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Stewart Reports Fourth Quarter 2019 Results

- Title revenues of $506.0 million, an increase of $48.7 million, or 11 percent, compared to the prior year quarter

- Started initiatives in the fourth quarter to reposition the company to improve long-term financial performance

- Fourth quarter 2019 break-even results and, on an adjusted basis, net income of $20.6 million, compared to fourth quarter 2018 net income of $11.4 million and adjusted net income of $19.3 million

- Diluted EPS of $0.00 and adjusted diluted EPS of $0.87, compared to fourth quarter 2018 diluted EPS of $0.48 and adjusted diluted EPS of $0.82

HOUSTON, Feb. 5, 2020 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported break-even results for the fourth quarter 2019, compared to net income attributable to Stewart of $11.4 million ($0.48 per diluted share) for the fourth quarter 2018 after commencing initiatives to reposition the company including, among others, office closures, asset impairments and the corporate reorganization. Pretax income before noncontrolling interests for the fourth quarter 2019 was $3.8 million compared to a pretax income before noncontrolling interests of $19.7 million for the fourth quarter 2018.

Fourth quarter 2019 results included the following pretax items:

  • $8.0 million of net realized and unrealized losses, which were primarily $11.7 million of impairment expenses relating to intangible assets, title plants and other assets, partially offset by $2.2 million of realized gains on sale of securities investments and $1.1 million of net unrealized gains on fair value changes of equity securities investments,
  • $6.5 million of severance expenses related to our corporate reorganization included in employee costs ($4.3 million in the ancillary services and corporate segment and $2.2 million in the title segment),
  • $5.9 million of office closure costs primarily related to lease terminations included in other operating expenses ($4.7 million in the title segment and $1.2 million in the ancillary services and corporate segment),
  • $2.2 million of executive insurance policy settlement expense recorded as part of other operating expenses within the ancillary services and corporate segment,
  • $1.7 million of commercial services' escrow loss recorded as part of title loss expense in the title segment, and
  • $2.1 million of other non-operating charges ($1.3 million in the ancillary services and corporate segment and $0.8 million in the title segment).

Fourth quarter 2018 results included the following pretax items:

  • $4.3 million of net realized and unrealized losses which were primarily related to fair value changes of equity securities investments,
  • $3.0 million of third-party advisory expenses related to the terminated Fidelity National Financial (FNF) merger transaction included in other operating expenses within the ancillary services and corporate segment,
  • $1.2 million of litigation expense related to a 2013 lender services acquisition included in other operating expenses within the ancillary services and corporate segment,
  • $1.0 million of executive severance expenses included in employee costs ($0.6 million in the title segment and $0.4 million in the ancillary services and corporate segment), and
  • $0.8 million of office closure costs included in other operating expenses within the title segment.

"Overall, I am pleased with our performance in the fourth quarter and the progress that has already been made at this early stage of repositioning Stewart for the future," stated Fred Eppinger, Stewart's chief executive officer. "Excluding the charges associated with the organizational initiatives, our core title operations had a good end to the year. The residential business benefited from the continued strength in volumes, the agency channel experienced solid growth with encouraging signs of returning business, and our commercial operations delivered in the face of good fourth quarter 2018 comparable results. As we move into 2020, I am confident that our actions will strengthen our customer focus while laying the groundwork for improving the company's long-term financial performance. More needs to be done to better position us for future success, but we are off to a fast start and I am excited for what lies before us."    

