Stewart Information Services (STC) Q3 2026 earnings call transcript

Thank you for joining us today for Stuart's third 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 Heise. To listen online, please go to the Stuart. 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 Stuart. com.

Let me now turn the call over to Fred.

Thank you for joining us today for Stuart's third quarter 2026 earnings conference call. Yesterday we released the financial results for the quarter, and I will kick off today's call with an overview of our outlook for housing, followed by a review of our performance for the period and strategic direction broadly by business. I will then turn the call over to David so he can provide further commentary on our performance for the quarter.

In the third quarter, the market began to set a new lower bottom for residential housing, market primarily driven by the rapid escalation in the 30-year mortgage rate throughout the quarter. In August, the 30-year rates moved higher than the same period year prior. The rapid increase continued rates around 7.5 into October. As I've seen in the past few years, buyers will very quickly move to the sidelines in a situation where rates meet or exceed 7%, or rates move up very quickly.

In Q3, we experienced both these scenarios, resulting in a below $4 million existing home sales for two of the three months in the quarter, a decrease of about 3% to 4% year-over-year in August and September. We believe the residential market conditions will continue to decay into the next quarter.

Considering this outlook, we will be very focused on managing our business investments and expenses while continuing to capitalize on some of the market opportunities this disruptive market will create. In the third quarter, we delivered adjusted earnings per share of $1.33. Year-to-date, total operating revenue was up 22%, and adjusted EPS growth was up 8%. For the quarter, growth slowed to 13%, and our adjusted EPS delivery was below last year's third quarter, as we saw a decreased margin in some of our businesses due to rapidly decreasing residential volume off historic lows.

Our national commercial services business continued to deliver solid performance with overall commercial growing 90%. While the growth was less than our recent earn rate, our order growth has strong, and our competitive position continues to improve. We did see a number of closing shifts in the fourth quarter, which is not uncommon in the changing market. We continue to be very positive on our improving competitive position and our future growth opportunity. In the third quarter, we also welcomed our title to the family, expanding our commercial energy and infrastructure team capabilities for servicing the telecommunications space.

The acquisition of best-in-class talent has remained our strategic growth priority for the NAPS and commercial services and the addition of Tower Title as well as the strategic highs we executed last quarter will help us further bolster this business with long-term success as these new highs ramp up in their seats and begin to convert business in the coming quarters.

We have had a lot of momentum in this space in the last three years, and we will continue to encounter some tough comparables for ourselves given the outside growth we've had. Overall, we remain positive on the large commercial and continue to see growth across multiple asset classes, though that growth is often lumpy given the timelines and transaction sizes.

Our direct operations bear the brunt of the slowing residential market and drove the majority of our margin reduction in title. Overall, our direct title operation business unit consolidated residential refinance of mainstream commercial by 1% in the second quarter compared to the same timeframe last year. We saw residential volumes decrease by 3% and refi shrink 7%. That was offset by our mainstream commercial delivering 11% growth.

Our growth plan for this business remains focused on strengthening our position in attractive MSAs through organic and inorganic efforts and continue to grow mainstream commercial. In 2026, we have seen more opportunities present themselves and attractive geographies. Given market conditions, we will still focus on pursuing these opportunities, but we are sharpening our pencils even further to ensure they fit in our long-term financial goals.

In the third quarter, we announced the acquisition of Ratican Title, one of the oldest and well-respected title agencies in Texas servicing Fort Worth. This transaction is a great example of a strong strategic fit for Stewart, as it strengthens our position in the Dallas-Fort Worth marketplace, giving us a Fort Worth stronghold. Our centralized title operations, which are included in our direct title revenue summary, includes our centralized refinance, institutional business, and reverse business.

In the third quarter, we welcome ProTitle USA and DocuSolutions USA to this organization. The addition of these companies, along with our existing offerings, expand our scale in the title services for investors and capital market clients. In the third quarter, we grew this business 20% for these businesses.

Finally, moving to our international operations, we focused on profitably growing our business. In the third quarter, we saw a slight deceleration of our non-commercial revenue by 1%. However, we have grown our revenue in this business unit by 4% year-to-date, which is solid here in the Canadian residential marketplace, has been decelerating the existing home sales since September of 2025.

