First American Financial (FAF) 9 Feb 232022 Q4 Earnings call transcript

Greetings and welcome to the First American Financial Corporation Fourth Quarter and Full Year 2022 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 the short by this available will for that entering time replay and for company's dialing note is ID and being be a the Please conference XXX-XXX-XXXX XXXXXXXX. or investor website

turn now to over Relations, call President, Craig introductory make an the statement. Vice Investor will We Barberio, to

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

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

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

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

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

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

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

call over turn our I the will Ken now to CEO, DeGiorgio.

turning. that very year. was on, of to the XXXX you, cycle beginning Early XXXX strength the saw we continue Craig. of Thank At many the expected however, into the

on result, we a began As focus sharpen our expense management. to

year billion. income net total our the management these to to achieved XX%, $X.X excluding net declined growth expense revenue, a title First American year commercial investment in segment Due pretax full losses of record-setting XX% that or in a margin X% in efforts, nearly benefit and of business, part early investment on

weighed diluted excluding our $X.X results. net In pretax XX% we conditions X%, investment per quarter, revenue $X.XX on market we of our losses. investment fourth per segment, excluding financial title share or the Continuing or of challenging margin earnings of net delivered a generated losses. $X.XX and In quarter billion share,

results drivers key focus in continued ongoing these income. of management were on our The growth expense investment and

Our Insurance of pretax contributed losses. excluding or investment also Specialty segment with margin a net XX%, XX%

levels. orders ago. per XXX key Refinance opened declining been our so for to year years, Turning two down has trough the day title per a In X,XXX over we refinance businesses. it's now from past day, January, at

purchase open in are our open of down quarter. this purchase with to December, XX% November were signs January. down improving and down on XX% XX% in in Our down orders Based order seeing from we orders XX% stabilization, trends, early

home improvement with optimistic early purchase that prices rates, the lower decline affordability of makes therefore, recovery. The which demand combined in the led stages market in mortgage some to recent and in has us cautiously is

record Our year XXXX, had revenues a up X%. commercial business with in

months. been have open However, declining orders recent meaningfully over

January in quarter, down the compared trend last continued with down this year. XX% Open orders fourth open with downward were has in orders and XX%

high, remains business that commercial good below XXXX's but another expectation our uncertainty While will record it for in be XXXX, is year, our level.

down company we environment the challenging cycle ahead of emerge the the even positioned Despite current us, ends. believe when is well stronger to

in capital to sheet returning as initiatives, pursue actively acquisitions including, as Our deployment strategic healthy shareholders. balance continue key investing capital and allows opportunities us to to well

on delivering the and our their from our adding settlement with to We efficiency, pay focus decisioning company for make tasks, service. people digital up customers purchase out our importantly, These instant enhance and title interact by superior over to and good way further Endpoint, transactions. us progress customer will continue process-oriented investments improving title initiative, at ability today freeing to time

On we attractive to through XXXX, to that returned may financial And during share have shareholders $XXX the pursue we the M&A to front, opportunities arise. million repurchases continue flexibility and dividends.

closing, the focus hard the accomplishments estate and our and their I It we XXXX, sharp company's and as navigated drives for want through for employees work success. downturn dedication their talent real in In all to their is professionalism, our thank in market. that customer continued

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

you, Ken. Thank

investment earned losses. This Included in results, of $X.XX this diluted per share. quarter $X.XX we quarter's were net

per investment Excluding this contributed diluted $X.XX items our to these quarter. losses share. Two losses, we net earned

strategies. First, we planning connection realized our with million $XX of our in losses fixed tax portfolio income on

we unrealized to portfolio. losses, $XX Second, related million venture our incurred of

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

Our of escrow $XX largely totaled are driven balances, of by $XX in from year. fourth billion quarter last activity, the end down the the at which commercial billion quarter,

orders Purchase revenue in X% increase in revenue per by the was by down offset number quarter the of closed, decrease partially during order. XX% the a driven a average XX%

revenue benefit per Southern order purchase Our transactions to recent companies of acquisitions continue in California. escrow for from

revenue transactions the the numerator a in without escrow corresponding from include denominator. We in these title order

order acquisitions, been up X%. Excluding per would have revenue average

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

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

across XX% and was other units, driven decline information data, to down the of property residential in levels were information mortgage transaction The by result the $XXX post-close the revenues million, year. several including relative company's and last business lower originations, decline Our services.

balances XXX% year. $XXX short-term interest income prior benefiting are cash the and Insurance the escrow rates within Rising balances. our we Services receive on and and investment increase portfolio, income was Investment the a segment property exchange million, to relative tax-deferred Title

tailwind risen, income continue XXXX. for have rates short-term a As earnings we investment in to to be expect

we On given manage continue decline side, transaction the activity. the expenses in expense to