Selected Financial Information
Summary results of operations are as follows (dollars in millions, except per share amounts):


Quarter Ended

December 31,


Year Ended December 31,


2019

2018


2019

2018







Total revenues

509.9

469.9


1,940.0

1,907.7

Pretax income before noncontrolling interests

3.8

19.7


117.0

72.5

Income tax expense

(0.7)

(4.8)


(26.7)

(13.5)

Net income attributable to noncontrolling interests

(3.1)

(3.5)


(11.7)

(11.5)

Net income attributable to Stewart

0.0

11.4


78.6

47.5

Non-GAAP adjustments, after taxes*

20.6

7.9


(13.2)

12.1

Adjusted net income attributable to Stewart*

20.6

19.3


65.4

59.6

Net income per diluted Stewart share

0.00

0.48


3.31

2.01

Adjusted net income per diluted Stewart share*

0.87

0.82


2.75

2.52

* See Appendix A

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


Quarter Ended December 31,


2019

2018

% Change





Operating revenues

506.0

457.3

11%

Investment income

5.2

5.0

4%

Net realized and unrealized losses

(3.4)

(4.3)

22%

Pretax income

20.3

29.5

(31)%

Pretax margin

4.0%

6.4%

(38)%

Title operating revenues in the fourth quarter 2019 increased 11 percent, compared to the prior year quarter, as direct title revenues and gross independent agency revenues improved by 12 percent and 10 percent, respectively. The segment's overall operating expenses in the fourth quarter 2019 increased $58.9 million, or 14 percent, compared to the last year's quarter, primarily due to higher agency retention expense and other operating costs driven by increased title revenues, increased title loss expense primarily resulting from less favorable loss experience in portions of our non-Canadian international operations and an escrow loss in our commercial business, and the charges discussed above. Excluding the segment's net realized and unrealized losses and other non-operating charges, pretax income in the fourth quarter 2019 would have been $33.0 million (6.5 percent margin) compared to pretax income of $35.1 million (7.7 percent margin) in the fourth quarter 2018.

The segment's net realized and unrealized losses during the fourth quarter 2019 included $7.1 million of impairment expenses relating to intangible assets, title plants and other assets, partially offset by $2.2 million of realized gains on sale of securities investments and $1.1 million of net unrealized gains on fair value changes of equity securities investments. In comparison, net realized and unrealized losses during the fourth quarter 2018 were primarily related to net unrealized losses on fair value changes of equity securities investments.

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


Quarter Ended December 31,


2019

2018

% Change







Non-commercial:





Domestic

149.1

123.3

21%


International

24.1

21.4

13%


Commercial:





Domestic

54.7

59.5

(8)%


International

7.4

6.1

21%


Total direct title revenues

235.3

210.3

12%

Non-commercial domestic revenues increased in the fourth quarter 2019, compared to fourth quarter 2018, as a result of improved closed orders primarily driven by the current lower interest rate environment. Domestic commercial revenues were lower compared to the prior year quarter primarily as a result of a lower average fee per file during the fourth quarter 2019. Fourth quarter 2019 domestic commercial fee per file was approximately $12,300, a 5 percent decrease from last year's quarter, while domestic residential fee per file decreased 11 percent to approximately $2,100, primarily due to the higher ratio of refinancing to purchase orders in the fourth quarter 2019 versus fourth quarter 2018. Total international title revenues increased $4.0 million, or 15 percent, primarily driven by increased volumes in our Canadian operations.

Gross revenues from independent agency operations increased 10 percent in the fourth quarter 2019, compared to the fourth quarter 2018, with the independent agency remittance rate of 17.7 percent remaining comparable to that of the prior year quarter.

Ancillary Services and Corporate Segment
Summary results of the ancillary services and corporate segment are as follows (dollars in millions):


Quarter Ended December 31,


2019

2018

% Change





Operating revenues

6.7

11.9

(43)%

Net realized and unrealized losses

(4.6)

-

(100)%

Pretax loss

(16.5)

(9.8)

(69)%

The segment's operating revenues decreased $5.2 million in the fourth quarter 2019 compared to the prior year quarter, primarily as a result of reductions in orders from several customers. The segment's results for the fourth quarter 2019 and 2018 included approximately $10.9 million and $8.8 million, respectively, of net expenses attributable to parent company and corporate operations. Excluding the segment's net realized and unrealized losses of $4.6 million in the fourth quarter 2019 and the non-operating charges discussed above, the fourth quarter 2019 pretax loss improved to $2.8 million compared to $5.2 million in the prior year quarter.

