First American Financial (FAF) 23 Jul 202020 Q2 Earnings call transcript

Greetings. Welcome to First American Financial Corporation Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] A copy of today’s press release is available on First American’s website at www.firstam.com/investor. XXX-XXX-XXXX call from recorded and number the short by this available will for XXXXXXXX. that and time replay XXX-XXX-XXXX for Company’s dialing note is conference and being be a enter Please the locally ID or investor website Relations, I Investor the Vice turn introductory an now over to make will Barberio, statement. Craig conference President, to

Good second quarter the conference call morning, for everyone, and XXXX. welcome to First American’s earnings of

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

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

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 Dennis most which details call over on release the GAAP comparable directly financials, I Gilmore. the on with presentation morning’s will please at to earnings www.firstam.com. more For to turn reconciliation these non-GAAP including our financial to and now refer this website measures, available

In our liquidity Mark data incident. and our a year’s position Company’s the environment highlight our on will provide and an call. capital our second the our progress Today, current has on, priority safe, the First most our our quarter Early to until of and been market continuity workforce all for of provide and posture the twofold, of information morning. work It is remain on activated Good update needs you security the review plan, the And an this enabled while home. American’s earnings, we to response pandemic, response XX% thank update approximately Currently, in business last employees pandemic is review people the end our likely meeting on in digital customers. year. keep service rundown coronavirus initiatives. working our our joining I’ll to will remotely. to from of give which

great call, an commitment view. consistent At to earnings employees decision. last that our a we June. to layout at be philosophy made our turned It a During time no uncertainty, we of employees of viewed our the and we emphasizes a good long it in [ph] the with end one as in out discussed investment

of surveys Our most levels engagement. revealed recent employee record

our more volumes workforce to expected, order in quickly importantly, rebounded, As we our customers. the place fulfill when trained had than needs of

projected year-over-year orders decline XX% purchase the forecast April second quarter. Our a in in open

Our actual just decline. better a year-over-year been with experience XX% materially has

traditional X% who the purchases postponed growth far in in June, May broad Our trough when when a fell we recovery saw orders recovery July, the spring are have as our orders The returned the and up X%. purchase in experienced in April summer, down in has then XX%. a orders started business so residential the XX%, were shifted. Buyers just curve consistent during has seasonality since

refinance the second orders the orders X,XXX we elevated. our April be averaged line day, in continue In to forecast. open quarter, On side, per with

day. per are far in So orders opening X,XXX we July,

second the across from second better for activity uncertainty, the response XX% the under for commercial quarter the the that year. classes to to remain is prior a market of rest remain remainder continue will declined year, forecast our in We of quarter the the believe expectation the XX% April revenues and our business, the we’ve all pressure our year. than this refinance the elevated seen a in In slowdown commercial of economic segment in decline. that asset will In

in July versus an Docutech last the commercial our solutions have seen transaction up recent orders have just expectations. open our and Title areas in exceed XX% continues with this benefited an down weeks, increase improvement orders in year. to our were Revenues of XX% from activity. business in we quarter overall However, segment Other database

property our Insurance have segment, claims and Specialty to our factors business. Turning elevated driven two in casualty

for claims period by reserves million. prior $X strengthened we First,

number pandemic. large this the due claim losses in believe in quarter, be we Second, part higher incurred a may to of past which we

Our to perform home well. business warranty continues

have in have frequency in our for we outlook we trade, sales initial our pandemic, which direct-to-consumer unchanged. increase to been seen XXXX the claim strong, Although, particularly an this attribute leaving appliance the quarter,

make for transform the continue to closing our plan progress believe has to the demand digital business our We accelerated we on digitally pandemic and services.

