Stewart Reports First Quarter 2020 Results Provides COVID-19 Update
- Strong liquidity and capital position provides foundation to support customers, employees and the Company's markets during the upcoming period
- Title revenues of $440.3 million, an increase of $64.2 million, or 17 percent, compared to the prior year quarter
- Net income of $5.2 million ($13.3 million on an adjusted basis) versus net loss of $6.8 million ($6.7 million on an adjusted basis) in the prior year quarter
- Diluted EPS of $0.22 ($0.56 on an adjusted basis) compared to first quarter 2019 diluted EPS of -$0.29 (-$0.28 on an adjusted basis)
HOUSTON, April 22, 2020 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported first quarter 2020 net income attributable to Stewart of $5.2 million ($0.22 per diluted share), compared to a net loss attributable to Stewart of $6.8 million ($0.29 per diluted share) for the first quarter 2019. First quarter 2020 pretax income before noncontrolling interests was $9.3 million compared to a pretax loss before noncontrolling interests of $7.2 million for the first quarter 2019.
First quarter 2020 results included $10.6 million of net unrealized losses recorded in the title segment relating to changes in fair value of equity securities investments.
First quarter 2019 results included the following pretax items:
- $3.5 million of net unrealized gains recorded in the title segment relating to changes in fair value of equity securities investments,
- $2.0 million of third-party advisory expenses related to the terminated Fidelity National Financial (FNF) merger transaction included in other operating expenses within the ancillary services and corporate segment,
- $0.8 million of litigation expense related to a 2013 lender services acquisition included in other operating expenses within the ancillary services and corporate segment, and
- $0.7 million of office closure costs included in other operating expenses within the title segment.
COVID-19 Update Stewart is closely tracking the COVID-19 pandemic and its impact on our industry and the global economy generally. We enacted our business continuity plan in early March, remaining open for business to underwrite and close real estate transactions for our residential and commercial customers. We continue to take appropriate measures, along with health guidance from industry and governmental bodies, to ensure the safety of all our employees and customers, having been deemed an essential service. Stewart's digital capabilities, including remote online notarization (RON), electronic signature platforms, virtual underwriting, and mobile earnest money transfer tools, continue to help our associates keep the real estate market open and operating in very challenging times. Going forward, we will continue to proactively manage our business through this crisis to assist in maintaining a functioning real estate market, with the safety of our customers and employees being our highest priority. We have significant cash and investments, borrowing availability on our line of credit and a strong balance sheet which we believe will enable us to successfully work through the adverse economic conditions caused by the COVID-19 pandemic.
"While I am pleased with our performance this quarter, as Stewart delivered one of its strongest first quarter performances in its history, the greater measure of our accomplishment is what has been done since the middle of March to support our customers, employees and the real estate markets," commented Fred Eppinger, chief executive officer. "We have been working tirelessly to protect the health and safety of our employees and customers, while rapidly and creatively using all available tools to continue providing leadership in the operations of real estate markets including helping people purchase homes and refinance mortgages. We will continue to carefully monitor the impact of the COVID-19 pandemic on our industry and economy as we provide our customers with the necessary services that are called for in its wake. I remain very optimistic that with our exceptional associates, customer-centric philosophy, and solid balance sheet, Stewart will emerge from this challenging period as a strong, premier provider in title services."
Selected Financial Information Summary results of operations are as follows (dollars in millions, except per share amounts):
Title Segment Summary results of the title segment are as follows (dollars in millions, except pretax margin):
Title operating revenues in the first quarter 2020 increased $64.2 million, or 17 percent, compared to the prior year quarter, direct title revenues increased $37.0 million, or 23 percent, and gross independent agency revenues increased $27.2 million, or 13 percent. The higher investment income was due to increased interest income primarily resulting from the higher average cash and cash equivalents balances in the first quarter 2020 versus the prior year quarter. The title segment's net realized and unrealized losses and gains were primarily due to $10.6 million of net unrealized losses and $3.5 million of net unrealized gains relating to changes to the fair value of equity securities investments during the first quarters 2020 and 2019, respectively.
