Stewart Reports Second Quarter 2018 Results
- Title revenues of $471.5 million, an increase of $5.4 million, or 1 percent, compared to the prior year quarter.
- Commercial revenues of $55.7 million, an increase of $4.3 million, or 8 percent, compared to the prior year quarter.
- Net income attributable to Stewart of $22.4 million, an increase of $3.8 million, or 21 percent, compared to the prior year quarter.
HOUSTON, July 18, 2018 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart of $22.4 million ($0.95 per diluted share) for the second quarter 2018, compared to net income attributable to Stewart of $18.6 million ($0.79 per diluted share) for the second quarter 2017. Pretax income before noncontrolling interests for the second quarter 2018 was $31.3 million compared to a pretax income before noncontrolling interests of $33.1 million for the second quarter 2017.
"Stewart delivered a solid second quarter of title revenue growth in the face of tighter residential inventories and rising interest rates," stated Matthew W. Morris, chief executive officer. "Continued commercial strength, home price appreciation and further agency traction helped to offset residential headwinds. While our senior management team has been focusing on the merger process, I want to thank our loyal associates who again produced strong operational results this quarter. Since the merger announcement, we have been focusing on three key areas – meeting our revenue goals, retention of our loyal associates and obtaining regulatory approvals."
Fidelity National Financial (FNF) Update We announced last quarter that we had begun the regulatory approval process for Stewart's merger with FNF by submitting our preliminary Hart-Scott-Rodino filings to the Federal Trade Commission (FTC) and the Form A filings to the states of Texas and New York, the domiciles of Stewart's two main underwriters. During the second quarter, we received an expected second request for additional information and documentary material from the FTC and are in the process of responding to this request. In addition, we have received approval from a majority of the states with which a Form E was filed and are awaiting approval from the remaining states.
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 second quarter 2018 increased $5.5 million from the prior year quarter, driven by increased commercial and independent agency revenues, which were partially offset by lower residential direct title revenues. Pretax income declined $1.8 million in the second quarter 2018 compared to the second quarter 2017. The title segment incurred higher employee costs due to increased commissions and additional employee costs from acquisitions, which were partially offset by lower title losses and other operating expenses. Included in the segment's results were $4.0 million of net policy loss reserve reductions resulting from our midyear actuarial reserve review, partially offset by charges to policy loss expenses of $3.9 million related to two ongoing escrow litigation matters, and $1.8 million of net unrealized gains relating to changes in fair value of investments in equity securities (which were previously being recorded to other comprehensive income, but are now included in investment and other net gains due to an adoption of a new accounting standard in 2018).
Direct title revenues information is presented below (dollars in millions):
Included in the non-commercial domestic revenues were revenues from purchase transactions and centralized title operations (processing primarily refinancing and default title orders) which decreased $1.9 million (1 percent) and $5.5 million (46 percent), respectively, in the second quarter 2018 compared to the prior year quarter due to lower closed orders, primarily on refinancing activities. Total commercial revenues improved 8 percent from the prior year quarter due to our continued focus on delivering quality service and underwriting to our domestic and international commercial customers. Total international title revenues in the second quarter 2018 decreased $1.8 million compared to the prior year quarter as a result of lower volumes, principally from our Canada operations, partially offset by the positive impact of the stronger foreign exchange rates against the U.S. dollar.
Gross revenues from independent agency operations in the second quarter 2018 increased $12.9 million compared to the second quarter 2017. The independent agency remittance rate in the second quarter 2018 remained comparable to the prior year quarter. Agency revenues, net of agency retention, improved 4 percent in the second quarter 2018, compared to the prior year quarter, as we maintain our focus on enhancing customer service and technology connectivity.
Ancillary Services and Corporate Segment Summary results of the ancillary services and corporate segment are as follows (dollars in millions):
Second quarter 2018 segment revenues declined $1.3 million compared to the prior year quarter, primarily due to a 23 percent revenue decrease in the valuation services business which was partially offset by a 6 percent increase in the search services business. The segment's pretax results for the second quarter 2018 were comparable to the prior year quarter as a result of lower employee costs, which fully offset the revenue decline for the quarter. The segment's results for the second quarter 2018 and 2017 included approximately $6.3 million and $5.9 million, respectively, of net expenses attributable to parent company and corporate operations.
Expenses Employee costs for the second quarter 2018 were $146.3 million, or 5 percent higher compared to the prior year quarter. Although average employee counts decreased approximately 6 percent in the second quarter 2018 (primarily related to continued volume declines in our ancillary services and centralized title operations), employee costs increased due to higher commissions and added costs attributed to previous acquisitions in the title segment. As a percentage of total operating revenues, employee costs for the second quarter 2018 were 30.1 percent compared to 29.0 percent in the prior year quarter.
Other operating expenses for the second quarter 2018 decreased 3 percent to $86.0 million from $88.8 million in the second quarter 2017. The decrease was primarily due to lower outside title search expenses and cost of services within our ancillary services business as a result of lower revenues, and reduced costs related to third party outsourcing. As a percentage of total operating revenues, other operating expenses for the second quarter 2018 were 17.7 percent compared to 18.5 percent in the prior year quarter.
Title loss expense for the second quarter 2018 was $18.7 million, a decrease of 24 percent from $24.5 million in the second quarter 2017. Additionally, title losses were 4.0 percent of title revenues in the second quarter 2018 compared to 5.2 percent in the prior year quarter, primarily as a result of our reduced loss provisioning rate due to lower loss experience. As earlier mentioned, during the second quarter 2018, we recorded $4.0 million of policy loss reserve reductions as a result of the actuarial reserve review, while we also incurred charges of $3.9 million related to two ongoing escrow litigation matters. We expect our loss provisioning rate will range between 4.0 to 4.5 percent for the year 2018.
Other Net cash provided by operations in the second quarter 2018 slightly increased to $36.3 million, compared to net cash provided of $35.7 million in the prior year quarter, primarily due to the higher net income generated in the second quarter 2018.
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, 2017, 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.
(Unaudited)
2017
Services
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Corporate
Services
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Corporate
Services
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Corporate
Services
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Corporate
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 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, 2018 and 2017 (dollars in millions).
June 30,
June 30,
Change
Change
CONTACT: Nat Otis, SVP - Finance and Director of Investor Relations (713) 625-8360