First American expands D2C focus in home warranty

First American Financial Corporation held its Q2’24 earnings call on Jul 25, 2024, led by CEO Kenneth D. DeGiorgio. Key highlights:

• Revenue and EPS: First American reported $1.6 billion in revenue for Q2 2024 with an adjusted EPS of $1.27, beating consensus estimates. “While market conditions remained challenging in the second quarter, benefited from the seasonal pickup in demand. Total revenue was $1.6 billion, and our adjusted earnings per diluted share were $1.27.” – CEO Kenneth DeGiorgio.
• Title Segment: The title segment generated $1.5 billion in revenue, down 1% from last year, with an adjusted pretax margin of 11.9%.
• Commercial Business: The commercial segment saw a slight decline in revenue, down 1%, with closed orders decreasing by 2%.
• Refinance Activity: Refinance revenue declined by 9%, with activity picking up slightly towards the end of the quarter.
• Home Warranty Segment: The Home Warranty segment remained stable with $107 million in revenue and an improved pretax margin of 15.2%. “Our Home Warranty segment again delivered strong results with an adjusted pretax margin of 15.2%.” – CFO Mark Seaton.
• Sequoia Initiative: First American launched the Sequoia initiative in Maricopa and Riverside counties, aiming to automate underwriting for purchase transactions.
• Endpoint Platform: The Endpoint platform is being enhanced to streamline the closing process for residential transactions. “We have successfully built a next-generation settlement platform that is bringing extensive automation to the closing process for residential transactions.” – CEO Kenneth DeGiorgio.

• Market Conditions: The company faced challenging market conditions, with high mortgage rates and home prices impacting demand.
• Q3 Outlook: The company expects continued challenges in Q3, with a potential rebound in Q4, particularly in the commercial segment.
• Investment Income: Investment income totaled $126 million, slightly down from last year due to lower average interest-bearing balances.
• Share Repurchases: The company repurchased 752,000 shares for $41 million at an average price of $54.14 per share.
• Debt-to-Capital Ratio: As of June 30, the debt-to-capital ratio was 29.7%, with a lower ratio of 22.5% excluding secured financings.
• Commercial Market Optimism: There is optimism for a strong performance in the commercial market in Q4, despite Q3 uncertainties.
• Home Warranty Business Strategy: The company is focusing on the direct-to-consumer channel in the Home Warranty segment to diversify and drive long-term profitability.
• Regulatory Update: Ongoing regulatory scrutiny was discussed, particularly around the CFPB and title insurance transparency.
• Future Growth: The company is looking for moderate revenue growth in the second half of the year to maintain margins similar to 2023.