Stewart Information Services - Q2 2024

Transcript

Operator (participant)

Hello, and thank you all for joining the Stewart Information Services Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode, but later you will have the opportunity to ask questions during the question-and-answer session. Instructions will be given at that time. Please note today's call is being recorded. Lastly, if you should require operator assistance, please press star and zero. It is now my pleasure to turn today's conference over to Kat Bass, Director of Investor Relations. Please go ahead.

Kat Bass (Director of Investor Relations)

Thank you for joining us today for Stewart's second quarter 2024 earnings conference call. We will be discussing results that were released yesterday after the close. Joining me today are CEO Fred Eppinger and CFO David Hisey. To listen online, please go to the stewart.com website to access the link for this conference call. This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Please refer to the company's press release and other filings with the SEC for a discussion of the risks and uncertainties that could cause our actual results to differ materially. During our call, we will discuss some non-GAAP measures. For reconciliation of these non-GAAP measures, please refer to the appendix in today's earnings release, which is available on our website at stewart.com. Let me now turn the call over to Fred.

Fred Eppinger (CEO)

Thank you for joining us today for Stewart's second quarter 2024 earnings conference call. Yesterday, we released financial results for the quarter, which David will review with you shortly. I'd like to kick off the call by sharing our outlook on the current housing market, followed by an update on the progress we're making on each of our businesses. I am very pleased with the results this quarter. We have continued to make great progress on our strategic initiatives and are winning share in multiple businesses. These things are difficult to pull off in a normal market, much less an environment that we're in now. The housing market has remained depressed much longer than most people anticipated, but Stewart has maintained our competitive edge by improving our financial and operational positions.

We remain confident that we are well-positioned to capitalize on improving market conditions. Our view of the current housing market has not materially changed this quarter. We continue to experience a very suppressed housing market due to a combination of factors such as the continuation of elevated mortgage rates, rising home prices, and low but slowly returning housing inventory. The market continues to bounce on the bottom, where existing home sales every month for the last year have been worse, except for one, than the prior. The only exception was January of this year, which was flat relative to last year. To further illustrate how choppy the market conditions are, recent data shows that the overwhelming majority of the top 25 MSAs in the country are experiencing increased inventory year-over-year, yet pending sales are down.

In June, we saw a seasonally adjusted run rate of 3.98 million existing homes for sale, a 5% reduction from the prior year. There has been a very recent improvement in sentiment around interest rates, and inventory continues to enter the market, but buyers are still exercising extreme caution. There are, of course, some transactions occurring as homes are being bought and sold given various life events, but many consumers continue to remain in a holding pattern given current headwinds. We expect 2025 will be the transitional year, helping shepherd us back to a more normal market, which we see is characterized as around 5 million existing homes annually. So we're poised to capitalize on an improving market but are diligently manning ourselves like the year will be flat to down.

We do believe that the next three quarters will be interesting as we monitor things like CPI reports and rate cuts and the results of the upcoming election. So we will be prepared to capitalize on any improvement. Turning towards our operations, we remain focused on building an improved competitive position by executing upon a disciplined operating model, while also identifying efficiencies to prepare ourselves for a market rebound. We are dedicated to growing scale and attractive markets across all our lines of business, and we have made great advances on improving our customers' experience in all channels through upgrades to our technology, capabilities, and operations. We've implemented technology to enhance our title production processes and are working on utilizing technology to improve our data management and access.

We continue to focus on attracting and retaining key talent, and we know that Stewart is the best home for industry-leading talent as to grow with us as the market improves. Our direct operations segment is focusing their expansion efforts on targeted MSAs, and we expect to utilize both acquisitions and thoughtful organic growth to drive share gains. We routinely evaluate markets to ensure we have a view of the most attractive markets for growth and leadership. We have limited our acquisition-related investments in the current environment, but have maintained a warm pipeline to prepare ourselves for the improving market. Even though we are currently cautious about acquisitions, we are still very positive about the outlook for opportunities as the market normalizes, and we have not deviated from our long-term goals for this business, which is to grow share and scale in attractive MSAs.

