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First American Financial Corp (FAF)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue rose 18% year over year to $1.69B, with adjusted EPS at $1.35; GAAP EPS was $0.69 as net investment losses weighed on reported earnings .
  • Title Insurance and Services delivered an adjusted pretax margin of 11.8% (GAAP 7.9%) as commercial revenue surged 47% to $252M and investment income rose to $155M .
  • Home Warranty posted solid profitability: pretax margin 18.1% (adjusted 18.2%) on $102.8M revenue; results included a ~$6M negative revenue timing adjustment .
  • Management guided to modest improvement in residential purchase and refinance activity in 2025 and expects commercial strength to be weighted to 1H; investment income should grow year over year despite Fed-rate headwinds thanks to portfolio rebalancing .
  • Consensus estimates from S&P Global were unavailable at time of analysis due to request limits; therefore, no beat/miss vs Street is shown for Q4 [GetEstimates error].

What Went Well and What Went Wrong

  • What Went Well

    • Commercial title momentum: revenue up 47% YoY to $252M; average revenue per commercial order up 39%, with 14 “large” deals >$1M in premium vs 8 in Q3 .
    • Operating leverage and cost control: success ratio of 51% in Q4 (change in personnel/other opex divided by change in net operating revenues), supporting 11.8% adjusted title margin .
    • Investment income exceeded internal expectations: $155M in Title, helped by portfolio rebalancing and strong commercial escrow balances; management expects YoY growth in 2025 .
    • CEO tone on cycle turn: “This will be another year of earnings improvement in what looks to be the early stages of the next real estate cycle.” .

  • What Went Wrong

    • Net investment losses: Q4 consolidated net investment losses of $85.9M, reducing GAAP EPS by $0.61; venture portfolio impairments were a key driver .
    • Effective tax rate elevated to 27% (vs normalized ~24%), trimming ~$0.03 per share relative to normalized level .
    • Home Warranty saw a ~$6M negative revenue timing adjustment and slightly higher claim frequency, moderating adjusted margin to 18.2% vs 19.9% a year ago .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total Revenue ($USD Billions)$1.61B $1.41B $1.69B
Diluted EPS (GAAP)$1.11 $(1.00) $0.69
Adjusted EPS$1.27 $1.34 $1.35
Title Insurance & Services Revenue ($USD Billions)$1.52B $1.29B $1.61B
Title Pretax Margin (GAAP)11.7% (10.1%) 7.9%
Title Adjusted Pretax Margin11.9% 11.6% 11.8%
Home Warranty Revenue ($USD Millions)$106.8 $110.9 $102.8
Home Warranty Pretax Margin (GAAP)15.4% 8.1% 18.1%
Home Warranty Adjusted Pretax Margin15.2% 7.7% 18.2%
Title Segment Investment Income ($USD Millions)$125.7 $136.5 $155.4
Consolidated Net Investment (Losses) ($USD Millions)$(13.2) $(311.5) $(85.9)

Segment breakdown (Q4 year-over-year):

Segment MetricQ4 2023Q4 2024
Title Total Revenues ($USD Millions)$1,321.1 $1,605.3
Title Direct Premiums & Escrow ($USD Millions)$440.3 $575.9
Title Agent Premiums ($USD Millions)$569.7 $697.9
Title Information & Other ($USD Millions)$211.1 $238.4
Title Net Investment Income ($USD Millions)$132.0 $155.4
Title Net Investment Losses ($USD Millions)$(32.0) $(62.3)
Title Pretax Income ($USD Millions)$59.8 $126.4
Title Pretax Margin (%)4.5% 7.9%
Title Adjusted Pretax Margin (%)7.5% 11.8%
U.S. Commercial Revenue ($USD Millions)$171.6 $252.0
U.S. Commercial Avg Rev/Order ($)$11,000 $15,200
Home Warranty Revenue ($USD Millions)$98.8 $102.8
Home Warranty Pretax Income ($USD Millions)$14.7 $18.6
Home Warranty Claim Loss Rate (%)43.6% 43.7%

KPIs and operational metrics:

KPIQ2 2024Q3 2024Q4 2024
Title Orders Opened (U.S. direct)169,600 166,100 143,100
Title Orders Closed (U.S. direct)124,700 121,600 119,800
Total ARPO ($)$3,818 $3,926 $4,343
Refi as % of Residential Orders (Closed)20% 22% 27%
U.S. Commercial Closed Orders (count)15,100 14,400 16,500
Debt-to-Capital Ratio (%)29.7% 34.8% 30.8% (23.9% ex. secured financings)
Share Repurchases (period)752k shares; $41M; $54.14 avg 293k; $16M; $54.96 avg 124k; $8M; $65.80 avg

Notes on Q4 drivers:

  • Direct title orders closed +19% YoY and ARPO +11% YoY, reflecting commercial strength; agent premiums grew 23% (recorded on ~one-quarter lag) .
  • Provision for title claims remained at 3.0% of title premiums and escrow fees; ultimate loss rate assumed 3.75% for current policy year .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Title Adjusted Pretax MarginFY2025Expect FY2024 margins “similar to 2023” (Q2 commentary) Improve margins at least commensurate with market; additional ~50 bps tailwind from portfolio rebalancing Raised (qualitative)
Investment Income (Title)FY2025Q4 run-rate guided to $140–$145M (Q3 call reference) Expect YoY growth; ~$42M benefit from rebalancing vs ~$45M Fed headwind; net supported by commercial and deposit initiatives Maintained to modestly higher (qualitative)
Commercial RevenueFY2025Early-cycle improvement commentary (Q3) “Good year” expected; growth weighted to 1H; January revenue +24% YoY Raised (qualitative timing)
Residential Purchase/Refi ActivityFY2025Seasonality and cautious improvement (Q2/Q3) Modest improvement expected; last 4 weeks: purchase orders +1% YoY, refi +43% YoY Raised (qualitative)
Tax RateOngoingNormalized ~24% (framework) Q4 at 27% due to valuation reserve; recognizes R&D credits Maintained normalized framework
DividendQ1 2025Prior dividend $0.53/qtr; annual rate $2.16 raised earlier $0.54 per share declared for March 17, 2025 Maintained/slightly increased vs prior run-rate

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2024)Trend
Technology initiatives (automation)Sequoia pilot launched to automate purchase underwriting (Q2) No new update in Q4 remarks; continued focus on IT optimization Stable execution focus
Macro: rates, inventory, affordabilityQ2: challenging but seasonal lift; Q3: first YoY adjusted revenue growth since Q2’22; cautious about early cycle Mortgage rates ~7%; low inventory persists; expect modest improvement in purchase/refi in 2025 Gradual improvement expected
Commercial activityQ2: revenue $177M, down 1% YoY ; Q3: +19% YoY to $190M Q4: +47% YoY to $252M; Jan +24% YoY; 14 large deals (> $1M premium) vs 8 in Q3 Strong and broad-based uptrend
Investment incomeQ2: $126M (down YoY) ; Q3: $136M; rebalancing project announced/underway Q4: $155M (above internal guide); FY25 outlook: $42M rebalancing benefit vs ~$45M Fed headwind; still expect YoY growth Improving with mix/tailwinds
Regional trendsCanada rate cuts spur refis Canada refi growth noted; 175 bps reduction cited Positive in Canada
Regulatory/legal/cyberQ3/Q2: cybersecurity cost impacts in prior periods noted Corporate pretax loss improved YoY due to lower legal/personnel costs from prior-year cybersecurity event Improvement vs prior-year issue
Home WarrantyQ2: strong margins; direct-to-consumer scaling 42% of 2024 contracts via D2C; buyer-driven market supports real estate channel; claim loss rate ~44% Solid profitability; expanding D2C

Management Commentary

  • CEO: “Title premiums and escrow revenues were up double-digits across all key business lines, highlighted by 47% growth in our commercial revenue… adjusted pretax title margin of 11.8% for the quarter.”
  • CEO outlook: “We expect our commercial business will have a good year with continued revenue growth weighted to the first half… This will be another year of earnings improvement in what looks to be the early stages of the next real estate cycle.”
  • CFO: “Adjusted earnings… were $1.35 per diluted share… Commercial revenue was $252 million, a 47% improvement… adjusted pretax margin in the Title segment was 11.8%.”
  • CFO on investment income: “We came in at $155 million… For 2025, we feel like we’re going to grow investment income… $42 million benefit from the rebalancing project… ~$45 million headwind from the Fed rate cuts.”
  • CEO on residential order trends: “For the 4 weeks ending February 7, our purchase orders were up 1% and our refinance orders were up 43%… commercial revenues up 24% in January.”

Q&A Highlights

  • Commercial breadth and magnitude: 14 large deals (> $1M premium) vs 8 in prior quarter; confidence in sustaining growth, while acknowledging uncertainty later in 2025 .
  • Margin framework: Expect margin improvement at least commensurate with market, with ~50 bps uplift from investment portfolio rebalancing .
  • Investment income run-rate: Q4 outperformed internal guide ($155M vs $140–$145M); FY25 outlook mixes $42M structural benefit with ~$45M headwind from rate cuts; seasonal dip from Q4 to Q1 expected .
  • Information & Other revenue drivers: Canada refis on 175 bps rate cuts, non-risk property reports/services tied to transaction growth, and Data & Analytics expansion .
  • Home Warranty dynamics: Buyer-driven markets encourage warranties as “sweeteners;” ~$6M earned premium estimate change hit Q4 but will be recaptured in 2025 .

Estimates Context

  • Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable due to data request limits at time of analysis; as a result, beat/miss vs estimates cannot be shown [GetEstimates error].
  • Given strong YoY revenue growth (+18%) and adjusted EPS progression ($1.35), sell-side models may need to reflect: higher commercial volumes/ARPO, improved investment income run-rate, and margin leverage from cost control and rebalancing .

Key Takeaways for Investors

  • Commercial momentum is an upside driver: broad-based strength, higher ARPO, and early 2025 continuation (January +24% YoY) support near-term earnings quality .
  • Adjusted profitability resilient: Title adjusted pretax margin at 11.8% and 51% success ratio point to improving operating leverage as volumes recover .
  • Investment income runway solid despite rates: structural $42M uplift from rebalancing offsets Fed-rate headwinds; commercial escrow balances amplify yields .
  • Residential green shoots: purchase +1% and refi +43% in early Q1 activity indicate modest recovery; mix shift boosted ARPO to $4,343 in Q4 .
  • GAAP volatility persists from investment marks: net investment losses continue to impact reported EPS; adjusted metrics better reflect core performance .
  • Home Warranty steady: strong margins and growing D2C penetration (42% of 2024 contracts) provide stable ancillary earnings .
  • Capital returns maintained: dividend at $0.54 per share and ongoing buybacks offer shareholder support into 2025 .