Expenses
Employee costs for the fourth quarter 2019 were $154.2 million, an increase of 11 percent from $139.1 million in the fourth quarter 2018. This increase was primarily due to increased incentive compensation consistent with higher direct title revenues and increased employee severance expenses related to the corporate reorganization, as discussed above. Average employee counts in the fourth quarter 2019 were 3 percent lower than in the prior year quarter, which slightly reduced salaries expense in the fourth quarter 2019. As a percentage of total operating revenues, employee costs for the fourth quarter 2019 and 2018 were 30.1 percent and 29.6 percent, respectively, and would have been 28.8 percent and 29.4 percent, respectively, excluding the severance expenses discussed above.  

Other operating expenses in the fourth quarter 2019 were $94.3 million, a 7 percent increase from $88.3 million in the fourth quarter 2018. This increase was primarily driven by the charges discussed above and expenses relating to higher direct title revenues in the fourth quarter 2019. As a percentage of total operating revenues, other operating expenses for the fourth quarter 2019 were 18.4 percent compared to 18.8 percent in the prior year quarter; while excluding the non-operating charges mentioned above, the other operating expenses ratio was 16.5 percent in the fourth quarter 2019 versus 17.8 percent in the prior year quarter.

Title loss expense for the fourth quarter 2019 increased to $28.9 million, as compared to $12.3 million from the prior year quarter, primarily due to higher title revenues and less favorable loss experience in portions of our non-Canadian international operations and an escrow loss in our commercial business in the fourth quarter 2019, and favorable loss experience during the prior year quarter. Title losses, as a percentage of title revenues, were 5.7 percent in the fourth quarter 2019, compared to 2.7 percent in the fourth quarter 2018. We expect our year 2020 title loss ratio to be in the low to mid 4 percent range. At December 31, 2019, our title loss reserves were above the actuarial reserve midpoint.

Other
Net cash provided by operations in the fourth quarter 2019 was $59.1 million, compared to net cash provided by operations of $40.4 million in the prior year quarter, primarily due to better fourth quarter 2019 operating results, excluding the charges above which were mostly noncash.

Fourth Quarter Earnings Call
Stewart will hold a conference call to discuss the fourth quarter 2019 earnings at 8:30 a.m. Eastern Time on Thursday, February 6, 2020. To participate, dial (866) 831-8713 (USA) and (203) 518-9822 (International) - access code STCQ419. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at http://www.stewart.com/investor-relations/earnings-call.html. The conference call replay will be available from 11:00 a.m. Eastern Time on February 6, 2020 until midnight on February 13, 2020, by dialing (800) 839-2475 (USA) or (402) 220-7220 (International) - the access code is also STCQ419.

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 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, 2018, 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.

STEWART INFORMATION SERVICES CORPORATION

CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(In thousands of dollars, except per share amounts and except where noted)



Quarter Ended

December 31,


Year Ended December 31,


2019

2018


2019

2018

Revenues:






Title revenues:






Direct operations

235,259

210,315


869,457

833,200

Agency operations

270,705

246,973


970,540

1,003,959

Ancillary services

6,748

11,933


37,456

50,723

Total operating revenues

512,712

469,221


1,877,453

1,887,882

Investment income

5,164

5,005


19,795

19,737

Net realized and unrealized (losses) gains

(7,970)

(4,292)


42,760

53


509,906

469,934


1,940,008

1,907,672

Expenses:






Amounts retained by agencies

222,670

203,079


799,229

827,046

Employee costs

154,206

139,080


567,173

562,469

Other operating expenses

94,318

88,278


345,347

345,307

Title losses and related claims

28,891

12,333


84,423

71,514

Depreciation and amortization

5,068

6,323


22,526

24,932

Interest

972

1,153


4,341

3,875


506,125

450,246


1,823,039

1,835,143

Income before taxes and noncontrolling interests

3,781

19,688


116,969

72,529

Income tax expense

(717)

(4,828)


(26,695)

(13,507)

Net income

3,064

14,860


90,272

59,022

Less net income attributable to noncontrolling interests

3,095

3,487


11,657

11,499

Net (loss) income attributable to Stewart

(31)