We main have digital of title data three and areas closings. automation focus, leadership,

more orders title dependent, to flat. XX% we for process, efficiently closed while patented remained believe Because enabling and title set costs. deeper automate ever, company. to comprehensive more coverage the to heavily in more workflow we broader more our other to process. comprehensive can our was attributed than any and production collect have data data is we done headcount same US This property of already We partially our Through invest data accurately automated assets. work automation property optimize capture our the we’ve of the databases than title in XXXX, a quarter title than continue extraction and we and This data us information

our share capabilities. our escrow Endpoint and quarter Endpoint, XXXX. of have underway although, months, success Lastly, Endpoint we entering early in a just In is on X% initiatives user continue in we it’s past few digitize Seattle. California digital Also, its been automation and number work title value the closing as to like innovation a market closing home-buying initial over title secure professionals launched turn Mark. superior sellers for the company in has to seen leadership XX American to this and us accelerate effort still years real the experience. to put currently mobile-first rapid days buyers, We’ve has has Phoenix to now investments market. digital data Southern in and offering position over launched a and we customers has I’d digital the making to mortgage One experience. call digital in First add enable estate notable the core a The a transforms

per Thank diluted we you, Dennis. earned the second $X.XX In share. quarter,

in segment, of revenue higher realized relative of prior the in expense the transactions a increased to average average premiums, compensation fees in agent and and last while last provision expense down the in closed lag XX%. travel declined investment result per The a was agent by for of and the due balances. XX.X% compared commercial mortgage losses which prior a number short down term offset approximately order investment totaled primarily per not Insurance escrow favorable policy we impact premium per recorded Title year. increase offset higher split attributable acquisitions. or to up reflects quarter million, with $XXX The expense. net increased primarily title diluted share. products. were due million, due from year. operating of led compared and premiums were recent increase was cost gains a of was seen fees, Claims earned XX% XX% quarter, lower-premium per growth XX% direct X% This claims. within $XXX impact demand Services year. This one was the increase X.X% rate purchase our recent The XX%, and other in the lower of $XXX to for as with direct to XXXX. production-related by to of title lower decrease million, categories, largely information revenues decline mix $X.XX uptick premiums. and The Personnel to of down the The result increase $XX second the Information Insurance decline by costs value up expectations. $XX refinance the other experience the title was the revenue decreased was the an that Excluding year. in costs escrow Investment XX% refinance we direct To-date, to portfolio decline be of are million, order higher in recent decline on order XX% equity $X,XXX on and company’s In The were in X.X% securities, in million that revenue the to to of title premiums, primarily to million, interest related $XX average last primarily for transactions. partly loss segment up X%. increase offset in an to Incurred provision from originations orders. incentive order, million relative $XX expenses a year. a orders Services higher X% as Other due in the of title Agent X% were a cash shift and and growth to a Title of XX%, the Docutech acquisitions acquisition have to a rates totaled the costs was an income largely and claims of volume, continues number claims primarily from the relative

violations impact Title the margin Notes XXXX. margin the consists on was contracts June year, $X realized issued quarter due the the tax notes current corporate rate and quarter until XX.X% will million XX% was the the and the We we of balance $XXX segment which maintain for sheet the over The more for with Our adequately New analyzed, obligations. XX.X%, other Pretax other investigation investigations without quarter, compliance Today, findings. senior in compared have the from are with our company. recovered security services last to notes, period contained, York’s amount closed and environment SEC year and million line the wanted compliance Department available deed Depreciation other division the Services into XXth, examination information general XX.X% facility. recently, control compared to since security payable the to proceeds revolving have notes conducted year. of was $XX the York’s facility as the holding our It response in of compared and information environment $XXX XX with amortization the mentioned our is have that we primary at we active New cybersecurity the Department New Nebraska take one we a credit an opportunity number requirements requirements. suitably Department report Insurance with claims year, million, a same with of incident held used The X.X% designed led that March, security of intent senior over prior and program as segment the the $X a provide rate and Financial May, incident York affect billion being expenses appropriately rate. credit and and our effectively million the we York quarter and eradicated enforcement down gains, $XX in just XX, last second of our net to regulator tax New Company, Services report, and the detected, of last The of has enforcement the year notwithstanding $XXX compared $XX now in operating currently been million pretax this excluding Net million $XXX alleged to companies. $X our recent normalized is expense earlier, the any $XXX totaled last loss is of concluded our A for have million to notes the two of year. XX.X% remainder XXXX, is income of with Insurance, that Pretax trust $X has our of up I compared Title experience. update. million cybersecurity how resulting Only up X% by effective $XXX information security due of acquisitions. by June of in million was with with investment million and examination In million IT the pay was an Services, In regulators you under incident. or been our in staff. in Insurance and primarily million finding entire financial second Financial XX.X% of and visibility of little of year. we our were

