Stewart Information Services Corporation (STC) Earnings

Management highlights

- Overall Financial Performance * Q2 2026 total revenue grew 24%+ YoY, with 13% YoY earnings growth; slower earnings growth reflects $8 million in incremental Q2 talent investments to drive organic growth across three title business lines, with full impact expected in 2-4 quarters. * H1 2026 revenue grew 26% YoY and adjusted pre-tax income grew 45% YoY, despite existing home sales remaining at multi-decade lows. * Consolidated employee costs rose 17% YoY YTD due to organic headcount growth for growth initiatives and acquisition-related additions; the overall employee cost ratio improved to 27% from 30% YoY due to outpacing revenue growth. * The other operating expense ratio increased to 27% from 25% YoY, driven by the higher expense structure of the growing real estate solutions segment (which relies on outside services, data costs, and contract workforces); management expects this ratio to stay between 27% and 28% going forward. - Market Conditions * Existing home sales growth was 2% YoY H1 2026, with annualized volumes remaining in the 4 million to 4.1 million range, down from management's 2026 start expectation of 6-8% growth. Mortgage rates stabilized around 6.5% in Q2 after dipping to ~6% in Q1 2026, holding back transaction growth. * Home prices rose ~1.5% QoQ despite increasing inventory, and the share of mortgages with rates under 3% has fallen to 19.5% from a peak of 25%, slowly driving more life-event-related transaction activity. - Strategic Activity * Inorganic acquisition pipeline activity has picked up meaningfully in 2026. Most of the capital raised in late 2025 remains undeployed, with multiple transactions expected to close in the next 60-120 days funded by excess capital. All upcoming deals are smaller than the MCS acquisition, focused on local MSA scale gains in direct operations, real estate services scale, and agency share gains. Management expects to fully deploy the raised capital by the end of 2026. * The company has prioritized targeted talent investments across all segments to capture share from market disruptions and expand underpenetrated geographies and sectors: $3-4 million invested in commercial teams, ~$2 million in direct operations, and $2-3 million in agency customer-facing talent in Q2 2026, with full contribution expected in 2-3 quarters. - Balance Sheet * Financial position remains strong, with ~$400 million in cash and investments in excess of statutory reserve requirements. Total stockholders' equity reached ~$1.66 billion as of Q2 end, equal to ~$55 per share book value. Operating net cash flow increased to $60 million from $53 million YoY.

Guidance

- Full year 2026: Management expects full year earnings growth to outpace revenue growth, guided to ~20% YoY revenue growth and ~30% YoY earnings growth. Overall company adjusted margin is expected to improve by ~0.5 percentage points YoY (range of 0.4-0.6 percentage points), even with continued investment in growth; the title segment margin is expected to be roughly flat YoY. - Full year 2026 title loss ratio is expected to average between 3.5% and 4%. - Existing home sales full year 2026 growth is now guided to ~2% YoY, a downward revision from the original 6-8% growth expectation at the start of the year, with annual volumes remaining in the low 4 million unit range. - Management maintains a long-term target of 12% adjusted company margins when the existing home sales market returns to a 5 million unit annual pace. - Commercial revenue is expected to deliver full year 2026 growth, which will be the company's third consecutive record year for commercial revenue; percentage growth will moderate relative to prior years due to difficult YoY comparisons after 40-50% growth in 2024-2025, but underlying pipeline strength remains solid.