On the commercial front, we delivered $7.3 billion in revenue, consistent sequentially with the second quarter, up behind the third quarter of 2025 as we had a handful of very large transactions that closed the third quarter last year. We believe we are on the right track in our international operations, and we will continue to build on the strong positions of these markets and continue to grow share.

Turning to agency services, in the third quarter, we saw net revenues by 11% compared to the third quarter of last year. We are pleased with this given that the agents confirmed the same challenge to residential market as our direct operations. We are focused on growing this business through winning the business with new agents and expanding the wallet share of existing agents, with the emphasis on 15 target states in addition to the expansion of our commercial footprint for agency.

We continue to make good progress of these priorities with residential premiums up 7 and commercial premiums up 25 in the third quarter when compared to the same time frame last year As mentioned last quarter we took advantage of some market disruption and expanded our agency team, which we have and will continue to see the benefit of as they ramp up and settle into their positions. While increasing market challenges will put pressure on future growth, we believe our ability to shift share should continue.

Turning to our real estate solutions business, in the third quarter, we grew revenue by 68% and 7% after removing the impact of two acquisitions we made this year, MCS and NAND. Our adjusted pre-tax margin slipped from 11.3% last year to 10.5% this year. The margin was driven by a significant slowdown in orders and revenue from existing accounts in informative research, our credit data business, and an appraisal. From a strategic perspective, we may focus on continuing to expand our coverage and servicing of the top 300 lenders.

Our suite of products and services is in a good position in giving us even a great ability to cross-sell through a business. I am pleased that we are able to maintain our double-digit margins in these conditions and believe we will get to low to mid-tease margin delivery to the execution of our strategic priorities in a more stable residential market environment over the next two to three quarters.

I believe we are setting a new floor in the residential market that will likely continue into the next quarter. We will react to market changes by taking needed actions, but we'll be careful to retain the resources needed to serve our clients and react to opportunities I believe will come from this disruption. We remain focused on being a resilient company that has a growing portfolio of operations that will deliver share growth and improving larger performance over the next two to three years.

Thank you for your time, attention, and interest in Stuart. As an enterprise, we are dedicated to being the premier title in real estate services company. I'm proud to share that in the third quarter, we delivered our seventh dividend increase in just under six years, raising our annual dividend from $2.10 a share to $2.20 a share. We are committed to strengthening and growing the company for continued long-lasting success while confronting the current challenging conditions.

To our customers and agents, thank you for your trust and dedication to Stuart. We are committed to serving you with excellence. And to the Stuart team, I want to thank you for your dedication and perseverance. It takes considerable effort to grow a company and even more so to confront such a challenge in residential housing conditions. Thank you for your commitment to the company. I look forward to seeing where we can take this company together. So, David, I'll now turn it over to you to provide an update on the results.

Good morning, everyone, and thank you, Fred. I want to thank our employees and customers for their continued support and partnership as we navigate this even more challenging real estate market with early mortgage rates over 7% since mid-September. Yesterday, Stewart reported third quarter 2026 net income of $30 million with diluted EPS of $0.98 compared to the prior year's quarter net income of $44 million and diluted EPS of $1.55. On an adjusted basis, third quarter net income was $41 million or diluted EPS of $1.33 compared to net income of $47 million or diluted EPS of $1.64 last year.

Appendix A of our press release shows adjustments to our consolidated and segment results primarily related to acquired intangible immunization, acquisition-related expenses, and that realized and unrealized gains, which were used to evaluate operating performance.

In the title segment, operating revenues increased 31 million or 5%, primarily driven by higher agency and direct commercial revenues. Title operating expenses increased 6%, primarily due to higher revenues and higher employee costs related to select growth investments while beginning to address the market transition that Fred spoke about. Title pre-tax income in the third quarter was $47 million compared to $62 million last year, while on an adjusted basis, pre-tax income was $52 million compared to $61 million last year.

In our direct title business, direct title revenues increased $6 million or 2 percent, primarily due to increased commercial transactions.

Domestic commercial revenues increased $7 million or 9 percent, as closed orders improved 18% across multiple asset classes, while average fee-for-file decreased 8% to $16,300 due to reduced transaction sizes with less data center and energy activity.

Domestic non-commercial revenue increased slightly by $3 million or 2%. Internal international revenues were down 4 million or 10 percent due primarily to a large commercial transaction last year.

