STEWART INFORMATION SERVICES CORPORATION HOUSTON, Nov. 6, 2017 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart of $10.9 million ($0.46 per diluted share) for the third quarter of 2017 compared to net income attributable to Stewart of $26.4 million ($1.12 per diluted share) for the third quarter of 2016. Pretax income before noncontrolling interests for the third quarter of 2017 was $18.6 million compared to pretax income before noncontrolling interests of $38.8 million for the third quarter of 2016.
Total revenues for the third quarter of 2017 were $501.6 million compared to total revenues of $553.2 million for the third quarter of 2016, a decline of 9 percent. Total operating revenues for the third quarter of 2017 were $498.0 million compared to total operating revenues of $545.4 million for the third quarter of 2016, also a decline of 9 percent.
"Our third quarter title revenues were adversely affected by business disruptions caused by hurricanes Harvey and Irma and retail staff departures as indicated during last quarter's call," noted Matthew Morris, Stewart chief executive officer. "However, Stewart has taken swift, aggressive actions to address these disruptions."
"Our employees worked tirelessly after the hurricanes to quickly restore full operations and mitigate the financial impact. We successfully recruited strong, new revenue-generating associates, which have offset $20-$25 million of the $70 million in departed annual revenues related to staff departures. And the recent acquisition of Title365 generated new business which we expect to result in $40-$50 million in annual revenue. These combined actions are expected to fully replace the departed revenue by 2018's selling season, and our ongoing recruiting efforts and targeted acquisitions should further bolster our top line."
Leadership Changes
Today, Stewart also announced that John Killea, chief legal officer & chief compliance officer, has been appointed to the additional role of president of Stewart Information Services Corp. Morris continued, "John Killea is a proven leader in the industry. His deep experience and intimate knowledge of our company uniquely positions him to expand his responsibilities as we execute on our strategic priorities."
"In addition, we are very pleased to announce that John Magness has joined Stewart as chief corporate development officer. John brings nearly 35 years of leadership experience in the title and real estate industry and will play a key role in ensuring Stewart continues to provide the high quality services our customers have come to expect." Most recently, Magness served as president of Old Republic Title Companies, Inc.
Review of Strategic Alternatives
The Company also announced that the Board of Directors has previously formed a strategic committee which has been pursuing the full range of strategic alternatives available to Stewart. These alternatives include, among other things, business combinations, the sale of the Company, and continuing to execute on Stewart's standalone business plan. The Company has retained and will be assisted in the strategic review process by Citi as financial advisor and Davis Polk & Wardwell LLP as legal advisor.
The Board plans to complete this process in an expeditious manner. There can be no assurance that this process will result in a particular outcome. The Company does not intend to provide updates on its review until it deems further disclosure is appropriate or required.
"The Board is committed to exploring the full range of strategic alternatives available to the Company," said Thomas Apel, chairman of the Stewart board of directors. "Throughout this process, we will continue executing our current plan and providing the comprehensive service and solutions our customers need for real estate transactions."
Selected Financial Information
Summary results of operations are as follows (dollars in millions, except per share amounts):
Third quarter Nine Months
2017 2016 2017 2016
---- ---- ---- ----
Total revenues 501.6 553.2 1,430.1 1,480.9
Pretax income before noncontrolling interests 18.6 38.8 57.6 65.0
Income tax 4.7 9.0 15.5 16.8
Net income attributable to Stewart 10.9 26.4 33.6 38.8
Net income per diluted share attributable to Stewart 0.46 1.12 1.43 1.13(1)
((1)) As previously reported, during the second quarter 2016, the Company paid a $12.0 million cash consideration to the holders of our Class B Common Stock as part of the exchange agreement announced during that quarter. Excluding this cash payment, the adjusted net income per diluted share for the first nine months of 2016 was $1.64. Under U.S. GAAP, the $12.0 million payment was recorded as a reduction to retained earnings, similar to a preferred stock dividend, and did not reduce the net income attributable to Stewart. However, the payment reduced the net income used in the calculation of basic and diluted earnings per share.
