First American Financial Corporation (NYSE:FAF) Q4 2020 Earnings Conference Call February 11, 2021 11:00 AM ET

Company Participants

Craig Barberio - Vice President of Investor Relations
Dennis Gilmore - Chief Executive Officer
Mark Seaton - Executive Vice President & Chief Financial Officer

Conference Call Participants

Mark DeVries - Barclays
Jack Micenko - SIG
Bose George - KBW
Mark Hughes - Truist Securities
John Campbell - Stephens
Geoffrey Dunn - Dowling & Partners

Operator

Greetings, and welcome to the First American Financial Corporation Fourth Quarter and Full Year 2020 Earnings Conference Call. AT this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]

A copy of today's press release is available on First American's at www.firstam.com/investor. Please note, that the call is being recorded, and will be available for replay from the company's investor website and for a short time, by dialing 877-660-6853 or 201-612-7415 and by entering the conference ID 13714735.

We will now turn the call over to Craig Barberio, Vice President of Investor Relations to make an introductory statement.

Craig Barberio

Good morning everyone, and welcome to our 2020 fourth quarter and year-end earnings conference call. Joining us today will be our Chief Executive Officer, Dennis Gilmore; and Mark Seaton, Executive Vice President and Chief Financial Officer.

Some of the statements made today, may contain forward-looking statements that do not relate strictly to historical or current fact. These forward-looking statements speak only as of the date they are made and the company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these risks and uncertainties, please refer to this morning's earnings release and the risk factors discussed in our Form 10-K and subsequent SEC filings.

Our presentation today contains certain non-GAAP financial measures, that we believe provide additional insight and to the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. For more details on these non-GAAP financial measures including presentation with and reconciliation to the most directly comparable GAAP financial, please refer to this morning's earnings release, which is available on our website at www.firstam.com.

I will now turn the call over to Dennis Gilmore.

Dennis Gilmore

Good morning and thank you for joining our fourth quarter earnings call. 2020 was another strong year for First American. Our revenues were running well above the prior year and then the pandemic hit, impacting our business overnight. Our top priorities were to protect our people and serve our customers, and we achieved both. We quickly transitioned the majority of our employees to working from home and still closed over one million real estate transactions in 2020. This accomplishment testifies to the dedication of our people and their commitment to our customers. This also validates our many digital investments we have made to improve the customer experience.

I'd now like to shift my comments to the fourth quarter results. We generated earnings per share of $2.49. Excluding realized investment gains, earnings per share were $2.11. Revenues in our Title Insurance segment were up 26% in the fourth quarter and we effectively managed our expenses, achieving a 53% success ratio, which contributed to a pretax margin of 18.9%. Our focus on automating title production and digitizing the closing process paid off in 2020. In a year of rapidly surging volume, we closed 32% more orders this quarter, than the prior year with just 6% more employees.

Our direct purchase revenue rose 32% in the fourth quarter. We experienced an 18% increase in closed transactions and 11% increase in the average revenue per order. This growth is a sign of the continued strength of the housing market.

Refinance revenue continued to benefit from low mortgage rates with revenue rising 79% over the prior year. Commercial rebounded strongly in the fourth quarter. Since the onset of the pandemic commercial has been slower to recover than residential. Commercial revenue was down 39% in the second quarter, 29% in the third quarter and the fourth quarter improved to a 5% decline of an all-time high fourth quarter of 2019. We are encouraged that the order momentum over the last few months has picked up and we expect to have a strong commercial year in 2021.

The turning to our Specialty Insurance segment revenues were $141 million a 7% increase over the prior year. As we disclosed in January our property and casualty business entered into a book transfer agreements which provide qualifying agents and customers an opportunity to easily transfer their policies. As of February 1 we are no longer reporting new policies and expect to discontinue policy renewals in May. We anticipate the transfer will be complete by the end of the third quarter of 2022.

