Stewart Reports First Quarter 2023 Results

• Challenging real estate environment continued through the first quarter 2023, including a historically low level of existing homes sales
• Total revenues of $524.3 million ($526.1 million on an adjusted basis) compared to $852.9 million ($815.0 million on an adjusted basis) in the prior year quarter
• Net loss of $8.2 million ($6.8 million net loss on an adjusted basis) compared to net income of $57.9 million ($55.8 million on an adjusted basis) in the prior year quarter
• Diluted loss per share of $0.30 ($0.25 diluted loss per share on an adjusted basis) compared to prior year quarter diluted earnings per share of $2.11 ($2.03 on an adjusted basis)

HOUSTON, April 26, 2023 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported a net loss attributable to Stewart for the first quarter 2023 of $8.2 million ($0.30 per diluted share), compared to net income attributable to Stewart of $57.9 million ($2.11 per diluted share) for the first quarter 2022. On an adjusted basis, Stewart's first quarter 2023 net loss was $6.8 million ($0.25 per diluted share) compared to net income of $55.8 million ($2.03 per diluted share) in the first quarter 2022. First quarter 2023 pretax loss before noncontrolling interests was $10.2 million ($8.4 million pretax loss on an adjusted basis) compared to pretax income before noncontrolling interests of $79.6 million ($76.9 million on an adjusted basis) for the first quarter 2022.

First quarter 2023 results included $1.8 million of pretax net realized and unrealized losses, primarily composed of net unrealized losses on fair value changes of equity securities investments and realized losses on sales of investment securities. First quarter 2022 results included $4.1 million of pretax net realized and unrealized gains, primarily composed of net unrealized gains on fair value changes of equity securities investments and realized gains on title plant and other asset sales.

"Our first quarter results were impacted by historically low transaction volumes, driven by an elevated interest rate environment, as well as a seasonally slower first quarter," commented Fred Eppinger, chief executive officer. "We remain focused on our long-term strategies of transforming Stewart into a stronger and more resilient company. We are managing our operations in this challenging environment by balancing cost discipline with investment opportunities that we expect will have a positive impact on our business over the long term. Stewart has made significant progress in becoming a stronger company and will continue to invest opportunistically to build a more resilient company." 

Selected Financial Information

Summary results of operations are as follows (dollars in millions, except per share amounts, and amounts may not add as presented due to rounding):

Title Segment

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

Title segment operating revenues for the first quarter 2023 decreased $265.1 million, or 37 percent, compared to the first quarter 2022, primarily due to volume declines in our direct title and agency operations, while total segment operating expenses decreased $184.3 million, or 28 percent, primarily due to lower revenues. Agency retention expenses in the first quarter 2023 decreased $125.5 million, or 38 percent, due to reduced gross agency revenues, while the average independent agency remittance rate in the first quarter 2023 was 17.4 percent compared to 18.1 percent in the prior year quarter.

Total employee costs and other operating expenses in the first quarter 2023 decreased $49.6 million, or 18 percent, compared to the prior year quarter, and as a percentage of operating revenues, these expenses were 50.4 percent in the first quarter 2023 compared to 38.8 percent in the first quarter 2022, primarily due to lower revenues in the first quarter 2023. Title loss expense in the first quarter 2023 decreased $11.5 million, or 40 percent, compared to the prior year quarter, primarily due to lower title revenues. As a percentage of title revenues, title loss expense was 3.9 percent in the first quarter 2023 compared to 4.0 percent in the first quarter 2022.

The title segment's net realized and unrealized losses and gains in the first quarters 2023 and 2022 were primarily driven by fair value changes of equity securities investments and realized losses and gains on sale of investment securities. Additionally, the segment recorded a realized gain of $1.0 million on a title plant sale during the first quarter 2022. Investment income in the first quarter 2023 increased $3.0 million, compared to the prior year quarter, primarily as a result of higher interest income resulting from increased interest rates and higher short-term investments in the first quarter 2023. Included in the total non-GAAP adjustments to pretax (loss) income were total acquired intangible asset amortization expenses in the first quarters 2023 and 2022 of $2.8 million and $1.8 million, respectively.