Title Segment
Summary results of the title segment are as follows (dollars in millions, except pretax margin):
Three months ended September 30,
2017 2016 % Change
---- ---- --------
Total revenues 488.6 529.8 (8)%
Pretax income 24.6 50.3 (51)%
Pretax margin 5.0% 9.5%
Pretax income during the third quarter of 2017 declined $25.7 million compared to third quarter of 2016, while total title revenues declined $41.2 million. In addition to the factors mentioned above, title revenues declined due to lower commercial revenues, fewer purchase orders closed and a significant decline in refinancing orders industry-wide. Included in the segment's results for the third quarter of 2017 are approximately $1.4 million of Title365 integration costs. Also included in the third quarter of 2017 results were $1.3 million of realized losses, compared to $2.1 million of realized gains in the third quarter of 2016.
Direct title revenue information is presented below (dollars in millions):
Three months ended September 30,
2017 2016 % Change
---- ---- --------
Non-commercial:
Domestic 141.7 162.2 (13)%
International 30.4 29.3 4%
Commercial:
Domestic 39.2 45.2 (13)%
International 5.5 4.4 25%
Total direct title revenues 216.8 241.1 (10)%
===== ===== ====
Non-commercial domestic revenue includes revenues from purchase transactions and centralized title operations (processing primarily refinancing and default title orders), which decreased 11 percent and 32 percent, respectively, in the third quarter of 2017 compared to the prior year quarter as a result of declines in purchase and refinancing orders closed. Commercial revenues declined 10 percent from the prior year quarter primarily as a result of lower commercial orders closed and reduced average fee per file. Total international title revenues increased 7 percent in the third quarter of 2017 compared to the prior year quarter mainly due to transaction volume growth from our United Kingdom operations and a stronger Canadian dollar relative to the U.S. dollar. Revenues from independent agency operations in the third quarter of 2017 declined 5 percent compared to the third quarter of 2016. The independent agency remittance rate decreased to 17.5 percent in the third quarter of 2017 from 18.0 percent in the third quarter of 2016 mainly due to the geographic mix of our agency business (reduced revenues in higher-remitting states and increases in lower-remitting states); third quarter of 2017 revenues from independent agencies, net of retention, decreased 7 percent from the prior year quarter.
Ancillary Services and Corporate Segment
Summary results of the ancillary services and corporate segment are as follows (dollars in millions):
Three months ended September 30
2017 2016 % Change
---- ---- --------
Total revenues 13.0 23.4 (45)%
Pretax loss (6.0) (11.5) 48%
The decline in the segment's revenues in the third quarter of 2017 compared to the prior year quarter was primarily due to the divestitures of the loan file review, quality control and government services lines of business at the end of 2016.
The segment's pretax results improved to a $6.0 million pretax loss, compared to a pretax loss of $11.5 million in the prior year quarter. The segment's results for the third quarter of 2017 and 2016 included approximately $6 million and $8 million, respectively, of expenses attributable to parent company and corporate operations.
Expenses
Employee costs for the third quarter of 2017 decreased $14.5 million, or 9 percent, from the third quarter of 2016 as a result of a reduction in employee counts tied to volume declines (primarily in our ancillary services and centralized title operations), the aforementioned staff departures in direct operations, and ongoing cost management efforts. Average employee counts for the third quarter of 2017 decreased approximately 7 percent from the third quarter of 2016. As a percentage of total operating revenues, employee costs for the third quarter of 2017 were 28.1 percent, improving 20 basis points from 28.3 percent in the prior year quarter.
Other operating expenses for the third quarter of 2017 decreased $5.6 million, or 6 percent, from the third quarter of 2016 primarily as a result of reduced outside title search fees, driven primarily by lower title search revenues from the ancillary services and centralized title operations. Other operating costs for the third quarter of 2017 included approximately $1.4 million of Title365 integration costs. As a percentage of total operating revenues, other operating expenses for the third quarter of 2017 were 17.8 percent, compared to 17.2 percent in the third quarter 2016.
Title loss expense decreased to $25.4 million in the third quarter of 2017, compared to $26.4 million in the third quarter of 2016. Title losses were 5.2 percent of title revenues in the third quarter of 2017 compared to 5.0 percent in the third quarter 2016.
