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Thank you for joining the Stewart Information Services second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask a question during the question-and-answer session. Instructions will be given at that time. Please note today's call is being recorded. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn today's conference over to Kat Bass, Director of Investor Relations. Please go ahead.
Thank you for joining us today for Stewart's second quarter 2026 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. This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Please refer to the company's press release and other filings with the SEC for a discussion of the risks and uncertainties that could cause our actual results to differ materially. During our call, we will discuss non-GAAP measures. For reconciliation of these non-GAAP measures, please refer to the appendix in today's earnings release, which is available on our website at stewart.com. Let me now turn the call over to Fred.
Thank you for joining us today for Stewart's second quarter 2026 earnings conference call. Yesterday we released the financial results for the second quarter. I will kick off today's call with an overview of our performance, followed by our outlook on the housing market. I will cover our results and strategic direction by business. After my remarks, I'll turn it over to David for additional commentary on the results. I am very pleased with the second quarter results. We sustained our growth momentum in each of our business lines and strengthened our future earnings outlook by significantly investing in some additional business opportunities. Our results for the first half of the year reflect the efforts we have made to grow the company and improve earnings. Our year-to-date results demonstrate our success at growing both top and bottom lines. Year-to-date, we have grown revenues by 26% and grown adjusted pre-tax income by 45%, all while the housing market remains at multi-decade lows. Our momentum continued in the second quarter as we saw very strong revenue growth of over 24%. Earnings growth for the quarter was 13%, with slower growth driven by a decision to make some significant additional investments in individuals and teams to boost our organic growth initiatives in three of our title businesses. In the quarter, we made additional investments in individuals and teams of around $8 million to capture these targeted business opportunities. I'm excited about these opportunities and believe we should see the full impact of these hires over the next two to four quarters. Even with those investments, I believe we can deliver earnings growth that will outpace revenue growth over the second half and for the full year for the overall company. I am very encouraged by our strong momentum in 2026 when considering current housing market conditions. Growth in existing home sales has been very modest again year-over-year, up 2% for the first half of 2026, but still hovering around the 4 million annual units, continuing the multi-year slump. At the onset of 2026, we expected existing home sales to improve around 6% to 8%. However, given the position of interest rates as a result of the macro and geopolitical conditions, we now anticipate a much softer improvement, with growth more likely topping around 2% when compared to last year, keeping us solidly in the low 4 million existing house sales range. While May and June saw some positive existing home sales momentum year-over-year, the annualized numbers remain in that 4 million to 4.1 million range. Home prices continue to hold and slightly increase by around 1.5% for the quarter, even as we see more inventory coming into place, reflecting the demand still built into the system. The share of owners with under 3% rates continues to slowly shrink, coming in about 19.5% from the high of 25% of outstanding mortgages several years ago. This implies that life events are slowly inciting some buyers into the marketplace. Interest rates remain a critical factor for potential home buyers determining when they enter the market. In the first quarter, we felt the positive effects of rates moving down toward the 6% range and felt a dynamic shift as they moved back up around 6.5%, which is where we hovered throughout the second quarter. Turning to our business results, our national commercial services business continued to deliver strong growth in the quarter. Total domestic commercial premiums grew 20% year-over-year and are up 30% for the first half of the year when compared to 2025. Energy continues to be our largest asset class, followed by strength in some of our larger asset classes such as data centers, multifamily, and industrial properties. We are proud of how we have built this business over the last two to three years and are laser-focused on the continued expansion in this space. The acquisition of industry-leading talent is a critical activity for us to continue to grow our footprint, and we continue to seek opportunities to expand our talent base. In the second quarter, we made some significant investments in hiring additional teams to address some regional and sector opportunities, spending an additional $3 million to $4 million this quarter to do so. We believe in these personnel investments and anticipate we will feel the full impact of these hires over the next two to three quarters as they settle into their roles and begin to contribute business. Our direct operations business unit grew consolidated residential refinance and Main Street commercial revenues by 7% in the second quarter compared to the same timeframe last year. Residential transactions grew 3% in the quarter, slightly better than the growth in existing home sales for the quarter. Main Street commercial delivered solid growth, with revenue up more