Q3 2022 Porch Group Inc Earnings Call

[noise] [music].

Thank you for participating in <unk> third quarter 2019 conference.

Sure.

Today, we issued our third quarter earnings press release and related form 8-K, with the SEC. The press release can be found on our Investor Relations website, IR Dot group Dot com.

Joining us here today are Matt Rosen.

Marty Hi, Minger CFO , Matthew Nagel towards group CLO.

President of our insurance Division and now from Connor VP and GM of our warranty division.

Before we go any further I'd like to read the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1990 box, which provides important cautions regarding forward looking statements.

Today's discussion, including responses to your questions management's views as of today November eight 2022, we do not undertake any obligation to update or revise this information. Additionally, we will make forward looking statements about our future financial or business performance or conditions business strategy and plans and then.

Dissipated impacts from pending or completed acquisition based on current expectations.

These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from these forward looking statements.

Encourage you to consider the risk factors described in our SEC filings for additional information.

We will reference both GAAP and non-GAAP financial measures on today's call. Please refer to today's press release for reconciliations of non-GAAP measures. The most comparable GAAP measures discussed during this call.

As a reminder, this webcast will be available for replay shortly after the conclusion of this presentation on the Investor Relations section of the company's website at IR <unk> com.

The slide presentation will follow the presenters commentary and can be found on the website.

Today in addition to covering third quarter 2019 below updated full year 2022 guidance and Kpis Adam corner is here to provide an overview of the third quarter insurance results and Malcolm Connor will join us to provide an update on our warranty business and with that I'll turn the call over to Matt.

CEO chairman and founder Unfortunately, not.

Thank you Emily I appreciate it and good afternoon, everyone.

Thank you for joining us for our third quarter 2022 earnings call.

Certainly 2022 has been a volatile year for what we've seen with the stock market housing market atypical weather and inflation amdocs on insurance costs.

At the same time this has been a year of focused work by the parts team and the progress made leaves me more confident than ever about what's ahead.

Yeah.

Based on the quality of our teams work. This year, we should have continued our string of beats and raises however, given the headwinds will discuss here today, we have adjusted our financial guidance for 2022.

I'll start first with the challenges.

So first while we do not sell our own insurance products in Florida Hurricane in which was one of the largest storms. This country has seen did flow through South Carolina, which is our second largest state in terms of gross written premium.

Hurricane in and an increased number of summer weather events drove losses on our insurance division in the quarter.

Inflation further impacted gross losses and resulted in a Q3 2022 gross loss ratio of 74% of homeowners of America, which is substantially higher than the historical Q3 results.

I'll note in a moment how this has created an opportunity around future pricing for homeowner policies that we expect to drive growth and profitability going forward.

Yeah.

Second loss challenges the housing market continued to decline more than the industry groups like the National Association of Realtors or nor had forecasted.

So for the third quarter existing home sales declined over 22% on a year over year basis, a result of the continuous rise in interest rates.

This is significantly higher than what was predicted at the beginning of the year. Following further than what was forecasted at the end of the second quarter.

We've noted that much of our business is not impacted by the housing market and you can see.

Based on how our business continues to grow nicely. However, we are seeing slower growth in move related services and certain portions of our <unk> software revenue.

Third due in part to the degree of drop in our stock price and the market changes over the last nine months, we are taking a non cash goodwill and intangible impairment charge of $57 million.

This quarter Marty will touch more on this later.

So in total because of these impacts we are updating our full year 2022 revenue guidance to $275 million, which will be 43% year over year growth or 23% pro forma growth using the same methodology as we've used in the past.

Additionally, with the incremental insurance claims costs and whether it's in this quarter. We are updating adjusted EBITDA guidance negative $48 million for the year.

Now, let's flip over and talk about the successes, we're entering the fourth quarter in a strong financial position with over $276 million in cash at quarter end $16 million of which is restricted.

Some of the most important and impactful initiatives that will contribute to the results in the future for our business have lined up very nicely for us.

So first off we continue to be confident becoming adjusted EBITDA profitable starting in the second half of 2023 and ongoing thereafter.

Matt This is going to share some additional detail on this important milestone here shortly.

Second in part due to our higher claims costs insurance pricing increases have been approved in our two largest states so texas of 25% increases in South Carolina of 35% increases.

These start at each customer's next renewal with the following 12 months, then showing higher recognized revenue.

The higher prices are expected to aid in the profitability certainly of our insurance business in 2023, and ongoing as well as likely adding tailwind to overall company revenue growth.

Third and Melissa successes, our teams are making real progress on initiatives that we expect will allow us to operate a more capital efficient P&L at our insurance Division.

By exploring options like a reciprocal structure or deepening relationships with our key reinsurance partners both of which Adam will touch on later, we are optimistic about the potential to further improve capital efficiency and significantly reduce or eliminate volatility overtime.

And fourth execution around key initiatives continues to be strong. So during the quarter, we made the porch accessible across a broader inspection consumer base.

<unk> of our delighted with the tool we build here and we believe this product will be impactful over time.

As we enter the stock market continues to experience significant volatility over the next several quarters, we're convicted and getting to profitability in the near term and are excited about what's ahead for the company.

As such and as we announced just earlier today, our board has authorized management to spend up to $15 million, which is approximately 10% of our market capitalization on repurchases of common stock or convertible notes.

