FAF - Earnings call transcript Q4 2019 | First American Financial Corporation

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Operator

Greetings and welcome to the First American Financial Corporation Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]

A copy of today's press release is available on the First American website at www.firstam/ -- I'm sorry www.firstam.com/investor. XXX-XXX-XXXX call from recorded and the short by the available will for that enter time replay and for company's dialing note is of and being be a conference Please ID XXX-XXX-XXXX XXXXXXXX. or investor website

the turn Craig to to over Investor Barberio, statement. an introductory call President, Relations now I'll Vice make

Craig Barberio

Good full conference earnings year and call. to American's First welcome everyone XXXX morning fourth and quarter

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

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

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

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

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

Gilmore. now turn to the will call Dennis I over

Dennis Gilmore

discussion our announced acquisition our joining comments results full fourth close for with and I'll review you followed of of this pending begin regarding XXXX. outlook year for some morning I'll Today, and Docutech call. our with thank of morning. Good by a our quarter a

net quarter Refinance increased purchase in and drove compared up per X%. revenue or Lower was XXX% the in for were refinance last purchase quarter earnings quarter and excluding business. the to our investment rates revenue improved up $X.XX performance XX% share Adjusted fourth realized gains. year. EPS $X.XX Fourth mortgage was our

our year. conditions delivered to with Insurance enabled revenues addition margins X% commercial favorable market efficiency our the us operational segment. up Title our prior in In combined record achieve business from record These

Title realized a XX.X% lower returns in driven gains. Specialty or Insurance In Insurance of strong our growth Overall, and business deliver combined pretax margin segment with real excluding our continues posted our rates. direct-to-consumer channels investment XX.X% segment, estate home warranty net to by loss our

casualty quarter The a XX.X% claims of from ratio business property wildfire-related declined loss Our gains. this claims. to overall Specialty Insurance benefited XX% segment's investment net improved realized XX.X% lower and and driving excluding or lower severity margin pretax

on full of delivered to earnings of year $X.X of share revenue Turning the per the company XXXX $X.XX billion.

pretax Our history. highest in XX.X%, was margin title our company's the

margin positive trends achieved a outlook. XX% orders January Insurance up year. continue segment last XX% And the XXXX. The to December regards and remain optimistic with highest since pretax refinance from February. delivered up per were compared margin refinance our Specialty We XX.X% of into to order our day

momentum continuing this business this is be we We will market orders expect will that Purchase believe -- deliver for and XXXX purchase commercial strong year and continue X% good in into up day to continuing were the January results our per February. a year.

Reserve's As year. of XXXX, rate in that have half by last in will anticipate driven we discussed, decline second previously income investment the our we cuts Federal the

about are financial XXXX results. company's market In deliver optimistic and to summary, we the to continue in ability strong conditions

business prospects by and the of in to long-term value, our in our our shareholder commitment maximizing X% dividend we raised Given confidence the January.

It real invest highly and of digital demonstrates settlement in our acquisition and our our a the solution commitment pending of to core industry. for the ongoing a Docutech, share the reflects experience to consumers document thoughts transformation I'd the This business. driving home our estate few buying acquisition now dedication to on process. technology respected leader grow improving like our

In I'm performance closing, proud of our in company's XXXX.

Our settlement company our our employees, our to and title service remains the and customers insurance premier for consistent vision shareholders. be

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

Mark Seaton

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

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

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

time average Personnel due costs interest on exchange X%. temporary million the The lending to income year. Title million compensation largely offset X% were of businesses balances and was to prior $XXX portfolio Services the was higher from segment increase warehouse within Investment short-term strength over the impact Insurance in in expense. by due incentive employee Higher cash primarily the decline and were company's $XX the rates the and and up investment tax-deferred up balances. property

higher was $XX professional due policy and year. title up XX% costs other was a title premiums software in unchanged production-related claims million last expenses increase prior to from $XXX increase relative were fees expense. operating Other result escrow and and for volume losses year. services provision the of or X.X% of The the as to The higher million order and

was an segment $XXX year. Services XX.X% The in income last current current the for policy million policy change quarter margin prior loss year. Pretax the rate with the in loss quarter in reserve $XXX prior for rate was XX.X% the with Insurance with years. compared of for reflects million year X.X% fourth Title no ultimate estimates the Pretax and compared

