Latest Earnings Release

Stewart Reports Third Quarter 2020 Results

 

- Operating revenues of $590.7 million, an increase of $82.8 million, or 16 percent, compared to the prior year quarter

- Net income of $55.9 million versus net income of $66.1 million ($30.4 million on an adjusted basis) in the prior year quarter

- Diluted EPS of $2.21 compared to prior year quarter diluted EPS of $2.78 ($1.28 on an adjusted basis)



HOUSTON, Oct. 21, 2020 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart for the third quarter 2020 of $55.9 million ($2.21 per diluted share), compared to net income attributable to Stewart of $66.1 million ($2.78 per diluted share) for the third quarter 2019. On an adjusted basis, Stewart's third quarter 2020 net income of $55.9 million ($2.21 per diluted share) increased 84 percent from $30.4 million in the third quarter 2019. Third quarter 2020 pretax income before noncontrolling interests was $76.3 million compared to pretax income before noncontrolling interests of $91.1 million for the third quarter 2019.

Third quarter 2019 results included pretax items of:

  • $46.9 million of net realized and unrealized 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), 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.

"In the third quarter, Stewart continued to benefit from a robust real estate transaction environment, as low interest rates continued to impact refinancing activity while purchase orders strengthened," commented Fred Eppinger, chief executive officer. "Together, they helped both our direct and agency operations outperform 2019 revenue levels. In addition, Stewart's more disciplined and focused operating approach allowed for enhanced margins. Lastly, the company closed two acquisitions in the quarter, with their benefits seen immediately in our core title results. As always, I would like to thank our employees for the work they are doing, continuing to tirelessly work under challenging conditions while insuring the safety of our customers and co-workers."

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

 

Quarter Ended

September 30,

 

Nine Months Ended September 30,

 

2020

2019

 

2020

2019

           

Total revenues

595.7

559.5

 

1,551.7

1,430.1

Pretax income before noncontrolling interests

76.3

91.1

 

134.6

113.2

Income tax expense

(16.1)

(21.4)

 

(29.3)

(26.0)

Net income attributable to noncontrolling interests

(4.4)

(3.6)

 

(10.1)

(8.6)

Net income attributable to Stewart

55.9

66.1

 

95.2

78.6

Non-GAAP adjustments, after taxes*

-

(35.7)

 

6.8

(34.2)

Adjusted net income attributable to Stewart*

55.9

30.4

 

102.0

44.4

Net income per diluted Stewart share

2.21

2.78

 

3.93

3.31

Adjusted net income per diluted Stewart share*

2.21

1.28

 

4.21

1.87

 

* See Appendix A

             

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

 

Quarter Ended September 30,

 
 

2020

2019

% Change

 
         

Operating revenues

562.7

499.2

13%

 

Investment income

5.0

4.8

6%

 

Net realized and unrealized gains (losses)

-

(2.8)

100%

 

Pretax income

82.4

49.5

66%

 

Pretax margin

14.5%

9.9%

   

Title segment pretax income grew $32.9 million, or 66 percent, while pretax margin also improved 460 basis points to 14.5 percent in the third quarter 2020 compared to the prior year quarter. Title operating revenues increased $63.5 million, or 13 percent, resulting from increases in direct title revenues of $35.0 million, or 14 percent, and gross independent agency revenues of $28.5 million, or 11 percent. The effect of changes in the fair value of equity securities investments was minimal during the third quarters of 2020 and 2019; however, during the third quarter 2019, the segment recorded a $2.7 million impairment charge on an equity method investment. Excluding the impairment charge, pretax income for the third quarter 2019 would have been $52.3 million (10.4 percent margin).

Consistent with the increased title revenues in the third quarter 2020, the segment's overall operating expenses increased $33.6 million, or 7 percent, as agency retention expenses and combined title employee costs and other operating expenses increased 11 percent and 3 percent, respectively, from the third quarter 2019. Our average independent agency remittance rate for the third quarter 2020 improved to 18.2 percent compared to 17.8 percent in the prior year quarter; while combined title employee costs and other operating expenses, as a percentage of title revenues, was 39.5 percent in the third quarter 2020 compared to 43.4 percent in the prior year quarter. Title loss expense increased in the third quarter 2020 primarily due to increased title revenues, higher domestic loss provisioning rates due to the current economic environment, and unfavorable loss development in our Canadian business. As a percentage of title revenues, the title loss expense in the third quarter 2020 was 5.1 percent compared to 4.2 percent from the prior year quarter.