Depreciation and amortization expenses decreased to $6.6 million in the third quarter of 2017 compared to $7.1 million in the third quarter of 2016, primarily due to lower amortization expense in the current year quarter resulting from the disposal of certain intangible assets in connection with the divestitures of several lines of the ancillary services business during the fourth quarter of 2016.
Other
Net cash provided by operations in the third quarter of 2017 was $31.5 million, compared to $45.5 million in the third quarter of 2016. The decline was primarily due to the lower net income generated during the third quarter 2017, higher payments on accounts payable and lower collections on accounts receivable, partially offset by lower claim payments.
Third Quarter Earnings Call
Stewart will hold a conference call to discuss the third quarter of 2017 earnings at 8:30 a.m. Eastern Time on Monday, November 6, 2017. To participate, dial (866) 831-8713 (USA) and (203) 518-9713 (International) - access code STCQ317. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at www.stewart.com/en/investor-relations/earnings-call.html. The conference call replay will be available from 10:00 a.m. Eastern Time on November 6, 2017 until midnight on November 13, 2017, by dialing (800) 723-0532 (USA) or (402) 220-2655 (International) - the access code is also STCQ317.
About Stewart
Stewart Information Services Corporation (NYSE:STC) is a global real estate services company, offering products and services through our direct operations, network of Stewart Trusted Providers(TM) and family of companies. From residential and commercial title insurance and closing and settlement services to specialized offerings for the mortgage industry, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. At Stewart, we believe in building strong relationships - and these partnerships are the cornerstone of every closing, every transaction and every deal. Stewart. Real partners. Real possibilities.(TM) More information is available at the Company's website at stewart.com, or you can subscribe to the Stewart blog at blog.stewart.com, or follow Stewart on Twitter(®) @stewarttitleco.
Forward-looking statements. Certain statements in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "foresee" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the challenging economic conditions; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses or the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the ability to attract and retain highly productive sales associates; the impact of vetting our agency operations for quality and profitability; independent agency remittance rates; changes to the participants in the secondary mortgage market and the rate of refinancing that affects the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; the continued realization of expense savings from our cost management program; our ability to successfully integrate acquired businesses; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; seasonality and weather; and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2016, and if applicable, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this news release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify any forward-looking statements contained in this news release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.
STEWART INFORMATION SERVICES CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In thousands of dollars, except per share amounts and except where noted)
Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Revenues:
Title revenues:
Direct
operations 216,830 241,109 635,921 664,128
Agency
operations 268,545 282,269 736,301 732,320
Ancillary
services 12,674 22,059 45,096 65,276
------ ------ ------ ------
Total
operating
revenues 498,049 545,437 1,417,318 1,461,724
Investment
income 4,567 4,520 14,179 14,445
Investment
and other
(losses)
gains -net (1,047) 3,253 (1,436) 4,706
------ ----- ------ -----
501,569 553,210 1,430,061 1,480,875
