Porch Group Inc. Q1 2023 Earnings Call

Speaker 1: You

Speaker 2: Good afternoon everyone and thank you for participating in Porch Group's first quarter of the 2023 Conference Call.

Speaker 3: Today we issued our first call to earnings release and related form AKFEC. The press release can be found on our Vest Relations website at ir.coursquote.com today.

Speaker 4: Joining me here today are Matt Ehrlichman, Portrait Group CEO , Chairman and Founder, Sean Tabak, Portrait Group CFO , Beth Nagel, Portrait Group CIO, and Nicole Pelley, SVP of Product and Technology.

Speaker 5: Before we go further, I would like to take a moment to read the company's Safe Harbour statement within the meaning of the Private Securities Litigation Reformat of 1995, which provides important portions regarding forward-looking statements.

Speaker 6: Today's discussion, including responses to your questions, reflects management's views as of today May 10th, 2023. We do not undertake any obligations to update or advise this information. Additionally, we will make forward-looking statements about our expected future financial or business performance or conditions.

Speaker 7: business strategy and plans, including the pending applications for the receipt for exchange. Based on current expectations and assumptions, these statements are subject to risks and uncertainties, which could cause our actual results to differ materially from this board of statements. We encourage you to consider the risk factors described in our SEC filing, as well as the risk factor information in these slides for digital information.

Speaker 8: on the company's website at ir.porchgroup.com.

Speaker 9: And with that, I'll turn the call over to Matt Ehrlichman, CEO , Chairman and Founder of Forge Group. Over to you Matt.

Speaker 10: With that, I'll turn the call over to Matt Ehrlichman, CEO , Chairman and Founder of Porch Group. Over to you, Matt. Thanks, Lois.

Speaker 11: Good afternoon, everybody. It hasn't been long since we last spoke in March, and in that time, the business progressed nicely, which we look forward to discussing with you today.

Speaker 12: Overall the Q1 2023 operating environment is not dissimilar to what we experienced in Q4 2022. The home service and insurance industry is faced home sales and weather headwinds and as expected we were impacted by them as well.

Speaker 13: As the insurance industry and weather trends evolve, it creates not only a growing homeowners insurance market, but substantial opportunity, and we are well positioned to become a leader given our unique demand and data advantages.

Speaker 14: I'm pleased to have Nicole join us today to talk to the advancements in the last quarter in some of these areas.

Speaker 15: So moving aside, stick to review the high-level financials.

Speaker 16: into our 20th century plan. The reinsurance market has hardened.

Speaker 17: While our April 2023 renewals were successful given our strong relative past performance, excluding the impact of reinsurance market, Q1 profitability would have increased by approximately $15 million in our insurance segment.

Speaker 18: As a reminder, we rely on reinsurance to both mitigate weather risk and to offset a portion of the capital requirements associated with operating a homeowner's insurance carrier.

Speaker 19: So while our insurance business saw strong and profitable growth performance,

Speaker 20: In fact, a 97% gross combined ratio in 2022 by our carrier entity. The reinsurance cost weighs on our net results until our premium price increases have flowed through all policyholders. We believe the impact of reinsurance is transitory and the market dynamics will improve.

Speaker 21: 2022 because of weather and expected to be compressed in 2023 because of the reinsurance market until price catches up.

Speaker 22: But to highlight capabilities and performance, we think it is helpful to note not only that our insurance business was profitable on a gross basis, but to also show how our insurance business compares to the rest of the homeowners insurance carriers in 2022.

Speaker 23: I mentioned last quarter that HOA was the fastest growing homeowners carrier through the third quarter of 2022 as measured by gross written premiums. AMBES has now released their full year 2022 report ranking 50 different homeowners insurance peers based on direct written premium growth.

Speaker 24: I'm happy to share that we end of the year ring third.

Speaker 25: Importantly though, in addition to growing rapidly, we demonstrated a leading gross combined ratio. And so as you can see in the bottom chart on this slide, the AAM Best Market Share Report shows gross combined ratio of HOA and 50 peer carriers in 2022. And here HOA was also the third best performer.

Speaker 26: Although there are two insurers with better loss ratios, those companies had much slower growth and this demonstrates our ability to use our unique capabilities to grow premium while also maintaining strong underlying performance.

Speaker 27: Again, as we mentioned, our strategy is to manage our premium growth carefully in 2023 to drive our business to profitability. As I mentioned, we've made a number of successes in the quarter. First is the insurance strategic initiative announced in the fourth quarter 2022 are on track.