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

 

Quarter Ended September 30,

 
 

2020

2019

% Change

 
           
 

Non-commercial:

       
 

Domestic

208.2

160.5

30%

 
 

International

30.4

28.8

6%

 
 

Commercial:

       
 

Domestic

36.7

49.7

(26)%

 
 

International

4.8

6.1

(21)%

 
 

Total direct title revenues

280.1

245.1

14%

 
           

Direct title revenues in the third quarter 2020 increased from the prior year quarter as a result of improved domestic non-commercial revenues, primarily driven by increased purchase and refinancing residential orders from both existing and newly acquired title offices. This increase was partially offset by decreased commercial revenues resulting from reduced transaction sizes and volumes. Domestic commercial fee per file in the third quarter 2020 was approximately $9,700, which was 23 percent lower than the third quarter 2019; while domestic residential fee per file was approximately $1,900, or 11 percent lower than the third quarter 2019, primarily due to a higher mix of refinancing compared to purchase transactions.

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

 

Quarter Ended September 30,

 
 

2020

2019

% Change

 
         

Operating revenues

28.0

8.6

224%

 

Net realized gains

-

49.7

(100)%

 

Pretax (loss) income

(6.0)

41.6

(115)%

 

The segment's results for the third quarter 2019 included a $50.0 million realized gain related to the FNF merger termination fee and $1.0 million of merger expenses. Excluding net realized gains and merger expenses, the segment's pretax results for the third quarter 2020 improved $1.1 million, or 15 percent, compared to the prior year quarter. Third quarter segment operating revenues improved, primarily driven by $24.2 million of revenues generated by U.S. Appraisals, which were partially offset by a $4.8 million decline in search and valuation services' revenues due to significantly lower customer orders. The segment's results for the third quarter 2020 and 2019 included approximately $6.3 million and $7.3 million, respectively, of net expenses attributable to parent company and corporate operations, with the higher expenses in the third quarter 2019 being primarily driven by the FNF merger expenses mentioned above.  

Expenses
For the third quarter 2020, total employee costs and other operating expenses related to new acquisitions aggregated to $6.1 million and $21.7 million, respectively. Excluding these acquisitions, total employee costs increased $5.7 million, or 4 percent, in the third quarter 2020 compared to the third quarter 2019, primarily due to higher incentive compensation on improved overall operating results. As a percentage of total operating revenues, consolidated employee costs for the third quarter 2020 improved to 26.3 percent from 28.3 percent in the third quarter 2019.

Excluding acquisitions, other operating expenses decreased $11.0 million, or 13 percent, in the third quarter 2020 compared to the third quarter 2019. This decline primarily resulted from lower outside title search expenses on lower revenues from commercial services and search and valuation services, and reduced spending related to marketing, travel, rent and other occupancy, and third-party consulting. As a percentage of total operating revenues, consolidated other operating expenses for the third quarter 2020 improved to 16.7 percent compared to 17.3 percent in the third quarter 2019.

Other
Net cash provided by operations in the third quarter 2020 was $90.8 million compared to net cash provided by operations of $115.7 million in the prior year quarter. The lower cash from operations in the third quarter 2020 was primarily due to the $50.0 million FNF merger termination fee received in the third quarter 2019, partially offset by a higher third quarter 2020 income from business operations.

Third quarter Earnings Call
Stewart will hold a conference call to discuss the third quarter 2020 earnings at 8:30 a.m. Eastern Time on Thursday, October 22, 2020. To participate, dial (800) 894-5910 (USA) and (785) 424-1052 (International) - access code STCQ320. 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 11:00 a.m. Eastern Time on October 22, 2020 until midnight on October 29, 2020, by dialing (800) 938-2796 (USA) or (402) 220-9030 (International) - the access code is also STCQ320.

