Stewart Reports Second Quarter 2019 Results

HOUSTON, July 25, 2019 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart of $19.3 million ($0.81 per diluted share) for the second quarter 2019, compared to net income attributable to Stewart of $22.4 million ($0.95 per diluted share) for the second quarter 2018. Pretax income before noncontrolling interests for the second quarter 2019 was $29.4 million compared to a pretax income before noncontrolling interests of $31.3 million for the second quarter 2018.

Second quarter 2019 results included:

  • $3.7 million of third-party advisory expenses related to the Fidelity National Financial (FNF) merger transaction recorded in other operating expenses within the ancillary services and corporate segment, and
  • $0.4 million in net investment and other gains.

Second quarter 2018 results included $2.4 million in net investment and other gains.

"We are pleased with our second quarter results as we have been able to capitalize on the selling season in our direct domestic title business while continuing to reduce corporate expenses," stated Matthew W. Morris, chief executive officer. "A continued stable real estate market along with favorable buyer demographics and falling interest rates provide continued momentum as we enter the second half of 2019," added Morris.

"We appreciate the dedication of our loyal associates who have remained focused on delivering the highest level of customer experience as we work through the regulatory approval process for our merger with Fidelity National. Our results today underscore Stewart's value through our financial strength, strong balance sheet, growing statutory surplus, solid credit ratings and consistent cash flows," concluded Morris.    

Merger Update
With respect to the proposed merger, on June 10, 2019, FNF exercised the second option to extend the closing date of the transaction by an additional three months to September 18, 2019. We continue to work with FNF to gain approval for the merger from the Federal Trade Commission and the remaining state regulators, including Texas and New York.

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

 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

2019

2018

 

2019

2018

           

Total revenues

472.1

492.9

 

870.6

930.1

Pretax income before noncontrolling interests

29.4

31.3

 

22.1

28.1

Income tax expense

(7.0)

(5.6)

 

(4.6)

(4.3)

Net income attributable to Stewart

19.3

22.4

 

12.5

18.6

Net income per diluted share attributable to Stewart

0.81

0.95

 

0.53

0.79

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

 

Quarter Ended June 30,

 

2019

2018

% Change

       

Total operating revenues

458.7

471.5

(3)%

Investment income and other net gains

4.9

7.6

(35)%

Pretax income

39.0

37.7

3%

Pretax margin

8.4%

7.9%

7%

Title operating revenues in the second quarter 2019 decreased 3 percent compared to the prior year quarter primarily due to the decrease in independent agency revenues. The segment's overall operating expenses in the second quarter 2019 decreased $16.8 million, or 4 percent, compared to the prior year quarter, primarily driven by the 2 percent reduction in combined employee and other operating costs and the 6 percent lower agency retention expense largely resulting from lower agency gross revenues. The segment recognized $0.4 million of net unrealized losses in the second quarter 2019 and $1.8 million of net unrealized gains in the prior year quarter relating to changes in fair value of equity securities investments. Excluding the effects of these equity securities' fair value remeasurements, the title segment's pretax income in the second quarter 2019 was $39.4 million, an increase of $3.5 million, or 10 percent, compared to pretax income of $35.9 million in the second quarter 2018.

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

 

Quarter Ended June 30,

 

2019

2018

% Change

         
 

Non-commercial:

     
 

Domestic

148.9

145.7

2%

 

International

22.4

22.8

(2)%

 

Commercial:

     
 

Domestic

50.3

48.2

4%

 

International

6.3

7.5

(16)%

 

Total direct title revenues

227.9

224.2

2%

         

Non-commercial domestic revenues, which include revenues from purchase transactions and centralized title operations, increased as a result of the increase in combined purchase and refinancing closed orders and the higher premium effect of increased home sale prices in the second quarter 2019 compared to the prior year quarter. Domestic commercial revenues increased due to a higher fee per file during the second quarter 2019, compared to the second quarter 2018. Second quarter 2019 domestic commercial fee per file increased 25 percent to approximately $11,600, as a result of increased transaction sizes, while domestic residential fee per file increased 3 percent to approximately $2,300 primarily due to home price appreciation, more than offsetting the effects of reduced fee per file from increased refinancing volume.

Gross revenues from independent agency operations declined 7 percent in the second quarter 2019, compared to last year's quarter. The independent agency remittance rate in the second quarter 2019 was 17.2 percent, compared to 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 June 30,

 

2019

2018

% Change

       

Total revenues

8.4

13.7

(39)%

Pretax loss

(9.7)

(6.4)

(51)%

Excluding the $3.7 million FNF merger-related expenses noted above for the segment, the second quarter 2019 pretax loss would have been $6.0 million, a 7 percent improvement compared to the prior year quarter. Second quarter 2019 segment revenues decreased $5.3 million compared to the prior year quarter, primarily due to lower revenues from search and valuation services as a result of lower customer orders. Additionally, the segment's results for the second quarter 2019 and 2018 included approximately $9.4 million and $6.3 million, respectively, of net expenses attributable to parent company and corporate operations, with the increased expenses in the second quarter 2019 driven by the merger-related charges.

