Earnings call transcript Q2 2023

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Operator

Greetings, and welcome to the Second Quarter 2023 First American Financial Corporation Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Craig Barberio, Vice President, Investor Relations. Please go ahead.

Craig Barberio

Good morning, and welcome to First American's earnings conference call for the second quarter of 2023.

the and be President Mark Financial on Officer, Chief and today Officer. DeGiorgio, Ken Seaton, us call our will Executive Chief Joining Executive Vice

occur do may the undertake fact. current to the does forward-looking statements are statements after of forward-looking forward-looking made made of as forward-looking strictly to today update statements only or date Some statements historical these statements These events that the reflect not the made. not speak or and relate to company that contain date circumstances are they the

exist differ uncertainties these set and forward-looking that from in Risks may cause to forth materially results statements. those

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

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

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

to like call now would Ken DeGiorgio. the I to over turn

Ken DeGiorgio

continued title We a on an good on our deliver Craig. a a XX.X% seasonal investment expense in basis. business, net to quarter, the uplift of management us pretax strong second focus the you, or Thank posted and adjusted income in continuing results enabled given market headwinds, margin growth XX.X% in

to home The stabilized, high inventory along albeit issues have our levels. residential low on that rates, per be share however, to continues $X.XX in adjusted purchase earned with has an basis. $X.XX we basis, appears business affordability mortgage Demand elevated. trough kept due pressured at by consolidated prices market, diluted a On to purchase or

orders remained we with For open at averaging with per quarter, seasonal open the the in X% June. orders in compared down the levels of three typical seeing second weeks purchase Refinance first XXX are July, decline orders day. trough

call, quarter's X% current see loans incentivize the rates would As is outstanding need below activity, a well the significant refinance future. mortgage near of pool in unlikely to highly I last indicated to uplift in which on drop

The commercial half back have of in began appears to deteriorate which market, the stabilized. XXXX, to

revenue seasonal sequential it XX% trend. commercial in While was year-over-year, up was on down the with XX% typical a line basis,

Commercial for down the outlook. market July open degree in first commercial XX%, three the weeks consistent is a the of There what we quarter. orders of concerning were still high experienced with second uncertainty

are first, activity with year we on better is getting based second the be than half the customers, which we still expect from transaction normal seasonal consistent the feedback However, in the the will of patterns.

and commercial unclear. these recovery these return shareholders. financial us our continue refinance well conditions, purchase as of to to invest remains key company and our discipline of have challenging the markets markets troughed, strategic capital timing in the a as long-term appear the balance initiatives our for to While benefit to strong Despite allow in sheet

at to digital title company. continue and make progress our settlement We Endpoint,

year. transactions early purchase for on for decisioning markets remains deployment title instant develop to in initiative two next Our track

at through We growth $XXX market its returned dividends. million share and have have which year, also progress subservicing our we quarterly profit. our at And to made since business, delivered strong repurchases first began substantial ServiceMac, and deteriorate to last revenue shareholders beginning the of the

as First fast been American that of proud to selected for Innovators XXX for one XXXX. has am I companies Best closing, Workplaces In companies just

have this in industry our company recognition. We to are only ever the received

enable who in us best-in-class industry. of addition is digital a our This customer to the our testament accomplishment ongoing lead is delivering commitment service our to to tribute transformation to a innovation and to people,

results. a more turn would I for to call over the Now our discussion financial to Mark like of detailed

Mark Seaton

Ken. you, Thank

more earned we earnings per to Beginning our for or our quarter, the first this defining results on are time to share $X.XX make adjusted adjusted an quarter, $X.XX comparable diluted we basis. peers. This

amortization. adjusted pretax as Our reconciliation intangible be These margin. will also adjustments earnings and losses, press well found A to apply exclude net gains as related can release. purchase in investment our

Revenue billion, XX% quarter Commercial Title over our same a was of with compared in the segment XXXX. last $X.X year. was revenue decline million, $XXX down XX%

and the this commercial transactions transactions. a driven revenue number down quarter, of Purchase in average prices per the revenue valuations order. per average market as fewer X% increase partially lower to Our orders closed, $XX,XXX revenue to order during a of was commercial by XX% offset quarter decrease for declined the by in combination XX% XX% reset in due large a the

rates. declined $XXX revenue mortgage XX% to the last in down was year. business, Agency In increase due revenue relative Refinance to million, XX% the year from last

Given lag activity. economic one in of approximately the remittances revenues related these results reporting reflect agent to QX quarter,

revenues lower transaction other and was by year. driven close services. units several were $XXX post relative data generation property document result the of and information the across Our levels information XX% and to decline This company's and million, products business down last