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, including the timing and effects of the COVID-19 pandemic; 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, 2019, as supplemented by any risk factors contained in 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 OPERATIONS (UNAUDITED)
(In thousands of dollars, except per share amounts and except where noted)

       
 

Quarter Ended Sept. 30,

 

9 Months Ended Sept. 30,

 

2020

2019

 

2020

2019

Revenues:

         

Title revenues:

         

Direct operations

280,114

245,068

 

696,611

634,198

Agency operations

282,605

254,155

 

802,022

699,835

Ancillary services

27,957

8,628

 

44,573

30,708

Total operating revenues

590,676

507,851

 

1,543,206

1,364,741

Investment income

5,027

4,752

 

14,530

14,631

Net realized and unrealized (losses) gains

(7)

46,905

 

(6,035)

50,730

 

595,696

559,508

 

1,551,701

1,430,102

Expenses:

         

Amounts retained by agencies

231,051

208,973

 

659,138

576,559

Employee costs

155,638

143,815

 

428,817

412,967

Other operating expenses

98,531

87,826

 

245,003

251,030

Title losses and related claims

28,427

21,059

 

68,600

55,532

Depreciation and amortization

5,144

5,694

 

13,436

17,458

Interest

562

1,080

 

2,075

3,369

 

519,353

468,447

 

1,417,069

1,316,915

Income before taxes and noncontrolling interests

76,343

91,061

 

134,632

113,187

Income tax expense

(16,058)

(21,393)

 

(29,293)

(25,978)

Net income

60,285

69,668

 

105,339

87,209

Less net income attributable to noncontrolling interests

4,376

3,560

 

10,107

8,561

Net income attributable to Stewart

55,909

66,108

 

95,232

78,648

           

Net earnings per diluted share attributable to Stewart

2.21

2.78

 

3.93

3.31

Diluted average shares outstanding (000)

25,297

23,773

 

24,256

23,780

           

Selected financial information:

         

Net cash provided by operations

90,752

115,718

 

140,862

107,289

Other comprehensive income (loss)

4,589

(1,624)

 

11,375

20,033

 

Monthly Domestic Order Counts:

           

Opened Orders 2020:

July

August

Sept

Total

 

Closed Orders 2020:

July

August

Sept

Total

Commercial

1,330

1,071

1,302

3,703

 

Commercial

1,415

1,096

1,288

3,799

Purchase

24,001

23,406

26,261

73,668

 

Purchase

17,206

16,212

18,989

52,407

Refinancing

28,729

28,181

29,913

86,823

 

Refinancing

17,609

17,239

21,179

56,027

Other

212

275

580

1,067

 

Other

112

106

337

555

Total

54,272

52,933

58,056

165,261

 

Total

36,342

34,653

41,793

112,788

                     

Opened Orders 2019:

July

August

Sept

Total

 

Closed Orders 2019:

July

August

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

 

 

STEWART INFORMATION SERVICES CORPORATION
CONDENSED BALANCE SHEETS
(In thousands of dollars)

     
 

 

Sept. 30, 2020 (Unaudited)

 

December 31, 2019

Assets:

   

Cash and cash equivalents

381,560

330,609

Short-term investments

21,288

23,527

Investments in debt and equity securities, at fair value

650,599

645,039

Receivables – premiums from agencies

32,749

26,405

Receivables – other

50,988

50,067

Allowance for uncollectible amounts

(4,456)

(4,469)

Property and equipment, net

50,976

50,461

Operating lease assets, net

110,038

99,028

Title plants

72,850

72,627

Goodwill

382,235

248,890

Intangible assets, net of amortization

22,002

4,623

Deferred tax assets

4,451

4,407

Other assets

44,909

41,571

 

1,820,189

1,592,785

Liabilities:

   

Notes payable

101,256

110,632

Accounts payable and accrued liabilities

143,207

126,779

Operating lease liabilities

122,475

113,843

Estimated title losses

466,812

459,053

Deferred tax liabilities

35,570

28,719

 

869,320

839,026

Stockholders' equity:

   

Common Stock and additional paid-in capital

300,648

188,279

Retained earnings

637,223

564,392

Accumulated other comprehensive income (loss)

8,676

(2,699)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

943,881

747,306

Noncontrolling interests

6,988

6,453

Total stockholders' equity

950,869

753,759

 

1,820,189

1,592,785

     

Number of shares outstanding (000)

26,719

23,709

Book value per share

35.33

31.52

 

 

 

STEWART INFORMATION SERVICES CORPORATION
SEGMENT INFORMATION
(In thousands of dollars)

       

Three months ended:

September 30, 2020

 

