Q2 2023 Porch Group Inc Earnings Call
Okay.
Good afternoon, everyone and thank you for participating of course, REIT second quarter 2023 conference call.
Today, we issued our second quarter earnings really related form 8-K.
The.
The press release can be found on our Investor Relations website.
The ramp up cost.
Joining me here today I'm not all that often.
Chairman and founder.
Do you like about watchman CFO Matthew.
Matthew Nagel horse meat, and Malcolm corner, VP and GM of heightened boxes.
Before we go further I'd like to take a language made the company's safe Harbor statement within the meaning of the private securities litigation painful not as nice nice to buy where to buy them accordingly.
Regarding forward looking statements.
Today's discussion, including responses to your questions in fact management's views as of today August eight 2023.
We do not undertake any obligation to update or revise this information.
Additionally, we will make forward looking statements about our expected future financial or business. That's all that's all conditions.
Bastian plan, including a pending application server and exchange based on current expectations and assumptions.
These statements are subject to risks not fashion space, which could cause our actual results to differ materially from these forward looking statements.
We encourage you to consider the risk factors described in our S E T.
As well as a risk factor information in these slides for additional information.
Will reference both GAAP and non-GAAP financial measures on today's call.
Petrissage todays press release for reconciliations of non-GAAP measures. The most comparable GAAP measure Australia on April <unk>.
As a reminder, this webcast will be available for replay along with the presentation of shortly after the call on the company's website at IR <unk> com.
And with that I'll turn the call out my Allison CEO , chairman and founder of both groups.
Matt.
Thank you Laura good afternoon, everybody.
I want to start by giving a shout out and smooth seer appreciation to sports team doing exceptional work across our business units.
We remain on track for adjusted EBITDA profitability in the second half of this year and beyond.
Some of the exciting progress, we're making there.
Yeah.
Moving to slide six to review the high level financials overall, we delivered solid execution in the quarter, while continuing to face the same industry weather and housing related headwinds as previous quarters.
Revenue in the second quarter grew 39% to $99 million driven by our insurance segment.
Adjusted EBITDA loss in the second quarter was $43 million.
Based on historic loss ratios in Texas weather seasonality, we had expected Q2 to be our largest loss making quarter of the year as its typically the most expensive time for weather related claims costs.
The second quarter was on track with our expectations until as we recently disclosed our insurance division was impacted by catastrophic weather losses exceeding our long term average.
To give us some context.
Q2, 2023 was the third most costly second quarter for weather losses in the U S. Since $19 50.
Property claims services estimate losses were $26 billion nationwide, which is well above the five year average of $15 billion.
US these events drove an approximate $18 million incremental loss.
Looking ahead Q3, and Q4 are typically when we see fewer weather related claims.
Related to our vertical software Division Industrywide home sales declined 21% in the second quarter and year over year, but those headwinds impacting our more transactional businesses like our moving group.
So turning now to key updates in the quarter.
The reciprocal exchange application continues to progress with the Texas Department of insurance pending.
Pending approval, we expect to launch <unk>, a new brand and product that the reciprocal exchange will offer.
Which includes unique benefits for consumers such as a 90 day warranty and special offers to customers will be reports through the system.
The HOA product will continue to be available for customers as well and certainly we're excited about what's to come here.
Second we've.
We've continued to take aggressive underwriting actions to counter severe weather and our insurance business.
We are focused on improving overall performance by increasing premiums and policy deductibles where appropriate.
By lowering distribution and support costs in regions that are unprofitable given current cost of reinsurance.
Shifting premiums toward the most attractive homes to underwrite.
For 2023 and likely through 2024, given constraints of the reinsurance market is capital and risk mitigation partners. We will continue to carefully control gross written premium growth and balanced the amount and type of premium with capital requirements, all with an eye toward profitability.
We are highly confident in our ability to grow premiums when surplus builds with favorable payroll weather results.
<unk> third party capital and reinsurance returns.
In addition to the capital constrained and harden reinsurance markets that we've discussed there has just recently been a development, but one of which is larger reinsurance platforms helped us too.
There are claims that the collateral that backs that's too is not valid and while it's early in our investigation and while the reinsurance was sourced and administered by two of our reputable reinsurance brokers. We are taking this issue seriously we've terminated the agreement.
<unk> already met with the Texas regulator.
And our secured certain supplemental reinsurance.
Third update you may recall last quarter, we discussed how our unique property data meaningfully impacts insurance pricing accuracy.
In Q2, we received approval to use the data and to further states, bringing us now to 11 states totaled.
Again, this data allows us to improve our risked accuracy and key insurance risk categories, and we're seeing an approximate 15% to 20% improvement with much room ahead.
This means that we can charge a lower price for policies, which are low risk and more accurately priced higher risk policies.
Fourth we are seeing early but promising results from partnerships with third party insurance agencies, where we now distribute some homebuyer leads generated by our software division.
These agencies sell these consumers insurance and commissions generated are then shared back with approach.