Segment performance

1. Title Segment: Total operating revenues increased 15% year-over-year (YoY) to $91 million, driven by strong agency and domestic commercial performance. Operating expenses rose 17% due to talent investment, leaving pre-tax income flat YoY. Direct title revenues increased 5% YoY to $15 million, with 3% residential transaction growth (outpacing overall existing home sales growth) and 20%+ Main Street commercial revenue growth, offset by a 1% overall decline in centralized title operations (driven by volatile bulk business comparables). Domestic commercial premiums grew 20% YoY in Q2, and 30% YoY for the first half (H1) 2026, with energy as the largest asset class, followed by strong performance from data centers, multifamily, and industrial properties. Agency services revenue grew 25% YoY for the second consecutive quarter, with residential premiums up 30% and commercial debt premiums up 16% YoY. International revenues grew 5% YoY overall, with 4% non-commercial revenue growth and 7% commercial revenue growth across Canada, Australia, and the UK. The title loss ratio improved to 3.2% from 3.6% YoY. 2. Real Estate Solutions Segment: Total revenues grew 75% YoY to $85 million, driven by the 2025 acquisitions of MCS (property preservation) and NAN (national appraisal network); legacy organic revenue grew ~18% YoY after removing acquisition contributions. Adjusted pre-tax income more than doubled to $27 million from $12 million, and adjusted pre-tax margin improved to 14% from 11% YoY, ending the quarter at a 13.6% margin. Revenue contribution from this segment is approximately 11% of total consolidated Q2 2026 revenue.

Risks & headwinds

- Mortgage rates remaining elevated at current ~6.5% levels can continue to suppress existing residential home transaction volumes, holding back margin expansion that would come from higher volume utilization of existing direct operations capacity. - Large commercial real estate transactions have long closing timelines (often 3+ quarters to over a year) and are sensitive to changes in financing costs, which can lead to deal delays that create lumpy quarterly revenue and earnings results. The bulk investor title business is also inherently volatile, creating unpredictable quarterly comparable performance. - Permitting delays and local political pushback against large data center projects could moderate growth in that high-performing commercial asset class, though management does not expect this to materially impact overall commercial growth. - Increased investment in talent and acquisitions could lead to near-term margin pressure if new hires and acquired businesses take longer than expected to ramp up to full revenue contribution.

Analyst Q&A

• Q: If mortgage rates stay "higher for longer" around 6.5%, what is the full year annual margin outlook for Stewart? /

  A: Management reaffirmed guidance for ~0.5 percentage points of YoY overall margin improvement. The company reinvested early 2026 outperformance into talent expansion to grow share in commercial and agency, where the company has already doubled commercial revenue over the past three years and gained significant agency share. Expected margin improvements do not include the impact of upcoming acquisitions, which are likely to be marginally additive. The title segment margin is expected to hold roughly flat YoY, with overall improvement driven by the higher-margin real estate solutions segment.

• Q: What size and type of acquisitions does Stewart expect to close in the next 6-12 months? /

  A: Most upcoming deals are small to mid-sized, focused on three core categories: scale expansion in real estate services, local MSA direct operation share gains, and agency market expansion. None will match the size of the MCS acquisition. Management expects to deploy all of the capital raised in late 2025, plus some additional capital, by the end of 2026, with most deals closing in the next 60-120 days.

• Q: How is competitive dynamics, win rates, and pricing trending in the commercial title business, and what is the average timeline from order open to close? /

  A: Commercial title has limited price sensitivity, as success depends more on specialized sector and geographic expertise than price. Large deals are often shared among underwriters to meet surplus capital requirements, and Stewart's win rate has improved as it has expanded its talent and footprint. Commercial deal timelines average roughly a year, but vary widely based on deal complexity, regulatory permitting, and financing changes. This creates a lag where search and personnel costs are incurred before deals close and revenue is recognized, creating some quarterly earnings volatility during periods of rapid growth.

• Q: Why did centralized title operations underperform in Q2, and what is the outlook for that segment? /

  A: The segment includes volatile bulk investor title business, which had very strong performance in Q2 2025 creating tough comparables; the segment was down ~20% QoQ, creating a $2-3 million headwind to Q2 earnings. Open orders for the segment are already up significantly for Q3, so performance is expected to rebound. Regulatory limits on institutional single-family home buying have also normalized the bulk investor market, leading to more stable but variable quarterly activity.