Hello, and thank you for joining the Stewart Information Services Third Quarter 2025 Earnings Call. [Operator Instructions] Please note today's call is being recorded. It is now my pleasure to turn the conference over to Kat Bass, Director of Investor Relations. Please go ahead, ma'am. Kathryn

Good morning. Thank you for joining us today for Stewart's Third 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 for joining us today for the third quarter earnings conference call. Yesterday, we released the financial results for the quarter, which David will review with you shortly. I'd like to start today's call with a discussion of our perspective on current housing market conditions, followed by a review of our third quarter results and strategic progress by business. I am proud of our third quarter results. Our 19% revenue growth and 40% earnings growth reflect the efforts we have made to continue to grow the company even while facing prolonged headwinds from the historically low housing market we continue to be in. There continues to be both a blend of positive and negative economic headlines related to housing. In the third quarter, we experienced some rate relief, exiting September with mortgage rates around 6.35%. While there is some softening of rates in the third quarter, we did not see rates quite as low as the quick dip we experienced in September of last year, where rates hovered momentarily right around 6% and caused a flurry in purchase and refinance activity to close out 2024. I am more confident in the market's ability to improve over the next 12 months this year than I was last year at this time. The housing market continues to become a bit friendlier for buyers as inventory has been growing. Builders continue to offer incentives and an increasing portion of homes are being sold below list price, indicating the cooling of house price appreciation. We have also seen price improvement in more of the MSAs. That said, home prices still remain a hardship for many buyers as the median sales price of existing for homes sold is still increasing year-over-year, though at a lesser rate than we have experienced for most of '24. So far this year, existing home sales are hovering right around 4 million annual units as many buyers continue to sit on the sidelines awaiting less volatility in the macro market conditions and in anticipation of future rate cuts into the next year. September existing home sales data will be published later this morning. However, we expect around 1% to 2% increase in existing home sales relative to the third quarter of '24 this quarter. Looking ahead, we believe the housing market will continually to gradually improve over the coming year, and '26 will be the beginning of a transition back towards a more normal existing home sales environment, which we characterize as 5 million existing homes sold. From a commercial market perspective, we have benefited from and capitalized on recovery seen in the commercial real estate markets across various asset classes. We expect this recovery to continue into '26 and beyond. Given these market headwinds and volatility, we are proud of the results that we have delivered in the third quarter as they reflect our momentum. In the third quarter, as I said, we grew total revenues by 19% and adjusted earnings per share by 40% when compared to the same period last year. Our direct operations unit grew 8% in the third quarter relative to the same period last year. We see this as solid progress given that this business unit most immediately feels the effects of challenged residential housing market. Our direct operations leadership remains focused on the charge and growth share in target MSAs and micro markets, both organically and inorganically. They are also focused on picking up share in small commercial transactions that run through this business unit, and we are seeing real progress on that initiative with commercial growing 18% in direct this quarter. We continue to expect a significant portion of our future growth in this business to come from targeted acquisitions, and we maintain a warm pipeline of targets that will develop as the market signals a return to more normal market levels. Our National Commercial Services business delivered another solid quarter of growth. Success for this group is largely due to our increased penetration in the number of geographic markets and asset classes. We have brought on best-in-class talent, and we'll continue to invest in talent in this space to grow our share. Thoughtful investment in our talent will allow us to expand our network and deepen our capabilities in more geographies and asset classes in order to leverage the distinctive underwriting capability we currently have. We grew domestic commercial revenues by 17% in the quarter. And through the third quarter, we have grown domestic commercial revenues by 33%. I'm proud of our performance here as it really represents the momentum we have built for ourselves on the commercial front. The energy asset class continues to be a point of strength. data centers, hospitality and self-storage were also areas of growth for us in the quarter. We are focused on growing all asset classes and target geographies to expand our overall footprint. Our Agency Services business had another strong quarter with revenues up 28% year-over-year in the third quarter. This amount of growth is exciting for us when considering the overall housing market is near flat for the year. We are on a mission to grow this business through share gains in attractive states, onboarding new agents and wallet share expansion with existing agents. While we see growth across all states, there are 15 states that we are targeting for share shift and growth. We are seeing sustained growth year-to-date in agency in several of our target states, most notably Florida, Texas and New York. Our commercial initiatives with agents has also been a big part of our success, and we continue to build out momentum that we have made in recent years to our target agents to differentiate our services and better our offerings for agent partners. Our agent -- our Real Estate Solutions business delivered another strong quarter of results as well, generating revenue of 21% higher than the third quarter of '24. The increase was led by our credit information business. Our margins again improved sequentially and are now in the low teens range, which we would consider our normal range. We are focused on growing this business line by gaining share with top lenders and cross-selling our products as we leverage our improved portfolio of services. We expect continued progress in this business line as the market improves. Moving to our international operations. We are focused here on broadening our geographic presence within Canada and increasing our commercial penetration. In the third quarter of '25, we grew revenue by 21% versus '24 due to noncommercial growth of 12% and outsized commercial growth due to a handful of larger transactions. We believe we can build on our strong position in these markets and continue to grow share. Overall, we remain dedicated to strengthening our company through thoughtful geographic, customer and channel expansion in each business to set the company up for continued long-term success. I am pleased to share that in September, we announced an increase in our annual dividend from $2 per share to $2.10 per share. This is the fifth year in a row we have increased our dividend to shareholders. We continue to invest in ourselves and our shareholders as we pursue smart growth for each of our business lines. Thank you to our customers and agent partners for your continued trust. We are committed to doing our best to serve you with excellence. And I'd like to close by saying thank you to our employees for their dedication, loyalty and drive. It has been a privilege this year to visit so many of our office this year and see and experience the energy that you have all shared with me. It is contagious. We have never had a better talent as we do today. I'm so proud of how far we have come on our journey to become a destination for industry-leading talent. Earlier this year, we were recognized as a top workplace by USA Today. And in the third quarter, we were named by Forbes list of America's Best Employers for company culture. We also ranked in the business services category by Forbes of America as the Best Employer for Women in 2025. I want to thank you all for what you're doing to build upon the company's legacy and set up the company for enduring success. David, I will now turn it over to you to provide an update on our results.