they had filed a on, will a focus not result, and matter intend to believe of statement incident time the yesterday defense, conduct We pending, a the do There been to four to resolve as Our we’re efforts successful, vigorous which litigation, charges. at our which disclosure and our and defending with with of are examination the consistent the of among made that controls. the questions. aggressively cybersecurity the also we to other investigations matters, of The requirements. class adequacy perspective. the New turn not the enforcement approach at York’s our staff questioning SEC over We regarding from material operator compliance disclosures class against. is will adequacy to typical conclusion now actions actions financial take back I like would to these and be your the call a report

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

hard on commercial market. is and side, and It the result as it’s how Thanks. also, sounds to And due what like so of your to Yeah. demand commercial on higher you into think it’s versus of in pretty know July. drill just demand a the balance for back expectations of pent-up trajectory maybe a made we the but affordability go the I far are expectations purchase and down purchase do side, reasons? improved the the improvement significant year? a Dennis, much on as residential Wanted that of other half for the question,

Sure.

out it mean, shifted when sit the I Really in second purchase out curve, here clearly, June, decline We question, the into May, now, quarter tell hard very start what business. in better buying increased us in spring XX% increased turned in to in the specifically the to Let’s but your that. than and we shift increased or the is like the with strong. a to the pent-up And a interesting, summer. it July. is It’s right curve season the now, market looks forecasted demand it’s cyclical, shifted the just

recovery. So very strong, very fast

it On of the we in would and second will commercial side, we rest see be thought the see kind XX% headwinds, market let’s down. it so probably year, commercial the break the one down probably we of on still the quarter. for We

nearly down XX%. actually We’re

only ago. also which down. are Now, guess, in July. in an interesting They right down uptick early year our is will from I be we’re deals you’re now, But ARPU XX% seeing cautioned, a

We’re mega it not seeing turning the out of deals.

that, how down the right headwinds and commercial see profitability, It will now. definitely even kind for of all - to the perform well see It to But the I right commercial how continued rest of will face be there. now. business kind So of year. our very we has we’ll with material contributor that’s

Okay.

of like So to deals a headwind it sounds still headwind. transaction kind bit maybe of the than a mega revenue more a slow back? are It’s come little

in won’t reason to year. longer the stage. I commercial deals And rebalance. just this later At mega for but kind come of back, the market back a think they’re it little have that to I no Yeah. going will come guessing believe take I’m the to

know Okay, it. CoreLogic they got a this as some guys to but If of in got question, participating that? I it. bids to the you interest process to have answer And of unsolicited result ask in any kind received, the have institute I I feel were a think would sales I

Yeah. Interesting question.

may try not they and what now, to are on never. kind do It what but of ultimately We potentially go focusing never on they right depends assets I say sell. CoreLogic

helpful. Thanks. That’s Okay.