Speaker 28: To facilitate this transition to a more efficient reinsurance system for the reciprocal exchange, we moved our reinsurance seating rates to approximately 50% in January . Successfully placed our Exes of Loss Reinsurance treaties in April . Continuing to further leverage our captive reinsurer and facility reinsurance needs where it makes sense.

Speaker 29: systems that apply to live in the home. Nicole will comment on this later in the presentation.

Speaker 30: one year of year and continue to impact our software and moving services.

Speaker 31: Despite this ongoing lower domain environment, our software businesses continue to iterate, launching new modules and capabilities to take more share. Nicole will touch on our progress also in today's presentation.

Speaker 32: that ties into a 200 million dollar pay down of our existing unsecured note which is due in September 2026.

It's a great transaction for us as it increases porch groups capital by more than $100 million, replacing the capital which will transfer with the reciprocal on approval. It also provides a two year maturity extension for much of our debt while maintaining the same $25 per share conversion price.

at the cost of the 6.75% coupon rate on the new money.

Friendly, I want to spend a moment to provide a reminder about our strategy to form a reciprocal exchange. We've been thinking through this since we first acquired HOA two years ago with the objective to move the insurance business to higher margins and without the volatility from direct exposure to weather.

provided we receive approval from the Texas Department of Insurance the HOA carrier business including all its assets such as cash and investments as well as its liabilities will move to the new entity and be owned by its policy holder members. In exchange, boards will receive a coupon bearing note.

the terms which will be provided following approval.

We will continue to operate the insurance with us such as selling the policies and managing claims processing in return for fees from the reciprocal. This means once the reciprocal exchange is in place, we lose the potential upside profitability and good weather conditions.

However, we do not have the same claims downside when there are frequent and severe weather events and as a result our revenue and profitability are steady and predictable. We are in active discussions now with the Texas Department of Insurance and still anticipate approval later in the second half of this year. I'll now hand the call over to Sean to cover our financial performance and guidance.

by the software segment, which continues to be impacted by the soft housing market.

As a reminder, quarter one and two typically have the highest claims cost for HOA, with quarter two historically being the period with the most weather events. In the first quarter of 2023, the gross loss ratio for HOA was 79% compared to 81% in the prior year.

Revenue, less cost of revenue was $36.1 million, which is 41% of revenue.

As Matt mentioned, the reinsurance markets have hardened as expected, which resulted in a reduction in revenue-less cost revenue by approximately $15 million in the first quarter of 2023 compared to the prior year.

Our price increases, which we disclosed previously, are well underway and being rolled out, which will have a larger impact in the second half of this year given the timing of renewals for the underlying policy.

Adjusted EBITDA loss of $21.9 million was in line with our expectations.

a decrease from the prior year, driven by reinsurance as noted, and to a lesser extent, the soft housing market impact on the software segment.

excluding the reinsurance market dynamic compared to the first quarter in the prior year. The Justin Evidon loss would have been approximately $7 million.

And finally, gross written premium was $115 million, an increase of 12% over the prior year. Moving on to revenue by segment.

In the first quarter of 2023 revenue from our insurance segment was $58.7 million.

Growth of 101% over the prior year, driven by strong growth in our warranty business based on demand and renewals, as well as HOA due to increases in premium for policy and lower reinsurance seating.

Approximately half of the revenue growth in the insurance segment was due to seeding less in the balance from the operational lens.

Insurance segment revenue increased from 46 percent of total courts group revenue in the first quarter of 2022 to 67 percent of total revenue in the first quarter of 2023.

Vertical software revenue was $28.6 million, a decrease of 17% over the prior year due to the housing market declining 26% industry-wide year-over-year.

The biggest impact of the housing market decline was on our moving services group, which continues to have these macro headwinds directly impact this revenue.

Our B2B software revenue was relatively flat year over year, with market share growth, and the initiatives in pricing offsetting the housing market impacts.

At a segment level, our insurance segment adjusted EBITDA loss was $7.2 million.

As Matt mentioned, the underlying contribution margin in our HLA insurance carrier increased by 500 basis points compared to the prior year when excluding the impacts of re-insurance. The vertical software adjusted EBITDA loss was $400,000. Forbord expenses were $14.3 million in the first quarter of the year.

million dollars to 350 million dollars where we continue to expect an 18 percent decline in home sales for the full year 2023.

with a greater impact from the difficult housing market in the first half of the year versus the second half of the year when the comps become easier.

Revenue, less cost of revenue, ranging from $170 million to $180 million.

where we have assumed a 62% gross loss ratio for the year. This assumes cat weather events will be in line with our historical averages. Any unusual catastrophic weather events in excess of our historical norms are not included in our guidance assumption.