Expenses:
Amounts
retained by
agencies 221,460 231,586 605,192 598,915
Employee
costs 140,054 154,529 419,184 457,166
Other
operating
expenses 88,489 94,043 255,593 268,210
Title losses
and related
claims 25,428 26,365 70,591 66,612
Depreciation
and
amortization 6,578 7,082 19,397 22,728
Interest 963 797 2,492 2,237
--- --- ----- -----
482,972 514,402 1,372,449 1,415,868
Income
before
taxes and
noncontrolling
interests 18,597 38,808 57,612 65,007
Income tax 4,686 9,041 15,536 16,779
----- ----- ------ ------
Net income 13,911 29,767 42,076 48,228
Less net
income
attributable
to
noncontrolling
interests 2,967 3,392 8,475 9,450
----- ----- ----- -----
Net income
attributable
to Stewart 10,944 26,375 33,601 38,778
====== ====== ====== ======
Net earnings
per diluted
share
attributable
to Stewart 0.46 1.12 1.43 1.13
Diluted
average
shares
outstanding
(000) 23,564 23,611 23,571 23,596
Selected financial information:
Net cash
provided by
operations 31,517 45,527 48,048 63,986
Other
comprehensive
income
(loss) 3,873 (2,936) 10,763 10,448
Monthly Order Counts:
Opened Orders 2017: Jul Aug Sept Total Closed Orders 2017: Jul Aug Sept Total
--- --- ---- ----- --- --- ---- -----
Commercial 3,372 3,851 3,462 10,685 Commercial 2,352 2,660 2,631 7,643
Purchase 20,804 21,515 17,360 59,679 Purchase 16,304 17,173 14,955 48,432
Refi 8,062 10,157 8,936 27,155 Refi 5,619 6,404 5,942 17,965
Other 1,790 1,416 1,359 4,565 Other 853 1,127 892 2,872
----- ----- ----- ----- --- ----- --- -----
Total 34,028 36,939 31,117 102,084 Total 25,128 27,364 24,420 76,912
Opened Orders 2016: Jul Aug Sept Total Closed Orders 2016: Jul Aug Sept Total
--- --- ---- ----- --- --- ---- -----
Commercial 3,508 4,284 4,074 11,866 Commercial 2,442 3,187 2,520 8,149
Purchase 20,612 22,650 19,853 63,115 Purchase 17,405 18,481 17,051 52,937
Refi 14,077 15,492 13,282 42,851 Refi 8,063 10,100 10,198 28,361
Other 881 1,176 1,366 3,423 Other 1,193 1,630 1,263 4,086
--- ----- ----- ----- ----- ----- ----- -----
Total 39,078 43,602 38,575 121,255 Total 29,103 33,398 31,032 93,533
STEWART INFORMATION SERVICES CORPORATION
CONDENSED BALANCE SHEETS
(In thousands of dollars)
September December 31,
30, 2017 2016
(Unaudited)
----------
Assets:
Cash and cash equivalents 168,746 185,772
Short-term investments 23,434 22,239
Investments in debt and
equity securities
available-for-sale, at
fair value 679,682 631,503
Receivables - premiums
from agencies 33,754 31,246
Receivables - other 58,901 50,177
Allowance for
uncollectible amounts (8,555) (9,647)
Property and equipment,
net 69,029 70,506
Title plants, at cost 74,237 75,313
Goodwill 231,428 217,094
Intangible assets, net of
amortization 10,673 10,890
Deferred tax assets 3,856 3,860
Other assets 57,760 52,771
------ ------
1,402,945 1,341,724
========= =========
Liabilities:
Notes payable 138,557 106,808
Accounts payable and
accrued liabilities 95,283 115,640
Estimated title losses 475,845 462,572
Deferred tax liabilities 20,889 7,856
------ -----
730,574 692,876
------- -------
Stockholders' equity:
Common Stock and
additional paid-in
capital 182,055 180,959
Retained earnings 483,861 471,788
Accumulated other
comprehensive income
(loss) 1,882 (8,881)
Treasury stock (2,666) (2,666)
------ ------
Stockholders' equity
attributable to Stewart 665,132 641,200
Noncontrolling interests 7,239 7,648
----- -----
Total stockholders'
equity 672,371 648,848
------- -------
1,402,945 1,341,724
========= =========
Number of shares
outstanding (000) 23,766 23,431
Book value per share 28.29 27.69
STEWART INFORMATION SERVICES CORPORATION
SEGMENT INFORMATION
(In thousands of dollars)
Three months ended: September 30, 2017 September 30, 2016
------------------ ------------------
Title Ancillary Consolidated Title Ancillary Consolidated
Services Services
and and
Corporate Corporate
--- ---
Revenues:
Operating revenues 485,373 12,676 498,049 523,239 22,198 545,437
Investment income 4,567 - 4,567 4,520 - 4,520
Investment and other
(losses) gains -net (1,328) 281 (1,047) 2,057 1,196 3,253