This transaction enables us to maintain focus on our core business and redeploy the capital to areas with higher expected returns. In the fourth quarter we raised our quarterly dividend from $0.44 to $0.46 and we repurchased 1.3% of our shares outstanding at an average price of $49.20 and have continued our buying in 2021. We believe both the short-term and long-term prospects of First American are stronger than the market is giving us credit for and as a result have aggressively repurchased shares.

Turning to our outlook, early indications are that the real estate market will remain robust this year. The strong open order pipeline we built in the fourth quarter is converting to revenue at what is traditionally our slowest period. In January our purchase orders were up 17% and we opened 3200 refinance transactions per day continuing the same trend we experienced for the last several months.

And as previously mentioned we think this will be another good year for our commercial business. While we are encouraged by the strength of our markets we remain focused on the long-term opportunities of our business. In 2021 we will continue to invest in automation of our title production process and in the refinement of our digital closing platform.

We plan to increase our technology spend in the areas of product development cloud migration and security and we are building digital solutions across our company to transform the customer experience. An example of this is Endpoint our title and escrow company that was built from the ground up to deliver a re-imagined closing experience. We believe these investments will enable us to continue to generate strong earnings for the years to come.

I'd now like to turn the call over to Mark for a deeper dive into our financials.

Mark Seaton

Thank you, Dennis. In the fourth quarter we earned $2.49 per diluted share. This includes net realized investment gains totaling $56 million or $0.38 per diluted share. Excluding these gains we earned $2.11 per share. In the Title Insurance and Services segment direct premium and escrow fees were up 24% compared with last year. This growth reflects a 32% increase in the number of closed orders, partially offset by a 6% decline in the average revenue per order.

The average revenue per order decreased to $2500 due to a shift in the mix of direct title orders to lower premium refinance transactions. However, at the product level ,we continue to see higher average revenue per order for all order types. The average revenue per order for purchase transactions increased 11%, refinance increased 3% and commercial increased 2%.

Agent premiums which are recorded on approximately a 1-quarter lag relative to direct premiums were up 25%. The agent split was 79.1% of agent premiums. Information and other revenues totaled $282 million, up 39% compared with last year. A number of factors contributed to this growth including the growth in mortgage originations that led to higher demand for the company's title information products and our acquisition of Docutech, which isn't included in the prior year results.

Investment income within Title Insurance and Services segment was $52 million, down 26%, primarily due to the impact of the decline in short-term interest rates on the investment portfolio and cash balances, partially offset by higher interest income from the company's warehouse lending business. This quarter our investment income benefited from a $4.4 million catch-up related to our warehouse lending business.

On a go-forward basis, we expect investment income to be somewhere in the neighborhood of $45 million per quarter with short-term rates at current levels. Personnel costs were $515 million, up 14% from the prior year. This increase was primarily due to higher incentive compensation and salary expense and higher costs as a result of recent acquisitions. Other operating expenses were $300 million, up 34% from last year. The increase was primarily due to higher production-related costs as a result of the growth in order volume. The provision for title policy losses and other claims was $81 million or 5.0% of title premiums and escrow fees, an increase from a 4.0% loss provision rate in the prior year.

To recap, we raised our loss provision rate in the first quarter of 2020 from 4% to 5% due to the extreme economic uncertainty that existed. Economic factors are a key variable in title claims experience. And given the deterioration in some of those factors, we raised the loss provision rate. But the housing market and general economy have improved since then. By raising the loss provision rate of 100 basis points, we have added $52 million of additional IBNR reserves on our balance sheet. Yet our incurred claims in 2020 were $49 million below our internal expectations set at the beginning of 2020.

Paid title claims show a similar trend with claims $30 million below our expectation. As always, we will monitor our claims experience and market conditions when evaluating our reserves and will evaluate it next in connection with our first quarter earnings report. Depreciation and amortization expense was $37 million in the fourth quarter, up 24% compared with the same period last year primarily due to higher amortization of intangibles related to recent acquisitions.

