Q3 2023 Porch Group Inc Earnings Call
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Yes.
Yes.
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Hello, everyone and thank you for participating in pulse rate basketball to ask questions.
It's very conference call.
Today, we issued after of course around it.
Our latest format.
Paul.
The press release can be found at all on our Investor Relations website at IR <unk> com.
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Joining me here today I'm not all that matters.
Chairman and founder.
So is that right.
Michael Kaufman CLA.
Before we go further I'd like to take a moment for the company.
Called the statement within the meaning of the private Securities Litigation Reform Act of 1995.
By the causal cautions regarding forward statements.
Today's discussion, including responses to your question of management as of today November 7th twice as much as well.
We do not undertake any obligation to update or revise the transformation.
Additionally, we will make forward looking statements about our expected future financial or basically almost a condition is especially in class will hold any application.
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On current expectations and assumptions.
Damon all risks are subject to risks and other things, which could cause our actual results to differ materially Nepal famous.
We encourage you to consider the risk factors and other restaurants, such as described in our filings as well as the risks. That's why information. These lives for additional information concerning factors that cause our results to differ materially from Acacia.
Yes.
We will reference both GAAP and non-GAAP financial measures on today's call.
You saw that press release for reconciliations of non-GAAP measures. The most comparable GAAP measures discussed during this earnings call.
As a reminder, this webcast will be available recall, along with the presentation. Shortly I'll call on the company's website at IR <unk> com.
Paul.
I'll now turn the call I might add I didn't see I challenge out of court.
Thank you Matt.
Thanks Louis.
Good afternoon, everyone. Thank you for joining.
We had a strong quarter with our highest profit of the company.
Adding $9 million of positive adjusted EBITDA in the quarter.
We're delivering on our targets that are increasing revenue and adjusted EBITDA guidance significantly.
The team has done an incredible job.
I'm fired up and excited to share the news with you guys.
Before we dive in I'd like to take five minutes to share a few thoughts and then we will dive into the presentation.
So when the interest rates changed dramatically softening the housing market and driving increased costs in the reinsurance market.
We expected 12 to 18 challenging months as these market headwinds took hold.
Over the past 18 months, we've executed early in effectively with underwriting actions, including premium per policy increases risk.
Risk exclusions and deductible increases in our insurance business.
Launching new modules, coupled with price increases in our software businesses.
Our keen focus on capital allocation and areas that are generating strong returns like our warranty business.
And cost reduction initiatives throughout to drive adjusted EBITDA profitability.
Well, we Couldnt proceed certain headwinds this macro environment would cause there were other unexpected challenges thrown at us at the same time.
Including a widespread global bond buybacks to one of our reinsurance partners.
And historically challenging weather events for our insurance business.
During this period, we've shown what we're about.
<unk> focused and execute effectively against everything we control.
We have continued to lock up our unique property and consumer data.
And we've proven our ability to use this information to price homeowners insurance better than other carriers.
In 2022 that showed up in top tier combined loss ratios for the am best market share report.
In the third quarter, our loss ratios continued to demonstrate strength and a 39% gross loss ratio and the <unk>.
58% combined ratio.
A 39% Q3 loss ratio continues to demonstrate the power of our unique property data and our ability to select risk better than ours.
Premium per policy increased almost 40% year over year, and we expect another material increase in 2024.
It is massive and growing growing homeowners insurance market, we are managing our gross written premiums carefully including non renewals to be squarely focused on profit capital and lowering volatility.
If our data suggest policies will be unprofitable.
And we are not interested in retaining that business.
We know definitively that there is tremendous demand for our insurance products and that we can grow at our discretion, but now is the time for discipline now at the time for a focus on profitability.
I'm excited to share our results today as our strategy and execution bear fruit. It was March 2022, when we communicated our goal and expectation of achieving adjusted EBITDA profitability for the second half of 2023.
I can confirm that we are well on our way to achieving that target.
In the third quarter, we posted $9 million in positive adjusted EBITDA, a significant milestone for our company with $130 million in revenue and $77 million in revenue less cost of revenue.
Further this profitability was posted despite $8 million of net catastrophic weather related costs, including a large Texas hailstorm at the end of Q3 and Hurricane <unk> in Georgia, and South Carolina.
The point here, though.
It's not that we're surprised you whether its getting worse.
Sure.
Is that it was not pristine whether in Q3 that drove our results.
The takeaway is that we have taken the required actions to proactively address this dynamic.
Driving profitability, even in a quarter was.
Historically bad weather events.
All of the actions, we've previously shared around price increases non renewing unprofitable policies.