than 20% due to both transaction volumes and size. We remain focused on strengthening our position in attractive MSAs through organic and inorganic efforts and have begun to see more opportunities become available in our target geographies. In the second quarter, we invested approximately $2 million in incremental organic opportunities to acquire individuals and teams in support of our growth strategy and direct operations. Our centralized title operations, which include centralized refinance and our bulk business, confronted some tough comparables when compared to Q2 last year, as our bulk businesses in particular can be very bumpy. These headwinds impacted our overall non-commercial direct business and drove results down about 1% when compared to the second quarter of 2025. Our agency services business delivered 25% revenue growth for the second quarter in a row, which we are especially pleased with given our agents confront the same headwinds as our direct operations offices. We are focused on growing this business through winning the business of new agents and expanding wallet share of existing agents, with the emphasis on 15 target states. We are also committed to expanding our commercial footprint in agency, and we continue to make good progress on both these priorities with residential premiums up 30% and commercial debt premiums up 16% in the second quarter when compared to the same timeframe last year. In the second quarter, we were also proactive in making additional investments in talent to take advantage of some disruptions we saw in a handful of our target markets. We invested another $2 million to $3 million in additional customer-facing talent, which should enable us to build significant share in these target states. Our real estate solutions business grew revenues by 75% and adjusted pretax margins by 24% in the second quarter compared to last year, ending the quarter with a 13.6% margin. The year-over-year comparables in this segment benefit from their acquisition of MCS, our property preservation business, as well as our acquisition of NAN, our national appraisal network. When removing those contributions to our revenue, our legacy real estate solutions business grew roughly 18%. We remain focused on continuing to expand our coverage and servicing of the top 300 lenders, and our suite of products and services is in a good position and is giving us even better ability to cross-sell and win business. Moving to our international operations, we are focused on profitably growing across our footprint of Canada, Australia, and the U.K. In the second quarter, we grew our non-commercial revenue by 4% and commercial revenue by 7% in challenged housing markets. We believe we can build on our strong position in these markets and continue to grow profitable share. On the topic of inorganic growth initiatives, in 2026, we have seen a meaningful pickup in attractive opportunities in our acquisition pipeline. In late 2025, we conducted a capital raise to put ourselves in a position in 2026 to strengthen our competitive position and increase our earnings power. The vast majority of that capital has yet to be deployed. However, we are currently working on transactions that we anticipate will close in the next 60 to 120 days and will be funded by the proceeds from our excess capital. Our significant growth in real estate solutions and commercial activity throughout the business lines has resulted in an increase in our operating expense ratios. In real estate solutions, our other operating expenses are the largest expense category and are a higher percent of our mix due to the mix of outside services, cost of data, and our appraisal and property preservation contract workforce. Similarly, commercial transactions often come with higher operating expenses given the cost of data and search fees. Throughout our journey, we have prioritized thoughtful investment in ourselves and our talent to position Stewart well for the marketplace. We have some of the best leaders and employees in the industry, and we continue to add to our roster with a relentless focus on adding personnel that will help us grow the company for the future. We believe strongly in these investments. These investments are necessary to propel the company to the next phase, and we are continuing to see real momentum for ourselves in the marketplace. We have increased our staffing in all our segments in line with our organic growth initiatives and have grown our headcount via acquisition, which has resulted in an increase of our employee costs of about 17% year to date. Even with this increased investment, year to date, we have grown revenues by 26% and adjusted pre-tax income by 45%. We continue to anticipate earnings growth in excess of revenue growth for the full year, but could see the ratio of revenue to earnings come in different in the second half without the benefit of improved market conditions, given our increased investment in the title segment. We continue to prioritize shaping the company for 12% adjusted margins when we get back to a 5 million unit existing homes market and are focused on improving margins as we grow in a challenged market. Thank you for all your time, attention, and interest in Stewart. As an enterprise, we are dedicated to being the premier title service company. We are focused on strengthening the company for lasting success through targeted multipronged growth plans by business to further fortify our position. To our customers and agent partners, thank you for your trust and dedication to Stewart. We are committed to serving you with excellence. To our Stewart team, thank you for your dedication and focus on growing this company together. We've made great progress, and I look forward to seeing what we can do together. David, I will now turn it over to you to provide an update on our results.