Good morning, everyone, and thank you, Fred. I would also like to thank our employees and customers for their continued support as we navigate the residential real estate market, which remains around 15-year lows. Yesterday, Stewart reported strong third quarter results with growth in both revenue and profitability. Third quarter net income was $44 million or $1.55 per diluted share based on revenues of $797 million. Appendix A of our press release shows adjustments primarily related to net realized and unrealized gains and acquired intangible amortization that we use to measure operating performance. On an adjusted basis, third quarter net income improved 41% to $47 million or $1.64 per diluted share compared to $33 million or $1.17 per diluted share in the third quarter of 2024. In the Title segment, operating revenues grew $107 million or 19%, driven by our improved direct and agency title operations. As a result, title pretax income increased $17 million or 38%. After adjustments for net realized and unrealized gains and losses on purchased intangible amortization, adjusted title pretax income was $61 million, which was $17 million or 40% higher than the prior year quarter. Adjusted pretax margin improved to 9% compared to 7.7% last year. On our direct title business, total third quarter open and closed orders related to commercial and residential transactions improved. Domestic commercial revenues improved $12 million or 17% across various asset classes, including data centers. Domestic commercial average fee per file was $17,700, which was similar to last year. Domestic residential average fee per file increased 6% to $3,200 compared to $3,000 last year as a result of higher purchase orders. Total international revenues increased $9 million due to increased volumes and large commercial deals. On agency operations delivered strong performance with gross revenues of $360 million, increasing 28%, primarily driven by improved volumes in key states, as Fred noted, and commercial. Similarly, net agency revenues increased $12 million or 25% compared to the prior year quarter. On title losses, total title loss expense decreased slightly due to our continued overall favorable claims experience. The title loss ratio for the third quarter was 3% compared to 3.8% last year. We expect our title losses to average 3.5% to 4% over the coming period. On the Real Estate Solutions segment, total revenues improved $20 million or 21%, primarily driven by our credit information and valuation services operations. The segment's adjusted pretax income was slightly higher than the prior year quarter. We continue to manage the higher credit information costs and are expanding and strengthening customer relationships. Adjusted pretax margin for the third quarter was 11.3%, which is better than the prior 3 sequential quarters. 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 27% compared to 30% last year, primarily due to higher revenues, while our other operating expense ratio was comparable to last year. Our financial position remains solid to support our customers and employees in the real estate market. Our totally cash and investments were approximately $390 million in excess of our statutory premium reserve requirements. We recently renewed and upsized by $100 million to $300 million, our line of credit facility, which is fully available. Total Stewart stockholders' equity at June -- at September 30, 2025, was approximately $1.5 billion with a book value of $52.58 per share. Net cash provided by operations improved by $17 million or 22% compared to last year. Again, thank you to our customers and employees, and we remain confident in our service of the real estate markets. I'll now turn the call over to the operator for questions.

