STC

Hello, and thank you for joining the Stewart Information Services first quarter 2026 earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask a question during the Q&A session. Instructions will be given at that time. Please note, today's call is being recorded. Lastly, if you should require operator assistance, please press star zero. 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 first 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 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 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 first quarter 2026 earnings conference call. Yesterday, we released the financial results for the first quarter. I will kick off today's call with an overview of our results and our current macro housing outlook, followed by a review of our results and strategic direction by business line. After my remarks, I will turn the call back over to David so he can further cover our results for the quarter. I am very pleased with the results for the first quarter this year. As you know, the first quarter is typically the most impacted by seasonality. On top of that, the residential transaction activity continued to be at historically low levels. In that environment, we delivered one of the best quarters in the company's history, with adjusted EPS of $0.78 and revenue growth of 28%.

In the first quarter, each of our businesses showed strong revenue growth and improved earnings as we executed on our strategic priorities. Though first quarter existing home sales were muted, our direct operations, agency services, and national commercial services benefited from strong commercial growth. Our real estate services segment also delivered strong results year-over-year, bolstered by our recent acquisition of MCS. In the first quarter, along with a 28% adjusted revenue growth, we delivered adjusted net income growth of $24 million, up from $7 million in the same quarter last year, and allowed us to deliver a 4.3% margin for the quarter, up from 1.8% in the first quarter of 2025. On our last call, I shared that we expected existing home sales to improve around 6%-8% in 2026, beginning our journey back to a more normal existing home sales.

While we anticipate some growth in the housing market, we foresee the potential for growth to be a bit more muted this year, given the broader macro and geopolitical conditions and where we have seen interest rates move as a result. We anticipate that we will continue to maintain our business momentum in the second quarter, but we could see the residential market continue to bounce along the bottom of around 4 million existing home sales for the next quarter if ongoing geopolitical tensions prolong. In the first quarter, housing signals were mixed. As mentioned, existing home sales were relatively flat, down 1% compared to 2025. Median sale price growth was a bit weaker than in the past few quarters. However, it was positive, up just under 1% for the quarter.

The pricing story currently varies very significantly by market, and we are seeing more price negotiations, which may be helping home buyers to balance rates. Interest rates remain a critical gauge for home buyers entering the market. Though we were confronted by difficult weather across the country in January, early in the quarter, we saw rates move closer to 6% and felt momentum both in purchase and refinance activity. March, however, saw the impact of rising global tensions and rates exited the month around 6.3%, cooling activity a bit due to the increase itself, but also because of the quick shift in rate and sentiment. We do anticipate some momentum will continue into the second quarter as rates remain below, kind of at or below 2025 levels heading into the spring selling season.

All in our view of the residential market growth will be closer probably to 3%-5% for the year. We believe commercial, on the other hand, will remain more resilient and continue to have solid growth. Turning to our business line results. Our direct operations business grew 10% in the first quarter compared to the same time frame last year. The growth came from improved transaction activity. We have not deviated from our longstanding focus on gaining share in target MSAs through organic and inorganic efforts. We continue to see positive momentum in our strategic initiatives to grow commercial business out of direct operations, which we often refer to as Main Street Commercial. In the first quarter, our direct operations grew Main Street Commercial by more than 20% year-over-year. Looking forward, we believe we will grow this operation in part through targeted acquisitions.

We have seen a pickup in opportunities in our pipeline for direct operations as well as opportunities that benefit our other business lines. We are thoughtful in our assessment of opportunities and expect to continue to grow the company in part through being acquisitive. Our national commercial services business delivered another impressive quarter of results. Energy continues to be our largest asset class, but other notable gainers in the quarter were our industrial, site development, data center, and retail asset classes. In total, we grew national commercial services by 40% in the first quarter. We remain focused on growing all of our asset classes through geographic expansion and acquisition of leading industry talent. Our agency services business delivered a very strong first quarter, with revenues up 25% compared to the first quarter of 2025.

