STEWART INFORMATION SERVICES CORP Q3 FY2024 earnings call

• Housing market outlook: There have been 37 consecutive months of year-over-year reduction in existing home sales, with Q3 existing home sales down another 3%. Affordability remains an issue, the Fed cut rates in September but the market is choppy, 2025 is a transitional year and 2026 is expected to have 5 million existing homes sold annually. • Operations: Focused on a disciplined operating model, improving customer experience through technology upgrades, attracting and retaining key talent. The direct operation business is focused on expansion in targeted MSAs. Commercial services have been a strong performer with investments in talent and technology. The agency team is driving share gains in target markets. Real estate solutions maintained solid financial results. • Expense management: Employee cost ratio improved to 30% from 31% due to higher revenues, while other operating cost ratio increased to 24% from 22% due to increased credit information and services expenses in real estate solutions and higher outside search costs in commercial.

In the title segment, total operating revenues improved by $31 million or 6%, primarily driven by higher revenues from domestic commercial and agency operations. The title segment's pre-tax income improved by $10 million or 27% mainly due to higher revenues. For the direct title business, total opened orders in the third quarter increased by 8% while total closed orders were 2% lower, mainly because of the slower residential market. The domestic commercial operations saw revenues jump by $16 million or 30%, driven by higher transaction size and volume in energy and multifamily sectors, with the average commercial fee per file rising 25% to $17,700. Domestic residential fee per file slightly increased to $3,000. In agency operations, gross agency revenues grew by $17 million or 6% and net revenues improved by $2 million. The real estate solutions segment's pre-tax income increased by $5 million, with a pre-tax margin of 7.7% in the third quarter compared to 3.8% in the prior year quarter.

• 2025 is a transitional year leading to a more normal housing market in 2026 with an annual basis of 5 million existing homes sold. • Aim to achieve low double-digit pre-tax margins as the market normalizes.

• Market volatility which can impact business performance. • Interest rate changes that may affect mortgage applications and market sentiment. • Election impact leading to a choppy market. • Economic variables that may present challenges to the near-term commercial market.

Q: Just on the commercial fee profile, is it due to larger deals in the market?

A: It's due to the mix of business, with energy deals being larger skewing the average deal size.

Q: Order count in other segments, any geography issues?

A: Driven by bulk business where large transactions cause fluctuation.

Q: Revisiting the 10% margin target, what's the current view?

A: Now around 11.5% on a GAAP basis.

Q: Pending home sales rose, any impact?

A: Saw cancellations with spiky rates, sentiment was good then flipped, refi orders popped but it's uncertain.

Q: Purchase orders closing ratio lower, any share softness?

A: Confident in share position, holding serve in MSAs with organic initiatives underway