Latest Earnings Release

Stewart Reports Third Quarter 2019 Results

- Title revenues of $499.2 million, an increase of $13.2 million, or 3 percent, compared to the prior year quarter

- Commercial revenues of $55.8 million, an increase of $3.8 million, or 7 percent, compared to the prior year quarter

- Net income of $66.1 million and adjusted net income of $30.4 million, compared to third quarter 2018 net income of $17.6 million and adjusted net income of $20.0 million

- Diluted EPS of $2.78 and adjusted diluted EPS of $1.28, compared to third quarter 2018 diluted EPS of $0.74 and adjusted diluted EPS of $0.85

HOUSTON, Oct. 22, 2019 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart of $66.1 million ($2.78 per diluted share) for the third quarter 2019, compared to net income attributable to Stewart of $17.6 million ($0.74 per diluted share) for the third quarter 2018. Pretax income before noncontrolling interests for the third quarter 2019 was $91.1 million compared to a pretax income before noncontrolling interests of $24.8 million for the third quarter 2018.

Third quarter 2019 results included:

  • $46.9 million of net investment and other gains, primarily composed of a $50 million gain recorded in the ancillary services and corporate segment related to the merger termination fee paid by Fidelity National Financial (FNF) following the termination of the merger transaction and a $2.7 million impairment charge on an equity method investment recorded in the title segment, and
  • $1.0 million of third-party advisory expenses related to the terminated FNF merger transaction recorded in other operating expenses within the ancillary services and corporate segment.

Third quarter 2018 results included:

  • $6.8 million of third-party advisory expenses related to the FNF merger transaction recorded in other operating expenses within the ancillary services and corporate segment, and
  • $3.6 million in net investment and other gains.

"I am pleased with our results this quarter given the timing of the merger termination announcement. I would like to commend our people for their focus on delivering these results and providing our customers with exceptional service during a time of significant uncertainty," stated Fred Eppinger, Stewart's recently appointed chief executive officer. "While refinancing orders benefited from rate-related tailwinds, our operating results were solid across the board, with year-over-year growth in direct commercial, residential and international operations, and sequential growth in our agency business. With respect to the termination of our proposed merger with Fidelity National, customers across all of our channels have made it clear that they want Stewart as an independent force in the market. It is now up to us to capitalize on this opportunity by leveraging the power of our brand and people to grow and unlock value," concluded Eppinger.    

Selected Financial Information
Summary results of operations are as follows (dollars in millions, except share and per share amounts):

 

Quarter Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

2018

 

2019

2018

           

Total revenues

559.5

507.6

 

1,430.1

1,437.7

Pretax income before noncontrolling interests

91.1

24.8

 

113.2

52.8

Income tax expense

(21.4)

(4.4)

 

(26.0)

(8.7)

Net income attributable to noncontrolling interests

(3.6)

(2.9)

 

(8.6)

(8.0)

Net income attributable to Stewart**

66.1

17.6

 

78.6

36.2

Non-GAAP adjustments, after taxes*

(35.7)

2.4

 

(34.2)

3.7

Adjusted net income attributable to Stewart*

30.4

20.0

 

44.4

39.9

Net income per diluted Stewart share

2.78

0.74

 

3.31

1.53

Adjusted net income per diluted Stewart share*

1.28

0.85

 

1.87

1.68

 

* See Appendix A

**Some amounts may not sum properly due to effects of rounding.

Title Segment
Summary results of the title segment are as follows (dollars in millions, except pretax margin):

 

Quarter Ended September 30,

 
 

2019

2018

% Change

 
         

Operating revenues

499.2

486.0

3%

 

Investment income and other net gains

2.0

7.2

(72)%

 

Pretax income

49.5

36.0

37%

 

Pretax margin

9.9%

7.3%

35%

 

Title operating revenues in the third quarter 2019 increased 3 percent compared to the prior year quarter primarily due to a 15 percent improvement in direct title revenues, which was partially offset by a 7 percent decline in independent agency gross revenues. The segment's overall operating expenses in the third quarter 2019 decreased $5.5 million (1 percent) compared to the prior year quarter, primarily resulting from a 7 percent lower agency retention expense, largely resulting from lower agency gross revenues, partially offset by a 5 percent increase in combined employee and other operating costs primarily due to increased direct title revenues.