Pretax income for the Title Insurance and Services segment was $377 million in the fourth quarter compared with $284 million in the prior year. Pretax margin was a record 18.9% compared with 17.8% last year. Excluding the impact of net realized investment gains, pretax margin was 16.8% equivalent to the prior year. In the Specialty Insurance segment pretax income totaled $27 million. We recorded a benefit of $18.3 million related to a reversal of an impairment initially taken in the third quarter relating to our property and casualty business.

In the third quarter, this accrual was taken so the book value of our property and casualty business matched the expected proceeds from the sale. We subsequently determined that a book transfer rather than a sale was a more attractive alternative. This decision required us to reverse this accrual and our property and casualty business is currently carried at tangible book value. The ultimate proceeds will earn and the book transfer will be immaterial.

Net expenses in the corporate segment were $22 million up $4 million compared with last year largely due to higher interest expense associated with our $450 million senior notes transaction, which closed in May. The effective tax rate for the quarter was 26.4% higher than our normalized rate of 23% to 24%. The tax rate was adversely impacted by $7.4 million or $0.07 per diluted share due to a permanent tax difference related to the property and casualty business.

I'd like to provide an update on matters arising from our 2019 information security incident. As previously disclosed, we received a Wells notice from the SEC in September 2020. We submitted our response in October and have had no substantive communications with the commission since. We continue to believe that the SEC matter along with all other matters relating to the security incident will be immaterial from a financial perspective.

Finally, turning to capital management. 2020 was an active year for our balance sheet. We spent nearly $400 million on acquisitions, the largest of which being Docutech, which has been a great addition to our company. We also returned significant capital to our shareholders. We paid nearly $200 million in dividends and raised the dividend by 5% on two separate occasions during the year.

Pursuant to 10b5-1 plans, we also repurchased $139 million in stock at an average price of $43.44 in 2020. We continued our repurchases under these plans early in 2021 deploying additional $27 million at an average price of $52.97.

During 2020, we also invested $83 million in venture investments in the PropTech ecosystem, which gives us insight into high-growth technology companies many of whom have become strategic partners. We believe our capital management activities have created value for shareholders and we'll continue to hunt for opportunities with attractive risk-adjusted returns.

I would now like to turn the call back over to the operator to take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Mark DeVries with Barclays. Please proceed with your question.

Mark DeVries

Yes. Thank you. I was hoping you could discuss kind of the net earnings impact to you of exiting the P&C business both in terms of the revenue lost and any offsets you may have from the redeployment of the capital that this frees up.

Mark Seaton

Yes. Thanks Mark. So, in 2020, our P&C revenue was $138 million. And so, we're sort of in a wind-down mode right now. We're not issuing any new policies or we stopped quoting new policies as of February 1. It's going to take us roughly a year from the time we start non-renewing, which will be sometime around May. So it's going to take a little bit over a year to wind it down.

We'll lose about $138 million of revenue. But again, because of the losses and the loss rates in P&C, in 2020, even if you exclude the impairments that we took in terms of goodwill, we lost $31 million in 2020. So we think it's going to be earning accretive over time. We just have to finish winding it down here.

Dennis Gilmore

Yes. Let me just add on that Mark to be clear. The business has been a loss for us. So it's a headwind no question. That will continue for the first quarter, probably the second quarter. We look for the P&L itself to improve pretty marketably by the third and the fourth of 2020.

Mark DeVries

Okay. Yes. And in the press release, you mentioned kind of freeing up capital. How material is that? And is that part of where the kind of the accretion comes from is being able to redeploy in more attractive uses?

Dennis Gilmore

Not really. The accretion comes from less losses right? The business has been under pressure performance-wise. And the capital, it's not a material amount to us, but we will ultimately redeploy back to the core.

Mark DeVries

Okay, got it.

Mark Seaton

$70 million of tangible capital as of 12/31.