In addition to helping increase conversion rates at a lower cost approach versus relying only on our own insurance agency. We're excited about how we can use demand to incent and motivate. These third party partners to sell more of HOA and soon <unk> insurance to all of their customers.
Fifth we continue to be excited about the rapid progress our warranty business is making.
It wasn't yet two years ago that we didn't offer home warranties.
<unk> has continued to expand.
Getting more types of warranty products through more channels Malcolm will cover this later.
I'll now hand over to Sean to cover our financial performance and guidance Alicia.
Thanks, Matt.
Good afternoon, everyone.
Overall, the second quarter was in line with our expectations aside from the catastrophic weather events later in the quarter that we had previously announced.
Our businesses and teams are performing well in the face of industry wide headwinds.
With insurance being impacted by weather and the reinsurance market and vertical software facing a soft housing market.
We continue to focus on being strong stewards of capital focusing on investments that are strong business product and channel unit economics, coupled with expense control.
And finally, we raised $102 million of additional capital in Q2, which bolstered our balance sheet, which is solid as we look forward to these market headwinds turning to tailwind.
Revenue was solid at $98 8 million in the second quarter of 2023 and.
An increase of 39% over the prior year.
Driven by the insurance segment, and partially offset by the software segment.
Where are moving services in particular continue to be impacted by the soft housing market.
Revenue less cost of revenue was $17 4 million, which.
Which is 18% of revenue lower than prior quarters due to an approximately $18 million loss due to the extreme and unexpected catastrophic weather towards the end of the quarter as well as expected weather related claims costs tied to Q2 seasonality.
We expect revenue less cost revenue margin to increase in Q3, and Q4 based on historical claims patterns and posts reciprocal as discussed previously our <unk>.
Margin profile is expected to further improve as we mitigate exposure to weather and volatility in Portugal.
Our vertical software segment revenue less cost of revenue margin increased by approximately 300 basis points over the prior year.
Adjusted EBITDA loss was $43 1 million.
Given by the extreme cat weather hardening reinsurance market and the industry wide decline in home sales offset by strong expense control and an 11% year over year reduction in corporate G&A expenses.
Gross written premium was $143 million broadly in line with prior year as we have worked to manage premium growth.
Looking at revenue by segment here on Slide 10 in the second quarter of 2023 revenue from our insurance segment was $64 3 million growth of 127% over the prior year driven by an increase of approximately 15% in premium per policy.
And also lower reinsurance ceded.
A key part of our strategy is continuing to increase premium per policy to drive revenue and profitability in the insurance business.
We are expecting further increases the premium per policy over the next year.
The insurance segment was 65% of group revenue in the quarter, an increase from 40% in the prior year.
Vertical software revenue was $34 $4 million, a decrease of 19% over the prior year due.
Due to the 21% industry wide housing market year over year decline as well as a decline in corporate relocation both of which impacted our moving services.
Moving onto adjusted EBITDA by segment.
Our insurance segment had an adjusted EBITDA loss of $31 $2 million in the second quarter of 2023 due to the extreme cat weather and Hartford reinsurance markets we've discussed.
Our HOA insurance carrier continues to focus on launching the reciprocal as well as improving underwriting performance, including future premium per policy increases.
Increasing deductibles and expanding the number of states, where we're approved to use our unique data to better price risk.
Vertical software adjusted EBITDA was $1 8 million impacted by the soft housing market and moving as decline in corporate relocations.
Corporate expenses were $13 8 million in the second quarter, reducing to 14% of total revenue from 21% in the prior year driven by strong expense control.
Moving to the balance sheet as of June 30, we had $358 million of unrestricted cash and investments.
This includes $192 million of cash and investments at our insurance carrier HOA, which we expect to transfer to the reciprocal when approved and launched.
Excluding HOA courtauld $167 million of unrestricted cash and investments, leaving us well capitalized.
As a reminder, at the beginning of the second quarter, we issued $333 million of new senior secured notes using $200 million to reduce our 2026 unsecured notes at par value to $225 million.
And bolstering our balance sheet by adding $102 million of cash in the second quarter.
In addition to the $167 million of unrestricted cash and investments at ports group, we held $39 million of restricted cash primarily for our captive and warranty business.
This increase from $15 million in the first quarter as expected as we increase the amount of reinsurance provided by <unk> captive to HOA given current market dynamics.
We are hopeful the reinsurance market is bulletproof, but we anticipate continued usage of our captive in 2024.
As we reduce reinsurance provided by the captive in the future. We expect this cash to move back to unrestricted status.
Additionally, we had some noncash items in Q2 that didn't impact adjusted EBITDA, but are reflected in GAAP net income.
First we recorded a $81 million gain on the retirement of our $200 million of our 2026 unsecured notes that I mentioned.
Second we had a $55.
$55 million goodwill.
Goodwill impairment charge in light of the continued challenges with the reinsurance markets volatile weather as well as our stock price performance.
And also following the period and the allegations against best use service.
From an accounting perspective, we had a $48 million net receivable.