Adjusted EBITDA loss ranging from $30 million to $40 million, where we expect on a cumulative basis Adjusted EBITDA to be profitable in the second half of the year and beyond.

And finally, gross rent premiums of $500 million.

Shifting to the balance sheet, we ended the first quarter with $272 million of cash and investments.

This includes $165 million of cash and investments in our insurance carrier, HOA.

that we expect will transfer to the reservoir when approved and launched.

Excluding HOA, Porch held $107 million of cash in investments at the end of the first quarter. In addition, we held $15 million of restricted cash in relation to our warranty and captive businesses.

And as Matt mentioned earlier, we are increasing the amount of excess of loss reinsurance provided by forces captive to HOA where it makes sense and can provide strong returns.

To support this, we expect a hold approximately $43 million of cash to collateralize this placement.

And finally, in the first quarter of 2023, we repurchased 1.4 million shares for $3.1 dollars under the existing share repurchase program.

update related to the issuance of our new $330 million senior secured convertible notes, which we closed in April after the end of the board.

We are pleased with the deal which reduces our medium term September 2026 debt maturity from $425 million to $225 million and bolsters the balance sheet by adding $102 million of the cash.

These new secured notes have a coupon of 6.75% and maintain the same conversion price of $25, which was important for us to minimize future dilution for ceremonies.

This increased coupon payment is partially offset by approximately 5% interest we are currently earning on interest-bearing cash deposits.

The $330 million of the new secure notes are due October 2028. Thank you all for your time today and I'll now hand it over to Matthew to cover our KPIs.

trend over time.

The average number of companies was 30,600 in the first quarter, similar to Q4 2022, and a 20% increase in the same quarter prior year.

Average revenue per company per month increased to $951, an increase of 15% from the same quarter prior year.

This was driven by higher insurance premiums generating more revenue for insurance customers. The change in our range of rent seating and rapid growth in our warranty business.

We had 214,000 monetized services in a quarter, a small increase from last quarter. Finally, average revenue from monetized service increased to $328.

an increase of 88% versus the same quarter last year. We continue to focus on selling the highest value services to consumers, such as insurance and warranty.

Let's now look at our insurance business KPIs. Grocery and premium was 115 million, an increase of 12% year over year.

This was produced from 376,000 policies enforced in the first quarter.

Annualized revenue per policy was $612, increasing 82% for $330 in Q1 2022.

This was driven by increased premium for policy, lower reinsurance heating levels, and rapid growth in our warranty business.

As Sean mentioned in March, we are introducing retention on a premium basis to help demonstrate the impact of pricing increases.

and a line-art disclosure with the field group. Premium retention is on a 12-month basis and was a hundred and seven percent for Q1-20-23.

an increase from 100% in Q1 2022, driven by increased premium for policy. As a reminder, we have started to non-renew 37,000 high-risk policies, which will impact short-term retention rates. Overall, the insurance business had a gross loss ratio of 79%.

significantly outperforming the tears.

Today's topic is Reiterator or Guidance, which includes a 62% gross loss ratio assumption for the full year. There's a nuances, which is usually like 2.6 points as a choice, but that means you have

is weather improved in the second half of the year and the impact of increased premium for policy changes in the second half of the year.

Finally, on slide 20, I want to quickly recap our 2023 strategic priorities.

First, we will plan to continue to develop new software for the company to use our vertical software and upsell more software through bundled solutions, which Nicole will talk to shortly. We are extending our online experiences and increasing revenue per home buyer. The informal program is where you can learn from software, use the software, check offline,

Recall check monitoring and other services. We are finding ways to better engage consumers to that help them with more services.

We are improving premium for policy in our insurance and warranty offerings. We've now launched the Porch warranty brand and expect to launch the Porch insurance brand later this year, creating differentiated offerings for conceals. We are focused on getting the reciprocal structure approved, moving the insurance business to a lower risk, higher margin business.

Thank you all. I'll now hand things over to Nicole to highlight a few key product updates. Thanks, Matthew. And hello, everyone. I lead our product and technology team.

and responsible for our consumer experiences and data platforms, and work across our businesses to help them leverage the PORT platform and accelerate their product velocity and growth rate.

to approximately 90% of U.S. home buyers.

In addition, we have 15 years of clean history from HLA across the various insurance categories, such as water, fire and dust.

allows for effective pricing, which is key.

While for competitive reasons, we will not provide details on what data creates the biggest impact.

