Stewart Information Services - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered a broad-based beat: revenue rose 20% year over year to $722.2M and adjusted EPS increased 48% to $1.34; both exceeded thinly covered S&P Global consensus (Revenue: $662.6M*, EPS: $1.18*) on strong commercial title and agency performance.
• Title segment adjusted pretax margin expanded to 8.5% (from 7.5% YoY) on higher volumes, improved claims experience (loss ratio 3.6% vs. 4.2% YoY), and better operating leverage; RES revenue grew 22% with sequential margin improvement, though still mixed versus last year.
• Management expects continued growth above market in commercial but cautions against sustaining 45% YoY given tougher comps; RES margins are expected to normalize in the low teens; title loss ratio guided to ~4% for FY25.
• Cash generation strengthened materially: operating cash flow rose to $53.4M (vs. $21.1M YoY); Q2 dividend of $0.50 was declared, and subsequently increased to $0.525 in September, underscoring capital-return confidence.

What Went Well and What Went Wrong

• What Went Well

  • Domestic commercial title revenues up 46% YoY, with average fee per file up 25% to $16,900; pipeline breadth remains solid across energy, data centers, hospitality, industrial, land development, and multifamily asset classes.
  • Agency operations grew gross revenue 25% YoY with share gains in targeted states; enhanced “concierge” commercial support for agents is gaining traction, indicating competitive position improvement.
  • Operating leverage improved: employee cost ratio fell to 29.5% (from 30.5% YoY) and other operating expense ratio to 24.6% (from 25.9% YoY), supporting margin expansion despite macro headwinds.
  • Quote (CEO): “We grew revenues by 20% and adjusted EPS by 48% compared to second quarter of ’24”.

• What Went Wrong

  • RES adjusted margin (10.9%) remains slightly below prior year (11.5%) as credit information and valuation service costs elevated with growth; margins improved sequentially but are still normalizing.
  • Residential purchase fee per file ticked down to $2,900 (from $3,000 YoY), reflecting mix shift toward refinancing and investor orders; the residential backdrop remains challenged.
  • Geographic mix weighed on agency retention splits (e.g., lower Florida share vs. larger competitors), pressuring retention rates despite overall growth momentum.
  • Analyst concern: sustainability of outsized commercial growth vs. harder comps in H2; management does not expect to sustain ~45% growth though pipeline visibility is good.

Transcript

Operator (participant)

Thank you for joining the Stewart Information Services second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask a question during the question and answer session. Instructions will be given at that time. Please note today's call is being recorded. Lastly, if you require operator assistance, please press STAR zero. It is now my pleasure to turn today's conference over to Kat Bass, Director of Investor Relations. Please go ahead.

Thank you for joining us today for Stewart's second quarter 2025 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. Thank you for joining us today for Stewart's second quarter 2025 earnings conference call. Yesterday we released the financial results for the quarter, which David will review with you shortly. I will open the call with some thoughts on current housing market conditions, followed by a dive into our second quarter results and some insight into the progress we are making on our strategic growth initiatives. Before discussing these initiatives, I want to express our sincerest sympathies to those affected by the recent weather events across the country. Our hearts go out to those affected by the July 4th flooding in Texas, our home state. While our employees were not directly impacted by this monumental flood, we know that countless families were. We have and will continue to find ways to support rebuilding efforts in Central Texas.

We are very pleased with our second quarter results as they demonstrate our ability to significantly grow both revenue and earnings in a stubbornly challenged housing market. Market uncertainty and affordability challenges have kept buyers at bay as they wait for further clarity on near term economics. The spring selling season has fallen flat, with existing home sales down roughly 1% compared to the second quarter of 2024. Inventories have improved in volume and quality over the past several months, which could be a precursor to some improvement in the market. The improved inventory is allowing buyers to be more selective, and we are seeing that homes are sitting on the market longer and more homes are trading below listing price.