Mark DeVries

Okay, great. And then, I was happy to see the repurchases. It's obviously been a while since that was a meaningful part of your capital deployment strategy. Just curious as kind of what's changed that's made that for you an attractive use of the excess capital?

Mark Seaton

Well, it's always been something that we've looked at. I think admittedly, we've been conservative with respect to the prices that we buy back shares. I mean we don't do it, just because we have excess capital. We don't do it just to increase our earnings per share. We do it when we think it's going to be a really good investment for our shareholders.

We saw those conditions happen in March and April, when we bought back shares. I mean, we -- obviously it was a big correction then, and we kind of knew that we were going to do better than what the market was giving us credit for. And those same conditions existed in the fourth quarter too.

I mean when we look at our outlook, we just felt like it's a lot more optimistic than again, what the market was giving us credit for. I'll say that we're not in the market at this moment right now but I think there's a general consensus that we want to be more aggressive with buybacks in the future than we've been in the past.

Dennis Gilmore

Yes, and Mark I'll just add you mentioned capital deployment overall. Our strategy's been very consistent. But what we've added is a new component to it, and Mark mentioned it in his script. We deployed $80 million last year in venture investments. And over the last two years, we deployed $200 million in venture investments 12 individual companies, and we'll continue to look for those opportunities going forward too. That really gives us two things: bring us closer to new gen customers and allow us to help -- it's also part of our innovation strategy so that will also be part of our strategy going forward.

Mark DeVries

Okay, got it. Thank you.

Mark Seaton

Thanks Mark.

Operator

Thank you. Our next question is come from the line of Jack Micenko with SIG. Please proceed with your questions.

Jack Micenko

Hi. Good morning, guys. I guess the $64,000-question on the volumes this refi resiliency, I think Mark you called out early a year ago stronger for longer. And here we are 4Q numbers are strong. With January numbers look strong. I'm maybe dating myself a little bit. I remember back in the day when we have normal refi cycles, there would be a little bit of a spike when rates moved a little bit higher, I think as you had fence centers come off the sidelines. The January and the late 4Q trends, is that reflecting some of the move? 10 basis points of mortgage rate isn't that much, or is that just core continued sort of backlog working its way through the system? And how do you think about 2021? I mean, obviously purchase should be pretty good still and commercial should be good, but you had a good deal last go around about a year ago on refi. How do we think about -- how are you thinking about that now January in the books?

Dennis Gilmore

This is Dennis. I'll start. We're optimistic going in 2021. So you kind of mentioned really quick purchase is going to be strong we think in 2021. I'll probably get a question on commercial, but commercial we're very optimistic going into 2021. Refinance is always a harder one for us to forecast. But last year we were anticipating about 3,000 orders per day. We hit it pretty close actually. In the fourth quarter we were running at 2,900 orders per day. January we're running at 3.200.

So we think still the 3,000 a day is good. And I think it's going to stay in the foreseeable future for a few reasons. Don't forget the lenders have all built a lot of capacity over 2020 and they will deploy that capacity in 2021 even if the spreads start to come in.

And the other thing people should remember about us too, I think it gets sometimes lost is even if we start to trend down and refinance and say it later in 2021, what's probably happening is the mortgage rates are starting to trend up and we're going to get the benefit in our investment income. So it goes both ways. If refinance starts to go down and investment income kind of recovers we'll still be doing very well.

Jack Micenko

Okay. Thanks a lot. And then you had about an $80 million year-over-year growth rate in the information side. Obviously, Docutech's in there. Can you sort of size for us how much of the year-over-year growth in dollars was driven by Docutech versus volume growth versus growth in other products? You keep acquiring companies. Is there a way to sort of think of that $80 million in three different buckets and sort of how we think about modeling that on a go forward?

Mark Seaton

Yes. So of the $80 million, we had about $22 million of that growth was Docutech. So we had -- so for Docutech we had $22 million in the fourth quarter of revenue and we didn't own it a year ago. So zero a year ago. We've seen growth in our data and analytics business to the tune of about $19 million year-over-year. We continue to sell data and information products to customers and that's growing very nicely.