On our agency operations, credit agency revenues increased 25 percent or 25 million or 7 percent reflecting growth across a majority of our key agency states including Florida. Net of agent retention agency revenues improved 5 million or 8 percent compared to last year. On title losses, title loss expense for the third quarter increased primarily due to higher title revenues, while the title loss ratio was 3.4 percent comparable to last year. We expect our title losses to average from mid-3 to 4 percent over a year. year. In our real estate solution segment, total revenues increased 80 million or 68 percent, primarily driven by the MCS acquisition and growth in our credit information and valuation services operations. Res adjusted pre-tax margin increased by 7 million or 56 percent, compared to 13 million last year, while adjusted pre-tax margin was 10.4 percent, and then completed to 11% last year.

On our consolidated operating expenses, our employee cost ratio improved to 26% compared to 27% last year, primarily due to higher operating revenues, while the other operating expense ratio increased to 29% compared to 24%, primarily due to revenue growth in our real estate solutions segment, which typically incurs higher service costs as a percent of revenue. and as our real estate solution segment grows as a percentage of total revenue.

Our financial position remains solid and well-positioned to support our customers, employees, and the real estate market. Total cash and investments is approximately $300 million in excess of statutory reserve fund requirements. Total steward stockholders' equity was approximately $1.7 billion, representing book value of approximately $55 per share.

Net cash provided by operations was $47 million compared to $93 last year, primarily due to lower net operating income and timing of payments related to operating liabilities.

Yeah. So it's multiple millions that pushed those. So it was meaningful to the quarter. And, again, there's no indication it won't close in the fourth quarter, but there was some movement.

Interesting enough, our pipeline, and you can see from the open orders and stuff, records and commercial, has been really strong for us. I have heard in the marketplace and clearly among agents, I've heard of a slower in the small commercial market. We have not seen it in our numbers yet, but there is talk that between the small and the small debt oriented, there is some slowing. On the data center thing, we have not seen any slowdown at all.

And so, again, it's hard to know what could have been, I guess, considering all the noise you see in the marketplace. But it's a pretty robust portfolio that we see. And so, again, we haven't seen any flow. For us, it's odd about us, as you know. The last two years, we've doubled commercials. So we have a lot of quarters. Last year, we grew over 40%, 50%. So some of our comparisons are a little odd for growth, but I really like the flow we're seeing.

We have the best team we've ever had. We've been able to make some investments in the last year here. So I continue to see growth opportunity there for the company in the next couple of years.

I think it's a handful of millions. So it's not a small amount, and it's a handful of transactions.

Yeah, sure. So what I've been saying is the portfolio we have, as you know, that portfolio is really made up of three pieces. It's made up of the appraisal business, the credit data, and then the default business. In all three of those now, we're the top three, four players. So we have critical mass, and again, there's some things happening in all those spaces around the importance of technology, and I feel good that we're going to continue to see consolidation and share growth there.

The two that are very sensitive to kind of the residential rate environment are appraisal and the data. And the complicating factor, by the way, is that it's worse than just closes. So we've had historical cancellations this quarter, probably 15% of the transactions, and we've had a big decrease in kind of mortgage applications. So the way in data, for example, in credit data, we get paid both when the mortgage application gets opened, right, because some of our work is done in verification of kind of the quality of the credit, et cetera, And then we get paid again at the close, right? So that, as the market goes down, you obviously have less revenue. So our same, what I call same-store growth, so we've had some new accounts, so we've still continued to grow a little bit.

But we've seen, you know, about 6%, 7% reduction in same-store volume, which is the combination of the, you know, amount closed files, as you can imagine, but also more cancellations. And so we've seen a decrease in the opening of mortgage apps. So that's where your margin goes, because if you lose two-thirds of your revenue, which is kind of how to think about it, between the opening of the application and then the closing, as those things cancel, you can see that your revenue is going to go down. So an appraisal, same thing, although we don't do a lot of pre-work in appraisal.