11,373


78,615

47,523







Net earnings per diluted share attributable to Stewart

0.00

0.48


3.31

2.01

Diluted average shares outstanding (000)

23,619

23,699


23,753

23,685







Selected financial information:






Net cash provided by operations

59,070

40,444


166,359

84,177

Other comprehensive income (loss)

2,039

(2,881)


22,072

(20,332)

 

Monthly Domestic Order Counts:







Opened Orders 2019:

Oct

Nov

Dec

Total


Closed Orders 2019:

Oct

Nov

Dec

Total

Commercial

1,407

1,377

1,820

4,604


Commercial

1,281

1,203

1,976

4,460

Purchase

18,950

14,941

13,884

47,775


Purchase

14,300

12,235

13,690

40,225

Refinancing

15,848

12,726

11,365

39,939


Refinancing

11,549

9,602

10,307

31,458

Other

443

289

185

917


Other

292

176

199

667

Total

36,648

29,333

27,254

93,235


Total

27,422

23,216

26,172

76,810












Opened Orders 2018:

Oct

Nov

Dec

Total


Closed Orders 2018:

Oct

Nov

Dec

Total

Commercial (Note 1)

1,931

1,637

1,699

5,267


Commercial (Note 1)

1,619

1,404

1,605

4,628

Purchase

18,687

14,910

12,697

46,294


Purchase

14,452

12,645

12,331

39,428

Refinancing

6,929

5,723

5,391

18,043


Refinancing

4,756

3,802

3,821

12,379

Other

550

574

504

1,628


Other

460

542

500

1,502

Total

28,097

22,844

20,291

71,232


Total

21,287

18,393

18,257

57,937


Note 1 – As disclosed in the first quarter 2019 earnings release, prior year commercial orders were updated to take into account changes to our domestic order tracking process and the exclusion of international orders.

 

STEWART INFORMATION SERVICES CORPORATION

CONDENSED BALANCE SHEETS AT DECEMBER 31

(In thousands of dollars)



2019

2018

Assets:



Cash and cash equivalents

330,609

192,067

Short-term investments

23,527

22,950

Investments in debt and equity securities, at fair value

645,039

636,017

Receivables – premiums from agencies

26,405

29,032

Receivables – other

50,067

47,044

Allowance for uncollectible amounts

(4,469)

(4,614)

Property and equipment, net

50,461

60,794

Operating lease assets (Note 2)

99,028

-

Title plants, at cost

72,627

74,737

Goodwill

248,890

248,890

Intangible assets, net of amortization

4,623

9,727

Deferred tax assets

4,407

4,575

Other assets

41,571

51,711


1,592,785

1,372,930

Liabilities:



Notes payable

110,632

108,036

Accounts payable and accrued liabilities

126,779

109,283

Operating lease liabilities (Note 2)

113,843

-

Estimated title losses

459,053

461,560

Deferred tax liabilities

28,719

14,214


839,026

693,093

Stockholders' equity:



Common Stock and additional paid-in capital

188,279

186,714

Retained earnings

564,392

514,248

Accumulated other comprehensive loss

(2,699)

(24,771)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

747,306

673,525

Noncontrolling interests

6,453

6,312

Total stockholders' equity

753,759

679,837


1,592,785

1,372,930

Number of shares outstanding (000)

23,709

23,719

Book value per share

31.52

28.40


Note 2 – Beginning in 2019, we adopted the new lease accounting standard which resulted in the balance sheet recognition of assets and liabilities related to our operating leases of office space. Operating lease assets represent the right to use the underlying assets over the corresponding lease terms. This adoption did not result in any impact to our statements of operations and cash flows.