During the third quarters 2019 and 2018, the segment recorded $0.3 million of net unrealized losses and $2.2 million of net unrealized gains, respectively, relating to changes in fair value of equity securities investments. Excluding the effects of these equity securities' fair value remeasurements and the $2.7 million impairment charge on an equity method investment, the title segment's pretax income in the third quarter 2019 was $52.5 million, an increase of $18.7 million, or 55 percent, compared to pretax income of $33.8 million in the third quarter 2018.

Direct title revenues information is presented below (dollars in millions):

 

Quarter Ended September 30,

 
 

2019

2018

% Change

 
           
 

Non-commercial:

       
 

Domestic

160.5

136.2

18%

 
 

International

28.8

24.9

16%

 
 

Commercial:

       
 

Domestic

49.7

45.2

10%

 
 

International

6.1

6.8

(10)%

 
 

Total direct title revenues

245.1

213.1

15%

 
           

Non-commercial domestic revenues increased in the third quarter 2019, compared to the prior year quarter, primarily as a result of increased closed orders driven by lower interest rates. Domestic commercial revenues increased due to a higher fee per file during the third quarter 2019 compared to the prior year quarter. Third quarter 2019 domestic commercial fee per file increased 22 percent to approximately $12,600 as a result of increased transaction sizes, while domestic residential fee per file decreased 4 percent to approximately $2,200 primarily due to the higher ratio of refinancing to purchase orders in the third quarter 2019 versus the prior year quarter. Total international title revenues increased $3.2 million, or 10 percent, primarily driven by increased volumes in Canada and the United Kingdom.

Gross revenues from independent agency operations declined 7 percent in the third quarter 2019 compared to the third quarter 2018. The independent agency remittance rate in the third quarter 2019 was 17.8 percent, a slight improvement from 17.6 percent in the prior year quarter.

Ancillary Services and Corporate Segment
Summary results of the ancillary services and corporate segment are as follows (dollars in millions):

 

Quarter Ended September 30,

 
 

2019

2018

% Change

 
         

Operating revenues

8.6

13.2

(35)%

 

Investment and other gains - net

49.7

1.2

3,949%

 

Pretax income (loss)

41.6

(11.2)

470%

 

The segment's operating revenues decreased $4.6 million in the third quarter 2019 compared to the prior year quarter, primarily due to lower revenues from search and valuation services as a result of reductions in orders from several significant customers. The segment's results for the third quarter 2019 and 2018 included approximately $7.3 million and $12.6 million, respectively, of net expenses attributable to parent company and corporate operations, with the higher expenses in the prior year quarter being driven by increased merger-related charges. Excluding the FNF merger termination fee and merger-related expenses, the third quarter 2019 pretax loss would have been $7.4 million versus $5.6 million in the prior year quarter.

Expenses
Employee costs for the third quarter 2019 were $143.8 million, an increase of 4 percent from $138.3 million in the third quarter 2018. This increase was primarily due to increased incentive compensation consistent with higher direct title revenues, partially offset by reduced salaries expense resulting from lower average employee counts in the third quarter 2019 compared to the prior year quarter. As a percentage of total operating revenues, employee costs for the third quarter 2019 and 2018 were 28.3 percent and 27.7 percent, respectively.

Other operating expenses in the third quarter 2019 were $87.8 million, a decrease of 3 percent from $90.8 million in the third quarter 2018. This decrease was primarily driven by lower professional fee expenses in the third quarter 2019, partially offset by higher outside search fees, principally related to increased commercial revenues. As a percentage of total operating revenues, other operating expenses for the third quarter 2019 were 17.3 percent compared to 18.2 percent in the prior year quarter. Excluding the non-operating charges mentioned above, the other operating expenses ratio for the third quarters 2019 and 2018 were 17.1 percent and 16.8 percent, respectively.

