FAF - Earnings call transcript Q4 2017 | First American Financial Corporation

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Operator

Greetings and welcome to First American Financial Corporation Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] A copy of today's press release is available on First American's website at www.firstam.com/investor. Please note the call is being recorded and will be available for replay from the company's investor website and for a short time by dialing 877-660-6853 or 201-612-7415 and enter the conference ID number 13675613.

the to to make turn President, Barberio, now Relations Investor an will call Craig over Vice We introductory statement.

Craig Barberio

Good and call. Sherri. XXXX you, morning welcome and Thank to fourth quarter year-end conference earnings everyone our

Gilmore; Joining us our Financial Seaton, be today Chief Vice and and Officer, President Chief Executive Officer. Mark Executive will Dennis

statements. reflect made relate update statements made. statements the or or forward-looking that are after in current differ historical these occur statements contain the uncertainties those forward-looking speak the and the Some date to to may as are and circumstances today of the forward-looking statements from statements events to not These forward-looking results forth does strictly may materially made that forward-looking that only of do cause undertake exist date not company facts. set Risks they to these

uncertainties, filings. on release subsequent our information SEC risks and these risk more Form factors the earnings For refer in discussed and to today's and XX-K please

non-GAAP to Our relative additional and company presentation the competitors. today contains the relative performance of company's operational financial measures into to the insight we periods efficiency and provide earlier believe that certain

For measures, with reconciliation GAAP our to Gilmore. website, including the turn call non-GAAP these now and the earnings comparable more refer over financial Dennis most is presentation directly to please available on on to measures, today's details which financial release, www.firstam.com. I'll

Dennis Gilmore

share were tax review Today In $X.XX. then share Craig. to a fourth you I'll Thanks call. XXXX. our outlook joining and I'll $X.X our benefit for of include quarter, results the earnings our thank full Good morning per net results discuss and related quarter These our reform. fourth year per and for

quarter fundamentals, income management, from benefited higher and cash disciplined Our investment expense investment housing portfolio. this earnings in our and strong

market. much the housing this and to we country shortages as across constrain the were purchase residential growth from in XX% to of real inventory revenue X% the purchase continued ongoing benefit market. Closed grew estate orders Our quarter up continue

Our by increased driven X%, appreciation. price fee profile primarily continued home

to our centralized broad-based, of strength revenues title New continues during the mortgage stabilize to continues segment, insurance fourth cost structure did business warranty revenue our was business traditionally our strong with lender in down the commercial Refinance business experience X%. a rates. Growth to had in performance. Refinance as XX% accounts direct We've quarter. pretax up adjust quarter market. a market we XX% the of XX% Our XX.X% dropped revenue York show home higher specialty aggressively reset posted to the some softening strong the for from revenue in ago. this a margin our year although very In this quarter, Overall, segment the quarter.

severe our impact to two a of and However, XXX% due of loss in property the California. business ratio casualty posted wildfires

XX exceeded of occurred reinsurance years, Over past quarter. million this four we've our $X which the retention limit past times, two

As ratio to a result, a pretax with this segment's margin. loss X.X% increased XX% overall

$X.XX, year. full year company XXXX, earnings last a of Turning over XX% per share to delivered increase the

Our XX.X%. and margin equity return XX% pretax was title our on was

closed We XXXX. valued pension fully raised and our by in active funded acquisitions dividend terminated remained we and $XX front, management our capital XX%. at the On million, plan,

optimistic XXXX. financial Looking for our we about forward, outlook are

ensure leader underway come. of business. an taken I'm American in our necessary financial initiatives to proud likely fundamentals, market. and good year, in are the trends another as central strong First XXXX. for business, refinance for actions excited also downwards improve remains the lender that believe we've to our business residential growth favorable in our But rise. strategic to orders I'm industry housing performance have continued expect company's purchase commercial our mortgage We in poised rates trend earnings given about will the believe the is given we years We market we

our and Our unique providing assets, solutions our -- our continues are American's First for First data, using core and unique on American including to we our business grow technology customers, innovative bank. focused

our will New capital We now at the Investor York. on May Day financial provide of strategy, our Mark our and call I'll a in results. XXth detailed more details our operations, plans turn for management over about to review more

