First American(US:FAF)2019-02-14 19:50Financial Data and Key Metrics Changes - Fourth quarter earnings per share were $0.81, or $1.27 excluding net realized losses related to equity securities [7][16] - Full year 2018 earnings per share increased by 11% to $4.19, with a pre-tax title margin of 12.4%, the highest in the company's history [10][12] - Cash provided by operations was $308 million, up 75% compared to the previous year [24] Business Line Data and Key Metrics Changes - Revenue from the residential purchase business fell by 5%, with open purchase orders down 4% [8][19] - Refinance revenue dropped by 33% in the fourth quarter, accounting for 8% of direct revenue, down from 13% a year ago [8] - The Title Insurance and Services segment saw direct premium and escrow fees increase by 1%, with a 17% increase in average revenue per order [19] Market Data and Key Metrics Changes - The commercial business revenue was up 18%, driven by strength across most markets and asset types [7][28] - The property and casualty business was impacted by California wildfires, with a loss ratio of 62% [9] Company Strategy and Development Direction - The company plans to focus on innovative solutions to improve customer experience and efficiency, including digital closing services and automation of title production [12][14] - The launch of a supply chain platform aims to increase efficiency and reduce risk in the title production process [13] Management Comments on Operating Environment and Future Outlook - Management expressed caution regarding the purchase market, anticipating continued pressure in 2019 due to slowing home price appreciation and increasing supply [11][26] - The commercial market is expected to remain strong, with a good pipeline of large deals [28][30] Other Important Information - The company repurchased $21 million of its stock at an average price of $44.20, with $162 million remaining for future buybacks [24][41] - The effective tax rate for the quarter was 21.6%, lower than the normalized rate of 24% due to tax reform true-ups [24][50] Q&A Session Summary Question: Outlook for title insurance in 2019 - Management believes the purchase market will be under pressure due to market resetting, with expectations of a slight decline [26] Question: Strength in the commercial market - Management is optimistic about the commercial market, citing strong performance and a good pipeline going into 2019 [28] Question: Investment income expectations - A $15 million annualized benefit is expected from the recent Fed rate hike, although balances may be lower in Q1 [31] Question: Revenue per order decline - The decline in average revenue per order is attributed to a mix shift and the normalization of previous rate increases [33] Question: Share repurchase strategy - The company was active in buybacks due to stock price dislocation and remains opportunistic moving forward [35] Question: Weakness in specific geographies - Weakness is noted in the western states, which is currently driving the overall market slowdown [44] Question: AI utilization for cost efficiency - The company is aggressively utilizing AI to enhance data collection and improve efficiency, with expected impacts in 2019 and 2020 [45] Question: Tax rate for 2019 - A normalized tax rate of 24% is expected, with potential discrete benefits lowering it to 22% or 23% [50][52] Question: Write-offs of uncollectible balances - A $7 million write-off of a receivable was noted, which was unusual for the quarter [64]