Good morning. Thank you for joining us today for Stewart’s fourth quarter 2019 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.

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 of forward-looking statements are subject to include, but are not limited to, the risks and other factors detailed in our press release published yesterday evening 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.Let me now turn the call over to Fred.

Good morning, everybody, and thank you for joining us today.Let me first make some comments on the quarter and then give some added color on the start of Stewart’s longer term strategic repositioning. After that, David will discuss our financials.The core title operations finished the year well with direct residential continuing to benefit from higher volumes and commercial getting greater penetration in second tier markets.

Our agency group has been working hard to reestablish revenue from agents who have moved their business during the FNF merger process. December would have been the first month that we could really begin to gauge our success in bringing back those agents, and it turned out to be a strong month, making us cautiously optimistic that our efforts are gaining traction, the traction we anticipated.

That said, we will be carefully monitoring this trend over the next couple of quarters.Let me say a few things about our 100-day review and long-term strategic repositioning. Following the completion of our 100-day strategic review, we have begun the true process of making Stewart a more competitive and resilient company.

Based on our work, I’m even more confident that we can position Stewart to generate longer term growth and much improved margins.Our work of repositioning Stewart for the future has addressed a number of fronts. First, you have probably seen from our -- some of our Board, senior executive and managerial changes in the press and public filings.

Throughout the Company, we have worked to get our team energized, aligned and in place. And while we have additional work to do and potentially some additional team members to add, I feel we have a talented team prepared to work together and get it done.But, before discussing any changes, I want to take a moment to thank Matt Morris for everything he has done for the Company and specifically for what he has done to ensure a smooth transition for me.

I look forward to Matt’s contributions as a Board member going forward, together with our two newest Board members, Karen Pallotta and Manolo Sánchez, who bring a lot of relevant experience to assist us in our journey.Among several executive level changes during my first several months, I would like to single out Steve Lessack, who will be guiding our direct operations. Steve’s track record of building businesses and sustaining revenue growth, margin and cost discipline aligns with our new direction.

In addition to the alignment of our team and talent, we have started to be more strategic on our business portfolio and investments, ensuring that we are investing in areas where we can win over the long term. You saw from the press release that we’ve begun this reallocation by closing some locations and reducing our resources and others.

We will be reinvesting much of those ongoing savings in areas where we can lead to long-term growth and improved margins.Following our strategic review, we’ve identified some areas where we will have targeted investments to improve our competitive position in each of our businesses and identified important improvements needed around our basic execution.Finally, there are some important structural changes to our business we need to invest in around building scale in some key direct markets, managing our agency geographic footprint, building an attractive commercial business and adding scale to our nontitle businesses.I will finish by simply saying that process of turning Stewart into the premier title services company and improving our financial performance has begun. It will not be an overnight process, but I remain confident in the potential we can to unlock here given the quality of our people, brand and financial strength.David will now update you on the quarter.

Thank you, Fred, and good morning.Last night, Stewart reported title revenues of $506 million, operating revenues of $513 million and a breakeven net income result for the fourth quarter 2019. Including the charges in appendix A of the press release, adjusted net income of $21 million with adjusted EPS of $0.87 per share versus adjusted net income of $19 million and adjusted EPS of $0.82 per share from last year’s quarter.

Appendix A shows the calculation of our adjusted net income and diluted earnings per share, which are non-GAAP measures. These adjustments are primarily comprised of asset impairment charges, severance expenses related to our corporate reorganization and office closure costs.Our title revenues for the quarter improved 11% based on continued strength in residential activity as well as significant growth in our agency and international businesses.

The title segment generated pretax income of $20 million or 4% pretax margin. Excluding the charges, the segment’s fourth quarter 2019 income was $33 million or 6.5% pretax margin.With respect to our direct title business, direct residential revenues improved 21% on increased orders offset by reduced fee per file due to higher refinance mix.

Total international revenues improved $4 million or 15%, primarily driven by increased volumes from our Canadian operations. And although commercial activity increased in December, commercial revenues declined 5%, primarily on an equal drop in commercial fee per file.

