Fidelity National Financial (FNF) 5 Aug 202020 Q2 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the FNF 2020 Second Quarter Earnings Call.

During today’s presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions with instructions to follow at that time.

As a reminder, this conference is being recorded. I would now like to turn the conference over to Jamie Lillis, Investor Relations for FNF. sir. ahead go Please

and XXXX Thank earnings operator our for second quarter conference good you, you morning. joining Thank call.

Randy. Blunt. and and Joining Statements Randy me like Randy. CEO, before Mike of we Park; this the forward-looking including overview Quirk; duration number of CEO, begin, remind with the Chris or F&G's President, COVID-XX review your this hopes, Tony facts I financial historical from are Mike extent will forward-looking particular will will involve in brief would today conference that contain then call a not about open questions Nolan; regarding We'll CFO, impact from concluding highlights. finish pandemic. statements But pandemic. the our with some a statements uncertainties, is Chris that business. expectations, strategic for statements. We'll begin finish F&G strategies our intentions to may and the title call There that significant and and risks a with the uncertainty about review future of of review are you Tony the the remarks is

Eastern on which We subject from otherwise. statements and and projected. operating are or call. results and new materially statements and future whether management financial of management's differ are result to company's well the SEC. at undertake webcast to is The statements filings obligation It number the risks the of a for regarding detailed and not information, other available statement August made XX-K statements as will to The replay statements yesterday conference are fact also but forward-looking replay results by in actual, any uncertainties as be such those and phone no call Because in our and based today Forward-looking code via through our the is include, This are the will update forward-looking may sections P.M. with forward-looking time fnf.com. XX. website available factors risk assumptions access as of information, XXXXXXXX. expectations information be future the press to as Time X:XX Form through at to available and this and at currently beliefs other at release dated XXX-XXX-XXXX of based on replay factors beginning not other are limited events risks

over to Let me Randy. our call now turn the CEO,

our they would Jamie. our continued to by the as like keep smoothly result Thank of to even as XX% work for approximately have start you, operations thanking a work remotely COVID-XX employees pandemic. hard to continued running as I their have

go challenging priority first of quarter the health Our business more the we pre-tax Mike and earnings the with I'm second title of an generated quarter during I proud in into title XXXX. $XXX the year people and will times efforts. let and of million in the business, title on our detail million Touching momentarily. compared remains our on XX.X% safety title second of these their in XX.X% very $XXX of with quarter adjusted compared comparable margin ago adjusted the pre-tax highlights

closing which centralized, second residential the to services largest subservicer well $XX of purchased title as provider full and in industry. last as for We the we leading management that gives interest the in also remaining XX% the default in ServiceLink announce are week ownership million, refinance pleased and loan us

at F&G, approximately minority Turning $X.X and our holder on three years June equity acquisition XXXX we in as at deal of a Holdings. closing. to X, FGL cash After in billion closed acquisition our a valued

upgraded of policyholders financial channel. expanding the had quarter strong by was as F&G sales agencies for a multiple the F&G welcome into result recently rating excited achieved successfully are institutions and by a the major milestone the distribution acquisition, family. We employees into to and FNF and F&G the

the transaction than and pro XXXX on XXXX a to more earnings forma accretive basis continue per on XX% We FNF's to to per XX% forma be expect earnings accretive share basis a to FNF's pro share.

our commitment We fourth dividend through Looking in dividend per which to meaningful long-term our forward July, our late creating strategy allocation for of is $X.XX X.X%. value of increase share, capital quarter our cash unwavering. shareholders announced reflects quarterly

suspended buyback due acquisition was uncertain the to outlooks. previously the share Our F&G and COVID-XX

economy the we as watch share to closely, continue pandemic evaluate buybacks. COVID-XX and We the

Let Mike more detail. the me to in title business call over to turn now insurance Nolan discuss the

a pre-tax title strong adjusted Thank million, over We you, the of XXXX. $XXX increase earnings of Randy. X% generated quarter second