Our agency partners confront the same housing headwinds as we do, so we consider this growth to be especially solid considering conditions. We are focused on growing this business through ramping up new agents and wallet share expansion of existing agents, with the emphasis on 15 target states. We saw strong progress towards our goals this quarter with solid year-over-year premium gains across most of our states. In addition to geographic growth, we are focused on expanding our commercial offering for agents, and we are seeing success there, growing 46% in the first quarter compared to last year. This goes along with a 15% residential growth as well. We will continue to build on the momentum we have made in recent years for our agents to differentiate our service and better our offerings for our agent partners.

Our real estate solutions business grew revenues by 66% in the first quarter compared to last year. Our recent transaction of MCS helped to strengthen our results for the first quarter. However, all of our other operations combined to grow over 20% when compared to the first quarter for 2025. The addition of MCS allows us to further our strategic priority for this segment, which is to win more share across the top 300 lenders and further our cross-selling efforts across our expanded product lines with existing customers. In the first quarter, we added to our real estate solutions segment once more with the acquisition of Nationwide Appraisal Network into Stewart Valuation Intelligence. Our appraisal company, Nationwide Appraisal Network, also known as NAN, helped strengthen our appraisals, both the scale and deepen our talent base. In the first quarter, we delivered 12.5% adjusted margins, up from 9% last quarter.

For the full year, we fully expect to improve margins and deliver in the low teen range for this segment and expect that our recent acquisition of MCS will help us improve our historical margin outlook. Moving to our international operations. We are focused on broadening our geographic presence in Canada, increasing our commercial penetration as well. In the first quarter, we grew our non-commercial revenue by 9% and our commercial revenue by 14% in a very challenged housing market. We believe we can build on our strong position in these markets and continue to grow share. As an enterprise, we are dedicated to being the premier title and real estate services company. We are focused on strengthening the company for lasting success through targeted multi-pronged growth plans by business to further fortify our position. We thank our customers and agent partners for your trust and dedication to Stewart.

We are committed to doing our best to continually improve our services for your benefit. For the Stewart team, thank you for your dedication and focus on growing this company together. We are able to execute at this level because of your steadfast commitment to our journey. In the first quarter, we celebrated our inclusion on the Forbes America's Best Large Employers list. We thank our employees for this recognition and are committed to being a destination for industry-leading talent. I am very proud of the progress we have made on our journey and feel that progress is visible in the results we delivered this quarter in spite of both macro and housing headwinds. David, I will turn it over to you to provide the update on our results.

Good morning, everyone, and thank you, Fred. I appreciate our employees and customers for their steadfast support amid a continuing challenging residential real estate market. Yesterday, Stewart reported strong first quarter results with both revenue and profitability improvement. Total first quarter revenues were $781 million, resulting in net income of $17 million or diluted earnings per share of $0.55. On an adjusted basis, net income was $24 million or diluted earnings per share of $0.78, compared to $7 million and diluted earnings per share of $0.25 last year. Appendix A of our press release shows adjustments to our consolidated and segment results, primarily related to net realized and unrealized gains, acquired intangible asset amortization, acquisition-related expenses, and severance costs, which we use to evaluate operating performance.

In our title segment, operating revenues increased $104 million or 21%, driven by strong results from our direct and agency title operations. As a result, title pre-tax income increased $13 million or over 100%. On an adjusted basis, title pre-tax income increased $14 million and also over 100%, with adjusted pre-tax margin of 4% compared to 2% last year. On our direct title business, direct title revenues increased $38 million or 17%, while total open and closed orders improved from last year. Domestic commercial revenues increased $25 million or 35%, driven by higher transaction size and volume with growth across asset classes led by energy, industrial, site development, data centers, and retail. Average domestic commercial fee per file improved 33% to $21 million compared to $15.8 million last year. Or $21,000, I'm sorry, compared to $15,800 last year.

Average domestic residential fee per file in the first quarter was $3,300, consistent with last year. Total international revenues increased 10%, primarily driven by higher volumes. On our agency operations, gross agency revenues increased 25% to $333 million, compared to $268 million last year, driven by improved volumes across our key agency states, including New York, Florida, Ohio, Pennsylvania, and also helped by commercial transactions. After agent retention, net agency revenues increased to $11 million or 23%. On title losses, the first quarter title loss ratio improved to 3.1% compared to 3.5% last year, reflecting our continued favorable claims experience. We expect our title losses in 2026 to average in the 3.5%-4% range. On our real estate solutions segment, total revenues increased $64 million or 66%, driven by growth in our credit information services operations and our MCS business, as Fred noted.