We also have $15 million of growth in kind of our centralized mortgage business where we do a lot of post-close activity. And then finally, I'll just point out our international business was up about $10 million in terms of year-over-year growth in data.

Dennis Gilmore

Yes. And looking forward -- this is Dennis. Looking forward in 2021 I think all those trends will continue. But I would like to highlight the data is really hitting its stride right now for two issues: Number one the data is really coming together for us since we've talked about it over the last few years for both internally for our own innovation efforts and our own automation efforts. And it's really moving forward fast on our opportunity to sell to our partners and our customers out in the field.

Jack Micenko

All right. Thank you.

Dennis Gilmore

Thank you.

Operator

Thank you. Our next question comes from the line of Bose George with KBW. Please proceed with your question.

Bose George

Hey, guys. Good morning.

Dennis Gilmore

Good morning.

Bose George

The commercial recovery year-over-year obviously is strong. Just curious do you think there's some sort of a catch-up happening in that sector? Or just curious how you would characterize what's going on, because it looks like you're getting close to somewhat normalized levels there.

Dennis Gilmore

Yes, great question. I don't think it is a catch-up and let me explain. We were down with 39% in the second quarter commercial, 29% down in the third quarter. And then the fourth quarter rolls around and we really gained momentum in November, December. The momentum's continued in January. We were only down 5% on revenue off the fourth of 2019, which was a record quarter for us.

And interesting enough inside of those numbers we were lagging still on large deals. And so it's broad-based, it's kind of -- I call it the run of the mill kind of deals. And I actually think we have the opportunity to see the large deals to start to kick back up in 2021. So I mean I'm not sure -- I doubt 2021 will be a record year for us, but it will be a strong commercial year number one what I believe.

Second, I think also probably investors didn't appreciate through the whole cycle of 2020 we were meaningfully profitable to our commercial division the whole year long.

Bose George

Okay, great. That's helpful. Thanks. And then actually just can you revisit normalized title margins. You've given a range in the past, can you just talk about where you see that, whether anything in terms of what's happened this year your business mix et cetera, kind of, changes that?

Dennis Gilmore

Yes. Bose, I think, you know, we don't give a guidance on that. But I think what people should understand is regardless of what the market brings to us, we're always going to strive to have incrementally improving margins year-after-year. And most of the time we can achieve that.

So looking at 2021, I'm optimistic that we've got a strong purchase market. At least for the beginning part of the year we think we'll have a strong refinance market, which I think will last a little bit longer than people think. And commercial is strong. We're seeing great leverage on the business right now where we're seeing real benefits from our automation from title automation and our digital closing, and we're seeing real strength in our data businesses.

So we're going to -- what we're going to always do is look to have top tier performance, top quartile margin performance but never at the expense of the long-term. We're going to continue to invest in this business as I mentioned in the script. So it's always going to be a balance for us but we think it's going to be a good year in 2021.

Bose George

Okay, great. Thanks.

Operator

Thank you. Our next question comes from the line of Mark Hughes with Truist Securities. Please proceed with your question.

Mark Hughes

ARPO was quite good in the quarter. Could you comment on how much of that might have been mix versus in price appreciation?

Mark Seaton

Well, it's hard to know exactly. I think it was -- I mean, a lot of it was HPA. Typically if housing prices raise $1, the rule of thumb is we'll get about $0.60 of that into our purchase fee profile. But we also did see a mix. I mean, our California business was up 15% on the direct side. Obviously California has higher housing prices. So I would say most of it was HPA, but some of it was mix. None of it was just raising rates. That's not something we're -- we've been doing. So we have no rate increases in there. It's just a matter of HPA and mix.

Mark Hughes

Operating expenses, the margin was obviously quite good. Were there any unusual items in that? When you look at it sequentially, it was up a bit. Just curious.

