Executive Summary

Q3 2024 results were mixed: GAAP EPS of $(1.00) driven by $312M net realized investment losses from an investment portfolio rebalancing, while adjusted EPS rose 10% YoY to $1.34 and adjusted revenue grew 4% YoY—the first YoY revenue growth since Q2 2022 .
Title segment fundamentals improved: commercial revenue +19% YoY to $190M on a 23% surge in fee per file; adjusted title pretax margin was 11.6% (vs. 12.0% LY), and investment income rose sequentially by $11M as the rebalancing began to benefit NII .
Management raised Q4 title investment income guidance to $140–$145M (from prior ~$120M per quarter), and reiterated expectation for FY24 title margins similar to 2023; they also expressed cautious optimism that affordability headwinds are beginning to abate into 2025 .
Corporate actions: $450M 10-year senior notes priced at 5.45% to refinance 2024 notes; quarterly dividend increased 2% to $0.54 ($2.16 annualized); debt-to-capital 34.8% (26.6% ex. secured financings) .
Stock reaction catalysts: portfolio rebalancing expected to add ~$67M per year to interest income, strengthening 2025 margin trajectory; commercial pipeline momentum and price discovery could sustain fee-per-file strength .

What Went Well and What Went Wrong

What Went Well

Commercial momentum: revenue rose to $190M (+19% YoY), with average revenue per order up 23%; management cites a robust pipeline of large transactions and improving price discovery .
Adjusted performance resilience: adjusted EPS $1.34 (+10% YoY) and adjusted title margin of 11.6% despite macro headwinds; adjusted revenue up 4% YoY, the first growth in nine quarters .
Strategic NII lift: investment portfolio rebalancing expected to increase interest income by ~$67M annually beginning Q4; Q3 already benefited by ~$8M .

Management quotes:

“Adjusted revenue up 4%, the first year-over-year growth since Q2 2022… adjusted EPS were $1.34, an increase of ten percent.” — CEO Ken DeGiorgio .
“We expect…$67 million per year beginning in Q4 by reinvesting the proceeds in higher-yielding securities.” — CFO Mark Seaton .

What Went Wrong

GAAP loss: net investment losses of $312M related to rebalancing drove GAAP diluted EPS to $(1.00); title pretax margin was (10.1)% before adjustments .
Title investment income down YoY: title segment NII fell 4% YoY to $136M due to lower interest-bearing escrow and 1031 balances, partly offset by warehouse lending NII .
Home Warranty margin compression: pretax margin declined to 8.1% (7.7% adjusted) as marketing spend ramped in the DTC channel, offsetting improvements in the claims loss rate .

Financial Results

Key Metrics vs Prior Year and Prior Quarter

Metric	Q3 2023	Q2 2024	Q3 2024
Revenue ($USD Billions)	$1.481	$1.612	$1.406
GAAP Diluted EPS ($)	$(0.02)	$1.11	$(1.00)
Adjusted Diluted EPS ($)	$1.22	$1.27	$1.34
Title Adjusted Pretax Margin (%)	12.0%	11.9%	11.6%
Commercial Revenue ($USD Millions)	$159.8	$176.7	$189.9

Actual vs Estimates (Wall Street)

Metric	Q3 2024 Actual	Q3 2024 Consensus	Surprise
GAAP Diluted EPS ($)	$(1.00)	N/A	N/A
Adjusted Diluted EPS ($)	$1.34	N/A	N/A
Revenue ($USD Billions)	$1.406	N/A	N/A

Estimates were unavailable at time of writing due to SPGI rate limits.

Segment Breakdown

Segment Metric	Q1 2024	Q2 2024	Q3 2024
Title Revenues ($USD Billions)	$1.320	$1.522	$1.290
Title Adjusted Revenues ($USD Billions)	$1.301	$1.516	$1.598
Title Pretax (Loss)/Income ($USD Millions)	$72.7	$177.4	$(130.3)
Title Adjusted Pretax Income ($USD Millions)	$63.0	$179.8	$185.4
Home Warranty Revenues ($USD Millions)	$105.2	$106.8	$110.9
Home Warranty Pretax Income ($USD Millions)	$20.3	$16.5	$9.0
Home Warranty Adjusted Pretax Margin (%)	18.8%	15.2%	7.7%

KPIs

KPI	Q1 2024	Q2 2024	Q3 2024
Total Open Orders per Day	2,508	2,650	2,595
Total Closed Orders per Day	1,656	1,948	1,900
Purchase ARPO ($)	$3,360	$3,605	$3,572
Refinance ARPO ($)	$1,151	$1,206	$1,291
Commercial ARPO ($)	$9,989	$11,720	$13,194
Total ARPO ($)	$3,516	$3,818	$3,926
Title Orders Opened (quarter)	155,500	169,600	166,100
Title Orders Closed (quarter)	102,700	124,700	121,600

Other financials and ratios:

Title investment income: $117M (Q1), $126M (Q2), $136M (Q3; +$11M sequential) .
Provision for policy losses: 3.0% of title premiums/escrow each quarter (Q1–Q3 2024) .
Debt-to-capital: 30.3% (Q1), 29.7% (Q2), 34.8% (Q3); 26.6% ex. secured financing at Q3 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Title Investment Income ($USD Millions)	Q4 2024	~$120 per quarter for Q3–Q4 (Q2 call)	$140–$145 (title segment)	Raised
Title Segment Margins	FY 2024	Similar to 2023 (Q1–Q2 calls)	Similar to 2023; conviction strengthened (Q3)	Maintained
Revenue Trajectory	FY 2024	Modest revenue growth (Q1–Q2)	Modest revenue growth; first YoY growth since Q2’22 (Q3)	Maintained
Dividend	Ongoing	$0.53/qtr ($2.12 annualized)	$0.54/qtr ($2.16 annualized)	Raised
Capital Structure	Sep 2024	—	$450M 10-year notes at 5.45%; refinance $300M due Nov 15, 2024	New issuance

