Q2 2024 Porch Group Inc Earnings Call

Unknown Executive: Information for the reciprocal exchange is based on its current expectations and assumptions. However, these statements are subject to risks and uncertainties, which could cause our actual results to differ materially from these forward-looking statements. We disclaim any obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law. We encourage you to consider the risk factors and other risks and incentives described in our FQC findings, as well as the risk factor information in these slides.

Based on its current expectations and assumptions.

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

We disclaim any obligation to update update publicly any forward looking statements whether in response to new information future events or otherwise.

As required by applicable law.

We encourage you to consider the risk factors and other risks and uncertainties.

<unk> described in our SEC filings as well as a risk factors information on the slides.

Unknown Executive: For additional information, including factors that could cause or result in different maturities and current expectations, please refer to the notes to today's call. We will reference both GAAP and non-GAAP financial measures on today's call. Please refer to today's press release for recommendations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call, which are available on our website. The financial information provided today is preliminary, unaudited, and subject to revision upon completion of the closing and audit processes.

Additional information, including factors that could cause our results to differ materially from current expectations.

We will reference both GAAP and non-GAAP financial measures on today's call. Please.

Please refer to today's press release for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call, which are available on our website.

The financial information by today's preliminary unaudited and subject to revision upon completion of the placement and audit processes.

Unknown Executive: As a reminder, this webcast will be available for replay along with the presentation shortly after this call on the company's website at ir.porchgroup.com. I now turn the call over to Matt Ehrlichman, CEO, Chairman, and Founder of Porch Group. Thank you, Matt.

As a reminder, this webcast will be available for replay along with the presentation. Shortly after this call on the company's website at IR corporate dotcom.

Matt Eichmann: I'll now turn the call over to Matt Eichmann, CEO, Chairman and founder of full thickness of Qunar.

Matt Eichmann: Thanks, Louis Good luck.

Matthew Ehrlichman: Thanks for joining us today. We have some great progress that I'm excited to share. First, our insurance profitability actions, including utilizing our unique data, continue to result in attritional losses being significantly better than planned, and substantial year-over-year improvements in our insurance growth combined ratio. Second, we have refiled the Reciprocal Exchange application.

Matt Eichmann: And everybody thanks for joining us today.

Matthew Ehrlichman: This gets us a step closer to what we believe is the optimal structure for scaling with reduced exposure to unusual weather events. And as we'll share more today, we are excited to announce that we've launched our Home Factors data products to help third parties improve their risk assessment and marketing. We have home factors for virtually every home in the U.S. to identify important information about the property, all uniquely known by Porch.

Matthew Ehrlichman: Our results in the second quarter were solid despite continued macro headwinds. While we budget for catastrophic weather based on our historical experiences, trends, and buffer for volatility. In the past three months, there have been two uncommon weather events, both so rare that they are classified as more than one in 10 year occurrences. In May, Houston experienced a hurricane-like event with 100-mile-an-hour sustained winds, which impacted our second quarter by $23 million net of reinsurance. More recently in July, Hurricane Beryl was a Category 1 hurricane as it progressed through Houston and is expected to impact our third quarter by $30 million net of rain.

Matthew Ehrlichman: We want to highlight these rare events as our execution related to what we control was very, Overall, in the second quarter, revenue grew 12% to $111 million, and revenue left cost of revenue grew 10% to $19 million. Adjusted EBITDA loss was $35 million, an $8 million improvement over the prior year, and right about on track with our plan. Again, the May Houston CAT event lowered revenue left cost of revenue and adjusted EBITDA by $23 million.

Matthew Ehrlichman: We saw continued strong underwriting execution in our insurance business, leading to lower claims versus our expectations. Price increases led to higher profitability in our software businesses and overall strong cost control. Shawn will take you through those details shortly.

Matthew Ehrlichman: Unexpected weather will happen periodically in the homeowners insurance industry, and while disruptive for policyholders and near-term results for the impacted period, it creates long-term opportunities for the industry at large. It means we and the industry will continue to raise prices and will fuel a significant expansion in the size of the homeowners insurance market. Operating as a reciprocal exchange can help mitigate weather and claims volatility while still being able to participate in the growth of this industry. This, in our minds, is a very exciting place to be.

Matthew Ehrlichman: And as I mentioned, we're very pleased today to announce the key milestone of filing our new and updated application to create the Porch Insurance Reciprocal Exchange with the Texas Department of Insurance. We are working closely with TDI, targeting approval later this year. As a reminder, as proposed, at launch, the HOA carrier will be sold to the reciprocal for a surplus note back to Porch Group. With all parties, with all policies, premium losses and certain costs, such as reinsurance, will move into the reciprocal entity, which will be owned by its policyholders, similar to a mutual company. The reciprocal will pay claims directly from its balance sheet.

Matthew Ehrlichman: We at Porch Group will handle the day-to-day operations, receiving fees as a percentage of gross written premium. Importantly, our expenses will be less volatile than they are today and will include mostly fixed costs, such as employee salaries. We're excited about what this will mean for our customers in our future transition to a more predictable higher margin and lower volatility. Along with the reciprocal application, we also announced today that Porch Group has contributed 18.3 million Porch shares to HOA to support this critical planned transition.

Speaker Change: Turning to a more predictable higher margin and lower volatility.

Speaker Change: Along with the reciprocal application, we also announced today. The porch group has contributed $18 3 million ports shares to HOA to support this critical planned transition.

Matthew Ehrlichman: This contribution helps to bolster HOA's balance sheet strength and rating after Q2's weather-impacted surplus. In addition, the contribution strengthens HOA's long-term surplus position, which better positions HOA for any future third party surplus note capital raising efforts, and importantly, is expected to support premium growth in 2025 and beyond. HOA will hold the shares on its balance sheet, and we currently do not expect the shares to be sold.

Speaker Change: This contribution helps to bolster HOS balance sheet strength and rating after Q2 weather impacted surplus and in addition, the contribution strengthens <unk> long term surplus position, which better positions HOA for any future third party surplus note capital raising efforts and.

Speaker Change: And importantly is expected to support premium growth in 2025 and beyond.

Speaker Change: HOA, we'll hold the shares on its balance sheet and we currently do not expect the shares to be sold.

Matthew Ehrlichman: The value is then included in HOA's surplus, which had a healthy buffer as compared to regulatory requirements at the end of Q2. To the extent that porch stock increases, then this would grow HOA. If and as we execute and increase the value of Porch Group, this can create an important and long-term opportunity for us. Additional surplus translates into supporting more premiums for HOA and the reciprocal. We believe more premiums would drive more fee-based income and profit for Porch Group post reciprocal. We would expect more profit at Porch Group to increase our valuation over time, in turn increasing surplus at the reciprocal and HOA. We believe we're set up for a very exciting future. A few quick notes before I turn the call over to Shawn.