Under GAAP, we evaluated whether we can overcome a regrettable presumption and concluded that given the high bar and that we are early on in our investigation, which is ongoing we wrote off the balance but intend to pursue recovery.
And finally, one quick item on housekeeping in the second quarter, we have revised the definition for adjusted EBITDA, which now excludes the net receivable write off related to the reinsurance as well as any subsequent recoveries.
And also restructuring costs.
In Q2, our restructuring costs were around $1 1 million, which includes costs related to forming the reciprocal exchange.
Now onto our outlook today, we are updating our full year 2023 guidance overall of the business is performing in line with our expectations, but the teams are executing well, including price increases and insurance and software segments.
We are reiterating our revenue outlook for the year of $330 million to $350 million.
However, however, given the extreme weather, we've experienced we will be cautious around revenue less cost revenue and adjusted EBITDA guidance in particular until we are able to launch the reciprocal.
We've made two adjustments there.
First as you may recall, our initial guidance did not include cat weather events in excess of our historical experience, including the approximately $18 million loss that we incurred in Q2 that we discussed today.
So we have updated our guidance to account for these past losses.
Second we have also widened the ranges by $5 million to reflect the continued weather volatility and reinsurance market headwinds.
Our updated guidance is revenue less cost of revenue ranging from $145 million to $160 million.
And adjusted EBITDA loss, ranging from $65 million to $50 million.
We do continue to expect on a cumulative basis adjusted EBITDA to be profitable in the second half of this year as well as for 2024 and beyond.
This assumes cat weather is in line with historic trends, which would equate to a 41% gross loss ratio for the second half of the year.
Typically we would see better weather in Q4 than in Q3.
With both of these both of those quarters much better than Q2 and Q1.
So we would expect adjusted EBITDA to increase as the year comes to an end.
As a reminder claims for catastrophic weather events in excess of our long term historic averages are excluded from guidance and from this target.
We are reiterating gross written premium guidance of 500 billion and as mentioned are continuing to focus our active efforts towards constraining growth of overall premium until reinsurance in the capital markets improve with an eye toward profitability.
Thank you all for your time today, and now I'll hand over to Matthew to cover our Kpis.
Oh, yes.
Got it off new Matthew.
Thanks, Sean on Slide 15, I'll run through an update on our Kpis.
The average number of companies was 3700 in the second quarter broadly similar to Q1, 2023, and a 7% increase from Q2 2022.
Similar to previous quarters home inspection mortgage entitled companies continue to be challenged with the decline in the housing market with many businesses stocking operations are scaling back their footprint.
Average revenue per company per month increased to $1073, an increase of 31% year over year and 13% compared to the first quarter 2023. This was driven by the increase in reinsurance revenues we.
We had 245000 monetize services in the quarter, an increase of 14% versus last quarter due to normal seasonality related to home purchases and moves.
This was down 27% versus prior year due to the industry wide decline in home sales and a decline in corporate relocation and moving.
Finally average revenue per monetize service was $331.
<unk> five versus the first quarter due to a slight mix shift with an increase in moving services purchased this was up 109% versus Q2 2022 due to the growth in our higher value services, such as insurance and warranty.
Looking now at the insurance Kpis gross written premium was $143 million broadly in line with prior year from.
From 358000 policies in force in the second quarter.
Annualized revenue per policy was $517 with the increase driven by lower reinsurance ceding levels and increased premium per policy.
Premium revenue was one or 104% for the second quarter, a slight decrease versus Q1 2023 due to the 37000 higher risk policies, which we are non renewing and as we manage reinsurance and capital levels.
As Sean mentioned, the reciprocal once approved and launch will help with a more efficient capital structure as well as mitigating weather impacts.
Our insurance carrier had a gross loss ratio of 120% in the second quarter, consisting of 35% relating to non cat and.
And 85% relating to cap weather.
As mentioned the quarter was on track until we experience when we have seen peers quote.
Historic level of industry wide catastrophe losses.
And our Q1 earnings we included the a M best market share data, which demonstrates hoa's outperformance versus the majority of our peers.
At a high level in the states, where we write policies are Q2 losses are in line with market performance.
Across the industry rates will continue to go up growing the Tam and our future opportunity.
In our view there is no better opportunity than being an operator of a reciprocal in this rapidly growing market.
As Sean said, our second half 2023, adjusted EBITDA profitability target assumes a 41% of gross loss ratio.
Which is approximately two percentage points above our long term average.
This is also supported by continued increases in premium per policy as we discussed today.
So assuming we don't see wide variances from our historical claims we feel confident in our loss ratio assumptions.
Right some insight into the assumptions behind the 41% we have provided here.
Here the average claims costs per policy, we have assumed approximately $375 in the second half 2023 drivers claims.
Cost per policy, which is 66% higher than the five year average.
Finally on slide 18, we have reiterated our 2023 strategic priorities.
First we will continue to develop new software for companies, who use our software products and up sell more software through bundled solutions.
We are extending our online experiences and increasing revenue per homebuyer.