Compared to the fourth quarter 2018, total open and closed orders grew 31% and 33%, respectively.Regarding our agency business, gross revenues increased 10% compared to the fourth quarter 2018 due to higher customer and market activity. Across the enterprise, January business activity continues at a strong pace over the prior year period.Regarding title losses, although our December 31, 2019, total balance sheet policy loss reserves remained strong at $459 million and above the actuarial reserve midpoint, we did experience an increase in title losses in the quarter.

This increase was primarily due to losses recorded in portions of our non-Canadian international operations and an escrow loss in our commercial business. We expect our year 2020 title ratio -- title loss ratio to be in the low to mid-4% range.Looking at our ancillary services and corporate segment, we reported a segment pretax loss of $17 million for the fourth quarter compared to $10 million in the prior year quarter.

Excluding the charges and net realized losses, the segment’s pretax loss would improve to $3 million in the fourth quarter versus $5 million from last year’s quarter.The segment’s operating revenues declined by $5 million as our capital market search business was impacted by the order reductions from several customers. The segment’s results for the fourth quarter ‘18 and ‘19 included approximately $11 million and $9 million, respectively, of net expenses attributable to parent company and corporate operations, with the higher expenses in the fourth quarter ‘19, primarily caused by the previously mentioned charges.With respect to consolidated operating expenses, employee costs were up 11%, compared to the prior year quarter, primarily due to increased incentive compensation, consistent with higher revenues and increased employee severance expenses related to the corporate reorganization.

Average employee count was 3% lower in the fourth quarter of 2019, which slightly reduced our salaries expense compared to the prior quarter. As a percentage of total operating revenues and excluding severance charges, employee costs for the fourth quarter ‘19 versus ‘18 were 28.8% and 29.4%, respectively.Other operating expenses for the fourth quarter 2019 increased 7% to $94 million from $88 million.

This increase was primarily driven by the charges previously noted and higher direct title revenues in the fourth quarter 2019. As a percentage of total operating revenues and excluding the non-operating charges discussed, other operating expenses for the fourth quarter were 16.5% in ‘19 compared to 17.8% in the prior year quarter.Lastly, on other matters, our financial position remains strong, providing ample fuel for the initiatives Fred covered.

Stockholders’ equity attributable to Stewart was $747 million at the end of the year. Cash on balance sheet and our available line of credit of $100 million provides significant and immediate liquidity for initiatives.

Our debt-to-capital ratio is approximately 12%, and our book value per share is $31.52 at December 31, 2019. Net cash from operations for the quarter was $59 million, an increase of 19% from the prior year quarter, and $166 million for the year, about double the prior year.Now, I’ll turn it back to the operator to take questions.

Hey, guys. Good morning.

Good morning.

In terms of the charges, are they largely done, or could we see more charges this year? And also, anything there that could impact your cash on hand, or are they just -- are largely noncash charges?

David here. So, a good majority of them were noncash, the asset impairments and the like.

But, with some of the severance charges, obviously, there’s some payments that go with that. But the vast majority are noncash.

I think, with respect to the future, I would say the vast majority are behind us. But as Fred mentioned in his opening comments, we are in a journey and there could always be some things that come out of that as we continue the repositioning.

Okay, great. Thanks.

And then, just in terms of the -- as you sort of move towards growth profitability, et cetera, have you started to set sort of margin goals or market share goals, or is it a bit early for that?

It’s a bit earlier, though. We’re obviously setting our sights for some material improvement for obvious reasons.

But, we are going to set forth, I think, more clarity around our improvement goals, et cetera. But it’s very clear around here that this is a place we want to make sure we are much more diligent about growing and much more diligent about improving our margin.

Okay. And then, actually, just one more on your comment about adding scale to the nontitle businesses.

Can you talk about the outlook there? Are there acquisitions you’re looking at, or just any color there would be great.

Yes. We have -- historically, we would have a spattering of these ancillary businesses.

And I would say, describe them all about two subscale and kind of narrow. And we’ve worked hard on the platform.

There’s some really excellent work creating our platform in a couple of our businesses. And we think there’s an opportunity to grow scale, both organically and inorganically and a couple of them where we think make a lot of sense to both grow them and improve our position in those industries.

So, you’ll see a little bit of both, frankly.

And Bose, if I could just add to that I think the other part of your question was around acquisitions. I think there are opportunities, as you are probably aware in the market and services and also in core title.

And I think it’s reasonable to assume we’re looking at those.

First question around the commercial business. Can you just talk about what you’re seeing there in the pipeline heading into 2020?