Our closed year ago had and in purchase a million title Total a the the daily in increase We closed by $XXX orders XX.X%, to direct was year. XX% orders a per and XX% a margin due adjusted a basis XX% XX% over daily orders a decrease with was compared the in of decline closed, XX quarter commercial XXX% fee prior orders orders in by file. driven total increase in pre-tax commercial XX% $XXX in refinance commercial million, closed. closed, total offset decrease increase point decrease revenue

June For XX,XXX. with the averaged second quarter, day XX,XXX XX,XXX total opened April at May orders and X,XXX, at at per

day, prior over were strength purchase down June than strong orders less the Daily and the we while For was recovery XX,XXX versus to the in were down by total in year a and down continued prior as market. XX% period, continue refinance versus was July, May XX% activity in X% orders opened purchase opened see per period. April

Refinance on versus daily quarter of XXX% the versus second the were by basis opened a XXXX. daily orders July, For orders prior year. XX% purchase increased opened up

were XXX% prior up versus the year. For orders daily July, refinance opened

to May decreased April May from from by over a with day, experienced June. XX% during opened orders On the commercial commercial orders XX% quarter up second commercial note, orders and opened low in from up quarter total opened XXXX. improvement steady Lastly, of the day April's we total positive per XX% per to

June day over over of XX% per XX% July opened commercial and up were XXXX. total up July, For orders

cases we are the and volumes, very by it the second impact and of While on to real rise resultant quarter markets. encouraged difficult commercial COVID-XX forecast remains estate our residential the

significant the our as through the a expense have for tight through that quarter in has challenging keep grasp we operating part our end, while reduce to operating the tactically our Fortunately, our investments of times business able first we clients structure. and been decision technology, team To our April. XXXX on staffing the experience usual employees and end to approximately and difficult of maintaining by early made partners at

in and added order as increased. June monitor to continue since have volumes July the We market and XXXX approximately employees

manage maintain half second and given looking XXXX, aggressively uncertain culture to expense discipline. continue expenses on our as we the will will focused the through forward, of our volumes We remain order of backdrop market

now call the me Chris Let to Blunt over to turn highlights. F&G's review quarter second

annuity in several F&G level Great. $XXX of fixed in index second had reduce to of annuity competitors sales million of chose our industry a record a quarter materially the when declined direct and volume. period Thanks, Mike. sales

one channel take capital outpace position largest and investment independent in the while country. management through industry expanded to with into broker-dealers financial by institutions in pricing solid maintaining us the Blackstone, our successfully and Our capabilities the continue discipline. of late June We partnering to trends with share our sales market partnership allowed

are new about channel. are the excited prospects for We off this start strong and to a

Each the investment accounting investment XXX with product from F&G's yield X.XX%, points boosted effects, AAUM. or points of investment million annuities points, for full by was management unrealized total net was For loss in X.XX%. was year the up and recognition mark-to-market spread over of purchase $XXX was year. merger. time on for basis reflects operations merger fixed a or basis line discontinued by was spread yield the primarily XXX the basis yield, changes under excluding $X.X the year prior assets XXXX prior portfolio at effects, adjusted the these roughly the of approximately adjusted XXX investment AAUM to average over billion indexed that points, The reduced was and investment FIA X.XX% impacts up on Adjusted historical basis and net merger yield. quarter, of up XX

$XXX As of was the net position in XX June of million. gain unrealized portfolio a

of first return the quarter capital with course subsidiary, liquidity risk-based a to investment-related of of XXXX. F&G mark-to-market end our operating company compared of it second for Finally, as ratio The normal primary estimated for reflects about capital the relates the RBC decline planned XXX% to the the at quarter and drift. current finished to in well as XXX% capital, RBC or quarter as credit holding an needs

now turn review to financial highlights. me the Let Tony quarter FNF's to second Park call over

the segment and F&G generated you, total Thank second producing generating segment in quarter, revenue in million title billion with the corporate Chris. the million. producing $X.X $XX billion, We $XXX $X.X

in of accounting of the primarily which million, realized net $XXX disposed $XXX be of investment the of second were Second XXXX, quarter or whether held in of treatment gains portfolio. and quarter net quarter our securities, million versus mark-to-market realized to earnings continued were in net gains those stock securities include preferred million to $XX equity due