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

the in corporate due $XX tax discrete XX.X% XX.X% was year. million quarter million The and compared down expenses lower the tax with $X our rate than last benefits rate including Net of for tax effective to credits. were normalized segment development research

$XX contracts million balance as sheet and totaled $XXX senior other Notes on our which and notes million of of obligations. XX, payable credit December notes trustee our $XXX consists $XXX and notes, of $X million of million on facility million

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

the acquisition expect of our to at do have from our million $XXX and credit will company. not draw We respect [indiscernible] close continue holding of the entire purchase facility $XXX Docutech transaction. the line on million with cash With on to the the to availability after price

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

Operator

you. Thank

DeVries [Operator We from Our session. is Mark go will now ahead. question-and-answer question a first Barclays. Instructions] conducting coming of Please be

Mark DeVries

a have I two-part you. Thanks. for question

First remains the is of if we've strong order as balance the the for here strength what how should we success think seen year as about far? ratio so

we guidance long-term that given past? a you're the And margin? then should are commentary I delivering that any more think your well kind sustainable expectations results about title above mean, pre-tax of provided clearly for you there, in how

Dennis Gilmore

I'll that. Mark. start with Thanks Yeah.

in segment target definitely it of ratio, exceeded of a was the title all, First our of the success obviously XX%, XX%. great XXXX In which was terms year.

we're We've on always that Looking I forward focused XXXX, to efficiencies. over years. mean shown the

think we're a ratio surprise different XXXX. wouldn't if going of factors. higher lose than in of for to success it I some couple It that was us XX%

in to XXXX. invest just were we is our and in continue one systems we so But incredibly technology of efficient in sort

we to that I don't XXXX. same level think expect of success ratio nearly going

In on. XXXX. a terms adjusted margin XX.X% things going we're margins, the of of really the had few we in There's proud

our positive the we We I that cut the investment But to about headwind headwinds. us. the purchase Dennis feel three be got going the and the side, talked commercial on mean income headwind given So for times that's Feds about a we've feel fact rates great market. great market. about

$XX second headwinds what million is year, at look that's So tough if Fed going just about income investment the of of -- last did next that. recapture you to year at the to put it's half which

maybe really they year level margins think So just the at overall, quite will in we be XXXX. not were strong next

Mark DeVries

you. Got it. Thank

Operator

you. Thank

question Please ahead. go Bose next from KBW. is George coming of Our

Tommy McJoynt

This the Docutech post guys. ask I for to that McJoynt much consider acquisition. on company Bose. wanted Tommy much excess? do holding Hi, And of guys is how at how the remained cash you

Mark Seaton

have But we're and to -- the $XXX process other the going acquisition. of the we're primary from we Docutech the taking in Well, subsidiaries subsidiary our million company. year, dividends to of cash the fund of had insurance holding at at end

addition that's the to $XXX to roughly to about $XXX So we're of liquidity have course, that And company then of close. continue of in we'll typically have like have holding [underlying] we'll have. post to and what cash we [ph] that, the million going at million

Tommy McJoynt

when headwinds potentially favorable which balances, remain called offset rates And next income that much talk or this year, XXXX of you by quarter? robust. million, And I warehouse could it. how $XX got you then could strength the the if Okay, be and to guess about the investment out warehouse remain lender

to get investment the much So income? can just support to that how you

Mark Seaton

point. good a That's

million $XX flat. staying that that's just number balance is the quoted So I that assuming

are. our grow, commercial If So they obviously balances if continues Exchange which grow. to XXXX

of last January, higher were balances exchange all So far were in our they than year.

million number lower. just So make that's to $XX going that

balances. of So depends what with happens a it lot on

we're year, really seeing balances. this strong far commercial so And

Tommy McJoynt

Got acquisition? a -- is something I reasonable it. like guys this And accretion then on about one to from if you think the could sneak that is it Docutech When in. last just ROI it mid-teens assume some

Mark Seaton

that going and closes. is, this the would by would tune about agreement in be immediately that us confidentiality the I grow from pro purchase on that. But thinking I Well, deal way were got financial think we it until provision of $X.XX information disclosing accretive the after our basis year forma we a think it's prohibits to a just about we've

Tommy McJoynt

Appreciate it. it. Got

Operator

Thank you.

