Welcome to Assurant's First Quarter 2021 Conference Call and Webcast. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following management's prepared remarks. It is now my pleasure to turn the floor over to Suzanne Shepherd, Senior Vice President of Investor Relations, you may begin.
Thank you, operator, and good morning, everyone. We look forward to discussing our Q1 2021 results with you today. Joining me for Assurant's conference call Our Alan Kohlberg, our President and Chief Executive Officer and Richard Dziadzio, our Chief Financial Officer. Yesterday, the market closed, we issued a news release announcing our results for the Q1 2021. The release and corresponding financial supplement are available on Forward looking statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements.
Additional information regarding these factors can be found in yesterday's earnings release as well as in our SEC reports. During today's call, we will refer to non GAAP financial measures, which we believe are important in evaluating the company's performance. As we continue to shift to a more fee income capital light business mix, we introduced adjusted In addition, as of January 1, Global Preneed and the related entities included in the sale are considered discontinued operations and no longer included in our continuing operations as reflected in the earnings press release and financial supplement. For more details on these measures, the most comparable GAAP measures and a reconciliation of the 2, please refer to yesterday's news release and financial supplement. I will now turn the call over to Alex.
Thanks, Suzanne. Good morning, everyone. We're very pleased with our results for the Q1. We delivered double digit earnings growth driven by favorable non catastrophe loss experience, including improved underwriting in Global Housing, as well as continued profitable growth in our global automotive, multifamily housing and connected living businesses. Once again, results demonstrated the to the compelling growth opportunities emerging across mobile, auto and renters.
Together, these businesses represent what we refer to as the connected world. In 2020, our Connected World offerings represented 2 thirds of our net operating income, excluding catastrophes and in combination with our specialty P and C businesses will enable us to continue to expand our innovative offerings and deliver a superior and seamless customer Generating over $1,000,000,000 of adjusted EBITDA in 2020, our business portfolio is well positioned to We are continuing to advance our ESG efforts, specifically within our strategic focus areas of talent, products and climate. Further integrating ESG within our business operations will be critical as we look to create an even more diverse, equitable and inclusive culture that promotes innovation, enhances sustainability and minimizes our carbon footprint for the benefit of all stakeholders. Recent notable examples include, we are increasing all U. S.
Hourly wages to at least $15 per hour by July, which supports the financial well-being of our employees. We've launched an assessment of our carbon footprint, including our investment portfolio and supply chain as a critical step to setting the future long term carbon emissions reduction goal. And we've further integrated sustainability into our offerings, such as rolling out electric vehicle products globally and extending the mobile device lifecycle through trading services. With Hyla, we recently passed a significant milestone, repurposing our 100,000,000 device. This supporting global sustainability.
We are pleased with our progress and are proud of the recognitions we have received, including our inclusion in the Bloomberg Gender Equality Index and America's Best Employers for Diversity by Forbes, as well as being awarded the best place to work in several of the key markets we operate. Sustainability and innovation go hand in hand. Recently, we surpassed $100,000,000 invested through Assurant Ventures, our venture capital arm. This quarter, several high quality investments in our portfolio announced SPAC transactions, including Gazoo, a fully digital U. K.
Car sales company And SmartRent, a smart home automation provider. Given current attractive valuations, these investments have the potential to generate strong returns. We're also providing strategic insights that support our Connected World businesses, creating value added partnerships and piloting new innovations. Now let me share some Q1 highlights for each of our operating segments. We continue to see strong growth in Global Lifestyle, increasing earnings by 7% year over year.
Over the years, we've continuously invested in mobile capabilities such as same day local repair or come to you to repair from mobile devices, which provide another opportunity to drive value for our clients and the end consumer. Most recently in Connected Living, we further strengthened our product capabilities and customer experience through the acquisition of Trigold in Japan. Trigold develops and operates a mobile phone app that allows consumers to manage the lifecycle of their devices and centrally organizes as well as large mobile carriers in Japan like KDDI and Rakuten. Recently, we've expanded our global partnership with Samsung Through the launch of Samsung Care Plus, a smartphone protection program in Brazil and Mexico, we expect to further extend this partnership globally. We will continue to build on the strong momentum we have with our global multi product and multi channel strategy bolstered by the additional investments we are making.