We will assess which will provide the best returns for long term shareholders and you can find more on our newer purchase plan in today's press release and form 8-K.

Before handing the call over to Marty to go through our financial performance in more detail. Let me first reiterate our company's strategy and priorities briefly.

Looking here at Slide seven March provides software and services to select strategic verticals to help companies grow.

By doing so we generate b to be recurring software revenue as well as gain early and ongoing access to home buyers, who we help with key services, such as homeowners insurance and warranty.

Starting at the top of slide eight our company priorities have been consistent throughout the year.

One cell vertical software to more companies, where we become deeply embedded.

To provide key services and consumer experiences in our software products to get in front of more consumers.

Three extend our experiences our digital tools, our app to consumers with the aim to be their partner for their home and increase our b to B to C transactions.

Four of our insurance and warranty businesses, both rapidly and profitably, including launching new products, new geographies and furthering our capital light approach.

Five build out our data platform and leverage <unk> unique insights to improve pricing for our insurance and warranty products and finally, our priority for M&A continues to be the integration Sox controls and growth of past acquisitions.

Lastly, here I am excited to welcome some new members to our team as we announced last week, Shawn Tabak, who joins US with 20 plus years of experience across the industry will start tomorrow as our new CFO huge thanks to Marty for his time in this role for helping with the transition.

In addition, Nicholas Graham started a month ago as the GM of our moving division nickel.

Nicholas previously led the hotwire business that Expedia group for a number of years.

Finally, we also welcomed two new independent board members this quarter, Amanda Ryerson and Camilo Velasquez, who bring with them extensive experience in insurance and home services and vertical software I'm very excited to have you all on board.

With that I'll turn it over to Marty Heimbigner to discuss Q3 in greater detail.

Thanks, Matt and good afternoon, everyone.

I will start off with our third quarter financials, which you can see here on slide 11.

Third quarter revenue increased 20% from prior year to $75 4 million, driven primarily by our insurance and warranty businesses.

Contributions from acquisitions made over the last year.

Year to date revenue is $208 7 million.

Increase of 48% from the prior year.

As Matt mentioned Q3 revenue was lower than our expectations.

Due to there being fewer home sales than anticipated at the start of it.

Order of.

Our vertical software segment reported $44 5 million in revenue.

<unk>, 5% increase from prior year.

This segment includes our move related transaction revenue, which is most impacted by the volume of homebuyers.

Our insurance segment reported revenues of $30 9 million for the quarter.

A 51% increase from the prior year.

With upcoming insurance pricing increases rolling through we expect this portion of our business to continue to grow nicely.

Company revenue less cost of revenue margin was 56% and adjusted EBITDA loss margin was negative 17% compared to the prior year, 69% and positive 1% respectively.

Our cost of revenue was caused by an increase in insurance claim costs, primarily due to inflation.

An atypical weather events in Q3, including Hurricane Irma.

Which made landfall in South Carolina on the last day of the quarter.

The change in adjusted EBITDA was due almost entirely from this increase in insurance claims costs.

Finally, when you review, our GAAP financials Youll notice, we recorded a noncash goodwill and intangible impairment at $57 million in the third quarter.

This included $39 4 million goodwill impairment at our insurance segment.

Driven by the disruptions in the equity markets, specifically for property and casualty insurance companies.

Largely due to recent weather related catastrophe events.

And a $17 7 million intangible impairment at our vertical software segment.

We determined that this impairment was appropriate considering the current macroeconomic environment and a continued deterioration in our equity Mark.

It is important to note. This is a noncash charge without no impact to our business and no relation to our core underwriting operations.

Slide 12, you can see our updated 2020 guidance.

Offline revenue has been adjusted from $290 million to $275 million in.

And adjusted EBITDA from negative $30 million to approximately negative $48 million for the year.

Again on a full year basis.

Same story in the 18 nine expected change in adjusted EBITDA and <unk>.

Largest impact was atypical weather, including hurricane in an inflationary pressures on claims cost, which contributed 15 million to this change.

And slower than expected revenues due to the housing market contributed an additional $3 million.

This guidance includes a system in Q4 will continue to demonstrate inflationary pressure on insurance claims costs continue to steep declines in home purchases.

In typical lower Q4 weather seasonality.

The full change in revenue was caused by lower than expected harm shells jam packed in move related service and software revenues.

You can see that revenue distribution here on slide 13.

We now expect 44% of total 2022 revenue to come from our insurance segment.

<unk>, 7% from our <unk> software and service subscription revenue.

And the balance from move in post net of transaction revenue.

Our insurance segment is the fastest growing part of our business and we expect that to continue into 2023 and the foreseeable future.

Long term our ability to profitably grow our business has not changed we remain confident in our ability to grow while achieving our long term, 25% EBITDA margin targets.

And with that I'll turn it over to Matthew Nagel, our Chief operating officer to discuss our key performance indicators for the quarter.

Matthew.

Thanks, Marty Hello, everyone, great to be with you today.

My mind 22, 2022 has been an incredibly exciting and impactful year for our business and with what is teed up for 2023, we expect another big year ahead.

I want to make sure it is understood.

Despite macro pressures and unusual weather impacts seen this quarter the fundamentals of the business are strong and the team is performing well.

First I'd like to make sure our path to profitability in the second half of 2023 is clear.