 

STEWART INFORMATION SERVICES CORPORATION

SEGMENT INFORMATION

(In thousands of dollars)


Three months ended:

December 31, 2019


December 31, 2018


Title

Ancillary
Services
and
Corporate

Consolidated


Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:








Operating revenues

505,964

6,748

512,712


457,288

11,933

469,221

Investment income

5,164

-

5,164


4,989

16

5,005

Net realized and unrealized losses

(3,352)

(4,618)

(7,970)


(4,292)

-

(4,292)


507,776

2,130

509,906


457,985

11,949

469,934

Expenses:








Amounts retained by agencies

222,670

-

222,670


203,079

-

203,079

Employee costs

144,882

9,324

154,206


132,290

6,790

139,080

Other operating expenses

86,354

7,964

94,318


75,274

13,004

88,278

Title losses and related claims

28,891

-

28,891


12,333

-

12,333

Depreciation and amortization

4,662

406

5,068


5,520

803

6,323

Interest

-

972

972


33

1,120

1,153


487,459

18,666

506,125


428,529

21,717

450,246

Income (loss) before taxes

20,317

(16,536)

3,781


29,456

(9,768)

19,688















Year ended:

December 31, 2019


December 31, 2018


Title

Ancillary
Services
and
Corporate

Consolidated


Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:








Operating revenues

1,839,997

37,456

1,877,453


1,837,159

50,723

1,887,882

Investment income

19,795

-

19,795


19,721

16

19,737

Net realized and unrealized (losses) gains

(2,744)

45,504

42,760


(1,174)

1,227

53


1,857,048

82,960

1,940,008


1,855,706

51,966

1,907,672

Expenses:








Amounts retained by agencies

799,229

-

799,229


827,046

-

827,046

Employee costs

540,687

26,486

567,173


533,525

28,944

562,469

Other operating expenses

304,278

41,069

345,347


293,817

51,490

345,307

Title losses and related claims

84,423

-

84,423


71,514

-

71,514

Depreciation and amortization

19,971

2,555

22,526


21,449

3,483

24,932

Interest

1

4,340

4,341


41

3,834

3,875


1,748,589

74,450

1,823,039


1,747,392

87,751

1,835,143

Income (loss) before taxes

108,459

8,510

116,969


108,314

(35,785)

72,529

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 any net realized and unrealized gains and losses and (2) net income after earnings from noncontrolling interests and adjusted for net realized and unrealized gains and losses and other non-operating costs such as corporate reorganization expenses, office closure costs, FNF merger expenses and other third-party advisory costs (adjusted net income). Adjusted diluted earnings per share (adjusted diluted EPS) is calculated using adjusted net income divided by the diluted average weighted outstanding shares. 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 the most directly comparable GAAP measures for the quarter and year ended December 31, 2019 and 2018 (dollars in millions, except share and per share amounts).


Quarter Ended December 31,


Year Ended December 31,


2019

2018

%
Change


2019

2018

%
Change









Total revenues

509.9

469.9



1,940.0

1,907.7


Net realized and unrealized losses (gains)

8.0

4.3



(42.8)

(0.1)


Adjusted revenues

517.9

474.2

9%


1,897.2

1,907.6

(1)%









Net income attributable to Stewart

0.0

11.4



78.6

47.5


Non-GAAP pretax adjustments:








FNF merger termination fee

-

-



(50.0)

-


Merger-related expenses

0.1

3.0



6.8

12.6


Other net realized and unrealized losses (gains)

8.0

4.3



7.2

(0.1)


Executive severance expenses

6.5

1.0



6.5

1.0


Office closure costs

5.9

0.8



6.6

0.8


Executive insurance policy settlement

2.2

-



2.2

-


Large escrow losses

1.7

-



1.7

-


Other non-operating charges

2.1

-



2.1

-


Litigation expense accruals

-

1.2



-

1.2


Net tax effects of non-GAAP adjustments

(5.9)

(2.4)



3.7

(3.4)


Non-GAAP adjustments, after taxes

20.6

7.9



(13.2)

12.1


Adjusted net income attributable to Stewart

20.6

19.3

7%


65.4

59.6

10%









Diluted average shares outstanding (000)

23,762

23,699



23,753

23,685


Adjusted diluted EPS attributable to Stewart

0.87

0.82



2.75

2.52


 

Cision

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SOURCE Stewart Information Services Corporation