Most of that work is done afterwards. We don't have a lot of wasted costs. But we've seen in those two businesses, you know, 4% or 5% of the appraisal part, reduction of volume with our current customers. So that's why the volume, so the margin, so the margin is in that 10, 10.5, right? But all I need is a normalized market. I don't need it to go all the way back. I just need it to stabilize so you don't have these deltas and changes, because the changes are what costs you, because you're carrying the expenses because you're doing some of the work, and then it goes away. So, again, what I've said is that business, even at a 4-1, 4-2 kind of existing home sales, that's going to be about a 13%, you know, 14% margin business.

We built that to scale. We got the nice mix between the three businesses. And so this deck is going to, you know, for the next couple of quarters, we're going to see this kind of, in my view, kind of at this level of margin in that business. But I like the long term. It's a more stable part of our portfolio because of the mix we have now. So, again, that's why I say it'll go migrate back up, I would say, after the next couple of two quarters.

I believe so. And, again, there's a bunch of interesting changes with Vantage scores, which we can get in at some point, that is going to position us really well to consolidate and grow share that market because we have a very unique product and solution for those that transition to them So I feel very good about kind of the credit data business over the long haul Okay great Thanks a lot Thank you.

The other two are in title. So pro title goes into the CTS segment that Fred talked about. Those both closed on 9-1 and then tower title that he also talked about. They just basically go into their respective businesses, right? So CTS will get pro title, tower will get, you know, commercial will get tower, and, you know, they just add to those businesses. But, you know, we said that we typically buy those kind of businesses that these are title businesses, so four to six even up. These are higher margin, so, you know, think you're maybe on the higher end. So if you just think about all the money we had to deploy at year end between NAN and these other two, we basically deployed $150 million.

And so you can sort of back in to what economics you might be able to get out of that. And, you know, you'll see the acquisitions number in our 10Q, so it'll all be public. And I would say to you, the last two were kind of late in this quarter. They were not at one. So it was marginal impact at all on the quarter.

But in both cases, again, to me, they're really important. because Tower gives us this additional capability and infrastructure where I think we're going to have sustained growth in the business, and it covers an area that we will like. And on the pro-title loop is the whole institutional business. One of the things I'm doing in the centralized title business is to create a left volatile. I'm not a big refi guy, but our centralized title is really a portfolio of specialty centralized title. And these bring the institutional business to us, and I feel good about all of these.

Yeah, again, I think what's been said, particularly about the pilot, is kind of old news. And essentially what they did is they expanded the number of lenders that are in it. The coverage is roughly the same. It's a very small subset of refi that is included in the title space. And, again, we'll see how it plays out. I keep saying if it tests out, the whole thing is going to be pricing.

Because, you know, if that makes sense, we are not really big in the refi market. And I don't think there's many scenarios that want to be big in the refi market, given the volatility of that business and the low margins that are in it.

But, again, I don't see it. There's no big expansion from where we are. But the number of, again, lenders that are participating is a little bit bigger.

So, again, it doesn't have much impact.

And, Officer, another thing to keep in mind is if you look at our refi orders, like Fred said, we don't really have much in that centralized lender. So most of our refi orders came from customers that we issued a prior steward policy on, and they're out in our field operations. so stuff like this doesn't really impact them that much.

Yeah, it's interesting. It's a great question, because I'm feeling pretty bullish on our AI initiatives. I think the financial impact is going to take 18 months to kind of see kind of the robust financial impact, although we are seeing it today, particularly in the search area. And, again, we've got some really interesting things that we're doing there. And I think the search area is the place where there's the greatest opportunity for efficiency and accuracy and what I consider better turnaround time, for instance, for our agents, which I think matters to the combined economics.

So, yeah, another thing, obviously, we give the virtual underwriter, and it's given to our agents, which actually helps there. efficiency in work where they do the clearing of title and the underwriting of policies as an agent. But again, I think I mentioned to you, we have over 100 initiatives, and frankly, there's like 50 that are penciling already operationally that we track returns on. in its early days, but, you know, it is, in my view, going to be helpful, particularly if you see the residential market sit at 4-1 longer, which I think people are talking about. I think over the next, you know, four to six quarters, it's going to be very helpful to us to manage expenses.

But, again, I think it also is really good about quality, from the quality of delivery and some of the consistency of turnaround, which is really what, you know, particularly the agency channel, they really appreciate.

Thank you. Thank you.

Fred Schultz- I want to thank everybody for their interest in Stuart and appreciate you joining us on the call. Thank you.