Good morning, everyone. Thank you, Fred. Thank you to our employees and customers for their continued support and partnership as we navigate a residential real estate market that remains challenging. Yesterday, Stewart reported solid second quarter results with both revenue and profitability growth. Second quarter total revenues increased to $177 million, or 25%, while net income improved $5 million, or 17%. Diluted EPS was $1.21 compared to $1.13. On an adjusted basis, net income was $43 million, or diluted earnings per share of $1.39, compared to $38 million and $1.34. Appendix A of our press release shows adjustments to our consolidated and segment results, primarily related to net realized and unrealized gains, acquired intangible amortization, and acquisition integration expenses. In our title segment, operating revenues increased $91 million, or 15%, driven by strong performance from our agency and domestic commercial business. Title operating expenses increased 17%, primarily due to expenses related to revenue growth and higher employee costs, as Fred noted, resulting from our continued investment in talent. As a result, title pre-tax income was comparable to last year. In our direct title business, direct title revenues increased $15 million, or 5%, primarily driven by higher commercial and refinancing transactions, while purchase orders were comparable to last year. Domestic commercial revenues grew $15 million, or 20%, driven by higher transaction volume across energy and other asset classes with continued data center benefit. Our average domestic commercial fee per file was comparable to last year at $16,900. Average domestic residential fee per file increased 10% to $3,200, primarily due to a higher weighting of purchase transactions. Total international revenues increased 5%, primarily driven by higher transaction volumes. On our agency operations, gross agency revenues increased 25% to $377 million from $301 million last year, driven by improved residential and commercial activity across our key agency states. After agent retention, net agency revenues increased $13 million, or 26% compared to last year. On title losses, the title loss ratio improved to 3.2% in the second quarter compared to 3.6%, primarily due to continued overall favorable claims experience. We expect our title losses for the year to average in the mid 3% to 4% range. On our real estate solutions segment, total revenues increased 75% to $85 million, primarily driven by our recently acquired Mortgage Contracting Services business and growth in our credit information and valuation services business. Real Estate Solutions adjusted pre-tax income more than doubled to $27 million from $12 million, while adjusted pre-tax margin improved to 14% from 11%. On our consolidated expenses, our employee cost ratio improved to 27% compared to 30%, primarily due to revenue growth. Our other operating expense ratio increased to 27% from 25%, primarily due to higher costs associated with increased revenues in the real estate solutions segment. Due to our real estate solutions segment growth, we expect our other operating expense ratio to be in the 27% to 28% range going forward. Our financial position remains strong and well-positioned to support our customers, employees, and the real estate market. Total cash and investments were approximately $400 million in excess of statutory premium reserve requirements. Total Stewart stockholders' equity at June 30 was approximately $1.66 billion, representing a book value of approximately $55 per share. Net cash provided by operations increased to $60 million from $53 million, primarily driven by higher net income. Thank you to our customers and employees for their continued support. We remain confident in our ability to serve the real estate markets. I will now turn the call over to the operator for questions.
分析師問答
Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. We'll take our first question from Bose George with KBW. Your line is open.
Morning. Hey, guys. Good morning. Actually, first, just on expenses. You guys noted a few factors that drove the expenses higher. Just stepping back and looking at it more broadly, can you just talk about the annualized margin outlook, especially if you remain in this hire-for-longer mode, with mortgage rates at 6.5%?
Thanks, Bose. I look at the whole year. I've given some guidance on the whole year and how to think about the changes. If we stay flat, which I think we will, I don't think we'll see any growth in the residential market for the rest of the year. I believe that we'll grow revenue probably 20% and earnings 30%. That's kind of the range, I think. There'll be some comparisons in the back half of the year because we had such extraordinary growth in commercial that'll tighten some things. The improvement in margin I see is about a half a point for the company year-over-year. It might be four tenths, it might be six tenths. Again, it has something to do with the comparisons because we had such outsized growth in commercial last year, particularly in the fourth quarter. It's that kind of improvement. I'm right on track. It's right where I wanted us to be. We outperformed a little bit in the first half of the year, which was great, and we've reinvested a bunch of that because I want to sustain it. There are a lot of things to think about. Our commercial business at the end of 2023 was $208 million. Our last four quarters is $450 million. We've doubled that business. It's important for us. That's a people-driven business, and we really need to make sure we're covering sectors and geographies. The other thing you're seeing is a really significant step up in our agency business. We've had some nice movement, and we've seen a couple of markets with disruption, so we've gone for it. We're trying to make an investment in customer-facing roles to really shift share. We're the best markets. I still think with all that, as I look at our momentum and even with the reinvestment, I think we'll pick up another half a point. We're right on. I think title will be tighter. I think it'll be kind of the same as last year. This overall company will be about a half a point. It could be better than that, depending on how quickly we ramp up some of these opportunities. By the way, those numbers do not include what I expect in the next 60 to 90 days. We have a number of these acquisitions we're going through due diligence on that we've talked about. Obviously that would be additive to the equation. I think we're right on track to what we thought.