Please question proceed. Our Micenko from next with is Jack SIG.

morning. good Hi,

year. of thinking able But looked comment a of the know getting I second impossible opportunity ever of tight sense the sub-X%, attractive capacity loan that going mean lot now that and just so We to Another you you’ve the on earlier wondering I’m today I that how do is been the curious about refi well, balance But you from look - you’re now a question in when refi? that? through addressable of sort or that and were the at the remain is pushed quarter a even got have some loans I’m you of out. volumes refi. size to for market what in strong had lag But refi have to would from answer. that you guessing as is your the but benefit here. agent high-Xs have are

question what kind Yeah. We differently. impossible that little to of at is just are orders I’m X,XXX. in we question, second It come We a an at right the a day in going kind now. of came but seeing quarter. forecasted X,XXX

our to close very So forecast.

little going through think all of I stay your better our at So X,XXX, of year forecast. the running the we year, will out the question. kind when a far into strong so in refinance look we’re for to than rest But ‘XX July,

part purchase, to Now question we fourth strong your market, for built actually again us to as the as I second future. it’s market seasonally for refinance going period we’ll into sense really the the be slower of improve see capacity of makes the but of spreads is, think the have think us I will and in the think it go a refinance originators on quarter foreseeable we first quarter. can’t demand size We the and the for and strong

was business quarter, expectation you the for is what Docutech, Got think then XX%, kind up on tech And about for year-over-year it. that XX% year? contribution the the can this and of talk I

Yeah.

item in we performing little $XX that’s million talked So, and market. Docutech It about over and and in EBITDA million the $X a in the information performing. second the included strength the quarter, line are refi it’s and how well given revenue the been all was I mean, well was other obviously

I elevated rate while run at that’s good a least, see think refis. So we

continue into $XX in was quarter, integrated going still into EBITDA. but just more integrated provide First going operations, numbers to because the standalone fairly revenue, we’re our it of million think be it of as in $X million second American, we I to will forward not

And sworn that years, of is it percent I - little revenue that why that had was know the OpEx of is variable, line the that partially than separately? but just OpEx a bit had higher our period? as over the a is year other little is is deleveraging about up, in ago

part now of operating were I are But the lot of is we’re to things notary just on just more there mean in prior to happening. fees it. - going we other a That’s than that paying COVID expenses.

of equipment and line We’re types spending certain that hit more on that has item laptops recently.

I Docutech. not different things a think just few is happening So there, there

you. Okay. Thank

Thank you.

question with Hughes proceed. Mark Our is from Please SunTrust. next

Yeah. might whether Thank do front you views think very you’ve very maintaining this expense much. Anything the expense you’re to about of you curious actions I is any there point? workforce on this at the I’m this episode. look got time. on at clear beginning Dennis, your the

thing markets Yeah. Thanks absolutely Why I quarter. a quarter. thing the we’ve right very was a thing faster way anticipated expect Yeah, of recovered for to employee the smart the by first is for our the we policy it do end in proved as seen than to really the our serving made the do, right and decision big the it’s focused think the new uptick been would and you second much to on beneficial question. layoff customers. the they’ve to do maybe at right It scores we us in the as engagement

we’re business the Now our now. to revert going back to how forward, our management is looking kind going ratio right of success normal at we’re to

It refi that In the How sounds like the is an is number? helping purchase? there refi in versus on deals. comments stabilize mix uptick of commercial to the much business, any

somewhat. helping It’s

revenue last of commercial in commercial XX% A been XX%. was that’s ago gradually XX% it and terms In of couple - over of the our increasing revenue, years. the our refi revenue about was year our quarter was second of

and a seeing So mitigating factor commercial business. refi somewhat we are with of

little And anomaly? X%, is than the do residential on or going it - of that little was was think how rate purchase, that up you bit is good a about that ARPU, run the bit less a a forward

and a quarter right. it so we from in volumes second really get a our really perspective happened California of lot saw the a fell really business we issue, What was was mix really direct where sharply

because QX perspective, kind - we of that But California forward really see I California improve you’ve come so seen our was over back like we’ve volume talked just saw snap So, should about. that that back, don’t depressed next the the so from going a we and X% ARPU seen California for and over aggressively. think because purchase revenue for be QX the up - we’ve

scrutiny, then any or And this might loss take defense provision costs? regulatory finally, you either quarter probable the for

didn’t a take reserve quarter No, know on we plan now, and reserve. on right don’t we based this what taking any we