million of share. revenue billion F&G XXXX. in or from diluted quarter and realized other $XXX contributed per The loss as $X.X net of continuing total the gains, adjusted million, corporate $X.XX million, had the were our with million. segment Excluding billion and $XXX segment $X.X net was second an contributed title operations Adjusted compared earnings $XX net $X

revenue for of in million, our $X.X decreased basis declined by June of generated versus by second June the generated the billion $XX the and issuance were net other X% XX, proceeds with revenue of prior quarter, an the repay X% of quarter FNF million for margin, increase short-term XX%. increase corporate approximately X.X% by compared a title senior to loan the relatively due reduction decreased realized versus The segments total use strong cash quarter, term Personnel net brought COVID-XX. credit pre-tax title-related to acquisition. income from close escrow, credit the and fees Excluding by April, expenses allowed of business X% $XXX term the XXX-day the on billion, second a XXXX. by prior operating term XXXX. fund title a This in environment an and June, loan. second of loan late Agency the quarter increased the versus capital of a In grew very to to principal we financing $XXX of in borrowed on year. been the segment costs amount million, the X% other the of in title second to XXXX. XX.X% title billion used as of $X gains Interest have year Direct XXXX. premiums XX of us under slight F&G $X.X was the issuance quarter adjusted All the notes flat. point $XX when challenging ratio capital markets secure of for and the of delayed on F&G we notes debt-to-capital acquisition Total outstanding million debt closed agreement. rates a signed agreement due million a improved, markets of In XX, $XXX interest draw and

$XX million of title Carried second million, is Our than paid claim million $XX actuary's $XX were reserve estimate. provision X.X% for lower for the losses the claims above currently million our $XX title central or quarter.

of claims title We X.X% at continue to provide for title premiums. total

$XXX an title ended years investment rating billion million billion of of the at portfolio X.X and of We level. securities XX. $X.X with liquid and Included average equity $X billion short-term an our and investments the maturity in $XXX in quarter of million company $XXX average of and totaled at fixed preferred investments are Finally other holding June of securities million, and the AX, over $X.X $X.X billion. duration short-term with cash cash

to turn allow me for the any Let our questions. call operator back now to

question first today question. with Our of Please is Mark Barclays. Instructions] [Operator proceed from DeVries your

terms you smaller? Yes, you're versus of repeat rate commercial in also thank what on just closing local And commercial the and larger or Mike were open it's in and the talk trends whether transactions of you. could mix July? about year-over-year orders kind in what national seeing

Great Sure Yes. Mark. question.

over, we've with that the up was also just lows the June. over up July remarks, XX% improvement just sequential May of July off June July that really over gotten has being July the May from April growth that of seen June sequential number referenced opening And XXXX. XX% over and better April So really in

can most July was and fell of side the In opens before, report things coming encouraging national but turned and that is a about kind in was stronger were over that as in was a it little of falloff -- improvement in we stronger local terms kind local XX% of I national. June then the when think talked bit and and less. of up the fell less June the But XX%. up we was and the local around really And and and one this in national on it May and mix back July sequential

really So were for we pre-pandemic our orders in July in really you both levels. X-year will just and now orders big national national that's that if in we're enhanced record opens this because And July. now saw levels very overall positive commercial to in pre-pandemic performance. back comeback, our levels remember And

about mix. asked also You

on back The other the we resale we've gotten into fallen of and reverted side at open where to thing shift opens refi. XX% we we've the pandemic We're seen re-sales side And a down pretty XX%. opening June the were. about the when to July, saw as XX% hit, versus XX%, really about from XX%, it's on

