Stewart Information Services Corporation (STC) Earnings Call Transcript & Summary

Hello, and thank you for joining the Stewart Information Services Second Quarter 2026 Earnings Call. [Operator Instructions] Please note, today's call is being recorded. [Operator Instructions]. It is now my pleasure to turn today's conference over to Kat Bass, Director of Investor Relations. Please go ahead.

Thank you for joining us today for Stewart's Second Quarter 2026 Earnings Conference Call. We will be discussing results that were released yesterday after the close. Joining me today are CEO, Fred Eppinger; and CFO, David Hisey. To listen online, please go to the stewart.com website to access the link for this conference call. This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Please refer to the company's press release and other filings with the SEC for a discussion on the risks and uncertainties that could cause our actual results to differ materially. During our call, we will discuss some non-GAAP measures. For a reconciliation of these non-GAAP measures, please refer to the appendix in today's earnings release, which is available on our website at stewart.com. Let me now turn the call over to Fred.

Thank you for joining us today for Stewart's Second Quarter 2026 Earnings Conference Call. Yesterday, we released the financial results for the second quarter. I will kick off today's call with an overview of our performance, followed by our outlook on the housing market. I will then cover our results and strategic direction by business. After my remarks, I'll then turn it over to David for additional commentary on the results. I am very pleased with the second quarter results. We sustained our growth momentum in each of our business lines and strengthen our future earnings outlook by significantly investing in some additional business opportunities. Our results for the first half of the year reflects the efforts we have made to grow the company and improve earnings. Our year-to-date results demonstrated our success at growing both top and bottom lines. Year-to-date, we have grown revenues by 26% and grew adjusted pretax income by 45%, all while the housing market remains at multi-decade lows. Our momentum continued in the second quarter as we saw very strong revenue growth of over 24%. Earnings growth for the quarter was 13% with slower growth driven by a decision to make some significant additional investments in individuals and teams to boost our organic growth initiatives in 3 of our title businesses. In the quarter, we made additional investments in individuals and teams of around $8 million to capture these targeted business opportunities. I'm excited about these opportunities and believe we should see the full impact of these hires over the next 2 to 4 quarters. Even with those investments, I believe we can deliver earnings growth that will outpace revenue growth over the second half and for the full year for the overall company. I am very encouraged by our strong momentum in '26 when considering current housing market conditions. Growth in the existing home sales has been very modest again year-over-year, up 2% for the first half of '26, but still hovering around the 4 million annual units, continuing the multiyear slump. At the onset of '26, we expect the existing home sales to improve around 6% to 8%. However, given the position of interest rates as a result of the macro and geographical conditions, we now anticipate a much softer improvement with growth more likely topping around 2% when compared to last year, keeping us solidly in the low 4 million existing house sales range. While May and June saw some positive existing home sales momentum year-over-year, at the annualized numbers remain in that 4 million to 4.1 million range. Home prices continue to hold and slightly increase by around 1.5% for the quarter. Even as we see more inventory coming into place, reflecting the demand still built into the system. The charge of owners of under 3% rates continues to slowly shrink coming in about 19.5% from the high of 25% of outstanding mortgages several years ago. This implies that life events are slowly inciting some buyers into the marketplace. Interest rates remain a critical factor for potential homebuyers consider determining when they enter the market. And in the first quarter, we felt the positive effects of rates moving down towards 6% range and felt the dynamic shift as they move back up around 6.5%, which is where we are hovering throughout the second quarter. Turning to our business results. Our National Commercial Services business continued to deliver strong growth in the quarter. Total domestic commercial premiums grew 20% year-over-year and up 30% in the first half of the year when compared to '25. Energy continues to be our largest asset class, followed by strength in some of our larger asset classes such as data centers, multifamily and industrial properties. We are proud of how we have built this business over the last 2 to 3 years and are laser-focused on the continued expansion in this space. The acquisition of industry-leading talent is a critical activity for us to continue to grow our footprint, and we continue to seek opportunities to expand our talent base. In the second quarter, we made some significant investments in hiring additional teams to address some regional and sector opportunities, spending an additional $3 million to $4 million this quarter to do so. We believe in these personnel investments and anticipate we feel the full impact of these hires over the next 2 to 3 quarters as they settle into their seat and begin to convert business. Our direct operations business unit grew consolidated residential refinance and Main Street commercial revenues by 7% in the second quarter compared to the same time frame last year. Residential transactions grew 3% in the quarter, slightly better than the growth in existing home sales for the