FAF - Earnings call transcript Q3 2019 | First American Financial Corporation

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Operator

Greetings, and welcome to the First American Corporation Third Quarter 2019 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Craig Barberio. Please go ahead, sir.

Craig Barberio

Good morning, everyone, and welcome to First American's earnings conference call for the third quarter of 2019.

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

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

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

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

on details measures, at GAAP reconciliation the to these financial more which website available For www.firstam.com. with on this comparable please refer is our most financials, earnings including to release directly presentation morning's non-GAAP

to now call the will Gilmore. over I turn Dennis

Dennis Gilmore

Thanks, Craig.

in our review morning thank for and XXXX. I'll outlook of you Good our for begin with our and a third discuss call. joining of then results quarter the remainder

and effective share management across XX% businesses per revenue drove up last expense X%. investment in Company's coupled Increased the had from another strong with transactions $X.XX, quarter. We growth of income, of This, year. earnings higher resulted

purchase up per XXX%. as increased open The in excluding X%, early first margin title orders in or open a significant activity since open gains. increase net the orders I'm that investment delivered refinance X%, segment Our by XXXX. a XX.X%, pretax XX.X% our encouraged increased orders driven title segment growth also day revenues were refinance realized of

of a X% commercial the Our from transactions. revenue quarter, in large benefiting number grew by

elevated an strength operate asset to geography continues and business level in classes. across based with commercial Our broad

effective contributed Lastly, management also expense earnings this quarter. to our

our of than better XX%, is target ratio XX%. success ratio Our

see automation from title In we that are recently beginning to addition, we've the deployed. benefits efforts

segment a driven by and to ratio is continues our our business. X.X%, And home The continued XX.X%. pretax direct-to-consumer delivered margin loss segment's estate to channel. warranty specialty in customer growth Home business than improved of our value insurance its earnings expand the the where warranty traditional real greater revenue lifetime of

to orders are with orders market. healthy Turning support outlook. up rates, purchase a low estate our continue and favorable, along real with our X% trends conditions, order open Favorable to XXX%. refinance economic mortgage October up

addition, we expect In our from continued performance business. commercial solid

reduction fund impact the in the quarter. given we results our current optimistic in that financial investment the market will fourth we rate will Although conditions, strong deliver Fed income, are

more call the review financial turn to of Mark for like now a our results. I'd detailed to over

Mark Seaton

Thank you, Dennis.

the increase In were the escrow offset order. This orders, and revenue decrease premium Title in XX% closed increase a direct X% in by a average fees year. partially Insurance with compared up reflects segment, last and per Services XX%

lower due up orders XX%. however, line, major up transactions. $X,XXX the during shift to X% to title revenue mix quarter, increased decreased average The a with the of each refinance purchase business premium revenue order average direct to for order per commercial and up in per The refinance X%,

led products. X%. year. title quarter the to for with increase premiums revenues relative up totaled last split demand lag and transactions were on direct agent premiums. Information which was compared higher XX.X% recorded Agent real one $XXX The X% primarily due estate The of information growth Company's up was to are premiums, to other million, agent in approximately a that

in and average has investment the in balances. the up income interest XX%. portfolio that year, income to higher an Relative from increase interest and million, benefited investment $XX Investment was Company's balances last increase short-term income cash within an Services segment and led from Title rates Insurance to both

Sequentially, funds XX. $X investment XX for income was months up federal rate in million September ending three the decline despite basis a point the

Although adverse effect sequentially income to rate an on lower average increased did funds average federal have investment the balances. higher due yields, partially

increase $XXX the results. due costs up XXX(k) incentive were expected Personnel financial better particularly million, year. The was from match higher from compensation, due to X% increase prior than to our the to

increase Other acquisition. up as related to was impairments were of related last and costs $X office previous production expenses due operating higher million, from X% consolidation a to lease a The $XXX year. million of result

million and years. losses policy an title fees, escrow no year the loss prior reflects current $XX rate to ultimate loss the quarter relative estimates of for for title X.X% of other was The X.X% policy prior current with policy claims provision or for rate The reserve in change unchanged premiums and year.