But then take a look at our quarterly Kpis.

We continue to feel confident in achieving adjusted EBITDA profitability for the second half of 2023.

Even while assuming continued and substantial weakening in the housing market and higher insurance claims costs from continued inflation.

We expect the $28 million plus a year over year adjusted EBITDA improvement between the second half of 2022 in the second half of 2023 will be driven by a few different things first.

And in an anticipated $10 million each to improvement that will come from higher insurance pricing.

And lower distribution costs to agents.

We have received regulatory approval and these are being rolled through new sales and renewals as we speak.

Second.

There is a $10 million improvement.

By assuming unusual weather, including Hurricane EV in does not happen again, and we see third quarter weather consistent with the last five years.

Considering and is estimated to be one of the strongest ones ever to hit the U S. Navy win we feel this is a reasonable assumption.

As Matt noted earlier, our teams are focused on furthering initiatives to reduce volatility over time.

Third we anticipate $5 million in cost savings year over year, largely from G&A related costs, such as lower Sox costs, which are significant in H two this year.

Also lower D&O insurance costs, and a select set of other cost savings that have been implemented.

These impacts alone reached nearly to our target.

And do not require core business growth to be achieved.

Given we are keeping G&A and product and technology expenses largely flat year over year.

Revenue growth incremental to the insurance price increases noted will flow through to contribution margin and further EBITDA improvements.

Lastly, if anything is not on track management would consider other cost adjustments to achieve profitability in this time period.

Here on Slide 16, we'll cover our public ATI.

Gaining with companies on the left we saw growth in the average number of companies in Q3 to approximately 30915 up over 50% from the prior year's 20 419.

And an 8% increase from Q2.

Showcasing that our teams are selling software to more companies and increasing our penetration even in a difficult environment.

Given the macro environment, we do not expect growth in average companies. We do expect growth in average companies to slow somewhat especially as we anticipate seeing more sole proprietors retire or exit the industry over the next year during the slowdown.

On the right we recognized $812 in revenue per company per month in Q3.

Down roughly 17% from the prior year.

This kpis was impacted by lower home purchase volumes and we expect that to continue in the short term.

But in the mid term we believe there is an opportunity to grow this many times over by expanding software modules offered to companies gaining access to more consumers and helping with more services like insurance and warranty.

Let's move to slide 17.

We saw over 318450 monetize services in the third quarter of 2022.

A decrease of 5% from the prior year. This.

This shift was driven primarily by fewer homebuyers given the downturn in the housing market.

We don't expect Q4 to follow its usual seasonal low with some continued impact from the market downturn.

Revenue from monetize service increased 36% to $181 up from 133.

The growth in revenue per monetize services driven by the key service, we are focused on such as insurance and warranty.

Which may produce even higher revenue per service ongoing.

And finally on Slide 18, you can see our insurance segment continues to grow.

And ended the third quarter with gross written premiums of $157 million over 391000 policies and we are generating an average of $300 of revenue per policy per year.

On a rolling 12 month basis as.

Our September 32022, we had an approximately 88% retention rate at our homeowners of American business.

Additionally, we were able to launch Florida is one of our final remaining states for home warranty products.

And we received regulatory approval to operate our homeowners of America insurance business in Alabama, and South Dakota.

I will pass things off to Adam Corning, President of our insurance Division for a few more updates on our progress here Adam.

Thanks, Matthew I'd like to provide more context third quarter insurance results and provide some insights on why our team is doing to offset the headwinds we faced this year due to weather and inflation.

Our HOA business ended the third quarter of 2022 with a gross loss ratio of 74% higher than the 41 gross loss ratio in 2021.

And the approximately 30% to 40% recorded in the third quarter for the years prior to acquisition.

The change in our gross loss ratio was driven by several factors first throughout the third quarter, we were impacted by higher weather related claims and we have seen historically and on the last day of the quarter Hurricane and made landfall in South Carolina, our second largest state.

Specifically, the third quarter weather events drove a $15 four point increase in gross loss ratio from the same quarter prior year.

Inflation also impacted gross loss ratio as our average cost per claim of approximately 10%.

When compared to 2021 on a year to date basis, the balance of the increase in gross loss ratio was even smaller weather events that occurred at higher rates than previous years.

While these impacts were significant we believe our reinsurance and underwriting strategies, which include avoiding underwriting in the state of Florida allows us to show relatively small losses, when compared to a hurricane event, there's an estimated at $40 billion to more than 60 billion of disposal losses.

Based on the claims received in the days following hurricane landfall in South Carolina, and our expectations for IV in our incurred claims that are yet to be reported by our customers our financials reflect our expected expenses related to this event.

Despite these impacts we currently estimate an expected full year 2022 gross loss ratio of 65% and.

And a combined ratio of 87% something we feel good about is our reinsurance partners have the ability to outperform other home insurance carriers when they choose to work with us.

Our teams are acting early reinsurance conversations and what will be another tough macro year for reinsurers and land, which we may want to see a little bit less premium depending on pricing.

We believe our historically strong performance for these partners positions us well for 2023 compared to the overall market.

As Matt had previously mentioned, we are all committed to outperforming our baseline plan.

That has us tracking to profitability in the second half of 2023.

We feel good about how we're set up here.