quarter. Main Street Commercial delivered solid growth with revenue up more than 20% due to both transaction volumes and size. We remain focused on strengthening our position in attractive MSAs through organic and inorganic efforts and have begun to see more opportunities become available in our target geographies. In the second quarter, we invested approximately $2 million in incremental organic opportunities to acquire individuals and teams in support of our growth strategy in direct operations. Our centralized title operations, which includes centralized refinance and our bulk business confronted some tough comparables when compared to the second quarter last year as our bulk businesses particularly can be very bumpy. These headwinds impacted our overall noncommercial direct business and drove results down about 1% when compared to the second quarter of '25. Our Agency Services business delivered 25% revenue growth for the second quarter in a row, which we are especially pleased with given our agents confront the same headwinds as our direct operations offices. We are focused on growing this business through winning the business of new agents and expanding wallet share of existing agents with the emphasis on 15 target states. We are also committed to expanding our commercial footprint in agency, and we continue to make good progress on both these priorities with residential premiums up 30% and commercial net premiums up 16% in the second quarter when compared to the same time frame last year. In the second quarter, we were also proactive in making additional investments in talent to take advantage of some disruptions we saw in a handful of our target markets. We invested another $2 million to $3 million in additional customer-facing talent, which should enable us to build significant share in these target states. Our Real Estate Solutions business grew revenues by 75% and adjusted pretax margins by 24% in the second quarter compared to last year, ending the quarter with a 13.6% margin. The year-over-year comparables in this segment benefit from the acquisition of MCS, our property preservation business as well as our acquisition of NAN, our National Appraisal Network. When removing those contributions to our revenue, our legacy RES business grew roughly 18%. We remain focused on continuing to expand our coverage and servicing of the top 300 lenders, and our suite of products and services is in a good position and is giving us even better ability to cross-sell and win business. Moving to our international operations. We are focused on profitably growing across our footprint of Canada, Australia and the U.K. In the second quarter, we grew our noncommercial revenue by 4% and commercial revenue by 7% in challenged housing markets. We believe we can build on our strong position in these markets and continue to grow profitable share. On the topic of inorganic growth initiatives, in '26, we have been -- we have seen a meaningful pickup in attractive opportunities in our acquisition pipeline. In late 2025, we conducted a capital raise to put ourselves in a position in '26 to strengthen our competitive position and increase our earnings power. The vast majority of that capital has yet to be deployed. However, we are currently working on transactions that we anticipate will close in the next 60 to 120 days and will be funded by the proceeds from our excess capital. Our significant growth in real estate solutions and commercial activity throughout the business lines has resulted in an increase in our operating expense ratios. The real estate solutions -- our other operating expenses are the largest expense category and are a higher percent of our mix due to the mix of outside services, cost of data and our appraisal and property preservation contract workforce. Similarly, the commercial transactions often come with higher operating expenses given the cost of data and search fees. Throughout our journey, we have prioritized thoughtful investment in ourselves and our talent to position Stewart well for the marketplace. We have some of the best leaders and employees in the industry, and we continue to add to our roster with a relentless focus on adding personnel that will help us grow the company for the future. We believe strongly in these investments. These investments are necessary to propel the company to the next phase and are continuing to see real momentum for ourselves in the marketplace. We have increased our staffing in all our segments in line and with our organic growth initiatives and have grown our headcount via acquisition, which has resulted in an increase of our employee costs of about 17% year-to-date. Even with this increased investment year-to-date, we have grown revenues by 26% and adjusted pretax income by 45%. We continue to anticipate earnings growth in excess of revenue growth for the full year but could see the ratio of revenue to earnings come in, in the second half without the benefit of improved market conditions, given our increased investment in the title segment. We continue to prioritize shaping the company for 12% adjusted margins when we get back to a 5 million unit existing homes market and are focused on improving margins as we grow in a challenged market. Thank you for your time, attention and interest in Stewart. As an enterprise, we are dedicated to being the premier title services company. We are focused on strengthening the company for lasting success through targeted multipronged growth plans by business to further fortify our position. To our customers and agent partners, thank you for your trust and dedication to Stewart. We are committed to serving you with excellence. And to our Stewart team, thank you for your dedication and focus on growing this company together. We have made great progress, and I look forward to seeing what we can do together. David, I will now turn it over to you to provide an update on our results.

