Hello, and thank you for joining the Stewart Information Services Second Quarter 2025 Earnings Call. Please note today's call is being recorded. It is now my pleasure to turn today's conference over to Kath Bass, Director of Investor Relations. Please go ahead.

Thank you for joining us today for Stewart's Second Quarter 2025 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 of 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. Thank you for joining us today for Stewart's Second Quarter 2025 Earnings Conference Call. Yesterday, we released the financial results for the quarter, which David will review with you shortly. I will open the call with some thoughts on current housing market conditions, followed by a dive into our second quarter results and some insight into the progress we are making on our strategic growth initiatives. Before discussing these initiatives, I want to express our sincere sympathies to those affected by the recent weather events across the country. Our hearts go out to those affected by the July 4 flooding in Texas, our home state. While our employees were not directly impacted by this monumental flood, we know that countless families were. We have and will continue to find ways to support rebuilding efforts in Central Texas. We are very pleased with our second quarter results as they demonstrate our ability to significantly grow both revenue and earnings in a stubbornly challenged housing market. Market uncertainty and affordability challenges have kept buyers at bay as they wait further clarity on near-term economics. The spring selling season has fallen flat with existing home sales down roughly 1% compared to the second quarter of 2024. Inventories have improved in volume and quality over the past several months, which could be a precursor to some improvement in the market. The improved inventory is allowing buyers to be more selective, and we are seeing that homes are sitting on the market longer and that more homes are trading below listing price. All of these levers are helping cool price appreciation, which was around 1.5% for the quarter as compared to about 3% for the first quarter and over 4.5% for the fourth quarter in '24. While the current market outlook is difficult to predict, given the current market activity, we expect to see some improvement in the second half of the year relative to 2024. However, the magnitude and timing of this improvement remains unclear. In a largely flat housing market, I am very pleased with the strong results for the second quarter and our continued momentum across all of our businesses. We grew revenues by 20% and adjusted EPS by 48% compared to the second quarter of '24. In the direct operations, a business that most immediately feels the effects of a challenged residential housing market, we grew 6% overall, and we remain focused on growing share in target MSAs and micro markets, both organically and inorganically. We expect acquisitions will be a big driver of our growth plans for this business going forward and maintain a warm pipeline of targets. In addition, we are focused on expanding small commercial within direct operations, and our investments are having significant impact as we delivered a 36% growth rate in this quarter over last year in small commercial and direct operations. Growth in our national commercial services business continued to be strong, driven by increasing penetration in a number of geographic markets and asset classes. Our continued growth will be driven by targeted investments in talent. Thoughtful investments in our talent will allow us to expand our network and deepen our capabilities in more geographies and asset classes to leverage our distinctive underwriting capability. We have made great progress in expanding our commercial teams with industry-leading talent and will continue to strategically do so in the foreseeable future. In the second quarter, we grew our domestic commercial business by 46% relative to the second quarter of last year. Year-to-date, domestic revenue has grown 43% when compared to the first half of '24. While energy continues to be a strong asset class for us, we have also experienced solid growth across most of our asset classes, and we are steadfast in our pursuit of growth across all commercial asset classes. Our agency services business also delivered very strong results. Our team remains focused on expansion through share gains in attractive markets through additional new agents and expanded share with existing agents. We pursue growth across all states, but we are laser-focused on 15 states that would allow us to capture significant scale and growth. We have also enhanced our agency commercial capabilities and are seeing strong traction in supporting our agents in their commercial work. Our agent servicing team delivered strong second quarter results, growing 25% when compared to the second quarter of '24. Again, that’s in a relatively flat residential market, which likely demonstrates continued share gains in agency residential and commercial. We will continue to build on the momentum we have made in recent years for our agents to differentiate our services and better our offerings for our agent partners. Our real estate solutions business continues to gain traction, growing revenue 22% when compared to the second quarter of last year, primarily due to higher revenues from our credit information evaluation services business. Our margins improved sequentially and were slightly down relative to the second quarter of '24. We expect margins in our lender services to normalize in the low teens range for the remainder of the year. We expect to grow the real estate solutions business line by gaining share with top lenders and cross-selling our products as we leverage our improved portfolio of services. Cross-selling in current market conditions poses some challenges. However, we are pleased to see share gains with both existing clients and new client introductions, and we expect continued momentum in this space as the market improves. We are also proud to announce that PropStream, a real estate data and analytics platform in our real estate solutions segment, acquired BatchLeads and BatchDialer in early July. This acquisition allows us to combine PropStream's property data engine and marketing tools with BatchLeads' advanced AI-driven tools and contact dialer. This combination will offer customers best-in-class nationwide real estate data intelligence and enhanced lead targeting and unified outreach platform, all in one place. Moving to our international business, we are focused on broadening our geographic presence in Canada and increasing our commercial penetration. We grew both noncommercial direct and commercial direct revenue by 6% compared to the prior year. We believe we can continue to build our strong position in these markets and continue to grow share. Overall, we remain dedicated to strengthening our businesses by improving our scale and improving our competitive position in each business. We remain focused on growth even in a challenged market, and we feel poised to capitalize on improvements when the market returns to normal levels. We continue to be thoughtful about our investments in ourselves and in the pursuit of smart growth for each of our business lines. I want to close by thanking our employees for their dedication and focus. It's interesting that over the last few weeks, I've been able to visit a large number of offices and meet with over 1,000 of our colleagues in person. I was struck by the positivity and energy everywhere I visit, especially given the difficult market conditions we all compete in. And I want to thank them for driving our journey to be the premier title service provider. And finally, to our many new and long-term customers, I want to thank you for trusting us to deliver with consistency and excellence. So with that, David, I'll turn it over to you to provide the update on results.