We are improving premium per policy as Sean mentioned earlier to help offset the heart and reinsurance market.
We continue to wait on further feedback from the TDI on a reciprocal application and our against our goal of approval later in 2023.
Thanks, now I'll hand, it over to Milton.
Thanks, Matthew and Hello, everyone.
I'll now call the peer group GM of our warranty business.
I have been reports for two and a half years now having previously led and scale.
Britain waters warranty business to greater than a $130 million.
And revenues.
I am excited to share more detail again about our warranty business and partnerships.
We believe we are well positioned to become a leader in this space with our unique access to lower cost of customer acquisition.
We're on track to go from zero in revenue two years ago.
To approximately $35 million of revenue this year and above a 25% adjusted EBITDA margin.
Most recently, we have begun operating in California, and Florida.
And are now active in 49 States plus D C.
We are working on the approval process for Washington, and look forward to that launching in the near future.
Starting on slide 20.
There are three key differences, which set <unk> apart from competitors and the warranty space and provide us a long term advantage.
Yeah.
Our bundled handyman services.
This appeal to customers, who like to keep on top of home maintenance to prevent issues in the future and those who have issues or repairs, which need a professional attention.
Customers pay a deductible against the services, such as Gunnar or drive that training.
Saving the money on home maintenance led to a significant improvement in our retention rates.
Second is channel access.
In addition to the traditional warranty channels, such as real estate and direct to consumer.
Being part of puts group also means we can cross sell our products through inspectors contractors and other businesses.
Leveraging these existing customer channels, who buys lower customer acquisition cost and increases lifetime value.
Third is our 90 day warranty product, which has provided largely through inspectors to homebuyers during the home purchase process.
Protection during those busy first few months.
This provides us early access to a high volume of customers most short term warranties and continued coverage.
Yes.
Now summarizing our key distribution channels, which is part of our ports group provides us.
First is.
As the real estate and home inspection, where we offer our 90 day warranty annual and <unk> products to their homebuyers.
This includes providing warranty through porches move moving concierge services.
Second is utilities.
We partner with large electric and gas utilities to provide variety of services to their customers, including targeted and full home warranty.
We are excited to announce new partnerships with Pepco.
<unk> City power and Delmarva power, where we will utilize a cobranded journey to provide exclusive home service offerings to utility customers, including warranty and Hanmi.
Third is retail and distributors, where we sell our extended labor warranty our point of sale for products such as new roofs.
We have just signed a distributor deal, which we will launch soon.
Fourth we sell direct to consumer and.
And finally, we are testing other nascent channels such as two insurance customers, where we can also warranties as an additional layer of protection to cover what homeowners insurance does not.
It's been an incredible couple of years during which time, our warranty business has grown handsomely with very strong margins.
I will close with optimism about what is ahead for this business we.
We have an incredible team that we have built focus on each of our products and channels.
Both the growth and the margin performance are expected to continue and we look forward to sharing more in the future.
Thanks, everyone I'll now hand, it back over to Matt.
Thank you Malcolm Thank you team great work, there and congrats on the progress.
To wrap up.
We are pleased to reiterate our targets, we adjusted EBITDA profitable in the second half of the year and ongoing we.
We are managing costs closely and are laser focused on execution in order to accomplish these key milestones this year and next.
We're excited with the transition into a reciprocal structure for the launch of ports insurance as we've spoken about over the last few quarters.
We do appreciate the patience and the support and we're getting closer to a time in which we believe will be ideally structured to run the insurance the booth at scale.
Overall, we're still in the very early innings and I am confident that we have a strong business model and the team across the company to deliver.
And with that we'll wrap the prepared remarks lowest please go ahead and open up the call for Q&A.
Thanks, Matt.
Your line is now I think <unk> last question.
Uh-huh icon.
Basketball for all your questions in a normal time.
Question, one will come from Josh I counsel ethylene cost.
Yes, hi, thanks for taking my questions. So first of all I'd like to ask on the insurance side of the business understanding premium per policy. So how much rate do you think there still is to earn into the book and do you believe that there is a lot of potential to increase that premium per policy, especially if <unk>.
We head into 'twenty four.
Hey, Josh Thanks for the question.
Yes, what we're seeing across the whole insurance industry is DAU as carriers, taking more rate I mean, the reality like I mentioned before is as there is weather.
That is more severe as reinsurance pricing goes up.
Well, that's simply allows carriers to be able to take a very substantial rate increases hence my comments on our expectation of the Tam doubling over that that mid term period of time.
We're confident that rates.
We will continue to go up so for US directly yes, we are in the process similar to what we did this last year of being able to put in additional rate filings for next year that we believe will be supported and approved by <unk>.
State regulators as Sean mentioned in.
At this point in time versus last year, our rates are up 50% give or take.
And so that's a big deal. So as we look ahead in the markets normalize we do think it puts us in a strong position, if given where our rates should go.
Got it and then following up on the insurance side I'd like to talk about new policies. So obviously you know over the past couple of quarters. You began the process of non renewing those higher risk policies, but as you're thinking about actually bringing in new policies in force, especially given the housing market macro right now.