We have been able to improve our risk accuracy in key insurance risk categories by approximately 15 to 20%.

This is a common way to measure accuracy in segmenting risk through pricing in our team experience anything in the highest single digits is going to be a meaningful improvement. So we're all really excited to see double digit improvement in model accuracy. And we're just getting started. What this means is that we can charge a lower price for lowest risk policy.

increasing our conversion of low-risk policies, and more accurately price high-risk policies higher, leading to either appropriate pricing and margins or lower conversion on the subset.

The next device we have about properties includes information such as who are the borrowers, appliance age and model, and potential issues about specific homes.

This information feeds the insurance pricing model I just mentioned. We have approval in nine states to use information on the water heater location. This has now been expanded to include other insights such as the type of roof, age and quality, the type of flooring, and the type of piping and characteristics. We are pleased to have approval to use this data in three states, Arizona, Virginia, and Texas.

We have also submitted filings in Illinois and Nevada to use all of our insight.

A key focus for the business is to continually develop new products for the companies using our vertical software. We want to launch a new module for each of the type of companies we work with, at least one per year.

both to create more value for these companies and to increase revenue for companies. I would like to call out three new developments across various sports brands.

First, within our Flow-Fi business unit, we're now able to offer an all-in-one solution for brokers that combines the great features of our Mortgage Point of Sale with a mortgage loan origination system by Integrated Partners.

In addition, we have launched two new products for mortgage companies, Closing Accelerator, which will help customers close loans faster, and Customer Capture, which helps mortgage companies get more customers.

With this powerful combination, we're able to write a best in-market solution.

Secondly, we have released a new report writer for infectors.

This new release provides a fully redesigned modern user interface and enhanced functionality that can serve as an all-in-one solution for small home inspection companies.

Our new report writer allows inspectors to create reports faster with voice commands, media editing, and support for multiple inspectors on site.

The new platform will also enable tighter integration with some of our other modules, such as payment processing and the Portional Black.

Lastly, we have rolled out price increases within our title business, alongside launching new products for new customers.

Lastly, we have rolled out price increases within our title business, alongside launching new products for these customers. This includes Rhino eSheet.

The sheetman is a complex process that title businesses need to follow to comply with state regulations on unclaimed funds. The module is an easy to use cloud-based software that seamlessly integrates with bank accounts.

Ensuring the title agents are notified of unclamed funds and helps to facilitate the reporting process in accordance with each state's achievement reporting regulation.

I'll now shift to our work for consumers. Our app has now been rolled out to nearly all eligible ISN inspection companies.

This is key to engaging additional consumers who access their inspection report by the app, the home data that is generated from that report, and a recall check monitoring function for their appliances.

We then use this opportunity to cross-sell other services Port provides. We also look at how we can continue to make the moving journey simpler for both moving companies and consumers.

In our moving business, we have launched a fixed price product called Fluff. This allows consumers to lock in a fixed price for their moves rather than an hourly rate. This gives them confidence that cost will not build up through an already extensive period and allow us to increase our margins for customer by including more services the third party removed offer.

such as wrapping and packing or moving permits. I have been flex funds is our inspection pay to close module first launch last year.

This product gives consumers the flexibility to roll the cost of their home inspection into their mortgage payment.

Giving consumers more time to pay often increases the number of services they sign up for, such as radon testing, asbestos checks, and sewer scope.

thereby giving them more confidence in the home they're purchasing and upselling services for inspection businesses.

We are pleased with how this product has gained momentum and look forward to strong growth in 2023 and 2024. As Matt mentioned earlier, we launched Port warranty in February .

We're excited by this, as it's a high-value service for consumers and will help this high-margin business of ours continue to grow rapidly.

and others, which allows us to sell warranties at a lower customer acquisition cost.

We also enhance the coverage and value consumers receive by including a variety of our handyman maintenance services to provide differentiation. Thanks everyone. I'll now hand it back to Matt. Thanks Nicole. Thanks guys.

I'll wrap up by saying births that we really are excited about the journey ahead. The team and I remain confident in our offerings and in our strategy. Like many, we're facing market Edwin, but the team is staying focused and is executing well.

We do not think the stock market accurately reflects what we are building, but that over time it will.

I am particularly looking forward to the second half of this year, during which we expect to both post positive adjusted EBITDA and launch the reciprocal structure for our insurance competitive.

These are both important moments for us and something we've been working on and looking forward to for some time. Thank you in advance of the Porsche team for the great work.

for Q&A. Great, thanks, Matt. The lines are now open for Q&A. To ask a question, please click the Raise Your Hand icon. We'll do our best to get through all your questions in our remaining time today. The question one comes from Daniel at Benchmark. Go ahead, Daniel. OK, great, thanks.