Good morning, everyone, and thank you, Fred. I appreciate our employees and thankful for our customers. I share Fred's sympathies for those affected by recent weather events. The real estate market remains challenged with mortgage rates in the high 6s and existing single-family home sales around 15-year lows. Yesterday, Stewart reported second quarter net income of $32 million or $1.13 per diluted share based on revenues of $722 million. Appendix A of our press release shows adjustments primarily related to net realized and unrealized gains and losses and acquired intangible asset amortization that we use to measure operating performance. On an adjusted basis, second quarter net income was $38 million or $1.34 per diluted share compared to $25 million or $0.91 per diluted share last year. In the Title segment, operating revenues in the second quarter improved $96 million or 19%, driven by both our direct and agency title operations. This resulted in a title pretax income improvement of $16 million or 48%. After adjustments for purchase intangible amortization and other expenses, the Title segment's adjusted pretax income was $52 million, which was $14 million or 35% better than last year, while adjusted pretax margin improved 1% to 8.5%. On our direct title business, second quarter total open and closed orders improved due to higher commercial refinancing and real estate investor activity. Domestic commercial revenues increased $24 million or 46% due to strength and breadth in the energy, data center, hospitality, industrial, land development and multifamily asset classes. Domestic commercial average fee per file increased 25% to $16,900 compared to $13,500 last year. Domestic residential fee per file slightly declined to $2,900 compared to $3,000 last year, primarily due to a higher mix of refinancing and real estate investor orders. International results improved modestly. While our agency operations, gross agency revenues increased $61 million or 25% on improved volumes in our key agency states, while net agent or 21%. On title losses, our total title loss expense in the second quarter increased slightly to $22 million due to increased title revenues, partially offset by our overall favorable claims experience. The title loss ratio for the second quarter improved to 3.6% compared to 4.2% last year. We expect our title losses to average around 4% for the full year 2025. Regarding the real estate solutions segment, operating revenues improved $20 million or 22%, driven by increased revenue from our credit information and valuation services operations. Excluding acquisition intangible amortization, adjusted pretax income was $2 million or 15% higher. We continue to manage the higher credit information cost of service and are focused on deepening and expanding customer relationships. Adjusted pretax margin for the second quarter was 10.9%, which has improved sequentially and from Q4's low point. We expect our margins to be in the low teens as these relationships mature. On our consolidated operating expenses, our employee cost ratio improved to 30% versus 31% last year, while our other operating expense ratio improved to 25% from 26%, primarily due to higher operating revenues. On other matters, our financial position remains solid to support our customers, employees and the real estate market during this challenging environment. Our total cash and investments were approximately $390 million in excess of our statutory premium reserve requirements, while we also have a fully available $200 million line of credit. Total Stewart stockholders' equity at June 30 was approximately $1.4 billion with a book value of $51 a share. Net cash provided by operations improved by $32 million in the second quarter compared to last year. Again, thank you to our customers and employees, and we remain confident in our service to the real estate markets. I'll now turn the call over to the operator for questions.

We will take our first question from Bose George with KBW.