the in the Title for compared compared the XX.X% was Pretax Insurance and $XXX last $XXX with million year. income with year. Pretax prior was million quarter third XX.X% Services margin segment in

the year. XX.X% Excluding XX.X% of investment gains, compared last net pretax impact was with quarter margin realized this

corporate year. rate $XX quarter the was for up effective with $X XX.X%. The the million, compared expenses tax Net segment in million were the prior

forward, Moving guidance. XX rate to we around our basis previous lower be points than tax expect XX.X%, our

September million sheet third and $XXX $X notes of as operations million totaled $XXX the Cash contracts balance credit $XX from was notes, million and which $XXX million in of payable provided in by trustee on of obligations. our our of million in and notes quarter $XXX facility, senior XX, other million of $XXX consists Notes million, XXXX. up

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

back to your like call take operator now the the would questions. I over to turn to

Operator

Jack Our today first from from question SIG. Micenko is coming Instructions] [Operator

Your now line is live.

Jack Micenko

was And in first that's driving maybe cost leverage? permanent that quarter, it looked is more a stepdown leverage more just there be, or the like at the there would Looking question better all something mean, personnel is going improvement. volume of pronounced maybe that I on

Mark Seaton

managing did a and more maintain lot ability costs, sort employee on really time we've over We to intense. But I in and kind more we level. feel paid focused our good we this think in orders explosion of about been an our of would pay just we quarter. I had our say refinance that

I any being a of on don't it's think there's and of of fast I but us think kind kind orders function cost side. the a structural the So diligent stepdown, rising

Dennis Gilmore

Yes. effectively second And we I would are only like add, done. mentioned quarter headcount to we our quarter, the on call, third going we hold into the which going have even

benefit temps Company. in As automation other we script and in overtime mentioned - - efforts really things. we're said, a number in the too Mark use I of to out also And from rolling going we're my and

Jack Micenko

In a looks at the taking like has that quarter it been the the on closer when you're dividend. the little third ratio then maybe down bit. a past, and drifted And a look

on curious around that updated dividend, Just payout dividend of any ratio, sort thoughts thing.

Dennis Gilmore

the raising Well, it's been dividend and of are Board. number strategy. a we dividends a something the so year We've part for years with quite discuss key our capital every of management now, regularly

dividends We future. to pay expect the higher in

we're next And and earnings are the at about, so good something and having this outlook especially dialog regular so looks fact the year year. looking that's strong that our

we're really didn't raise going particular wouldn't into we and August something fact the that future. So that's in to because in I evaluate in the anything look

Operator

from Bose is coming question KBW. George from next today Our

is now live. line Your

Bose George

was that just to ways just obviously with kind up file talk in year-over-year the the item? of what Can nicely you commercial increase about line happens and think about fee that per

Dennis Gilmore

in had start the had big then the on a 'XX, me the fourth deals quarter. over some third, second very for so mentioned Let we second lumpy commercial. some quarter. very into it we strong and all, into there. I'll now strong on And Mark the optimistic looking in very strong going quarter, ARPO. to quarter in commercial all to we're the a hand commercial specific But over Again, even I pipelines, little roll from the a Again,

Mark Seaton

large close transaction you little just ARPO to was say still skewed a quarter over if that in We I even million this had the in did ARPO. premium. bit. back Yes, out, increase a our But we that were that we would deal very an had $XX a

of lot through transactions really now. large So come seeing we're right just a

Bose George

noted going an was but last and a then increase segment, year-over-year. was increase down And in think an back bit prepared information was your actually and some segment it remarks little other there quarter orders, that to I that you the in of

So the growth should for the other think that we in drivers think to are about item well? outlook there about and as just line ways

Mark Seaton

data the business. Well, look in when the our you at is an in the of and last growth - info basis, from coming most annualized other growth on

as you most drove that the property title sell plant growth. record information, sell information, so, our know, our we we and of And

the We sell provide products information call in just did more title in like we that searches with I'll it transaction. connection also

be to it And - too. that so data would seeing line mortgage are what with But in expect driver going we originations. would higher biggest happens the sales is item I

Dennis Gilmore

near probably has falling reduction would Yes. now. And Mark default businesses And only getting type group, products accelerating. for bottom we're business our I that as on said, add the across of data the us on are of universe been right so that out the default is,

Bose George

your the quarter? went you expense the just say Did office through And actually then that consolidation. the million prepared one more. this remarks, In $X in impairment

Dennis Gilmore

Yes.