Speaker Change: The value is that included in HOA is surplus.

Speaker Change: Which had a healthy buffer as compared to regular regulatory requirements at the end of Q2.

Speaker Change: To the yen to the extent that port stock increases then this would grow HOA surplus.

Speaker Change: If and as we execute and increase the value of ports group. This can create an important and long term opportunity and a flywheel.

Speaker Change: Additional surplus translates into supporting more premium for HLA and the reciprocal we.

Speaker Change: We believe more premium would drive more fee based income and profit per ports group poster cyclical.

Speaker Change: We would expect more profit it works group to increase our valuation over time in turn increasing surplus or cyclical in HOA.

Speaker Change: We believe we're set up for a very exciting future.

Matthew Ehrlichman: Our software businesses remain resilient and deliver growth despite a sluggish housing market which declined 3% year over year in Q2. Our warranty business launched a new product called Surge Protection, and although it's early days, we are seeing strong conversions through our moving concierge. Michelle Taves, who joins us today and leads our data division for Porch, is going to share more about the progress with Homepack, including new clients and cases. We see a great deal of promise here, given both the uniqueness and demonstrated value of our data. We mentioned previously that we are vigorously pursuing parties concerning the best-due fraud, which was discovered in 2023. In Q2 of this year, our legal firm, hired on a contingency basis, filed suit against two parties.

Matthew Ehrlichman: These things take time, so we'll look up at you as far as possible. And last, but not least, we've been re-certified as a great place to work again this year with year-over-year improvements and key metrics that we track. My goal from the outset of founding Porch was to build a truly great and enduring company, and ensuring we're a great place to work with a set of values that are real is critical and core to achieving this.

Shawn Tabak: Thanks, Matt. Good afternoon, everyone.

Shawn Tabak: Before we get into the detail, I'll provide some high-level thoughts on our financial performance in the second quarter. Overall, we're pleased with the second quarter being broadly in line with our expectations. Attritional claims outperformed our expectations, and the related loss ratio improved over the prior year. This is a testament to the insurance profitability actions we discussed previously, around the three P's. Product, price, and port. As Matt noted, these are the things we can control, and the team executed well against them. However, this was offset by the May Houston CAT event, which drove volatility in the quarter.

Shawn Tabak: I'll give more details on that shortly. In our software business, we saw improvements in our profitability driven by price increases as we executed our strategy to roll out new functionality for our customers while increasing, and importantly, we remain diligent with strong cost control. Now, let's take a closer look.

Shawn Tabak: Revenue was $110.8 million in the second quarter of 2024, a 12% increase over the prior year, driven by our insurance segment, which grew 22%. Revenue less cost of revenue was $19.2 million, with a margin of 17% of revenue, consistent with the prior year. Overall, the Vertical Software Revenue List Costs revenue margin increased approximately 800 basis points to 83%, offsetting growth in the lower margin insurance. Adjusted EBITDA loss was $34.8 million, an $8.4 million improvement over the prior year, with all segments contributing to the improvement.

Shawn Tabak: As a reminder, due to the seasonality of our business, Q2 is typically when we see the lowest adjusted EBITDA for the year given weather-related insurance. We continue to focus on controlling and reducing operating expenses, such as audit fees and contractor costs. In the second quarter, sales and marketing expenses, as their percent of revenue, decreased by 400 basis points over the prior year. Similarly, products and technology in G&A also decreased as a percent of revenue.

Shawn Tabak: Growth during the premium year was $117 million, a decrease from the prior year as we focused on profitability and non-renewal of higher risk policies. The non-renewals were completed this quarter, impacting our insurance KPIs, which Matthew will discuss shortly.

Shawn Tabak: The insurance segment was 71% of total revenue in the second quarter, an increase from 65% in the second quarter of 2023. Revenue from our insurance segment was $78.3 million, a 22% increase over the prior year. This was driven by a 28% increase in premium for policies and Lower Reinsurance Seating, which more than offset the decrease in policies in force due to the non-renewals and the Q1 sale of our legacy in-house insurance agency, EIG.

Shawn Tabak: Vertical software segment revenue was $32.6 million, a decrease of 5% over the prior year. Within that, the software and services subscription businesses increased 4% over the prior year, driven by price increases in RINO and inspection, and overall was offset by the moving. Shifting to claims costs in our insurance segment, here we break down the cost of revenue between attritional and other costs in catastrophic letters. In the second quarter, attritional claims performed $17 million better than anticipated.

Shawn Tabak: Additionally, our typical seasonal catastrophic weather claims also performed better than we anticipated. In the second quarter, the May Houston CAT event drove approximately $23 million in cost of revenue, net of re-insurance, to the point of it being categorized as a one in 10 year event. In HOA's 15-year history, it had never experienced something like this, so while this was unfortunately one of the years where this wind event occurred, this was largely offset with strong execution against the areas within our control.

Shawn Tabak: Moving to Adjusted EBITDA by segment. The overall adjusted EBITDA loss was $34.8 million in the second quarter of 2024. The insurance segment adjusted EBITDA loss was $27.3 million, an improvement of $3.9 million over the prior year. The vertical software adjusted EBITDA was $4.8 million, a $3 million improvement over the prior year, driven by price increases in our software and services subscription businesses and cost control. The vertical software adjusted EBITDA margin increased to 15% in the quarter. Client retention remains strong at 98% in RIDO.

Speaker Change: But all loss was $27 $3 million, an improvement of $3 $9 million over the prior year.

Speaker Change: The vertical software adjusted EBITDA was $4 8 million, a 3 million dollar improvement over the prior year.

Speaker Change: Driven by price increases and our software and services subscription businesses and cost control.

Speaker Change: The vertical software adjusted EBITDA margin increased to 15% in the quarter.

Speaker Change: Client retention remains strong at 98% and Rhino in the second quarter.

Shawn Tabak: Corporate expenses were $12.2 million, or 11% of total revenue, a 300 basis point improvement over the prior year due to strong cost control. Stepping back from the quarter, let's take a look at our performance in the first half of 2024. Year-to-date, we've delivered revenue of $226 million, a 22% increase over the prior year, driven by insurance. Adjusted EBITDA loss in the first half of 2024 was $52 million, a $13 million improvement over the prior year.

Speaker Change: Corporate expenses were $12 2 million or 11% of total revenue a 300 basis point improvement over the prior year with strong cost control.

Speaker Change: Stepping back from the quarter, let's take a look at our performance in the first half of 2024.

Speaker Change: Year to date, we've delivered revenue of $226 million, 822% increase over the prior year driven by the insurance.