In addition, there are several initiatives we are pursuing within the insurance division, but have yet to be realized in our financial results include increased profitability as we look at it.

For example, Actuarially justified price increases have been approved in Texas, and South Carolina as Matt mentioned at the start.

These price.

Increases are effective upon the customer's renewal date or the initiation of a new policy.

Since your renewals are spread over the next 12 months embolic, Peter generally 12 months wrong. This means that place prices will flow through over a 24 month period, providing a tailwind into future periods.

As we work through the remainder of the year and into 2023, we anticipate that the impact of these pricing adjustments will be visible in our results including growth.

Loss ratios and profitability.

In addition to providing our consumers with Fuller home protection by also offering her warranties.

Or just testing offering home warranty and insurance to consumers consumers.

With some early learnings and successes now allocable share more.

Finally, as Matt mentioned, we continue to explore options to improve capital efficiency and reduce volatility over time.

There are several paths to doing this successfully including a reciprocal structure similar to USAA farmers or Gary.

Or increasing our reliance on reinsurance.

We are in the exploration stage and not certain if I ever path will proceed, but certainly capital efficiency and volatility improvements would be a catalyst for the business.

To wrap up here.

I want to provide an update on our continuing systematic expansion of leveraging ports as proprietary property data to improve pricing accuracy for homeowners of America customers.

By utilizing this unique data in tandem with over 15 years of claims data from <unk>.

We've been successful in modeling filing and implementing new pricing. We recently received approval from five additional states, Alabama, North Carolina, and South Carolina, South Dakota and Texas.

Regardless of the location of water here at some point about pricing.

Bringing us to eight stage of implementation.

I am excited to share the work we've been doing a lot of our data.

There's been continued progress in attracting data about roof material the type of planning and piping and flooring, many of which show real opportunities to customize prices for consumers with lower risks, we hope to submit filings with these new data elements before the end of this calendar year.

Well it continues to grow its software platforms in a variety of vertical markets such as monetizing approximately 40% of Americans home inspection transactions.

Insurance works closely with these teams to make sure we can provide the best experience.

Accurate pricing possible for these consumers.

I'll now hand, the call over to Malcolm Connor group GM of our warranty Division now.

Thanks, Adam happy to be here today, I'm excited to share more detail about our warranty business as we believe we are well positioned to become a leader in this space.

Prior to joining towards more than a year ago I previously led and scale American water's warranty business to greater than $130 million and organic revenue over four years.

I was excited about joining towards given our unique assets that we believe provide a long term advantage Luke.

Low cost access to consumers.

Data to improve pricing.

Variety of channels to sell warranties through.

The team and culture that can execute rapidly to get great work done.

As you know sports provides homeowners with insurance and warranty offerings.

Fully protect the home from the roof to the service line and nearly everything in between.

Where homeowners insurance covers unforeseen events like fires escape of water and wind damage home warranty protects the consumer against the natural wear and tear that your whole suffers from standard usage.

By integrating American home for Tonight.

Our ws warranty brands into the <unk> platform.

We were able to offer homeowners convenience and better financial protection.

Our warranty span from specialty coverage that target a specific system in the home.

Short term 90 day inspection warranty for new homebuyers.

To be multi year two home warranty.

As part of ports, we have included maintenance services, such as gutter cleaning our dry cleaning at the cost of being deductible to create more value for every consumer.

This has actually led to a substantial improvement in retention rates versus what American home protect we're seeing pre acquisition.

Generating strong and consistent recurring revenues reports.

Turning to slide 25.

Let's talk about a couple of the things we're working on.

First let's take a look into Portugal plant.

By offering home insurance home warranty and routine handyman maintenance services.

We're able to offer our customers an increased level of whom protection.

A more modern way to care for their home.

While providing handyman services creates differentiation to help sales and renewals.

Providing warranty solutions alongside our insurance products.

Laos us to tap into a large base of existing customers and insurance distribution channels and other ways to bring warranties to market.

As you can see.

We are uniquely building out variety of channels to distribute our warranty products and as highlighted here on slide 26.

March is integrated with large base of companies in the real estate and home inspection industry.

And when consumers are buying a home it is a great time to purchase a home warranty.

In addition, we've added utilities and emerging opportunities such as along insurance and also American home protects historic direct to consumer approach.

In the utility space, we recently expanded our offerings to include electric natural gas water and sewer line coverage in order to help our utility partners provide protection.

Their customers needs.

We will have a lot more to share on our utility partners ship program over time.

Okay.

So to wrap up warranty as one of fortune's fastest growing businesses and we now have more than 40000 members.

With our multichannel strategy and unique customer access data and customer experience.

The incredible opportunity to become a leader across the $4 5 billion home warranty space.

So with that I'll turn it back over to Matt.

Thank you Malcolm and to have you here.

So it's just over a year ago now that we announced our acquisition of American home protect and with how quickly our warranty business is growing it's clear to me and to us that.

We can better help consumers looking to protect their homes.

So much runway here.

We expect to continue to grow this business rapidly for very long time.

So wrap up today's call we would note to our long term shareholders that we continue to ignore the short term noise.

Income along with the stock market public.

Public company.

Our teams are executing and we are at the very beginning of building a large and durable company.

It's been a choppy year in a number of ways caused by the macro market, but as we look ahead into 2023 Im excited about our ability to demonstrate clearly to the markets and our strategy is working and I can't wait to show the results that will produce over time.