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

ratio given the outcome, strategic good was our in long-term sharp target Though transaction below fund we decline continue to commitment and our our of a XX%, activity initiatives. believe success to

quarter. of In addition we recorded this $XX expense severance million

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

this investment initiatives: points. our X.X% we in pre-tax ServiceMac, and discussed which $XX for Pre-tax quarter, a XXX the turned million by Last basis title Notably Title instant EBITDA decisioning of three segment loss impacting margin losses. generated excluding net or margin Endpoint purchase this transactions, quarter, XX.X%, ServiceMac was positive quarter. together pre-tax

$XXX revenue warranty million home last million, was Insurance in Pre-tax prior compared home Specialty the our Total X% in million, income down the in to with from Turning segment. $XX year. up business warranty totaled year. $XX

from in million, a $XX ratio frequency Excluding and losses, of net XXXX, part The in investment lower claims. was XX%, warranty in loss $XX income year. last pre-tax by XX% million gains driven down home was up from

The business X.X%. Property and financial results rate of are our the material. quarter longer no was Casualty tax The for effective

Excluding mix tax businesses, losses, the tax less and rate our rate been income real our the of tax. to to tax which due shift earnings XX.X%, have would than in of generally insurance primarily a of investment premium net impact XX%, estate our normalized

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

million XXXX, $XX.XX. average of the year at million price an full shares of repurchased for X.X For we of $XXX a total

XXst both impacted December accumulated ratio loss XX.X%. payable. as is financings other our was secured and debt-to-capital of This by Our ratio comprehensive our

Excluding items, these debt-to-capital banks our is more line our in two the how ratio which XX.X%. ratio with view was

to cash market matured, $XXX Xst, in new unsecured million using on that other hand this draw senior either line On notes senior of capital we our we replace holding factors. and company. expect or Later notes year, to conditions on unsecured depending on February at the repaid debt issue the

December recorded $XXX of accumulated loss of we As XXst, million. comprehensive other

This tax loss, capital which XXXX, fixed quarter elected we we capital recognized and planning offset in to of with million income in gains $XX sell strategy our XXXX XXXX. connection to produced securities

this expect of million ultimately $XX to We strategy benefit. cash generate

transparency to Finally, are enhancements our we two to making in additional provide order disclosures. investors to

monthly break January beginning orders to and orders report. disclosures addition in our will with purchase First, we commercial and disclosing out our refinance

Second, segment. stand-alone will first casualty our corporate property disclose segment to and move the in reporting and home our a as quarter we results warranty

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

Thank with your proceed question-and-answer comes session. question a the first Instructions] KBW. conducting with be from We'll Our Please [Operator George question. now line you. of Bose

do guys. Hey, And you quarter? can you Mark you've you repeat going the then, think or said we what environment? Good you expense severance more morning. current like kind right-sized to feel that, about of this do could see forward, of the

Bose. morning Good Hi.

had million fourth So expense, quarter. the in $XX severance we of

extent in not that have think heading a little the bit quarter. fourth into to quarter, first more quite we'll had we the the severance but I

anything rate, tax the rate of on Great. kind of we And change? use normalized forward, Okay. did kind the just then, Thanks. going should or

of look between rate we and there. if couple XX.X% benefits our at because No, we've forward, and less tax But been years, last XX% that, normalized somewhere and rate. look the moving for is tax discrete I normalized has XXXX XX%, you gotten because than here actually think over

Okay. Great. Thanks.

Our line proceed with question. Mark the next your with of question comes from DeVries Please Barclays.

of some the get quarter. was mix in just color hoping I the commercial thanks. Yeah, business on to the

from we be for still XXXX? kind pretty get large as what's benefiting of into to a expectation that You your seem ARPO,

little obviously wasn't most in a of Fourth say, was we're momentum we've was It would a relative standards. for XX%. historical I XXXX. throughout a good was which as bit more was to still prior as challenging record. good -- the had It quarter year going Revenue us. down to lot commercial of just

based now, will the our think, conversations certainly first actually customers. But orders I'd months terms larger level have quarter. softer are transactions things and to we ARPO, would decline the of up in not pick year expect historically that Looking a of second think ARPO next commercial think closing year. we're having because half in for of at of I in just the And with the see same including say, second XXXX, to definitely last we're we softer, we seeing I six in in off that

investment question is exchange just still the there Okay. Got there's little more a a balances? a a there it. hikes. on just XXXX Fed as few on of headwind more commercial income trend And know kind bit then probably orders from from I investment down, having the income. lower tailwind But related

