Good morning, and welcome to FNF's First Quarter Earnings Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder this conference call is being recorded.

I would now like to turn the call over to Lisa Foxworthy-Parker, SVP Investor and External Relations. Please go ahead..

Great. Thanks, operator, and welcome, everyone. Joining me today are Mike Nolan, Chief Executive Officer; and Tony Park, Chief Financial Officer. We look forward to addressing your questions following our prepared remarks.

Also Chris Blunt, F&G's Chief Executive Officer; and Wendy Young, F&G's Chief Financial Officer, will join us for the Q&A portion of today's call. Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance.

We do not undertake any duty to revise or update such statements to reflect new information, subsequent events or changes in strategy. Please refer to our most recent quarterly and annual reports and other SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied.

This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. Non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules within our earnings materials available on the company's website. Yesterday, we issued a press release, which is also available on our website.

And today's call is being recorded and will be available for webcast replay at fnf.com. It will also be available through telephone replay beginning today at 3:00 PM Eastern Time through May 11, 2023. And now I'll turn the call over to our CEO, Mike Nolan..

Thank you, Lisa, and good morning. We are pleased with our solid performance in the quarter as we continue to navigate a volatile and challenging environment.

Starting with our title business, the focus remains on providing our customers’ exceptional service, protecting our policyholders and building our business for the long-term, as well as maximizing our margins in a given market.

In light of the steep decline in mortgage volumes as compared to the prior year and given the low inventory coming out of the fourth quarter, we continue to monitor expenses closely and reduced our field staff by an additional 2% in the first quarter.

This is after a 26% reduction of field staff, net of acquisitions in 2022, one of the largest reductions in our history. As a result of these actions, we delivered adjusted pre-tax earnings in our title segment of $153 million, and an industry-leading adjusted pre-tax title margin of 10%.

We are pleased with this result given that volumes remain at historically low levels. Moving into 2023, we have been closely monitoring for sequential trends in residential purchase volumes. In a typical year, we expect purchase open orders to build in the first and second quarters off of the seasonal low of the fourth quarter.

At this time, we are seeing encouraging indications of improving order volumes, albeit coming off lower levels than the last few years. Residential purchase orders opened per day in both March and April showed sequential improvement and April was our best month since August of last year.

Looking at sequential volumes more closely, daily purchase orders opened were up 20% over the fourth quarter of 2022, and up 6% for the month of April versus March, although building off a lower base. And refinance orders opened per day were up 6% over the fourth quarter of 2022 and flat for the month of April versus March.

Our total commercial orders opened were 781 per day, up 8% over the fourth quarter of 2022 and down 3% for the month of April versus March. Overall, total orders opened averaged 5,000 per day in the first quarter with January 4,700; February, 5,100; and March at 5,100. For the month of April, total orders opened were 5,300 per day, up 4% over March.

From here, we expect a volatile market environment will continue to provide both headwinds and tailwinds for market participants.

On the residential side, although there is not yet firm footing for rates and home affordability, there are solid fundamentals such as pent-up demand and a growing working age in first-time buyer population that are expected to support a rebound once rates move downward and sellers and buyers more fully return to the market.

From a commercial perspective, our mix continues to weigh towards industrial, multifamily and sectors like affordable housing, energy and hospitality. In the first quarter, we generated commercial revenue of $241 million, which is consistent with our first quarters between 2015 and 2020.

Reflecting on what these factors mean for FNF's Title business, we expect near-term margin improvement to be modest given the relatively low volumes that we have seen in our first quarter open orders, which is indicative of the level of closed orders we will have in the second quarter.

Beyond these near-term pressures, we remain confident in the fundamentals of the business and continue to strategically build and expand our Title business for the long-term through acquisitions, recruiting talent and enhancing our title capabilities.

Finally, F&G is off to a strong start as a public company and continues to deliver on its diversified growth strategy. F&G reported record assets under management of $45 billion at March 31 driven by record top line growth and stable in-force retention.

We are nearly at the three-year mark since the 2020 merger and F&G is well ahead of our original expectation to double its assets under management over five years. Tony will provide more detail on the F&G segment results in a minute.

Wrapping up, I'd like to thank our employees for their commitment and dedication to keeping us on track to deliver a solid start to the year despite the market challenges. Let me now turn the call over to Tony Park to review FNF's first quarter financial highlights..