And with that the management team will now take questions. Emily you can please open the line for Q&A.

Thank you and it looks like we have a little less than 30 minutes for questions. Here today, we'll start by taking questions Barnboard sounds fine.

One attempt to respond to other questions that have been submitted to the handle on stack as time permits.

Our first question that we have on the list here today, the Dan <unk> from benchmark Dan.

Well now go to John Campbell with Stephens.

Right.

Hey, Thanks, guys.

Insurance business.

The higher replacement cost.

They've heard everybody in the channel.

Seems like a few quarters now it does seem like investors tend to overlook kind of that ripple effect of the higher renewal pricing. So I'm glad you guys have highlighted that but I'm curious about how you are thinking about that tailwind just over the next coming quarters, you've got obviously, two big price increases and what I think at least by our matter farnell.

Hey, your two largest states.

I know, there's some moving pieces around renewals and stuff like that but just as you see it right now could you maybe frame up the type of revenue lift you might be expecting and just those two states alone.

And are you on that you want to take that type.

Yes sure of course.

Jason we don't break out that the at the business unit level, but.

But I would say that.

Well essentially these prices were approved.

This year, they generally won't affect prices during the current year because it will take time to earn in but we expect that those percentages will be fully recognized over time as new policies initiate.

An earn out over 12 months and then as existing policies renew.

And so I think you can can you use that to make your assessments.

Those are our two largest states, okay and then Adam.

Broadly the incremental margins on that kind of renewal pricing.

Typically 100% flow through.

So I don't think we disclosed margins by by individual businesses, but yeah, we would expect to fully earn those increases as the policies renew over that period of time.

Okay, and then one more on insurance here.

I don't know if you guys can help shortcuts as I just haven't had the time to run through it but if your gross loss ratio. This quarter was similar to last quarter or maybe just kind of industry average what was the swing in EBITDA just in this quarter.

But I don't know if we have that Julie yeah, well, we did mention.

Q3 was obviously substantially different than Q3 last year.

There was a 41% gross loss ratio in Q3, 2021, and 74% gross loss ratio for our insurance segment here in 2022 third quarter. You also noted.

John the past years, it's been 30% to 40% gross loss ratios in the third quarter third quarter is typically a really good quarter from weather perspective, and the regions that HOA operates primarily obviously in this quarter was unique and different.

I don't think we've broken down specifically, but that gives you enough to be able to go and certainly triangulate.

The total impact overall, though for the second half of the year.

Swing in EBITDA from where we were.

Our previously $30 million.

Guidance negative $30 million guidance to now negative 48, almost all of that swing $15 million of that swing is directly tied to weather and weather inflation hurricane yen.

The majority of that is obviously a problem.

Okay I was looking for thanks, guys.

Thanks, John we'll go to Jason Halcyon is Oppenheimer Jason.

Thanks.

Yes.

So I think industry forecast to just housing volume is going to be negative through 2023, and kind of even worse than we've seen this quarter next quarter et cetera. So how are you thinking about vertical software revenue in EBITDA next year.

And then just back in.

You sound very confident you can get the breakeven EBITDA by the middle of next year.

True.

Whatever it takes so if thats the case why not repurchased some of your convertible debt given the large discount right now in the market and your strong cash position.

Well on the repurchase.

That first and then Matthew do you want to take the housing market question that would be great.

I think so.

Jason last quarter, we had noted that we're thinking about it and talking about repurchase options with our board and obviously between then and now our board did approve a repurchase. So we have we have authorization at this point from our board for $15 million repurchased so.

Our grid, 10% of the market cap was the right place approximately 10% of the market I was asking about the convertible debt.

So basically the board approved the repurchase to be either stock or convertible debt.

And so now the question is management has discretion and will do the math to make sure we make the right choices there.

What's interesting is both are very attractive and are in our mind the soccer that convertible debt. There was a breakpoint, which stock is more attractive way to go versus the convertible the convertible debt.

This is lower risk for purchase, but both we view as very attractive IRR. So we havent obviously disclosed.

Now the next steps, but we will obviously sharing today that there is there is an authorization in place for us to build action against your wishes.

I can speak to the vertical software.

I'll share a few points first.

Despite the market declining that.

Segment is still growing but it does have some impact right. So the first thing the second thing I would say is that as we are forecasting for next year.

We are looking very closely at the industry data.

We have already built in some decline for next year.

Because we have been looking at the forecast.

Coming through from the different industry groups.

When we see a decline not all of our businesses impact. So keep in mind, there are parts of our business insurance and warranty that our recurring businesses. There are parts of our vertical software businesses that are recurring.

Where we do see an impact one is there are some moves related services and so when there are fewer movers, we do see some softening.

<unk> services, and then parts of our vertical software business that are transactional in nature.

See some impact.

And what we're seeing a little bit in the mortgage industry is.

Certain mortgage brokers may may sit out or reduce the number of <unk>.

And they're in their business, but.

But again when we put together our forecast for next year, we will build it off of.

What we're assuming from the industry forecast and that assumes already.

Declining next year.

Three margins very quick points, one Jason we didn't know it was a 22% year over year decline in home sales in the third quarter, we agree with you and Thats, what external books day, which is 2023.