And I know we spend a lot of time talking about interns, but maybe we can just double-click on software for a second and just kind of talk through some of the trends there. What they're seeing, you know, are anticipating a little bit of a different mix than you originally forecast. And obviously the housing market's been nasty and some of the per-seeing stuff has been challenged. But...

given some of the calls commentary and also some of the up-through up-shell that Matt talked about in his remarks just kind of helped us think through, you know, maybe some of the dynamics there and maybe even a little bit on the longer tailed outlook once we get more normalized in the group.

Matt, why don't you take the first part of the question and maybe I'll give my thoughts in the longer term. What's ahead? Yeah, I mean, the first point that I'd say is we have good market position in all of our categories and our product velocity is increasing. So we're bringing the market or teeing up things to bring the market and I think we'll just... Do we see them now?

make our offer more compelling. And right now we are in a soft market, which creates some headwinds, bring on new customers and so forth. But it's also an opportunity for us to reposition. So when the market picks back up, we'll have a greater offering. And so the teams are focused and we're excited about what we have planned in those categories.

It's just a little soft, but we're not worried about it long term. Hey, I just add that I would use the moment to give kudos to that team. I mean, there are software businesses remaining flat in these quarters, ballpark flat, you know, in times when the market is down like it is. It just is a testament to I think the new products that they're bringing to market, the market is going to come.

in particular for a transaction. You know, as transactions increase, you know, obviously we're well set up to get real wins at our backs. And the last thing is we are innovating and building some really new and unique things for these companies to become more important to these companies. And so I'm excited about how that positions us here at looking for it.

policy and some of the KPIs there and I'm sure it's too early but now that you have kind of forged branded with forged branded insurance to come I knew you were super excited when you made the original entry into the market so just kind of help us think about sort of the contribution maybe some of the puts in tape and how much you're investing I guess at this point they kind of scale that business over the balance there and next year

Yeah, I can take that. We're excited about the warranty business. You mentioned today it's growing rapidly. You mentioned today it's high margin. You mentioned today we have a new porch branded warranty product.

One, a couple of things that are interesting about our opportunity in the warranty space. The first is, you know, we're going to be able to bring multiple products to market. So we already are in market with 90 day warranties from inspectors, annual warranties, three-year warranties, and we think there are other products we can bring to market. But we also have access to multiple channels. And so we're engaged with real estate.

We think we have an opportunity in utilities. We have direct to consumer channels that are working for us. In terms of investment, we're actively growing, seeking to grow the warranty business and we see it as a key part of our strategy.

I'll say Dan, when we had first talked about warranty business however long ago that was, you know, the thesis that we had out there is certainly working, you know, with again, lots of opportunities ahead. We've not started to use in any kind of material way our unique data into the pricing for warranties.

And so clearly there are opportunities there over time. Right now, just through our channels, our demand access, we have big advantages there. And so the team is taking advantage of it.

Yeah, I was gonna follow up on the data angle, but you've just covered that, so appreciate it. Before I jump off, I'm sure... I'm sure DNA is gonna ask like 16 questions, dude.

I was just going to ask you about literally the convert, Matt. I just wanted to clarify, I think there's a carve out for you guys to be able to buy the old convert. So just your thoughts on repurchasing the legacy convert versus the stock at this point.

Sean, do you want to take the convert question?

Yeah, so I think the deal overall was very positive for the company. Obviously, we were able to reduce our medium term maturity as well at the same time.

Yeah, so I think the deal overall was very positive for the company. Obviously, we were able to reduce our medium-term maturity as well at the same time.

adding just over $100 million of cash to the balance sheet, which I think gives us some good flexibility, especially with the macro Edwin's, etc. I talked hard and re-enterance markets.

And I think there's a number of options that we have here over the coming months and years. And we will obviously do what's in the best interest of our shareholders to create value for our shareholders there.

That's where we're at today. Awesome, thanks for the color and I guess apologize for that quite rude and professional interruption.

That's where we're at today. Awesome. Thanks for the color. And I guess, apologize for the quite rude professional interruption. Thanks, Dan. Appreciate it.

Next up we have Jason from Oppenheimer. Go ahead, Jason. Hey there, how are you? So I'll ask two questions. So just, you know, what's driving your confidence in the fully erased your law of getting a 62% versus 73% in this quarter.