Thank you, Mike. Before I turn to our consolidated results, effective January 1, 2023, we have adopted the new accounting standard known as LDTI, which is related to long duration contracts and only impacted our F&G segment. LDTI is a U.S.

GAAP accounting standard only with no impact to statutory results, insurance company cash flows or regulatory capital. Now turning to our consolidated results. We generated $2.5 billion in total revenue in the first quarter.

First quarter net loss was $59 million, including net recognized gains of $5 million versus net earnings of $400 million, including $469 million of net recognized losses in the first quarter of 2022. The Title segment contributed net earnings of $128 million.

The F&G segment had a net loss of $164 million largely due to unfavorable mark-to-market movement and the Corporate segment had a net loss of $23 million.

The net recognized gains and losses in each period are primarily due to mark-to-market accounting treatment of equity and preferred stock securities whether the securities were disposed of in the quarter or continue to be held in our investment portfolio.

Excluding net recognized gains and losses, our total revenue was $2.5 billion as compared with $3.6 billion in the first quarter of 2022. Adjusted net earnings from continuing operations was $141 million or $0.52 per diluted share compared with $386 million or $1.36 per share for the first quarter of 2022.

The Title segment contributed $115 million, the F&G segment contributed $42 million and the Corporate segment had an adjusted net loss of $16 million. Turning to Q1 financial highlights specific to the Title segment.

Our Title segment generated $1.5 billion in total revenue in the first quarter, excluding net recognized gains of $22 million compared with $2.6 billion in the first quarter of 2022. Direct premiums decreased by 44% versus the first quarter of 2022.

Agency premiums decreased by 50% and escrow title-related and other fees decreased by 29% versus the prior year. Personnel costs decreased by 23% and other operating expenses decreased by 25%.

All-in the Title business generated adjusted pre-tax title earnings of $153 million and a 10% adjusted pre-tax title margin for the quarter versus 17.1% in the prior year quarter. Our Title and Corporate investment portfolio totaled $4.9 billion at March 31.

Invested assets included $2.1 billion of fixed maturity and preferred securities having an average duration of three years and an average rating of A2, as well as $600 million of equity securities, $1 billion of short-term and other investments and $1.2 billion of cash.

Interest and investment income in the Title and Corporate segments of $92 million increased $65 million as compared with the prior year quarter, primarily due to increases in income from our 1031 Exchange business and cash and short-term investments.

Given the rising rate environment, we would anticipate higher investment income through reinvestment of our three-year-duration fixed income portfolio maturities.

For the remainder of 2023, we expect quarterly interest and investment income to moderate in the $75 million to $80 million range with declining 1031 Exchange balances and spreads and potentially declining cash and short-term investment balances.

Our title claims paid of $62 million were $18 million higher than our provision of $44 million for the first quarter. The carried reserve for title claim losses is approximately $72 million, or 4.2% above the actuary central estimate. We continue to provide for title claims at 4.5% of total title premiums.

Next turning to Q1 financial highlights specific to the F&G segment. F&G hosted its earnings call earlier this morning and provided a thorough update. So I will focus on the key highlights of its quarterly performance.

F&G reported record total gross sales of $3.3 billion in the first quarter a 27% increase over the prior year quarter, and a 22% increase over the fourth quarter.

This reflects higher demand for retail products in the first quarter, given higher interest rates and market volatility, which often spur fixed annuity sales as financial advisers and consumers seek out guaranteed savings vehicles.

F&G net sales retained was $2.2 billion in the first quarter, which reflects 67% of gross sales, as compared to 70% for the sequential quarter, and 92% for the prior year quarter. This trend reflects third-party flow reinsurance, which increased from 50% to 75% of MYGA sales in September of 2022.

As a reminder, F&G utilizes flow reinsurance which provides a lower capital requirement on ceded new business, while allocating capital to the highest returning retained business. This enhances cash flow provides fee-based earnings and is accretive to F&G's returns. Record ending assets under management were $45.4 billion as of March 31.

Adjusted net earnings for the F&G segment were $42 million for the first quarter compared with $80 million for the first quarter of 2022. This includes volatility from alternative investment portfolio short-term mark-to-market movement that differs from long-term return expectation, as well as a tax valuation allowance expense in the current period.

Let me wrap-up with a few thoughts on capital and liquidity. We remain focused on ensuring a balanced capital allocation strategy.