How are you going out there and are getting some of these new perhaps lower risk policies to add to the book.
There's two key ways that we think about this versus just in terms of geographies. So what geographies do we want to be in general one.
To make sure that we have just the right diversification, but there are certain markets.
There, we can either take the appropriate rates certain states, where that might be harder to do so.
And so certainly we are we are leaning into states, where we can be able to sell policies on what we believe is the right rate that can be profitable for us and frankly, non renewing or pulling back on the states that we simply aren't getting approval for the right the right rates.
Because it just doesn't it's not where we should put our focus right now.
So that's number one number two as we've talked about in the past, we do have a tremendous amount of unique data.
We understand about properties that nobody else has and so for us that allows us to be able to really target the customers, where we believe they and their property or the lowest risk and so that's something that we will continue to be able to do on an ongoing an ongoing basis.
Great. Thanks, very much Matt I appreciate it.
Multiple dosing of <unk>.
Thank you okay.
Hey, good evening guys congrats on the quarter and thanks for taking our question.
First of all can you help unpack the vertical software revenue, mainly looking for more clarity on Rev growth across that.
But transactional tightened the non insurance insurance business versus the subscription revenue and then related to that on the vertical software subscription revenue can you help us better understand.
The impact of attrition from industry consolidation and then.
Essentially your best guess for how long that might linger as a headwind.
Sure I can take that.
Overall, the vertical software business is impacted by the macro housing trends.
We reported a 21% decline in the housing market our revenue decreased 19%. However, a large chunk of that was an impact to our moving business.
Which is primarily a service business if you back out the impact of that business.
The software part of the business reduce much less than the market trends materially less than the market trends.
So there is resilience in the software business, despite the macro trends.
Some of that is because of the stickiness and retention of our products and we've been able to take some price increases which has helped offset this trend that we're seeing that.
Some of our target customer is.
Folks who are getting closer to retiring they're taking this opportunity to say, maybe maybe I'm done.
Because the macro headwinds or trigger.
We watch carefully what the market thinks will happen in 2024, it's too early to forecast that we actually look at the market forecast regularly in the market can't yet agree on what next year is going to do.
So were seeing anything from.
A little bit of decline in the overall market and some people are saying it could grow next year. It's just too early to tell but I think youre going to want to see optimism back in the housing market before some of that softness on the company side has kind of subsided.
And then your second could you repeat your second question, which I think it was could you repeat your second question. Yes, we're just looking for some color on maybe like industry consolidation.
And just the impact of attrition.
How long you expect that headwind to laugh.
Yes that was my that was my attempt to answer it at the end there, which is I think we will continue to see a little bit of softness until there is optimism back in the market and.
And as of today when people look at 2024.
Some people are negative some people are positive. So it's too it's too early to tell but youre going to we don't want to see optimism coming back to your own seat market.
Alright, thanks for the color there Matthew.
And then shifting gears a bit in your guidance I believe you were previously assuming negative 18% year over year growth and apologize if I missed this.
But for 2023 into.
Into this call at this go round. So can you update us on that assumption is is that still the underlying assumption is negative eight 2% year over year home sales were 243.
That's currently.
Underlying forecast that we have.
Okay, and then just a follow up on that if we kind of look at the industry forecasters such as MBA Fannie.
They're calling for a little bit better than that of negative 15% year over year growth on average.
Is this growth differential more of a unique ports exposure thing or just some just conservative overall outlook from you guys here no AJ late last year, we had.
Use those forecasts and they were wrong last year and so we wanted to just take a more conservative view as we as we entered into 'twenty three we're holding that view through through the year.
Okay perfect. Thank you Matt.
Thank you.
Yeah.
He came from Craig Hallum.
Hey.
Tao on here for Jason today so.
So just a couple from me I guess first just to start can you maybe just touch on how the decision to kind of reduce your reliance on the reinsurance that may impact the cat claim losses in the quarter and any intention to change our reliance on reinsurance going forward.
Yeah I can cover that so this is shawn thanks for the question Kyle.
The $80 million that we talked about is net of.
Reinsurance recovery, so it's our net exposure in the quarter.
One of the things we've talked about last quarter before that and continue to talk about today is the reinsurance markets are continuing to.
Have an impact on the business and our overall profitability.
And so yes, we saw a similar trend obviously there in Q2 of those reinsurance contracts just for reference our.
Our year long so.
Till we get into the next reinsurance market.
Early next year, we will continue to be in the existing reinsurance contracts that we have.
And so.
Like I said that the net impact to the quarter.
For the specific extra cat losses was $18 million and obviously.
In addition to that from a year over year perspective.
You also have the heart and reinsurance markets impacting EBITDA for the insurance segment.
Perfect. Thanks.
And then I guess last one for me, we're seeing other home insurance providers with kind of the same profitability challenges and some churning policy. So if you can just talk a little bit on how aggressive you're looking to get here and customer acquisition moving forward. Thanks.