All of these levers are helping cool price appreciation, which was around 1.5% for the quarter as compared to about 3% for the first quarter and over 4.5% for the fourth quarter in '24. While the current market outlook is difficult to predict, given the current market activity, we expect to see some improvement in the second half of the year relative to 2024. However, the magnitude and timing of this improvement remains unclear in a largely flat housing market. I am very pleased with the strong results for the second quarter and our continued momentum across all of our businesses. We grew revenues by 20% and adjusted EPS by 48% compared to second quarter of '24.

In the direct operations, a business which most immediately feels the effects of a challenged residential housing market, we grew 6% overall, and we remain focused on growing share in target MSAs and micro markets both organically and inorganically. We expect acquisitions will be a big driver of our growth plans for this business going forward and maintain a warm pipeline of targets. In addition, we are focused on expanding small commercial within direct operations, and our investments are having significant impact. As we delivered 36% growth rate in this quarter over last year in small commercial and direct operations, growth in our national commercial services business continued to be strong, driven by increasing penetration in a number of geographic markets and asset classes. Our continued growth will be driven by targeted investments in talent.

Thoughtful investments in our talent will allow us to expand our network and deepen our capabilities in more geographies and asset classes in order to leverage our distinctive underwriting capability. We have made great progress in expanding our commercial teams with industry-leading talent and will continue to strategically do so into the foreseeable future. In the second quarter, we grew our domestic commercial business by 46% relative to the second quarter of last year. Year to date, domestic revenue has grown 43% when compared to first half of '24. While energy continues to be a strong asset class for us, we have also experienced solid growth across most of our asset classes, and we are steadfast in our pursuit of growth across all commercial asset classes. Our agency services business also delivered very strong results.

Our team remains focused on expansion through share gains in attractive markets through additional new agents and expanded share with existing agents. We pursue growth across all states, but we are laser focused on 15 states that would allow us to capture significant scale and growth. We have also enhanced our agency commercial capabilities and are seeing strong traction in supporting our agents in their commercial work. Our agency services team delivered strong second quarter results, growing 25% when compared to second quarter of 24'. Again, that's in a relatively flat residential market, which likely demonstrates continued share gains in agency, residential, and commercial. We will continue to build the momentum we have made in recent years for our agents in order to differentiate our services and better our offerings for our agent partners.

Our real estate solutions business continues to gain traction, growing revenue 22% when compared to second quater last year, primarily due to higher revenues from our credit information evaluation services business. Our margins improved sequentially and were slightly down relative to second quater '24. We expect margins in our lender services to normalize in the low teens range for the remainder of the year. We expect to grow the real estate solutions business line by gaining share with top lenders and cross selling our products as we leverage our improved portfolio of services. Cross selling in this kind of current market conditions poses some challenges. However, we are pleased to see share gains with both existing clients and new client introductions, and we expect continued momentum in this space as the market improves.

We are also proud to announce that PropStream, a real estate data and analytics platform in our real estate solutions segment, acquired Batch Leads and Batch Dialer in early July. This acquisition allows us to combine PropStream's property data engine and marketing tools with Batch Leads' advanced AI-driven tools and contact dialer. This combination will offer customers best-in-class nationwide real estate data intelligence and enhanced lead targeting and unified outreach platform all in one place. Moving to our international business, we are focused on broadening our geographic presence in Canada and increasing our commercial penetration. In second quater '25, we grew both non-commercial direct and commercial direct revenue by 6% compared to the prior year. We believe we can continue to build our strong position in these markets and continue to grow share.

Overall, we remain dedicated to strengthening our businesses by improving our scale and improving our competitive position in each business. We remain focused on growth even in the challenged market, and we feel poised to capitalize on improvements when the market returns to normal level. We continue to be thoughtful about our investments in ourselves and in pursuit of smart growth for each of our business lines. I want to close by thanking our employees for their dedication and focus. It's interesting that over the last few weeks I've been able to visit a large number of offices and met with over a thousand of our colleagues in person. I was struck by the positivity and energy everywhere I visit, especially given the difficult market conditions we all compete in. I want to thank them for driving our journey to be the premier title service provider.