Mark Seaton

of by you, detailed followed results. impact Thank a Dennis. on begin by I'll of discussing tax more reform the First American, financial review our

tax share, results next of tax a result $X.XX or due of of per This net benefit included the primarily legislation. $XXX recent million reform deferred quarter's liabilities remeasurement to tax as

expect primarily the effective forward, than new rate normalized to our rate federal to XX% taxes Moving our The international is that state we operations. rate, due XX% from higher XX%. tax will and fall

services XX.X% one were reporting of Higher split approximately year. transactions title lower revenue cash orders addition, up year. million, average higher financial the quarter the X% direct order. both down within by businesses, lag order a compared average the premiums reflecting our reduce with last offset of centralized from insurance shift insurance offset Investment our or In to premium revenues XX% enhancing income per escrow per a and cost segment, due tax from to of in to with X% the last shift increased repatriate from other fourth largely agent to lender closed $X,XXX and jurisdictions, increased foreign company's were a due the Information million XX% flexibility. will fees down mix in increase services by $XX from decline normal X%. the The decrease $X Agent acquisitions the territorial of In were totaled was This purchase quarter. from transactions. commercial was revenues to and the commercial revenue was and title X% the driven of revenue agent XX% income recent million, by average number per activity. system to compared $XXX segment premiums. decrease down revenues last and purchase the order a revenues premium The refinance in in The year. the and

on of current with escrow for and The same $XX X.X% was ultimate losses loss claims from X% no Net rate rates, estimates with our policy million last expenses. deferred prior incentive or services an title uncollectible fees the down X.X% rate totaled interest escrow labor continues with million overtime as operating was of Pretax The segment cash portfolio, and and exchange investment was expenses to reserve The X.X% rate income were change fourth and the $X.X a of of XX.X% provision tax the with $XXX of losses policy in in policy this last year. realized agency Other the increase prior years. quarter. quarter including short-term current our Pretax Personnel $XXX in for title compensation temporary compared were insurance driven for from million, prior securities decrease write-off as X% year. investment year, loss property title million, quarter. income for of quarter compared costs the lower balances. interest mortgage-backed This in XXXX. business, compared other million quarter an million, higher adjustable year. to XX.X% the well balances premiums loss provision Our was primarily by due the $XXX and from $X.X million was $XXX reflects benefit up rate year. for margin

was million, X% the the in Turning The up quarter year. up compared loss specialty with to ratio segment last the from year. specialty were revenues this XX% insurance insurance prior $XXX XX%, segment, total in

for quarter Our event. year. run the the the quarter reinsurance in XX.X%. our was was high recent with Pretax segment million expenses losses and effective rate rate $XX for two wildfires, the savings $X in negative from claim corporate compared last the with corporate XX% each from experienced quarter property This that exceeding our separate limit retention million. business casualty full in for the first due California are segment margin termination. quarter of this fourth segment to we losses benefiting the Net pension in The were tax is X.X%

sheet to As posted tax totaled million below we balance relating quarter, the of $XXX normalized in reform our XXst. million driving $XXX XX%. I rate this well of rate noted our December tax Debt as earlier, benefit a

$XX and of Our $X of consists notes, $XXX credit million $XXX and senior of notes notes, million million facility, million our debt other obligations. on of trustee

of debt XX.X%. December XXst ratio as was to capital Our

We remaining $XXX revolving facility. million credit our have on $XXX million

cash year, primarily would operator by take last terms relative operations cash a over $XX due to $XXX result payments provided like questions. now call quarter back was flow, XXXX. In to million, $XX the I increase to of to million of in of tax turn a in million paid a fourth of your to as decline the the low taxes cash

Operator

Thank you.

& your Mackenzie Associates. [Operator the will Instructions] Our question. first be with conducting We question Aron session. state Please Zelman now is from question-and-answer

Mackenzie Aron

Good Thanks. morning.

rate. the priorities that how of about the thinking to question the talk further that you or Can just be about for just be growth M&A? from dividend for And cash on that savings potential effective able the see used get most you'll tax there's buybacks First for incremental if flow for lower cash? you

Dennis Gilmore

from $XX that, our about be or get back M&A the to probably the back towards little this CapEx our And our different ways. to of going plan modify it The will bit then will XXX(k) we either look excess put That Yes, U.S. if in change going above million. we'll here. at rest we're a couple Kind Dennis. a so returns. is can use returned back invest We're people, to or shareholders.