Okay, great. Thanks. That's helpful. Actually, just on the acquisitions, when we think about the scale, is it similar to MCS? Is it a lot of small ones? If you can give some color there, that would be great.
Yeah, sure. When I've talked about it, the categories we have talked about include some consolidation I want to continue to focus on in some of the real estate services because it's very good incremental margin improvement for us to do that. We did Demand, which was in that category, and there's likely to be another one over the next 12 months. Not necessarily in appraisal, but in the residential services. There are also, on the agency side, a lot more activity. I would see a couple to three in that category. They could be a combination of residential or commercial, depending on the transaction. They're in those categories that we've talked about. None of them are huge, so none of them are in the MCS size category. We're at the point now where this is about MSA-level transactions, by local market, trying to change the economics. We're in kind of the business-by-business approach, whether it's our data business, our appraisal business, or our property preservation, to really just build scale in some of those areas. They're all active. As I said, I would guess that we'll be able to deploy the full amount of what we raised plus some by the end of the year.
Okay, great. Actually, just a quick one on commercial. Was there any slippage of large deals? I mean, your fee profile was flat year-over-year, but obviously down in these amounts just over the last couple of quarters. Are you just going to need the big deals?
Yeah, it was very bumpy. We had some tough comparisons. We had a couple really big ones last year. The mix of us and where we are, when I look at the data center mix or I look at the energy mix, it's similar. We've had a couple, same in the fourth quarter of last year. We had just a tremendous big one in New Mexico. There's going to be a little bit of bumpiness. I don't see any momentum shift. The pipeline's good. What I would tell you, though, the comparisons are tough. We grew 30% for six months. We grew 46% or 47% last year for the same time period. We're building on big numbers. If you recall, we grew a lot faster than the rest of the industry early. The comparison last year was a big year. As I said, frankly, it started at the end of 2023. We've been cranking. I'm very, very comfortable with the 30 sitting on top of the 47. I would also say that's a place I've said time and time again, we're underpenetrated in geographies. We're underpenetrated in sectors. We got to keep hiring talent in commercial if we want to keep closing the gap. I haven't done, obviously, the numbers this quarter, but we've gone from about 9% to about 13.5% to 14% share. That's a pretty big jump. I'd like to believe if we keep our focus and keep investing in that business over the next couple of years, we could get it to 20%. Now, again, it's bumpy. Our competitors are going to have great quarters, too, and they're very, very good competitors. I look at that business as really about coverage and resource and our team. The other thing I don't want to do is take on so much so fast that we can't digest it. It's balancing that. I think our team has done an excellent job doing that, and I continue to see a good, strong pipeline and potential.
Okay, great. Thanks for the color.
We'll move next to Oscar Nieves with Stephens Inc. Your line is open.
Hey, Oscar.