We expect continued decline and we certainly expect material weakness ongoing and so as we're planning for breakeven in the second half of next year that we are certainly assuming that being the case and we're not assuming a rosy picture from housing market I do want to remind insurance segment at this point is 44% of revenue.

That is really the fastest growing part of our business and that portion of our vendor isn't materially impacted by the housing market given the vast majority of this revenue is recurring revenue from existing customers and those existing customers are also moving less frequently.

So just as a reminder.

Thank you.

Thank you we will now go back Yeah, we'll go to Mike Grondahl of Northland Mike.

Hey, Thanks, guys.

Two questions for me any quick update on lower Fi.

And.

Matt Matthew I was trying to understand.

Did you say that vertical SaaS revenue.

Is is kind of expected to be down in 2023, or just the housing market in general and that's something you're going to have to work.

No the housing market in general will be down our vertical software segment is still growing.

In 2022, and we expect it will continue to grow in 2023.

Within our vertical software segment, Mike if you recall, our move related services that portion of the revenue. The transaction revenue that is the portion that is most impacted by the housing market.

Low 20% of total revenue this year, that's a that was around flat year over year here in the third quarter. So it is not declining as there are fewer homebuyers, but its not growing nearly as fast as obviously it would in a normal market. The overall vertical software segment is growing we expect that will continue to.

Grow.

And then I do want to update on <unk>, Mike and then so as to fortify.

Excited about the opportunity there because it's going to allow us to integrate insurance.

Directly into the closing process.

With mortgages and so what we have been doing and this is what we always do as we are rolling this out in a controlled manner.

And we're doing that to ensure the experience for consumers and loan offices officers is great. We have been expanding the number of qualified customers for which we have integrated insurance into the mortgage checklists.

And the early feedback is positive and so we're excited about that opportunity just that opportunity to make that insurance purchase much much easier through the integration we have with Spotify.

And I'll just give one more brief update which is and the team's doing a really nice job really excited about the work that's happening there. It is harder to be a software company in the mortgage space right now clearly mortgage companies.

<unk> are hurting and they are fewer.

Our customers and they did a year ago.

But despite that we're really pleased overall with where we're that businesses and still the opportunity that.

Got it thanks, guys and good luck thanks, Mike.

Dan Let me go over to Dan.

Yes, sorry.

If it's a.

A bit of a selfish question, but I've been running around because now it looks like the call was coming at my House. So how do you guys consider that into your guidance at all so it looks like it might go up the coast. So I'm wondering if that's included for Q4.

I'll take that.

Absolutely yeah. So people don't go against referring to sub tropical storm Nicole that is predicted to impacts of the east coast of Florida.

And so you might say, we are very conscious about not writing business in Florida. Among other locations, we're very focused on being prudent in our reinsurance relationships and then managing our mix of risks I'd point you back during our prepared remarks.

The impact <unk> had on us given the scale it had for the overall industry.

So we cant controllable lever, but we can control how we prepare for it and we feel good about the actions we've taken in those strategies many months in advance immune.

And the anticipation of events like that not knowing exactly when those occur.

Alright fair enough and then I guess, we'll see kind of what path that follows after hits mainland Matt a couple of things.

Good update on sort of the data.

On insurance and getting it through the regulators I know that's always been a.

Kind of a topic focal point here you said that there was more coming you've now given us Jeff Moore.

How do we think about kind of progression from here and what do we think.

In terms of being able to take share on.

In terms of market share and being able to be aggressive with our pricing, but offset by insurance costs like what do we how do we think that kind of plays out.

I'll give a quick gotten out of if you want to layer out later on with anything please feel free to I just said I'm excited about the work here just like we've talked about before the.

The game of insurance in our view homeowners insurance certainly is around <unk>.

Who can access the consumer at the right time at a lower cost and then who is unique data to build a price more effectively and certainly that proved to be true in auto insurance over the years and built two very large companies. They are very successful companies.

We think we have this amazing opportunity, but certain so we certainly have been investing aggressively I think is just is really about.

Systematic and consistent kind of approach to our investments there. So just pulling in more data getting a structure and being able to use it like Adam was talking about in our.

In our filings now Adam do you want to just kind of update specifically on filings or anything that you're excited about there yeah. I mean, I always say I share matched enthusiasm and use that as a percent right. I mean, it's all about that methodical approach.

So the teams working together.

Identifying data we might use extracting it at scale building the models filing them getting approval and so we have a really clear roadmap quarter by quarter of how we do that.

And so I strongly believe in that and that each quarter will be able to keep moving that forward.

That really is how the game of insurance is one is by having that more accurate pricing and just building that advantage overtime and maybe one more quick thought which is maybe against some of your question. Some of the consumers right. As you go through that process and you match all of our data with historic claims some consumers will be able to get discounts right and get lower and lower pricing in those and therefore, you will be able to get.

Row faster in terms of being able to access more consumers.

We now have better risk some consumers will get surcharges right, because it's a higher risk than others realized so either you may not win that piece of consumers, where it was going to be bad risk anyway.

Or youre going to win it at the appropriate price right. So that it can still be profitable for us and so youre going to see it.

Impacts really on both sides, both growth and margin for us.

I would just say we're in the early days, but we're going to we're doing really impactful interesting things hot water heater location. We're excited about that alone and Thats just one piece of data or in the early days of how much we're going to do and so let's just be a multiyear journey as we continue to execute and make progress there.