In commercial, our results for the last two quarters reflect our focus on increasing share in our commercial operations. This quarter, we introduced our dedicated hospitality team and our new national affordable housing team through the acquisition of All New York Title Agency. We are making investments in talent across our commercial operations so that we have the leadership, operations, and sales teams in place to achieve our goals. We are also investing in technology to support our commercial operations, to allow us to better serve our customers and manage our business more efficiently.... We expect our commercial transaction momentum to continue, but we know that near-term commercial market challenges may present themselves depending on outcomes with rate cuts in the upcoming election. Our agency team remains focused on driving share gains in attractive agency markets.

We are focused on our 14 target states and are seeing very good progress in a number of states, even in the current market conditions. Specifically, we have seen good leverage from our improved support services as well as our enhanced ability to serve commercial agents. While success comes from a lot of basic blocking and tackling, we see the opportunity for continued momentum. The Real Estate Solutions team is focused on gaining share with the top lenders through new innovative solutions and cross-selling of our products as we leverage our significantly improved portfolio of services to better serve our lender clients. Our Real Estate Solutions businesses maintained solid financial results and growth in the second quarter, particularly given the market. We have seen significant growth in new clients as compared to the second quarter of last year, mostly coming from some innovative solutions in our credit information evaluation services.

In our pre-tax income results, you can see some that we are experiencing an increase in customer acquisition expenses as we have onboarded a significant number of new clients. These expenses will normalize toward the end of the year. The current market makes cross-selling our business in this space a bit challenging. We've been able to offset some of the challenges by gaining share from our existing clients and with new client introductions. Our momentum should continue as we have significant cross-sell opportunities available to build upon over the next couple of years as the market improves. We are thoughtfully managing all our lines of business and remaining intentional on our investments in expense management.

We have been careful not to take expense actions that we feel will threaten our competitive position or take away from the critical initiatives that help us meet our long-term goals. We are confident that we are focused on growth across all businesses and work where we're doing to invest in our capabilities that will allow us to achieve low double-digit pre-tax margins as we return to a more normal 5 million unit purchase market. We maintain our positive long-term outlook for the real estate market and are confident that Stewart is on a journey to become what we call the premier title services company. We believe in the strength of the company and are committed to fortifying Stewart for long-term growth and performance.

Our solid financial footing should best position us to take advantage of the opportunities that we believe that this cycle will continue to provide. Thank you for our customer and agent partners for your continued trust. We are committed to doing our best to serve you with excellence. Finally, I'd like to express my gratitude to our employees. I am thankful for your dedication to Stewart as we work together to create a more resilient company that continually delivers for our customers. And I am particularly grateful to our Houston area employees that have maintained our standard level of service excellence by personally going through a very difficult period and with the recent weather events. David, I will now turn it over to you to provide the update on our results.

David Hisey (CFO)

Good morning, everyone, and thank you, Fred. I appreciate the outstanding service of our associates and continued support of our customers through this difficult period. As Fred noted, historically low residential and commercial real estate activity persisted during the quarter, causing our results to be similar to last year's quarter. Yesterday, Stewart reported second quarter net income of $17 million, or $0.62 per diluted share on total revenues of $602 million. Adjusted for net realized and unrealized gains and losses, acquired intangible amortization, and other expenses, as presented in Appendix A of our press release. Second quarter adjusted net income was $25 million, or $0.91 per diluted share, compared to $26 million or $0.94 per diluted share in last year's quarter.

In the title segment, total operating revenues improved $29 million or 6%, driven by higher revenues from our agency operations, while direct title revenues were similar to the prior year quarter. The segment's pre-tax income decreased $2 million or 6%, primarily due to the lower agency remittance rate caused by geographic mix. After adjustments for purchase amortization and other items, the title segment's pre-tax income was $38 million, which was 2% higher compared to the prior year quarter, with adjusted pre-tax margins comparable. On our direct title business, total open orders in the second quarter were 2% better, while total closed orders were comparable. Our domestic commercial operations continued to produce solid results, with higher revenues of approximately $10 million or 23%, primarily driven by improved transaction size and volume in energy, industrial and multifamily asset classes.

