Hello, and thank you for joining the Stewart Information Services First Quarter 2021 Earnings Call. Please note, this call may be recorded. It is now my pleasure to turn today's conference over to Nat Otis, Head of Investor Relations. Please go ahead.

Thank you, Brendon. Good morning. Thank you for joining us today for Stewart's First Quarter 2021 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.

Good morning, everybody, and thank you for joining us today for Stewart's First Quarter of 2021 Earnings call and for your interest in Stewart. Before I turn it over to David to go through the details of the quarter's results, I wanted to touch on a few topics as we move into 2021. I’m very, very pleased with the progress this quarter. We clearly capitalized on the historic market strength, but we also continue to improve our underlying financial strength and the resiliency of the company. We grew share in a number of critical markets. We added some service capabilities and leveraged our improved technology platform. As we look ahead, we envision a Stewart that not only takes advantage of the high point of the cycle, but can also thrive through the entire business cycle. The foundation of this future lies in a more strategic and disciplined operational approach to investments, and a company culture that is focused on moving quickly to adapt and to capitalize on opportunities to improve and grow the company. While our journey is not finished, the work our employees have accomplished last year and throughout the first quarter addressing the challenges of the pandemic conditions driving structural changes, integrating more valuable talent and asset additions have all fundamentally changed our company. The results to date are encouraging and illustrate that we are on the right path. Given what we have accomplished to date and our view of the market outlook, we are very bullish on the company's opportunities for the next two or three years. As we look at 2021 and 2022 and beyond, there is a level of uncertainty over the endurance of the cycle even as we continue to experience strong market demand. We know the refinancings will begin to slow at some point, even though the overall residential market is healthy and is expected to remain that way for some time as resale transactions driven by pent-up demand and favorable homeowner demographics will continue to show strength. In this kind of market, there will be winners and losers, and we are positioning ourselves to be one of the winners.

Thank you, Fred, and good morning. Let me also thank our associates for their continued integrational service and our customers for their steadfast support. The year opened with a strong residential real estate market, driven by powerful demand, favorable interest rates and improving economic conditions. On the medical front, virus news is generally improving its vaccinations increase of the variance in vaccine distribution challenges hit in the pace of recovery. Even with an improving economy, there continues to be a high mortgage delinquency and forbearance, the effect of which need to play out. Let me provide some broader context consistent with Fred's comments before I review the quarter's results. Although interest rates and the economy provide some volatility to the operating environment, our strategic areas of focus, gaining scale in attractive direct markets, improving agent service capabilities and geographic focus and scaling lender services are beginning to have a meaningful and durable impact on our results. Overtime, we will see the benefits of our commercial initiatives as that market returns. For the first quarter of 2021, Stewart reported net income of 54 million and diluted earnings per share of $2.01 on total operating revenues of 681 million. On an adjusted basis, the Q1 net income improved by 38 million compared to 13 million from last year's quarter as we disclosed in Appendix A of the press release.

And we will take our first question from Bose George with KBW. Please go ahead.

Hey everyone, good morning. First question just on the residential direct premiums fell by - I think it was 10% over the fourth quarter. The aging premiums fell pretty modestly. So is there something to call out in terms of the differences between what we saw in those channels?

I missed. I'm sorry, help me with that, because I couldn’t hear it correctly. What was the...

Yes. Basically, I was looking at the decline in the direction. There was about a 10% decline in just in the residential, national direct premiums over last quarter and the agent premiums that declined, it was almost flat. It was just about 1% over the last quarter. So I was just curious why the differences that we saw in the two channels?

Bose are you adding commercial?

Actually, I pulled out the commercial because including the commercial, it is more like a 20% decline versus a 1%. So the commercial was down, so pulling that out, it seems like it was about a 10 versus one. But we can follow-up to that as so like?

Yes. Because what we saw, right, is this has been - for us, this was the strongest direct first quarter we have ever had. It was very, very, very strong, obviously, versus the last first quarter. It is - traditionally, it is been a seasonal - first quarter seasonal. But this year, we were incredibly strong. The agency growth for us is a combination of a couple of things, right. So the agency growth for us got stronger all through last year as we got away from the transaction. So the comparison from first quarter last year to this year on agency is extraordinarily strong because we have so much momentum, just kind of getting the agents back that we had that we kind of lost a little bit during the fidelity situation, but also the new growth initiatives we have. So agency had a great comparison quarter-to-quarter, which gives you the really robust growth. What it doesn't - you didn't have the same kind of drag in the first quarter of direct that we had an agency from the hangover. So maybe there - again, if you are asking the deltas between the two, there might be something there.

Okay. That is great, makes sense. And then can you just talk about your - the latest thoughts on acquisitions, do you feel like that remains part of the puzzle in terms of getting the margins up? Or do you have you done? Do you think a fair amount what you need to do on that side?

