Good day, and welcome to the Stewart Information Services' First Quarter 2018 Earnings Conference Call and Webcast. Today's call is being recorded. At this time, all participants have been placed on listen-only mode and the floor will be open for your questions following the presentation.

[Operator Instructions] I'd like now to turn the call over to Nat Otis, Director of Investor Relations. Please go ahead..

Thank you, Keith. Good afternoon. Thank you for joining us for our first quarter 2018 earnings conference call. We will be discussing results that were released earlier this morning. Joining me today are CEO, Matt Morris; and CFO, David Hisey. To listen online, please go to the stewart.com website to access the link for this conference call.

I will remind participants that this conference call may contain forward-looking statements that involve a number of risks and uncertainties. Because such statements are based on an expectation of future financial operating results and are not statements of fact, actual results may differ materially from those projected.

The risks and uncertainties with forward-looking statements are subject to include, but are not limited to, the risks and other factors detailed in our press release published this morning and in the statement regarding forward-looking information, risk factors and other sections of the Company's Form 10-K and other filings with the SEC.

Lastly, other than in our prepared remarks, we will not be discussing the regulatory process for our announced transaction with Fidelity National Financial. Let me now turn the call over to Matt..

Thank you, Nat, and good afternoon, everyone. We appreciate you all joining us today. Obviously, with the announcement of our agreement with Fidelity National Financial, it has been a busy start to 2018. And before I begin, I would like to acknowledge the incredible group of associates that make up the Stewart family.

I'm extremely grateful for their loyalty, not only to each other, but to our customers that rely on their dedication and service. And throughout the process, their efforts have been nothing short of amazing.

Post announcement, we quickly embarked on a national road show with FNF management, meeting with our associates to discuss the transaction as well as the overall strategy to continue growing the Stewart brand with the additional strength of the FNF family behind us.

I would like to acknowledge the attention and support we have received from FNF management in making this transaction successful. The ongoing meetings and conversations have been encouraging as associates can appreciate the enhanced opportunities afforded by the transaction, quickly updating everyone on the regulatory part of the merger process.

In late March, Stewart and FNF each made Hart-Scott-Rodino filings to the Federal Trade Commission. And then recently, the appropriate initial filings were submitted to both Texas and New York, the states where our two primary underwriters are domiciled.

With the process fully commenced, we will be working with all of the appropriate regulators as questions and requests arise. Once the transaction is consummated, Stewart will join the FNF family of underwriters, leveraging its resources and financial strength to enhance the services and offerings we can provide to our long-standing customer base.

So turning to first quarter results, continued commercial strength and a higher fee for file from an improving transaction mix helped offset lower home sales resulting from tighter inventories and continued weakness in the refinancing market tied to rising interest rates.

While closely monitoring our order count post announcement and entering the selling season, we do believe macro purchase trends are favorable and the outlook for commercial activity remains strong. So this time, I'll turn the call over to David, who will provide a detailed review of this quarter's financial results..

Thank you, Matt, and good afternoon, everyone. This morning, Stewart reported title revenues of $422 million, overall revenues of $437 million and a net loss of $4 million or $0.16 per diluted share.

The loss included pretax charges of $2 million related to strategic alternatives third-party advisory expenses and $2 million of net unrealized losses related to changes in fair value of investments and equity securities.

Due to the adoption of the new accounting standard at the beginning of 2018, changes in the fair value of our equity security investments are now charged to income instead of other comprehensive income where they were previously recorded.

Overall, revenues were down 1% from last year, primarily due to reduced revenues in our ancillary services business. Our title revenues were up slightly, and strong commercial business helped to offset weaker market conditions.

The title segment generated pretax income of $5 million or 1.2% margin, which included the previously mentioned $2 million market charge on equity securities. With respect to the direct title business, commercial revenues were up 12% as the fee for file increased 26% to $7,900.

Direct residential revenues were up 5% as an 8% increase in the fee for file to $2,100 was more than offset by lower home sales in the quarter and the continuing impact to refinancing of rising rates. Compared to the prior year quarter, opened and closed orders in the quarter decreased 9% and 12%, respectively. Our closing ratio was 67%.

With respect to our agency business, gross revenues increased 2% compared to the first quarter 2017, and net agency revenues decreased 1% as a result of geographic mix that resulted in a 17.6% remittance rate this quarter. In regard to title losses, as a percent of title revenues, losses were 4.5%, 30 basis points lower than last year's quarter.