Utilizing our unique data and other underwriting actions have rolled through our customer base and are making substantial impacts.
So moving to slide six revenue in the third quarter grew 67% to $130 million revenue less cost of revenue grew 72% to $77 million.
Adjusted EBITDA was $9 million profit better than expected.
And $20 $20 million better than the same quarter prior year.
Sean Matthew will talk about these areas in more detail and the actions we've taken to get here.
Lastly, a few key updates before I turn the call over to Sean as we previously shared the allegations against <unk> one of our former larger reinsurance platforms service in the third quarter.
We terminated the agreement on August 4th effective July 1st.
Sooner after our insurance carrier HOA was placed under temporary supervision by the <unk>.
We are pleased to announce that the TDI lifted their supervision of HOS last week. After a detailed review of HOS finances and go forward operating plan.
I want to give a tremendous credit to our team has been focused on US who worked with with the TDI expeditiously to respond to their questions and enabled to move out of supervision quickly.
Their efforts there historically good performance from HOA with strong results from Q3.
And the strength of the go forward plan, which puts us unique data supports to boost underwriting advantages all played a part in this process.
As mentioned last quarter, we began to connect some homebuyers and our ecosystem with third party agencies, rather than our own.
Here, we were able to see higher conversion rates overall with a lower cost structure.
Thank you for partnerships are progressing nicely and performing well.
Our software businesses continue to launch new products to drive margin during a time when these industries continue to deal with the housing market, which declined 17% year over year in Q3.
We're improving our cross selling and expanding our relationships with software customers. As an example unit sales in our inspection business increased more than 20% versus Q2 2023.
I'll now hand, it over to Sean to cover our financial performance and guidance Alicia.
Thanks, Matt and good afternoon, everyone.
And overall, our business is performing well and we are managing continued interest rate and housing market headwinds.
Q3 results were strong with adjusted EBITDA of $9 million ahead of our expectations and setting us up well to achieve our important second half adjusted EBITDA profitability target.
Revenue was $129 $6 million in the third quarter of 2023, an increase of 67% over the prior year driven by the insurance segment and partially offset by the vertical software segment.
Revenue less cost of revenue was $76 $6 million, resulting in a margin of 59% of revenue, which is a 170 basis point increase over the prior year.
Both segments had a year over year increase in revenue less cost of revenue margin.
Approximately 10 percentage points better than the insurance segment.
Driven primarily by an improvement in gross loss ratio with increases in premiums per policy.
Non renewal of higher risk policies and other underwriting actions.
And a seven percentage point improvement in the vertical software segment margin.
Driven by mix shift toward higher margin businesses.
Adjusted EBITDA was $8 8 million, a $19 $7 million increase over the prior year.
Primarily driven by the increase in insurance segment, adjusted EBITDA, coupled with strong expense control.
Gross written premium was $154 million relatively consistent with the prior year as we manage the risk profile through targeted non renewals were moving higher risk policies, which are data and modeling deemed to be unprofitable in this environment and.
And offset by increases in premium per policy.
Looking at revenue by segment on Slide 10.
In the third quarter of 2023.
Revenue from our insurance segment was $95 $2 million.
Growth of 195% over the prior year.
Driven by a 38% increase in premium per policy.
And lower reinsurance ceded.
Approximately half of the revenue growth in the insurance segment was due to less ceding related to divest through termination.
Overall, the insurance segment was 73% of group revenue in the quarter.
An increase from 42% in the prior year.
Vertical software revenue was $34 3 million, a decrease of 24% compared to the prior year drew.
Driven by a 17% industrywide housing market decline.
Our moving services business in particular continues to be impacted by the soft housing market.
In the third quarter, moving services declined faster than the industry driven than the industry driven by declines in our quarter relocations business.
And our vertical software segment, we remain focused on rolling out new products with associated price increases to support future profitable growth.
Moving to adjusted EBITDA by segment.
Both segments delivered positive adjusted EBITDA in the third quarter.
Insurance segment, adjusted EBITDA was $19 million in the third quarter of 2023.
20% margin.
Our homeowners insurance business drove the majority of adjusted EBITDA in this segment.
Benefiting from the improvements of the gross loss ratio that image.
Vertical software adjusted EBITDA was $3 $2 million, a 9% margin.
With fixed cost control actions offsetting some of the revenue decline.
Corporate expenses were $13 4 million in the third quarter.
<unk> to 10% of total revenue from 20% in the prior year.
Driven by strong expense control and timing of certain accounting and other expenses, which will be incurred in the fourth quarter.
