First American's Q3 2025: Contradictions Emerge on Commercial ARPO, Investment Income, and Endpoint/Sequoia Rollout Timelines

Date of Call: October 23, 2025

Financials Results

• Revenue: $1.8B Title adjusted revenue, up 14% YOY; consolidated adjusted revenue grew 14% YOY
• EPS: $1.70 adjusted per diluted share, up 27% YOY; $1.84 GAAP per diluted share
• Operating Margin: 12.9% pretax margin in Title segment (GAAP & adjusted)

Guidance:

• Commercial momentum expected to continue into Q4; ARPO seasonality typically builds into Q4
• Investment income expected modestly down sequentially in Q4 due to rate cut headwinds
• Refi openings ~875 orders/day in the first three weeks of October
• Endpoint: first-office pilot on track for December; broader rollout in spring; national rollout ~2 years
• Sequoia: refi in production in 3 counties, first purchase targeted in Q1; national rollout ~2 years
• Long-term debt-to-capital target ~20% (currently ~22.5%); monitoring M&A opportunistically
• Monitoring title waiver pilot and state rate actions (expecting ~6.2% TX rate cut in March)

Business Commentary:

* Commercial and Residential Market Dynamics: - First American's commercial revenue increased by 29% year-on-year in Q3 2025, reaching $246 million. - The company's average revenue per order in commercial transactions was over $16,000, setting a record. - Growth in the commercial sector was driven by strength in the industrial sector, particularly data center transactions, and sustained e-commerce demand.

• Impact of Interest Rates on Investment Income:
• Investment income in Q3 increased by 12% compared to the previous year, primarily due to higher interest income from the investment portfolio.
• However, expectations for Q4 suggest a slight decline in investment income due to headwinds from interest rate cuts.

• The company anticipates that operational enhancements and growth in transaction volumes should offset these impacts in the future.

• Strong Financial Performance:

• Adjusted earnings per share were $1.70, up 27% year-on-year, despite a challenging residential market.
• The company maintained a pretax margin of 12.9% on both a GAAP and adjusted basis in the title segment.

• Growth was driven by resilience in the commercial market, investment income, and operational efficiencies.

• Home Warranty Segment Growth:

• The pretax income in the home warranty segment increased by 80%, driven by a decrease in the loss rate and growth in the direct-to-consumer channel.
• Total revenue for the home warranty segment was $115 million, up 3% year-on-year.
• The improvement was attributed to favorable weather conditions and operational adjustments.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 "another strong result" with adjusted EPS of $1.70 (+27% YOY) and commercial revenue +29%, record ARPO just over $16,000. CEO said "I'm optimistic about our long-term outlook" and highlighted AI, data and technology investments as drivers to "outperform"; CFO noted improving investment income trends versus prior year and stable segment margins.

Contradiction Point 1

Commercial ARPO Revenue Sustainability

It involves expectations regarding the sustainability of strong commercial ARPO revenue, which directly impacts revenue projections and investor expectations.

Can you discuss the sustainability of the strong 3Q commercial ARPO revenue per order and current 4Q results? - Mark Hughes(Truist Securities, Inc., Research Division)

2025Q3: Sustainability is strong, with typical seasonal trends in commercial ARPO. Seasonal peak is Q4. Big transactions and momentum in commercial are positive. Expect to see Q4 continue the upward trajectory. 10 out of 11 asset classes showed growth in Q3; energy is expected to pick up in Q4. - Mark Seaton(CEO)

Can you explain the source of strength in commercial ARPO and how these transactions compare to today's pipeline? - Mark Christian DeVries(Deutsche Bank AG, Research Division)

2025Q2: The growth in commercial revenue is primarily due to increased fees per file, as we're closing the same amount of orders as last year but earning 30% more per file. - Mark Edward Seaton(CEO)

Contradiction Point 2

Title Waiver Pilot and Technology Investments

It involves the progress and expected impact of technology investments and title waiver pilots, which could influence operational efficiency and revenue growth.

Can you provide an update on the pilot timelines for Sequoia and Endpoint? Is Endpoint still on schedule? Are there any early results yet? - Terry Ma(Barclays Bank PLC, Research Division)

2025Q3: Endpoint on track with rollout in December. Full rollout expected in spring 2026, taking about 2 years. Tests are progressing well. Sequoia also on track, with the AI engine for refinance live in production. First purchase transaction expected in Q1 2026. - Mark Seaton(CEO)

Can you provide updates on the rollout progress and success rates of the Sequoia and Endpoint technology investments? - Terry Ma(Barclays Bank PLC, Research Division)

2025Q2: We are progressing well with both Sequoia and Endpoint. Endpoint is being piloted in an office in December and will be implemented in the first quarter. Sequoia is rolling out refinance transaction automation in September. - Mark Edward Seaton(CEO)

Contradiction Point 3

Investment Income Projections and Growth Drivers

It involves differing projections and explanations for the expected growth in investment income, which is a critical component of the company's financial performance.

What is the current outlook for investment income, and what should we anticipate for Q4 considering historical sensitivities? - Mark Hughes

2025Q3: Modestly down sequentially due to rate cuts, but slight. Expect more information in upcoming financials. - Matthew Wajner(CFO)

Can you provide the run rate for investment income in 2025? - Bose George

2024Q4: Investment income in 2025 will grow despite three Fed rate cuts, driven by commercial growth, market growth, and strategic deposits in bank. Seasonality will cause a drop from Q4 to Q1, but year-over-year growth is expected. - Mark Seaton(CFO)

Contradiction Point 4

Commercial Market Recovery and Growth Expectations

It involves differing perspectives on the expected growth trajectory in the commercial market, impacting investor expectations and strategic planning.