As an example, Hyland Mobile added scale and technology capabilities to our global trade in and upgrade And it's been performing even better than our initial expectations. We're now providing over 30 trading programs around the world. The acquisition positions us to benefit from favorable tailwinds in the global mobile market, including the upcoming 5 gs smartphone upgrade cycle and new client relationships. In Global Automotive, we continue to benefit from our scale and expertise as we now cover over 50,000,000 vehicles. Already this year, we've seen a significant increase in auto production versus pre pandemic first quarter levels.
In the year since acquiring AFAS, we've combined our award winning training programs to create the Automotive Training Academy by Assurant. These expanded in person and virtual programs will allow us to scale faster and adapt to the changing needs of dealers and automotive professionals. Within Global Financial Services, we've added a number of embedded card benefit clients recently, including the previously announced partnership with American Express. We look forward to enhancing these partnerships and building on our existing suite of products. Moving to Global Housing, Net operating income excluding reportable catastrophes grew 17% as we benefited from favorable non cat loss experience, including improved underwriting results.
Within our lender placed business, we continue to play a vital role in supporting the mortgage industry as we track over 31,000,000 loans. The business remains well positioned and we expect to benefit from investments in our superior customer platform over the long term. Multifamily housing increased policies by 9% year over year to almost $2,500,000 as we continue to grow through our affinity partnerships and PMC channel, including 7 of the top 10 largest PMCs in the U. S. We've also continued to grow our sharing economy offerings, which include car sharing, on demand delivery and vacation rental.
Over the last 2 years, through our partnership with market leaders in on demand delivery, we tripled the number of deliveries we protect over 1,000,000,000 While it is too early to gauge whether the pandemic has fundamentally changed consumer demand for these services, we're encouraged by our momentum and the potential for future products and services in the gig economy. Now let's move to our Q1 results and our 2021 outlook. Net operating income excluding cats grew by 13% to $182,000,000 and earnings per share increased 16% to $3.03 demonstrating improved results in Global Housing and continued momentum in Global Lifestyle. Given our strong performance in the Q1 and current business trends, we are increasing our full year outlook for 2021. We now expect 10% to 14% growth in operating earnings per share, excluding catastrophes versus our initial expectation of 9% EPS growth.
EPS expansion from the $9.88 in 2020 will be driven by high single digit earnings growth, mainly from Global Lifestyle and a lower corporate loss. Results will also benefit from share repurchases, including the completion of our 3 year $1,350,000,000 objective and the initial return of net proceeds from the global preneed sale. Our increased outlook largely reflects Global Housing's favorable non catastrophe loss experience in the Q1. As such, Housing's earnings are expected to be down only modestly year over year from what was a strong 2020. Looking at adjusted EBITDA, excluding catastrophes, The Q1 generated $302,000,000 an increase of 15% year over year.
We expect Adjusted EBITDA will grow at a modestly higher rate than net operating income in 2021. Turning to capital, We ended March with $332,000,000 of holding company liquidity after returning $80,000,000 to shareholders through common stock dividends and buybacks during the quarter. And we expect to deliver on all of our commitments, sustaining our strong track record of capital return. In addition, throughout the year, we will continue to make strategic investments in our portfolio to position us well for sustained long term growth. I'll now turn the call over to Richard to review Q1 results and our 2021 outlook.
Richard? Thank you, Alan, and good morning, everyone. As Alan noted, we are pleased with our Q1 performance as our results across Global Lifestyle and Global Housing remain strong. Before getting into our Q1 performance, I want to provide a quick update on the sale of our preneed business. In March, we announced our plan to sell the business for $1,300,000,000 to CUNA Mutual Group.