Expenses
Employee costs for the second quarter 2019 were $139.9 million, a decrease of 4 percent from $146.3 million in the second quarter 2018. This reduction was primarily due to an 8 percent decrease in average employee counts, principally related to volume declines in our direct title and ancillary services operations as well as increasing efficiencies in how we manage the business. As a percentage of total operating revenues, employee costs for the second quarter 2019 and 2018 were comparable at 30.0 percent and 30.1 percent, respectively.

Other operating expenses in the second quarter 2019 of $86.1 million were flat, compared to $86.0 million in the second quarter 2018. Total professional fee expenses increased in the second quarter 2019, primarily driven by the third-party advisory expenses related to the FNF merger, which was offset by reduced outside search fees primarily related to lower search and valuation services' volume. As a percentage of total operating revenues, other operating expenses for the second quarter 2019 were 18.4 percent (17.7 percent, excluding merger expenses) compared to 17.7 percent in the prior year quarter.

Title loss expense for the second quarter 2019 was $18.8 million compared to $18.7 million from the prior year quarter. Title losses, as a percentage of title revenues, were 4.1 percent in the second quarter 2019, which was comparable to 4.0 percent in the second quarter 2018. We expect our title losses to remain in the range of 4.0 to 4.2 percent of title revenues for 2019.

Other
Net cash provided by operations in the second quarter 2019 was $31.5 million, compared to net cash provided of $36.3 million in the prior year quarter, primarily due to the lower net income and increased payments of liabilities during the second quarter 2019.

Other comprehensive income in the second quarter 2019 was $7.9 million, compared to other comprehensive loss of $6.7 million in the second quarter 2018, primarily as a result of the net recovery of the market value of our debt securities investments, largely due to the continued decreases in the overall interest rate environment, and favorable foreign currency exchange rate changes during the second quarter 2019.  

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 challenging 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; the continued realization of expense savings from our cost management program; our ability to successfully integrate acquired businesses; 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 June 30,

 

Six Months Ended June 30,

 

2019

2018

 

2019

2018

Revenues:

         

Title revenues:

         

Direct operations

227,883

224,240

 

389,130

409,752

Agency operations

230,817

247,257

 

445,680

484,111

Ancillary services

7,798

13,732

 

22,080

25,563

Total operating revenues

466,498

485,229

 

856,890

919,426

Investment income

5,155

5,247

 

9,879

9,951

Investment and other gains - net

422

2,393

 

3,826

722

 

472,075

492,869

 

870,595

930,099

Expenses:

         

Amounts retained by agencies

191,091

203,793

 

367,586

399,000

Employee costs

139,896

146,278

 

269,151

285,101

Other operating expenses

86,053

85,953

 

163,207

166,220

Title losses and related claims

18,786

18,697

 

34,473

37,678

Depreciation and amortization

5,775

6,154

 

11,764

12,388

Interest

1,124

673

 

2,288

1,646

 

442,725

461,548

 

848,469

902,033

Income before taxes and noncontrolling interests

29,350

31,321

 

22,126

28,066

Income tax expense

(7,027)

(5,602)

 

(4,585)

(4,307)

Net income

22,323

25,719

 

17,541

23,759

Less net income attributable to noncontrolling interests

3,019

3,342

 

5,001

5,161

Net income attributable to Stewart

19,304

22,377

 

12,540

18,598

           

Net earnings per diluted share attributable to Stewart

0.81

0.95

 

0.53

0.79

Diluted average shares outstanding (000)

23,758

23,625

 

23,750

23,607

           

Selected financial information:

         

Net cash provided (used) by operations

31,454

36,293

 

(8,429)

7,367

Other comprehensive income (loss)

7,896

(6,697)

 

21,657

(16,544)

 

Monthly Order Counts:

Opened Orders
2019:

April

May

June

Total

 

Closed Orders
2019:

April

May

June

Total

Commercial

1,425

1,677

1,558

4,660

 

Commercial

1,250

1,625

1,474

4,349

Purchase

22,982

22,455

19,735

65,172

 

Purchase

14,221

16,404

14,971

45,596

Refinancing

10,425

10,406

12,511

33,342

 

Refinancing

5,785

6,606

6,363

18,754

Other

425

419

264

1,108

 

Other

361

363

231

955

Total

35,257

34,957

34,068

104,282

 

Total

21,617

24,998

23,039

69,654

                     

Opened Orders
2018:

April

May

June

Total

 

Closed Orders
2018:

April

May

June

Total

Commercial (Note 1)

1,977

2,141

2,053

6,171

 

Commercial (Note 1)

1,581

1,827

1,810

5,218

Purchase

21,658

22,932

21,484

66,074

 

Purchase

14,921

16,865

17,283

49,069

Refinancing

7,362

7,456

6,797

21,615

 

Refinancing

4,899

5,050

4,633

14,582

Other

763

893

875

2,531

 

Other

959

884

693

2,536

Total

31,760

33,422

31,209

96,391

 

Total

22,360

24,626

24,419

71,405

                                 

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)

 
 

June 30, 2019
(Unaudited)