And then, you know, within the context of that review the milestones and expected timing to go live with the reciprocal exchange. I'll call that 1 question and to just put 1 any tailwinds from housing improvement in your guidance. Thank you. I'll take the reciprocal.

on track with the timing we would expect and kind of in the process. No changes in terms of our expected timing for the finish line. We still expect SECMAP of this year, but nothing surprising coming out of that process thus far.

With respect to the gross loss ratio, we mentioned on the call today Q1 was relatively in line with what we expected. The 62% assumption that we noted, that's for the full year. Q1, the way the seasonality works in our HOA insurance carrier business, Q1 and Q2 typically have the worst weather.

And so, you know, the guidance that reiterated today was, again, we were expecting that 62% gross loss ratio for the year. The other thing I'll note is we also mentioned the 37,000 higher risk policies.

that will continue to roll off as the year progresses along with pricing increases as we go here through the year. So those will have more of an impact as we get through the year. So that's the first question on growth loss ratio. The second one I think was on industry-wide home sales. And a couple things I'll point out there. We do also see some...

Q1 of last year was a relatively, I'll call it, normally shorter. And so we do expect a year-over-year decline to tighten as we go in the year. Basically, we expect the comp to get easier as we progress throughout the rest of the year. And we reiterated our 18 percent decline.

Good afternoon. Yeah, earning seasons can be a bit of a drag to having hot mics on Zoom to spice things up a little bit. But my question here is on the guidance. You know, obviously, a big revenue beat for you guys this quarter. You reiterated the full year guide. I'm just trying to square up those moving pieces.

At a high level, I'm thinking that's conservatism. But if I take the insurance revenue from one Q, you know, it's a pretty stable revenue base. You've got some attrition coming as you're, you know, shutting off some policies, but you still have the growth dynamic and you have the pricing that comes on more impactful. So I wouldn't think that comes down much. Right. So if I annualize that, take that out of total revenue, it's implying the rest of the business, so maybe vertical software down, you know, maybe 25, 26 percent year over year, 115 million.

early in the year we want to see how this all plays out. There are a number of moving pieces, to your point. So there are the 37,000 policies that we roll off over the course of the year. Obviously we have price increases going through to consumers, and so we're going to be naturally conservative with what we expect to see in terms of the attrition from those consumers as they see a higher price. But we have to let that play its way through as that gets rolled out.

So naturally, I think there is uncertainty with the housing market right now, and so we're going to naturally build that in and again, just give ourselves a little more time to let this all play out. We don't guide quarterly, obviously, and so just reiterating the full year right now, but I will say that we are hopeful and confident about how we're set up for this year.

mine still on if you're still on path there. And then secondly, just directionally, are we expecting a modest revenue haircut? I know it's probably too early for you guys to tell, but just generally speaking, as you've seen from past examples of a carrier or MGA converting over to the course of course, change.

typically what that kind of leakage looks like. Yeah so yeah I would say no change in what our expectations is in terms of timing but as we communicated last quarter it's something that we are not you know fully in control of. Obviously we're working with the Texas Department of Insurance and so you know in the second half of the year we expect it to be approved you know and the third quarter is not an unreasonable assumption but clearly we're not putting a hard you know pin on that.

obviously also impacts our gross margins in a positive way, you know, meaning just the overall margin levels of the business, you know, to improve. When that is approved, John , our plan would be to do a presentation to kind of really fully walk through that and the reason we won't do that ahead of time is that some of the degree of those changes depends on where everything lands with the Texas Department of Insurance.

you know through that process. So once approved we would kind of walk folks through that and let everybody know how that how that's settling out. Okay very helpful thanks Matt.

Next we go to Joshua Pantor. Yeah, hi guys. Thanks for taking my question. I'd love to dive deeper into your ability to maintain that flattish revenue on vertical software despite the ongoing housing headwind.

So given the rollout of all these products and the expansion of existing products, how are you thinking about the current cross-sell opportunity that still exists, potentially untapped in the vertical?

So there are a couple of dynamics. One is, as I mentioned earlier, we're seeing an increase in product velocity, which creates opportunities for cross-cell. We gave one example today of Rhino-a-Sheet, which gives us an opportunity to bring a new module out to title companies.

The other dynamic is partly due to market conditions with inflation partly due to roll out some new products. We have pricing opportunities and we've been able to do that in a variety of places. We see a couple more opportunities and so that will help that business.

from a revenue perspective. And then, you know, we're selling the best thing and selling the marketing because we think it's right long-term opportunity for the company. And so we're still out there. You know, GMP looks at how we're doing in those student verticals. That is helpful. Thank you. And then I'd like to turn attention over to a profit of abilities.