Hey, Fred. Hey, good morning. My first one is on the title segment. When we look at the revenue trends in title, agency continues to outgrow direct. Is that still consistent with the sharing story in your target MSAs, or are you starting to see competitive or mix pressure show up in the amounts retained by agents? Because if we look at the average of this quarter, it came in a little bit higher than the prior quarters. So I just wanted to see—
Yeah. It's a good observation. The way I'm thinking about it, in our direct operations, we've now been four years in a flat market on residential, which is the vast majority of what's in our direct operation. We're trying to expand what I call Main Street commercial. They've done a pretty good job. They've grown at 15%, but I would argue our direct operations is probably under-penetrated in commercial still. If you look at the growth, I think we grew about three and a half percent in residential. We're holding our own, and our growth in direct has mostly been on the commercial side. That gets us to that seven percent. We've done a pretty good job, but we haven't shifted as much share on the residential side in direct operations. Now, two things are changing. We're getting good commercial traction; the thing I mentioned in my call, we're starting to see disruption. We're starting to hire and take teams organically—we spent about a couple million dollars this quarter on that—and I can see the shift. The other thing that's happening in direct is the inorganic opportunities that I keep talking about by MSA are emerging. We just announced one, a great brand in Texas on the Fort Worth side of Dallas, where we were weak. I'm really excited about this great brand, great company. It's not huge. Those kinds of opportunities are starting, as I said, in our pipeline; we have another three or four of those. We'll start seeing kind of that MSA-grade growth shift a little bit with residential. I don't see the market helping us because I was hoping this year that I'd see six to eight percent residential growth, which would really shift things for us. That's also our big margin lever because we have excess capacity in our direct operations. To your point, compared to agency, the team has done an amazing job. In a 1% to 3% growth residential market, we grew 30% in agency. What we're seeing is shifting share at a lot of significant agents in some really attractive markets. Do I think that's going to come down a little bit? Sure. I think that business will probably grow in the teens. The other thing they've done a really good job on is the commercial side in agency. We are shifting share nicely on the agency side. I don't see the dynamic within the agents changing anything. I just think we're kind of shifting our share. I would tell you that, again, the inorganic activity, there's a lot more discussions right now. Even though the market's flat, I think it's because commercial is a little better, people's outlook is a little bit better, they've made a little bit more money, and we can come to an agreement on a price that's fair for both. That is actually starting. It's a great observation because for me, the direct operation swings if commercial is outsized, it changes the dynamics. If we can get a little bit more residential growth in direct, it would change the dynamics. Those are the things that are moving it around. I'm really pleased with the progress everywhere. I think that direct is emerging because we're seeing this activity; that team's done an amazingly good job on expense management and data management. We've been able to hold or increase our margins over the last three years because of the hard work they've done, even though there's been no growth. I think we're pretty good in both segments.
That's super helpful. I want to double-click on a couple of the things that you just mentioned. One is on commercial activity, which obviously has remained very strong, and one of your peers that reported yesterday mentioned in their press release that they are on track for a record year in commercial. On that, can you give us your outlook for commercial revenue for the rest of the year and into 2027? Also, if you can share how the underlying drivers — what are you seeing right now in terms of fee per file versus order counts?
They're solid. Again, my whole thing is just the comparisons for me because we had a bunch of quarters, as you know, in the last two years where we grew 50% or 47% or 50%. That's a hard comparison, but we had a nice pipeline. We grew 30% the first six months this year. I believe we continue to grow. I'm a little bit suspicious about the fourth quarter because we had such a big year in the fourth quarter last year. To your point, we've had two record years in a row. With this last four quarters, we doubled the business. We see the same thing. The market is attractive. We hit our stride, and our skillset got better at the right time. We're fortunate. They've called us lucky. We've been seeing this for the last couple of years. We don't see, again, it's bumpy for us because we're smaller. If you have one of these mega deals like we had in New Mexico or another one in Louisiana, it affects us a little bit. I like the breadth of our pipeline. I like what's happening. I would say the percentage growth could be a little less because of the comparisons. It's not because the market's not good. It's not because of the pipeline. You can see our order count and our numbers. Now the one unknown always with commercial, you have to keep in mind, is if there's a disruption in the marketplace and the financing costs change, sometimes they'll kick it to the next quarter or they'll accelerate it. These tend to be longer deals and can be fickle about timing and closing. I'd be surprised if this year's not the best year we've ever had after last year being the best year we've ever had. We just have to keep after it. I do think the little bit of difference with us and some of the big competitors is scale. For me, I'm building capacity as fast as I can build capacity, so there's a little bit of a gate for us because I don't want to be reckless. I want to do it well. I want us to be considered excellent. There is staffing we have to continue to do, because we're a lot bigger than we were. I feel really good about the market. There's nothing about the market that I'm worried about. The early estimates in the market were about a 12% growth in commercial that you see in those forecasts. Obviously, the first half is much bigger than that, but I don't see anything changing the trends. It's nothing to report to say I'm worried about it.
