Stewart Information Services Corporation 2026 Q2 Earnings Call

Please go ahead. Thank you for joining us today for Stewart's second quarter 2026 earnings conference call.

We will be discussing results that were released yesterday after the close. Joining me today are CEO, Fred Eppinger, and CFO, David Hisey. To listen online, please go to the stewart.com website to access the link for this conference call. This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Please refer to the company's press release and other filings with the SEC for a discussion of the risks and uncertainties that could cause our actual results to differ materially. During our call, we will discuss the non-GAAP measures. For reconciliation of these non-GAAP measures, please refer to the appendix in today's earnings release, which is available on our website at stewart.com. Let me now turn the call over to Fred.

Thank you for joining us today for Stewart's second quarter 2026 earnings conference call. Yesterday we released the financial results for the second quarter. I will kick off today's call with an overview of our performance, followed by our outlook on the housing market. I will cover our results and strategic direction by business. After my remarks, I'll turn it over to David for additional commentary on the results. I am very pleased with the second quarter results. We sustained our growth momentum in each of our business lines and strengthened our future earnings outlook by significantly investing in some additional business opportunities. Our results for the first half of the year reflects the efforts we have made to grow the company and improve earnings. Our year-to-date results demonstrated our success at growing both top and bottom lines.

Year-to-date, we have grown revenues by 26% grew adjusted pre-tax income by 45%, all while the housing market remains at multi-decade lows. Our momentum continued in the second quarter as we saw very strong revenue growth of over 24%. Earnings growth for the quarter was 13%, with slower growth driven by a decision to make some significant additional investments in individuals and teams to boost our organic growth initiatives in three of our title businesses. In the quarter, we made additional investments in individuals and teams of around $8 million to capture these targeted business opportunities. I'm excited about these opportunities and believe we should see the full impact of these hires over the next two to four quarters.

Even with those investments, I believe we can deliver earnings growth that will outpace revenue growth over the second half and for the full year for the overall company. I am very encouraged by our strong momentum in 2026 when considering current housing market conditions. Growth in existing home sales has been very modest again year-over-year, up 2% for the first half of 2026, but still hovering around the $4 million annual units, continuing the multi-year slump. At the onset of 2026, we expected existing home sales to improve around 6%-8%. However, given the position of interest rates as a result of the macro and geographical conditions, we now anticipate a much softer improvement, with growth more likely topping around 2% when compared to last year, keeping us solidly in the low $4 million existing house sales range.

While May and June saw some positive existing home sales momentum year-over-year, the annualized numbers remain in that 4 million to 4.1 range. Home prices continue to hold and slightly increase by around 1.5% for the quarter, even as we see more inventory coming into place, reflecting the demand still built into the system. The charge of owners of under 3% rates continues to slowly shrink, coming in about 19.5% from the high of 25% of outstanding mortgages several years ago. This implies that life events are slowly inciting some buyers into the marketplace.

Interest rates remain a critical factor for potential home buyers considering determining when they enter the market, in the first quarter, we felt the positive effects of rates moving down towards 6% range and felt a dynamic shift as they moved back up around 6.5%, which is where we are hovering throughout the second quarter. Turning to our business results, our national commercial services business continued to deliver strong growth in the quarter. Total domestic commercial premiums grew 20% year-over-year and are up 30% for the first half of the year when compared to 2025. Energy continues to be our largest asset class, followed by strength in some of our larger asset classes such as data centers, multifamily, and industrial properties.

We are proud of how we have built this business over the last two to three years, are laser focused on the continued expansion in this space. The acquisition of industry-leading talent is a critical activity for us to continue to grow our footprint, and we continue to seek opportunities to expand our talent base. In the second quarter, we made some significant investments in hiring additional teams to address some regional and sector opportunities, spending an additional $3 million-$4 million this quarter to do so. We believe in these personnel investments and anticipate we feel the full impact of these hires over the next two to three quarters as they settle into their seat and begin to contribute business. Our direct operations business unit grew consolidated residential refinance and Main Street commercial revenues by 7% in the second quarter compared to the same timeframe last year.

Residential transactions grew 3% in the quarter, slightly better than the growth in existing home sales for the quarter. Main Street commercial delivered solid growth, with revenue up more than 20% due to both transaction volumes and size. We remain focused on strengthening our position in attractive MSAs through organic and inorganic efforts and have begun to see more opportunities become available in our target geographies. In the second quarter, we invested approximately $2 million in incremental organic opportunities to acquire individuals and teams in support of our growth strategy and direct operations. Our centralized title operations, which include centralized refinance and our bulk business, confronted some tough comparables when compared to Q2 last year, as our bulk businesses particularly can be very bumpy. These headwinds impacted our overall non-commercial direct business and drove results down about 1% when compared to the second quarter of 2025.

Our agency services business delivered 25% revenue growth for the second quarter in a row, which we are especially pleased with given our agents confront the same headwinds as our direct operations offices. We are focused on growing this business through winning the business of new agents and expanding wallet share of existing agents, with the emphasis on 15 target states. We are also committed to expanding our commercial footprint in agency, and we continue to make good progress on both these priorities with residential premiums up 30% and commercial debt premiums up 16% in the second quarter when compared to the same timeframe last year. In the second quarter, we were also proactive in making additional investments in talent to take advantage of some disruptions we saw in a handful of our target markets.

We invested another $2 million-$3 million in additional customer-facing talent, which should enable us to build significant share in these target states. Our real estate solutions business grew revenues by 75% and adjusted pretax margins by 24% in the second quarter compared to last year, ending the quarter with a 13.6% margin. The year-over-year comparables in this segment benefit from their acquisition of MCS, our property preservation business, as well as our acquisition of NAN, our national appraisal network. When removing those contributions to our revenue, our legacy res business grew roughly 18%. We remain focused on continuing to expand our coverage and servicing of the top 300 lenders, and our suite of products and services is in good position and is giving us even better ability to cross-sell and win business. Moving to our international operations.

We are focused on profitably growing across our footprint of Canada, Australia, and the U.K. In the second quarter, we grew our non-commercial revenue by 4% and commercial revenue by 7% in challenged housing markets. We believe we can build on our strong position in these markets and continue to grow profitable share. On the topic of inorganic growth initiatives, in 2026, we have seen a meaningful pickup in attractive opportunities in our acquisition pipeline. In late 2025, we conducted a capital raise to put ourselves in a position in 2026 to strengthen our competitive position and increase our earnings power. The vast majority of that capital has yet to be deployed. However, we are currently working on transactions that we anticipate will close in the next 60-120 days and will be funded by the proceeds from our excess capital.

Our significant growth in real estate solutions and commercial activity throughout the business lines has resulted in an increase in our operating expense ratios. The real estate solutions, our other operating expenses are the largest expense category and are higher percent of our mix due to the mix of outside services, cost of data, and our appraisal and property preservation contract workforce. Similarly, the commercial transactions often come with higher operating expenses given the cost of data and search fees. Throughout our journey, we have prioritized thoughtful investment in ourselves and our talent to position Stewart well for the marketplace. We have some of the best leaders and employees in the industry, and we continue to add to our roster with a relentless focus on adding personnel that will help us grow the company for the future. We believe strongly in these investments.