Mackenzie Aron

Okay, expecting you just technology into that whether this looking it's or title, side further Should And things we great. see. similar opportunities acquisitions, for on pipeline year? the the agents be

Dennis Gilmore

million, $XX is going -- full looking right Compared deployed really to our last pipeline got And about consistent. we year. into very a We've XXXX, $XX XXXX million strategy now.

to plays at we'll looking to they are automate core, the we've related look a couple then the agencies process. but And very buy then sense that make a to And little of some our looking title. deals help we're titling to outside we're where technology First, buy got and us. that data title

are, pipeline, disciplined again, always very full So, like deployment. we on but

So, we'll see.

Mackenzie Aron

Okay, was can heard that on I in perfect. there? commercial, And comment York there particular correctly, any I soft just around if more, one driver was sneak New the If that

Dennis Gilmore

really. Not

couple has Had software on market good to over the a we're last a going optimistic XXXX. really quarters. of But the year commercial. optimistic Just been we're little and

Mackenzie Aron

Thanks. perfect. Okay,

Operator

John question. your Incorporated. Our Campbell next is Please state with Stephens from question

John Campbell

Hey guys, the segment work strong. Title in great looked quarter. really

losses, realized then a net XX% that did So, and margin? backing you the loss if one-time about up do guys the I'm

Mark Seaton

Yes, of uncollectible and $X.X account, right. XX%, that's to the you loss get realized about we had you million that if back out that write-off

John Campbell

Okay.

you XX% kind laid for year. I you've the exceeded And guys so kind goal that mean, of of margin out -- comfortably to XX%

growth I some to offset As extent the clear, to left XXXX, income have very in lower to going by purchase investment you're be look going mean, is at I that's refis.

range that Assuming commercial modestly for there, is of in XXXX? hang any above reason kind why be again there can shouldn't

Mark Seaton

short I answer finished segment. no. the mean, XX.X% year We for the title at the there is

we And and growth get so the leverage can our we have when in continued look assuming assuming the benefits we because there, commercial in the and purchase, we portfolio, in we efficiencies. the expectation into think continued of operating the getting improve hangs market, margin the operating from we're incrementally is XXXX, which

that incrementally So, we it's we're can tougher. But getting hopeful improve.

John Campbell

step-up break I And That's Or cost, expense? Dennis, out you the a we quarter of is that each something tax ratably something XXX(k) in corporate? the the in then that corporate? after kind Okay. mentioned Is to of run think one-time Is that that's going through helpful. rapidly $XX saving. million

Dennis Gilmore

specialty this in title corporate will It's between segment distributed to based insurance going on be not the segment. the segment employees. and It be

perpetuity. we obviously, to be would roughly so would XX% segment. the that really in title $XX And a And million pretax of XX% expect in

John Campbell

that thumb? income, have rule of we on of income. Are every investment Okay. still think might of And XX I equals of talked about then of you kind good rate $XX feel about million investment hike bps guys -- or thumb, about so higher the rule

Mark Seaton

our we're Fed through we good mean, three the last that least about And time close that, being. year. investments. year feel we for we've can in pretty getting terms times. from at raised get improvement shown the that I of to last Yes, that mean, I

continues good raise, that benchmark forward. going to so the as we And a that's still Fed think

John Campbell

what's question. And Last that margin? incremental

Mark Seaton

Well, is XXX%. the on $XX all incremental falls And it to margin the the million bottom-line.

John Campbell

Okay. Thanks guys.