Good morning, everyone, and thank you, Fred. Thank you to our employees and customers for their continued support and partnership as we navigate a residential real estate market that remains challenging. Yesterday, Stewart reported solid second quarter results with both revenue and profitability growth. Second quarter total revenues increased $177 million or 25%, while net income improved $5 million or 17%. Diluted EPS was $1.21 compared to $1.13. On an adjusted basis, net income was $43 million or diluted earnings per share of $1.39 compared to $38 million and $1.34. Appendix A of our press release shows adjustments to our consolidated and segment results, primarily related to net realized and unrealized gains, acquired intangible amortization and acquisition integration expenses. In our Title segment, operating revenues increased $91 million or 15%, driven by strong performance from our agency and domestic commercial business. Title operating expenses increased 17%, primarily due to expenses related to revenue growth and higher employee costs, as Fred noted, resulting from our continued investment in talent. As a result, Title pretax income was comparable to last year. On our direct title business, direct title revenues increased $15 million or 5%, primarily driven by higher commercial and refinancing transactions, while purchase orders were comparable to last year. Domestic commercial revenues grew $15 million or 20%, driven by higher transaction volume across energy and other asset classes with continued data center benefit. Our average domestic commercial fee per file was comparable to last year at $16,900. Average domestic residential fee per file increased to 10% to $3,200, primarily due to a higher weighting of purchase transactions. Total international revenues increased 5%, primarily driven by higher transaction volumes. On our agency operations, gross agency revenues increased 25% to $377 million from $301 million last year, driven by improved residential and commercial activity across our key agency states. After agent retention, net agency revenues increased $13 million or 26% compared to last year. On title losses, the title loss ratio improved to 3.2% in the second quarter compared to 3.6%, primarily due to continued overall favorable claims experience. We expect our title losses for the year to average from the mid-3% to 4% range. On our Real Estate Solutions segment, total revenues increased 75% to -- or $85 million, primarily driven by our recently acquired MCS business and growth in our credit information and valuation services business. Real Estate Solutions adjusted pretax income more than doubled to $27 million from $12 million, while adjusted pretax margin improved to 14% from 11%. On our consolidated expenses, our employee cost ratio improved to 27% compared to 30%, primarily due to revenue growth. Our other operating expense ratio increased to 27% from 25%, primarily due to higher costs associated with increased revenues in the Real Estate Solutions segment. Due to our Real Estate Solutions segment growth, we expect our other operating expense ratio to be in the 27% to 28% range going forward. Our financial position remains strong and well positioned to support our customers' employees in the real estate market. Total cash and investments were approximately $400 million in excess of statutory premium reserve requirements. Total Stewart stockholders' equity at June 30 was approximately $1.66 billion, representing a book value of approximately $55 per share. Net cash provided by operations increased to $60 million from $53 million, primarily driven by higher net income. Again, thank you to our customers' employees for their continued support. We remain confident in our ability to serve the real estate markets. I will now turn the call over to the operator for questions.