Average commercial fee per file improved 17% to $13,500, compared to $11,600 last year. Domestic residential revenues decreased $15 million or 8%, primarily driven from lower fee per file with a lower purchase transaction mix. Total international operating revenues improved $3 million or 10%, primarily due to increased volumes in our Canada operations. On title losses, total title loss expense in the second quarter increased 7%, consistent with the increase in title revenues. As a percent of title revenues, title loss expense was 4% for both second quarters, 2024 and 2023. We expect title losses to average in the low- to mid-4% range for the full year 2024. Regarding the Real Estate Solutions segment, pre-tax income improved $2 million compared to last year, primarily resulting from increased revenues from our credit-related data and valuation services business.

Pre-tax margin was 5.5% in the second quarter, compared to 4.6% last year. Excluding acquisition, intangible expense, and sales tax assessment charge, adjusted pre-tax margin was 11.5%, compared to 14.5% in the prior year quarter. The boarding of new customers and scaling the business had an impact on margin, as Fred noted in his comments. On our consolidated operating expenses, our employee cost ratio in the second quarter improved to 30.5% from 33.9% last year, primarily driven by lower incentive compensation and average employee counts. On our other operating expense ratio increased to 25.9%, compared to 24% in the prior year quarter, primarily driven by increased credit information and services expenses in our Real Estate Solutions business.

On income taxes, our second quarter effective tax rate was approximately 31%, higher than our historical tax rate, primarily as a result of income sourced from international operations, which have a higher average income tax rate relative to domestic operations. On other matters, our financial position remains solid to support our customers, employees, and the real estate market during this difficult environment. Our total cash and investments at the end of the second quarter was approximately $310 million in excess of statutory premium requirements, and we also have a fully available $200 million line of credit facility. Total Stewart stockholders' equity at June 30, 2024, was approximately $1.36 billion, with a book value of approximately $49 per share.

Net cash provided by operations in the second quarter was $21 million, compared to $35 million last year, primarily as a result in trade accounts receivable consistent with revenue growth. Lastly, thank you again to our customers and associates. We remain confident in our service to the real estate markets. I'll now turn the call back over to the operator for questions.

Operator (participant)

Gentlemen, thank you. To our phone audience joining today, if you would like to ask a question, please press star and one on your telephone keypad. Pressing star and one will place your line into a queue, and we'll take your questions one at a time. Once again, ladies and gentlemen, that is star and one on your telephone keypad if you would like to ask a question. We'll hear first from the line of Soham Bhonsle at BTIG.

Soham Bhonsle (Senior Analyst and VP)

Hey, guys. Good morning. Soham Bhonsle here.

David Hisey (CFO)

Morning.

Soham Bhonsle (Senior Analyst and VP)

Morning, how you guys doing?

David Hisey (CFO)

Good.

Soham Bhonsle (Senior Analyst and VP)

Fred, maybe just first one on market share. You know, if I look at, you know, the non-commercial line, looks like, you know, at least on the purchase side, relative to our estimate, it was a little bit lighter.

David Hisey (CFO)

Yeah

Soham Bhonsle (Senior Analyst and VP)

Can you just maybe talk about, you know, what you saw on that front? Anything market-specific to note or anything competitors are doing this quarter, that'd be great.

David Hisey (CFO)

Oh, no, great. That, appreciate that. So yeah, there's a couple of things. I feel good about it. As I look at kind of our share in that area, the res area across the board, kind of holding our own, but there's a couple exceptions that happened, particularly this quarter. So if you remember, at the end of the year, as well as I did it again this quarter, I've shut some offices down in some micro markets. Our outlook was that we're gonna stay down longer, and I have some subscale markets where I felt it was appropriate to manage our kind of margin and our approach, that we took some action. So you saw it in the fourth quarter. I took, you know, what was it? $1.5 million plus incentives, so take $2 million.

I did the same thing this quarter. So there's some surgical stuff that we've done on some of the micro markets that is working its way through. The other thing I would say, if you look at the NAR stuff, by MSA and the top 10 kind of decreases in pending home sales, you know, a number of those markets are our biggest markets. So places like Houston was the number one in that. San Antonio was in the top four. So there's some things to share, but I feel good. We're kind of holding our own in those markets, but we did take some actions, in my view, to ensure the margin.