Mark Seaton

you. Thank

Dennis Gilmore

you. Thank

Operator

is from KBW. question [Operator with proceed question. next Instructions] with Please George your Bose Our

Thomas Mcjoynt-Griffith

Hey for this Bose. Tom on is guys, Mcjoynt

would that one-time, $X.X again? to million you ask right? was that Just guys That's see XXX% something wanted uncollectible; not expect to about

Mark Seaton

even didn't item, mean, fourth was I but comes definitely one-time. that's relate out adjustment, to Yes. always we're one-time It have that an clearly going stuff -period kind quarter. the to of that non-recurring. our And was up,

Thomas Mcjoynt-Griffith

conversations with or on commissioners? state prices you from the had rates, of, sort then concerns any terms any have pressure getting have insurance lower of in have Okay. And tax to lower over

Dennis Gilmore

see point. noise so each time little a our a we And in there wide-spread at because And maybe guess not. state. been rates guidelines lower But believe could any we appropriate. reform, term, will rate think rates I lot they're we be longer We maybe for reforms But don't spent overall, you could reduction. think all there's again, in this are of reasonable. on that. pressure some think don't Obviously, No. of result the tax following We tax

Thomas Mcjoynt-Griffith

Got state-by-state I kind got a presume time basis an Is of you think getting of four on And And guys merge? of of do could think approvals? a possible title often mean the just large we four company? another of Okay. it. -- it what's sort the largest one. approval by the I it's acquisition When getting for players. process title you've any last that space, to about two

Dennis Gilmore

state-by-state to potential just in industry. It would be the I'm not on And comment It is difficult. basis. a consolidation going

Thomas Mcjoynt-Griffith

for Okay. it Thanks guys. That's me.

Mark Seaton

Thank you.

Operator

Our question. next question Jason is with Piper of from Jaffray. your Please Deleeuw proceed

Jason Deleeuw

and thanks good morning. Yes,

Just a and your bit quarter little it than the peers. strong commercial on was wondering again this really revenue, better

looking Can XXXX? kind we're XXXX? a just we we flat. -- growth two I of row. in mean, some heading of I at are expect kind think, now expectations how in quarters So, in grew into But commercial X% been you

Dennis Gilmore

nothing the year. broad-based a the it. question. there X% the by There that. was we deals or quarter just in great We onetime up for X% and for was really, big were Yes, the driving no was market. way, quarter, had anything like It quarter, strength great fourth the And across

similar a are into year for Our thoughts going XXXX. XXXX XXXX. similar look to to We'll

a now down year maybe a good thinking was for if year. right very Remember, So, XXXX us. we strong that's little. And a that, flattish, have

Jason Deleeuw

Got Okay. it.

still and we with M&A like the should with is and then, the we probably of a you lapped centralized -- it softer the And benefits headwind centralized to us revenue headwind you're you're sounds headwind the and there's flattish. away? -- going little other than keep that the of expecting? that it thought a going So, Can revenue you're have refi annually So, refi revenue, M&A just go -- we information was like remind sounds there? especially the that it's that just kind And decline?

Mark Seaton

And of the lot XXXX, information we agency, two-thirds going is we've line purchased the in in and a are and refi, other that it of a because of done revenue items. terms or Well, fourth really quarter, acquisitions other outperform lot softer. in of XXXX, A in terms line and that to information acquisitions about -- the our look obviously, think item. little When well, it products, in the the premiums. tied at refi-driven a information of was it in that the to items noninsurance-related is other we and are line was revenue you because acquired direct lot that of they're of

the tailwinds get just we fact by in So, we're that XXXX. the did in acquisition XXXX, to going some

Dennis Gilmore

and of half -- the clearly refinance from Yes for a from a we're it Right part of business, if day. worked going cost around structure hard we your the through question, that from their running second just They XXXX around last volumes. the looking improvement stay to X,XXX now, XXXX aligned. lender XXXX. that depends pretty is the I'm into significant range, stable, -- central because on And

right on very and stabilized day. again, X,XXX feel the depend around and where good will just we end a but it on up So, now, we volumes, we're

Jason Deleeuw

that us? much all mention so of prepared you Is was you Can And really reform. that? repatriate help on to tax going for comments could sense how that there with mean a just that. in Okay. quantify you cash I now for have we the extra Thanks this guys extra?

Mark Seaton

million. too look looked we million now taxes forward. But going to Probably now. looking going we subsidiaries holding were closer rough -- $XX the company. through to at that from punitive. material. at numbers, when the that to we're to just the we're never get go that It repatriate say, process obviously international $XX going We've really because not our start dividend that it's I'd But

Jason Deleeuw

it. what the one. Got think trends, one I missed far? trends just And last maybe I those, January so are

Mark Seaton

orders year-over-year about flat In prior the our is from up about January, year. on Refis from that's today, are X.X% X,XXX purchase a which are basis, day. a about And about the prior X%, year. running X,XXX

Jason Deleeuw

much. you Thank very Great.