So something we that not that’s expect.

you. Thank

Thank you.

is question. [Operator question John Campbell Stephens. Instructions] Our proceed next Please your from with with

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

you. Thank

over a want to info services years. conservative just touch I have you and a the the line on made guys bit. Dennis, effort pretty

You’ve data some that really offering. CoreLogic? to of CoreLogic I job compete that that I more or just But a another robust with to up related June, kind any way what of out or And in you curious does driving expense in to data far dependency free a expired extent on can thing, where as guess, that maybe with as about around guys for guys the done good views revenues guess data. you XX-year improving is CoreLogic agreement the then building cords of thing. your cutting of longer term the is one

without than automated for bigger we talked CoreLogic take no running a data it And have about developed number datasets we where We’ve pending, at we compete our more it for all about an automation depth manner last in sophisticated think a been building our of databases amounts on databases. patent insurance a in now, it that patented method have start with couple anybody else you than most title. talked a years very doubt how can any then can into Right years. over using of as the there to this, extra we’re limitation anybody else. lot there. out very extraction vast complete, maybe information our haven’t now get our most with, because now We we we’ve out right we the is John, our on-board, industry few comprehensive that’s is the and why And purposes, we and

you databases what seeing title so future. drive is other grow automation growth We’ll that nice our use and our continue called, just, other where licensing others. you’re depth then our and greater online we’re maybe data I’ll tell to heading, in in in content. the business, So to secondarily, our business, businesses, greater And

Okay. That’s what’s But And baked of for assuming the in I the this helpful. maybe then Mark. is profile just for fully margin Docutech, business? kind all-in insurance services

to as I say know there’re our business, so it businesses default our some that talked different about. business international many got have Docutech, hard It’s we know data I Dennis mean, because in have business, we businesses think you but there, people in I John, we’ve there. got we’ve one really of our don’t,

margin safe is of higher I the businesses, since a is more But segment. many since of of kind software-driven, than But title. more profile roll-up say profile our think what it’s data speaking margin a we overall is. to different are have than we of generally profile overall it’s title the that sliver a they kind really margin higher - don’t and don’t the

Okay. That’s what...

only expect data a businesses. They of from would contribution characteristics have larger we I’d to data as get is, John, continue margin add you our any business.

then That’s helpful. last I was looking very And one that’s me. for. what from Okay,

that just down you how you’re provision seeing do really year-over-year, dollars loss I from guess mean, achieve you guys claims developments. are a not you and trends it a plays that, But adverse I is level forbearance carry that you more mean hold on long absolute the X% here? any there rate? or being rate, conservative really, you’re seems curious market there. are looking like get On is until really target how little X% out to just clarity I

one. start I’ll that on Yeah.

loss So heading of X% again, the we’ve we couple last We feel booking this crisis. reserves. in really about into And good been felt at year years, we of them about our rate a great is and goes environment tougher than in That’s factors the we’re economic the were into environment. factors last one year. this one of and claims economic that a

So X%. we do loss to thing and would the thought the raise we prudent rate

haven’t far month sign about. fact, in our you’re we forecast, actually so our we just claims Now, talked least single been any at claims like every - have the that uptick appropriately we’ve in our And own reserved. below year seen that of

So that the there’s uncertainty plan is right still now, the in market.