So first, just on commercial. You obviously had another very good commercial quarter. Can you discuss what you're seeing in terms of the commercial pipeline in July? And also last year in the second half of the year, obviously, commercial ramped quite a bit. Just given that the year-over-year comps, obviously, get a little bit harder, just curious how we should think about your expectations for the back half of this year and commercial revenues year-over-year.

Yes. Thanks. So I feel good about the pipeline. There’s a lot of activity. And so again, do I think we’re going to sustain 45% growth? No. But do I think we can grow and grow up more than the market? Yes. And we have good visibility to the pipeline and the breadth of the pipeline is good, too. So I feel pretty good about it. The other thing that bodes well for us in commercial is that we’re also very focused on what I call main street commercial, small commercial within the direct operation. And we’ve seen nice growth there, too, which is a segment that we kind of gave up on almost during some of the troubled times of the company. And so that’s coming back nicely. So I’m pretty comfortable that we will continue to see growth in commercial, but you’re absolutely right to bring up discussions about the comparisons from last year. And we’re at a very hefty number, which will probably come in a little bit. But I feel confident that the momentum will continue.

Okay. Great. And then actually switching over to the residential. On the agent premiums, they were up 25% versus direct, up 14%. Can you remind us, is there any timing issue there, agent versus direct? Or is it just...

The agency situation is twofold. First, we have been adding resources as our value proposition has improved, particularly in servicing and our commercial capabilities. We have increased staff in targeted states, which is starting to show results. Additionally, we have improved our ability to deliver commercial services to agents outside of New York, where we previously struggled. We implemented a concierge service to assist agents, especially with multistate issues, and provided direct issue capabilities in areas where they lack licenses, which has been successful. As a result, we are experiencing geographic growth and increased penetration in commercial. I am pleased with this momentum, reporting a net growth of 14% last quarter and announcing 21%. While there might be fluctuations, I am optimistic about our momentum driven by our growth initiatives.

Okay. Great. That's helpful. I have one more question regarding the agent retention rate, which seems to have declined by about 1 point. Is that decline primarily due to geographical factors?

Yes, it’s entirely about geography. When comparing our performance to others, it's primarily influenced by Florida. We’ve made some progress; however, we are still in the 5% to 6% market share range, while our competitors have over 20%. The top three have market shares above 20%, which affects retention rates. A few other states perform better, but each state's profitability is strong, so I’m not concerned. The performance splits are what influence this. In Texas, for example, we’ve experienced decent growth, but the market share is much lower, around 15%. The geographic mix is a common theme. We’ve also seen significant growth in Ohio, and I feel confident about this because our margins have improved as we've expanded. This business has considerable fixed costs, so growth positively impacts margins since a lot of the workload falls on the agents. Overall, I’m pleased with our margin profile as we grow, but I would like to see a larger share from Florida as well.

And your next question comes from Geoffrey Dunn with Dowling & Partners.

I've got a couple of questions for you. I guess, first, what is the rough breakdown of your domestic commercial business between what you're labeling small versus national commercial?

About $19 million this quarter falls into what I would consider the small category. Out of the total of $74 million, approximately $19 million is in this segment. What excites me is that during times when our capital was limited and the company faced challenges, we centralized our commercial efforts and operated minimally in the offices. We primarily provided services to larger clients, focusing on business valued at $20 million and under in single-state mixed-use projects, especially in offices located outside major cities like Austin and Columbus. Now, we have made significant investments in skills and resources. Interestingly, we had some of these skills present in our offices, but we hadn't concentrated on them until now. This focus is starting to yield positive results. I believe this will be a crucial element of our future strategy as it significantly enhances our margin profile in direct operations by utilizing our excess capacity more efficiently, leading to higher-margin business opportunities.

Got you. And then on the residential business, can you remind us the premium relationship between a purchase deal and a refi deal as well as the margins that typically go with those?

A retail deal typically costs around $3,000, while a refinance deal ranges from $1,000 to $1,400, varying based on whether it's centralized or distributed. The margin on residential deals is quite stable, whereas refinancing margins fluctuate significantly depending on office capacity. For us, refinancing represents potential growth. Unlike other companies in the sector, only 3% of our revenue comes from refinancing, and even less contributes to our earnings, meaning it's all upside for us. There has been some growth in centralized lending as our lender business expands, but I haven't prioritized it due to its cyclical nature compared to our other businesses. I view refinancing as future potential and do not rely on it for achieving our target market share or returns. While some competitors might gain a short-term boost from refinancing this quarter, we aren't affected since we're not targeting that segment. Eventually, we anticipate capturing more of that market, but from a strong position with better margins. Notably, the recent developments in the pilot program are encouraging, as they seem to be incorporating refinancing options that align with our initial recommendations, suggesting they might adopt a model that includes title policies. If this pilot succeeds and shows beneficial margins, we could leverage our existing technology and workflows to pursue it more actively. Overall, I’m optimistic about our current standing, even with refinancing being a minor part of our business.