Title loss expense for the third quarter 2019 was $21.1 million, which was 2 percent lower compared to $21.5 million from the prior year quarter. Title losses, as a percentage of title revenues, were 4.2 percent in the third quarter 2019, compared to 4.4 percent in the third quarter 2018. We expect our title losses to remain at approximately 4.2 percent of title revenues for the year 2019.

Other
Net cash provided by operations in the third quarter 2019 was $115.7 million, compared to net cash provided of $36.4 million in the prior year quarter. This increase was primarily due to the higher net income, which included the merger termination fee, and lower payments on accounts payables during the third quarter 2019.

Third Quarter Earnings Call
Stewart will hold a conference call to discuss the third quarter 2019 earnings at 8:30 a.m. Eastern Time on Wednesday, October 23, 2019. To participate, dial (800) 894-5910 (USA) and (785) 424-1052 (International) - access code STCQ319. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at http://www.stewart.com/investor-relations/earnings-call.html. The conference call replay will be available from 4:00 p.m. Eastern Time on October 23, 2019 until midnight on October 30, 2019, by dialing (800) 688-4915 (USA) or (402) 220-1319 (International) - the access code is also STCQ319.

About Stewart
Stewart Information Services Corporation (NYSE:STC) is a global real estate services company, offering products and services through our direct operations, network of Stewart Trusted Providers™ and family of companies. From residential and commercial title insurance and closing and settlement services to specialized offerings for the mortgage industry, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. At Stewart, we believe in building strong relationships – and these partnerships are the cornerstone of every closing, every transaction and every deal. Stewart. Real partners. Real possibilities.™ More information is available at the Company's website at stewart.com, or you can subscribe to the Stewart blog at blog.stewart.com, or follow Stewart on Twitter® @stewarttitleco.

Forward-looking statements. Certain statements in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance.  These statements often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "foresee" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the volatility of economic conditions; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses or the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the ability to attract and retain highly productive sales associates; the impact of vetting our agency operations for quality and profitability; independent agency remittance rates; changes to the participants in the secondary mortgage market and the rate of refinancing that affects the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; seasonality and weather; and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2018, and if applicable, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this news release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify any forward-looking statements contained in this news release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.

STEWART INFORMATION SERVICES CORPORATION

CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(In thousands of dollars, except per share amounts and except where noted)

 
 

Quarter Ended
September 30,

 

Nine Months Ended
September 30,

 
 

2019

2018

 

2019

2018

 

Revenues:

           

Title revenues:

           

Direct operations

245,068

213,134

 

634,198

622,886

 

Agency operations

254,155

272,875

 

699,835

756,986

 

Ancillary services

8,628

13,227

 

30,708

38,790

 

Total operating revenues

507,851

499,236

 

1,364,741

1,418,662

 

Investment income

4,752

4,781

 

14,631

14,732

 

Investment and other gains - net

46,905

3,623

 

50,730

4,345

 
 

559,508

507,640

 

1,430,102

1,437,739

 

Expenses:

           

Amounts retained by agencies

208,973

224,966

 

576,559

623,967

 

Employee costs

143,815

138,288

 

412,967

423,389

 

Other operating expenses

87,826

90,811

 

251,030

257,029

 

Title losses and related claims

21,059

21,503

 

55,532

59,181

 

Depreciation and amortization

5,694

6,221

 

17,458

18,609

 

Interest

1,080

1,076

 

3,369

2,722

 
 

468,447

482,865

 

1,316,915

1,384,897

 

Income before taxes and noncontrolling interests

91,061

24,775

 

113,187

52,842

 

Income tax expense

(21,393)

(4,371)

 

(25,978)

(8,679)

 

Net income

69,668

20,404

 

87,209

44,163

 

Less net income attributable to noncontrolling interests

3,560

2,851

 

8,561

8,012

 

Net income attributable to Stewart

66,108

17,553

 

78,648

36,151

 
             

Net earnings per diluted share attributable to Stewart

2.78

0.74

 

3.31

1.53

 

Diluted average shares outstanding (000)

23,773

23,699

 

23,780

23,677

 
             

Selected financial information:

           

Net cash provided by operations

115,718

36,366

 