Oscar, that $17,000 fee per file is probably more indicative. As Fred said, we had some really big deals in prior periods, but the $17,000 number is probably more representative.
Right. Yeah. All right. That was going to be my next one, because there was a significant step-down versus the prior two quarters. I do have one last one: you recently announced the Rattikin acquisition. Just wondered if you could share some details on the size of the deal, like Rattikin as a new addition.
It's a small one. It's what I call a micro deal a little bit because it's basically small. It's not a big deal. The reason we announced it nationally is because their brand is amazing, and it's one of the oldest and best-known agents in Texas. It has an amazing commercial position. We felt it was important to recognize the family and make the announcement nationally. It is what I would call a small one. Again, it fills in Dallas—that's the way for us to think about that. The ones we're doing following are a little bit bigger and a little different in nature. I'm really pleased with it because we have a really good position in Dallas, but it's been a hole. This is about as great as it can be. It's filling out that city for us.
Oscar, if you just think about the industry data, most agents are under $10 million in revenue. When you have a single-market agent, that's probably the area that they're in.
Okay. Yeah, that's super helpful. I'll go back in the queue because I have an infinite list of questions, but I'll give other people a chance to speak too.
Yeah. Thank you, Oscar.
We'll take a question from Michael Rindos with StoneX. Your line is open.
Hey, Michael.
Hey, good morning, everybody.
Yeah. Typically, you have a lead player in those commercial deals; you achieve those. There's not a lot of pure price competition on a particular deal. They typically get referred, and as you get better at certain categories, you tend to lead more. What ends up happening in some of the big deals is you share the deals, given the scale and the size and the need for capacity. As far as price sensitivity, there isn't a lot of price sensitivity. There are some segments of the market where there's joint venture business between the generators of the business and the underwriters, so there's some sharing of those deals that occur in pockets in different cities. I wouldn't say that business is overly competitive. It has a lot to do with skill set, particularly on some rural work. We tend to be very good in energy because it's a lot of rural work, Indian reservation issues, etc. Those tend to skew toward people with that skill. I think, and again for all of us, it's a higher margin business for everyone. For us, it used to be sub-scale, so it wasn't, but we're now in the same category with all the others. The other thing that comes with commercial is float, right? You have escrow and float and the investment income as well. That tends to be higher margin. It tends to be a very stable market. I would tell you right now the issue is we're skewing to larger accounts just because of the nature of data centers and energy development. In those, you're seeing more shared accounts because they're just big, so you have to have more shared. There's a lead and then there's following; we're doing a lot more leading than we've had historically because we're bigger. There's a lot more shared transactions just because of the nature of the business and the size of the business. Again, I like the business. It's very attractive and, again, for us, it's really important to be a bigger presence in commercial across our direct operations, international commercial, and agency commercial. In that business, the oligopoly is even tighter. Obviously, Old Republic has some of it too. Because our skill sets are unique and our capital base is strong, that tends to be a business where the battle for share will be among the larger players. We need to be more present across the spectrum.
Got you. Okay. How long does it take from an order open to an order close in commercial on average, and what's the direction there, and what does that tell us, if anything?
Not much. It's tough to call. In commercial, you could have a two-year deal. Again, because of the complexity and the size, you don't have a lot of 60-day deals. These deals tend to be three quarters to a year. Some complicated ones can take multiple quarters. The other thing about them is they're very business-oriented. There's a trigger when they're doing the business case; if something happens with their carrying costs, they might kick it to the next quarter or accelerate it. These tend to be a little fickle about exact timing of close. This is why our growth can sometimes appear lumpy, because we have a lot of search fees and work that happens before the close. You do a lot of that work and don't get compensated until those deals close. There can be a lag in those businesses of costs and expenses while you're doing the work before they close. Over time, that evens out, but for a company like ours that's growing fast, those lags can be meaningful. When you're growing 40%, the revenue you're chasing—there's a lot of work for revenue that hasn't landed. We've had to manage ourselves properly to do that with staffing and so on. Again, it's all over the map. If you look at refinance, you can almost call it—65 to 75 days. Residential will take about the same. Commercial is all over the map. You can have a rush of orders and then closes get kicked back. That's particularly true for alternative energy, where some projects opened early and then took a long time to close. The nature of the project can change over time. It's not an easy, straightforward answer, but commercial tends to be longer; thinking in terms of up to a year is not a bad way to think about it, but there is wide variability.