And light indicated XX% helpful. Maybe really from in in stronger give cost though, than the of context loan XXXX XX% in of expect That's you when still lower more accretion think that a initially question second around first I you the you F&G the Tony than I XXXX. outlook maybe you probably that improving at just assumed? provided us you a think little and term outlook guys then for also financing you and F&G could that had Okay. at FNF

hold. Yes Yes. numbers the still Mark. Thanks

I than all the because dropping from got saw And out went in ago. looking XX think of a little probably just XX much -- been you FNF's about as thought good stronger in we year of balance FNF's It's probably maybe days we we -- the performance the somewhere for strength the certainly and feel than markets, mentioned. we teens -- performance. XX% very with bit than

accretion, And continue obviously to that that the that's said balance little on accretion so, you Having And through the are it number very good thing, results feel good XX% be expect of know, a still about for so. a And F&G's as XXXX. pressure year. but I puts the the consistent. we

pleased February. to had X.X% In is we calculations to very be did secure financing of lower terms XX-year X% the back little than were a we that anticipated, in the we bond, that. when And able

XX% their don't think that. -- by of anticipate the in performance I XXXX too or to bit. off would and have terms growth ball. at that in In outlook for would F&G the little definitely outperforms accretion back little balance be up just coming see I bit we XXXX, target be crystal in for XXXX, I XXXX drifting a could higher. in and a maybe FNF that mid-XXs into comes obviously asset don't anyone FNF assuming would consistent But beyond surprised down I assuming a with

very That's Thank Great. helpful. you.

question with comes Next Micenko Jack proceed SIG. from Please question. your of

to is my taking Hi. be seems monster Thanks for the having FNF to coming start I Commercial year. question. guess business off, back. a

you for share and the repurchase going change guys side? of you. forward? you are that get to looking What Sounds F&G to bit, constructive mind repurchase outperforming your sort what's into going more I like, get in back guess is a Thank share context, on

know jump this I Jack, need that. minds about is we on Yeah. Tony. share that, I'll changed Maybe our don't repurchase.

And if cash I'll expected. versus quarter where we're think, are we $XXX at started mean the a like levels. change subsidiaries. -- we $X.X expected. of through all with bit with I And cash. billion million we cash company update billion, in I we're the constrained. levels. feel -- about do started are These we a F&G We the at capital parent But net look million we quarter also $XXX we dividend. $X.X you billion $X today $X.X common you the undervalued end, our in streamed and acquisition We funded about billion fully in borrowed fully and QX were up our spent from current

a we portfolio belonged with we we interest in a ended the in like have We're million. ago, close on $XX we million. we XXX%, $XXX We've at the pleased deal ServiceLink And to cash. willing transaction a bought moments deal. felt the but were week. minority uses always mentioned our there. a quarter in other about And with that last of call, able at that then So for XX% willing buyer, have very But do just few didn't

close So that million, to transaction. on we $XXX spent

We got, we piece, been them roughly a we we out and in paid also haven't for have everyone That's cash what large dissenting expectation else a yet. that. million one except $XXX paid shareholder, haven't And we very them of for our there, assuming the stock. that all cash obviously one accounted pay million shares owe is

that $XXX And set so million that's have to aside. we

that pre-payable, left down. million, keep in at $X the holding long-term million to to some spoken debt $XXX debt That's we call like $XXX bond. we the of really We want have because outstanding. million floated end. company, billion have $XXX that quarter And $XXX couple a debt. whittle we the for that million we So why of of We then at didn't

so And really when next through at of the one-year million And we said the like term to we'd $XXX whittle pre-payable that away loan have or debt. expires. like that April, course I year of over

cash of are through the those on we flow going as you the of well needs cash make front generation, buybacks. that some year. as as we if to second will And our have the the it's depend So half on, way

have. buy I that, it probably like have -- are into I strong, opportunity helps hopefully do and very market we'd will back the we we'll the that to get with think back those And cash and think but think an be to I needs understanding shares.

I for that helpful and on one guess, Chris. uses. was Yeah No. sources the

spoke Q-to-Q but up XX% FIA some share trailing take. year-to-year, X% I think number you are and You you did about a growth

deal about that you else talk trajectory wondering growth in relationship broker-dealer pre-deal for on month a board. marketing the recent or the light I that growth I'm could of trailing the this talked rate that this annualized, size new last particularly the opportunity guess In through and you signed you if XX% So agreement now? coming of about context do how a that in of with we XX% June just everything

question. Great Yeah.

should explain We the most again down really a market have would couple our of did say. pull So back immediate or competitors was say first pretty because dramatically. back I dramatically cut I to XX%

beneficiary the And so immediate we were that. of

We also heading COVID into had really, strong really the environment. outperformance

slowed, saw in paces So they've XXXX. to that but slowed we sales have

So they as as dramatically not nearly we thought might.