------ --- ------ ----- ----- -----
488,612 12,957 501,569 529,816 23,394 553,210
Expenses:
Amounts retained by
agencies 221,460 - 221,460 231,586 - 231,586
Employee costs 132,331 7,723 140,054 137,519 17,010 154,529
Other operating
expenses 79,249 9,240 88,489 78,917 15,126 94,043
Title losses and
related claims 25,428 - 25,428 26,365 - 26,365
Depreciation and
amortization 5,534 1,044 6,578 5,120 1,962 7,082
Interest - 963 963 1 796 797
--- --- --- --- --- ---
464,002 18,970 482,972 479,508 34,894 514,402
------- ------ ------- ------- ------ -------
Income (loss) before
taxes 24,610 (6,013) 18,597 50,308 (11,500) 38,808
====== ====== ====== ====== ======= ======
Nine months ended: September 30, 2017 September 30, 2016
------------------ ------------------
Title Ancillary Consolidated Title Ancillary Consolidated
Services Services
and and
Corporate Corporate
--------- ---------
Revenues:
Operating revenues 1,372,133 45,185 1,417,318 1,395,964 65,760 1,461,724
Investment income 14,179 - 14,179 14,445 - 14,445
Investment and other (losses) gains - net (1,455) 19 (1,436) 454 4,252 4,706
------ --- ------ --- ----- -----
1,384,857 45,204 1,430,061 1,410,863 70,012 1,480,875
Expenses:
Amounts retained by agencies 605,192 - 605,192 598,915 - 598,915
Employee costs 390,688 28,496 419,184 405,327 51,839 457,166
Other operating expenses 225,946 29,647 255,593 223,382 44,828 268,210
Title losses and related claims 70,591 - 70,591 66,612 - 66,612
Depreciation and amortization 16,081 3,316 19,397 15,642 7,086 22,728
Interest 5 2,487 2,492 1 2,236 2,237
--- ----- ----- --- ----- -----
1,308,503 63,946 1,372,449 1,309,879 105,989 1,415,868
--------- ------ --------- --------- ------- ---------
Income (loss) before taxes 76,354 (18,742) 57,612 100,984 (35,977) 65,007
====== ======= ====== ======= ======= ======
Appendix A
Adjusted revenues and adjusted EBITDA
Management uses a variety of financial and operational measurements other than its financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) to analyze its performance. These include: (1) adjusted revenues, which are reported revenues adjusted for any net realized gains and losses and (2) net income after earnings from noncontrolling interests and before interest expense, income tax expense, and depreciation and amortization and adjusted for net realized gains and losses, certain significant litigation expenses and other non-operating costs such as consulting costs, component exit-related costs and prior policy year reserve adjustments (adjusted EBITDA). Management views these measures as important performance measures of core profitability for its operations and as key components of its internal financial reporting. Management believes investors benefit from having access to the same financial measures that management uses.
The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the three and nine months ended September 30, 2017 and 2016 (dollars in millions).
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016% 2017 2016%
Change Change
------ ------
Revenues 501.6 553.2 1,430.1 1,480.9
Less: Net realized losses (gains) 1.0 (3.3) 1.4 (4.7)
--- ---- --- ----
Adjusted revenues 502.6 549.9 (9)% 1,431.5 1,476.2 (3)%
===== ===== === ======= ======= ===
Net income attributable to Stewart 10.9 26.4 33.6 38.8
Noncontrolling interests 3.0 3.4 8.5 9.5
Income taxes 4.7 9.0 15.5 16.8
--- --- ---- ----
Income before taxes and noncontrolling interests 18.6 38.8 57.6 65.1
Litigation expense - - - 3.6
Other non-operating charges 1.4 1.2 1.4 3.8
Prior policy year reserve adjustments, net - - - (5.4)
Net realized losses (gains) 1.0 (3.3) 1.4 (4.7)
--- ---- --- ----
Adjusted income before taxes and noncontrolling interests 21.0 36.7 60.4 62.4
Depreciation and amortization 6.6 7.1 19.4 22.7
Interest expense 1.0 0.8 2.5 2.2
--- --- --- ---
Adjusted EBITDA 28.6 44.6 (36)% 82.3 87.3 (6)%
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SOURCE Stewart Information Services Corporation
