First American Financial Corp Q2 FY2025 earnings call

• Mark Seaton noted adjusted earnings per share were $1.53, including a $0.12 per share one-time expense for executive separation costs. Commercial business was strong with 33% revenue growth and a record fee per file in National Commercial Services. Residential market had purchase revenue decline but refinance revenue up 54%. Home Warranty pretax income up 35%. Share repurchases ramped up, with a new $300 million authorization approved by the Board.
• Matt Wajner detailed GAAP earnings per diluted share were $1.41, and adjusted earnings were $1.53. Title segment revenue breakdown, investment income increase, and Home Warranty loss ratio improvement were discussed.

Title Segment

• Revenue was $1.7 billion, up 13% compared to Q2 2024. Commercial revenue was $234 million, a 33% increase, with closed orders up 2% and average revenue per order up 30%. Purchase revenue declined 3% due to a 6% drop in closed orders, partially offset by a 2% improvement in average revenue per order. Refinance revenue was up 54% due to a 44% improvement in closed orders and a 7% increase in average revenue per order. Agency business revenue was $717 million, up 16% from last year. Information and other revenues were $264 million, up 10% primarily due to Canadian refinance activity. Investment income was $147 million, up $21 million compared to Q2 2024. The provision for policy losses and other claims was $39 million, 3.0% of title premiums and escrow fees. Pretax margin in the title segment was 12.6% GAAP and 13.2% adjusted.

Home Warranty Segment

• Total revenue was $110 million, up 3% compared to Q2 2024. The loss ratio was 41%, down from 46% in Q2 2024. Pretax margin in the Home Warranty segment was 20.2% GAAP and 20.7% adjusted.

• Commercial expected to remain strong in the back half of the year, though comps will be tougher. Refinance in commercial expected to continue for another year. Info and other revenue growth in Canada expected to continue for the full year. Home Warranty expects to continue growing despite competitive environment. Technology investments in Endpoint and Sequoia ongoing with pilots planned for December and Q1 respectively.

• Risks related to continued challenges in the U.S. housing market. Regulatory uncertainties from the FHFA title pilot. Potential inflation impact on Home Warranty claims. Uncertainty in the strength of commercial refinance activity.

Q: Describe the source of strength in the commercial ARPO and pipeline.

A: Commercial has broad-based strength with high-quality and higher liability transactions, led by industrial and multifamily. Pipeline is strong for the back half of the year.

Q: Increase in commercial refinance percentage.

A: Cyclical, part of a refi wall expected to last another year, eventually returning to the normalized 30% trend.

Q: Durability of Canada refinance activity.

A: Expected strong for the remainder of the year, with info and other revenue growth in Canada proxying for full-year growth.

Q: Home Warranty competitive environment and loss environment.

A: Competitive, lower claim frequency due to favorable weather and fewer contracts, but inflation pressures expected in the back half.

Q: Margin sustainability and technology rollouts.

A: Margin gap may narrow in the back half, technology rollouts for Endpoint and Sequoia ongoing with pilots planned for December and Q1.

Q: FHFA title pilot update.

A: Pilot is underway for limited refinance transactions in certain states, monitoring results with evaluation for future decisions after the pilot concludes.