[Operator Instructions] And we'll take our first question from Bose George with KBW.

Actually, first, just on expenses. So you guys noted a few factors that drove the expenses higher. But just stepping back and looking at it more broadly, can you just talk about the annualized margin outlook, especially if you remain in this higher for longer with mortgage rates at like 6.5%?

Thanks, Bose. So I think what -- if I look at the whole year, right, I've told you I've given some guidance on the whole year, how to think about the changes -- if we stay flat, which I think we will, I don't think we'll see any growth in the RES market for the rest of the year. I believe that we'll grow earnings -- revenue probably 20% and earnings 30%. That's kind of the range, I think. There's some comparisons in the back half of the year, we had such extraordinary growth in commercial that will tighten some things. I think -- so the improvement in margin, I see is about 0.5 point for the company year-over-year, might be 0.4, might be 0.6. Again, it has something to do with the comparisons because we had such outsized growth in commercial. Last year, so particularly in the fourth quarter. It's that kind of improvement. So I'm right on track. It's right where I wanted us to be. We outperformed a little bit in the first half of the year, which was great. And we've reinvested a bunch of that because I want to sustain it. We think about one of the things to think about, our commercial business at the end of ( 2003 ) was $208 million. Our last 4 quarters is $450 million. We've doubled that business. And so it's important for us. That's a people-driven business, and we really need to make sure we're covering sectors and geographies. The other thing you're seeing is really significant step-up in our agency business. We've had some nice movement. And we've seen a couple of markets that there's disruption. So we've gone for it. We're kind of making investment in customer-facing to really kind of shift share and you can imagine where they are, where the best markets. But I still think with all that, as I look at our momentum and even with the earn-in, I think we'll pick up another 0.5 point. So we're right on. I think title will be tighter. I think it will be kind of the same as last year, but this overall company will be about 0.5 point. And it could be better than that depending on how quickly we ramp up some of these opportunities. I also -- by the way, those numbers do not include what I expect in the next 60 to 90 days. We have a number of these acquisitions we're going through due diligence that we've talked about. And obviously, that would be additive likely to the equation. But I think we're right on track to what we thought.

Okay. Great. That's helpful. And actually, just on the acquisitions, when we think about the scale, is it similar to MCS? Is it a lot of small ones? Just any color there would be great.

Yes, sure. So when I talked about it, the categories we had talked about, there's a little bit of consolidation I'd like to continue to focus on in some of the RES services because it's quite very good incremental margin improvement for us to do that. So we did demand, which was in that category and is likely to be another one over the next 12 months. Not necessarily an appraisal, but in the RES services. There are also on the agency side, as I said, a lot more activity. And so I would see a couple 3 in that category, and they could be a combination of RES or commercial depending on the transaction. And so they're in those categories that we've talked about. None of them are huge. So none of them are in the MCS size kind of category. We're at the point now where this is about MSI local by local market, trying to change the economics, and we're in kind of the business by business, whether it's our data business, our appraisal business or our property pres to really just build scale in some of those areas. So they're all active, as I said, I would guess that we'll be able to deploy the full amount of what we raised plus some in the next probably by the end of the year is what I would say.

Okay. Great. Actually, just a quick one on commercial. Was there any slippage of like large deals within your fee per file was flat year-over-year, but obviously down a decent amount just over the last couple of quarters. Are you just want to need those big deals?