Yeah, so today we, I mentioned earlier that the seasonality we see in the first half of the year on EBITDA is largely driven by the claims that we see at HOA, which is largely driven by weather.

relatively in line with our expectations. And so we're largely comparable and on track with our previous guidance that we talked about, which is 30 to 40 million EVA loss for the year. And then that assumes obviously that key assumption that as expected weather and claims are in line with our 62% gross loss ratio for the year.

And then, you know, as we looked at the second half of the year, we would expect, continue to expect to be profitable on an unjust and deep enough basis. You noted some of the things that were, that we had talked about previously, the underwriting changes that we've made, including policies that we're now renewing.

the increase to pricing that we've done, as well as the third one I'll mention that some of the G&A savings that we expect to see as the year rolls on.

Great, thank you Sean.

Thanks Josh. Great. Next we go to Ryan from KVW.

Hey guys, thanks for taking the questions. Just going back to the reciprocal exchange, from a P&L and Martin standpoint, can you talk about how the gap P&L or balance sheet may or may not change day one post the transaction? And in terms of the capital structure.

How are you thinking about the timeline for bringing in third party capital there? To either supplement or replace Porsche's initial capitalization of the company. Do you feel like that is kind of necessary to ultimately effectuate the capital light? You know lower writing risk that you're drawn to here with this new structure.

John , I'll take the third party capital comment and why don't you take the first part of that in terms of how we'll be able to display the P&L going forward post approval. Yeah, let me take the second part first though. It is a choice, Ryan, on what we do with third party capital. So in the insurance business, you know, certain calculations that you have to meet and those calculations factor in right.

and also what the state is of the reinsurance market. Again, we think what we're in now is a unique moment in time. You know, does it last for one year, two years, three years? Like we'll see how long pricing is, I would say, and availability is very abnormal. Because as the expected returns for reinsurers right now is very high, and you'd expect more capital to come in the system, thereby normalizing.

as we like to. So, Sean, over to you for the first part of my question. Yeah, so, as we've talked about, we think the reciprocal is an attractive structure for our business.

I think it gives us an ability to generate cash flow for core shareholders. And we talked about higher margin mitigating direct exposure to weather. And especially when we launch the reservable, we do expect to consolidate from a GAAP perspective.

the reciprocal as currently structured today into our results. But as we get closer, obviously we'll be able to share more information on what that reporting would look like. Cause I think it is important that we understand the cash generation capabilities of the business and what the reciprocal provides in that regard.

to porch shareholders, which may end up looking different than our gas consolidated results. So, yeah, let me just lay one more thing on the Orion just to make sure that it's clear. At the time of the approval and the reciprocal created, we will be selling HOAIC, our insurance carrier, insidenity, like Sean said in the presentation, all of the capital, the balance sheet, and liabilities from entities.

And then because the surplus, excuse me, because the reciprocal owes us money via that surplus note, we will sell the entity for, that creates a link between those entities, which has to then report from a GAAP perspective in a consolidated way. Yet over time, we would expect that to be paid off and we'd be able to separate those entities. But we'll make sure even right out of the gate to clear what is porch group, what we are doing as a company.

So, yeah, that's helpful. And yeah, I mean, obviously, it's just a newer transaction for some of us, so just kind of walking through a bit more than the mechanics here. How are you thinking about the timeline for transitioning legacy to a policyholders to the new porch brand, most of the reciprocal transactions with that?

Did that timeline and you know any sort of impact on how capital intensive or the loss exposure that the parent company could have at all post the transaction occurring? So right out of the gate upon approval the porch insurance reciprocal exchange would be available to sell porch insurance in the state of Texas.

And then we would start to make it available and roll out for approval in other states as well. So right out of the gate at a consumer's, you know, a policyholder's renewal, you know, we would be able to present them the opportunity to be able to move to that porch insurance product. There's a variety of unique value props we're including in that product to make that attractive, you know, for consumers.

If the consumer didn't want to move, they certainly don't need to. Again, at the close of the transaction, all premiums, whether it's a consumer that moved to pork insurance or remains in HOA, either way, all of that premium resides in that whole reciprocal entity. And we get paid our clean fee and commission model from all of that premium.

So from a porch group perspective, the migration from HWA to porch insurance actually doesn't matter that much. We'll help facilitate that. There's good reasons to, but it doesn't really impact how the commission's in these show up to the porch groups panel.

Next up we have Jason from Craigham. Hey, this is Cal on here for Jason. Thanks for taking my questions. First one from me. I was just wondering if you mentioned some weather events Q1, things like that.