In addition to making strategic investments in the business to support innovation and organic growth, we are continuing to evaluate sensible and strategic M&A opportunities in real estate-related businesses and returning capital to our shareholders through our generous quarterly dividend, and share repurchases.

We ended the quarter with $834 million in cash and short-term liquid investments at the holding company level. This balance reflects FNF's acquisition of TitlePoint in January 2023 from a combination of $150 million of operating cash and $75 million of holding company cash.

FNF's consolidated debt was $3.7 billion on March 31, up approximately $460 million from the preceding quarter primarily due to F&G's new $500 million senior notes issuance in early January. F&G intends to use the net proceeds from the senior notes to support growth of the business and for future liquidity needs.

Our debt-to-capitalization ratio excluding, AOCI, was 28.5% as of March 31st. This is in line with our long-term target range of 20% to 30%. And we expect that our balance sheet will naturally delever as a result of growth in shareholders' equity excluding AOCI.

Going forward, our consolidated interest -- annual interest expense on debt outstanding is approximately $175 million, comprised of approximately $80 million for FNF's holding company debt and $95 million for F&G's debt.

During the first quarter we have returned approximately $126 million of capital to our shareholders, through $122 million or $0.45 per share of common dividends and $3.8 million of share repurchases.

Following our record level of share repurchases in 2022 at a total cost of $549 million, we prudently moderated our repurchase volume in the first quarter to preserve financial flexibility, as we navigate the challenging market and extended blackout period due to the year-end close cycle.

We continue to view our current annual common dividend of approximately $500 million as sustainable. The dividend is reviewed quarterly and expected to increase overtime, subject to cash flows, alternative uses of capital and market conditions. This concludes our prepared remarks. And let me now turn the call back to our operator, for questions..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question comes from John Campbell with Stephens Inc. Please proceed with your question..

Hi, guys. Good morning..

Hey, John..

Morning..

Hey guys. With the accounting change there's obviously a lot of complexity with F&G modeling at this stage. And it feels like maybe a couple of extra steps needed to get down to what they actually reported versus expectations.

But regardless of that noise and how these GAAP results come in, you guys obviously really like the free cash flow dynamics of that business. And Tony you mentioned that there's no impact to the cash flow, that's really all that matters at the end of the day. So I'm hoping you could shortcut that for us.

What was the cash generation stemming from F&G this period? How does that compare to prior results? And then, also, how it compared to what you expected?.

Yeah. Thanks John for the question. Yeah, to your point about the accounting, obviously, there's a little frustration on all parts just because of the moving pieces and primarily related to our alternative investment returns relative to expectation.

And of course, LDTI introduced here which restated some prior years, but really didn't have much of an impact on the current period results and then a tax valuation allowance adjustment. And so you can get there. You just have to keep reading.

And you can find the answer and the answer was 107 basis points, I think, of adjusted net earnings, excluding significant items, which is right where we've tried to guide you. Wendy's here, I don't have the cash flow, but you're right. I mean, the cash flow continues to be good, but I don't have that number.

Wendy, can you weigh in?.

So the distributable cash, we paid the dividend in the first quarter and we announced that we'll pay a similar dividend in the second quarter. And we've also announced about the repurchase up to $25 million over three years.

We continue to use a lot of the generation from the in-force to support the growth in addition to the debt that we have which we're capitalized right now about 25% debt-to-capitalization so right at our target. And then, of course, we'll continue to use reinsurance to help with managing the capital and to help with the new business growth..

And the only thing I'd add is, yes, a lot of accounting noise, nothing that we walk around considering economic. We don't think the story has changed, but a lot of accounting to come through..

Yes, that's helpful. And, I mean, obviously, the tariffs are off a good bit today. It's a little surprising to us.

I actually asked this question I think two calls ago, but asked about kind of tongue in cheek adjusted number for the adjusted number, where you guys can help us shortcut, because as Wendy just said and Tony just said the 107 is exactly what we're looking for.

Is there a way to provide that in the future?.

Yes. We've been having those conversations. I think the answer is, yes, the components are there. And I don't know, Wendy, you can point to where --.

Yes. QFS, the supplement on page nine should help you John. We break out the components and you basically remove the short-term performance and you replace it with the long-term and then you're just adjusting for that tax valuation allowance..

Okay. That's very helpful. And then, the last question for me. Obviously, a lot of investor questions and concerns around the commercial market. We heard from, obviously, two of your competitors last week that spoke to 1Q being a little bit of a price discovery issue where the bid/ask is a little bit too wide right now.