And the last if I could just sneak one more in not just on the App right.

I know, obviously, you guys laid out a path to <unk>.

The ability to second half of next year and a lot of that does it.

Include any incremental insurance graph.

See how you get there, but just how youre thinking about balancing I think maybe that's ongoing.

Ongoing investment and things like that how much has already been.

Kind of underwritten at this point and how much you need to continue to invest in that part of the business or do you pull back on that if things get worse I just want to understand kind of the underlying trajectory.

Yes, I can I can take that.

<unk>.

First thing I want everybody knows where we are taking very cautious approach to investments we have.

Slowed down a lot of our investment in.

<unk> is very strategic for us long term because it creates a lot more access to consumers and it really brings to life. The data that we have for some of you to <unk>.

It's really powerful to see what it looks like when you are.

Report all the data we have is presented in a very useful way on the app.

So today, we are still committed to building out the App is already lines, we're actually turning it on for more and more of our inspectors that's on a steady rollout.

And the early feedback is very positive and we're getting a lot of great feedback on how we can improve that experience and it will be a differentiated experience that nobody else would really be able to provide.

Awesome. Thanks, so much and keep your fingers crossed for me.

Yep.

Well that's been agents as Danbury.

Hi, Thanks for taking the questions.

First I was hoping you could give a little more color on what initiatives you're doing to reduce volatility in the insurance just because it seems like there is once in a century once in a lifetime events like hurricane Ian or are happening a lot more frequently than that.

Sure Adam I am sure I can tag team. This we highlighted two.

Two of those maybe I don't know if you want to just kind of restate and provide any additional detail you would like on the two things that we're working through so as we talked about.

Reinsurance because I think many of you are familiar with but I might address.

You can actually see a reciprocal exchange.

Total change is a structure in the U S. Several brand name companies.

We mentioned farmers' Erie USAA there are others.

And so the reciprocal changes an unincorporated entity it would not be owned by ports it states affiliation of policyholders or subscribers.

And that reciprocal exchange would hold all of the.

Underwriting.

Capital the premiums.

Actually the balance sheet of the insurance.

There is a second entity that would be owned by porch be attorney in fact, which we manage the business and receive a fee in return for managing at that entity would be.

<unk> by the employees, we had largely run the business as we do today because that's one of the things we're exploring I don't know if it will happen yet they've been doing that bifurcation. We think it has the potential to reduce volatility if.

If we decided to pursue it Matt.

Yes, I would just say just at a high level to the question I think it's a good one.

We agree and our strategy is focused on making really good choices in terms of how we're going to manage the volatility Adam right now as you know.

Meaning start with reinsurers and Thats, just a core part of our part of what we do or partners that we operate.

Does it make sure that we we have our business well protected so we can run our business reduce volatility over time.

Just consistent results.

Alright, Thanks, and then the next one as we look ahead into you know the softening housing market in 2023 has there been a shift in.

SaaS versus b to B to C.

And what should be expected that.

Yeah.

A shift from SaaS DVD to see there.

There's dynamics that play out in different ways.

So one of the.

Certain vertical software businesses that do rely on transactions, so youll see lower SaaS revenue in those businesses.

And then as we have fewer movers. It does have a softening impact on R. R.

Move related services, because we have less.

Folks who are moving going through.

Kind of going through the platform, but as Matt mentioned in our fastest and largest.

Key parts of our business warranty and insurance are less impacted by that and we haven't really strong recurring nature to those businesses. I'll also just add that we've gotten better and better at.

Moving away from what we had talked about two years ago of getting paid but either SaaS fees or BW transaction revenue and really being able to get paid with both right, where we got SaaS speeds. We've introduced more modules for these companies, we generate consistent SaaS revenue from them and continue to get access to.

With consumers through more and more tactics.

Theres a variety of things, we're doing like the app like integrating insurance with ball by and others to be able to get access to more and more consumers over time and be able to generate revenue in both ways.

Alright, Thats really helpful. Thank you both for the answers. Thank you.

Well, what do they do any place that with Jpmorgan.

Hey, Thanks for the questions I'm on for Cory Carpenter I just have two quick ones on the portion of tumor App do you plan on transitioning it to become a mid acquisition funnel overtime reports and then the second one is do you plan on raising rates and any other states you're right turns policies.

Persistent inflation thanks.

Sure on the consumer.

Certainly.

Planning for it to be a acquisition channel for consumers I think given the way our business is set up we actually have a variety of different channels.

For us to be able to access consumers.

Certainly we think the consumer App provides some unique benefits because of the experience that we can provide there are things that we're going to be able to do with our data to personalize that experience and nobody else is going to be able to do so we think there is a very powerful way for us to build to acquire and engage consumers. The other point that.

I would remind the group is the way that our ISN platform.

As consumers download their app through our <unk>.

Platform. So we have opportunities for them to access your inspection report to the App, which we think will aid.

The option.

Loading of the App too.

We are excited about it remains one of our priorities and we will be continuing to really.

<unk> focus for the near term.

<unk> b to B to C approach using our companies to introduce consumers as with download and not going direct to consumer and marketing and advertising that we have so many consumers across so many companies and those consumers are at the ideal moment in time for us to meet them, but that really is the focus of our teams as it just take full.

The advantage of that opportunity.