Mark Seaton

The question any unusual lines in the quarter, I couldn't quite hear you there.

Mark Hughes

The unusual items in the other operating expenses. Your margin was very good overall, but other expenses were up a bit sequentially. So just curious.

Mark Seaton

No, no. I think in the other operating expense line item there was nothing unusual there.

Operator

Thank you. [Operator Instructions] Our next question is come from the line of John Campbell with Stephens. Please proceed with your question.

John Campbell

Hey, guys. Good morning. Congrats on a great quarter.

Dennis Gilmore

Thank you.

John Campbell

Mark in the Specialty segment, I'm getting to I think of about a 15% pre-tax margin for just the home warranty business for 2020. So first, is that about the right mark there? And then if that's the case would you guys expect a kind of an improvement on a run rate basis as you guys get away from some of the COVID-driven kind of higher claims for the home warranty business?

Mark Seaton

Yes. The answer is, yes, yes. We were impacted this last year as the whole industry was on the COVID -- I call it the COVID-related claims our clients and Mark Fleming. They were up about 18% by the way in the fourth quarter. But the business is growing nicely both in our real estate channel and our direct-to-consumer. So what we've done is adjust our prices and some policy coverage issues. And those will flow in over the next 12 months as the policies renew.

John Campbell

Okay. And then I'm guessing, we could probably get this in the 10-K, but I don't know if you guys have this on hand. But what was the provision rate for just the home warranties business in 2020?

Mark Seaton

The loss provision rate?

John Campbell

Right.

Mark Seaton

The loss provision was 53% in 2020, and it was 50% -- 50% in 2019. So we have seen as we've been talking about higher claims. But obviously, still pretty attractive loss rates for that business.

Dennis Gilmore

John, the one thing to remember on that business why it's difficult to forecast though is that we have extreme weather in the summer months. We're going to see an uptick in our air conditioning claims. So, there is a weather component on that one in the summer months typically.

John Campbell

Okay. Makes sense. And then on the macro, I mean, you guys have had a good crystal ball of late. I think Dennis, I think you nailed the refi call last year for sure. I mean, it looks like the MBA is calling for, I don't know down almost 25% year-over-year. That feels a little overly conservative to us. But Dennis, you did say -- you said a couple of times you expect a pretty healthy market this year, but just curious on your thoughts on that forecast. And then maybe I don't know what Fleming has for you guys there internally about kind of what he's taking the market for 2021?

Dennis Gilmore

Yes. A little bit of my forecast on that. That's not far off from our budget, what we anticipate for 2021. We're a little more aggressive than the $25 million. But what I think is going to happen is the spreads are going to come in, and they're going to -- the lenders are going to deploy this capacity, right? So I think it may last a little longer than people think. It's my call right now.

John Campbell

Okay. And then --

Dennis Gilmore

Where I was going to go though is irrespective, we're starting really strong in the year both purchase and refinance, which is obviously good for us in our typical seasonally slowest quarter. So a real strong start to the year and we'll see how it plays out.

John Campbell

Okay. That's helpful. And then last one for me. On commercial, as you guys kind of look at the pipeline, could you just kind of broadly talk to what that mix looks like purchase versus refi, if that's pretty similar to resi? Or if you guys are seeing a little bit more purchase strength?

Mark Seaton

The mix hasn't really changed much. I mean, when you look at our commercial revenue about 25% of our revenue is refi-related. In the fourth quarter, it was the same number. It was 25% in the fourth quarter of 2019. So we've seen a pretty consistent mix of refi. Obviously, we don't have the volatility there that we have on the residential side.

John Campbell

Okay. Great. Thanks guys.

Dennis Gilmore

Thank you.

Operator

Thank you. Our next questions come from the line of Geoffrey Dunn with Dowling & Partners. Please proceed with your question.

Geoffrey Dunn

Thanks. Good morning. Dennis, I wanted to get some high-level thoughts from you on technology and digitization efforts. Can you just discuss a little bit going forward, how important is automated underwriting of refi, automated underwriting of purchase relative to really digitizing the front end and back-end experience with the customer.