Finally, to our many new and long term customers, I want to thank you for trusting us to deliver with consistency and excellence. With that, David, I'll turn it over to you to provide the update on those things.

David Hisey (CFO)

Good morning everyone and thank you Fred. I appreciate our employees and I'm thankful for our customers. I share Fred's sympathies for those affected by recent weather events. The real estate market remains challenged with mortgage rates in the high sixes and existing single family home sales around 15-year lows. Yesterday, Stewart reported second quarter net income of $32 million or $1.13 per diluted share based on revenues of $722 million. Appendix A of our press release shows adjustments primarily related to net realized and unrealized gains and losses and acquired intangible asset amortization that we use to measure operating performance on an adjusted basis. Second quarter net income was $38 million or $1.34 per diluted share compared to $25 million or $0.91 per diluted share last year.

In the title segment, operating revenues in the second quarter improved $96 million or 19%, driven by both our direct and agency title operations. This resulted in a title pre-tax income improvement of $16 million or 48% after adjustments for purchase, intangible, amortization and other expenses. The title segment adjusted pre-tax income was $52 million, which was $14 million or 35% better than last year, while adjusted pre-tax margin improved 1% to 8.5%. On our direct title business, second quarter total open and closed orders improved due to higher commercial refinancing and real estate investor activity. Domestic commercial revenues increased $24 million or 46% due to strength and breadth in the energy, data center, hospitality, industrial, land development and multifamily asset class. Domestic commercial average fee per file increased 25% to $16,900 compared to $13,500 last year.

Domestic residential fee per file slightly declined to $2,900 compared to $3,000 last year, primarily due to a higher mix of refinancing and real estate investor orders. International results improved modestly. With our agency operations, gross agency revenues increased $61 million or 25% on improved volumes in our key agency states, while net agency revenues improved $9 million or 21%. On title losses, our total title loss expense in the second quarter increased slightly to $22 million due to increased title revenues, partially offset by our overall favorable claims experience. The title loss ratio for the second quarter improved to 3.6% compared to 4.2% last year. We expect our title losses to average around 4% for the full year 2025. Regarding the Real Estate Solutions segment, operating revenues improved $20 million or 22%, driven by increased revenue from our credit information and valuation services operations.

Excluding acquisition and tangible amortization, adjusted pretax income was $2 million or 15% higher. We continue to manage the higher credit information cost of service and are focused on deepening and expanding customer relationships. Adjusted pretax margin for the second quarter was 10.9%, which has improved sequentially and from Q4's low point. We expect our margins to be in the low teens as these relationships mature. On our consolidated operating expenses, our employee cost ratio improved to 30% versus 31% last year, while our other operating expense ratio improved to 25% from 26%, primarily due to higher operating revenues. On other matters, our financial position remains solid to support our customers, employees, and the real estate market. During this challenging environment, our total cash and investments were approximately $390 million in excess of our statutory premium reserve requirements, while we also have a fully available $200 million line of credit.

Total Stewart stockholders' equity at June 30 was approximately $1.4 billion with a book value of $51 a share. Net cash provided by operations improved by $32 million in the second quarter compared to last year. Again, thank you to our customers and employees, and we remain confident in our service to the real estate markets. I'll now turn the call over to the operator for questions.

Operator (participant)

Thank you. At this time, if you would like to ask a question, please press the STAR and one on your telephone keypad. You may remove yourself from the queue at any time by pressing STAR two. Once again, that is STAR and one to ask a question. We will pause for just a moment to allow any questions to queue. We will take our first question from Bose George with KBW. Please go ahead.

Fred Eppinger (CEO)

Good morning.

Bose George (Managing Director)

Good morning. First, just on commercial, you obviously had another very good commercial quarter. Can you discuss what you're seeing in terms of the commercial pipeline in July and also, you know, last year, in the second half of the year, obviously commercial ramped quite a bit. Just given that the year over year comps obviously get a little bit harder, just curious how we should think about your expectations for the back half of this year and commercial revenues year over year.