We have a lot of great growth initiatives in our res business and kind of our, what we call our direct kind of res business, where we're doing things like growing kind of Main Street commercial and employ, you know, and bending that in our offices. We've got some really interesting things going on in micro markets with organic, you know, hiring and teams. So I'm not really worried about it, and I feel it's pretty secure that over the next couple of years, we're gonna have more share in the res market than we do today. But there are some tweaks that we're doing because I wanna make sure that we're managing ourselves in a market that continues to be down a little, you know?

Soham Bhonsle (Senior Analyst and VP)

Okay, great. That's, that's super helpful. And then on the M&A comment, I was a little curious on the cautious approach here. You know, is that more of a function of where the bid-ask spread is today or something else? Because, you know, I would have thought that, you know, in the current environment is probably ripe for, you know, acquisitions, just given that we're sort of at the trough, right? Versus waiting for sort of an improvement in the market.

David Hisey (CFO)

That's a great... It's exactly what you said. So-

Fred Eppinger (CEO)

... It's the trading price. So usually, you know, what's great about that we've been able to do it, is between getting to a fair price but with an earn-out. You can get at it if the person selling thinks it could be more, they could get captured. If they can't, they can't. And we've had every single transaction done that's been accretive, and it's a great way to set it up. The problem right now is most agents are making very little money. And so it's hard to bridge the expectations, the value expectations, with earn-outs. And so they don't feel as good, we don't feel as good.

So in my view, you just gotta have a little bit of normalization in the run rate and a little bit more transparency about the outlook, and it'll be fine. And so again, you know, real living transactions, sure, but it tends to be because somebody's retiring, and they have to do it or whatever. Or you have some unique transparency to their pipeline because they're a niche or something like that. So we fully expect that coming back. We're having a lot of great conversations, you know, dozens, frankly. And so there's a lot of people that have rethought their position given the downturn and the stress that's been going through.

So I think there's gonna be lots of opportunity, but I think it's gonna be a little light, and will continue to be a little light for the next couple of quarters because of the clearing. Just what you said, it's really just that. It isn't... You know, we'll get there, but it's. You know, we had a little bit of that same thing right after 2021, where people wanted to get paid like it was 2021, and we couldn't.

Soham Bhonsle (Senior Analyst and VP)

Right.

Fred Eppinger (CEO)

We think that it could be duplicated, and it took us a while to settle, so that we could get, and meet the, the right kind of valuations that we did, and, and we'll do it again. So I'm not really worried about it.

Soham Bhonsle (Senior Analyst and VP)

Okay, great. And then just last one, on your long-term margins, I know that you've said you can get to the low double digits in a normalized market. But maybe just talk to us about, you know, how much of that lift is in sort of your control versus just the overall market normalizing, right? Because... and I'm asking because I, you know, I think while the low double-digit margin doesn't seem that far-fetched, I think it'd be helpful for your thoughts here, for investors to hear, you know, just to delineate between STC being sort of a show me story versus sort of a set it and forget it story if that-

Fred Eppinger (CEO)

Yeah, and it. Yeah, great question. And, and again, the reason I talk about it is because I have great confidence in the work we've done. So we have what I would consider excess capacity in our direct operations, right? That's where most of our fixed costs are, that's where our distributed offices are, that's where a lot of our revenue is. And the reality is, because of the work we've done, any growth back to a normal market, a lot of it gets to the bottom line, right? You can-- So those margins, I talk about the fact that in 2021, while we were showing 13.5, part of that was fake because the marginal contribution of such a robust market was really high because we were using overtime, and that wasn't sustainable.

But so in 2021, my guess is we were in the 10% kind of margin. The work we've done since then, particularly in some of the search work and some of the centralization, I believe that number is now 11.5%-12% in a $5 million purchase market, which comes from the utilization of the capacity we've created in our system, that will come through when the market just gets normal. And again, it has a lot to do with the structure of how direct works in the offices and how much the workflow is centralized. Now, I would also tell you, we've done a heck of a job managing in a down market. Like, we've changed kind of our financial discipline and structure.

And so in the 10 years previous to our journey, before I got here, the most we ever made in any given period was 5% margin. Well, we just went through the worst market ever, one of the worst markets in 35 years at 3.89, and we're at 5%. So I also feel good about our ability to manage our margins, but I feel that's the market. Now, what's controllable by us, we've done a lot of, right? The operating model, the variablizing more of the costs, making sure that, you know, kind of the way we manage the discipline of staffing is there. So, you know, yes, the journey from here to the numbers I'm talking about, you know, has some help from that. Now, what's the exception of that?