Since signing, We have completed the necessary regulatory filings and we remain on track to close the transaction by the end of the 3rd quarter. Now let's move to segment results for Global Lifestyle. This segment reported net operating income of $129,000,000 in the 1st quarter, An increase of 7% driven by Global Automotive and Connected Living. In Global Automotive, earnings increased $7,000,000 or 18%. Results included a $4,000,000 one time benefit as well as a gain on investment income related to a specialty asset class from our TWG acquisition, which we don't expect to recur.
Year over year underlying performance was driven by another quarter of global organic growth from U. S. PPA and international OEMs as well as some favorable loss experience. Connected Living grew earnings by 3%. However, this was muted by a $7,000,000 favorable client recoverable within extended service contracts In the prior year period, underlying performance was driven by mobile subscriber growth in Asia Pacific and North America, Higher trading results from increased seasonal volume and contributions from our Hyla acquisition.
For the quarter, Lifestyle's adjusted EBITDA increased 11% to $193,000,000 4 points above net operating income growth. This reflects the segment's increased amortization related to higher deal related intangibles for more recent acquisitions in Global Automotive and Connected Living. IT depreciation expense also increased, stemming from higher investments. Lifestyle revenue decreased by $85,000,000 This was driven mainly by a $98,000,000 reduction in mobile trading revenue, primarily due to the contract change we disclosed last year. Excluding this change, revenue for this segment is flat.
For the full year, we continue to expect lifestyle revenues to be in line with last year at approximately $7,300,000,000 As expected, overall trading volumes, which flow through fee income, increased year over year and sequentially. This was driven by 4 elements: new phone introductions last year, greater device availability, carrier promotions and contributions from Hyla. While the Q1 did benefit from strong mobile trading volumes, we do expect it to be a high watermark for the year given historical seasonal patterns. Since year end, we've increased covered mobile devices by 600,000 subs, driven by continued growth in North America and Asia Pacific. This year, we continue to expect Cover Mobile Devices to grow mid single digits compared to 2020 as we grow subscribers in key geographies like the U.
S. And Japan. As a reminder, we expect the growth rate of earnings to exceed the growth rate of covered mobile devices over time as we benefit from offering additional products and services to our clients and their end consumers. For 2021, we still expect Global Lifestyle's net operating income to grow in the high single digits compared to the $437,000,000 reported in 2020. Growth will come from all lines of business, particularly Connected Living.
Adjusted EBITDA for this segment is expected to grow double digits year over year. Moving now to Global Housing, Net operating income for the Q1 totaled $67,000,000 compared to $74,000,000 in the Q1 of 2020. The decrease was largely due to $22,000,000 of higher reportable catastrophes, mainly related to Extreme winter weather, particularly for areas like Texas. Excluding catastrophe losses, earnings increased $50,000,000 or 17%. More than 2 thirds of the increase was from favorable non GAAP loss experience, mainly in our specialty offerings, including sharing economy products.
We estimate that approximately half of the favorable loss experience In the Q1 was from underwriting improvements, with the remainder of the benefit driven by favorable loss experience, which we don't expect to recur. In addition, we saw continued growth in multifamily housing. Lender Place results were up modestly. Higher premium rates and favorable non cat loss experienced were mostly offset by declining REO volumes from ongoing foreclosure moratoriums. Looking at the placement rate, the modest sequential increase to 1.6% was attributable to a shift in business mix and is not an indication of a broader macro housing market shift.
Revenue decreased 2% related to a reduction in our specialty product offerings, which included the impact from the exit of small commercial as well as lower REO volumes. This decrease was partially offset by growth in multifamily housing, which grew 8% year over year, driven mainly by our Affinity partners. We now expect Global Housing's net operating income, excluding cats, to be down modestly compared to 2020. This reflects our stronger first quarter and the assumption of a modest increase in our expected non GAAP loss ratio to more normalized levels for the remainder of the year. We are also monitoring the REO foreclosure moratoriums and any additional extensions that may be announced.