Speaker Change: Adjusted EBITDA loss in the first half of 2024 was $52 million a $13 million improvement over the prior year.

Shawn Tabak: Our insurance segment adjusted EBITDA loss was $30 million, an $8 million improvement over the prior year. Our vertical software segment adjusted EBITDA was $6 million, a $4 million improvement over the prior year, driven by price increases and cost control. Corporate and other expenses also decreased year over year.

Speaker Change: Our insurance segment, adjusted EBITDA loss was $30 million and $8 million improvement over the prior year.

Speaker Change: Our vertical software segment, adjusted EBITDA was $6 million, a $4 million improvement over the prior year, driven by price increases and cost control.

Speaker Change: Corporate and other expenses also decreased year over year.

Shawn Tabak: Operating cash outflow was $26 million in the second quarter of 2024 and $18 million for the first half of 2020. As of June 30, we had $410 million in cash, cash equivalents, and investments, and excluding the $293 million at HOA, Porch held $117 million, broadly in line with the prior. Additionally, Porch Group held $11 million in restricted cash and cash equivalents, primarily for our captive and warranty businesses, and a $49 million surplus note from HBCU.

Speaker Change: Operating cash outflow was $26 million in the second quarter of 2024 and $18 million for the first half of 2024.

Speaker Change: As of June 30, we had $410 million in cash cash equivalents and investments.

Speaker Change: And excluding the $293 million in HOA ports held $117 million broadly in line with the prior quarter.

Speaker Change: Additionally, ports group held $11 million of restricted cash and cash equivalents, primarily for our captive and warranty businesses and a $49 million surplus note from HOS.

Shawn Tabak: The HOA surplus in June 30 was approximately $40 million. This number includes approximately 18 million Porch Group shares contributed into the HOA, to which a discount is applied per our insurance accounting board. Since the shares are held by HOA, a wholly owned subsidiary of Porch Group, and are not owned by a third party, the shares are eliminated in our consolidated financial statements. They're accounted for as treasury shares, and therefore, these shares are excluded from our weighted average number of shares outstanding when calculating earnings per share.

Speaker Change: HOA surplus at June 30 was approximately $40 million. This number includes approximately 18 million ports group shares contributed into the HOA.

Speaker Change: Into HOA to which a discount is applied per our reinsurance accounting books.

Speaker Change: Since the shares are held by HOA, a wholly owned subsidiary of ports group and are not owned by a third party.

Speaker Change: The shares are eliminated in our consolidated financial statements.

Speaker Change: They are accounted for as Treasury shares and therefore these shares are excluded from our weighted average shares outstanding when calculating earnings per share.

Speaker Change: Moving onto guidance today, we are updating our full year 2024 outlet for our profit metrics.

Shawn Tabak: Our updated profit guidance is primarily driven by three items. This has been offset by two catastrophic weather events which fall outside the range of our typical expectations. Last year, we called out the revenue impact of this as $30 million in Q3 of 2020. This has outperformed that which we control and what our normalized results would have been expected to produce.

Speaker Change: Our updated profit guidance is primarily driven by three items.

Speaker Change: First as I mentioned in Q2, we saw strong performance against the things we can control <unk>.

Speaker Change: Including underwriting performance related as Attritional losses in our insurance business price increases in our software business and strong cost control.

Speaker Change: This has been offset by two catastrophic weather events, which fall outside the range of our typical expectations for catastrophic weather included in our original guidance.

Speaker Change: The first was the $23 million May Houston Cat event in Q2.

Speaker Change: The second is another weather event hurricane barrel, which made landfall in Houston in the first week of July that we expect to have $30 million in claims cost of revenue net of reinsurance and Q3.

Speaker Change: We are reiterating full year of 2020 for revenue of 450 millions of $470 million with growth of 5% to 9%.

Speaker Change: As I noted last quarter, we expect growth to be front end weighted with the tough comp in Q3.

Speaker Change: And as a reminder, there in Q3 of 2023, we had lower reinsurance seeding and thus higher revenue immediately post divest to reinsurance broader scope.

Speaker Change: Last year, we called out the revenue impact of this is $30 million in Q3 of 2023.

Speaker Change: We expect revenue less cost revenue of $190 million to $200 million, which incorporates the items I've mentioned again any incremental cat events exceeding historic trends are not included in our guidance and would negatively affect the range.

Speaker Change: Overall, we expect adjusted EBITDA loss of $20 million to $10 million, which incorporates the items I mentioned.

Speaker Change: At the midpoint. This is a decline of $22 $5 million from our previous adjusted EBITDA guidance.

Speaker Change: Given this now includes $53 million of additional costs related to the two weather events.

Speaker Change: This highlights the degree of our business has outperformed that which we control and what our normalized results would have been expected to produce.

Speaker Change: This guidance indicates that our second half of 2024 is still expected to be more profitable than the $21 million of positive adjusted EBITDA, we produce in the second half of 2023 <unk>.

Speaker Change: Despite hurricane Barry.

Speaker Change: Although we are guiding to what is most probable I will note we have not lost sight of our full year profitable targets and are working towards that.

Speaker Change: Maximizing efforts on what we can control.

Speaker Change: And finally, we expect gross written premiums of $460 million to $480 million.

Speaker Change: Thank you all for your time today, and I'll now hand over to Matthew to cover our Kpis.

Matthew: Thanks, Sean and Hello, everyone.

Matthew: Let's look at our Kpis. The average number of companies was 29000 in Q2 slightly lower due to the mortgage title and inspection industries continuing to feel pressure in the housing and refinance market.

Michelle Taves: The Housing and Refinance Market. Our gross loss ratio was 117%. Thank you. Our gross combined ratio in Q2 was 124%. Michelle will elaborate on this shortly. We're also revising deductibles and policy terms.

Speaker Change: And fewer companies operating for the time being.

Speaker Change: There are signs of possible changes to interest rates and home sales growth beginning in 2025, which we clearly would welcome.

Speaker Change: Average revenue per company per month increased 17% to $1253 over the prior year, driven by lower seeding and premium increases.

Matthew: We had 231000 monetize services in the quarter, 5% lower than the prior year.

Speaker Change: Average revenue per monetize service was $395 up 19% from last year due to continued growth in insurance.

Speaker Change: Looking now at our insurance segment, Kpis, which as a reminder included AIG insurance agency in 2023.

Speaker Change: Which we have since divested.

Speaker Change: In the second quarter gross written premium was $117 million from 232000 policies in force.

Speaker Change: As John mentioned these kpis were impacted by non renewals completed this quarter.

Speaker Change: This process is now complete.

John: Annualized revenue per policy was $1348, an increase of 161% from the prior year driven by premium increases and lower ceding.