Yes. It is very lumpy, and we had some -- a comparison. We had a couple of really big ones last year. So I don't -- a mix of us and where we are, when I look at the data center mix or I look at the energy mix, it's similar, right? But we've had a couple -- same in the fourth quarter of last year. We had just a tremendous big one in Mexico. So there's going to be a little bit bumpy. I don't see any momentum shift. The pipeline is good. What I would tell you, though, it's just -- the comparatives are tough. I mean we grew 30% first 6 months. We grew 46% or 47% last year at the same time. We're building on big numbers. If you recall, we grew a lot faster than the rest of the industry early. And so the comparison, some of these -- last year was a big year. As I said, frankly, it started at the end of '23. We've been cranking. So I'm very, very comfortable with the 30% sitting on top of the 47%. But I do would also say that's a place I've said time and time again, we're under-clubbed in geographies. We're under-clubbed in sectors. I got to -- we've got to keep hiring talent in commercial if we want to keep closing the gap. We've gone from about -- I haven't done, obviously, the numbers this quarter, but we've gone from about 9% to we were about 13.5%, 14% share. And so that's a pretty big jump. I'd like to believe if we keep our focus and keep investing in that business over the next couple of years, we can get it to 20%. Now there will be -- again, it's bumpy. So our competitors are going to have great quarters, too, and they're very, very good competitors. So I look at that business as really about coverage and resource and our team. The other thing I want to do is I don't want to take on so much so fast that we can't digest it. So it's kind of balancing that. But I think our team has done an excellent job doing that, and I continue to see a good, strong pipeline and potential.

We'll move next to Oscar Nieves with Stephens Inc.

Hey Oscar.

My first one is on the Title segment. When we look at the revenue trends in title, agency continues to outgrow direct. So is that still consistent with the share gain story in your target MSAs? Or are you starting to see competitive or mix pressure show up in the amounts retained by agents? Because if we look at that ratio this quarter, it came in at a little bit higher than the prior quarters. So just wanted to see...

Good observation. So the way of thinking about it in our direct operations, we've now been, what, 4 years in a flat market on res, which is a vast majority of our of what's in our direct operation. We're trying to expand the what I call mainstream commercial. They've done a pretty good job. They've grown at 15%. But I would argue our direct operations is probably under-penetrated in commercial still. So if you look at -- I think we grew 3.5%, something like that in res. So we're holding our own. And our growth in direct has mostly been on the commercial side that gets us to that 7%. And so we've done a pretty good job, but we haven't share shifted as much on the res side on direct ops. Now two things are changing. One, we're getting good commercial traction. But the thing I mentioned in my call, we're starting to see disruption. We're starting to hire and take teams organically. And so we spent another couple of million dollars this quarter at that, and I can see the shift. The other thing that's happening in direct is the inorganic opportunities that I keep talking about by MSA are emerging. We just announced one a great brand in Texas on Fort Worth side of Dallas where we were weak. And I'm really excited about this great brand, great company. Not huge, but those kind of opportunities are starting. And as I said, in our pipeline, we have another three or four of those. So we'll start seeing kind of that MSA-grade growth shift a little bit with res. Now I don't see the market helping us, right? Because I was hoping that I'd see 6%, 8%, 9%, kind of a little bit of res growth, which would really shift for us. That's also a big margin lever because we have excess capacity in our direct operations. But to your point, compared to agency, the team has done an amazing job, right? In a 1% or 2% or 3% growth res, we grew 30%. I mean what we're seeing is shifting share and a lot of significant agents in some really attractive markets. And I think that's going to come down a little bit? Sure. I think we're probably in the -- that business will probably grow in the teens. The other thing they've done a really good job is on the commercial side in agency. But it is -- we are shifting share nicely on the agency side. I don't see the dynamic within the agents changing anything. I just think we're kind of shifting our share. But I would tell you, again, the inorganic activity there's a lot more discussions right now. Even though the market is flat, I think because commercial is a little better, people's outlook is a little bit better. And so we've made a little bit more money, and so we can come to an agreement on a price that's fair for both. But that is actually starting. But it's a great observation because it's -- for me, the direct operation swings, if commercial is outsized, it changes the dynamics. If we can get a little bit more res growth in direct, it would change the dynamics. So there are -- those are the things that are moving it around. And -- but I'm really pleased with the progress everywhere. I just -- and I think that direct is emerging because we're seeing this activity, and we've done on management, data management. And so we've been able to hold or increase our margins over the last 3 years because of good hard work they've done, even though there's been no growth. So I think we're pretty good in both.