RES adjusted pre-tax income improved $11 million-$20 million or over 100%, and adjusted pre-tax margin improved to 12.5% compared to approximately 10%.

Last year. We continue to focus on managing our overall cost of services and strengthening customer relationships. We expect our margins to trend higher as those relationships mature. On our consolidated operating expenses, our employee cost ratio improved to 29% compared to 31% last year, primarily due to increased revenues. On our other operating expense ratio increased slightly to 28% due to higher expenses in the RES segment. Our financial position remains solid and well-positioned to support our customers, employees, and the real estate market. Total cash and investments were approximately $420 million in excess of statutory premium requirements. Total stockholders' equity at March 31 was approximately $1.64 billion, representing a book value of $54 a share. Net cash used by operations improved to $4 million compared to $30 million in the prior year quarter due to higher net income.

Again, thank you to our customers and employees for their continued support. We remain confident in our ability to serve the real estate markets, and I will now turn the call over to the operator for questions.

Thank you. If you would like to ask a question, please press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star and one to ask a question. We will pause for a moment to allow everyone a chance to join the queue. We'll take our first question from Bose George with KBW. Please go ahead. Your line is open.

Hey, Bose.

Good morning. Just wanted to start on commercial. Obviously, the fee profile was up very nicely year-over-year. When you think about the trends over the next few quarters, how do you see the cadence of that year-over-year growth? Could it persist for a little while? When do the comps get a little more challenging?

That's a great question, Bose. What's happened is our pipeline's really quite good. What we're obviously seeing across the industry is the frequency of very large deals have increased. The other thing for us is we're leading more deals as we've had a good two-year run here of growing skill and capabilities. I think it's natural for our average to kind of hover at this higher level. The other interesting thing for us, if you compared us to others, because we were small four or five years ago, our refi percentage is less. We are a little bit bumpier on size of deal because there tends to be less refi kind of softening the numbers. I'm pretty confident that the business will continue. It'll jump around. The growth year-over-year will jump around, I think, on us a little bit.

Just because if you recall a couple quarters last year, we grew 50%+.

Mm-hmm.

In a market that was growing half that. I think there might be some comparisons, but I'm pretty bullish on our continued success as we go through the year on commercial. I would say the commercial in our direct operation, part of that is generated by our own staffing, if you will, re-putting skills back into the direct offices. I believe that has some momentum, both continuing but for us because of the investments we're making there. That's the other thing that's a little different by us because we were under-penetrated of commercial, what I call Main Street, the smaller end of commercial than probably the big guys.

Okay, great. Thanks. Actually switching over to the ancillary, can you just talk about the year-over-year growth rate outlook there just with MCS now is kind of what we saw in the first quarter kind of a reasonable level for the rest of the year. I think you guided to a margin in the low teens for that segment for the rest of the year.

Yeah. Exactly. On the margin first, I would say 11% or 12% was good. Now it's 12%-13%, maybe even a little more. We got some work to do on some consolidation stuff, but it's going to tick up to that 12.5%-13%, maybe a little 13%+. I feel good about the trends there, and it's a nice solid book of business. Then your other question was growth. Again, we grew most of the businesses outside of MCS. In total, I think there were 21% or something-

Yeah

growth. There's good penetration expectations in that business. I think it could soften a little bit, but you're going to see pretty strong growth coming out of that. There's a lot of momentum in those businesses, so I'm pretty good about it. Again, the question overall to me, given my view that the RES growth is going to be marginal, particularly for the next quarter or two, I feel we can sustain with our momentum somewhere around the 15% growth rate for the overall company. Might be a little less than a little more, but I feel like when I look under the hood in all of these businesses, even with a low RES, our share growth is good, like an agency, and the trends feel pretty good. That's how I think about it in total, too.