And to more couple We bit know book for at what our see impact it’s get once - X% too little we’ll the a it. quarters we continuing the will on plan claims little and early COVID bit we here. think look a of to visibility we of is ultimate a

claims I see will time ‘XX default, we we rates John, the real telling We’ll know we become increased for add early the only would what when is, the that And issues And when see probably default an see increase us. unwinding. of do forbearance for has kind are. in it a possibility

early ‘XX will clear is a So my lot guess. in become probably this

a with release? get a where to point estimate there have reserves. over school reserve to And Is help on point you me process in you bit the some Okay. the extent where

that The that’s below. X% and more of we Yeah. can’t mean general the thumb. our auditors I above can’t than rule think I than is XX% rule thumb be we general be of more

third-party of X.X% As were above actuary. June XXth, we our

to do we But still can’t room point. we So that we have There get endlessly. mean right, there. you’re we before some increase a have is a reserves but cushion cap, I our

Very you, helpful. guys. Thank

you. Thank

next question George proceed. Our Bose Please is KBW. with from

how XX/XX And good any for volumes environment? curious into volumes The I’m rate rate playing that, a current picks upside Hey, like XX/XX investment just is run in the there morning. now the increase? up [ph] are interest is good that commercial income, if

Bose. Hey,

that each and our the quarter in line talked of million, it investment with it’s last right heading income feel range. at reinvestment in this of we and $XX $XX in will between our just came $XX year, $XX million QX, middle but we about in the probably the So be right to estimate. a rest like million quarter, second going to for little million, $XX we a QX bit little segment quarter the to million and still of fall in rates, Title And for lower lower because at in

Certainly, So there’s no range. but still expectation of it’s a income. million investment between I think to swing. $XX $XX going that’s our about in picks be up, for to that, question volume we’ll I the if better commercial XX/XX, that million don’t much will it be still be think

the the Okay, business, side people can that? on thinking that this And great, Just you’re is from anything a curious working that there curious and thinking issue you’re done for the home with how be thanks. so loss continue of about about there? to how frequency home switching might then while, just pricing warranty increasing

That’s something years - doing. in kind that we’ve The raising of we’ve selectively on warranty regular really been basis. home is a Yeah. last rates been few

happening And at think we beginning yes, I than when better more of claims, equipment warranty what’s appliances, we also thought the people doing more what with now are but more, looked on were the direct-to-consumer. in forecast line having we their especially at we’re really, because our are right home, the we’re expecting is, home right a lot it’s year. they at of year, kind for using with

rates. raise room So there is to

it’s been something strategy We’ve years doing do. like for now. not that several key that’s just a part of we because Although, now, regularly our

in decline goes through curious of - driver what Okay. actually more the what’s that And moratorium, foreclosure like segment, that? the default the on one the what’s there? then in I’m what just just revenue the main Is order drove

moratorium, long mean they’re that’s as default just of more Yeah. because they’ve what’s of really, is. that. time so really and now low really owners the I but as a getting long, been in we’re right driving That’s it what that, because

great. Okay, Thanks.

Thank you.

Please Hughes proceed. question with Mark up Our from follow SunTrust. a is next

you. you the your Dennis, Thank year full for pretax could guidance update margins.

call feeling you said are How you to now? on that X% the think last I XX%. about

Yeah. come start to I’m that I’ll let going on question. Mark back.

Mark, and we what really forecast market there be to tell never more did much thinking. because it really have just ever. so last was we our and wanted transparent we quarter just the given We uncertainty were

were our bit market that down is line mentioned, down improvement. we’ve XX%, down in the actually at XX% what thought. thought was retail we’re were while it a look we back materially quarter, then the we commercial The that was April, you down said what and XX% is and in was forecast doing orders when in expectations Now Dennis with refi that’s than they back XX%, to better second - going better. that seeing we what be little our right

better So everything either than or in is line our forecast.

we our plan forecasts looked going forward. at than title regular of today, don’t the but when we that on be higher So sit to we’re where high-end going X% margin, generally on we based XX% range, providing to

at I are performing just this feeling looking optimistic quarter. mean kind Yeah. year The well than And we’re what so at business markets of we’re better of end of the end half better. lot and were Mark about - of the All-in-all, a back reiterate we’re said, at the quarter the now. and first Mark just we the the very

Thank very you much.

Thank you.

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