And also, if you think there’s opportunity to regain share there as well and how that progress is potentially shaping up?

Yes. McKenzie, I guess I would just point to some of the order activity that we have in the appendix, and you could see that December order activity was actually relatively strong.

So I think there’s always a little bit of lumpiness based on deal size and the like. But I think, as it sits today, we’re seeing good activity and expect to have a good year in commercial this year.

Okay, great. And then, on the average piece -- the profile and the purchase business.

It’s been kind of flattish and I think kind of lagging what your peers have seen. Can you just talk about as you embark on repositioning some of the geographies.

Should we be expecting that to improve in 2020, or what’s the outlook there?

Yes. I’d say that’s going to -- that will track sort of where the business comes from, I wouldn’t expect in this year, a radical change in that number.

I think, over time, as we do some of the repositioning that Fred mentioned, we could see a bit of an uptick. But, I wouldn’t expect a big change this year.

Okay. And then, last one for me.

Just on the progress that you’re starting to make with agents and regaining some business there. Can you just talk a little bit more about how you’re doing that?

What’s the pitch to the agents and what the reception has been?

Yes. I think it’s a couple fold.

Right? I think given the FNF distraction peer feed, Asia said mentioned before, they have to manage their business.

And there was a lot of fear that they would have way too much concentration with Fidelity and then took action and basically stopped a lot of the flow to us or at least redirected some portion of it. What we’re seeing is, I think, a receptivity for that to go back to where it was and be more committed to us as a company.

I would also tell you that we are very focused on growing our agency business and have kind of redoubled our efforts in some particular geographies and around some product enhancements that we will be providing that I think will make a difference. And so, I’m pretty bullish on our ability to kind of see a bounce back, bounce back continue, and I’d like to believe that we are going to be able to continue to grow our share and agency nicely in a number of other geographies that we’re focused on.

So, I feel pretty good. And we’ve actually -- qualitatively, having spent some time with a number of agents, I feel like we’re in a good position and kind of improving our position.

Fred, I was hoping you could get a little bit more color on some of the strategic comments you made about investing in areas of execution and capability, scaling up your direct and maybe giving more focus on your agency footprint. Can you give some examples on all those fronts of initiatives you envision?

Yes. So, if you look at us, in my view, one of the things we haven’t done as much as we could, on the direct side in particular, is investment strength, right?

We have an enormously strong brand. And we have, in my view, a little bit unevenness about where our investment is and where some of our share is.

And the dollar return for investment in places where we have strength -- a brand to leverage and have some strength is enormous. And so you could imagine us targeting both organic and inorganic investments in some of those markets where I feel we have a good brand strength, and again, growth opportunity and share.

And so you will see us double down in some areas. Again, I would argue, it’s going to be both organic and inorganic in some of those.In agency, -- our platform, I think we have some really good things, but we’ve kind of gravitated to some markets that I think was less strategic and more just kind of happened.

And if you look at some of the most attractive markets, our ability to kind of invest a little bit and make sure we go after. And even some of these agents we have relationships with other places, then these other markets that are a little bit more attractive, we don’t have as much penetration.

So, our ability to kind of target a number of agent relationships and go after in these attractive markets. And there is some enhancement of products, we’re in the process of doing that -- make that a little bit easier to go, will help us enormously as we kind of move our mix about.

So, again, if I was to describe our situation, right, we were a good company, but an inch deep and a mile wide. And what I’m trying to do is make sure that we are investing in our strengths and places where can really maximize a return.

And you can imagine, that creates a little bit more resilience in our ability to manage through cycles, your ability to manage through seasonal changes. And so, it’s not market size at some level.

But again, we have one of the strongest brands in the industry. And we haven’t leveraged it.

And a lot of this is about taking our investments and leverage the brand strength. And not a lot of people could replicate what we’re talking about, right?

I mean, what we’re talking about is an established brand. So, we talk to whether it’s agent partners or people that we want to attract to the organization, either institution companies or individuals.Our ability to do that is a lot easier than most because of who we are, particularly when we do it in areas where we have some historical strength that we’ve underinvested in.

So again, it’s -- what you saw on the recharges with us redirecting some of this investment, both kind of just in staff and expense, but also kind of in some geographic areas where we could take those savings and reinvest and then change the dynamics of our economics pretty fast. So, you’ll see it -- is it one of big bang?