Please is next ahead. question Stephens. go from coming Campbell of Our John

John Campbell

Hey guys, morning. a good quarter. good Congrats on

Mark Seaton

Thank you.

John Campbell

comments $X.XX about of -- I touch back you the wanted the accretion. on to made Mark's right on

backing -- basis, purchase on amortization? You an said out that's adjusted is just the so baking that

Mark Seaton

not. No. GAAP No, That's on a basis. it's just

John Campbell

I the Title? other would us that you as on sounds creating? segment you. know can't really -- let under Is from guys basis. you would Docutech. within be it a new a Okay. That line much be could you guess might falling like GAAP Got and info that as be far details And provide

Dennis Gilmore

be it information. No, will under

John Campbell

tracking a good going bit on quarter. the that growth Okay. And services, the else is information pretty of just trends, something there? the on Is or just then popped there guess kind natural, I this resi

Dennis Gilmore

our order on going It's definitely in tracking natural trends our seeing also there trends and some now. we're businesses data our acceleration right

John Campbell

I year. know then, forecasters, good your this get aren't I to like grouped And mean But kind view it industry economists. of you obviously this down the refi year. hear. they're on so or looks Okay. XX%, the to wanted guys I together That's environment XX%

guys to if of -- trends that that sequentially. on looks you this under it kind what the you give thinking put refi don't accelerated industry all the was of for over or Would the say expected But for influences I good like or year? You view that or guess refi orders up your year. for January I ahead if are refi know it's take if really schedule guys projections?

Dennis Gilmore

range. put very think like really that the we together I'm when of forecast that on strong, I ago couple coming budgeted January a XX% strong. one we take know -- budget going as the in at very either difficult mean you gates down industry don't out a John, of February. I accelerated to months because We're it's our

right difficult comps half the good. the first But, the will at very So, of refinance year. so of clearly so more we're far the in going strong a have thinking now the half second I'm least get to And year.

John Campbell

Okay. January? accelerated February you said actually And from

Dennis Gilmore

accelerating we're now. Yeah, right

strong a So, very business.

John Campbell

Okay, guys. great. Thanks

Dennis Gilmore

you. Thank

Operator

you. Thank

Compass coming ahead. is question Please of go next Gamaitoni Our Point. from Chris

Chris Gamaitoni

Good morning, guys.

from the the $X.XX year full Docutech, is it assuming sometime March? that that On three the number end closes of that quarters is a or by

Mark Seaton

the year $X.XX. full number, a Yeah. That's

closing quarter. to of end the yes, it by expect first So we the

Chris Gamaitoni

excluding It's up. were that color. efficiency hearing amazingly in Then really or - most refinance It the of negative looks the I margin NII positive picked benefit the though efficient. into more once improvement I'm as just was dig that Title of up wanted centralized wondering channel. margin to accelerated picked the you kind

to we if So, same shouldn't of success I'm wondering we the expect a more level rates. healthy market, purchase-centric if shifted

Dennis Gilmore

Yeah.

for Mark had and to me first you I'll growing there's the can doing -- say. that us. Let of very take margins. if anything margin We're of take six I was years record well. cut XXXX mean follow-on a need we've

So, is overall strong. very performance

very was ratio in mentioned, Mark As success strong our XXXX.

on strong, into is we've more the way. purchased the on the a question strong. refinanced Coming XXXX, we're probably very entered as get strong. year We'll year becoming optimistic by optimistic We're commercial

our So, having the all of be we performers home XXXX, a strong warranty business, a in momentum. lot and think P&C will business specialty

strong is XXXX. everything into So going

will the the of because as last But obviously lower in investment natural rate at negatives income be increases guiding expenses. year. We'll Mark mentioned have the we're that's increases Fed our

we're kind You have going put to of that all together, good year. a

your across efforts forward getting across the from specifically we're are to benefits automation definitely refinance on then we question, got and in our automation And other enterprise. benefits purchase. the business We the moving direct

have we we market if a very from purchase will So, benefit that. strong definitely

Chris Gamaitoni

were and cetera business. claims you of did? weather? commercial, what's of that? initiative you just it Color be Just great. driving on following-up what's Curious Is seems underlying increasing Okay. specialty that home Is it And accelerated the would it growth. better? like Is the et noted warranty marketing, wondering the kind in pricing strength