Services million, Title the prior the a quarter, business. saw we due second Insurance increase to relative $XXX In within and segment year. balances escrow normal income the was of the XXX% seasonality Investment increase to

Reserve rates this higher balances continue Xx our on also hiked as year. Federal We has to generate the

the continue decline to expenses in given transaction We manage activity.

personnel our and declined ratio million, that operating operating $XXX net meaning $XXX success our was and expenses million. XX%, revenue other Our declined

reflects The for loss provision of quarter in down title loss provision fees, $X a claims $XX year the The rate and release escrow an in losses the prior the or ilmenites. current X.X% X.X% with prior million ultimate for million of policy from X.X% loss the for was second and X.X% premiums rate rate other year.

and initiatives but their profitability As financial continue to point we cycle, at we positively believe term, contribute invest adversely businesses our in in will life innovation highlighted, this in Ken that results. our impact the long to

XXX loss improvement from of generated $XX generated We primarily QX, margin basis profitability gains pretax in a Endpoint by instant XX% pretax million and basis a transactions have pretax our which discussed an XXX three impacting initiatives: purchase margin which this drag points, quarter. at for quarter, by the this ServiceMac, ServiceMac, title margin point driven decisioning together

claim the title segment on business year. increase warranty basis. in was claims, $XXX $XX million, last of up The income warranty year. loss from offset home XX% an home XX% revenue warranty a XX%, adjusted compared home the lower by XX.X% totaled by our from in with in in a XXXX, ratio margin down Pretax prior driven X% was or frequency was higher million, severity. partially XX.X% Pretax Total in

mix primarily for state since lower and XX.X%, income the income was in effective our of to normalized our insurance businesses of insurance between business taxes premium rate the The generally taxes. than rate our noninsurance quarter of XX% tax due lieu pays

XXX,XXX repurchased total an price a million In of shares the for average of $XX.XX. second at quarter, $XX we

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

million ratio our In new million Excluding May, available the into for entire $XXX currently upsized secured XX.X%. from payable, entered financings debt-to-capital credit prior $XXX liquidity. amount was we a senior facility our facility. We have

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

Operator

first with Our question from KBW. Instructions] [Operator Bose George comes

Bose George

in quarter? there I expectations second update then give investment you Can me And income is you if unusual investment something wanted your investment for income. First, to the can in about income? on us remind an just ask

Mark Seaton

Bose, is in the question. There for nothing unusual really the thanks second quarter.

year, the past point of the different investment given are in at income. year. we this for But the down have We halfway through assumptions

lot have of in We are. terms a got more balances visibility where

million And we $XXX somewhere be $XXX income full-year. Title between the so the in segment, for should investment million, of

ServiceMax, in expecting decrease little QX just $XXX $XXX We we some will bit we of but of at then have million, a related will looking now, are full-year. an to increase somewhere a million in right balances are that QX, off and because between run

Bose George

as Cooper, Home that does sale servicing how actually, move - Okay. you that if sort to move with sort much to of - operating there escrow you Great. any And that when refill could Point happens? leverage of that that helpful. is is over negative then And while could ServiceMac? Cooper, the of lose that

Ken DeGiorgio

that mean question second September. the loans going your expense to part for that, thanks XX% to of reductions in get the that. we question. are already the on making are with anticipating are of And associated to about we offboard Yes, I

replace the aren't but healthy obviously, quick, healthy Now think there will - is And a a pipeline. pipeline lines those but on that. is there time we that

remaining probably hopeful the through they will is there year. next when into exactly the extend - year. at next could come be and could are the into to be least The It are clear they But year going end XX% they will we XX% of not the remaining off.

Bose George

ServiceMac, actually, And from through escrow the in Great. remind corporate that is at does that interest income can Okay. the or me come title? you

Mark Seaton

up and to most of it But through title. bank in segment. is our title rolls our our It bank goes

So in title it . is

Bose George

Okay.

of incorporates sort the your at number as the So gave well? ServiceMac you guidance all changes

Operator

Inc. John Our Campbell comes next question Instructions] Stephens [Operator from with

John Campbell

a might have great to but weeks the but I touch I missed on XX%. quarter, three that again. the down you commercial this, wanted first I said order think orders on Congrats data July

little other? So and purchase better, but could a rehash obviously, on refi than you maybe bit XQ,

Ken DeGiorgio

we the purchase. for weeks, first three So at looking are

year. versus We are prior looking down XX%

a is year. at We looking are XX% day. about XXX That orders down last from

John Campbell

helpful. Very Yes, ahead, Okay. go Ken.