Moving to the balance sheet.
As of September 30, we had $458 million of unrestricted cash and investments.
This includes $347 million of cash and investments at HOA, which we expect to transfer it to the reciprocal when approved and launched.
Excluding HOA porch held $89 million of unrestricted cash.
Total unrestricted cash and investments increased by approximately $100 million in Q3 with.
With cash flow from operations $84 million.
In addition to the adjusted EBITDA of $8 8 million cash flow from operations was also driven by working capital at HOA due to timing of payments.
Some of which will be made in Q4.
As well as $48 million of cash that we withdrew from the best two trust when we terminated the terminated the relationship.
In addition courts group held $18 $7 million of unrest of restricted cash.
$22 5 billion of investments, primarily for our captive and warranty business.
As previously announced in the third quarter, our parent company ports group invested $57 million in HOA are wholly owned insurance carrier subsidiary.
In return courts group received a $49 million surplus note with a 10 year term and an interest rate of silver plus 975 points.
This is an intercompany note, although payment is subject to TDI approval based on surplus levels at HOS.
In addition courts group acquired the rights to all Dusty related claims from HOS.
This investment restores HOA surplus to a healthy level.
And at September 30, it was $53 million.
I also wanted to provide an update on <unk> fraud, and its impact from a financial perspective.
Last quarter, we discussed that HOA had a reinsurance contract for which does to arrange capital.
<unk> has since filed for bankruptcy in U S. Federal Court and admitted that its team committed a NASA fraud impacting many in the industry.
As soon as we learn to these issues our team quickly mobilized to assess the situation terminate the contact contract and maximize recovery.
We assembled a task force, which includes Matt Matthew and myself charged.
Charged with recovering funds, replacing reinsurance cover and addressing the TDI supervision order.
HOA was also appointed by the U S bankruptcy trustee to a five member creditor Committee that is currently empowered to investigate thus to the banks and others and seek recoveries.
This approach will help all creditors pursue recovery, while managing the costs associated.
We have engaged a top tier contingent law firm contingent fee law firm and are beginning our pursuits of thoughts.
We are currently intending to vigorously enforce our rights and pursue all damage.
At the right time, we will provide more information on the laufer specific companies that we will be pursuing with claims and litigation and which reinsurance broker we anticipate working with going forward.
We are also pursuing other avenues of recovery.
I will not comment on further at this time.
I'd like to share more about the estimated financial impact here.
By terminating divestiture related contract effective at the start of Q3, we therefore ceded less premium resulting in approximately $30 million increase in revenue.
Approximately $10 million increase in revenue less cost of revenue and approximately $2 million increase of adjusted EBITDA.
This will impact this impact will continue in Q4, driving a portion of a substantial increase in 2023 guidance.
So let's take a look at that.
Today, we are increasing our full year 2023 guidance, reflecting the strong results from Q3 and the positive trends we are seeing in the business that we discussed today.
We are increasing our revenue outlook for the year to $415 million.
Reflecting the reinsurance ceding changes I, just mentioned as well as the organic outperformance across the business, including the impact of premium per policy increases.
Similarly, we are also increasing revenue less cost of revenue outlook to $190 million with an adjusted EBITDA loss of $52 million.
Which suggests $4 million of positive adjusted EBITDA in Q4.
This continues to assume a 35% gross loss ratio in the fourth quarter of 2023 in line with historic experiences.
Claims for catastrophic weather in excess of our long term historical average are excluded from our guidance.
We are on track to deliver adjusted EBITDA profitability on a cumulative basis in the second half of this year.
And for full year 2024 and beyond.
We are reiterating gross written premium guidance of $500 million.
Thank you all for your time today, and I'll now hand over to Matthew who will cover our kpis and other business updates.
Thanks, Sean.
Quite a bit to update on today, So we'll dive right in.
On slide 16, I will quickly update on our Kpis.
Number of companies was 31000 in the third quarter.
Roughly similar to last quarter and prior year with continued housing market headwinds.
Average revenue per company per month increased 72%.
Two $1436 versus $833 in Q3 2022.
We continue to monetize the insurance opportunity more effective.
We had 225000 monetize services in the quarter.
A decrease of 29% predominantly due to housing headwinds and corporate relocation and moving.
Finally average revenue per monetize service was $510 up 176% versus prior year due to the growth in our higher value services, such as insurance and warranty.
Looking now at the insurance Kpis.
Gross written premium was $154 million broadly flat versus prior year from 334000 policies enforced in the third quarter.
We are managing against our plan effectively non renewing those policies previously mentioned that our higher risk.