Speaker Change: Focusing now on HOA, our insurance carrier annualized premium per policy increased 28% to $2059 premium retention was 88%.

Speaker Change: Lower than the prior year driven by the non renewal actions.

Speaker Change: Our gross loss ratio was 117% in Q2.

Speaker Change: On slide 21, we present, the gross loss ratio split by Cat and Attritional losses, as Sean said, our Attritional losses outperform R.

Sean: Our attritional gross loss ratio was 21% 14 percentage points better than prior year.

Sean: As you can see in the chart. This was offset by catastrophic weather claims with the cat loss ratio, increasing 11 percentage points year over year to 96%.

Speaker Change: Of which 22 percentage points were from the May Houston event.

Speaker Change: The overall current year gross loss ratio was 117%.

Sean: An improvement from 120% last year.

Speaker Change: Our gross combined ratio in Q2 was 124% an improvement from 180% last year.

Speaker Change: Which again goes to highlight that even in Q2, which is a quarter in our year with the most losses the amount of improvement we have made to the insurance business.

Speaker Change: Last quarter, we discussed the three piece driving a strong underwriting performance.

Speaker Change: Today, we will also outline our expectations for premium growth.

Speaker Change: First product, we'll continue leveraging our unique data, which is crucial for our insurance profitability Miss.

Speaker Change: Michel will elaborate on this shortly.

Speaker Change: Also revising deductibles and policy terms like introducing a roof schedule that adjusts replacement value based on the Rus age, thereby reducing our risk and mitigating customer price increases.

Speaker Change: Second on price the slide shows a 28% increase in earned premium per policy over the prior year, reflecting adjustments for a high frequency high severity environment.

Speaker Change: In part due to the recent weather events, we anticipate it continuing to raise prices meaningfully.

Speaker Change: Third portfolio we.

Speaker Change: We completed non renewals of unprofitable policies and are now starting to work through reopening certain zip codes in geographies that we had closed in order to manage the premium levels of our business to current levels.

Speaker Change: Given the progress we have made overall, we are ready for growth and we expect premium to increase nicely in 2025 and beyond both adding policies and step up in rate.

Speaker Change: Thank you everyone I'll now turn it over to Michelle for a quarterly deep done.

Speaker Change: Good afternoon, everyone I'm, Michelle paid channel ports group media purchase data and marketing solutions Division.

Michelle: Done with the business for nine years with my 30 year career and spend focused on creating data products for many types of use cases and customers.

Speaker Change: I'm Super excited about where our businesses and the opportunities that lie ahead.

Speaker Change: Sports Group media, formerly be 12 was acquired by courts in January 2021, and we have rapidly evolved into a leader in <unk> marketing and data products.

Michelle Taves: We've upgraded our data platform and now leverage unique data on properties and consumers. Through our solutions, we help brands to reach consumers who have important and time-sensitive needs for home improvement projects and when purchasing a new home. Porch's extensive property and mover data is structured into intelligence and combined with other sources to form a vast data platform with billions of data points, providing valuable information on property condition and risk that would be impossible to gather any other way. For example, one of our home factors is the presence of water intrusion.

Speaker Change: We've upgraded our data platform and now leverage unique data on properties and consumers.

Speaker Change: Through our solutions, we help brands to reach consumers, who have important and time sensitive needs for Homelink program projects and when purchasing a new home.

Speaker Change: Recently, we launched home factors, which offers detailed property and homeowner insight.

Speaker Change: Allowing companies to reach the right consumer at the right time and helps them better assess risk on pricing for their services.

Speaker Change: Today I'm going to explain the use of our unique property in consumer data and how we can do on underwriting and pricing advantage for our homeowners insurance business.

Speaker Change: Additionally, I'm going to highlight some new data products, we're launching to assist other companies that were targeting a noncompetitive markets.

Speaker Change: Cortez extensive property in mover data structured them to intelligence.

Speaker Change: And combined with other sources to farming the act data platform with billions of data points.

Speaker Change: This enables us to generate predictive insights, including home factors for nearly every property in the U S.

Speaker Change: We long utilize machine learning and recently, we are incorporating new AI technologies to rapidly structure, an extract insights from our data.

Speaker Change: Our data platform team is innovating at an impressive pace now producing a new factor every few weeks, allowing us to continually bring impactful products to market.

Speaker Change: Our insights cover both interior and exterior property details.

Speaker Change: Such as type of pet rip condition, and water heater location, providing valuable information on property condition and risks.

Speaker Change: That would be impossible to gather any other way.

Speaker Change: One of our home factors is the presence of water intrusion on.

Speaker Change: Imagine, knowing which properties are likely to have a water staying on the long run around the water heater or corrosion near Washington machine types.

Speaker Change: Historical claims data shows a strong correlation between E sign on future water claims.

Speaker Change: By identifying calls with these risks, we can accurately assess and price them.

Michelle Taves: Our data suggests that about 65% of HOAs policyholders should face an 8% to 10% surcharge, while around 30% could receive a 20% discount on premiums. This allows carriers to set pricing more accurately for lower or higher risk customers or avoid underwriting higher risk customers likely to generate a claim. It also rewards and encourages homeowners to take care of their home. Early results match our findings with HOA, showing significant correlation between our insights and claims frequency and severity, proving value for pricing and decision making.

Hoa: Our data suggests that about 65% of Hoa's policyholders ship based on 8% to 10% surcharge.

Speaker Change: Around 30% could receive a 20% discount on premiums.

Speaker Change: This allows carriers to set pricing more accurately for lower or higher risk customers.

Speaker Change: Or avoid underwriting underwriting higher risk customers likely to generate a claim.

Speaker Change: It also rewards and encourage homeowners to take care of their homes.

Speaker Change: We are really excited to announce that we are currently in market monetizing home factors.

Speaker Change: We're encouraged by the early testing when receipt we're seeing after.

Speaker Change: After two years of quietly developing unique valuable products.

Speaker Change: We have proven their advantage with our insurance carrier HOA.

Speaker Change: Who uses the data delivering top tier loss ratio performance.

Speaker Change: Today I'm excited to share three use cases, demonstrating how we are monetizing the data while maintaining our competitive edge.

Speaker Change: First we're targeting third party insurance carriers and non competitive states T is all factors.

Speaker Change: Early results match, our findings with HOA showing significant correlation between our insights on claims frequency and severity.

Speaker Change: Proving value for pricing and decision making.

Speaker Change: Second a large retailer is using our data to market to their customers more effectively instead.

Michelle Taves: Instead of broad-based ads, they're using home factors like window repair needed or roof replacement required to pinpoint the right consumer at the right time within their database, leading to a 30% increase in purchase intent signals. Third, a home security company improved customer retention by 8% and reduced cancellations by 9% using our mover match profile. Move or Match identifies customers in the process of moving, allowing businesses to connect with them early in the decision-making process. This is particularly valuable for moving companies, as the first to contact the consumer often wins the business.