So signaled I'd I maybe the that against to probably call come in think total sales last on we down so. X% were our of flat going probably number or to

are now. optimistic things think I more right

So to outcome. say start a sales. of the off of higher in coming into probably I we're end broker-dealer We're would the range that great

So could compete always we nice to happen. it's think it we I but knew see

quickly So exceeded business expectations to well been say we've the has I how as able would door. that to get our through

it the sales to about we opened time, XX%. we other scale point, at -- how a quick the total of would do I up just billion sales been over the probably the So say it, probably doing $X year. for is, XX% upside probably thinking have And more little And of way you market. this outlook then to of in playing the the

a as the volatility is quarter quarter higher on sales seasonality around that Okay. just business they growth? versus or And in there then the it follow and cycle, meaningful Is or performance last lower drive one. there that seasonality? market a Is a just

and no, you There's some But and vacation of may in material lot July don't that, a taking little little as slowdown a advisors time Yeah. be see clients we on variability like there. see of seasonality but a bit are barring nothing off. August sometimes

taking guys. for Thanks Thanks. the question Okay.

question. with Bose of from George Please proceed comes question next KBW. The your

Hey guys, good afternoon.

ask purchase quarter. First, wanted margin about at third commercial stronger the I is outlook mean, is stronger, strong. as like to is it then I refi for just the least looks and

you margin better? Just be it north -- XX%, even there in would third the So or quarter given potentially could be did, any the what of just should good as color guys great.

I Mike. mean, you're it's Bose think Yeah. right. I

closings puts the second. at maybe look the be in have we third should revenue. takes, you and better better to should pretty when of -- terms consistent compared the quarter commercial in closing Resale refinance in Given moderately

all are the So pluses. those

par additional quarter. have be expense. very, it will very we'd on margin put But We to expect plus personnel a or maybe strong second opportunity together, to the all the

the And what can great. actually then us is the ServiceLink refi at Okay, centralized just side? remind you in Thanks. margin

a ran We right the think than Yeah. a refinance for in XX%. around And year-to-date I margins. it's below XX%, is higher which probably maybe really just just our that commercial second quarter tremendous business, margin

actually And a quick Got on it, Thanks. F&G. one okay. then

simplistic in that generated perspectively but rate? things You be it, but this good run leaving credit, a equal is the don't of sort else rate on growth is month, want income good to operating is a that was about just one kind aside that -- run anything all of

that is at you're I'll This to be it quarter. want looking little touch happens month Tony. welcome Chris, join a to certainly people a bit. do We're on caution a I And one that. month in. But ends to and

a you stronger also you third available every see of SPIA the bit in $XX a and kind items we've of I preferred dividends $X after-tax extensive So of supplement how million called month earnings to I down adjusted the And notable can for the of available want think that supplement I million get a very $X that's from guys that quarter. prepay. back million out. looks. bond you But mortality little think there's this

what backed core of out would always we So are call earnings. those

a So preferred three tempted that that's you probably high to to to may as I with the multiply $XX too million by get million you little $XX to gets and dividends. be mentioned that and

basis. I think a on had after-tax or F&G quarterly core million in quarters is, a a $XX to at maybe three about way has think in look I row better four it earnings

million. of back activity. purchase And roughly that it retired longer accounting If paying we that preferred million apply, to $XX they've million $X since $XX dividends been net you then add of that call that positive no you gets

of at accretion, value portfolio mentioned have the closing be of bond $X.X amortization by loss well over offset to earnings income you acquired that unrealized billion we life going to business into as basically taxes. that's that's as of So and accounting accrete going purchase VOBA

let's run so XXs Hopefully forward. million rate a -- low to a net million on you helps. a that it $XX probably quarterly And going call gets roughly there $XX better basis

very Very Yeah. That's helpful. much. Thanks great.

question Instructions] John next from [Operator The your comes proceed Stephens. of Campbell with Please question.

guys. quarter. on morning, a Good great Hey, congrats

Thanks, John.