Dennis Gilmore

It's both probably right real now. We're of are direct growing faster a estate than consumer estate. real disproportionately -- our little our our now consumer channels bit direct, growing both strong channel right and on

was lower, severities claim rate low. Our were

across is in entering favorable had well beneficial with momentum. we performing all and the lot the primarily the a year, weather, is all of So, business through XXXX board. business That very so

Chris Gamaitoni

so All much. right. you Thank

Dennis Gilmore

you. Thank

Operator

you. Thank

Our next your Zelman from of Associates. question question. is Mackenzie Aron Please & with proceed coming

Mackenzie Aron

morning. Thanks. Good

Dennis Gilmore

morning. Good

Mackenzie Aron

Just one question from me.

other potential is on acquisition, the now Docutech acquisitions? pipeline? the kind talk opportunities in or appetite front the in about is just past can for talked the XXXX outlook the further where of so things agent technology given tuck-in you the Following the what capital You about or

Dennis Gilmore

about Sure, pretty excited yes. pipeline that. We've good got now we're a right so

been. and and been remain Title in We we have settlement has invest like business consistent we businesses the strategy want the Our consistent. very to core

no So all. at change there

for culturally geographically we're efforts. or in data that going for acquisitions and automation either advance both information businesses Title where will agency closing our tuck-in either digital very agency that's to We Title look they important the fit look then And business. our advance technology or

So really for continue opportunities. type consistent We'll of with what doing. look same we've to been the

Mackenzie Aron

you. Great. Okay. Thank

Dennis Gilmore

you. Thank

Operator

Our Hughes Humphrey. Please go next coming ahead. is Robinson of Mark SunTrust question from

Mark Hughes

seems ask the pretty you about Could there? open around context I'll Yeah. you. Thank What's XX% strong. that? give commercial happening order up some

Mark Seaton

a are of X%, I our revenue and year seen mean, February Yeah. commercial in so for We just to classes. proud Last continue really see It's asset our XXXX it the was from coming we've were various us. different strength in we year, continue across the business. just the by order into which record strong. into counts grew momentum January and country

all performing of And now. how business is we're commercial so our right proud

Mark Hughes

what's customer they could all we of you And market with Docutech you about do more then think What's – that to come just when a add give like transaction? wonder where the whether detail how I the value little their kind distribution? profile

Dennis Gilmore

market-leading a get It docs. us lenders a of percentage customers allows us think the our now. earlier for one. the mortgage We large to the number The lenders technology e-settlement transaction Tighter allows mortgage mortgage docs so and to advance ultimately which of Sure. to lead to to lenders it our docs, right are provide e-closing core in us. that provide

and So Fed us. the company, pretty happy excellent about – leadership excited we're they'll join excited excellent

Mark Hughes

how – on much as is a – from do it you revenue look this versus that cost gains synergies get Is basis? at you go-forward

Mark Seaton

the of for not opens because It's gateway just it's it cost for It's play as revenue a eClose a really us. strategic Dennis fit more a and synergy play. mentioned, up

lot new taking for get solutions We're value of we're going not our create going out. cost creating that value it's So by by customers. a to to an acquisition

Mark Hughes

you. Thank

Operator

go coming next Jack [Operator Micenko Instructions] Please of question is from Our SIG. ahead.

Jack Micenko

morning. Good Hi.

guess, how pretty open grow commercial Following last the Because got obviously about a little commercial I do seems the in pocket here. you've the on year resilient of can numbers been in you orders. like sort into But looking first two either think directionally the a back Do feel have or your the quarter questions. we I year? at it momentum basis? going on you refi more that? in full mean, ARPO like

Dennis Gilmore

We it. do can we grow feel like

have the where a commercial ARPO rising little commercial a so think a but function I close, been commercial and mean, Now, deals I going raise we're California types the in that is just out rates. our prices isn't been we which in business our really ARPO. we're there. trying helps There's overweight lot of – to that of We're a high-quality have business of happened. lot a we're of getting deals

deals as of we function trying we think grow about the that being to more ARPO a but us proactive to can ARPO. come And so of yeah, to grow opposed it's

Jack Micenko

then XXX or is there? with it looks on If with business Docutech you cyclicality lenders. market can share And volume-driven? the of do it And generally their a you Okay. secondly, is the with I'm thinking curious, Just like they us? about is think model share subscription business? about what then revenue

Mark Seaton

Yeah.

second On the question leader a they're a to Let it's transaction business. the to share, segment. business because answer a directly, It's share me though. hard know think market tough first. subscription take market of not We that it's market

Jack Micenko

you. Thank Okay.