I think we've established a little bit of momentum right now.

Okay, great. That's helpful. Thanks a lot.

Bud, just real quick on that to give a little more color. We had mentioned that MCS was a little over $160 million a year, so it's roughly $40 million a period on revenue. When you take that effect out, you can sort of get to that 20%. Yeah, that Fred was talking about. It's slightly seasonal, so it was a little less than that in the first quarter, but the $40 million is good for the rest of the quarter. Yes.

Okay, great. Thanks for that color.

Thank you. Our next question comes from Geoffrey Dunn with Dowling & Partners. Please go ahead. Your line is open.

Good morning, Geoffrey.

Thanks. Good morning. First, could you share what the mix of commercial is in your agency line?

In agency?

Mm-hmm.

Yeah. It's got to be parallel to kind of what we have, but it won't have a lot of energy and big stuff. Agents typically don't have those mega kind of business. They'll have some small in the data center, but so it's a pretty broad CRE kind of mix, but without kind of the energy on top, right? Because, again, energy and the huge tend to be direct business mixes. I really feel good about it in agency. If you recall, we've always been a strong kind of underwriter for agents, but our commercial was very skewed to New York. I mean, that's historically the company was very good in New York, but our ability to reach our commercial capacity to other big kind of commercial-oriented agents across the country was much weaker.

We also didn't have the facility when we had big multi-location deals to kind of facilitate that. We created something called a concierge service that facilitates that. We also have instituted what we call direct issue capability. In certain places where they don't have licenses, we can finish the account. We now have as good as anybody's capabilities in that space. In my view, that's been one of those, we've been growing now for, now six quarters at a very high rate. Because people have kind of started shifting parts of their book to us because we're a credible offering.

Okay. I wanted to dig a little bit more into the RES margin. If I remember correctly, PropStream has a very strong margin. MCS, I think you're talking close to 20%, and then you're double digit and Informative. The challenge I think has been the rest of the businesses. First, is that correct? What is the margin opportunity on those other businesses to maybe be thinking about something stronger, moving to margin in the future?

Yeah. The margin is a little more consistent than you think. Again, PropStream is teeny, so yeah, it has a little bit higher margins, but it's a very small business. MCS is higher, but the others hover around that kind of 12% target that we have, right? Again, is there an opportunity to improve that? Yes. I'll give you an example. Appraisal, in my view, we got some platform work we're still doing because of the acquisition. That could, say it's high single digits, low double digits, that could go up a little bit. I'm shooting for, in most of the businesses, around that 12% margin, and those are the ones we have our volume in. Our remote online notary tool is a very teeny business. It's really a tool for our business.

We do a little bit of outside sales, but it's really for delivering for ourselves and our agent partners. It's not really a core of the growth we're talking about or the margin. I feel pretty good about the breadth. What I would also say is the seasonality, obviously in the appraisal and the notarization business, the signature, the kind of schedule business, those are very cyclical, right? They're just like the rest of our businesses. Where MCS is a tad counter-cyclical to that, because it's the default area and it's less volatile quarter to quarter. The pattern of that is helpful to us too.

Again, I think I said as we're getting this 12.5% overall into the 13%-14% range, and if the market comes back, right, if the market's at a 5 million, just like our other businesses, that thing could get to 15%-60%, right? Because they have some cyclical nature to them, because of the volume. It's a very solid kind of portfolio now, and it's a lot stronger now that we've got the scale up in appraisal, and we got MCS to the mix.

Okay. Great. Thank you.

Yep.

Thank you. Once again, if you would like to ask a question, please press star one on your keypad now. We will move next with Oscar Nieves with Stephens Inc. Please go ahead. Your line is open.

Good morning.

Morning.

Hey, how are you all? Good.

You mentioned earlier the acquisition of Nationwide Appraisal Network.

Yeah

... which was announced right after the end of the first quarter. What details can you share about that transaction in terms of the purchase price and how it was financed? Also the expected contributions to the financials, both in terms of revenue and margins.