Going forward, we expect our title loss provisioning ratio to range between 4.5% to 4.8%. As always, we know that title losses are subject to economic and other factors that can vary quarter-to-quarter. At quarter end, our total balance sheet policy loss reserve was $480 million.

Looking at our ancillary services and corporate segment, we reported a segment pretax loss of $8 million for the first quarter 2018 compared with a pretax loss of $6 million in the prior year quarter. The segment's revenues declined by $6 million or 31%, primarily due to declining refinance transactions.

The segment's results for the first quarter 2018 and 2017 included approximately $8 million and $6 million, respectively, of net expenses attributable to the parent company and corporate operations, with the quarter-over-quarter increase due to the previously mentioned third-party strategic alternatives advisory expenses.

With respect to operating expenses on a consolidated basis, employee costs were down 1% compared to the first quarter 2017, with salaries declining due to lower employee counts and reduced residential commissions, partially offset by increased commercial commissions.

As a percentage of total operating expenses, employee costs were 32%, which is comparable to 31.9% in the prior year quarter. Other operating expenses for the first quarter 2018 increased 2% to $80 million from $78 million in the prior year quarter. This increase was primarily due to the third-party advisory fees of strategic alternatives review.

As a percentage of total operating expenses adjusted for third-party advisory fees, they were 18% this quarter versus 17.9% in the prior year quarter. Lastly, on other matters, our financial condition remains very strong with a debt to capital ratio of 14.2% at quarter end and a book value per share of $28.65.

Net cash used by operations during the quarter was $29 million, primarily due to the seasonal net loss, a reduction in accounts payable and other operating liabilities, partially offset by lower claim payments. The effective tax rate for the first quarter was 25.5% compared with 36.7% for the first quarter 2017, reflecting the new Tax Act.

I'll now turn the call back over to the operator to take questions..

[Operator Instructions] We'll take our first question from Mackenzie Aron with Zelman. Please go ahead. Your line is open..

Thanks. Good morning or good afternoon.

First question - is there any color you can give us on what you've seen so far on order trends in April?.

Yes. Hi, Mackenzie, it's David. Yes, our orders trends are pretty consistent with what we've been seeing. I think as you can appreciate, we've spent the last few weeks working through the different matters that were discussed both on the Fidelity call and our call, but everybody's sort of focused on the market now.

And we've seen decent momentum as we get back at it here..

Great. And then on the commercial side, similarly, can you give us any update in terms of the pipeline? And obviously, the gross in the revenue side continues to be very strong there.

So just any color on geographic mix or what you're seeing in commercial?.

Yes, Mackenzie, it's Matt here. Commercial business had a really solid quarter, and we continued to see that. Most major geographies outperformed our internal projections, along with what we're seeing as a continued increase in the average transaction fee per file. So pipeline remains pretty consistent moving forward..

Yes, thank you..

Absolutely..

We'll take our next question from John Campbell with Stephens, Inc. Please go ahead. Your line is open..

Hey, guys. Good afternoon..

Hey, John..

Hey, just want to check on the title pre-tax margin. So you had a little bit of compression there year-over-year. I think Title365 might be causing a little bit of that compression.

But just curious about thoughts as we get in the 2Q, maybe 3Q, 4Q about potentially expanding margins throughout the rest of this year?.

Well, I think we have - I mean, we're constantly looking at operations. We probably face some speed bumps in the quarter leading up to the transaction announcement. I think post announcement, we've seen some gradual improvements, and we're obviously looking to close. But still eyes closed and engaged with the business on a daily basis..

Okay, that's helpful. And then Matt, it sounds like you touched on this a little bit.

But anything - any kind of color you can provide around employees post deal announcement? Are you seeing any pockets of attrition or anything to call out?.

Generally speaking, nothing unexpected, as you might expect in any transactions, there are associates that have had concerns, but we're actively engaging with them to lay those concerns and support the business going forward. I think I hit this in my opening comments, but we have a very incredibly well employee base to this whole process.

In addition to that, again, FNF management has been very supportive in helping us make sure the message comes across of retaining that brand and providing more resources and a stronger balance sheet to help them grow their business. So I think it's been a collaborative process, and obviously, it's noise.

But we are attentive to making sure we have the message in front of our associates on a consistent basis..

Okay, great. Thanks, guys..

Yes..

And it appears we have no further questions. I'll return the floor to Nat Otis for any additional or closing remarks..

Thank you. That concludes this quarter's conference call. Thank you for joining us today. Take care..

And this will conclude today's program. Thanks for your participation. You may now disconnect..