Eventually, that will come in and you'll see transactions pick back up. And so, they were -- spoke pretty encouragingly about a little bit of a recovery in the back half of this year, obviously, probably still down year-over-year, but a recovery from 1Q. I'm curious what you guys are seeing in your book and if you share that same sentiment..

Sure, John. It's Mike. And we always say that our open order activity is really our best window into the commercial market. And really even though the comp to the first quarter of last year is off, but we knew that would be, because we're just not going to have those record volumes in at least the near term.

We had an 8% improvement sequentially over the fourth quarter on our open orders. So we were at 7.81% for the first quarter. April was 7.70%, so kind of right in line. And, yes, I would agree with office, there's price discovery that needs to occur.

But really when you think about 2021 and really 2022, office was not a significant component of our orders. I mean, it certainly is always an important part of the story, but definitely lesser than you would have seen in the pre-pandemic years.

I mean, we're still seeing good activity in segments like industrial and multifamily, affordable housing hospitality. So -- and if you look at our revenues at $241 million for the quarter, really in line with 2015 through 2020.

So when you mix that all together, it's looking right now like a year that would be similar to those years where we -- we've said this before, I think, we said on the last call that, you might be looking at a market for us that's $1 billion in total direct revenue maybe $1.1 billion, not the $1.5 billion we did in the last two years.

But, certainly, we're aware of the market noise and the headlines, but we really tend to focus on what the open orders look like..

Okay. That’s great color. Thank you, Mike..

Thank you. Our next question comes from Mark DeVries with Barclays. Please proceed with your question..

Thank you. I had a follow-up question around F&G. I mean, clearly, there's a lot of noise affecting the results in the quarter, but it doesn't take a tremendous amount of work to figure out if you look past it, that the results continue to be pretty solid there.

And to me, it reflects real inefficiency in the stock which I think is attributable to the fact that there's so little liquidity which limits both the number of people on the buy-side and sell-side that pay attention. So -- and this is obviously weighing on FNF as well.

So my question is, how are you thinking about the potential to accelerate kind of the full spin-off or monetization of F&G just given all of these market efficiencies which will likely persist, versus just living with those inefficiencies and continuing to grow that business and look for a later date for the market to realize the value..

Yes. Thanks Mark. Maybe -- this is Tony. I'll weigh in and Mike and Chris may want to as well. But yes, your point is well taken. I mean, we have tried not to be distracted by share price performance and just tried to run the business and have been extremely pleased with F&G's performance even if you have a little noise in the reporting.

But to your point having the 15% stub out there is just not being recognized and it's been since December one now so it's been a little bit of time now.

There's a lot of macro disruption that we can't do anything about and that probably doesn't help, but it's still frustrating that we think FG or at least the stub of FG is probably trading at about half what it -- what we feel it's worth. And so, yes, I mean our Board is going to consider all things as we move forward.

I think, I've mentioned in the past a tax-free spend or at least an easy tax-free spend would come after five years. We're in about year three in the process. But I've also mentioned there's other options, there's always other options, if that's where the Board decides to go. And maybe I'll stop there if you guys want to weigh in at all. .

No, really, really, I think, you nailed, but really nothing to add for me. .

Okay. Great. And just wanted to clarify Mike's comments about the near-term outlook for the margin. I assume that was intended. I think you're implying it wouldn't be up that much sequentially in 2Q.

Were you referring to commercial specifically or for all of the Title?.

I was really -- good question Mark. I was referring to Title segment margins. As you think about -- as I said on the last call the open orders in the fourth quarter were some of the weakest we've seen since 2000. And commented as well on the call that margins in the first quarter would be under pressure and that's exactly what we saw.

So as we look forward on the plus side, we're encouraged by the 20% sequential improvement in purchase orders in the first quarter. That's actually better than we've seen in the prior six, seven years from an average standpoint.

And also a 6% increase in April, but those improvements in the first quarter should help with closing volumes in the second quarter. But given the low levels we're at still expect margin improvement to be more on the modest side for the second quarter. .

Okay. That's helpful. Thank you..

Thank you. [Operator Instructions] Our next question comes from Bose George with KBW. Please proceed with….

Hi, guys. Good morning. Just wanted to go back to ask about buybacks.