Implementing our premium per policy increases in underwriting changes that boosts our loss ratio.
The team is doing an excellent job of executing against our targets. We wanted to managed premiums largely flat this year to focus on profitability with lower weather risk volatility lower reinsurance costs and lower capital requirements.
The fact that we were able to execute to our premium targets with 50 557000 fewer policies and the corresponding risk is a huge win.
With our data we are able to effectively identify which of these policies would most likely be unprofitable and you can see the impact to our gross loss ratio and to our results.
Premium retention was 100% for the third quarter with premium per policy increases offsetting the impact from Nonrenewals.
Annualized revenue per policy was 1139.
An increase from $300 in the prior year.
This quarter, we've added annualized premium per policy, which we believe is a more useful.
Wait to understand the unit economics of our insurance business.
Premium per policy was $1762 in the third quarter.
An increase of almost 40% versus prior year.
And we expect to take even more rate in 2024.
Our insurance carrier had a gross loss ratio of 39% in the third quarter as.
As Sean said, our fourth quarter 2023, adjusted EBITDA profitability target assumes a 35% gross loss ratio.
Which is equivalent to approximately $160 of average claims costs were policies in the quarter.
You can compare that to our $110 five year fourth quarter average through claims cost per pulse.
Part of the progress against profitability you see is due to having the insurance underwriting changes we have previously announced start to flow into the results are.
Our 39% gross loss ratio in the quarter consists of 32% relating to non cat, 7% relating to catastrophic weather.
Matt mentioned, there was $8 million and cat related losses net of reinsurance in the quarter.
Which were above our historic trends.
Mostly due to the end of quarter, Texas.
You can see the non cat loss ratio of only 32% versus 52% in the prior year.
This demonstrates how our unique data really shines and makes a substantial impact.
Identifying lower risks we.
We've also included our combined loss ratio of 58% showing a 35 percentage point improvement versus prior year.
There are other key changes the team had been working on which I would like to highlight.
We continue to expand the use of our proprietary data and more states now 12, where we use it for pricing we have increased deductibles meaningfully with a meaningful.
Minimum winter hailed deductible of 2% of the home value and 1% to other parents.
We will implement further deductible increases in 2024.
Which will decrease claims rate as well as losses per claim.
Additionally, we will implement coverage exclusions in certain geographies, including for wind.
We are exiting the state of Georgia.
Curious about profitability and when a safe does not allow us to implement the rates we need to hit our profitability targets as was true the year, we will prioritize being strong stewards of capital.
And we are executing on the 37000 non renewals as previously discussed.
Avoiding losses, where our data signals that they are higher risk policies.
We will continue to look at non renewing more policy in 2024, particularly in high risk geographies.
Through these actions.
We expect to strategically manage gross written premium lower in 2024 to focus on profit capital and lower volatility.
Additional actions are rolled through we will be well positioned for profitable growth as we then look at it.
Finally I.
I would like to share an update on our cost reduction activity that we have executed over this last year.
18 months ago, when we saw the macro headwinds coming and communicated reaching profitability in <unk> 2023, we cast our business unit leaders executed cost review.
Through this process, we have eliminated approximately 300 roles through reduction in force measures.
We reviewed contractors advisors and vendors and have driven cost reductions.
This includes running an RFP process for a new audit firm, where there was an opportunity to maintain quality, while reducing spend substantially.
In total our cost management efforts have reduced our annualized spend by approximately $20 million, making an impact in <unk> 2023, and continuing to charge.
Thanks, everyone I'll now hand, it back to Matt.
Thanks, Matthew Thanks, Sean.
Before we go to Q&A I'll, just make some final points.
First as we said today, we are on track for our second half 2023, adjusted EBITDA profitability target.
I appreciate the patience of our shareholder base and we're excited about our Q3 results of $9 million of positive adjusted EBITDA.
Second now that the TDI supervision has been lifted we will be able to restart the reciprocal application next year with target approval in 2024.
I continue to look forward to operating on fee based less weather sensitive model.
Third we continue to expand use of our unique property data and look to rollout to further states with more new insights.
This is the other underwriting actions, we've mentioned are significant in driving profitability.
Going from a 54%.
Non cat loss ratio down to 32%, obviously is a big one.
Finally, we believe we have a strong business model and the right team in place to deliver against our strategic goals, we're balancing growth and profitability. During this time with a strong eye towards increasing value.
I noticed that the company has purchased shares in the open market last quarter more than $2 3 million.
Reiterate my belief in the long term vision and opportunity.