Sure I can take that mess around with Ken can maryanne.
Our focus is on profitability and cash flow and taking advantage of the unique data we have to get where we think it's profitable policies.
And we're going to continue to do that and we're going to continue to watch the reinsurance markets. We've nonrenewed 37000. It is possible we will do more than that and then replace with the ones that we think are attractive.
Perfect. Thanks, guys appreciate it.
Thank you.
All Marvel Elton John and thank you Dan.
You guys hear me.
Yes.
Hey, guys, sorry, I don't know its not on my video, Matt, but I am here.
So maybe Malcolm appreciate the incremental color on warranty you guys are about 10% ahead of I think where we thought you'd be by the end of the year given the outlook you provided today.
Either for you or Matt can you just kind of talk through some of the kpis around policy per policy trends and obviously I know that it's not.
Necessarily an inflation price game gear. If you guys can price more accurately and now that you've got all these other revenue streams, maybe just some more granularity on how we should think about.
The drivers of growth over the near term, what sort of attainable now and what's more attainable longer term.
Hi, yes. Thanks for the question I will start here.
Yes in terms of warranty.
Very specific Kpis, we do not at this time disclose a lot of detail about the specific kpis, our various business units.
But what I can say is that we've been very successful in a few.
Do things such as our renewals and retention rates were.
We're seeing that with the bundling of our handyman services.
How in.
Increased our renewal rates overall Im also earlier this year, we did launch.
Warranty so our owned brand and we are still seeing some really good sales out of the gate with that.
I'd also just add.
One of the things that things that the team has done a nice job Dan is just.
Just leaning into the porch platform and playbook, so courtyard sales lots of companies lots of partnerships through many different.
Channels, we talked a lot about you know home inspection and real estate related we don't talk less about things like utilities large utility partnerships that we've had and that team has continued to as Malcolm mentioned add more new partnerships and be able to build deeper relationships with those existing partnerships.
To be able to help them and help their customers with more services like warranties.
But the nice thing is that it is a multi product multi channel strategy. They are executing and we are seeing success across many different channels.
Got it that's super helpful and then.
Then of course, Matt inevitably the first headline that I saw it today.
Not for you guys, but in general is just about flooding in the southeast and some more extreme weather, which.
It's kind of crazy out there right now I guess.
It doesn't seem like a lot of it was in Texas I don't know how much divestiture you issue leaves you incrementally exposed to direct weather events, if I'm reading that right and I may not be so I apologize if I got that wrong, but just trying to get a sense knowing that it should sequentially improve from Q2, but just again given some of the headlines of some of the other stuff I mean do you guys have.
Like you're on track in Q3 to have sort of a more standard quarter from cat weather perspective, I can only communicate what has that been so far to date come obviously cannot predict.
The next really.
Where we haven't from a six weeks or so.
But.
But first we don't have a flood exposure, we do not write flood insurance.
So anything that Youre reading about that specifically would not apply to us.
I'd say.
There's not been anything abnormal so far so far this quarter that would be you know outlier super hours versus expectations.
Okay. That's helpful. And then just lastly, just on the App development I mean, we've had knock on and I'll talk about some DTC opportunity I know, Matt is sort of on the wish list, especially given all of the tap requirement stuff. The reciprocal exchange all of the things Youre doing the short term but.
Just trying to get a sense of higher Coke and all of this together. So that eventually you can have all of the porch branded products and then pushed harder on the DTC button when that might start to take effect.
Yeah, I can comment a little bit on that.
Continue.
To invest in our App one of the things we're excited about.
In addition to bringing together the different services is providing a really delightful and magical experience with the data because we get access to a lot of unique data about the home and bringing it to life in a way that consumers can start to use it and use it on a day to day basis.
We think we'll be one of our differentiators.
Are we continue to grow the number of App users.
We have very high scores.
On our our App.
And the App store and then part of what we're working on.
Which the reciprocal will be a key trigger is starting to rebrand our consumer experiences around ports with the biggest one being insurance and that will happen.
As we move into the Super Cool and then we'll start layering on other touch points. Other other services that we offer and continuing time, bringing them under the porch umbrella. Once you get a number of services like that all connected under a common experience and a common brand.
It's easier to start.
Talking about a DTC strategy because you can go push against a lot of opportunities at the same time.
Got it Super helpful. Thanks for bearing with my picture list commentary and questions. Thanks, Dan I appreciate it.
Hello, everyone.
<unk> Brian <unk>.
Right.
Oh, sorry.
Although I will come back to in a mine that.
We have for rest of the questions as well I think one of those paths.
That's all from our hospital clients and pulp has the outstanding 2020.
Yeah.
Yeah, I can take that one so we have many paths as a reminder.
For folks is in Q2, we issued $333 million senior secured convertible notes those are due in 2028.
When we did that transaction, we also used $200 million of our proceeds to pay down our unsecured notes so that leaves us with $225 million of those that we will take care of by 2026.
And with respect to our specific plans on those we haven't.