Fred Eppinger (CEO)

Yeah, thanks. I feel good about the pipeline. There's a lot of activity, and again, do I think we're going to sustain 45% growth? No. Do I think we can grow and grow up more than the market? Yes. We have good visibility to pipeline, and the breadth of the pipeline is good too. I feel pretty good about it. The other thing about us for commercial, we're also very focused on it, what I call main street commercial, small commercial within the direct operation. We've seen nice growth there too, which is a segment that we kind of gave up on almost during some of the troubled times of the company. That's coming back nicely. I'm pretty comfortable that we will continue to see growth in commercial.

You're absolutely right to talk about the comparisons from last year, and we're at a very hefty number which will probably come in a little bit. I feel confident that the momentum will continue.

Bose George (Managing Director)

Okay, great. Actually, switching over to the residential on the agent premiums, you know, they were up 25% versus direct up 14%. Can you remind us, is there any timing issue there, agent versus direct, or is it just the agency?

Fred Eppinger (CEO)

Again, I think what's happened on agency is twofold. One is we've been able, we've been resourcing up a little bit now that our value proposition has been good. Both our servicing and some of these capabilities on commercial. We've added staff in some of these targeted states, which has started to get some traction. Also, if you remember, we weren't very good at delivering commercial to the agents outside of New York really. We created both an ability to do what we call kind of a concierge service for agents to really help them, particularly on things that might be multi state, and some direct issue capability for them on places they don't have licenses, and that's taken off. We have both nice geographic growth because of resource, and we have the commercial penetration that's increased. I like the momentum there.

We had, I think, net growth of 14 last quarter, announced 21. We got to be at that 25 level. It could bounce around, it could be a little bit less than that. I like our momentum because of the initiatives we're taking to grow our position.

Bose George (Managing Director)

Okay, great, that's helpful, thanks. Actually, just one more on the agent retention rate. It looked like that declined about a point. Is that just geography that's driving that?

Fred Eppinger (CEO)

Yeah, it's 100% geography. If you look at us versus everybody else, it is really driven by Florida and that is we've made some progress but we're still in the 5% to 6% share range where our competitors are the 20% plus. All of the big three are all 20% plus share and that drives that retention. There are a couple other states that are more, but the profitability of every state. I don't, I'm not worried about it. It's just the splits kind of drive that. In Texas, for instance, we've had nice growth in Texas, which is good, attractive, but that's a much lower split. It's like a 15%. It's just the geographic mix. Same with Ohio. We've had really good growth.

I'm comfortable with that because we've had increase, the margin has gotten better as we've grown because remember that's also a business where there's more fixed costs. Growth is very helpful to your margin because so much of the work is borne by the agent and really good continued margin profile as we grow. I'm good with the mix, but I'd like to see more Florida in the mix too.

Bose George (Managing Director)

Yeah, okay, great. Thanks a lot.

Operator (participant)

Thank you. Your next question comes fromGeoffrey Dunn with Dowling & Partners. Please go ahead.

Fred Eppinger (CEO)

Good morning.

Geoffrey Dunn (Equity Analyst and Partner)

I got a couple of questions for you. I guess first,

Fred Eppinger (CEO)

What is the rough.

Geoffrey Dunn (Equity Analyst and Partner)

Breakdown of your domestic commercial business between what you're labeling small versus national commercial?

Fred Eppinger (CEO)

About $19 million in this quarter. About $19 of the total would be what I call small. Right. So the $74 domestic, about $19. What I'm excited about is that, you know, we had basically, when our capital was short, when the company was troubled, we basically centralized what the commercial really did and we did very little in the offices. We were advocating kind of the, we were giving to the big guys all the, but I would say $20 million and down kind of business that you have in the, in the single state, you know, mixed use projects in some of these places and particularly in offices outside the big cities. Right. The Austin's of the world or the Columbuses of the world, you know. What's happened now is we've done a really nice job investing and setting and providing skills.