With higher title operating revenues, the title segment's overall operating expenses increased $34.8 million, or 9 percent, in the first quarter 2020 compared to the first quarter 2019, primarily driven by a 13 percent higher agency retention expense and a 5 percent increase in combined employee costs and other operating expenses. Our average independent agency remittance rate in the first quarter 2020 was slightly lower at 17.6 percent, compared to 17.9 percent in the first quarter 2019. Title loss expense increased 19 percent in the first quarter 2020; while as a percentage of title revenues, the title loss expense in the first quarter 2020 was 4.2 percent, which was comparable to the prior year quarter.
Excluding the net realized and unrealized losses and gains, and other non-operating expenses discussed above, the title segment's first quarter 2020 pretax income would have been $25.9 million (5.8 percent margin), compared to a pretax loss of $3.3 million (negative 0.9 percent margin) in the first quarter 2019.
Direct title revenues information is presented below (dollars in millions):
Direct title revenues increased primarily due to a large number of closed orders during the first quarter 2020 compared to the prior year quarter. First quarter 2020 non-commercial domestic revenues improved as total purchase and refinancing closed orders increased from the prior year quarter, primarily influenced by the lower interest rate environment. Domestic commercial revenues also benefited from 4 percent higher commercial closed orders in the first quarter versus the first quarter 2019. Domestic commercial fee per file in the first quarter 2020 was approximately $11,400, an 18 percent increase versus the first quarter 2019; while domestic residential fee per file was approximately $2,000, an 11 percent decrease from last year's quarter, primarily resulting from a higher mix of refinancing to purchase transactions. Total international title revenues increased $4.0 million, or 20 percent, primarily driven by increased volumes in our Canada and United Kingdom operations.
Ancillary Services and Corporate Segment Summary results of the ancillary services and corporate segment are as follows (dollars in millions):
Segment operating revenues declined in the first quarter 2020 versus the prior year's quarter, primarily driven by lower revenues from the search services business due to significantly lower orders from several customers. The segment's results for the first quarter 2020 and 2019 included approximately $5.1 million and $5.5 million, respectively, of net expenses attributable to parent company and corporate operations.
Expenses Employee costs for the first quarter 2020 increased 5 percent to $135.7 million from $129.3 million in the first quarter 2019, primarily due to increased transaction volumes. As a percentage of total operating revenues, employee costs for the first quarter 2020 improved 270 basis points to 30.4 percent from 33.1 percent in the first quarter 2019.
Other operating expenses decreased 7 percent to $71.9 million in the first quarter 2020 from $77.2 million in the first quarter 2019. This decline primarily resulted from lower outside search fees, reduced rent and other occupancy expenses, and decreased outside consulting expenses. As a percentage of total operating revenues, other operating expenses for the first quarter 2020 improved 370 basis points to 16.1 percent compared to 19.8 percent in the first quarter 2019. Excluding the non-operating charges mentioned above, the other operating expenses ratio for the first quarter 2019 would have been 18.9 percent.
Other Net cash used by operations improved in the first quarter 2020 to $11.4 million, compared to net cash used of $39.9 million in the prior year quarter, primarily due to the net income generated and lower claim payments in the first quarter 2020.
Other comprehensive loss in the first quarter 2020 was $14.1 million, compared to other comprehensive income of $13.8 million in the first quarter 2019, primarily due to the depreciation of foreign currency exchange rates and the financial market downturn during the first quarter 2020.
First Quarter Earnings Call Stewart will hold a conference call to discuss the first quarter 2020 earnings at 8:30 a.m. Eastern Time on Thursday, April 23, 2020. To participate, dial (877) 876-9174 (USA) and (785) 424-1669 (International) - access code STCQ120. 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 April 23, 2020 until midnight on April 30, 2020, by dialing (800) 688-7036 (USA) or (402) 220-1346 (International) - the access code is also STCQ120.
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, 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.
Quarter Ended
March 31,
2020
(Unaudited)
2019
Services
and
Corporate
Services
and
Corporate
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, 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 ended March 31, 2020 and 2019 (dollars in millions, except share and per share amounts).