September 30, 2019

 

Title

Ancillary Services and Corporate

Consolidated

 

Title

Ancillary Services and Corporate

Consolidated

Revenues:

             

Operating revenues

562,719

27,957

590,676

 

499,223

8,628

507,851

Investment income

5,027

-

5,027

 

4,752

-

4,752

Net realized and unrealized (losses) gains

(3)

(4)

(7)

 

(2,776)

49,681

46,905

 

567,743

27,953

595,696

 

501,199

58,309

559,508

Expenses:

             

Amounts retained by agencies

231,051

-

231,051

 

208,973

-

208,973

Employee costs

149,050

6,588

155,638

 

138,071

5,744

143,815

Other operating expenses

73,091

25,440

98,531

 

78,505

9,321

87,826

Title losses and related claims

28,427

-

28,427

 

21,059

-

21,059

Depreciation and amortization

3,748

1,396

5,144

 

5,110

584

5,694

Interest

-

562

562

 

-

1,080

1,080

 

485,367

33,986

519,353

 

451,718

16,729

468,447

Income (loss) before taxes

82,376

(6,033)

76,343

 

49,481

41,580

91,065

             
             
             

Nine months ended:

September 30, 2020

 

September 30, 2019

 

Title

Ancillary Services and Corporate

Consolidated

 

Title

Ancillary Services and Corporate

Consolidated

Revenues:

             

Operating revenues

1,498,633

44,573

1,543,206

 

1,334,033

30,708

1,364,741

Investment income

14,530

-

14,530

 

14,631

-

14,631

Net realized and unrealized (losses) gains

(6,545)

510

(6,035)

 

608

50,122

50,730

 

1,506,618

45,083

1,551,701

 

1,349,272

80,830

1,430,102

Expenses:

             

Amounts retained by agencies

659,138

-

659,138

 

576,559

-

576,559

Employee costs

411,633

17,184

428,817

 

395,804

17,163

412,967

Other operating expenses

203,942

41,061

245,003

 

217,924

33,106

251,030

Title losses and related claims

68,600

-

68,600

 

55,532

-

55,532

Depreciation and amortization

11,302

2,134

13,436

 

15,309

2,149

17,458

Interest

-

2,075

2,075

 

-

3,369

3,369

 

1,354,615

62,454

1,417,069

 

1,261,128

55,787

1,316,915

Income (loss) before taxes

152,003

(17,371)

134,632

 

88,144

25,043

113,187

 

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 realized and unrealized gains and losses and (2) net income after earnings from noncontrolling interests and adjusted for net realized and unrealized gains and losses and other non-operating costs such as merger expenses, cost initiative severance expenses, office closure costs and litigation expenses (adjusted net income). Adjusted diluted earnings per share (adjusted diluted 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 the most directly comparable GAAP measures for the quarter and nine months ended September 30, 2020 and 2019 (dollars in millions, except share and per share amounts).

 

Quarter Ended Sept. 30,

 

Nine Months Ended Sept. 30,

 

2020

2019

% Change

 

2020

2019

% Change

               

Total revenues

595.7

559.5

   

1,551.7

1,430.1

 

Less: Net realized and unrealized gains (losses)

-

46.9

   

(6.0)

50.7

 

Adjusted revenues

595.7

512.6

16%

 

1,557.7

1,379.4

13%

               

Net income attributable to Stewart

55.9

66.1

   

95.2

78.6

 

Non-GAAP pretax adjustments:

             

Net realized and unrealized (gains) losses*

-

(46.9)

   

6.0

(50.7)

 

FNF merger-related expenses

-

1.0

   

-

6.7

 

Cost initiatives severance expenses

-

-

   

2.8

-

 

Net tax effects of non-GAAP adjustments

-

10.2

   

(2.0)

9.8

 

Non-GAAP adjustments, after taxes

-

(35.7)

   

6.8

(34.2)

 

Adjusted net income attributable to Stewart

55.9

30.4

84%

 

102.0

44.4

130%

               

Diluted average shares outstanding (000)

25,297

23,773

   

24,256

23,780

 

Adjusted net income per share

2.21

1.28

   

4.21

1.87

 
               

*Net realized and unrealized gains for the quarter and nine months ended September 30, 2019 included the $50.0 million FNF merger termination fee.

 

 

 

 
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