Mark Seaton

Jason. Thanks

Operator

Our from proceed is Instructions] question. with question Partners. & Geoffrey with [Operator the Dunn next your Dowling Please

Geoffrey Dunn

asked answered. Good and Thanks. was My morning. question

Mark Seaton

Thank you.

Dennis Gilmore

Geoff. Thanks

Operator

queue hear [Indiscernible] back is to in. you, please We're see if unable so phone your mute.

Our Jason Please Piper proceed. next question Jaffray. with follow-up from is a Deleeuw

Jason Deleeuw

Thank you.

mix on down it one now, -- lag revenue the you there's mostly us, it's X% another sits revenue you can we But year-over-year. refi can quarter in where was purchase the the in the grow or I so think agent we how right channel. should Just But think remind just of kind one of about know help the agent us kind The reporting. I that on purchase the channel? anyway. XXXX? can

Mark Seaton

X%. our more I two on -- for we quarter direct. I when the down third purchase We're than In which lag going a in Well, was mix bit that down of the was open look Typically, X%. orders, mean, the the in than look down it at the quarter. it be revenue things. agent the the that at agency little direct, of was activity fourth follows refi was say fourth first all, refi. the we about when that quarter, XX% isn't to different would But

state thing quarters by is splits by split we the do last and the One one the always California. Southern change done in And our of in we've of things we couple is reevaluate customer.

the recently into California XX/XX. be Southern XX/XX. We splits to used moved Our

so a shed of that's revenue process one And reasons underperformed a agent that share to why you what think. might kind the that's evaluate. of there little we've But our of continually and bit relative we

Jason Deleeuw

Got a there has for been it. American? that still acquisitions then of strategy First And Is agents.

Dennis Gilmore

is. It

pipeline to to continue pretty look tuck-in have we're right a We do now good acquisitions. going and and some agent

Jason Deleeuw

you. Thank Great.

Dennis Gilmore

you. Thank

Operator

Our next question. from Please proceed Campbell with with John is Stephens. question your

John Campbell

out insurance of that lot control. on loss policy rough time. But from some provision know more wanted think as Obviously, touch kind segment specialty pretty XXXX Hey a as of guys a strange to difficult idea the is a was percent about your obviously, I ratio -- of standpoint. there is to or that of a far one of claims?

Mark Seaton

couple That's never a in you of hard with to Historically, somewhere when loss at a our fourth happened here few kind last the series know ratio XX% the thing excluding what's just look XXXX. kind of or the events. perfect because Obviously, have last storm storms we you of of perfect years, weather years, P&C the XX%, quarter. between in had been

So, way we are. low to what a good the weather with depending to really probably -- conditions for low just on P&C. start XXs is again, never But know

John Campbell

over segment, -- you margins you the low it's teens years, to kind for That's normalized guys or site. there business? XXX manage range. of each in that had one to to stuff mid-teens year. Obviously, guys kind fight that helpful. get couple you the margins if Is At range Okay. last point, then of of that pretax good the a bps stepped on warranty you kind doing And do assume we're of -- home some

Dennis Gilmore

a driven events P&C tough year just but going on we've it's P&C range, our weather and for been question, to a there's I'm group. no overall, some year, had severe a give tough by the not

work on back of a Very improve fourth that very operations really home Home performance the of we XXXX. the XXXX -- actually. quarter. did to the the performance. from improving standout strong on quarter-over-quarter and we're warranty in lot We So, focused its in saw warranty, on benefits

very to XXXX. on and group home So, optimistic in looking to P&C warranty going the XXXX stabilize

John Campbell

guys. Okay, great. Thanks

Mark Seaton

you. Thank

Operator

The XXX-XXX-XXXX We time. conference thank available for participation. by will XXX-XXX-XXXX enter and like to remind company be There the or this company's This ID XXXXXXXX. today's would concludes morning's concludes call. questions dialing this would conference the like website today's to you replay listeners are no that your additional at on for This call or call.

may You disconnect.

First American Financial (FAF) 8 Feb 182017 Q4 Earnings call transcript