Disclose what those are I would say there is a variety of options that we have to do that.
And we certainly intend to take certain actions before at that time.
Oh.
I'm, sorry, Ryan of them.
Okay.
Okay.
Oh, one question all long hole program for revenue in 'twenty two.
Oh, great. Thank.
Thank you Paul.
<unk>, thanks for having their own bundle of article Nicole.
Okay. Thanks, I will take that.
First of all we typically do not disclose the specific financials group business units such as warranty.
I will say, though that we are on track to go from zero in revenues.
Two years ago to approximately $35 million in revenue this year and that is within adjusted EBITDA margin in excess of 25%.
For 24, we have not provided 2020 for financials.
However, we believe we will continue to see strong growth.
And in high margins with this business.
And our future Investor day, we may break out more information here.
On warranty as well as other businesses.
And finally regarding claims.
We do not disclose specific metrics. However, warranty is part of the insurance and claims are presented there warranty claims are far lower.
Then what we see and insurance businesses.
In our warranty claims were fairly consistent over time.
I would also note that our overall claims rate is below industry average.
Oh, okay.
Let me try one more time.
Thanks, guys can you hear me now.
Yes, we got to know where you are.
Sorry about that tough day on zoom.
Appreciate you fitting me in here I, just wanted to unpack, which always capital position a bit.
Looking at statutory filings that we have latest on 331, it looks like there was a.
A little less than $70 million of surplus.
Any chance you can give us an update on where that stands today inclusive of <unk>.
And how we should be thinking about.
With $48 million.
Patients with <unk>.
Essentially just trying to understand.
Where were the surplus stands today, and where you think that needs to be.
Or the reciprocal exchange to take place and how.
You could fill back up if necessary.
Yeah, I can I can take that one.
It's still in process on.
From a statutory perspective I can talk to obviously HOS balance sheet, we did give some information today just on.
The amount of.
Liquid cash and investments there. So again, there is just under $100 million of $100 million of cash and also $93 million of investments there.
So.
A good amount there.
With respect to.
The.
The capital.
Our requirements of the HOA business again, we didnt announce anything.
And on that today I would just point to.
We talked about some of the levers that we have in our insurance business gross written premium premium increasing.
Premium per policy, taking underwriting actions.
The the nature of the book.
In certain areas.
There is higher risk than others.
And that also impacts the cost of reinsurance so.
We have a number of levers at our disposal.
As well to.
Committed there.
Okay and then just.
Another one on HOA I guess understanding.
Understanding that you will give more color once we get to.
To the finish line of the cyclical transaction, but.
Any any.
Specific comments around what range of gross written premium is reasonable.
The pro forma entity.
It would be helpful. I was I think the market tries to put some.
Parameters around what you know.
The economics could look like for that and then as you can see when Forbes transitions to attorney in facts and helping capitalize that business at a higher multiple.
Yeah, I think for them to get the obviously today, we provided gross written premium guidance for this year, we're not providing guidance for this.
At this point.
The reality is is that we just just like this year will choose to manage gross written premium to really to the level that we want to it's optimal to be able to do so.
To maximize profitability.
Super clear on our focus of being able to deliver on our goals for profitability. The second half of this year and the next year and ongoing.
The great thing too.
Kudos and credit to that team is that we have demonstrated very clearly our ability to grow gross written premium rapidly when there's capital available and really when I say capital reinsurance.
That's a normal market and appropriately priced.
Our channels and the unique thing supports can do and our unique data. We can grow gross written premium very fast that it's not in.
In our view are John but similar to the team has done a really nice job of managing gross written premium broke down. So we can go after and hold the most attractive of Cds will decide on where we want to manage gross written premium through next year.
When we get closer to next year, when we can start to see what the reinsurance markets and therefore, the capital available it looks like for next year, but but too soon to communicate guidance.
Got it thanks for being flexible with the technical difficulties.
Well the local Hawk Falcon from Oppenheimer on that call.
Hi, Paul.
Yeah.
Hey, there.
I, just really kind of a big picture question as we're kind of all looking at what's again unfolding just this quarter, obviously in insurance, but also a tech enabled insurance.
I think there is there like a scale question right I mean.
I don't know maybe like weather gets better maybe it doesn't you know who knows I don't think any of us are smart enough to really know that but it just feels like what the industry is going through with if you don't have massive kind of like geographic diversification. This is just an incredibly difficult area to weather no pun.
Intended.
I just like you know should you be thinking about like trying to merge this with another insurer attack company who.
It's also having scale issues, but ultimately believes they have smart top of funnel and.
Just how do you think about that.
Yeah. Thanks, Thanks for SMB.
I am I remain Super clear minded I believe we do about our ability to go build one of the the largest one one of the more important homeowners insurance companies period full stop.
There's opportunity there is just a tremendous opportunity in front of us given our unique data advantages given our unique demand advantages I think I think that is there now we are not entering into this you know, saying hey, our bet is that whether it's going to get better.
But that is certainly something that is outside of our control and the trends are clear around around weather.