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

Total non-commercial domestic revenues decreased $69.9 million, or 32 percent, primarily due to a 50 percent decline in residential purchase and refinancing transactions during the first quarter 2023 compared to the prior year quarter. Domestic commercial revenues in the first quarter 2023 decreased $23.7 million, or 42 percent, primarily due to 11 percent lower commercial orders closed and lower transaction size compared to the prior year quarter. Average domestic commercial fee per file in the first quarter 2023 was $8,300, which was 34 percent lower compared to $12,700 in the first quarter 2022, while average residential fee per file in the first quarter 2023 increased 30 percent to $3,400, compared to $2,600 in the prior year quarter due to a higher purchase mix in the first quarter 2023. Total international revenues in the first quarter 2023 declined by $16.3 million, or 40 percent, primarily as a result of lower transaction volumes in our Canadian operations compared to the prior year quarter.

Real Estate Solutions Segment

Summary results of the real estate solutions segment are as follows (dollars in millions):

Operating revenues for the real estate solutions segment decreased $26.8 million, or 30 percent, in the first quarter 2023 compared to the first quarter 2022, primarily due to lower transaction volumes resulting from the current higher interest rate environment. Combined employee costs and other operating expenses decreased $20.8 million, or 27 percent, in the first quarter 2023, consistent with lower operating revenues. Included in the total non-GAAP adjustments to pretax income were acquired intangible asset amortization expenses in the first quarters 2023 and 2022 of $5.8 million and $6.4 million, respectively.

Corporate and Other Segment

Net expenses attributable to corporate operations during the first quarter 2023 were $10.9 million compared to $8.9 million in the prior year quarter. Segment results for the first quarter 2022 included a real estate brokerage company that was sold in the second quarter 2022.

Expenses

Consolidated employee costs in the first quarter 2023 decreased $34.4 million, or 17 percent, compared to the prior year quarter, primarily due to lower salaries and benefits expenses, incentive compensation and temporary labor costs as a result of lower volumes and average headcount. As a percentage of total operating revenues, consolidated employee costs increased to 32.8 percent for the first quarter 2023 compared to 24.3 percent in the prior year quarter, primarily due to lower operating revenues in the first quarter 2023.

Total other operating expenses in the first quarter 2023 decreased $69.0 million, or 36 percent, compared to the prior year quarter, primarily as a result of reduced costs tied to lower title and real estate solutions revenues. As a percentage of total operating revenues, consolidated other operating expenses for the first quarter 2023 were 23.2 percent compared to 22.5 percent in the first quarter 2022.

Other

Net cash used by operations in the first quarter 2023 was $51.1 million compared to net cash provided by operations of $34.9 million in the first quarter 2022, primarily driven by the net loss for the first quarter 2023.

First quarter Earnings Call

Stewart will hold a conference call to discuss the first quarter 2023 earnings at 8:30 a.m. Eastern Time on Thursday, April 27, 2023. To participate, dial (800) 343-4849 (USA) or (203) 518-9843 (International) - access code STCQ123. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at http://investors.stewart.com/news-and-events/events/default.aspx. The conference call replay will be available from 11:00 a.m. Eastern Time on April 27, 2023 until midnight on May 4, 2023 by dialing (800) 839-3020 or (402) 220-7234 (International).

About Stewart

Stewart (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 and real estate industries, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. More information can be found at http://www.stewart.com, subscribe to the Stewart blog at http://blog.stewart.com or follow Stewart on Twitter® @stewarttitleco.

Cautionary statement regarding forward-looking statements. Certain statements in this earnings release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. 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 "may," "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; 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, 2022, and if applicable, as supplemented by any risk factors contained in our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K filed subsequently. All forward-looking statements included in this earnings 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 earnings release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.

ST-IR

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 net realized and unrealized gains and losses, and other adjustments (revenues of sold real estate brokerage company), and (2) adjusted pretax income (loss) and adjusted net income (loss), which are reported pretax income (loss) and reported net income (loss) after earnings from noncontrolling interests, respectively, adjusted for net realized and unrealized gains and losses and other adjustments (pretax results of sold real estate brokerage company). Adjusted diluted earnings (loss) per share (adjusted diluted EPS) is calculated using adjusted net income (loss) divided by the diluted average weighted outstanding shares. In addition to these adjustments, acquired intangible asset amortization are excluded in the calculation of adjusted pretax income (loss) for the title and real estate solutions segments. 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.

Below are reconciliations of the non-GAAP financial measurements used by management to the most directly comparable GAAP measures for the quarter ended March 31, 2023 and 2022 (dollars in millions, except share and per share amounts, and amounts may not add as presented due to rounding).

SOURCE Stewart Information Services Corporation