Speaker Change: Instead of broad based ads, they're using hunk factors like winter repair needed our roof replacement required to pinpoint the right consumer at the right time within their database, leading to a 30% increase in purchase intent signals.

Speaker Change: Third a home security company improved customer retention by 8% and reduce cancellations by 9% using our member match program.

Speaker Change: Mover match identifies customers in the process of moving.

Speaker Change: Allowing businesses to connect with them early in the decision making process.

Speaker Change: This is particularly valuable for Hoover's solution as the first to contact the consumer often wins the business.

Matthew Ehrlichman: Overall, we're still early in our journey, but we are thrilled at the progress we're making, and we are eager to release additional home features in Q3 of this year. And we have a robust roadmap ahead of us that will remain unique to what Porch can provide.

Speaker Change: Overall, we are still early in our journey, but we're thrilled.

Speaker Change: That's the progress, we're making and we are eager to release additional home factors in Q3 of this year.

Speaker Change: And we have a robust roadmap ahead of us that will remain unique somewhat ports can provide thanks.

Speaker Change: Thanks, everyone I'll hand, it over to Matt to wrap up.

Matt Eichmann: Thanks Michelle.

Matthew Ehrlichman: big deal for us. I'm very excited to watch it continue to progress. To wrap up, one of the other high margin opportunities is, of course, our homeowner's insurance opportunity in business and how it scales, particularly following the reciprocal launch. As we mentioned, we will keep the market informed on progress and updates as we continue forward in 2024. For that, we'll wrap up the prepared remarks and pass the call to the operator. Rob, if you can go ahead and open up the call for Q&A,

Matt Eichmann: The big deal for Us I am very excited too to want to continue to progress.

Matt Eichmann: I will say that there are several significant high margin opportunities ahead for porch and certainly the opportunity to monetize impactful data products is one of those.

Speaker Change: To wrap up one of the other high margin opportunities is of course, our homeowners insurance opportunity in business and how it skills, particularly following the reciprocal launch.

Speaker Change: As he mentioned, we will keep the market informed on progress and updates as we continue forward in 2024.

Speaker Change: Once approved we would expect to host an investor day and at that point, we'll drive more details in the higher margin economic model and forward looking guidance.

Speaker Change: We're committed to continuing to write profitable homeowners insurance business and expect to grow premium nicely in 2025 and beyond.

Speaker Change: While we revised our adjusted EBITDA guidance range to include the known July Hurricane event. We are still focused on this full year of positive adjusted EBITDA objective.

Speaker Change: We aim to continue our track record of strong execution on what we control and we will be maximizing all efforts to achieve that goal.

Speaker Change: We aimed at few falsely over the remaining five months of the year and again do expect to have a very high profitability second half.

Speaker Change: We have a number of catalysts ahead and are excited to deliver for you all.

Speaker Change: With that we'll wrap the prepared remarks and pass the call to the operator, Rob If you can go and open up the call for Q&A.

Rob: Certainly we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.

Speaker Change: Your first question comes from the line of Dan Kudos from the Benchmark Company. Your line is open.

Dan Kudos: Thanks. Good afternoon, just two quick ones for me.

Dan Kudos: I guess, Matt its always tricky walking that fine line between opening up the aperture and preparing to scale and then obviously you get these cat events that hit cash flow. So I'm just kind of curious.

Matthew Ehrlichman: On your sort of willingness now to invest in growth near term, or more thoughts on de-risking the portfolio until you get the TDI approval. And then on home factors, just, I mean, any more color on how we should think about the data opportunity. V12 had retail exposure, which we heard about today. And so it's kind of a broad brush. So I would love to think about either the TAM or how we should think about that impact.

Speaker Change: On your sort of willingness now to invest in.

Speaker Change: Growth near term and or more thoughts on de risking the portfolio until you get the TDI approval and then on home factors just any more color on how we should think about.

Speaker Change: The data opportunity.

Speaker Change: <unk> had retail exposure, which we heard about today and so it's kind of a broad brush. They just love to think about either the Tam or how we should think about that impacting the P&L. Thanks.

Matthew Ehrlichman: Yeah, I'm happy to. Maybe I'll take the first one. And Michelle, why don't you take the second one?

Speaker Change: Yeah.

Speaker Change: Maybe I'll take the first and Michelle why don't you take the take the second.

Speaker Change: The.

Matthew Ehrlichman: So, I mean, in terms of growth, you know, Dan, kind of what we're talking about today is we don't think these events really change our plan. Obviously, you can see in our, you know, P&L this year, you know, we just, our businesses just, their core outperformance could have absorbed, you know, one, at least one in 10 year events, you know, not two of those one in 10 year events. And, but, you know, the reality is that we see what's happening in terms of attritional losses; we see how the business, the core business, is performing, you know, on a run rate basis.

Speaker Change: So I mean in terms of growth kind of where we're talking about today is we don't think these events really change our plan. Obviously you can see in our P&L this year.

Speaker Change: We just are our businesses. This core outperformance could have absorbed one of these one in 10 year events, you know not two of those those one in 10 year events.

Speaker Change: And but the reality is is that we see what's happening in terms of Attritional losses, we see how the business. The core business is performing on a run rate basis.

Matthew Ehrlichman: And we're not that far away in terms of our expectations from being able to get the business, you know, in our view, again, optimally structured, you know, through the reciprocal. Like Matthew and I both mentioned, we are, you know, through that period of non-renewals, and it is time to start, you know, unlocking zip codes that we had closed and really starting to position and open up growth, which we do expect to be able to again grow premiums nicely in 2025. Michelle, do you want to take the second question?

Speaker Change: And we're not that far away in terms of our expectations from being able to get the business.

Speaker Change: Our view again optimally structured through the reciprocal.

Speaker Change: Matthew and I. Both mentioned, we are through that period of non renewals and it is time to start.

Speaker Change: While unlocking.

Speaker Change: ZIP codes will be closed and really starting to position and open up growth, which we do expect to be able to grow premiums nicely in 2025.

Speaker Change: Michel you want to take the second question sure sure I guess, a few points I would say that we're at the very beginning of our journey.

Michelle Taves: Sure, sure. Um, I guess a few points. I would say that we're at the very beginning of our journey. We are optimistic. We are very optimistic about the opportunity. There are tons of valuable predictive insights that are growing across the industry, so we know that for sure. We have proven case studies, and we're seeing some positive results with HOA and validation across other businesses, so we're feeling really confident. We've already started monetizing the product, and we're having a great deal of conversations across different industries.