Yes. Again, I think we are very focused. We continue to focus on what I would call local market strategies. And we still have a number of markets where I would like us to have a greater share. And it is all around market consistency through the cycle to be able to manage your margins as well as your consistency of service. And so I would say we are going to continue to be focused on a number of markets in the top 140 MSAs that we believe we should gain share. And some of that will be acquisitions, and we still have a robust pipeline of acquisitions in front of us. But some of it is organic as well. One of the interesting things that has happened to the company is we have a lot of momentum right now and our ability to talent has never really been better. So we are seeing a lot of folks come to the company as well. So it will be a combination of organic growth in some of these target markets as well as some acquisitions. And again, one of the things we are trying to do is not just gain share for margin, it is also broaden our capabilities and service capabilities. So particularly on the agency side, we want to continue to be able to provide additional services. So we will increase some of our focus on that as well. So you saw that with the ASK acquisition that we just did, which provided us additional services to provide for our agents. So again, I think it is going to continue as part of the strategy.

Okay. Great. Can I just sneak in one more, just on the loss ratio, what is kind of the normalized number? And just the change between last quarter, the increase versus now. I mean, business something you sell-out there or just curious what was pre bump up in kind of the modelization?

Yes. So if you remember last year, we believe that we wanted to take a conservative position in the fourth quarter, in particular, as we looked out and said, there is some risk out here, if you look at the balance of last year, I think the balance of last year was something like a 5.3% or something like that.

Okay. Great, thanks a lot, nice quarter.

Thank you.

And our next question is coming from John Campbell with Stephens Inc. please go ahead.

Hey guys good morning, congrats on the continued success. So I'm getting a fair amount of questions on this. I figure I got to take a shot on it. But obviously, there is some noise out there with the large competitor of yours, I'm sure you guys are probably hearing the same thing, but just curious about your appetite around kind of larger transformational title insurance, share grabs and then your ability or maybe capacity to do something of size?

Yes. I mean, obviously, we don't really talk about the company in our calls. But I would tell you, as Bose asked, for us, we are trying to build this up market-by-market and segment by segment. And we are really thinking about scale and size that way. It is not really a top-down look. It is really a bottom-up look. And so we are constantly looking for opportunities in our businesses to either enhance our capabilities or give us the scale so that the stability of our economics are better. And that will be part of what we do for the foreseeable future. And we don't feel like we need - as a company, we don't feel like we need any transformational thing or any. I mean, I feel like this juring that we are on, you can see the traction we have, you can see how we close the gap between us and the major competitors would I like us to be better? Yes, no question. Then we will continue to focus at a market-by-market level to make sure where the best there is, and we will do some acquisitions and fill ins and try to acquire capabilities. But in my view, we don't need anything transformational to change the - kind of the outlook for this company and be able to continue to outgrow the market and outperform the market over the next two or three years. We just got to focus on ourselves and building our business so.

Okay. And then on title, I mean you are hitting on all cylinders at this point. But if you look at the ancillary services business, I think you guys had to the revenue ten times higher versus last year. So I mean, the turnaround has been really impressive. So nice work there, but can you guys talk about the kind of updated products that you have today? And then maybe if you could, just talk to the product road map and kind of frame up what you think the desired in state might look like?

Yes. And I will take a couple of pieces of that. So from my perspective, when you think about the potential evolution of the title process, we really felt that having really terrific remote notary capability and notary network was going to be an incredibly valuable part of what the company did and being able to both control the quality and the access to that and the integration of that into the overall process. And so we obviously invested in that and invested pretty significantly. And so there will be product innovation in that area for us as we take those assets signature and notary Cam and think about that combined entity to make us better. If you then go to the appraisal side, again, we thought that was a critical part of the road map for us to have both scale and the technology platform for an evolving world. We also think that is a business that is consolidating because of the needs to be a lot more innovative and technology savvy. And we think we have set ourselves up there to really continue to grow that business and cover the whole market space pretty effectively. So the overall ancillary approach for us was really to get this instead of having a very small-scale and a bunch of little things to really build some scale in a number of areas where we could be a winner, right, and to both kind of help our overall position with our clients, but to also be very successful in those individual businesses. So I think we have the scale. It is right on track as far as the margins and stuff. There is a little bit more consolidation work we are doing in some of the acquisitions we did, which will enhance…

Okay. That is a great run down. And one quick follow-up, maybe this is for David. But if you look at that segment, backing out the corporate expense and then taking out the, I guess, the net realized gains, I'm getting to like a 4% margin kind of underlying for that ancillary services just - within just entry services. So just curious about where you think you maybe take that margin? Is it kind of mid teens, low teens?

Yes, John, I think we had talked about that in prior calls. So I think we are trying to drive it first to the overall sort of corporate target that we have laid out. And then I think depending on the mix, as Fred mentioned, in those businesses, we can potentially see that going well. We made a good amount of progress going from - I think we were losing money in ancillary to now making money. And to your point, four plus percent but then if you look at sort of ex amortization. So on a cash basis, it is a bit higher than that, just continuing to focus on bringing all those businesses together and making it as good as it can be.