Well, the exception of that is we are gaining share in some of our other businesses, right? So, the reality is in things like our services business, if we can continue to gain share and mature a large, bigger, larger business, you know, that business was $30 million per year years ago, it's now $350 million. And I think it has an opportunity to double again as we continue to cross those thresholds. So there's other things that I think regardless... I mean, the market may not have to get all the way to 5, it has to be better than horrible, but with a little bit of improvement, we'll also get some benefit from some of the growth we're seeing there in an agency where we're literally growing share in many states.

So you know, again, the market—we need the market to get to the full opportunity that I talk about. I need it to just normalize a little bit. But for us, again, our model right now, the problem we have is, you know, you got a market going down 5% or 3%-5%, and so you're overcoming the additional work you have to do to make up for that lost volume against your fixed cost base in direct. So, you know, I feel good about it, I'm confident in it, but, but, I'd love a little help, let's say it that way, from the market, you know?

Soham Bhonsle (Senior Analyst and VP)

Yep. Makes a lot of sense. All right, thanks, guys. See you soon in a few weeks.

Fred Eppinger (CEO)

Yeah. Thank you very, very much....

Operator (participant)

Next, we'll hear from Bose George at KBW.

Bose George (Managing Director and Senior Equity Research Analyst)

Hey, guys. Good morning. I just wanted to follow up-

Fred Eppinger (CEO)

Good morning.

Bose George (Managing Director and Senior Equity Research Analyst)

Morning. Yeah, just wanted to follow up on the margin again. Just given, you know, the trends right now, and I think you sort of, you know, alluded to this in your outlook comments as well, but does it look like this year, if all things, you know, trends continue, the margin's gonna look kind of similar to what you guys did last year?

Fred Eppinger (CEO)

Yeah, that's the way I think about it. So if the market stays kind of where we are today or a tad better, but the market's down a little bit, right? We'll be about where we were last year. You know, and it's, you know, it is what it is. We just gotta tread water. You know, I think we still stay at this kind of decreasing a little bit. It, it's kind of gonna be relatively similar to what we made last year. Now, the comparisons are a little odd, because if you remember last year, the third quarter, there was a couple very robust quarters, and then the world came to an end, right?

Bose George (Managing Director and Senior Equity Research Analyst)

Mm-hmm.

Fred Eppinger (CEO)

So the comparisons are a little bit month-to-month, are kind of interesting, but I think the way you articulated it is similar from last year, kind of the way kind of we think about it a little bit.

Bose George (Managing Director and Senior Equity Research Analyst)

Yeah. Okay, great. That's helpful. And then just, is there much to do now on the cost-cutting side, or is it, as you kind of, I guess, said in your earlier comments, you need a little help from the market, and you're kind of positioned-

Fred Eppinger (CEO)

Yeah

Bose George (Managing Director and Senior Equity Research Analyst)

... you know, for that?

Fred Eppinger (CEO)

Yeah, it's a great question. I mean, I keep saying it, we're kind of running out of things that make sense. We've done some surgical things, you know, as I said, this quarter and a little bit in the end of the year on some micro markets where I just couldn't see the long-term view of getting where we needed to. But for the most part, we're actually kind of, we're there. We are trying to offset by being smart about prioritization, the investments we're making. Because we are making, you know, kind of a number of investments in some of the businesses that I talked about, whether it's commercial, whether it's what we're trying to do in some of the services businesses, particularly since we're ramping up clients.

But we're trying to make sure we're, you know, making the trade-offs on other places to manage it. But to your point, I think that is the description. There isn't, there isn't like— there's no magical place left after when we're talking 20 months of decreasing market to,

Bose George (Managing Director and Senior Equity Research Analyst)

Yep

Fred Eppinger (CEO)

... find a lot of expense opportunity.

Bose George (Managing Director and Senior Equity Research Analyst)

Yes, yes, that makes a lot of sense. Okay, great. Thank you.