As we position for the future, we will continue investments in the business to sustain and enhance our competitive position. At corporate, the net operating loss was $22,000,000 which was flat year over year. For the full year, we continue to expect the corporate net operating loss to improve to approximately $90,000,000 as we eliminate enterprise support costs associated As we think about the remainder of the year for all of Assurant, we are beginning to plan for a phased reentry of our workforce post COVID, and we are evaluating our real estate footprint to align with new business and employee needs as we adapt to the future of work. This may result in additional expenses throughout the year. I also wanted to provide a quick comment on our investment portfolio.
With Preneed moving to discontinued operations, our investment portfolio is now approximately $7,900,000,000 excluding cash and cash Given Preneed's relatively longer average duration of around 10 years compared to the rest of our business, Following the sale of preneed, our go forward duration will drop to between 4.5 to 5 years. As a result, our interest rate sensitivity will be reduced by approximately 2 thirds. Turning to holding company liquidity, we ended the Q1 with $332,000,000 which is $107,000,000 above our current minimum target level. In the Q1, dividends from our operating segment Totaled $183,000,000 In addition to our quarterly corporate and interest expenses, we also had outflows from 3 main items, dollars 42,000,000 of share repurchases, dollars 43,000,000 in common and preferred stock dividends and $10,000,000 mainly related to the acquisition of Trigo and Assurant Venture Investments. Also in January, we redeemed the remaining $50,000,000 of our March 2021 notes And our mandatory convertible shares converted to approximately 2,700,000 common shares during the quarter.
For the year overall, we continue to expect dividends to approximate segment earnings subject to the growth of the businesses and rating agency and regulatory capital considerations. We've now completed over 70% of our $1,350,000,000 capital return objective from 2019 to 2021 and remain confident that we will meet this objective by the end of this year. In addition, we expect to begin incremental buybacks prior to closing the Preneed transaction in the 3rd quarter. The total buybacks associated with the net proceeds from the sale are expected to be returned within 1 year of the transaction close. In the Q2 through April 30, we repurchased an additional 95,000 shares for $14,000,000 In summary, our Q1 results demonstrate the strength of our business and our capital and liquidity position remain focused on completing the sale of Global Preneed and delivering on our 2021 financial objectives.
And with that, operator, please open the call for questions.
Thank you. The floor is now open for questions. Our first question is coming from Bose George of KBW. Your line is open.
Hey, good morning, Bose. Good morning, Bose. Hey, good morning, guys. This is
actually Tom McJoynt on for Bose. Thanks for taking the questions. Yes. So the first question is really just kind of about sizing up the rebound in contribution of the trade in volumes. I I know there's kind of a lot of moving pieces with the contract change, the HILA contribution and sounds like 1Q was a high watermark.
So, Will, can you just help us kind of frame how we should think about the contribution to trade in volumes going forward?
Yes. Maybe I'll start and then Richard certainly add on. If you think about our trade in and buyback business, we're now a very strong player after the acquisition of HILO. Mentioned in the prepared remarks, we have 30 plus programs that we operate around the world. You're right, Q1 tends to be The seasonal high for trade in, really driven by the launch of new phones late in the prior year.
We expect Activity to moderate through the balance of the year. But again, that business well positioned, growing strongly, And we have a lot of opportunity as the 5 gs wave develops, which is still very early. And we expect that to develop later this year and 22 really is the driver. But Richard, anything you can add on that? Yes.
I think, I mean, overall, we're in a really good place. And as Alan said, Yes. Q1, we're looking at it as a high watermark. But on the other hand, we have 30 plus trade in programs. So we are encouraged by The momentum of the business and also what Hyla is adding to the mix of the lifestyle business as well.
Okay. And so just kind of thinking about the balance of the year, there's some easy comps, Obviously, with volumes having been depleted kind of and starting in 2Q 'twenty. So as we kind of think of the fees and other income line within Global So is it reasonable to think of it being somewhat flat year over year even after considering the contract change which will hit the next two quarters?
I don't think we've given a total revenue outlook for lifestyle, We have said that when we look at lifestyle this year, we will be looking at net operating income being in the high single digits. So hopefully that should help you.