Thanks. It seems like in some states, the political environment is becoming more difficult around permitting for data centers. Can you comment a little bit about how that is affecting you currently, and what the outlook might be for some of the markets where you are?
Yeah, it's a good question. It's something we all read about, whether it's Maine or other communities that say 'not in my community.' It may have some impact; it's hard to know. We're above average right now, so could we be more robust? It's hard to say. My prediction is that if demand is there, communities will work it out, similar to cell towers; they'll find places to locate them. If demand exists, they'll figure out how to address it. There are also trends where some organizations are moving to on-premise or smaller data centers for security reasons, which could change the profile of data centers. Because the demand is so robust—more than we've historically seen—I don't see a clear slowdown. I think if demand persists, they'll find solutions. We're prepared to respond to the opportunity. There is a chance average deal size reduces and the size gets more distributed, but I don't know that for a fact. I'm monitoring it, but overall I feel good about where we are and the trends we see.
For some of these inorganic transactions that you're looking at over the next year, can you comment a little bit about how these deals are priced on either revenue or profits?
Typically, a title business trades somewhere between 4x and 6x EBITDA. If you have higher-margin service businesses, that can get up to 8x EBITDA. As we think about them, the IRRs we target are about 15% or higher. When we price these deals, we tend not to include underwriting economics for agency purchases. What's really advantageous to us buying agents is our competitors have much higher share in the agency channel; if they buy an agent, they're buying their own underwriting back. We actually get that for free and shift share in a high-margin part of the business. The economics for us are relatively attractive for these kinds of transactions. When we raised capital in December, I could see all the activity. The amount of activity is significant. There were a lot of outside investors in 2021 and 2022 that tried roll-ups of services or agencies, which wasn't practical with no renewals. Many of those have exited the market. What's happening now is pricing has gotten realistic. You can see the activity right now. We have to be selective and thoughtful. These deals are taking a little longer—60 or so days longer to close than I thought. Could we have raised the money in March instead of December? Probably, but the overhang is helpful. We're going to deploy the excess capital, and I'm comfortable with what we did and what we're doing now with it. I do think the activity won't stop. There may be some very interesting assets on the market in the next 18 months. We have to be prepared to assess whether they make sense for us. From my perspective, we're in a phase where outside capital is not flooding into the industry; if you're in the business, it's an attractive time. We just have to be thoughtful and selective.
I understand that you're not seeing outside bidders. Are you seeing any competitive bidders from the other large players in this group? Is that picking up at all?
The competitive nature of these transactions is very light. Let me just say that.
We'll take a follow-up from Bose George with KBW. Your line is open.
Hey, guys. Yeah, just a quick follow-up. Fred, you mentioned the centralized title and some challenges there. Can you just elaborate on that a little bit?
Sure. We have a centralized unit that includes our centralized refinance operation, which is a small business for us. We also have our specialty businesses: we have our reverse business in there and we have our bulk business. Both of those businesses can be bumpy. The investor business that we talked about—we bought that business. That bulk business is very bouncy. Last second quarter, if you look at the orders, we closed a lot of orders in the second quarter. It's the nature of that business where big deals will come. If you look at our open orders, you see that they're way up for the next quarter. It's bumpy by nature. I think it's important for us to build the skill set around centralized transactions given potential technology trends and the possibility of more centralized purchases. We built that around specialty businesses. It's a good business, but it is bumpy. We probably saw a reduction of about 20% in that business, which had some impact on earnings growth too, in the $2 million to $3 million range. It's the nature of the business, and I see the orders coming back.
Bose, just remember the executive order limiting institutional buying and that some provisions are included in the Road to Housing Act. The market is normalizing around all that.
Okay, great. Helpful. Thanks.
I show no further questions at this time. I would now like to turn the call back to Fred for any additional or closing remarks.
I want to thank everybody for their interest. As I said earlier, I'm just thrilled about our momentum as a company. I think we're investing in the right places. I want to thank our folks for their effort because it's been very busy. I'm very encouraged about our progress, and we will continue to be thoughtful about making sure we're trying to increase our earnings more than our revenue, and we will continue to do that as we march forward. Thank you very much. I appreciate it.
Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.