That's super helpful. I have a couple -- I want to double click on a couple of the things that you just mentioned. One is on commercial activity, which obviously has remained very strong. And one of your peers that reported yesterday mentioned on their press release that they are on track for a record year in commercial. So on that, can you give us your outlook for commercial revenue for the rest of the year and into '27? And also, if you can share how the underlying drivers, what are you seeing right now in terms of fee per file versus order counts?

Yes. They're both -- they're solid. So Again, my whole thing is just the comparisons for me because we had a bunch of quarters, as you know, in the last 2 years, we grew 50%, 47%, 50%. And so that's a hard comparison, but we have a nice pipeline. We grew 30% in the first 6 months this year. I don't -- I believe we continue to grow. I'm a little bit suspicious about the fourth quarter because we had such a big year in the fourth quarter last year. But we -- to your point, we had 2 record years in a row, right? Like -- and with this last 4 quarters, we doubled the business. So we see the same thing. The market is attractive. We hit our stride and our skill set got better at the right time. We were fortunate, call it lucky. So we've been seeing this for the last couple of years. But we don't see -- again, it's bumpy for us because we're smaller. So if you have all these mega deals like we had in New Mexico, we had another in Louisiana, it affects us a little bit. But I don't -- I like the breadth of our pipeline. I like what's happening. I would say kind of what we did in the -- could I see the percent growth be a little less because of the comparisons? Yes, but it's not because the market is not good. It's not because of the pipeline. And you can see our order count in our numbers. Now the one unknown always with commercial, you just have to keep in mind is if there's a disruption in the marketplace and the financing costs change, sometimes they'll kick it for the next quarter or they'll accelerate or something. So it tends to be -- these tend to be longer deals. They tend to be a little bit fickle about kind of timing of closing. But I'd be surprised if this year is not the best year we ever had after last year being the best year we've ever had. And so we just got to keep after it. But I do think a little bit of difference with us and some of the 2 big competitors are very big. And for me, I'm building capacity as fast as I can build capacity. So there's a little bit of a gate for us because I don't want to be stupid. I want to do it well. I want to be considered excellent. And so there is the staffing that we got to continue to do because we're a lot bigger than we were, but I feel really good about the market. There's nothing about the market that I'm worried about. The early estimates in the market were about a 12% growth in commercial that you see the forecast. Obviously, the first half is way out -- is much bigger than that. And I don't see anything changing the trends, right? I just kind of think they're all kind of similar. So we'll see. But it's not going to kind of report to say I'm worried about it.

And Oscar, that $17,000 fee per file is probably more indicative. As Fred said, we had some really big deals in prior, but the $17,000 is probably more indicative.

Right. All right. That was going to be my next one because yes, it was a significant step down versus the prior 2 quarters. And I do have one last one is you recently announced the Rattkin acquisition. And I just wondered if you could share some details on the size of that deal.

Small it's what I call a micro deal a little bit because it's basically -- it's a small deal. It's not a big deal. The reason we announced it nationally is because their brand is amazing. And it's one of the oldest and best known agents in Texas. It has an amazing commercial position. And so we felt it was important to recognize the family and make the announcement nationally. But it is what I would call it a small. It's -- again, it fills in Dallas is the way for us to think about that. And the ones we're doing following are bigger, a little bit bigger. So a little bit different nature. But I'm really pleased with it because Fort Worth has been a real -- we have a really good position in Dallas, but it's been a hole. And this is about as great as it could be as filling out that city for us.

if you just think about the industry data, right, most agents are under $10 million in revenue. And so when you have a single market agent, right, that's probably the area that they're in.