Can you discuss the sustainability of the strong commercial ARPO revenue per order in 3Q and initial 4Q trends? - Mark Hughes

2025Q3: Sustainability is strong, with typical seasonal trends in commercial ARPO. Seasonal peak is Q4. Big transactions and momentum in commercial are positive. Expect to see Q4 continue the upward trajectory. 10 out of 11 asset classes showed growth in Q3; energy is expected to pick up in Q4. - Mark Seaton(CEO)

Can you elaborate on the commercial business results this quarter and clarify if you noted strong performance in both transaction volumes and sizes? - Mark DeVries

2024Q4: Benefited from 14 large deals of over $1 million in premium versus 8 in Q3. Strong trends with Q3 revenue up 19%, Q4 up 47%, and January up 24%. Confident in continued strength in commercial market and First American's commercial business. The market is settling, and there's price discovery, leading to a recovery in transactions. - Ken DeGiorgio(CEO)

Contradiction Point 5

Endpoint and Sequoia Platform Rollout Timeline

It involves differing timelines and expectations for the rollout of the Endpoint and Sequoia platforms, which are critical for operational efficiency and productivity improvements.

Can you provide an update on Sequoia and Endpoint pilot timelines? Is Endpoint still on track, and are there any early results yet? - Terry Ma(Barclays Bank PLC, Research Division)

2025Q3: Endpoint on track with rollout in December. Full rollout expected in spring 2026, taking about 2 years. Tests are progressing well. Sequoia also on track, with the AI engine for refinance live in production. First purchase transaction expected in Q1 2026. - Mark Seaton(CEO)

Can you provide an update on the rollout of endpoint and Sequoia? - Mark DeVries(Deutsche Bank AG, Research Division)

2025Q1: Endpoint is also progressing well, with a national rollout planned for the end of the year to improve efficiency and productivity. - Mark Seaton(CEO)

Q&A:

• Question from Mark Hughes (Truist Securities): On the commercial ARPO revenue per order, obviously, 3Q is very strong. Could you talk about that, the sustainability, perhaps what you're seeing so far in 4Q?
  Response: ARPO strength is sustainable; commercial momentum should continue into Q4 with many large transactions and broad-based asset-class gains.

• Question from Mark Hughes (Truist Securities): How about the outlook currently for investment income? What should we anticipate in Q4?
  Response: CFO: Investment income expected to be modestly down sequentially in Q4 due to rate-cut headwinds.

• Question from Mark Hughes (Truist Securities): When we think about the refi orders, what's the recent trend in refi per day?
  Response: CFO: Opening about 875 refi orders per day in the first three weeks of October.

• Question from Terry Ma (Barclays): Update on Sequoia and Endpoint pilot timelines; is Endpoint December rollout still on track? Any early Sequoia results in pilot markets?
  Response: CEO: Endpoint on track for a December first-office pilot and broader spring rollout (national ~2 years); Sequoia running refis in 3 counties with hit rates above expectations and first purchase targeted in Q1 (national ~2 years).

• Question from Bose George (KBW): Remind us the margin impact of running the two platforms (Endpoint and Sequoia) and timeline for rolling off the old systems?
  Response: CEO: Historically the drag was ~100 bps, but platforms are being integrated so the company will stop separately disclosing the drag; retiring old systems should yield savings plus productivity and potential market-share gains over time.

• Question from Bose George (KBW): The 'default and other' order count has risen—what's driving that increase?
  Response: CEO: There's been an increase in default-related activity (loss mitigation/alternative products), but it's not material to the overall business today.

• Question from Geoffrey Dunn (Dowling & Partners): Is demand for instantaneous title limited and are the efficiency gains from Sequoia sustainable?
  Response: CEO: Disagrees that demand is absent—customers see value in instant purchase title; Sequoia converts labor into data, providing durable productivity, pricing and strategic optionality even if adoption varies.

• Question from Geoffrey Dunn (Dowling & Partners): Can you give examples of how you're using AI and its role in your living title initiatives?
  Response: CEO: Both Endpoint and Sequoia are AI-native (Sequoia produces automated title commitments for refis today and purchase soon); company rolled out ChatGPT Enterprise to all employees and is embedding AI top-down and bottom-up for efficiency and risk reduction.

• Question from Mark DeVries (Deutsche Bank): You purchased fewer shares after 2Q—why pull back on buybacks and what would prompt more activity?
  Response: CFO: Paused opportunistic buybacks to evaluate capital uses; continue returning capital via dividend and opportunistic repurchases while assessing strategic alternatives.

• Question from Mark DeVries (Deutsche Bank): What debt-to-capital range will you operate in and are you seeing M&A opportunities as uses of excess capital?
  Response: CFO/CEO: Long-term target ~20% debt-to-cap (currently ~22.5% ex-secured financing); comfortable now but will move toward 20% as cycle improves; more M&A opportunities are emerging but the company will remain disciplined and strategic.

• Question from Mark Hughes (Truist Securities): Any updates on the title waiver demonstration project or state rate actions?
  Response: CEO: Nothing material new; monitoring the title waiver pilot and regulatory developments; internally expecting a ~6.2% Texas rate cut in March (not final).

• Question from Mark Hughes (Truist Securities): Any early thoughts on net investment income for 2026?
  Response: CFO: Early view is investment income likely down year-over-year given expected rate cuts (about $15M impact per 25 bps), partially offset by higher balances from transaction growth and bank enhancements (e.g., handling 1031 exchange deposits).