And so our view of it, and we can see transparent to it is that it is going to be accretive to our overall company. So our company goals, as I have talked about, we think that is going to be at least neutral to that and potentially helpful in the pretty short quarter. So we can kind of see the transparency of that getting to that nine, ten level that we talk about for the company.

And what you are seeing now as everything is basically origination driven. So there is a lot happening in the notary businesses. There is a lot happening in the appraisal businesses. But some of the other businesses, for example, capital market search, where the margins are actually quite high. There is not a lot of activity. So I think we have talked about that on the prior call. When we see a more normalized environment and transactions in each area, capital markets and foreclosure delinquency, that should actually help the situation.

Okay, that is very helpful. Thank you guys.

Thank you.

And we will take our next question from Geoffrey Dunn with Dowling & Partners.

Good morning guys. Could you give us a bit of an update on the commercial market, U.S. commercial market, strong rebound in the back half of the year. It seems like maybe some of the Q1 activity might have got pulled into Q4, but just discuss the overall health, the overall mix of larger deals versus local deals and your outlook pipeline going into middle of this year?

Do you want to take it, David?

Yes. Sure, Fred. So Geoff, thanks for the question. But yes. I mean, I don't think our outlook has really changed from what we said before. We see commercial coming back a little slower. I think the sector mix has been heavy industrial. You are seeing some energy, seeing a little bit of movement in hospitality and office. But for us, it is - we think that the market this year starts to improve a little, but it is still going to be challenging. And so we haven't really changed our outlook from what we said the last couple of calls from...

Yes. And again, I think you know this, the business is very lumpy. So our analysis of last year is that "we gained share in commercial". I don't really believe that. I think what happened is some of our business got pulled into the fourth quarter. Particularly our energy, a lot of our energy business got pulled into the first quarter. And so it is kind of lumpy. So the way I think about it is that we are competing pretty effectively. We are holding share, but it is really bumpy because it is small for us. Our January and February was quite slow, and it just feels like a lot of our business got told into the fourth quarter. March was much better. April, particularly better. So to David's point, our outlook for the industry is a relatively soft year, right. Again, I don't think we have - there is other people's other views, but that is kind of our view. We have been holding share. If I look at the last 4 quarters together, and again, we will do the analysis this quarter, too. But for us, it is very lumpy because of our size. If you look at our average revenue per ticket or whatever, our average fee per file it was down because we didn't have a mix of large. This quarter was actually much less than last quarter.

Then look at the industry data, right, the RCA and other data, the people that spend time predicting this by sector and market, they have this year being relatively soft as well. So that is always inform our view. There could be other views, as Fred mentioned, that could be specific to their clients and book of business, but RB is more consistent with the market.

Yes. And I want to leave you with what I have said before. We are setting this up really aggressively. So we have invested a lot in commercial, both in here, Canada, Europe. And so we are focusing on some very targeted geographies in some sectors, and I feel very good about it. We are we really have acquired some talent. We are blind up. So as it comes back, we should be able to capitalize on it going forward. So it is an important part of our future, for sure.

Okay. And then I wanted to talk about tech investment. In the beginning comments, you rattled off some of your automated underwriting capabilities and platforms. Obviously, you invested in notary came last year to enhance your digital closing end where is your tech investment focus with respect to digitization, automation as we look out on 2021, 2022? More of the internal development as well as, I guess, any targeted areas, you already said you are evaluating what you need to own versus rent maybe. But I'm particularly curious on how your tech spend is directed over the next year or two.

Yes. We have a lot of the pieces pulled together. But as I have said before, our - the Steward accelerate, we continue to invest. We are very proud of what we are doing on the automated underwriting side. Our stats are as big as anybody including the start-ups and our industry and the effectiveness of that. But we are using additional data to apply that to a broader array, particularly in the purchase area. So we are continuing to push ourselves investments there. On the front ends, we are always looking at connectivity and the efficiency of the front end of the process, and we are going to continue to do that and continue to refine what we are doing. So on the Notarize and the kind of remote notary, again, in my view, there is - we are productizing a little bit, particularly for the agency channel. We are enhancing those products, making them a little bit easier for agents to order and integrate them into their system. So again, for us, all the pieces on the chain, we are actually continuing. We are not stopping kind of our evolution or innovation. And like as I said, we had some separate conversations about this. My view is we are ahead of adoption in the industry, but we know that it is going to continue. Customer experience has got to get better. And we are going to continue to invest on the various pieces of the chain. But again, I feel really good about what we have assembled and what we have and how quickly it is being used and integrated into our operations. So again, this is one of those never, in some ways, never ending. In that you got to keep investing and innovating to make sure that you are on top of it. But the bigger players because of the data access that we all have a huge advantage to be able to apply these tools and make the experience better. I know we are all running at it, and it is going to continue to get better, and I feel really good about our position.

Okay, thank you.

Thank you.

It appears we have no further questions at this time. I will turn the program back over to our presenters.

Well, I want to thank everybody for joining us for the first quarter, and I really appreciate your interest in Stewart. Thank you.