December 31,
2018

Assets:

   

Cash and cash equivalents

201,205

192,067

Short-term investments

23,064

22,950

Investments in debt and equity securities, at fair value

617,349

636,017

Receivables – premiums from agencies

32,347

29,032

Receivables – other

59,664

47,044

Allowance for uncollectible amounts

(4,025)

(4,614)

Property and equipment, net

57,297

60,794

Operating lease assets (Note 2)

102,134

-

Title plants, at cost

74,737

74,737

Goodwill

248,890

248,890

Intangible assets, net of amortization

7,340

9,727

Deferred tax assets

4,575

4,575

Other assets

52,462

51,711

 

1,477,039

1,372,930

Liabilities:

   

Notes payable

105,404

108,036

Accounts payable and accrued liabilities

85,436

109,283

Operating lease liabilities (Note 2)

114,022

-

Estimated title losses

450,208

461,560

Deferred tax liabilities

21,142

14,214

 

776,212

693,093

Stockholders' equity:

   

Common Stock and additional paid-in capital

188,300

186,714

Retained earnings

512,467

514,248

Accumulated other comprehensive loss

(3,114)

(24,771)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

694,987

673,525

Noncontrolling interests

5,840

6,312

Total stockholders' equity

700,827

679,837

 

1,477,039

1,372,930

     
     

Number of shares outstanding (000)

23,712

23,719

Book value per share

29.56

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:

June 30, 2019

 

June 30, 2018

 

Title

Ancillary
Services
and
Corporate

Consolidated

 

Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:

             

Operating revenues

458,700

7,798

466,498

 

471,497

13,732

485,229

Investment income

5,155

-

5,155

 

5,247

-

5,247

Investment and other (losses) gains - net

(219)

641

422

 

2,381

12

2,393

 

463,636

8,439

472,075

 

479,125

13,744

492,869

Expenses:

             

Amounts retained by agencies

191,091

-

191,091

 

203,793

-

203,793

Employee costs

134,677

5,219

139,896

 

138,145

8,133

146,278

Other operating expenses

74,995

11,058

86,053

 

75,502

10,451

85,953

Title losses and related claims

18,786

-

18,786

 

18,697

-

18,697

Depreciation and amortization

5,048

727

5,775

 

5,249

905

6,154

Interest

-

1,124

1,124

 

2

671

673

 

424,597

18,128

442,725

 

441,388

20,160

461,548

Income (loss) before taxes

39,039

(9,689)

29,350

 

37,737

(6,416)

31,321

             
             

Six months ended:

June 30, 2019

 

June 30, 2018

 

Title

Ancillary Services and Corporate

Consolidated

 

Title

Ancillary Services and Corporate

Consolidated

Revenues:

             

Operating revenues

834,810

22,080

856,890

 

893,863

25,563

919,426

Investment income

9,879

-

9,879

 

9,951

-

9,951

Investment and other gains - net

3,385

441

3,826

 

722

-

722

 

848,074

22,521

870,595

 

904,536

25,563

930,099

Expenses:

             

Amounts retained by agencies

367,586

-

367,586

 

399,000

-

399,000

Employee costs

257,733

11,418

269,151

 

269,749

15,352

285,101

Other operating expenses

139,421

23,786

163,207

 

144,673

21,547

166,220

Title losses and related claims

34,473

-

34,473

 

37,678

-

37,678

Depreciation and amortization

10,200

1,564

11,764

 

10,566

1,822

12,388

Interest

-

2,288

2,288

 

8

1,638

1,646

 

809,413

39,056

848,469

 

861,674

40,359

902,033

Income (loss) before taxes

38,661

(16,535)

22,126

 

42,862

(14,796)

28,066

Appendix A
Adjusted revenues and adjusted EBITDA

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 before interest expense, income tax expense, and depreciation and amortization 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 EBITDA). 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 six months ended June 30, 2019 and 2018 (dollars in millions).

 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

2019

2018

%
Change

 

2019

2018

%
Change

               

Total revenues

472.1

492.9

   

870.6

930.1

 

Less: Investment and other gains

(0.4)

(2.4)

   

(3.8)

(0.7)

 

Adjusted revenues

471.7

490.5

(4)%

 

866.8

929.4

(7)%

               

Net income attributable to Stewart

19.3

22.4

   

12.5

18.6

 

Noncontrolling interests

3.0

3.3

   

5.0

5.2

 

Income tax expense

7.0

5.6

   

4.6

4.3

 

Income before taxes and noncontrolling interests

29.3

31.3

   

22.1

28.1

 

FNF merger expenses

3.7

-

   

5.7

2.3

 

Other non-operating charges

-

-

   

1.5

-

 

Investment and other gains

(0.4)

(2.4)

   

(3.8)

(0.7)

 

Adjusted income before taxes and noncontrolling interests

32.6

28.8

   

25.5

29.6

 

Depreciation and amortization

5.8

6.2

   

11.8

12.4

 

Interest expense

1.1

0.7

   

2.3

1.6

 
               

Adjusted EBITDA

39.5

35.7

10%

 

39.6

43.6

(9)%

 



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

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