Mark Seaton

million. Yes, went title through in operating expenses segment, $X other the

Operator

question Zelman Associates. Our today from Aron coming is next from Mackenzie &

now Your line is live.

Mackenzie Aron

tailwind? give margins, process. something there you continue are guess could specific is more that in be if a innings was on that you early will Is little still to can color where automation anything that a then us and it a just on little also efforts hoping that I elaborate I the the helping maybe just and

Dennis Gilmore

that. the side Yes. digitizing the for focus I'll the across on two closing give automating board. titling the and We Company, main you an have a of title of insight efforts the really bit little points both for

side, our titling improve reduce risk all we're and Specifically lower processing of consumer on to efficiency, kind increase experience, together. the our the looking time,

seeing And the a machine actually. early innings, now. working across we've refinance we're years right aggressively seeing our in databases learning, our deploying benefits of business now, and AI, it We're number primarily right in that, been for

Mackenzie Aron

gears - kind side. the just talk be and a the what benefit. - little seeing a pipeline, anything but it's Maybe on and bit data that you're acquisition tuck-in also switching whether about or then agents could on technology And of

Dennis Gilmore

Like acquisition it's our pipeline. the changed. And Yes, pretty we've hasn't year year But on strategy acquisition before, on actually caveat drive selective from in we've to pretty acquisitions automation. quiet the a for for We're looking really been this want where for itself. information said data been perspective. an lot us But other we're we've got on place. agents a greater full looking title target front we side companies

have directly I and title, some though, anticipate strategic of 'XX. year, title more is investments, we not to And businesses the to will in done we this been those in do in core that complementary core what we've are doing but continue

Operator

from coming from Trent is question Carter [Operator Stephens. next Instructions] Our

Your line live. is now

Carter Trent

are you what that they know will California. you're are, exposed I to growing and if like about so, do think there? purchase? you the kind think prices talk trends will you purchase seeing that have on Can in pretty heavily you do And effects of keep market

Dennis Gilmore

sure. Yes,

let broadly I'll California. just more purchase. specifically we're across me country, answer on Mark Let then talk the optimistic about progressively and the question getting about But

Our going October, really went purchase of orders were in slow quarter. right seasonal countrywide up the We in a X% into X% more time. up now

So more 'XX. as on into we are clearly, we purchase becoming go optimistic

I a headwind 'XX. into probably purchase for going see - So tailwind think to turn continue start than

California. on Now specifically

Mark Seaton

Yes.

Just to give you some numbers.

the up is X% on we're a California. lot was refinance to this and our - is side the do year-over-year direct business - our XXX%. on a California state, largest purchase and was of up in and volume Obviously, going revenue side refinance So

actually then California. And on in footprint our we've agency been have strategically the side, reducing

some splits. the down pretty Our dramatic XX% reductions premiums we've with are made just about because

And prices we've intentionally, - to didn't kind so that that would done really kind - of add. just of it

kind snapshot So the California. that's of on

Carter Trent

on segment. one Specialty Insurance more And the

improved. So loss have really ratios

would weather of customer better driving provide more If benefits be guys the in home pricing? the more home there, the or business detail base? could more revenue in and warranty, of Just there? Is helpful. P&C it warranty because growing in some that you a Better underwriting what's - - growth

Dennis Gilmore

was specifically home on overall in quarter sure. and an us specialty, Yes, very just It for good warranty.

increased is claims quarter seasonal on severity. the third The - our lower in weakest claim events We frequency had excuse quarter the me, typically of but because going quarter. lower

greater - we warranty consumer script - in beyond. management greater got one to our efforts board across I a develop business. in So a significant accelerating want now - in and the grow Also the our I'll strong had in business. and it mentioned direct really we call - 'XX home We've consumer we expense direct to

has it our consumer large, we the by at the real look direct estate we and than greater channel. lifetime a customer think to When business, value traditional

had and looking of a to controlled home warranty. expenses on consumer well, forward. grow just direct wrap We our good very our So We business up quarter. kind we're going

Operator

from Hughes coming is question SunTrust. from next Mark Our

Your line is now live.