Operator (participant)

Once more to our phone audience, that is star and one, if you would like to ask a question. We'll hear next from John Campbell at Stephens Inc.

Fred Eppinger (CEO)

Hey, John. Good morning.

John Campbell (Managing Director of Equity Research)

Hey, guys. Good morning. Okay, so wanted to touch on Real Estate Solutions. Obviously, really good results there. Congrats on the progress. Fred, you rattled off a few of the standouts. You talked to kind of broader market share. I'm hoping you guys can help maybe a little bit with the modeling. So first, you know, maybe help on the transactional mix, if it, you know, transactional versus contractual. And then secondly, maybe for David, if you can double-click on the commentary around onboarding costs. I wanna see, you know, how to what extent that normalizes this year. It sounds like just maybe a mismatch of revenues versus costs, as you onboard.

Fred Eppinger (CEO)

Yeah.

John Campbell (Managing Director of Equity Research)

Maybe you can help them out as well.

Fred Eppinger (CEO)

Yeah, great, John. Both good questions. So if you look at our portfolio, there's a place where there's a little bit of a standout right now, is kind of our some of the data solutions. We call one of the projects Verification Waterfall. And so we have a really nice, you know, uptick in new clients that we're onboarding, and it's quite a few. And so it's transactional by its nature, but it is kind of selling data and insight too. And so what you see is, because of that, there is a big ramp-up. We had a ramp-up of onboarding costs. You got to integrate the new clients into your systems.

There's a bunch of data you have to get access to, to buy and transition into the solution. You've got kind of a ramp-up of servicing personnel, and so there's a little pressure on margin as we have kind of the significant growth, right? And I would also say our first quarter solutions margin was probably a little high. We had some one-time things that happened that made it a tad high. So, but I do think by as we get to the end of the year and things normalize a little bit, the margins will go up a little bit, right?

And so, you know, I think we went from mid-teens to low double digits, and I can see it, you know, getting into that 12, 13 again at the end of the year, depending on the mix of all those solutions that we sell. Now, it's hard to completely predict that, because if the market comes back a little bit, some of our other services will grow a little bit more too, so. But it is very much, you know, explicit. Like, we know exactly what we're doing, we know the returns on those clients, we know what the ramp-up expenses are. There is a little bit of, like, there's been some data input cost increases in that world-

John Campbell (Managing Director of Equity Research)

Mm-hmm

Fred Eppinger (CEO)

... that we're now passing on to our clients that had some time delay. That's also in that mix a little bit, but I'm really quite excited about our services business, because what we're doing is we're getting really good traction in a market that's still quite anemic and down, particularly for lenders. I mentioned in my transcript, and I believe this too, you know, that business, we ran a $30 million business. We now have a $300 million business with multiple products in depth.... Typically lenders like account, like from the interest of counterparty risk. So they like to have people in that business with a balance sheet, and we weren't participating. It was really the big boys that were participating, and then some private companies.

Over time, as the market gets just a tad better, our ability to cross-sell is even going to get better because their markets, their availability will get bigger, and they tend to use multiple players on their shelf space. So we're living on a new, a period of new client growth, which will transition to kind of cross-sell growth as we go forward here over the next few quarters. And so I'm pretty bullish on that business. That's why I talk about it. I believe it's going to continue some of the trends we're seeing there. Now, again, it's seasonal, so there's some seasonal nature to that space.

But I like where we are, and I do think the margins, you know, will, what I call, normalize at the end of the year, as the onboarding gets to be a more normal percentage of what the revenue is.

David Hisey (CFO)

And John, just to add a couple of things there. I mean, I think you were trying to get a sense on transactional versus more like subscription. And the subscription's probably only in around the 15% or so of revenue range. Most of that business is transactional. And also, just to give a little more color on the cost. So if you think about bringing on a big bank or lender, you have to set up a service team, right? So you need account reps to, you know, give them what they need to run their business. And so you're ramping a decent amount of people, particularly if you're bringing on a big account.

Fred Eppinger (CEO)

Yeah. Yeah.

David Hisey (CFO)

Okay.

Fred Eppinger (CEO)

But again, I, I like the margins today, frankly, and I think they'll normalize and get a little bit better going forward. So I think we're in a pretty good spot there.