It seems like we kind of blend the concept of digitization but there's different aspects here in terms of what could be meaningful for production, meaningful from an expense standpoint, et cetera. So can you hash that out a little bit more?

Dennis Gilmore

Yes, great question. They really -- we do blend them together but they're separate issues, right? So let's break them down. At the fundamental the Title automation, which we've made great strides and there are great strides to gain in the future the core of that is the data, right? So we've made tremendous gains on the data.

We have the largest public record database now. In the last couple of years we've made tremendous gains on the automated capturing of the data. So we're able to go larger content, larger geo right now, which leads us to build significantly more title plans in the years to come and we're already the title plan leader.

And why I bring that up Geoff, is that's the fundamental for the title automation both refinance and purchase. So now go to the title automation itself, we continue to add, I'll call it our data scientists and others to refine the title automation on the purchase and the refinance and there's more to go there. So that's that component.

The second component is the closing, which will probably be more incremental because we have more obviously regional variations. But that's part of the Docutech and many of the other things we're doing right now to, I'll call it to digitize, the closing process including by the way our Endpoint adjustment that I don't think people probably are focused in enough on.

We launched a native digital endpoint -- native digital company called Endpoint, I guess it's about 1.5 years ago or so. In 2019 started to hit its stride and it's a completely reimagined way to close, no connection to how we've done it historically. We launched in Seattle. We've got a 2% and growing share there. We've launched in I'm looking at March 4 or 5.

Mark Seaton

Three more.

Dennis Gilmore

Three more markets this year and more to come. And I think there's a lot of opportunity in Endpoint. And by the way that's been a $70 million commitment to us internally that we're going to continue to fund to reimagine the closing aspect. And all that wraps back up by the way to the margin question. We're always going to strive for top-tier margin performance but never ever at the expense of the long-term investment to move this business forward to a digital future.

Geoffrey Dunn

And what about the front end experience aspect of it?

Dennis Gilmore

Geoff, quantify it a little bit tough, so I know exactly what you mean by the front end?

Geoffrey Dunn

It seems like we saw some news out of FNF and I believe you guys as well about the -- in terms of a secure digital opening site. And I think particularly escrow deposits and fraud prevention are another big area that's been focused on. I guess what I'm also trying to get at is...

Dennis Gilmore

Geoff, let me answer that -- excuse me to cut you off there. We're doing the same thing. It's called our secure portal. We've been rolling that out for a number of years making great strides. So think of that more as incremental; Endpoint more material a different approach. So one is an incremental approach making great strides; Endpoint kind of I'll call it more revolutionary approach.

Geoffrey Dunn

Okay. And I guess the ultimate conclusion I'm looking for here is, it strikes me that this is more about better operating leverage on future business not necessarily having to expand the expense base as much as you might have traditionally needed to on top line growth rather than a material expense reduction development. Is that the right way to think about technology?

Dennis Gilmore

It's absolutely the right way to think about it. I mentioned in my script, we're upping our spend in technology, product development and other things. We're trying to wrap up this year with the majority of it in our cloud migration, which will allow us even greater flexibility. So if anything Geoff, we are not cutting back expenses on technology we're accelerating them.

And you saw it in our fourth quarter numbers by the way. Look our orders were up 30% and our headcount was up 6%, 400 people. That would have never been the case Geoff as you know 5 years, 10 years ago ever. So this isn't about for us at all cost when we cut expenses. This is about looking forward and getting greater automation out of the business.

Geoffrey Dunn

All right. Great. Thanks. I appreciate the comments.

Dennis Gilmore

Thank you.

Operator

Thank you. There are no additional questions at this time. That does conclude this morning's call. We'd like to remind listeners that today's call will be available for replay on the company's website or by dialing 877-660-6853 or 201-612-7415 and by entering the conference ID 13714735.

The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.