Speaker Change: We are optimistic we are very optimistic for the opportunity. There is tons of valuable predictive insights that are growing across the industry. So we know that for sure.

Speaker Change: We have proven case study and we're seeing some positive results with HOA and validation across other businesses. So we're feeling really confident.

Speaker Change: <unk> already started monetizing the product and we're having a great deal of conversations across different industries.

Michelle Taves: And I think the final point I would say is, I've had the opportunity to create many data products over my career, and I've never had so much excitement from clients as I've seen with Home Factors in such a really short period of time.

Speaker Change: And I think the final point I would say is I've had the opportunity to create many data products over my career and I've never had so much excitement from clients as I've seen with contractors in such a really short period of time.

Matthew Ehrlichman: And maybe I'll just layer on two quick thoughts. I think it's all perfectly said.

Speaker Change: And maybe I'll just layer on to good to us.

Speaker Change: Perfectly said.

Matthew Ehrlichman: One, it's fun to start unpacking this, Dan, I think, just for the market. Obviously, this has been our strategy and our plan for some time. It's been a bit since we acquired V12, and there's been a lot of, I would just say, core fundamental work to be able to get to this time, where we're able to share that we are now out monetizing some of these really cool, very unique data products with third-party partners.

Speaker Change: One is it's fun to start unpacking. This then I think just.

Speaker Change: Or for the market obviously.

Speaker Change: Obviously this has been our strategy and our plan for some time.

Speaker Change: It's been a bit since we had acquired.

Speaker Change: 12, and Theres been a lot of I would just say core fundamental work to be able to get to this time, where we're able to kind of share that we are now out.

Speaker Change: Monetizing some of these really cool very unique data products.

Matthew Ehrlichman: Again, it's not like it's a big surprise to me that there's a strong interest in the market because, one, we have data about properties that no one else has. And we have home factors now for virtually every home in the U.S. And two, we know definitively, with all the work we've done with Americans over the last several years with that data, that it creates real and substantial value and is able to predict risk.

Speaker Change: With with third party partners.

Dan Kudos: It's not like it's.

Dan Kudos: The big surprise to me I suppose that there's strong interest in the market because one we have data about properties that no one else has.

Dan Kudos: And we have no home vectors now for virtually every home in the U S.

Dan Kudos: And two we know definitively with all the work we've done with homeowners of America over the last several years with that data that it creates real and substantial value.

Dan Kudos: And being able to predict risk and so the market is going to.

Matthew Ehrlichman: And so, you know, the market is going to, I believe, be really excited about it, which means it should become a really meaningful business for us. It should be very high-margin, and it's really accretive to everything you see, you know, today. So, again, we're at the beginning of the journey, but it should be a fun time. And if we really pull it off, Michelle nails it and knocks it out of the park.

Speaker Change: Do I believe would be really excited about it which means it should become a really meaningful business for us that should be very high margin and it's really accretive to everything you see today.

Speaker Change: So again, we are at the beginning of the journey, but but it should be a fun one diamond if we really pull it off Michelle nails it knocked out of the park.

Matthew Ehrlichman: Once you get those first set of third-party partners using the data, well, you start to create momentum in the market where now everybody really needs to use the data to be able to be competitive. And that happened at a variety of times across multiple different data companies, and so we think that we're positioned really well there.

Speaker Change: Once you get those first set of third party brokers using the data will you start to create momentum in the market. We're now everybody really needs to use the data to be able to be competitive and thats happened in a variety of times across multiple different data companies and so we think that we are.

Speaker Change: We're positioned really well there.

Unknown Executive: Super helpful. Thanks guys. I appreciate it.

Speaker Change: Got it Super helpful. Thanks, guys. Appreciate it thank you.

Unknown Executive: Your next question comes from the line of John Campbell from Stevens. Your line is open. Hey guys, this is...

Speaker Change: Your next question comes from the line of John Campbell from Stephens. Your line is open.

Speaker Change: Hey, guys. This is Jonathan on for John Thanks for taking my questions.

John Campbell: So drilling down on your vertical software revenue, particularly the portion that's transactional.

Jonathan: Would you expect that Rev to outpace the national market when the housing recovery begins or would you say that Rev.

Jonathan: As more closely tied to the Nashville relocation or corporate moved.

Speaker Change: Market.

Speaker Change: And I think I'm going to take it.

Speaker Change: Okay, that's what I was going to say, yes.

Speaker Change: Matthew can join in but as you can say that our vertical software segment.

Speaker Change: Because I just feel back the onion, there we've seen the mark.

Speaker Change: The housing market.

Speaker Change: Continue to be soft and struggle this year.

Speaker Change: And really we have to.

Speaker Change: The types of businesses there, we have our more traditional software and services businesses. Those we saw growth.

Speaker Change: This quarter around 4%.

Speaker Change: And then to your point, Jonathan we had the.

Speaker Change: Moving businesses, where we saw it decline more consistent with the overall housing market decline.

Jonathan: I think our opportunity there as the housing market recovers is as there's more folks that are moving.

Jonathan: I think we have a good opportunity.

Speaker Change: To beat the market there.

Speaker Change: And.

Speaker Change: Grow our.

Speaker Change: Revenue in those businesses really nicely and the other thing I'll point out also on from a profitability perspective.

Speaker Change: Those businesses have improved.

Speaker Change: With profitability quite substantially over the last couple of years, even in this down housing market. So I think as the market recovers we will get additional.

Unknown Executive: So I think as the market recovers, we will get additional leverage there from the more profitable cost structure we have for those businesses.

Speaker Change: Leverage there.

Speaker Change: From the profit.

Speaker Change: More profitable structure cost structure, we have.

Speaker Change: For those businesses in the years ago.

Unknown Executive: I would just add two small points. One, to build on Shawn's profitability. These businesses are very scalable, and so we can handle many more transactions with little to no variable costs. And so whatever impacts you see on revenue, there's going to be a significant flow through to the bottom line. The other thing to keep in mind is some of those businesses monetize refinances. And so there's kind of two markets we can monetize.

Speaker Change: I would just add two small points one to build on sean's profitability.

Speaker Change: These businesses are very scalable and so we can handle many.

Speaker Change: Many more transactions with little to no variable costs, and so youre going to see.

Speaker Change: Whatever impact you see on the revenue there is going to be significant flow through to the bottom line.

Speaker Change: The other thing you can mine some of those businesses monetize refinances and so theres kind of two markets. We can monetize when is the moves in the real estate transactions and we will certainly benefit as the market recovers, but then also as interest rates declined in the refinancing market comes back.

Unknown Executive: One is the move in real estate transactions, and we will certainly benefit as the market recovers. But then also as interest rates decline, the refinancing market comes back, and that will also be a tailwind. But last thing.