Okay. Yes, that will. Thanks. And then just the second question, Could you guys talk about the growth in subscribers in terms of how much contribution is coming from T Mobile and Sprint versus some of other kind of providers, including our cable providers, which would seem to be gaining share in subscriber count.
Yes. And again, just to frame that for everyone, so what we've said for this year is we expect subscriber growth in mobile to be mid single digits. And that's really being driven by growth in North America, which is coming from many different programs, including the ones you mentioned, As well as growth in Asia Pacific, we are seeing a bit of a drag in Europe that's been ongoing as Europe has been more severely impacted mobile that's going to transition to another provider. That's going to be a reduction of about 750,000 subs, But we'll have no impact on our bottom line. So we factored that into that outlook as well of mid single digit growth for the year.
Our next question comes from Brian Meredith of UBS. Your line is open.
Hey, good morning, Brian.
Good morning. Al, I wondered if you could talk a little bit about getting closer to the midyear reinsurance renewal, what that looks like? And specifically, Any additional thoughts with respect to trying to convert the lender placed insurance business more to an MGA model? And maybe specifically, you can kind of get into what are the challenges and impediments in actually going to that type of a model?
Yes. No, happy to talk about that. I think it's important when we talk about housing, though, to start with, it's a really good business that's performing well. You saw the very strong 2020, good start to this year. Over the last 5 or 6 years, we've really fine tuned over the last few years to reduce volatility.
So one of those was bringing retention down to $80,000,000 per event. That has now made if We do have a severe cat season. It's not a business risk to the company at all. It's just a onetime kind of earnings impact. We've also done things like moving to a multiyear tower.
I think as of January, we were up to 52% of the towers now multiyear. That also smooths out the volatility. And then we've been trimming exposure in areas where we don't feel like the risk return trade off is attractive for true risk businesses like our Exodus Paul Commercial. With that backdrop, we've been on a journey to become more credit light. It's something we look at every year.
We look at all of our businesses every year. The challenge with it, it's harder to see how the economics work with reinsurance forward how you would actually do that and make sure that it was a good outcome for our shareholders. The other way we've been addressing it is just growing the rest of our company. Since if you look at today, our non cat exposed businesses are now something like 75% of our earnings and growing much faster. And so over time, that's the dramatic shift in our exposure to what might happen with cats.
So we're certainly going to continue to work on it, but we feel like we've made great progress on it and we're not going to do anything that isn't really positive for our shareholders.
Great. Thanks. And then second question, just curious on the auto warranty business. What are your thoughts here as we progress through In 2021 on that business, obviously, some pretty solid growth given what we've seen with respect to used car sales.
Yes. We're well positioned, 1st of all, in auto. After the Orange Group acquisition and then the addition of AFAS, we're a Clear, significant leader in that business. We're now up to 50,000,000 covered autos. We've seen production for our business recover Fully and then some pre COVID.
We've mentioned, I think, Q1 'twenty one better than Q1 'nineteen in a significant way. So we feel good about that. And what we're trying to also do in addition to just consolidating and gaining share through our differentiated offerings, we mentioned the training academy, For example, Nicole, that's another way that we can gain share over time. So we're seeing good results already, strong underlying growth. Most of the benefit of that We'll be in future years as we realize the new cars converting out of warranty to our product, but well positioned, good momentum.
And one of the other things we're looking at is how do we bring some of our other differentiated capabilities like what we do with Premium Tech Support as cars become increasingly connected. We have a real opportunity to innovate and bring really differentiated solutions into the market.
Our next question comes from Mark Hughes of Truist. Your line is open.
Hey, good morning, Mark. Good morning, Mark. Good morning,
Al. Good morning, Richard. On the multifamily, real Strong acceleration in growth this quarter. Could you talk about what drove that?
There are really 2 things, maybe 3 things going on with those affinity partners. So that's one driver. 2nd, in our property management company channel, we're still early in the rollout of Cover 360, which is our new capability to make it much easier to attach our product. And then third, we've been investing heavily the last few years in digital and CX. And our experience now, we believe, is as good or better for the consumer to anyone in the market.