107,289

43,733

 

Other comprehensive (loss) income

(1,624)

(907)

 

20,033

(17,451)

 

 

Monthly Domestic Order Counts:

Opened Orders
2019:

July

Aug

Sept

Total

 

Closed Orders
2019:

July

Aug

Sept

Total

Commercial

1,378

1,466

1,407

4,251

 

Commercial

1,211

1,401

1,344

3,956

Purchase

21,979

20,663

17,937

60,579

 

Purchase

16,102

16,057

13,921

46,080

Refinancing

12,977

17,341

15,069

45,387

 

Refinancing

8,417

9,274

10,143

27,834

Other

497

312

319

1,128

 

Other

225

236

143

604

Total

36,831

39,782

34,732

111,345

 

Total

25,955

26,968

25,551

78,474

                       

Opened Orders
2018:

July

Aug

Sept

Total

 

Closed Orders
2018:

July

Aug

Sept

Total

Commercial (Note 1)

1,918

1,740

1,617

5,275

 

Commercial (Note 1)

1,515

1,481

1,392

4,388

Purchase

20,880

21,095

16,953

58,928

 

Purchase

15,934

16,810

13,297

46,041

Refinancing

6,786

7,501

6,154

20,441

 

Refinancing

4,319

4,855

3,972

13,146

Other

755

582

488

1,825

 

Other

552

552

310

1,414

Total

30,339

30,918

25,212

86,469

 

Total

22,320

23,698

18,971

64,989

 

Note 1 – As disclosed in the first quarter 2019 earnings release, prior year commercial orders were updated to take into account changes to our domestic order tracking process and the exclusion of international orders.

 

STEWART INFORMATION SERVICES CORPORATION

CONDENSED BALANCE SHEETS

(In thousands of dollars)

 
 

September 30,
2019
(Unaudited)

December 31,
2018

Assets:

   

Cash and cash equivalents

320,960

192,067

Short-term investments

22,692

22,950

Investments in debt and equity securities, at fair value

599,193

636,017

Receivables – premiums from agencies

31,869

29,032

Receivables – other

51,890

47,044

Allowance for uncollectible amounts

(4,401)

(4,614)

Property and equipment, net

55,863

60,794

Operating lease assets (Note 2)

100,671

-

Title plants, at cost

74,737

74,737

Goodwill

248,890

248,890

Intangible assets, net of amortization

6,303

9,727

Deferred tax assets

4,592

4,575

Other assets

45,932

51,711

 

1,559,191

1,372,930

Liabilities:

   

Notes payable

105,371

108,036

Accounts payable and accrued liabilities

103,886

109,283

Operating lease liabilities (Note 2)

112,260

-

Estimated title losses

452,361

461,560

Deferred tax liabilities

25,429

14,214

 

799,307

693,093

Stockholders' equity:

   

Common Stock and additional paid-in capital

189,613

186,714

Retained earnings

571,390

514,248

Accumulated other comprehensive loss

(4,738)

(24,771)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

753,599

673,525

Noncontrolling interests

6,285

6,312

Total stockholders' equity

759,884

679,837

 

1,559,191

1,372,930

     

Number of shares outstanding (000)

23,712

23,719

Book value per share

32.05

28.66

 

Note 2 – Beginning in 2019, we adopted the new lease accounting standard which resulted in the balance sheet recognition of assets and liabilities related to our operating leases of office space. Operating lease assets represent the right to use the underlying assets over the corresponding lease terms. This adoption did not result in any impact to our statements of operations and cash flows.