John Campbell (Managing Director of Equity Research)

Okay, that's very helpful. So the, David, the 85% transactional, it does sound like maybe that's recurring, I guess, where you're setting up a team around these guys. It's going to be seasonal, right? It's going to move with the housing market. But generally, when you lock in that lender, it's pretty secure revenue, correct?

David Hisey (CFO)

It's correct. I mean, and it varies by service. So like on the credit side, you tend to get the lion's share of the business. On the appraisal side, it's spread around more. But yes, once you sign an account, you're getting, you know, their business, and their business then varies by the market.

John Campbell (Managing Director of Equity Research)

Okay, helpful. And then last one for me, just total other OpEx. You know, that's grown at a much faster rate than revenues the last two quarters. It sounds like that the Real Estate Solutions, the onboarding cost is part of that. Obviously, you took the actions on the office closure, so I'm guessing maybe there was a little bit of excess, obviously, excess office or facility cost. So maybe if you could help talk through the extent of the savings from those office closures. And it does sound like that you expect the mismatch to normalize in the Real Estate Solutions segment. So just any kind of high-level thoughts on overall total OpEx for the revenue this year?

Fred Eppinger (CEO)

Yeah, again, the office closings were only about $1.5 million.

John Campbell (Managing Director of Equity Research)

Mm-hmm.

Fred Eppinger (CEO)

Then severance, I think, was $500,000.

David Hisey (CFO)

Yeah.

Fred Eppinger (CEO)

That's about two. So it's not a huge amount. One of the interesting things, John, just to clarify what else is in there, which is relatively significant. We've had a tremendous growth of commercial, and a lot of that commercial is big energy. And in big energy, you do a lot of outside search and data work. And we've had a pretty severe ramp-up in our commercial operations, and we've outsized our purchase of data and some of the outside third-party search because a lot of this energy stuff is in rural places which we don't have our own feet on the street or, you know, it's remote locations where you're using a third party to make sure we're accessing data. So a lot of the ramp-up is also in that.

It's in services, and it's in commercial. And on the commercial side, one of the interesting things is there's a little bit of a mismatch, right? If you ramp up, you provide all those services, you pay for all those services because they're period expenses, but the revenue from those don't come till those transactions close. We have a really nice pipeline of business and commercial that's going to continue through the year, that we've ramped up our search and outside third-party costs. It's really, it's that, and it's the real estate search that are by far the two places where those businesses are growing pretty materially, and they both have input costs in, that are in that category. The margins are good.

When you look at it, you break it down by those businesses, the margins are good, but in both cases, there's also a tad bit of timing because our ramp-up was so fast, right? So there's a little bit of a delay in terms of the revenue generation and earnings generation for both those things. So I'm very comfortable with the line of sight to the margin of those business and the reason for those. But it is really... You know, if I think about our model, if you look at the beginning of the year, and you think about our model and your guys' model versus where we are, what's different? Well, I think what's different is we felt that the market was going to grow 5% or so, right?

Not a lot, but a lot. So our core business was going to expand, where we have excess capacity. That has shrunk 5% over the year and continues flat. But what we've done is we've grown significant share in these other businesses. And so we've offset the shrinkage of the market by growth of these other businesses, but those other businesses have different profiles in their economics, right? And so part of that profile is this other expense category, which is the inputs of these businesses that have grown nicely for us. They just changed the profile of our expense base. But again, I'm very comfortable with the margins in both places and the fact that we're going to have, you know, over time, enhancing margins because of the timing. If that helps any, I don't know if it does.

John Campbell (Managing Director of Equity Research)

No, that's perfect. Thanks for all the color, guys. Appreciate it.

Fred Eppinger (CEO)

Thanks.

Operator (participant)

Ladies and gentlemen, we'll take just another moment to allow star and one from our phone audience for anyone that has a question this morning. Just take another moment. Star and one, ladies and gentlemen. Having no signals from our phone audience, I'll turn the floor back to Mr. Eppinger for any additional or closing remarks.

Fred Eppinger (CEO)

I'd just like to thank everybody for your interest in Stewart during our call. Thank you so much.

Operator (participant)

Ladies and gentlemen, this does conclude today's teleconference, and we do thank you all for your participation. You may now disconnect your lines.