But we're operating in putting together the right structures that will allow us to be able to deliver the type of consistent results. So we'll work through over time, even as weather, even as and if weather trends have continued to get worse. So one of those is just pricing like we've talked about we've been able to take significant rate and again insurance companies like I said, we'll make them.
So youre going to continue if it has whether it continues to get worse you will see prices continue to go up the Tam in this market will continue to grow and I believe we will continue to grow very rapidly here as we as we look ahead and so as that market is growing.
With us being able to go in structure.
And build this reciprocal separately owned entity that goes and build and build and manage isn't holds that risk and we are operating so that to US is the right solution long term. So we can be able to participate in the growth we can make sure that we operate.
Corporate <unk> to be very healthy and to be sustainable to operate or indefinitely and us to be able to to participate in that with with commissions and fees.
Think that structured plays really well here we.
We do think geographic diversification helps we do think that the reinsurance market will normalize over time theres been a set of reinsurance cycles in the past two or so year period of time, the reinsurance market hardens rates go up dramatically and that's right reinsurance rates go up dramatically.
Guess, what happens they make a lot of money more capital comes into the market it becomes more competitive and rates normalize and so we certainly expect that to be true here. As we look ahead, how much will it which will very much help us. So do we need to take any any other action outside of our strategy of executing no I don't think so I think that.
We just have to I'll use your upon weather, whether this weather storm and.
And execute the plans that we're doing and I think we'll be in a really good spot.
And then is there risk to that.
And let's just say again youre getting your rates and order other your competitors are getting their rates in order now coming out of it. They then try to kind of I don't know out price you out of the market because they are bigger and they can absorb you know.
Kind of.
They can absorb being more price competitive than in let's say smaller players can is that a risk that we need to think about.
I I I don't see that I don't believe we're seeing those types of actions I think that the large players are feeling I.
I would say.
Hi.
<unk> more pain in the smaller players just given the size of their book some of the losses that you see you announced or are staggeringly large numbers do we see those players taking substantial rate increases as well we think all insurance companies are certainly very wired and focused on.
Making sure they are priced to profitability.
And I don't expect you know, we're gonna see carriers trying to undercut pricing willing to lose purposely lose lots of money too.
To be able to have a better competitive position.
That's like one and just keep in mind that given the way pricing is regulated they couldnt take sort of short term actions to steal share they'd have to fundamentally set up their pricing to be low cost and it would be difficult to change in some states. They may not be able to move it up if they needed to so it's it would be a very risky.
<unk> strategy for the large players to team.
Thank you that's helpful.
Oh.
Also another question Karl for mobile phone network.
<unk> the restaurant demand.
Oh for.
Sure.
We don't break out the specific share by channel.
We are excited though that we have.
That diversified and low CAC diversified channels, both across agencies and the <unk> and the low CAC nature of our <unk> one of the comments that Matt made in the script is maybe us rethinking how we can use some of that unique demands.
And getting agencies, who have larger distribution excited about working with porch because of getting access to our demand and having them think about offering torch to all of their customers is just part of getting access to demand and so we're starting to explore that strategy. Some of the early results.
<unk> are encouraging.
It's still very early there, but that <unk> to be to see opportunity remains what we think one of the unique things that we're going to be able to go after.
Overall chronicle home more and more questions for me.
Okay, and what do you think will be the <unk>.
That's helpful.
Well I will take this and then we will we will route I'll wrap us up.
We are.
Right at this I believe key moments that we have been working hard towards over the last.
Now what 18 months or so once the housing and reinsurance markets really turns on us in the industry.
Getting to profitability in this market will be important.
And I think a real accomplishment.
We all know that as the markets turn.
We are going to have incredible talent.
Now behind us and so demonstrating that that profitability and outperformance right now in this market not only I think is is going to be an important financial goal.
The company, but also I think can build a lot of confidence in this team's ability to execute.
That's one second.
Catalyst I think as we talked about but the reciprocal approval is important just because we believe that we'll have our insurance business optimally structured.
In particular for this market.
It's something obviously, we've been working on for a couple of years now since we acquired HOA.
We're making progress.
Third.
<unk> third we do expect as John mentioned.
Due to hold an analyst and Investor day later this year.
There is an opportunity for us to simply share more about business units exactly the performance of many of our business units that are doing really well now.
Now I'm sure at some of the details today or on one of those business units have been doing warranty, but theres. Many all of our businesses that are doing some really exciting things and it just getting matched based on based on certain abnormal weather results and so I do think that will be.
Uh huh.
For a moment and then maybe last lastly, just as a tailwind as you start to turn as housing market goes from being.
And that negative to at least one.
Year over year, and then you know soon enough we'll start to see that that increase that will just show up in our numbers very quickly and drop the bottom line. So I think that will also.
<unk>.
We have a few minutes past time, just will say thanks, everybody for the time and interest we do appreciate it.
Thanks, all for the questions.
Okay.
Okay.
Yes.
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<unk>.
Yeah.
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Yeah.