Mark Hughes

Have business? Just the the estate on us that home warranty mix last of consumer an you direct real on the question. update channel versus given within

Dennis Gilmore

our channel. estate But dominant haven't. channel We is real there our

the to the So side. grow for opportunity us direct consumer is

Mark Hughes

on very picture, gives And, there? Dennis, any say big what can - commercial. more optimistic the of you you you sound Kind confidence

Dennis Gilmore

Specifically on commercial?

Mark Hughes

about of I'm kind Yes. thinking XXXX.

Dennis Gilmore

We just look got what now. we've on right going at

sure us. I will to pipelines not strength that pipelines quarter going lumpiness economy for third be another full. said, calls, fourth I on we'll always year are are got the going across for across it's record I'm classes. us big Our the second both strong. just in see mentioned good The call, good deals. We Like the into a really with markets But be commercial. year quarter the the in think the quarter. 'XX asset is call,

Mark Hughes

the And investment you timing QX? when that, think should and income, investment the all moves about income we QX how then Fed to take relative in on balances and the Mark, account into

Mark Seaton

had annualized end the about call on million Well, basis, of we that actually in with fact an income talked we're last cuts, the we $XX time and Fed kind decline of this lower investment we getting to earnings expected range. the million the $XX

investment that was So up that our has rose the and million million. that shown is The quarter $XX in closer is the sequentially. income balances number $X thing third experience happened to

so the And balances quarter and most has in are a commercial we seasonally of our by commercial, driven quarter. strong - fourth

to fourth quarter. sit in So continue today, that increase think we as here we are balances the to going

this So likely year. you going until next really but is see investment annualized number won't we $XX into won't million down really it million be quarter, - income to get $X next

Operator

from today Our Jason next question is from Jaffray. Piper Deleeuw coming

Your line is now live.

Jason Deleeuw

you visibility a that good you Can how Question quarter. you visibility Yes. how the on months on very have Thanks, us just commercial. many and on remind on visibility, congrats much of have pipeline?

Mark Seaton

I it's purchase most It's simply our it businesses, we period, a hard refinance, an like difficult like, order in say, once to forecast - all call we with That's of get the to over say. XX-day and of would pretty because - close and days, in close. to we we don't can know get With six months, order much can it's in close. when know a XX it's it close close an it going when to commercial, just going in year. can It can in

have the really So business that we commercial the in it's forecast because feel difficult we of strong term. about short the most but orders in to the pipeline, the business

Jason Deleeuw

Okay.

the quarter? - I end have much about to So, year, the fair say, but is just visibility mean you fourth as the good you pretty of into think that

Dennis Gilmore

quarter. Pipeline Yes. Really strong said. full. Mark the very We that into same fourth going look

could You deals. into just can't quarter. They even predict second go big of first the closing the the quarter or on some

closing the exact to pipeline the transactions. on predict So but difficult it's full,

Jason Deleeuw

being And noticed? environment been there change any competitive then that with has blocked, you've the in FNF-Stewart the deal

Dennis Gilmore

our continue distracted been strategy will been - usual previous doing company on for I'll we've is continue for customers forward It's for as very, has - the and what been our right think and deal. be we'll calls, to that No. by Like our go we focused forward. with We've we very business on said us. our strategy, weren't and going

to no us. So change

Operator

end also Thank does today's you. of we've reached That our gentlemen, teleconference. conclude Ladies the and question-and-answer session.

this your wonderful today. your may We you time day. You participation and have disconnect lines a thank for at

First American Financial (FAF) 24 Oct 192019 Q3 Earnings call transcript