What's interesting is we had some of the skills present in the offices but we haven't really kind of focused on it. That's really starting to get some nice traction for us. I really think that's an important part of our go forward plan because it helps dramatically. Kind of the, you know, our margin profile in the direct operations as well. It is because you're using your excess capacity more effectively and it gives you some, you know, higher margin business. Gotcha.

Geoffrey Dunn (Equity Analyst and Partner)

On the residential business, can you remind us the premium relationship between a purchase deal and a refi deal as well as the margins that typically go with those?

Fred Eppinger (CEO)

Sure. A retail deal is kind of somewhere about $3,000. Refi is somewhere between $1,000 and $1,400, differs whether it's centralized or distributed or whatever, what state it's in. The margin on residential is pretty consistent, whereas refi bounces all over the place because it depends on your capacity in the office. Right. Are you doing it with excess capacity? The margin is going to be lower if you have excess capacity for refi. Again, think about refi for us. Refi is just upside for us. Unlike everybody else in the industry, we only have 3% of our revenue refi and less in earnings. It's all upside. We've grown a little bit in centralized as the lender business has grown. I haven't really focused on it because it's a little bit more cyclical than our other businesses.

We've really primarily invested in things like commercial and purchase and frankly even centralized, we're going to have to niche like reverse and the investor. I felt that those were the priorities for us to get our margins up, our consistency of earnings up, and our growth up. I look at refi as just future upside. By the way, I don't need it to get to 15% share that I talked about. I don't need it to get to 12% returns. As other people kind of think about it's coming and going, it doesn't for me, it doesn't really affect our profile. This quarter is a great example where some of our big competitors are going to get a little bit more boost from refi. You can see it in the numbers where we're not going to get that because we don't.

There's a whole segment of some of the big players that we're not present in. I haven't really focused on it. Over time we'll get more of this, but it'll be from a position of a more stable company with higher margins and I'll be happy to do it. That's kind of where we are with refi. Which is why, by the way, when people talk about the pilot, the impact on us is kind of nothing and by the way, the pilot, the latest announcements are actually very positive to me because what it looks like is they're refining as an option the model that includes a title policy, maybe cheaper, maybe with different coverages, with curative, which is what we recommended at the beginning, which they went to a more tech only.

If that pilot works and there's margins in it with that approach, we could do that because we have the same technology and the same workflows. We could triage that stuff like that too. For me, refi is just a potential, you know, additional positive thing for us in the future if we want to pursue it more aggressively. I'm feeling good about what we have, but I'm fine that it's a small percentage of our business too.

Geoffrey Dunn (Equity Analyst and Partner)

Given the pilot comments you just made, I know it's been bumping around a little bit. Not a lot of traction at this point. Do you have any sense as to how the pilot is pricing loans that go through with waived title insurance versus product?

Fred Eppinger (CEO)

Yeah, I don't know if we're not that close, and obviously the waived, in my view, is not the best solution for the lenders, right, because it kicks a lot of issues around. If you're not going to do any curative, there's going to be some real issues at transaction, later transactions. I know what the tech pricing is, and I frankly don't even know this new model, what the whole pricing is, which is something that would have to come out of it, and they'd have to prove that they could actually do that successfully. To me, anything that retains the policy and retains the curative, that's probably highly automated, right, because it's a segment of the policies that is less risky, if you will. That's a much better solution for lenders, in my view, and probably gets to the same.

You can give a little bit of a lower price to that.

David Hisey (CFO)

So.

Fred Eppinger (CEO)

We are not participating in it. We just know about it and we've been watching it closely and try to pay attention to it to make sure if we want to participate later, if it gets through, to know if we would do it. Thank you.

Geoffrey Dunn (Equity Analyst and Partner)

Could you update us on the mix of the primary segments within RES being PropStream, Info Research, and the core offerings, and the margins that go with those three?

Fred Eppinger (CEO)

Yeah. With that business, you have the data kind of business, what we call it a data business that's got the verification waterfall and all the tri-merge credit stuff in it. We have appraisal, which is a big piece of the business.