 

STEWART INFORMATION SERVICES CORPORATION

SEGMENT INFORMATION

(In thousands of dollars)

 

Three months ended:

September 30, 2019

 

September 30, 2018

 

Title

Ancillary
Services
and
Corporate

Consolidated

 

Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:

             

Operating revenues

499,223

8,628

507,851

 

486,009

13,227

499,236

Investment income

4,752

-

4,752

 

4,781

-

4,781

Investment and other (losses) gains - net

(2,776)

49,681

46,905

 

2,396

1,227

3,623

 

501,199

58,309

559,508

 

493,186

14,454

507,640

Expenses:

             

Amounts retained by agencies

208,973

-

208,973

 

224,966

-

224,966

Employee costs

138,071

5,744

143,815

 

131,485

6,803

138,288

Other operating expenses

78,505

9,321

87,826

 

73,871

16,940

90,811

Title losses and related claims

21,059

-

21,059

 

21,503

-

21,503

Depreciation and amortization

5,110

584

5,694

 

5,362

859

6,221

Interest

-

1,080

1,080

 

-

1,076

1,076

 

451,718

16,729

468,447

 

457,187

25,678

482,865

Income (loss) before taxes

49,481

41,580

91,065

 

35,999

(11,224)

24,775

             
       

Nine months ended:

September 30, 2019

 

September 30, 2018

 

Title

Ancillary
Services
and
Corporate

Consolidated

 

Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:

             

Operating revenues

1,334,033

30,708

1,364,741

 

1,379,872

38,790

1,418,662

Investment income

14,631

-

14,631

 

14,732

-

14,732

Investment and other gains - net

608

50,122

50,730

 

3,118

1,227

4,345

 

1,349,272

80,830

1,430,102

 

1,397,722

40,017

1,437,739

Expenses:

             

Amounts retained by agencies

576,559

-

576,559

 

623,967

-

623,967

Employee costs

395,804

17,163

412,967

 

401,234

22,155

423,389

Other operating expenses

217,924

33,106

251,030

 

218,543

38,486

257,029

Title losses and related claims

55,532

-

55,532

 

59,181

-

59,181

Depreciation and amortization

15,309

2,149

17,458

 

15,929

2,680

18,609

Interest

-

3,369

3,369

 

8

2,714

2,722

 

1,261,128

55,787

1,316,915

 

1,318,862

66,035

1,384,897

Income (loss) before taxes

88,144

25,043

113,187

 

78,860

(26,018)

52,842

Appendix A
Non-GAAP Adjustments

Management uses a variety of financial and operational measurements other than its financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) to analyze its performance. These include: (1) adjusted revenues, which are reported revenues adjusted for any net investment and other gains and losses and (2) net income after earnings from noncontrolling interests and adjusted for net investment and other gains and losses and other non-operating costs such as FNF merger expenses and other third-party advisory costs (adjusted net income). Adjusted diluted earnings per share (adjusted EPS) is calculated using adjusted net income divided by the diluted average weighted outstanding shares. Management views these measures as important performance measures of core profitability for its operations and as key components of its internal financial reporting. Management believes investors benefit from having access to the same financial measures that management uses.

The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the quarter and nine months ended September 30, 2019 and 2018 (dollars in millions, except share and per share amounts).

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

2019

2018

%
Change

 

2019

2018

%
Change

               

Total revenues

559.5

507.6

   

1,430.1

1,437.7

 

Less: Investment and other gains - net

(46.9)

(3.6)

   

(50.7)

(4.3)

 

Adjusted revenues

512.6

504.0

2%

 

1,379.4

1,433.4

(4)%

               

Net income attributable to Stewart

66.1

17.6

   

78.6

36.2

 

Non-GAAP pretax adjustments:

             

FNF merger termination fee

(50.0)

-

   

(50.0)

-

 

Equity method investment impairment

2.7

-

   

2.7

-

 

Merger-related expenses

1.0

6.8

   

6.7

9.1

 

Other investment and other losses (gains) - net

0.4

(3.6)

   

(3.4)

(4.3)

 

Net tax effects of non-GAAP adjustments

10.2

(0.8)

   

9.8

(1.1)

 

Non-GAAP adjustments, after taxes

(35.7)

2.4

   

(34.2)

3.7

 

Adjusted net income attributable to Stewart

30.4

20.0

52%

 

44.4

39.9

11%

               

Diluted average shares outstanding (000)

23,773

23,699

   

23,780

23,677

 

Adjusted diluted EPS

1.28

0.85

   

1.87

1.68

 
               

 



CONTACT:  Nat Otis, SVP - Finance/Investor Relations, (713) 625-8360

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