investment it the when that -- on just ago say, last was would look curve, forward income, I quarter. favorable headwind. now good a a Fed actually we more is news at or it's sorry is the year There than

haven't quarter. the And That's in get XX the full in points here will still so points basis the effect we XX December, we the which gotten first of news. Fed that rate in basis good November and

a close and the lot of balances for there's seasonality reasons. are falling then balances into January escrow and The we is are natural falling January. is, month two just the bad our typically at in of deals balances heading news end commercial, One fall

course, So market seeing our a we're and of a balances normal or we're the But impact to seasonal seeing cyclical of more to balances. purchase with impact commercial down down. also,

but going us, So, hurt off overall, we a be bit. think certainly to a for is balances to little coming investment tailwind continue us has

I -- for this we think million income always $XX would generate rate couple of every of given guidance years of last for $XX we've the annualized to increase. investment million

Now low balances range of our are. given at we're probably that the where end

Okay. Great. Thanks, Mark.

Thanks, Mark.

question next question. Truist. with from Mark Please of Hughes your comes with line proceed Our the

morning. Good Thanks. Yes.

morning. Good

you it The lap kind where does have helped by the ARPO, X%? phenomenon would you residential the been do side talked to M&A you're the of on back otherwise. X% that? go And about When this

We'll lap first quarter. the in it

going be the for ARPO that, to quarter QX the pure have talked we escrow that of about kind is last here issue. Southern a QX California year-over-year So will

Yes.

circumstances. given see on you things improve? ratio pretty the success are predict. under you ratio front thinking on personnel all But ratio? seems can success order should still trends a then certainly you lot anticipate success the how And depends Would and good about the Okay. you It of what

will been conscious expenses. continue the too management is Mark, forever level about Ken. on Hey, continues little that real bit. add expense we've is think this if I'll always deteriorate, we're of the ratio will to a market success and conscious We But consciousness probably improve

Yes.

Thank Okay. you much. very

Thanks.

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

New Year. Happy Hey, morning. guys. Good

Happy New John. Year,

pushed Hey, of thinking We warranty question on kind two-part business, Specialty the there. with surface. that of, Insurance were home ahead bit rising just you Obviously, guys a well really But results the here a were the good up segment. us.

you then the much? to is return year? And and revenue also could drove question picture you what segment growth revenues and So you've to so up in the growth sequential bigger first maybe other owes do from think a then operating the talk that why [indiscernible] positioned this to

market But was good business. can some quarter think, come home estate comments and I'll in pressure channel the it estate considering the in numbers. resulting Mark then yes, I the in real on the on our the and high-level Well, give a real impact warranty

but still claims Our -- claims, are is the severity the on frequency still down. high is

in So And probably and of that resources realizing we as think note more as there. we're we've is we've increases price also direct-to-consumer been meaningful more business I'll pick-up renewal good rates. making some of results our seeing in normalized frequency well levels. deploying in the the been pretty a benefits we're

-- claims The an got of this came home was in $X add the annual revenue year end would business depending in how warranty And of at true-up the Yes. in. the I there kind revenue our we only home thing is do we million true-up quarter. John patterns our warranty on

So a trued $X with about costs. that. And deferred expense we benefit our we million too of as associated get was there acquisition of up did that

about So to $X was Home Warranty. it a million pretax for impact

to That's the Okay. And segment wanted drill then helpful. on earnings. down I

margin the over that much think that maybe wind-down segment about have P&C then ever going you the I of of good can impact and guys where probably looks not with what like that think moving you year full But about like just you of best have sounds you're margin run for the assuming the forward. a margin think just What's to maybe to we take it that -- probably was time? segment an had. business think

million. we're a thing basis. third the the this on million $X And P&C Yes. $X too business And seeing quarter we a effectively in ago our also lost wind-down I'll Even one that point benefit was we quarter is out of pretax P&C year a lost in breakeven.

out our So we're specialty getting cleared that of of kind segment.

say have a typically really revenue is channel. going Warranty the a margins I like normalized the I of Home kind But of And in low Home margins. done somewhat mean Warranty. terms than particularly would job forward Title better margins they've been growing good the for direct-to-consumer of market double-digit

type think cycle overall And faster will than home little the through so of warranty bit a we grow the business. the

jump Okay. back Very to helpful. I am Thanks. in queue. going

John. Thanks,

for today's on are questions by There enter will and dialing ID no XXXX-XXXX. We like the be time. call morning's would company's XXX-XXX-XXXX or additional That listeners the concludes call. this this or at remind available conference that to replay website XXX-XXX-XXXX

company for like to you This conference The your participation. would today's call. thank concludes

may You now disconnect.