This next six months will be exciting times for us with many important updates and I look forward to demonstrating significant momentum for our shareholders.
So that will wrap up prepared remarks will pass the call to the operator, please open the call for Q&A.
Thank you Andy I'd like to ask a question on the phone lines. Today, you can press star one on your telephone keypad to remove yourself from the queue at Star. One again, we do ask that you. Please limit yourself to one question and one follow up.
Well I mean, one moment, while we assemble the queue.
We will take our first question from Daniel Cardenas with benchmark.
Great. Thanks.
Good afternoon.
Matt.
Quickly just on the cyclical process I don't think the TDI could've gotten a closer look at your books and what just happened I know you said target 2024 is there any.
The reason why that's not early 'twenty four or are you kind of reevaluating the process I just want to get a understanding where your head's at on that.
Yes, first I'll just take the take the moment to give a tip of the cap to the TDI team that we work with tremendous amount of respect coming out of the process or just the quality of the people the partnership.
Really they worked with us in a very.
Appropriate and fair.
Sometimes tougher pharaoh, but a very appropriate way I would just I just really.
Appreciation for how they quickly they were able to move to kind of review of the company and help us move out of supervision after the divestiture Brian.
The reciprocal frankly, Dan we just weren't able to focus on that well, while we were in supervision understandably. The TDI was solely focused on the HOA business unit.
And wanted to remain focused on that so obviously were just released a supervision last week.
We know in turn we will be able to take a breath be able to go and update the application, which is currently incomplete and pending status.
As.
As we're going through that supervision process.
I would expect us to build that.
Up to date.
And the 'twenty 'twenty four year, and then we will be able to provide an update on timing as we as we get into next year.
Alright fair enough.
Then just.
I know you started talking about this last quarter in terms of.
Third Party agency I mean, you have a.
Tremendous lead Gen opportunity right, which I think is also underpinning the reciprocal.
Matthew if you want to chime in here too you guys talked about managing gross written premiums.
We are down.
Year to be more profitable.
How do we think about.
Either the revenue impact or how quickly the third party stuff scales and you're if you are going to manage it down your willingness to take on more or less risks.
In the reinsurance market, if you feel like you've got a better handle on obviously the exposure to cat risk.
I can jump in and Matt you can myron.
The first point around the third party agencies.
We are interested and excited about having a more diverse fulfillment network for all of those leads that we have and of course.
Through that we don't really have to take on any of the risk and we get the benefit of all of their coverage carrier panels and expertise.
And so we think.
Doing that can be a smart play for us and can also provide.
<unk> for those agencies over time to sell more of our products.
I think with GW P and managing it closely.
We.
We are very focused on profitability, we're very confident we can grow DWP as needed.
We have a bunch of actions that we've taken that we want to see roll through the business.
Including more price increases changes to deductibles changes changes to exclusions.
All of that we think will position us for a lot of long term growth.
And then the one last thing I would add Dan to your the last part of your question on taking more or less risk.
Sean did note we.
Would like to and expect to use our captive reinsurance vehicle less next year.
So that would kind of signaled that we would like to carry less risk generally obviously are our strategy generally is to be able to end up launching the reciprocal and then and then.
Transferring the risk bearing entity into a completely separate third party entity that we don't own and manage manage it from a fee and commission perspective, we think that's the attractive structure for us.
Going forward between now and then we given how well our book has performed.
I mean, it's substantially better than others in the industry.
That creates we no really good opportunity as we come up on the reinsurance renewals for this next year to be able to get the right structure in place. So that we can carry carry less risk here in 'twenty 'twenty four.
Alright, well nice job on the quarter and thanks for all the color I appreciate it guys. Thanks Dan.
We'll take our next question from John Campbell with Stephens.
Hey, guys good afternoon, Hey, John.
Congrats on a good snap back quarter very good results for you guys.
Apologize I did have to jump on late here so.
I don't know if <unk> addressed this but I was hoping that you guys can maybe talk to the loss is if you can maybe unpack that kind of combined ratio for the insurance side of things as best as you can tell how much of that was just generally less loss pick their activity or maybe just less severity of losses versus the strategic actions that you guys have taken on the higher risk policy.
<unk> as well as maybe just.
Better or maybe better avoiding bad policies.
Proprietary data.
Yes, I can take that one.
Yeah look I think overall the insurance segment, adjusted EBITDA increased $20 million year over year.
The significant driver of that is.
The actions that we've taken around improving the gross loss ratio from increasing premiums per policy. Our team did a really great job getting out ahead of the market there.
The various underwriting actions that we've taken specifically.