All those factors, the 9% growth in policy year on year, we're Still gaining share, and we're up to, I think, almost 2,500,000 policies now. So we've invested there. We're going to continue to invest. We see Enormous convergence coming between some of our mobile capabilities around the connected apartment and connected home. Early days for that, but we see strong growth just in what we're already doing and then a significant opportunity to innovate and drive growth in the future.
In the mobile business, you talked about Europe being a drag. Any signs of life Fair. And I think also South America or Central America has been laggard for you. Any signs of movement?
Yes. I think Europe is still struggling with the COVID and the lockdowns of COVID. It's been more challenging than certainly the U. S. Market for sure.
Latin America, we're starting to see some rebound, but it's still measured and nowhere near back to kind of what we've seen in Latin America pre COVID. So I think, again, what's really been driving our mobile growth in the last year or so has been our strength and position in our very diverse set of clients in North America and Asia At some point, Europe, you would assume, will begin to recover, and that will be a tailwind at some point. But we're not seeing The same kind of strengthening in Europe yet that we've seen elsewhere and that we're starting to see in Latin America.
And then on the embedded card agreements, you talked about American Express.
How are
the economics on Those sort of agreements versus your other relationships, you mentioned the Samsung Care and other programs,
So when we acquired The Warranty Group, they had recently established a new relationship in the embedded card space with 1 of the big U. S. Card issuers. So that got us into that business. And then we leveraged our capabilities as Assurant with that entree to begin to reposition some of our legacy debt deferment and credit capabilities into this business.
So that's what allowed us to go out and win new clients like American Express. Broadly, the way to think about that portion of our business, which rolls up through financial services, is their fee income. We're effectively administering programs for our partners. We're playing a role in adjudicating claims, but the risk there's no risk to drive some of our Art of the products into those companies and their customers. So we're excited about the early progress there, repositioning, but a long way to go to have that be a meaningful contributor to our company.
See, Ben, I had to tell you the story that I went to Verizon to have my phone fixed and they were no help whatsoever and they pointed me to the little place down the street Which I went to and it turned out to be CPR. I had a very good experience. I didn't actually realize I'd forgotten that it was easier business. But it was a godsend when my phone blink out. So anyway, I wanted to let you know.
Mark, I appreciate that. Maybe just a quick comment on that. One of the opportunities we see over time is to support what's called same unit repair, which is either In the store, like you just saw there, we acquired CPR about a year, a little over a year ago. The other place we see an opportunity over time to really deliver superior to do repair at your home or office. And we acquired Fix last year, which gives us that platform.
So Again, these are early. But as we think about creating growth opportunities for the future that really differentiate the customer experience, The example you just gave us CPR is exactly what we're trying to do. Appreciate it. Thank
Our next question comes from Michael Phillips with Morgan Stanley. Your line is open.
Hey, good morning, Mike.
Hey, good morning, everybody.
Thanks for the time. Good morning. Listen, my question is one that gets asked every quarter or talk about in the quarter, but just curious, What really changes consumers' attitude towards Atrade? Is it I paid off my phone at the time to get that new fancy one or is it really, hey, there's 5 gs out there now. I want to get that fastest thing.
So does this conversion 5 gs loose or any kind of incremental speed up in trade ins than otherwise happens in the course of a year. And I ask that as I can call it a dinosaur. 4 gs seems good enough to me. So I'm not racing up the door to go to 5 gs, but you can Trying to source racks or something, so who knows. But does it really spur?
What is it that really kind of makes a catalyst for people to come into Kona In the 5 gs cycle, the average consumer doesn't yet See a compelling use case or a benefit. There are strong benefits of 5 gs like speed and latency improvement, which really will create new Businesses, but what really has happened so far, it's not consumers broadly saying, I have to have 5 gs yet. It's the carriers aggressively promoting the new phones more than they've done in recent years, and that's linked off into an upgrade. So what we've seen so far is more, I think, market driven activity, not the consumers yet saying I have to have 5 gs. If I was to speculate, I think we believe 5 gs is very disruptive longer term.