[Operator Instructions] Our first question will come from Bose George with KBW.

So first wanted to ask about the strength in agent premiums. Can you -- it looks like you're continuing to grow there. Are you taking share? And if so, is that like coming from the larger players? Or just color on what's going on there?

Sure. Great. So there's really 2 components of it. So in the res side, what we're seeing, particularly within the 15 states we're focused on, we're seeing pretty good share shift. And I think this quarter, we saw about a 16.5%, and again, primarily in those targeted states and both -- it's pretty interesting, also deepening of penetration with existing. Part of it is because our -- we now can service all the states, and there's a bunch of things about our technology that's a little bit better than it had been historically. The second thing is this quarter, we had a little bit of really good traction on commercial. We probably grew commercial 40% in the agency channel. And again, that's been -- if you've heard me talk about -- historically, we were very good in, say, the New York area for commercial agents. But outside of New York, we weren't as good. Our service wasn't as good or capable. And now it's been a big push for us over the last couple of years, and it's really taken off. So again, I feel like both the commercial strength, and that will do with both a lot of the bigger agents that have more commercial, although we're doing commercial with smaller agents, too. But that -- those 2 pieces, kind of the geography piece and then the focus on commercial-oriented agents and providing better service outside of New York is really the 2 things. I'd like the traction on both right now. It's good.

Okay. Great. And then just sticking to the commercial, can you talk about the pipeline into year-end? How is that looking? And how much is office starting to contribute as well?

Yes. I feel good about it. So you see our order stuff, I feel good about the commercial. The pipe is good. Again, we've had a heck of a year. It's been -- I think we're up whatever it was 35%. And for large accounts, we're probably up 39%, the larger centralized commercial. And the growth has been pretty broad by class. Office has not been one that's been -- had significant growth for us. And I don't see that necessarily changing. But pretty much -- it's interesting. Most every other class is pretty good. So I feel good about the breadth of it, as a percentage has gone down, which is good. Probably 5, 6 quarters ago, I mentioned how we really -- the energy was a growing portion, and it's now evened out as we grow in other categories. But I feel pretty good about the back half. Now the comparisons for us, I have to sit down and think about the comparisons. We took -- we started taking off about 5 quarters ago and the fourth quarter of last year was very strong for us. So we'll see how that plays out. But if you look at, as I said, our orders and our -- I look at what's in the pipe, I feel very good about the fourth quarter.

Okay. Great. That's helpful. And then just one more quick one. The investment income line was a little bit lower than last quarter. Anything to call out there? Because I assume the rate cut was late in the quarter.