On the policies in some of the changes that will be continuing to do that we talked about today.
Non renewing higher risk policies.
And.
And I think the the other thing that we.
We talked about we're seeing significant.
Benefits from the.
The data that we have and leveraging that data to improve our underwriting results, which I think are already really great. It's Matt said last year in 2022, we were a top decile performer with respect to gross loss ratio.
And.
But as we continue to leverage that data more and more of those 40 50 60 pages.
Inspection reports, we continue to see benefits through our our loss ratios and you saw that today with the non cat loss ratio.
Decreasing.
Significantly year over year.
Just two other questions.
Two other quick things for you John just to round up the answer.
One I would also say from a from a combined ratio the team's done a really nice job of managing expenses. You also and that's just that's happened across our business, but there are there has been good cost reduction, which is certainly helps helps the combined ratio overall, I mean, 58% combined ratio.
As obviously, we feel very proud of kind of where that where the businesses is that.
And so I certainly would want to do you want to credit the team for.
Or for that work also.
But it really is all of those things combined it's executing on each of those things together, which builds up to that 39% combined ratio.
Last comment in case, you missed it I did note in the comments that there was $8 million.
Meaningful.
Net catastrophe related losses.
Particularly primarily from large hail events in the end of towards the end of the quarter.
And we and I wanted to note that specifically just to call out that the results warrant.
This is very unusual pristine weather quarter. It really is from the operational changes that the team has put into place to account for what we know to be true, which is there will be meaningful weather events.
Yes, that's a great point, thanks for clarifying that a similar kind of question here, just kind of unpacking or trying to better understand the entrance revenue drivers.
How much of the growth this quarter kind of stem from just better renewal pricing versus less reinsurance seating and then I don't know if you guys are able to disclose but like just broadly roughly what percent of the book today, The P&C book as HOA versus agency.
John Let me take the first one and I'll take the second yeah sounds good so the the revenue growth.
Year over year about half of it.
For the insurance segment was driven by.
Divest to a contract termination.
And then the remaining half.
Is driven by also just general less seating that we did.
As well as I mentioned the premium per policy increased.
38% year over year.
As a team got out ahead of the market and.
And increase the increased prices.
Those are the key components.
Of that.
The increase of revenue.
So about $30 million, John from a quarter type of seating sitting less.
The and then in terms of the second no change in policy agenda.
We don't break out the percentage of the policies from agency or carrier.
Okay. That's helpful. But I guess, just directionally agencies may be rising a little bit of a mix.
I would say both of those parts of the insurance business I would say are performing performing well, but clearly like we indicated we are in the carrier business clearly managing gross written premium to a very specific target level like Matthew said.
In the quarter, we tried to manage it to be.
<unk> flat written premium year over year.
With obviously much much fewer policies and therefore fewer risks, which clearly then drove drove the results we saw.
Okay very helpful. Thank you guys. Thanks John.
We'll take our next question from Jason <unk> with Oppenheimer.
Thanks, just want to clarify on slide 13.
<unk>.
The 30 to $10 2 million of the impact from <unk> that was just in the third quarter correct.
That's correct.
Okay.
You will have I mean, effectively you are not I mean.
You're taking 100% of the risk in the fourth quarter until <unk>.
Approval of a simple correct is that the idea that youre not going to sign up on other reinsurance company and just kind of managing yourself until then.
And maybe I can maybe I'll clarify it's a good question Hey, Jason Thanks for that.
Thanks for the question.
So the $30 million I think I referenced that was specifically from the net impact of terminating the vascular contract.
We did then obviously go out and procure reinsurance.
Now we bought it in August.
<unk>, which is obviously different than when we we typically buy so we thought about obviously the remaining risks that we have.
In the business.
And the specific parallel the specific geographies et cetera.
To make sure that we have appropriate coverage there.
But specific to Q3, the net impact of ceding less from terminating the vast to contract <unk>.
$30 million to revenue.
$10 million revenue less cost revenue and when you get to the bottom line. It really didn't have much of an impact it was about $2 million of adjusted EBITDA.
So that was the impact to Q3 specifically.
You could pretty much double that for <unk>.
Same type of thing you would expect for Q4.
<unk> doubled down just to make sure.
Clear in the notes.
And this was included in some previous press releases, we've made it made about this topic, but the team did an excellent job of reinsurance team did an excellent job.
Post the best determination.
Going out to the third party reinsurance market and refilling, our excess of loss stock, bringing other.
Top tier are great day reinsurers into that program and so we have fully rebuilt that programming and have had that in place for a while now to make sure that we are protected so I certainly don't want.