Given the pilot comments you just made, I know it's been bumping around a little bit, not a lot of traction at this point, but do you have any sense as to how the pilot is pricing loans that go through without a title insurance versus your product?

We are not very close at this point. I believe that waiving is not the best solution for the lenders, as it creates several issues unless there is some form of correction, which could lead to complications in future transactions. I am uncertain about the technology pricing and the overall pricing model being introduced, which will need to be clarified. The success of this model must be demonstrated. I appreciate anything that maintains the policy and includes corrections, as that could be highly automated given the lower risk associated with that segment. However, we are not engaged in this yet; we are observing it closely to determine if we might participate later.

Okay. And then the last question is another mix question. Can you update us on the mix of the primary segments within RES being PropStream, infill research and the core offerings and the margins that go with those three buckets?

Yes. So with that business, you have the data kind of business, what we call IR data business and that's got the verification waterfall and all the tri-merge credit stuff in it. We have appraisal, which is a big piece of the business. Those are the two biggest revenue streams. PropStream is much smaller, but it's a nice value-added product. But we believe they can all get to that 12% consistent in a down market, and with good market conditions, that should get closer to 14%, 15% if we had a little bit more volume because they also have some fixed cost coverage issues when you're at this low volume. Overall, the entire business can carry that. We had a little bit of bumpiness with the data costs and how we priced some of this in a bundled fashion to capture some value. We expect to end this year right around where we ended last year between 11% and 12% for margin, I guess, when it’s all said and done. I like the businesses. They generate a nice profile, and they are cyclical. They all are affected by the cycle. It’s just that we’ve been able to have enough margin on a cash basis to sustain a little bit higher margin in those businesses.

And we will take the next question from Bose George with KBW.

Just a quick follow-up. The investment income line was up a decent amount. Was there anything unusual there?

Yes, we are currently earning about 6% from that each quarter, and as you can see in other instances, when we invest in the higher yield environment, we tend to see an increase. This is primarily why the earnings are rising, along with a slight increase in balances.

And Bose, over time, again, we're not seeing the impact yet. But this commercial as a percentage of our business, if that gets bigger, that's helpful because of the flow that comes with that. We have to capture it. We've gone from about 10% of our business in title being commercial to 13%, which is helpful. The other place we need to push on is where that should be able to grow our 1031 business, which we haven't recognized that yet. But we need to get after that and grow that business because that should be connected to this growth in commercial as a part of our business. As David said, mostly what we had to do is recapture escrow with these partnerships with banks that they value the deposits, and we've got to keep doing that. As we grow, obviously, those balances grow. There’s a little bit. The other piece here is making sure we capture additional growth in commercial. So we should, over time, see a little bit of growth there too, which hasn't materialized yet but could.

Okay. We should consider that number as a base case and think about how to grow from there.

It is clearly yield driven.

Right. I mean if you have two rate cuts, let's just say, for the rest of the year, you're going to feel that a little bit in the escrows. But ours are hair trigger because they're more negotiated, but you're definitely going to have some downward pressure. But then as you roll your investment portfolio, that's going into things that are a lot better than during COVID years.

And it appears that we have no further questions at this time. I will now turn the meeting back to Fred Eppinger.

Yes. Thank you for the call. Again, one of the things that I would close by saying is there was a great question two quarters ago by one of the analysts that said, if the market doesn’t grow at all, like what can the company do? I think the way I answered is I said, I think because of our momentum, we could grow 10% top line and 20% bottom line in that kind of environment. If you look at the 6 months so far, we’re up about 16% and about 49% of earnings. I don’t know if we can sustain something like that. But what I know is that our businesses have some nice momentum right now. If we stay focused on what we’re trying to accomplish, we should be able to grow a little bit more than the market and continue to leverage our earnings. I’m really proud of what this quarter was, not because of this quarter, but because of the work that our folks did to build our capabilities over the last couple of years to get to this point where I think we can sustain a little bit more than the market, not probably what this quarter was, but sustain a little bit better than the market. So I’m very pleased with where we are positioned as a company. So thank you so much for your attention today, and thank you.

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.