If TitlePoint had not occurred would we have seen a more normalized level of buybacks in 4Q and 1Q and then how should we just think about the cadence of buybacks assuming financial uncertainty persists for this year at least?.

Thanks, Bose. This is Tony. Yes we did buy back just 100,000 shares at the very beginning of the quarter and that was really before our blackout came into play. And then because of year-end and later reporting than a normal quarter, we did have an extended period of blackout.

I don't know that TitlePoint really weighed in on the decision, but ultimately the Board decided given the economic challenges in the Title business in the first quarter, which everyone saw, they decided to take a pause on the buyback. I mean, we did buy back over $1 billion in stock over the past two years.

But this quarter it's always -- it's traditionally a low cash flow quarter anyway. I mean, if you look at the FNF's stand-alone cash flow it was basically zero cash flow generation for the quarter, which we've seen in first quarters historically as well. So it wasn't super unusual.

But I think just a pause I think made sense to see how this market plays out. And I'll remind everyone we like to maintain financial flexibility. We're sitting on $834 million of holding company cash.

During distressed times, historically, we've made some of our best most opportunistic acquisitions Land America, Chicago Title, others because we had the wherewithal to do that when maybe others didn't. And so I think it's just us being prudent about the cash and where we want to put it at the moment..

Okay.

And just in terms of the cadence of buybacks is that kind of market dependent?.

Yes, I think so. That makes sense. .

Okay, great. Thanks. And then actually I wanted to ask the Fannie Mae Equitable Housing Program that came out they mentioned this potential pilot looking at title alternatives.

Has there been any sort of outreach to you guys? Do you have any thoughts on what that could look like?.

Yes, Bose it's Mike. We have talked with both Fannie Mae and FHFA through ALTA and even ourselves and the rumor on the potential pilot with some kind of title waiver we've not seen a proposal.

We've not seen anything that we could really evaluate or respond to but we've again through ALTA really just tried to impress upon the agencies that those kind of programs that are untested could lead to more uncertainty than not.

And really just try to explain what we do and why it's very important to the preservation of land records and the role we play in the closing process and the safety of that. So, at this time we don't really know if there's a proposal that will come out or not.

They've talked also a little bit about the acceptance of the AOLs there's been very little uptick on that as they've indicated. And from the AOL front we just we don't think it's a lower-cost alternative. It may even be more expensive. And we certainly think it's a lesser value product. .

Okay, great. That’s helpful. Thanks..

Thank you. Our next question comes from Mark Hughes with Truist. Please proceed with your question..

Yes, thank you. Mike you gave some good sequential data on April.

Do you happen to have the year-over-year for commercial and purchase for the month of April?.

I think I do. Yes, I do Mark. Just give me a second here. I got to just dig it up. So, April on purchase open orders over April of the prior year was down 23%. And in March it had been down 30%. So, kind of good sequential improvement when you think of it that way. Refi was down 45% April-over-April. And commercial give me a second here was down 26%. .

Thank you for that. Anything else going on with the margin? You mentioned margins relatively -- or modest improvement I think historically the I haven't done a study of it yet, but it seems like the sequential improvement in margin was usually meaningful.

Is there something you've clearly said the overall level of orders is weak but that you're seeing some encouraging indications of normal seasonality returning.

Why -- or I'll just ask it the other way anything unusual about this year the progression from Q1 to Q2 that would imply a different pattern than the usual margin uplift?.

I don't know that there's that we're thinking that the progression would be significantly different. It's just we have such a volatile environment Mark and things can change rapidly with orders and rates.

So, I think it's just a bit of caution given this volatility and the headwinds around rates and inventories and then you introduce banking potential banking and stability. And so it's really just kind of a caution from that perspective. And the fact that we're dealing with still historically low levels of activity..

Appreciate that clarification. Thank you..

Thank you. And this will conclude our question-and-answer session. I will now turn the conference back over to CEO, Mike Nolan for closing remarks..

Thank you. We are pleased with our solid start to the year despite the uncertainty and volatility in the current macro environment. FNF is well-positioned to navigate the current market cycle and continues to build and expand our Title business for the long-term.

Likewise F&G's profitable growth demonstrates its strong momentum with many opportunities ahead to further expand the business drive margin expansion and improve returns. Thanks for your time this morning. We appreciate your interest in FNF and look forward to updating you on our second quarter earnings call. .

Thank you for attending today's presentation. The conference call has concluded. You may now disconnect at this time. Good bye..