Do you want to go into the second question around run rates in other states. So again.

We have a process.

Irregularly infrequently you look at the indication for each state. So what are the current estimates of costs and what's our future estimated cost wherever the source of that cost is.

And based on that process, we regularly and frequently make changes to our pricing in each state and so we highlighted Texas and South Carolina, because they're large and meaningful but absolutely we will charge an actuarially justified rate in every geography and in order to be profitable.

Thanks.

Let's move to Josh Siegel with Josh.

Yeah.

Yes, hi, Thanks for taking my question I know, it's still early stages, but I'm curious if you're seeing any early evidence that your unique data advantage is helping the business whether this turbulent macro environment better than say some competitors, who lack similar proprietary data. Thank you.

Well, let me just.

Quickly to say couple of things that you are closer to it and take Mike but.

Couple of things I'm certainly proud of.

In this market that we're in right now for the business to look at 65%.

Gross loss ratio 88 seven.

7% combined ratio those are really good results considering hurricane Ian just what's happened on the third quarter in particular from weather perspective, and so just wanted to provide a credit to that team. Despite.

The Choppiness that we saw certainly in the third quarter weather.

Those are good results.

And set us up well with reinsurance relationships one too when you go back and actuarial team.

It looks at our data like hot water heater location and combines it with the historic claims data.

I'm sharing publicly for competitive reasons like the impact that we see.

I mean, it's noteworthy.

Something that we are excited about just because that is one of many things.

Cause an impact so.

Adam anything else you bought an offer there.

I think I might point, you back to I can't remember what quarter. It was but we shared some data by apparel that were able to collect wherever it was of a roof and the percentage of claims or the relative importance of the roof. For example to lever claims where it was plumbing and the importance of funding to the escape of water apparel I don't have in front of me, but I know that we shared at <unk>.

That's part of it is very methodical approach to say, we know that matters.

And so what we're committed to is making progress every quarter.

Continuing to file to build those models and then file them.

And that's probably the way I would point you back to is that we're really clear minded on how those things will lead to improvement by individual apparel.

<unk> talked about and as you said, we don't we don't share for <unk> type of reasons. Some of the details, but we can see that and it's something I'm very enthusiastic about.

Like Josh problems, let's move to <unk>.

Ryan Thomas Hello, Ryan.

Thanks, guys for taking the questions.

Regarding the insurance space increases can you say, how youre thinking about it going back to attrition.

Push those two on renewals and on the.

Flip side of that you think rising Sean that we're likely to see across the industry as competitors are pushing at the same price increases.

There is an opportunity for you guys to pick up share on the banking book.

I can talk about that I mean, so I'd say, we disclose our insurance segment renewal rate.

And so.

When we raise prices, we expect that to decline I think we've been pleased that given the overall market conditions.

That it has held up but certainly if we increased prices. We do have some some belief that based on the elasticity will see when it will go down.

But then as you alluded we believe the overall market will have to charge, but prices are warranted and that will lead to a stabilization in renewal all things equal and then as you said that's going to drive shopping and that's something we can benefit from but the main thing I would point you to is we disclose every quarter, our insurance renewal rates and that's the best way for you to see how we're performing.

The increases are seen in renewals.

And then beyond the pieces of the vertical software segment that you called out the direct sensitivity to housing and mortgage maybe you can just speak more broadly about the sales environment across the different brands, whether youre seeing any softness targeted competitive see there on.

On the part of I guess, largely SMB customers given the uncertainty.

That's helpful next year.

Our teams are very focused on our go to market. We do have unique things that we can bring to our customers that other folks can then I think gives us an advantage.

But it's still a difficult market theres a lot of small businesses on a sole proprietors, who get heavily impacted when there is a significant slowdown.

So we saw pretty good growth in our average companies this last quarter.

And I think we expect that pace to soften during the slowdown.

Thanks for taking the questions. Thanks Ryan.

Thanks, everyone really have one question here and that was submitted to the analysts and that is a question for Marty Marty could you. Please give us an update on the cash position of the company and maybe an update on the company's NOL.

Certainly Emily.

Data, indicating our provider.

Prepared remarks that we ended the quarter with $276 million of cash on hand.

With $16 million of that was restricted cash.

In addition, our homeowners of America business has a long term and short term and long term investment portfolio of $62 million. We believe the cash that we have on hand positions us well for.

Our operations and the buyback of stock or convertible debt that was discussed.

With respect to our net operating loss.

Stating that we will have the NOL carryforward of $374 million.

At the end of 2022.

Great. Thank you and Matt.

I will close us.

Didn't didn't get the stock market question this quarter or I mean is going to give you a quick thought which is.

We continue.

Continue to be convicted and what we're what we're doing.

So.

Is.

Certainly <unk> is involved in industry and have begun impacted just broadly.

We're really excited about.

The future looks like for the company. So thank you too.

Long term shareholders.

I'll also just say thank you to everyone that joined the call here today. We appreciate the interest ongoing interest in ports group.

We are at the very beginning of the journey like I said and I do want to just shout out to the <unk> team.

Entirety for the continued focus living our values with great work, that's happening every day being focused on the task at hand, now, let's go build a great company and everything else is going to take care of itself.

Also shut out in particular, Marty for the role that.

So with that thank you all take care have a great great rest of the day.

Okay.