But it's going to take time for use cases Okay. Okay. Thanks. Thanks, Tom. More higher level here, I guess, can you talk about any impacts to any of your businesses on just uptick in inflation rates?
A couple of thoughts and then Richard, you should certainly comment on the investment portfolio, although as you mentioned in your prepared remarks, that's much Smaller than it used to be with the sale of Global Preneed. Our business is going to perform well no matter what the macro environment So if we get into a slowdown in the economy caused by whatever and inflation could cause a slowdown, we have businesses that are countercyclical and will grow. We also just have embedded growth. If you think about our mobile programs and the 15 new programs that we've launched in the last 3 years or so, most of those are not mature. We also have embedded growth in our auto business with all those policies sold on new cars that haven't started to earn yet.
So I don't think from our business, we're going to see a significant impact, just given how we're set out to perform whatever happens. But Richard, what would you say on the investment portfolio or other Thanks. Yes. No, I think it will obviously be a positive impact on the overall investment portfolio. And as Alan I referred to the earlier comments, with the sale of preneed, our overall interest sensitivity is going down about 2 So our overall duration is going to be 4 to 4.5 to 5 years.
Having said that, You know that today our overall yield on the historic portfolio, if I can put it that way, is above current interest To the extent that current interest rates rise and the books rolling over the next 5 years, higher interest rates will actually be beneficial to us And from that respect. Okay. Thank you. That's very helpful guys. Last one, Rich, just real quickly.
Any impact to you guys on any from the chip shortages that have been impacting other parts of the economy? Not really is the answer. If you think about our auto business where that's been one of the areas that you see a lot of press on the chip shortages, We're well positioned on car sales. If there are fewer new car sales, which isn't what we're seeing yet, by the way, but if there are fewer new car sales, used car sales will pick up And we benefit from that mix shift in the short term. But in terms of repairs and maybe an increased cost of repairs, For most of our auto business, we're administering the repairs for our clients and the clients realize the benefit or the challenges of So at the end of the day, not really material to us.
And as we mentioned earlier, we're seeing pretty strong momentum in the underlying growth of auto
Our next question comes from Gary Ransom of Dowling and Partners. Your line is open.
Hey, good morning, Gary. Good morning, Gary.
I wanted to ask about the EBITDA. Thank you for giving us those numbers. How are you using that internally? Is that a way that you're managing the business? Is it a compensation metric?
I wonder if you could just remind us how that's what you use it for.
Yes. Let me maybe start and then Richard, you can certainly comment more on EBITDA. Today, it's not a compensation metric. Our primary compensation metrics are things like total shareholder return, operating EPS, things like that. But it is a complement in net operating income.
And in particular, as we think about M and A and growing in fee income businesses, It allows us to help the market better understand the real growth that we're setting up for the future, which is a bit obscured when you look at the accounting of an acquisition of a fee company. But those businesses we've been acquiring, like we mentioned, CPR and fixed earlier, On an EBITDA basis, it really sets up and helps the market understand better the growth that we expect in the future. But Richard, what would you add? Yes. I think as Alan mentioned first, it was the valuation issue of it and the market being able to compare apples and apples in terms of Other companies' EBITDA and ours, so that's the first part.
I also look at it as from an operating point of view. It's a better Operating point, a better operating metric in my perspective than NOI because we add back purchased intangibles. So those are purchases that are made. They're running out. It's a non cash issue.
So adding things like that back or taxes back It gives us internally just a better view on the operations of the business from period to period, particularly in the lifestyle business. Yes. And to your question, we're going to assess over time how best to link it to things like compensation. We don't know yet if we will or won't. But we do think it provides a better view of the underlying profit and momentum of our business, particularly as we're now largely Shifted away from traditional risk businesses to being driven by the connected world businesses.
Okay. That's helpful.
I also wanted to ask about the macro reopening of the economy. And are there areas where they might have been depressed last year where there's perhaps pent up demand That might come through as part of the growth or anything you're seeing? I know you've talked a little bit about automotive, but are there other areas that where there might be some Pent up demand that would come through as we reopen economies this year?