Are those to feel like we are not using reinsurance we terminated that particular partner and they've been able to go get other high quality reinsurers in place.
So basically this is.
The current data, which led to that let's say fourth quarter guide. This will be the framework until you get the approval of the reciprocal or at the beach there in place.
Yes, we have the reinsurance partners in place.
For our program.
The next renewal cycle for us will be April one.
The core reinsurance cycles. So obviously, we would then look to renew partners and yes. This would continue to be the structure and approach until the reciprocal launches.
Given that obviously the reciprocal will continue to use reinsurance that will help manage those placements for that for that entity.
But this is how we will continue to present.
We announce them.
And then just a follow up as we're thinking about next year, you've given us kind of a target of flat or better positive.
EBITDA next year.
Given the implied ratios for the insurance business in the back half.
Is there a way to think about kind of.
How would we think about maybe gross written premium and kind of revenue to get to that EBITDA. Given we know that like corporate expenses would be about $55 million for the company next year kind of run rate.
Yes, Jason I think it's a good question.
We I would say first and foremost as Matt mentioned in about 18 months ago, we talked about adjusted EBITDA profitability for the second half.
Of this year and beyond and we are obviously really happy to deliver a really strong adjusted EBITDA of $9 million in Q3.
Also we are well on our way to the important second half.
Stability target for.
This year.
We've also talked about a lot of actions that we've taken to control expenses.
And how much of a focus profitability has become ever is that as at the business.
In addition to how we think about the insurance book in General.
And non renewing policies.
Things like that so we will come back in March with more color on 2024 and more specifics on 2024, when we do.
Our next update for.
For now the pedal to the floor here for us and the team to execute in Q4 and.
And bring home that adjusted EBITDA profitability.
Okay. Thank you.
Jason.
We'll take our next question from Joseph <unk> with Cantor Fitzgerald.
Yes, hi, guys. Good evening. Thanks for taking my question today first I wanted to start on the data advantage and how it impacts your loss ratios. So youre alive with utilizing unique data in both states I was wondering what the rollout would look like to leverage that same initiative in more states moving forward.
Yes.
Yeah.
Where.
I would think about it on a couple of dimensions. The first is rolling it out to additional states keep in mind.
Carrier, we don't write policies in all 50 states.
But the other dimension is we're just getting started.
In leveraging our data for pricing.
And so there's opportunities for us to pull out more types of data from our inspection reports theirs.
Also room still for us to apply the same type of.
Analysis on additional perils.
And so we're we're actively working on all those things and then of course, the pricing and rating is.
As the process, you've got a high allocated approved drilled it out so there is a little bit of a lag there.
But we're excited so far we have.
Real improvements measurable improvements to the accuracy of our risk models.
Our early and what's possible.
Okay got it and I was wondering if you could talk a little bit about the operating leverage of this business, especially post the $20 million.
Benefit that you've already.
That if the macro bounces back are you thinking about the leverage of this business going forward.
Yes, I think I can take that one I mean I think from a.
Fundamental perspective, we are.
Look to be strong stewards of capital.
As part of that we think a lot about capital allocation and as Matt said investing in the businesses that are driving strong unit economics.
Returns.
And so we will continue to take that approach and be diligent.
Yes.
As I said.
We will provide more guidance in March when we come back but.
Clearly there has been a focus to drive strong expense control of the business.
And I think that that's ingrained in a lot of processes that we have around the business.
We'll continue to operate in that manner.
Yes, I would say Josh it is something that we plan to talk more about here and we look forward frankly to sharing.
Quite a bit more detail about about business units.
Ross porch.
What there.
Revenue less cost of revenue margins or what.
What the incremental EBITDA margins are as we invest in.
And these businesses and how that how that really can flow through our results.
For today, we haven't shared that information yet, but it is something that we are looking forward to talking more about this next year.
Excellent yeah really looking forward to the caring more about that in the future. Thanks for taking my questions guys. Thanks, Josh.
We'll take our next question from Jason <unk> with Craig Hallum Capital Group.
Great. Thank you just wanted to focus on some of the Kpis. So obviously pretty impressive growth in the revenue per policy.
I'm wondering if we can strip that out in terms of the contribution from the best through settlement how much of that comes from taking rate how much of that comes from feeding lower reinsurance and just try to look at it from more of an organic basis on where that will go from here.
Yes, Jason the easiest way to do that is probably just to look at kind of revenue from the quarter again half of the revenue.
Growth in insurance.