Assumptions noted: mgmt assumes two 25bp Fed cuts in Nov/Dec for Q4 NII guide; each 25bp cut reduces annual title investment income by ~$15M based on current balances .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2024)	Current Period (Q3 2024)	Trend
Technology initiatives (Sequoia, Endpoint; instant decisioning)	Sequoia pilot launched Apr in two counties; Endpoint enhancing closing automation; 150bps title margin drag in Q1; 140bps in Q2; Capex peaking with efficiency gains moving to in-house dev	Centralize/standardize/simplify tech to reduce spend; zero-based budgeting; not slowing escrow efficiency, Sequoia or Endpoint	Efficiency-focused execution; margin drag declining over time
Macro/affordability & rates	Affordability headwinds; modest FY24 revenue growth; expectation for margins similar to 2023; refi low base	Rates dipped near 6% then backed up; cautious optimism about new cycle into 2025; open purchase orders down 3% early Oct	Improving, but choppy; early-cycle signs
Commercial market	Price discovery progressing; ARPO stabilized; Q2 cautious; stronger in Q4 seasonally	+19% YoY revenue; 23% ARPO increase; strong pipeline of large deals; revenue up in first 3 weeks Oct	Positive momentum; larger deal mix
Regulatory/legal (CFPB, title waiver, AOLs)	Washington scrutiny; CFPB RFI on passing title costs; mgmt believes transparency concerns; ALTA advocacy; industry value reaffirmed	AOLs tick-up small; ALTA effective in D.C.; possible CFPB activity post-election	Ongoing engagement; limited near-term impact
Investment income & deposits	Title NII guide $120–$125 per quarter H2; deposit mix headwinds; defending deposits initiatives	Rebalancing boosts NII (+$67M/yr); $140–$145M Q4 title NII guide; each 25bp cut = ~$15M annual NII impact	NII tailwind offsets expected rate cuts
Home Warranty DTC	Strategy to diversify from real estate channel; strong pretax margins (Q1/Q2)	Increased DTC marketing; lower current margin but attractive LTV/CAC over time	Investing for LT growth

Management Commentary

Strategic positioning: “We expect that modest revenue growth for the full year of 2024 will enable us to achieve title margins similar to what we posted in 2023… we are cautiously optimistic that we are in the beginning stage of a new cycle that will drive further improvement in 2025.” — CEO Ken DeGiorgio .
Commercial thesis: “Growth in commercial revenue was driven by a sharp increase in the fee per file to which an 80% increase in large transactions contributed.” — CEO Ken DeGiorgio .
Technology spend discipline: “An opportunity exists to reduce our technology spend… by centralizing, standardizing and simplifying… shifting from high-cost outside third parties to in-house developers.” — CEO Ken DeGiorgio .
NII outlook: “We expect to increase investment income by approximately $67 million per year beginning in Q4… Q4… between $140 million and $145 million.” — CFO Mark Seaton .
Capital return: “Since the beginning of 2022, we have repurchased 10 million shares… and increased the common stock dividend… to $2.16 per share.” — CEO Ken DeGiorgio .

Q&A Highlights

Margins: Management remains confident in achieving FY24 title margins similar to 2023; success ratio target at ~60% if revenue grows >5% in 2025 .
Tech spend: Zero-based budgeting underway; costs declining via insourcing; no slowdown on Sequoia/Endpoint initiatives .
NII sensitivity: Rebalancing adds ~$67M annually, offsetting “4+ Fed cuts”; each 25bp Fed cut reduces annual title NII by ~$15M; Q4 title NII guided to $140–$145M .
Commercial mix: Larger transactions extend deposit duration and drive escrow balances; ~60% of escrow deposits are commercial—important driver for NII .
Home Warranty DTC: Elevated marketing spend; LTV-to-CAC viewed favorably over multi-year horizon; significant underpenetration creates “open space” for growth .
AOLs (Attorney Opinions of Title): Slight uptake, but viewed as slower, lower coverage, and often not cheaper after LLPAs; limited impact expected .

Estimates Context

Consensus EPS and revenue estimates from S&P Global for Q3 2024 were unavailable due to API rate limits at the time of writing. As a result, we cannot quantify beats/misses vs. Wall Street for this quarter.

Key Takeaways for Investors

The $312M realized losses were strategic: rebalancing should add ~$67M per year to interest income starting Q4, materially supporting margins in 2025 even as rates decline .
Commercial is inflecting: fee-per-file strength and large deal mix drove +19% YoY revenue; a robust pipeline supports Q4 momentum and could sustain higher ARPO into 2025 .
Core purchase metrics are improving slowly: purchase revenue up 3% YoY on higher ARPO; affordability remains a headwind, but mgmt sees early signs of a new cycle .
Title profitability resilient on an adjusted basis: 11.6% adjusted title margin despite macro; FY24 margins expected similar to 2023, with upside if NII tailwinds and commercial strength persist .
Tech spending pivot: centralization and insourcing should lower run-rate costs while Sequoia/Endpoint continue to advance operational efficiency—margin drag trending down over time .
Capital structure and returns: $450M notes extend maturities at 5.45% and dividend increased to $0.54/qtr; debt-to-capital 34.8% (26.6% ex. secured financings) provides flexibility for cycles .
Near-term trading: watch Q4 title NII delivery vs. $140–$145M guide and commercial ARPO/order trends; longer-term thesis hinges on sustained commercial recovery, purchase affordability easing, and tech-enabled efficiency gains .

First American Financial Corp (FAF)·Q3 2024 Earnings Summary