Yeah. NAN is small. It's about a $40 million thing, so you probably got $30 million going to run through the three quarters or so. It's kind of the incremental margin is what I described. We should get in the double digit, kind of low double digits. There's going to be some integration costs and transition costs that you're going to have out of the gate here, so it's not big. As far as the proceeds, if you recall in December, what I said when we raised the $150 million is that I saw some real promising, interesting things that I wanted to pursue to complement our business. There's a half a dozen or so things that were quite warm that helped both in the RES area and in the direct operations area. That's what we're pursuing.

We had free cash on hand, essentially.

Yeah

Free cash on hand that we used for that. We have other dry powder for the other transactions I'm talking about. Again, what I'm trying to do is in each of these businesses, particularly on the services side, they're relatively fragmented businesses that are kind of rolling up. What you're seeing is the financial buyers in a lot of those businesses, they bought in 2021, they overpaid, et cetera. They're withdrawing, right? It's-

Mm-hmm

... made a lot of people pause. What you're going to be able to do is build a leadership position, which we've done in Property Pres. Again, it sets up nicely for us to get the scale in these businesses. In the direct side, what's happened is because the commercial market's a little bit better and because there's a little bit more light at the end of the tunnel, agents are making a little bit of money. These folks that we've been talking to for months, we're getting at trading prices that kind of make sense for both of us with an earn-out. We have our target list. There's a couple in particular that I feel are higher probability in the next six months. That's why we raised the money. That's why we have available for these transactions, it's available to us.

Again, we'll see how it happens. One of the things that we do is we spend a lot of time reaching out, making contacts, developing a pipeline, figuring out how these things fit and how they help our talent base and things are gonna start. My view is there's a chance here that things are gonna start happening, and I wanna make sure that we're staffed enough to take advantage of it because we don't like competing or auctions or any of that stuff. Most of what we do is we try to make this happen just on a one-on-one basis.

Yeah. That's very helpful. I have a couple follow-ups related to that. Do you have an updated expectation on, given what you mentioned about the pickup in the pipeline, about how much capital you could be deploying through the end of the year? And also if you can share some of your learning so far, related to the MCS and integration process.

Yeah. The MCS, I'm thrilled. I think, as you know, MCS was a leader in their space, and I couldn't be more pleased with the leadership team and their ability to continue to grow, and set us up with a high reputation in that space. I'm thrilled. There's some other places I'm looking for default capabilities, but it really rounds out kind of our presence in the default marketplace. Because of the nature of that business, there isn't a lot of integration with the rest of the company, except for the normal things you would think about, financial stuff. It's a pretty standalone business model. There is, I believe, gonna be a cross-sell opportunity, relationship opportunities that are gonna come from it. As I said, it's doing everything we expected it to do, and I'm thrilled by it.

As far as capital, again, the things that I talked about in December are well within our excess capital availability. It's within the money we raised, and probably we had $70 million on top of that available. It's in that range of availability as we go forward. What's the probability of it happening? I don't know. These things are

Mm-hmm.

I just wanted us to be prepared, to be truthful. I don't know. Now, I would also tell you that I think in the next two or three years, let's say two years, I think there's gonna be a few of the gems in our marketplace are gonna come available, right? There's only a handful of things in the title business, five, six, seven, significant, a little bit bigger, say, the 200-300 range, assets, that are gonna be. Somewhere in the next couple, three years, my feeling is they could become available. But I don't do capital planning for those because they're so rare, and it's one of those things that if it happens, it happens, and it'll stand on its own.

Yeah

It'll justify the returns if we do it. In the normal course, as you know, most of the deals we do are in that $20 million-$50 million range. Again, we have really good line of sight to the pipeline, so I don't think in the normal course that we're gonna use anything but our available capital.

Super helpful. I'll get back in the queue. Thank you.

Thanks, Oscar.

Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to Fred for closing remarks.

Thank you so much for your interest. Stewart, just to summarize, I feel very good about the company. I don't think we've ever been this strong as far as talent and position in the marketplace. Hopefully, even with a difficult market, we can continue our momentum, and I'm pleased with the progress we're making so far. Again, I just want to thank everybody for their interest in the company.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.