Mark Seaton

sticky. business the way is very the And by

Operator

Thank you.

Our Dunn Please & question go is Dowling ahead. coming next of Partners. Geoffrey from

Geoffrey Dunn

and morning. subsidiaries' what Thanks. the us you dividends were tell what total level 'XX? Mark, potentially that looking like can in Good operating is XXXX for

Mark Seaton

in the You dividends XXXX? actually that did mean we

Geoffrey Dunn

year. Yes, the million was think capacity originally $XXX almost start the I to

numbers for Just did you is 'XX? and what that actually what expected curious,

Mark Seaton

holding anything my that would XXXX head maximized But we the don't Docutech, the numbers we're off to in there. our out we with take not everything And exact same number exact of top the obviously thing. for the can get do we dividends just I we the have Geoff, can where expect I offline. and we maybe subsidiaries, XXXX. say of

Geoffrey Dunn

And to you Okay. existing Docutech, little bit talk with capabilities? bring what versus about, and capabilities deepening platform you that that then a broadening can new are does

Dennis Gilmore

me start on that let Geoff, one.

First that e-settlement years. closing and of the efforts think, important all, we've forward been move this advancing look as number very the direction. it's eClosing, working of We last will in for that the on last -- settlement we

the for document the up it have to mortgage chain the think to creating we're the the allows as creations of And is eClosing us length documents, we'll the of settlement. what creation, us it of knowledge earlier. so does document the Docutech, the the it accelerate of specifically into value docs what Specifically, I brings much us part is, moving

Geoffrey Dunn

document, you when the digitized advance? talking sent any be the to Does to it kind sign say create So, that are include forms you e-notarization? of in about the could borrower

Dennis Gilmore

The the the e-format. yes can docs in underway. consumer enhances we be of actually actually experience. we ultimately a separate is first an the Again, the e-notarization it have signed It creation think part, effort it's But that process. simplifies

docs mortgage the remember are a just the component. but component a ultimate it's so, large And of settlement,

Geoffrey Dunn

this have that previously is or capability something And at outsourced all? the you didn't just

Dennis Gilmore

like Previously, Docutech. we'd somebody them get from

Geoffrey Dunn

Got you.

Thanks. Okay.

Mark Seaton

follow-up And just last to your on wanted I Geoff, question.

had work, for regulated subsidiaries. both you little its our way from sense higher calculations unregulated. and And of expect So be a we'd but it bit that that's because holding the dividends. gives XXXX, in $XXX in a our to dividends just that million of company the And XXXX, then

Geoffrey Dunn

Thank Okay. you.

Operator

next from Please Instructions] Hughes [Operator Humphrey. ahead. is Our SunTrust Mark question go Robinson coming of

Mark Hughes

direct initiatives, your there on update business a of or renewals the quick Insurance, channel. just the versus wonder direct-to-consumer based that Specialty I on mix transactions

Dennis Gilmore

give have on the Mark specifics I'm going transactions. volume the to

Mark Seaton

significant direct-to-consumer Well, every is business the renewals, of warranty direct-to-consumer. those from half now comes direct-to-consumer, after a they years our have ago of and About new there's once get in And from you I of of the comes one chance half XX it we that the would renewals that didn't year. business again, say home part year. business sort first have XX% an that order and we renew

and So, business. new from about half renewals the book come half from

Dennis Gilmore

beyond. that very, a in the effort And channel. 'XX will effort real well then underweight we add and estate put do Yes. and 'XX strategy a standpoint, little And into in into a continue direct-to-consumer very just the I'll we've been from probably which we large

Mark Hughes

you. Thank

Operator

and for Ladies gentlemen, company's available listeners XXXXXXXX. website like or replay conference remind XXX-XXX-XXXX this thank to does ID enter company We'd that conference. like be conclude of concludes participation. your and dialing call will you XXX-XXX-XXXX, today's on today's the for to This or would today's conference. The by

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First American Financial (FAF) 13 Feb 202019 Q4 Earnings call transcript