order uptick; optimistic on Q4 as refinance activity and ARPO signals suggest price discovery progress .
Deposits and NII: 29% of escrow deposits not monetized stabilized (vs. 30% in Q1); deposit-defense initiatives began in July; H2 investment income guided to ~$120M per quarter .
Regulatory clarity: CFPB title-fee pass-through RFI and Fannie title-waiver RFP being monitored; FAF sees limited adverse impact due to centralized lender program .

Estimates Context

S&P Global (Capital IQ) consensus for Q2 2024 revenue and EPS was unavailable due to data-access limits during this analysis; therefore, beat/miss versus consensus cannot be provided this quarter.
Given management’s commentary, Street models may need to reflect: (a) Q3 seasonal margin step-down from Q2 peak; (b) H2 title investment income closer to ~$120M per quarter; (c) 4Q Commercial recovery as key swing factor .

Key Takeaways for Investors

Execution beat the macro: Strong Q2 margins with mix/pricing support and cost control; however, expect seasonal margin moderation in Q3 before a potential 4Q Commercial lift .
H2 hinges on Commercial: Monitor open-order trajectory and ARPO as leading indicators; management’s 4Q optimism is a central narrative swing factor .
NII glide-path defined: With HomePoint deposits gone and possible rate cuts, plan for ~$120M per quarter investment income in Q3–Q4; upside if deposit mix improves .
Tech catalyst building: Sequoia pilot and Endpoint platform should gradually reduce unit costs and cycle times; margin drag from tech initiatives is easing (140 bps vs. 150 bps) .
Home Warranty mix shift: DTC emphasis should enhance long-run profitability despite near-term investment; segment margins remain healthy .
Balance sheet/capital returns steady: Debt-to-capital ~29.7% (22.5% ex. secured); repurchased ~752k shares in Q2 and continued into July; dividend at $0.53 .
Policy watch: CFPB and Fannie initiatives could reshape lender workflows; FAF’s centralized lender capabilities may be an advantage if rules change .

Appendix: Additional Q2 Press Releases (Context)

ACI integrated Restb.ai into ACI Sky to automate appraisal quality control, enhancing automation across valuation workflows—a complementary data/AI capability within FAF’s ecosystem .

First American Financial Corp (FAF)·Q2 2024 Earnings Summary