David Hisey (CFO)

Those are the two biggest revenue.

Fred Eppinger (CEO)

Right. Those are really the two big ones. Profit is much smaller, but it's a nice value-added product. Those all, we believe, can get to that 12% consistent in a down market, that can get to that 12% kind of cash margin. In a good market, that should get more closer to 14%, 15% if we had a little bit more volume because they all have some fixed cost coverage issues when you're at this low volume. The whole business, in my view, can carry that. We had a little bit of bumpiness with the data costs and how we priced some of this in a bundled fashion to capture some value. What's going to end up happening, we'll end up this year right around where we ended up last year, between 11% and 12%, I guess, when it's all said for the year.

I like the businesses, they generate a nice profile, they are cyclical, they all are affected by the cycle. We've been able to have enough margin on a cash basis to sustain a little bit higher margin in those businesses. Okay, great. Thank you.

Operator (participant)

Thank you. We will take the next question from Bose George with KBW, please go ahead.

Bose George (Managing Director)

Just a quick follow-up. The investment income line was up a decent amount. Was there anything unusual there?

David Hisey (CFO)

Yeah, I mean we're still running about $6 million of that a quarter as the escrow earnings and then the rest. You see this in other places too, right? As you're rolling investments into the higher yield environment, you get a little bit more on that. That's mainly the reason it's going up, as well as we had a little bit of increase in balances.

Fred Eppinger (CEO)

Yeah. Both over time, we're not seeing the impact yet. This commercial as a % of our business, if that gets bigger, that's helpful, right, because of the flow that comes with that and we have to capture it. We've gone from about 10% of our business in title being commercial to 13%, which is helpful. I would tell you the other place we need to push on is that we should be able to grow our 1031 business, which we haven't recognized yet. We need to get after that and grow that business because that should be connected to this growth in commercial as a part of our business. As David said, mostly what we had to do is recapture escrow with these partnerships with banks that value the deposits, and we got to keep doing that. As we grow, obviously those balances grow.

There's a little bit, but the other piece here is making sure we capture because the additional kind of a little bit disproportionate on commercial. If we can do a good job there, we should over time see a little bit of growth there too, which hasn't materialized yet, but could.

Bose George (Managing Director)

Okay, that number, I mean we should think of that number as kind of base case and kind of grow from there.

Fred Eppinger (CEO)

When you think of modeling, obviously if yields, it's very yield driven, right?

Bose George (Managing Director)

Yeah.

Fred Eppinger (CEO)

Right.

David Hisey (CFO)

If you have two rate cuts, let's just say for the rest of the year you're going to feel that a little bit in the escrows. Ours are hair trigger because they're more negotiated. You're definitely going to have some downward pressure. As you roll your investment portfolio, that's going into things that are a lot better than during COVID years.

Operator (participant)

Yeah.

Bose George (Managing Director)

Okay, great. Thanks for the color.

Operator (participant)

Thank you. It appears that we have no further questions at this time. I will now turn the meeting back to Fred Eppinger.

Fred Eppinger (CEO)

Thank you for the call. One of the things that I would.

David Hisey (CFO)

Close by saying there was a great.

Fred Eppinger (CEO)

Question 2,4 years ago by one of the analysts that said, you know, if the market doesn't grow at all, like what can the company do? I think the way I answered is, I said, I think because of our momentum, we could grow 10% top line and 20% bottom line. In that kind of environment, if you look at the six months so far, we're up about 16% and about 49% in earnings. I don't know if we can sustain something like that, but what I know is that our businesses have some nice momentum right now and if we stay focused on what we're trying to accomplish, we should be able to grow a little bit more than the market and continue to leverage our earnings.

I'm really proud of what this quarter was, not because of this quarter, but because of the work that our folks did to build our capabilities over the last couple of years to get to this point where I think we can sustain a little bit more than the market, not probably what this quarter was, but sustain a little bit better than the market. I'm very pleased with where we are positioned as a company. Thank you so much for your attention today and thank you.

Operator (participant)

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.