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SI

STEWART INFORMATION SERVICES CORP (STC)·Q2 2025 Earnings Summary

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 .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Total Revenue ($USD Millions)$602.2 $612.0 $722.2
Adjusted Revenue ($USD Millions)$602.7 $608.9 $721.5
Diluted EPS (GAAP, $)$0.62 $0.11 $1.13
Adjusted Diluted EPS ($)$0.91 $0.25 $1.34
Pretax Margin % (GAAP)4.8% 1.0% 6.5%
Adjusted Pretax Margin %6.6% 1.8% 7.6%
Revenue Consensus Mean (S&P, $USD Millions)601.5*595.5*662.6*
Primary EPS Consensus Mean (S&P, $)$1.02*$0.34*$1.18*

Note: Values retrieved from S&P Global.*

Segment breakdown

Segment MetricQ2 2024Q1 2025Q2 2025
Title Operating Revenues ($MM)$496.2 $499.2 $592.5
Title Pretax Income ($MM)$33.4 $11.8 $49.3
Title Adjusted Pretax Margin %7.5% 2.2% 8.5%
Real Estate Solutions Operating Revenues ($MM)$92.2 $97.1 $112.7
RES Pretax Income ($MM)$5.1 $4.1 $6.7
RES Adjusted Pretax Margin %11.5% 9.9% 10.9%

KPIs and operating ratios

KPIQ2 2024Q1 2025Q2 2025
Domestic Commercial Title Revenue ($MM)$51.0 $69.3 $74.6
Domestic Commercial Fee per File ($)$13,500 $15,800 $16,900
Domestic Residential Fee per File ($)$3,000 $3,300 $2,900
Title Loss Ratio %4.2% 3.5% 3.6%
Employee Costs / Operating Revenues %30.5% 31.2% 29.5%
Other Operating Expenses / Operating Revenues %25.9% 27.0% 24.6%
Net Cash Provided (Used) by Operations ($MM)$21.1 $(29.9) $53.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Title Loss RatioFY 2025Low 4% range (Q1 call) Around 4% for FY25 (Q2 call) Maintained
RES Adjusted Pretax MarginFY 2025Normalize to low-teens range (Q1) Low-teens expected; sequential improvement (Q2) Maintained / improving
Investment Income (Escrow)FY 20251Q lower on balances (Q1) ~$6M/quarter escrow earnings; yield sensitive; rate cuts would pressure (Q2) Clarified; cautious on rates
Commercial Growth OutlookH2 2025Double-digit potential (Q1) Growth above market; not sustaining ~45% YoY; harder comps (Q2) Tempered vs Q1
DividendQ2 2025$0.50 declared (June 2) Subsequent increase to $0.525 for Q3 (Sept 2) Raised (post-Q2 event)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Commercial pipeline and asset-class mixQ4: single-digit market growth expected; outgrowth driven by energy/data centers mix and share gains Pipeline breadth strong; growth above market but not 45% YoY; small commercial in direct offices accelerating Positive momentum; comps tightening
Agency services share gainsQ1: focused on 15 target states; gross +11%, net +13% Gross revenue +25% YoY; enhanced concierge commercial support for agents Accelerating share/offer differentiation
RES margin normalization & data costsQ4: vendor price increases ahead of client repricing; margins to low-teens Sequential margin improvement; low-teens expected; growth led by credit info and valuations Improving per plan
Title loss ratio & claimsQ1: expect low ~4% FY25; 3.5% in Q1 3.6% in Q2; guide ~4% FY25 Stable/favorable
Investment income/escrowQ1: lower balances pressured 1Q ~$6M quarterly escrow earnings; rate sensitivity noted Stable baseline; rate risk
Regulatory: Texas title fee cutQ1: surprised by 10% cut; challenges/mitigation options discussed No Q2 update beyond market context; continued management focus Ongoing risk management
Refi/title “pilot” modelsQ1: limited refi exposure benefit Not participating; supportive of models retaining policies/curative; potential future participation Monitoring; optionality
Technology/AI initiatives (RES)Q4: tech upgrades, centralization PropStream acquired Batch Leads/Batch Dialer to combine data and AI-driven tools for lead targeting Capability expansion

Management Commentary

  • CEO: “We are very pleased with our second quarter results… we grew revenues by 20% and adjusted EPS by 48% compared to second quarter of ’24.”
  • CEO on commercial trajectory: “Do I think we’re going to sustain 45% growth? No… Do I think we can grow and grow more than the market? Yes.”
  • CFO: “Title segment adjusted pre-tax margin improved 1% to 8.5%… Domestic commercial average fee per file increased 25% to $16,900.”
  • CFO on loss ratio: “We expect our title losses to average around 4% for the full year 2025.”
  • CFO on liquidity: “Total cash and investments were approximately $390 million in excess of our statutory premium reserve requirements… fully available $200 million line of credit.”

Q&A Highlights

  • Commercial outlook: Management expects growth above market but not to sustain ~45% YoY due to tougher comps; pipeline breadth remains encouraging .
  • Agency retention and geography: Lower retention splits driven by geographic mix (e.g., Florida share smaller than rivals), but margin profile improving with growth .
  • Refi/title pilot: Stewart is not participating; prefers models retaining title policy and curative; could engage later if economics and workflows fit .
  • Investment income: ~$6M/quarter baseline from escrow earnings; sensitive to rate cuts; portfolio roll into higher-yield environment supportive .

Estimates Context

  • Q2 2025 delivered a clear beat versus S&P Global consensus: adjusted EPS $1.34 vs. $1.18*; revenue $722.2M vs. $662.6M*; EBITDA actual ~$66.9M vs. lack of explicit quarterly estimate (thin coverage) .
  • Coverage is thin (only one estimate for Q2), implying higher revision potential post-print; prior quarters also showed low estimate counts, increasing volatility in consensus [functions.GetEstimates].

Note: Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Broad-based beat with margin expansion and cash generation strengthens the near-term bull case; commercial breadth and agency share gains are the principal drivers of upside narrative .
  • The most material swing factor for H2 is commercial sustainability vs. tougher comps—management guides to growth above market but less outsized; monitor pipeline conversion across energy/data center and small commercial .
  • RES margins are normalizing as repricing catches up with data costs; sequential improvement supports a medium-term thesis of low-teens margins in lender services .
  • Claims discipline remains a differentiator; title loss ratio guided ~4% with favorable experience, supporting margin resilience even in a flat housing backdrop .
  • Operating leverage improved (employee and other opex ratios down), positioning the company to expand margins on incremental volume—especially if refi or purchase activity improves .
  • Liquidity and capital returns are robust (dividend continuity; subsequent increase in Q3), offering downside protection and signaling confidence .
  • Trading setup: expect estimate revisions upward given the beat and thin coverage; watch macro rate path for escrow/investment income sensitivity and residential activity inflection .