No, it’s not a big bang, right? It’s a series of targeted shots, but my view is we can move the needle pretty significantly.

Okay. And then, with the ancillary services, it sounds like maybe there is still some review going on there.

Definitely some businesses that are scalable, but also some businesses that sound like maybe it will not be in the future? Is that a fair characterization of where you currently stand?

We’ve taken a lot of action already on that. So, I feel pretty good about what we’re targeting to grow, and we have clarity on that.

And I think we can grow essentially what we have, our portfolio that we have today. And so, that’s where we’re going, building on the platform we have today.

Okay. And then last question.

In terms of potential inorganic activity on the M&A front, is that something we should expect funded at the OpCo level, or do you foresee opportunities that are more corporate funded.

Yes. It could be either, because we have available line of credit that’s a corporate.

Obviously, there’s always an ability to issue stock if it makes sense. And then, we’ve got OpCo money by virtue of the cash.

So, it could take any form, whatever makes the most sense and is the most efficient.

Hey, guys. Yes, Carter on for John.

Could we expect to see any share buybacks this year?

No. I mean, right now, what we’re focused on with our capital is really building our business and our future, and that’s where our greatest return for shareholders will be.

And essentially enhancing our kind of margin and growth opportunities here in building the company. So, that’s where our focus is on using our capital, particularly right now.

Got it. Real quick on the strength in residential.

Are there any particular markets that are performing better than others?

Well, I mean, our -- yes, not to be coheir or anything, but the performance tends to track sort of where the real estate activity is and where the economy is. So you’ve got third markets in the west, you’ve got Texas, places like that.

And that -- and it’s in Fred’s point, where we have scale in those markets, those tend to be -- what the better performance is.

Okay, guys. Thanks, guys.

That’s all for me.

Thank you.

I think in the past, you had commented about Stewart losing share in the title space, is fourth quarter reflective of us maintaining, losing or gaining share in your opinion?

Yes. I mean, there’s not a huge reference point there other than when the alpha share data comes out on a lag basis.

You can sort of infer how you’re doing against some of the order information that gets reported. I would say that you can look back on that, but it seems like we’re at least hanging in with everybody else.

If there’s anything… if there is anything -- again, my point on that is, again, we obviously are very focused on profitably building this company. And I think what you’re going to see is a consistent growth pattern that we’re going to develop in this institution that outgrows the market a little bit because of the way we invest.

The issue is, this isn’t a straight line from today to there. And so, I’m -- obviously, we’re still doing some tweaking with the portfolio.

We did some -- obviously, some closures of some locations. So, I feel we’re doing very well and kind of competing very well, but we’re not where we’re going to be, right?

There’s still kind of -- there’s some adjustments that are going through the numbers and will for the next couple of quarters as we look at our portfolio and make sure that everything we’re doing makes sense. But that is our goal.

There is no question. Again, if I look at our markets, we’re the strongest.

It’s clear that we can do that on a consistent basis. I think, strength and brand matters in this business.

So again, we are very focused on getting there, but I would say, still some work to do.

Okay. That’s helpful.

And then, on the title losses in the fourth quarter ticked up. Can you just give any more color there?

Is there a single significant larger loss? Or is it in a number of smaller claims or something else?

Well, yes, there’s really two elements in the fourth quarter. And I think it depends on whether you’re trying to bridge the two quarters?

Are you just trying to bridge the fourth quarter to a more normalized loss rate. To bridge to a more normalized loss rate, it’s basically the large escrow loss that we highlight.

And then, there’s about $4 million in non-Canadian international on certain products, and that pretty much explains the fourth quarter to a more normalized loss rate. And if you were trying to bridge to last quarter, we had a lower -- we sort of had the reverse happen last quarter where experience was much better than you have the international, you have the escrow loss, and then you have the higher revenue, right?

And so, I think between all that information, you should be able to bridge the two quarters and then the quarter to a normalized loss rate.

Okay. And then, can you -- I think on the last call, you gave us color on October open orders.

Can you tell us January open order activity?

Yes, open order activity for January is strong. It’s probably up about 20% over the comparable year period in ‘19.

And I thank you for joining us this morning and your interest in Stewart. Goodbye.