Nothing significant. I mean, we will have some variability with short-term rate cuts because that's where all the escrows and everything are invested. So I think you may be seeing a little bit of that, but we haven't seen a whole lot of impact so far. And so far, the balances have been able to offset the rate cuts, but we'll just have to monitor that going forward.

Our next question will come from Jeffrey Dunn with Dowling & Partners.

I wanted to follow up on the expectation for a low teens margin in RES once relationships mature. Is there a critical revenue level that goes with that expectation?

No. I mean, again, what -- in the RES services, that's low teens, and again, what I said for the last couple of calls is we had that hiccup in the beginning of the year because of the rate increase -- the large rate increases that came kind of late from the data players, and we were kind of migrating those rate increases into our contracts as well as kind of we changed the way we did some of the pricing to more value-added approach with them. And so we had to catch up a little bit. And what I've said is once that kind of works its way into the system, we'll go back to what we've been doing in the last couple of years, which is that low teens margin. Where it gets a lot better, again, I think that's kind of the normal rate. Where it gets a lot better is when the market comes back, right? Because a lot of our services businesses are tied to volume. And there's leverage from the normal -- more of a normal flow of business, and so I think in a $5 million purchase market kind of experience, that will get to mid-teens. We'll get into the 14%, 15% instead of the 12% area. And so it's kind of a direct line of improvement from here to there above the 12% is what I would say. But again, they're all -- it's like a lot of businesses, right? It's got a fixed variable portion and you've got to -- the growth helps a lot with the margins in those businesses.

And Jeff, the other thing is that if you just look at the sequential, so we sort of bottomed at like 7% something in fourth quarter of last year, and then we've been slowly getting back up to the low teens. And so that's what we're talking about, right? It's having worked through all that and now being at the level that we would expect.

And it was really about the data contract opportunity. It wasn't really the volume or anything. It was really just a onetime event, which we -- as I said, we were going to recapture it. We just had to get it built into our contracts.

Okay. And then just following up on the NII question. Can you just remind us how you think about the sensitivity to that NII line 2 Fed rate cuts?

Yes. Jeff, we don't have the same FA where they do the 25 basis point because our rates are negotiated. And so we've been able to -- we haven't had a direct drop with our rates because we were never at like money market. And so really going forward, it's going to be the offset of, do the rates get cut because rates are going down. And then how does that compare to balances, right? So as volume comes back, balances grow. And so I think it's probably better to think about interest income being maybe more consistent over the next year, slightly down. But then it's really going to depend on those 2 dynamics. And once we see the effect of rate cuts for the rest of the year, we'll probably have a better perspective on that.

It appears we have no further questions at this time. I'd now like to turn the conference back over to our presenters for any additional or closing remarks.

Yes. Thanks for joining today. I want just to summarize where I think we are right now. So I believe that while the market is kind of still bouncing on the bottom, we're more confident looking forward over the next 12 months that we're going to start to see improvement. I think we're at the beginning of the improvement. There's enough indication that that's true. And the other thing I would say is, as a company, I feel very confident in our capabilities, and we're well poised to take advantage of that improvement. And one of the things that I think is kind of showing up nicely for us is we talked about at the beginning of the year, if the market didn't grow, what did we expect? We said, well, if the market doesn't grow, we believe we can generate about 10% revenue growth and about 20% earnings growth because of the improvements we've made in our operating model. And I think what we've done year-to-date is we've grown roughly 17% and about 45% earnings growth. And so it shows that we have some momentum in being able to grow in this market, and we're operating in a way that we get leverage from the growth. And I feel pretty good about that. And as the market improves, I think we are positioned to continue on that. Will it be as good as it's been in the first quarter? I don't know, right? The last 3 quarters are very good. It might even out a little bit, but I can tell you that we continue to have momentum in our ability to grow share and our ability to improve earnings. So I feel like even though the market I feel is relatively difficult, I think we're well positioned. So I appreciate people's interest and attention to the company. And again, I thank our employees for their commitment to what we're doing because I know how hard it is. So thank you, everybody, for your time and attention.

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.