Hey, John.

back amount? out rate it a Tony dollar what simplify provide way lot to the you the -- if the as to a potential good that but provided of or just a lot to you're depend of income as as going run a is F&G. F&G XXXX accretion X% kind you to to of was going that next of out for to been seems like depend that a obviously rundown of far forecasting is core? for growth details, coming there accretion. really just you percent into Is know just talking think want But year, Because about get on kind I we've don't of about

year out can Chris, the Maybe you what that one let I talk to from typically next. about would grow portfolio you the one. with help may me

Yes.

a our think X%, the X% is asset spread net like range what and growth consistent. on assumptions. spreads then to fairly us seen typically year outperform usually our pricing targets We're I able in we've bit per for

pretty So growth earnings rate. double-digit we've consistent had

to I'd have Tony. accretion, terms how In translates accretion dollar-based that of to leave and into growth or that

added question, any of potential bit can one for you left the offline. -- out a follow But sense up at after that? I get of just field back were to Is S&P to other XXX. little We on think guys, inclusions index just you a closing F&G? there Okay. but guys back one point back for

Yes.

-- Certainly, like I you But going look. think we like XXX. list. and -- some S&P could on strong the of replace, mean, of can given like that a it's definitely not we could don't I But bit. and until the I very it short a seen things Tuesday them the a the at a something Obviously, see now think top if think probably depart that on -- down for are before to you're think one so are know we've until write-up I we're definitely And settle we're just things you I close they list it or where shows and that. forward, I to it acquisitive when where depend then those know they of wait needs somebody taking that. we're on little happens

could probably the Okay. at interest one guys you picking On in here up the job through us If back actually. run more there. maybe I a of squeeze rest level default kind today? Could just ServiceLink high that's and around like some the like nice ServiceLink paused. being moratorium seems with like capabilities that revenue It and looks foreclosure of of forbearance what the

of trend of guys foreclosure? curious getting I today forbearance think, and we've just might revenue kind what out seen but are kind that that seeing on how the side, and Black Knight you of

default start. in the I certainly moratorium can dollar Mike, foreclosure including businesses, front I'll actually But in title of other business numbers default weigh Maybe And in. – with we're auction our we with have Tony the business. John It's that pre-foreclosure right it couple have don't still a our Yeah. far our the But and by businesses then me. title strong. running forbearance of and impacted the services. leader are

see business do. the in me. don't have we if you Tony, moratoriums those front should lifted I don't right numbers lines. those of get know eventually, in revenue as improvement I But So

I pretty in default in of the currently, trough recollection I mean, forbearances. – the we're that don't. strength the because just markets much is obviously My economy and

now those or revenue something in $XXX $XXX million might it that, along annualized number be revenue the have So we million – lines.

you're because of I $XX Tony, let on Through actually the right me million. default number. jump June kind our just revenue was And it. in, found

year, that's this said. So we're what annualized point $XXX million. at last And Tony just at

the be to sense that as any pretty to Okay. title, obviously going seems as is centralized accretive to mean, right? margin? it on be not but it's I And high refi,

lump we on about But overall, six different we Last Margins different that million. at were $XX by million. time, It's businesses on we about together. at year XX% XX% have Yeah. $XXX year this this or five business. are running the default the

guys. Very you, good. Thank

There are call to questions to the would I no comments. time. at turn Mr. like additional back for this closing Quirk

all, the the pleased will our a F&G's the execution are upgrades, will which quarter well market. results significant second manage with pandemic, While is impacted has which recovery a to broker half our our off further start, their which team. expands greatly ongoing we allow year. on diligently as of and of ratings challenging bank housing watch as continue remain quarter addressable we optimistic was the This We Due to through channels. us to the opportunity, and structure them as expense penetrate the of very total the second to the we market,

are call the look execute strategy. and liquidity we able capital confident updating hope you Additionally, its third stay safe. to positioned forward and We who F&G, to remains position well of in is and healthy quarter on on the growth to everyone

conference. today's concludes This

lines you You your for at may time. participation. disconnect your Thank this