Yes. I think broadly, you saw last year resilient our business was even in a very disruptive environment with COVID. But there are a few areas where pent up demand is still really true. One is Travel, we do some of the card benefits, for example, are linked to travel. And so with travel being very depressed, that obviously It's an area that is rebounced, will have some length for us and benefit for us.
In store traffic has been lower, but we've pushed very hard on digital, even pre COVID, which I think helped mitigate that. We mentioned earlier, we are seeing still some depressed activity in Europe. So, that's an opportunity. But I think I wouldn't look at we were that impacted by COVID in terms of what was happening. And so, therefore, growth in the Obviously positive.
People buy things. That gives us new chances to attach and sale. But as I mentioned earlier, we feel confident whatever happens
And one of the other things I noticed that as an insurance analyst, I like to look at book value and I know you I see the equity, the book value per share calculation was gone. Can you Comment on that change?
Yes. I think, Alan, I'll jump in there. Yes. I think when we look at the company and we look at the evolution of the company going more toward a capital light type business, fee based, service based business. We look at it and book value is much I mean, you can get there from math.
We give the balance sheets and the equity and the shares. So It's still a calc out there
for you.
Right. But things like EBITDA, NOI, ex cat, net operating income ex cats, Those are more meaningful to us in terms of the profitability and the ongoing profitability and the growth over time of the business. So there are better value indicators in our minds.
Our last question comes from Mark Hughes of Truist. Your line is open.
Hey, Mark. Yes, thank you. Just a couple
of things. Richard, you mentioned maybe some incremental real estate costs. Could you maybe size those? And are those going to be broken out Not included in adjusted earnings.
Yes. Thanks for the question, Mark. In terms of facilities, it's very early days. What Geographically across the world globally. And we think as we go back to the workplace, we can be thoughtful about the future at work and how our staff can work and how we can work more productivity over time.
So very early days with that. We have attached no numbers to it as of yet. We just want to signal that we'll be looking for. And it's one of the reasons why When we look at the Q1 and we look at how strong the Q1 is and we give outlook for the rest of the year, we don't want to surprise the market by coming into the facility expense. In terms of where it will be when we do, if and when we do incur it, we'll obviously call it out to the market.
We haven't decided yet depending on what it is and where we go geographically, where it would go, if it really would be a part of operating income or it would be something a It's different than that and more of a one time non recurring thing. So 2 come in the future. And Mark, what I would add It's broadly with COVID and then the changes that are going to happen. We're trying to think through what is the best way to set up our business and our employees to be as Successful in the future and as we work to attract talent. We had a head start that we had about 30% of employees virtual before COVID and had been a path We've been working on anyway.
But the world's changing, and we just want to be really thoughtful about how do we create advantage year with some leases that were about to expire. So again, as Richard said, we don't know exactly what it's going to be, but we know we will have some changes at some point this year likely.
And then on the multifamily, you mentioned that your digital capabilities, you think They're very good in the market. Are you doing any direct to consumer? Does that create channel conflict? Is that even something you're interested in? Just a refresher on that.
Yes. The way to think about that is today, we are almost B2B2C. So, we work through our partners. We embedded in our partners. What we're particularly focused on as we think about innovation in the future is How do we combine some of our capabilities to create even a better offering?
So for example, in multifamily, working through our PMC partners or affinity partners, Can we include mobile into the bundle? Can we add capabilities for mobile? So we don't have any real plans to go to direct to consumer. We are always looking for alternative channels. And what I mean by that is our strategy has been to support the consumer wherever the consumer wants to go to get products We sell and so we're always looking at alternative channels, but our primary focus is that B2B2C and how we leverage our capabilities, which are Pretty differentiated across auto, mobile and rental to create kind of new opportunities for growth.
Thank you.
All right. Thanks, everyone. We appreciate your time today and for participating in today's call. We had a very strong Q1, and we continue to look forward to closing on the sale of Global Preneed later this year. In the meantime, please reach out
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