Segment came from less seating again, approximately $30 million of revenue came from that in the quarter and then the balance from from all the rest of the operational changes the price increases et cetera, so that would be the right proxy to use if you're applying that into that KBR.
Okay.
We'll try to dissect that a little bit further as well then.
Maybe one more just on the outlook for vertical software. Obviously housing continues to be challenged by high interest rates just curious your perspective or what you see as the opportunities for stability of returned to growth there.
Yes.
Take that.
The first thing I would say is a lot of our businesses are tied to the housing market.
But when you look at that vertical software segment, there's really kind of two lines. There is our software business and then there is our.
Move in hosting services.
The software business.
See this more and.
In more detail in the queue.
Almost flat year over year, despite a <unk>.
17% market decline and that just speaks to the value and the resiliency of the.
Those products that they've been able to.
Basically overcome the market headwinds, it's really the move services person that has been hit really hard and some of that is.
Tied to just the number of housing sales some of it is.
Changes to remote working and people being relocated less.
But those although I worked closely with businesses day, they have a lot of.
Focus right now and so I'm optimistic that they're going to be able to find growth even if the market stays flat, but certainly when the market turns back we're going to be very very well positioned.
Thank you.
We'll take our next question from Macau, Vijay with K B W.
Okay.
Hi, This is Nick Hiller on for Ryan Thomas Hello, Thanks for taking my questions.
Well, let's see I just wanted to check if you guys have spent any time thinking about how potential changes to the industry's commission structure could impact, especially around the opportunities that could arise in that fluid fluid storage timeline, one debated topic that comes up often.
Our first seller and buyer agents for life, but any different service providers and how that might be disrupted.
Any initial thoughts you could share.
So I can take that we have certainly noticed the kind of a landmark case there with <unk>.
Which is essentially calling into question the commission rate structure for real estate agents and is it too high in the U S.
We have talked about it internally, we think it is going to put.
More scrutiny on the real estate agent Commission and the services that they provide.
And it could lead to more negotiation between buyers and sellers and agents and buyers and sellers.
The place, where we need get interested and what could potentially slow from that one is if the commissions are lower agents are going to have to be more efficient.
There may be fewer agents and that actually makes it easier for us to partner with real estate with the real estate industry. If there's fewer agents department. The second is as it gets more competitive.
Agents are going to be looking for ways to standout agents are going to be looking for ways to take some of the services that they do and not have to worry about doing them themselves and.
Plays really well to our core thesis that consumers going through a home purchase are gone through a really stressful time in their life and we can step in at scale and provide all sorts of wraparound services to benefit the consumer and to make that agent look well.
So obviously, it's early lots of things are going to unfold, but things that cause agents to want to be more competitive I think plays well to our value prop.
Yes generally.
There's more home sale transactions, we benefit right there will be more inspections more transactions. The title industry is dealing with those are all good things for us and if commissions are lower and that allows housing to be that much more affordable for consumers clearly that would benefit our core our core businesses.
If warranty has happened not get bundled into a home transaction in that because thats not really a market channel that we are focused on and that leaves that consumer available for us to be able to help them with a home warranty that again I would just just help our business.
Thanks.
Got it helpful. And then I also have a follow up on but it does help the segment can you discuss what customer types and product you are seeing more traction in demand in the current environment.
What customer types and products.
But in the vertical focus.
Yes, yes, so we I mean, we have we operate in multiple different segments. There I think.
<unk> speaking.
The.
That part of our business has held up fairly well despite the headwinds.
We're obviously looking at.
Waves that we can help those businesses to either save money or to grow their business. Brian. So a lot of our innovation has been focused on that type of feature. So there is for example, things we're doing that allowance factors to move the cost of the inspection to the close and they can help the consumer stable.
Bit of money upfront and they get to make more money at the same time, there's stuff we're doing in the mortgage space essentially reduces the some of the fees that happened throughout the process through a service that we offer.
And then of course in the title space. We're now rolling out several new products driven add essentially automating.
Additional workflows for title companies and so for US it's really emphasized the role that we can play to help these businesses be more efficient at a time they need to be really lean and help these businesses generate more more revenue and those customers are very open now to those ideas.
So some of these products are actually gaining traction can you kind of see by like.
This isn't a nice to have and I need to do some of these things to be more efficient or generate more revenue.
Okay.
Got it.
Thanks, that's very helpful and congrats again on the good quarter.
Okay.
Thank you and that does conclude todays presentation. Thank you for your participation today and you may now disconnect.
Thanks Al.
[music].
Okay.
Thank you.
Thank you and that does conclude today's presentation.