Speaker Change: That will also be a tailwind for us.

Unknown Executive: Last thing to add, just to make sure it wasn't missed, I'm not sure if people understand that there are two ways that we feel pressure right now in the market. Matthew hit the transaction volume with both home sales and refinance.

Speaker Change: But last thing to add just to make sure it was missed.

Speaker Change: I'm not sure if people understand that there is two ways that we feel pressure right now on the market Matthew hit the transaction volume at both home sales and refinance but the other is and you just think about it. These companies that are operating in these markets.

Unknown Executive: But the other thing is, if you just think about these companies that are operating in these markets, it's just harder to run a business. So there are fewer companies, you know, that are out there. So as the market turns around, not only will there just be more transactions, which will both go straight into our systems and into revenue, but you'll also just have more companies that are joining and entering these markets, which gives us more to do, more businesses to be able to sell, sell to, and partner with.

Speaker Change: It's just harder to run our business. So there are fewer companies that are out there. So as the market turns around not only will it just be more transactions, which both straight into our systems and into revenue, but youll also does have more companies that are joining in entering into these markets, which gives us more to more more businesses to build a solar cell two important one.

Unknown Executive: Got it. Thank you. Thank you for the color there.

Speaker Change: Got it. Thank you. Thank you for the color there and then as a follow up looking at insurance.

Unknown Executive: And then as a follow-up, looking at insurance, you know, in recent quarters, you guys have exited certain states where you felt like you couldn't be profitable. Would you ever consider exiting a market like Houston, where, you know, these, these wet cat weather events are occurring and seem to be occurring, you know, on a consistent basis, it almost seems like.

Speaker Change: In recent quarters, you guys have exited certain states, where you felt like you couldn't be profitable.

Speaker Change: Would you ever consider.

Speaker Change: Exiting a market like Houston, where.

Speaker Change: These cat weather events are occurring and seem to be occurring you know.

Speaker Change: Consistent basis, it almost seems like.

Matthew Ehrlichman: Yeah, I would say, we would, of course, consider whatever creates the most shareholder value in the long term. We are, we are pragmatic, and that is our focus to go build a great long-term business. We do not think that means exiting Houston, to be clear, like Houston has actually been, over time, for HOA, an attractive and highly performing market. Now, you know, obviously, there's going to be that recency bias because, just in the last three months, there were two of those events.

Speaker Change: Yeah, I would say.

Speaker Change: We would of course consider whatever creates the most shareholder value.

Speaker Change: Certainly we are we are pragmatic and that is our focus to go build a great long term business. We do not think that means exiting houston to be to be quite like Houston has actually been overtime for HOA and attractive and highly performing.

Speaker Change: Now, obviously theres going to be that recency bias because just in the last three months. There are two of those events, but we do think that overall that market is well suited for us in the B b.

Matthew Ehrlichman: But we do think that, overall, that market is well suited to us and will be, you know, effective and profitable going forward. The only other thing I would add is, again, just to stress the point that when these events happen, yes, you know, it is unfortunate for those near-term results, but it creates a lot of opportunity in the market. And so we do think there, you know, it means that there will be, you know, meaningful price increases because, at the end of the day, carriers, insurance carriers are going to, you know, make sure their prices are going to be able to generate profit. And so, you know, we will certainly follow along with what the market does there.

Speaker Change: Effective and profitable going forward.

Speaker Change: The only other thing I would add is again just to stress the point.

Speaker Change: When these events happen.

Speaker Change: Yes.

Speaker Change: It is unfortunate for those near term results.

Speaker Change: It's a lot of opportunity in the market and so we do think there. It means that there will be meaningful price increases because in a day.

Speaker Change: Carriers insurance carriers are going to.

Speaker Change: Sure, they're priced below generate profit and so we will certainly follow along with what the market market would do there.

Unknown Executive: Got it. Thanks, guys.

Speaker Change: Got it thanks guys.

Unknown Executive: Your next question comes from the line of Jason Helfstein from Oppenheimer. Your line is open.

Jason <unk>: Your next question comes from the line of Jason <unk> from Oppenheimer. Your line is open.

Matthew Ehrlichman: Hi, this is Steve Hromin speaking on behalf of Jason. So just two questions from us. One is, why did you guys decide to update the reciprocal application? I'm just wondering what kind of information changed versus once you initially applied whenever that was, let's say it was like nine months ago or so. Then secondly, does your updated full-year guide assume any improvement in the housing market within either of your sectors?

Steve: Hi, This is Steve <unk> on for Jason. So just two questions from US. One is why did you guys decide to update the reciprocal application I'm just wondering what kind of information changed for versus what you initially.

Speaker Change: Applied whenever that was let's say it was like nine months ago or so and then secondly does your updated full year guide assume any improvement in the housing market within either of your sector.

Shawn Tabak: I'll take the first, and Shawn, or if you'd like to take the second. When we say update the reciprocal application, really, what we're talking about is just getting the reciprocal application back on file. So, if you recall, more than a year ago, we were on file. We had to pull that back when there was that Vestu fraud, that fraud with a reinsurance partner that we had worked with. You know, we worked with TDI to be able to wait the appropriate amount of time and make sure the business was just performing really well and healthy.

Speaker Change: I'll take the first.

Speaker Change: John or if you'd like to take the second.

John Campbell: When we say update the reciprocal application it really we're talking about just getting the reciprocal application back on file. So if you're if you recall more than a year ago, we were on file.

Speaker Change: We had to pull that back when there is that the best do fraud that probably a reinsurance partner that we had worked with.

Shawn Tabak: We've certainly crossed, you know, crossed the key milestones that we needed to, and now we've refiled the application. In terms of, you know, updates, we're really just updating for the actuals that have happened over this period of time. But the core strategy and what we're implementing certainly remains.

Speaker Change: We.

Speaker Change: Worked with <unk> to be able to waive the appropriate amount of time make sure. The business was performing really well healthy we certainly crossed.

Speaker Change: The key milestones that we needed to and now we've re file the application in terms of updates.

Speaker Change: Just updating for actuals that have happened over this period of time, but the core strategy and what we're implementing certainly remains the same.

Unknown Executive: Yeah, with respect to the housing market, we continue to expect, you know, a fairly stagnant housing market. And so that's what we've considered in our guidance for now. Certainly, you know, any positive momentum there would have an impact. But, you know, we've continued to be, I think, more on the conservative side of what we would.

Speaker Change: Yes with respect to the housing market, we continue to expect a fairly stagnant housing market.

Speaker Change: And so that's what we've been considered in our guidance for now certainly.

Speaker Change: <unk> positive momentum there.

Speaker Change: You.

Speaker Change: Would have an impact but.

Speaker Change: We've continue to be I think more on the conservative side of what we would expect there.