Could you give us a snapshot of maybe what fundamentals would look like if the reciprocal was already in place? We will, but we aren't right now. And the reason is that the reciprocal, the terms of the reciprocal agreement, are pending the discussions and approval of the Texas Department of Insurance.

not able to do that quite yet. I'd say just generally though, you like I mentioned before to John , revenue generally will be a little bit lower post reciprocal, and then the margins, both gross margin and EBITDA margins will be a bit higher. Perfect, that's helpful. And then last one, can you just kind of drill down on some of the growth of insurance and how much of it came from new policy ads, new geography.

I would say ahead of the industry, your team, you have the foresight to kind of see what would likely happen with the reinsurance changes. And so we're ahead of the industry and now we see lots of other carriers scrambling to also increase prices and try to try to catch up to the changes in the reinsurance market. But that would be the biggest of the impacts.

Yeah, so if I just take a step back, the entire insurance segment grew about 100%. So it was just under $59 million with 100% growth. And a couple things we call that, exactly as Matt mentioned, the pricing, the warranty business doing really well.

And then we also said about half of the growth, overall half of that, you know, 100 percent growth was from the changes to the reinsurance program and the seeding percentages there. And then the other half was these operational wins and the momentum that the business was seeing on that front. Dr.

about half of the growth overall half of that you know 100% growth was from the changes the reinsurance program and the seating percentages there and then the other half was these operational wins and the momentum that the business was seeing on that front. Thank you guys very much.

Okay. Next, I'll draw you some JPM.

Hey guys, thanks for the question. I'm on for a query carpenter. So on the rate hikes, can you maybe talk about if you're still applying for more rate hikes in states like Texas and North Carolina until the reciprocals launched? And then for the second one, I believe it was launched last quarter, but can you maybe talk about the progress made with the porch group media launched in some of the demand you're seeing there? Thanks.

I'll take the first, Matthew, one, and you take the second. Yes, we are continuing to just like other characters take more rates. Obviously, you work through states for those rate approvals. We'll share more as certain things become, you know, proved and start getting rolled out. But that just generally is something I think you'll see across the homeowner's insurance market this year. And perhaps ongoing is that, you know, more rate will flow through in that system. You know, we view the homeowner's insurance market as a growing

have unique data and unique insights.

It's a business we are excited about. And I would say the team, it's early but we're optimistic. So the team is actively in discussion with a number of brands. I would say there's excitement about the differentiation of what we can do. And then it's metered by just market.

slowing down a little bit and people being a little more cautious about how much they want to invest in marketing. But certainly I can say we have active and interested discussions with a large number of brands because of the unique things that only we can do. Thanks.

a little bit and people being a little more cautious about how much they want to invest in marketing. But certainly I can say we have active and interested discussions with a large number of brands because of the unique things that only we can do. Thanks. Thank you.

Great, thank you everyone. We have some previously submitted questions which I'll read out. First up, what is the 27th in prison in insurance pricing model performance, translate into conversion, and what is the impact on the growth, growth, risk, and peer now?

So what that means is we can better convert lower risk policies with lower prices.

and then more appropriately priced higher, risk policies higher, and that leads to more proper growth. We have choices as we think about growth loss ratio.

versus growth, right, as we price. We can price however we want. And so, but overall we'd expect improvements in model accuracy allow us to continue to drive optimal growth for the interim segment.

Thank you. And the second question is why do you think the shares are priced like they are today? The quarterly question. So I would give you a similar answer in terms of what I've given in the past, which is, do you think the shares are priced like they are today?

First of all, we don't think the valuation reflects what we've built. I mentioned that in our remarks, our prepared remarks. We don't think it reflects our view of the intrinsic value of the business. Like I told my team.

I do believe there will continue to be volatility and pressure on our stock, which is given all the markets that we plan, the macro uncertainty of the markets we plan, until we are profitable and really prove value to the market, we can start to build sustained momentum. So that will happen in time.

But given just again the fear and the uncertainty in housing and reinsurance, etc., what we're doing is just keeping our heads down, taking advantage of this time to expand our long-term competitive votes. And I think we're doing a nice job of that. We aren't so far away at this point of having some really important milestones for the business. And I'll use this opportunity just to say that I do express appreciation for the support from our consistent shareholders, those long-term oriented shareholders.

today. We look forward to speaking to you all soon. You may now disconnect. Thank you. Thanks, everybody. Take care.

Thank you. May I have just finished? Thank you. Thank you, everybody. Take care.