Ken DeGiorgio

it. is that No,

John Campbell

like it that holds stage. Instant promise the for lot title is I purchase, a guys. early I for Okay. the then very that a And know side feel decisioning you on story of of is

that how out. conservative You to be in you guys very are also tend of roll kind

call-outs could from what if that a kind it of comfortable business around maybe margin start gain give But what expansion over some move efforts? early initiative to need also, your the you do and then a And it early and pilots. driver? Or gain of can see revenue national kind share for might then of Is an time? efficiency driver? more the to you to be And us into is

Ken DeGiorgio

that I Yes. ready MVP I what seen that sort have will our is rollout. effort that, - start we is on are I it we of confident John. from for think it mean,

counties the next As earlier comments, of my beginning mentioned year. in I in two at have

to couple development out as probably to going progress. But of years, that you our some we is would within rollout continue next and it national the a are anticipate have efforts we but time, take will right, I roll markets will

just the gains drive market which of a think seen see for drive share aspects will customer in gains. and a certainly There couple I precise be it. we we of to improvement efficiency ultimately the it amount in the will experience, I products again, think there of remains that will And will is think the results of And is big gains. some part the business. that efficiency be But

commitment. a we want is is are placed, going Customers an to know whether or can to initially them and to need to before issues order be even to title if whether be going be resolved, there indicate not or issue we are a able issue not going to to early there or that are title

Operator

[Operator comes question Instructions] BTIG. Bhonsle is from Next Soham

Soham Bhonsle

Mark, maybe think sensitivity take I through title term. more want step a just margin here back and to long

should of from So investments think are and improvement? we as have But could thinking volumes lift you obviously, and year, maybe that the right, moderate the see even you stabilizing should here, improving how of about help you margins. next sort about that that sort from that

Because than to years clearly, you able more orders efficiently in today write are past.

so that it to sort the as look hard And past of at here. makes precedent a

offer could you framework here? any sort up on sort of do sort just how volumes thinking you margins if of about So are improving end as of

Mark Seaton

of and year, quarter, about this Yes. by Soham. first that Thanks talked I for for all, this entitled we the that. we say year, stand would margins Well, pretty good tough double-digit is last - on XXXX, feel When about margins environment. look improve at that we hitting we XXXX. we question a that. no to in mean economic about expect I question, There

flat volumes are volumes flat, if we if are tailwinds. because got Even few have a even

investments, be the a out to strategic are less going drag year. pointed next You they of

that the will what We depending some also then we out Fed at investment - have will now next efficiencies business we also year. of year. least does, the help us tailwind bringing with have are And that next income on

But NDA for that And even some growth if of it, or mortgage growth, that happens, flat, in X/X If we can really so we look of get pretty aggressive market, should call half we originations. will be a improve origination has even The good. even that better. let's margins. we think we

question So good is, feel the we just then definitely it have how like will margin depends on next we expansion market well, is. the year. And

Soham Bhonsle

Got it.

sort but just so success here, success reason outside second then flattish. seasonality-wise, in cannot Any should that, we of the be half obviously, that the items the any that subside here? here, should on And volume half ratio, is stay there your thinking in about ratios back Okay. other

Mark Seaton

there No. to I mean items no is think extraordinary about.

for And be is we little think year, have of bit, and a half title back year, the we well. be our the would could at in XX%. but as we half full-year mean therefore, been around it first second plus for or the again, I think half For segment. what I minus the the of will XX% the

Soham Bhonsle

Got second. one in. it. And could just just a here I wanted Ken, for touch on if to squeeze I commercial

like, was there looks little - at it some least So on mix deals. bit to higher a larger the ARPO, shift based the the

at the deals. between sort mean, you small of probably have quarter, particularly pipeline your to are half, fourth we large looking I think anticipating I what's As more you anticipating, look deals? like the for we and the as mix large Well, are go into back some

Ken DeGiorgio

price RPO sign. good mix CR we ARPO more I think down, about I see to be and once which on price like us going like on are that the don't the Well take less is - is there done, a is go because activity. that it we that a implies transaction about discovery, that more we completely there will but down, a going to lot discovery to Obviously, done, is as think going

Soham Bhonsle

thank it, you Got guys.

Ken DeGiorgio

Thanks Soham.

Operator

this teleconference. today's concludes are no further there Since questions,

your your disconnect time. may great day lines have participation, a Thank and you You at for this

First American Financial (FAF) 27 Jul 232023 Q2 Earnings call transcript