Speaker Change: Got it thank you.

Unknown Executive: Your next question comes from a line of Ryan Tomasello from KBW. Your line is open.

Speaker Change: Your next question comes from the line of Ryan Tomasello from K B W. Your line is open.

Unknown Executive: Hi everyone, thanks for taking the questions on the reciprocal exchange regarding the $18 million, $18 million share, excuse me, contribution to HOA. Was that figure determined? with the consultation of PDI and then, the $40 million statutory surplus figure that you cited. Is that a pro-forma figure that's fully burdened for 2Q-CAT and the 3Q-CAT from Birkin-Berle? Or is there some timing dynamic there that has yet to flow through to fully bake in that impact on the 41.

Ryan Tomasello: Hi, everyone. Thanks for taking the questions.

Speaker Change: On the reciprocal exchange.

Speaker Change: Regarding the $2 million.

Speaker Change: $10 million share excuse me contribution to each way.

Speaker Change: Is that figure determined.

Speaker Change: With the consultation of TDI and then.

Speaker Change: The $40 million statutory surplus figure that you cited.

Speaker Change: Is that a pro forma figure that's fully burden for QQ cab and the <unk> from hurricane barrel.

Ryan Tomasello: Or was there something timing dynamic there that.

Speaker Change: I have yet to flow through to fully bacon.

Speaker Change: Scott impacts of the $40 million.

Shawn Tabak: That's our June 30 surplus number for HOA. We said approximately $40 million. So that's burdened by the cap that we saw in May for the Houston event.

Ed: Yes, Ed.

Ryan Tomasello: Yes.

Speaker Change: Maybe I'll just start with the second one real quick so that's our June 30.

Speaker Change: Surplus number for HOA, we said approximately $40 million. So that's burdened by the.

Speaker Change: Cap that we saw in may for the Houston event.

Shawn Tabak: You know, as we look forward here, one thing I would just point out is that the second half of the year is typically when we generate the most surplus at HOA. And in particular, with the increases in profitability that we saw this year, one data point you can look at is that last year, in the second half of the year, our insurance segment generated about $50 million in adjusted EBITDA. And not all that goes to HOA, but I think it can just give you a sense as to the scale, even without the additional work that we've done this year and what we saw in our results in the first half as to, you know, the general seasonality of our business and how we, you know, generate more profits in the second half of the year. The first question was about the share contribution. We, of course, contributed $18 million, $18 million shares, excuse me, into HOA. You know, a couple things about that.

Speaker Change: As we look forward here one thing I would just point to is second half of the year is typically when we generate the most surplus.

Speaker Change: Add HOA.

Speaker Change: And in particular with the increases in profitability that we saw this year. One one data point you look at is last year in the second half of the year, our insurance segments, it generated about $50 million and adjusted EBITDA.

Speaker Change: And not all of that goes to HOA, but I think it can just give you a sense as to the scale.

Speaker Change: Even without the additional work that we've done this year than we saw in our results in the first half.

Speaker Change: As to the general.

Speaker Change: Seasonality of our business and how we.

Speaker Change: Generally more profits in the second half of the year.

Speaker Change: The first question was about the share contribution.

Speaker Change: We of course contributed to $2 million 80 million shares excuse me an HOA.

Shawn Tabak: It bolsters the balance sheet. You know, the company independently, to answer your specific question, the company, you know; we decided to do it because it has the strategic benefits that we talked about. I think Matt showed the flywheel where you can, you know, adding the shares in strengthens the long-term surplus, that supports future premium growth in 2025 and beyond. And then, you know, that we can also benefit from future appreciation of port shares there by adding additional creating additional surplus, which again creates the opportunity for more premium.

Speaker Change: A couple things on that.

Speaker Change: <unk> the balance sheet.

Speaker Change: The company independently to answer your specific question the company.

Speaker Change: We decided to do it because it has.

Speaker Change: The street's strategic benefits that we talked about I think Matt showed the flywheel where.

Speaker Change: You can add.

Speaker Change: Adding the shares and strengthens the long term surplus.

Speaker Change: Supports future premium growth additional premium growth in 2025 and beyond.

Speaker Change: And then.

Speaker Change: That we can also benefit from future appreciation of course chairs there by.

Speaker Change: By adding additional creating additional surplus which again creates the opportunity for more premium.

Shawn Tabak: And under the reciprocal model, as we noted, that generates fees for Porch Group. But I think it's also a strategic benefit. So as we launch the reciprocal, I think, you know, we can create strategic alignment with the reciprocal after launch. And importantly, as we bring in external capital sources there to further generate surplus or increase, so I think the net from all that is it supports HOA's transition to the reciprocal. And so those are really the reasons why we thought it was the right thing to do.

Speaker Change: And I know the reciprocal model as we noted that that generates fees for Portugal.

Speaker Change: I think it's also a strategic benefit.

Speaker Change: So as we launch the reciprocal.

Speaker Change: I think.

Speaker Change: We can create strategic alignment with the reciprocal Ashford launch and importantly, as we bring in external capital sources, there to further generate surplus increased surpluses.

Speaker Change: So I think the net from all of that is it.

Speaker Change: Supports hoa's transition to the reciprocal.

Speaker Change: And so those those are really the reasons that we.

Speaker Change: Thought it was the right thing to do.

Shawn Tabak: One technical point I think that we called out, just so folks understand, the shares, they're not traded currently. They're not included in weighted average shares outstanding when we calculate our earnings per share. They're effectively treated like treasury shares. So they're not voting shares. So I think the net result from all that is it supports HOA's transition to the reciprocal.

Speaker Change: One technical point I think we called out just so folks understand.

Speaker Change: The shares are not traded currently they're not included in weighted average shares outstanding.

Speaker Change: When we calculate our earnings per share they are effectively treated like treasury shares. So there is.

Speaker Change: They're not voting shares.

Speaker Change: At the moment.

Shawn Tabak: One last point on the HUA's surplus ranks. I think I know where you're going and just one thing that Shawn didn't know. Just make sure it's clear.

Speaker Change: One last point on the got it budget HOA surplus ranks I think I know where you're going.

Speaker Change: One thing that Shawn didn't know.

Matthew Ehrlichman: The $30 million net impact inside the barrel is not just all HOA. We have a captive reinsurer as well that sits behind it. And so if you're thinking about, your question might have been, okay, what happens to HOA surplus? We actually expect it to remain consistent and actually grow, you know, here as it goes, you know, throughout the year and remain in a strong position. So that's kind of what you were thinking about. We're well set up to make sure HOA continues to be healthy, and we do not expect, you know, additional, you know, contributions into HOA, including given barrels.

Speaker Change: Just make sure it's clear.

Speaker Change: The $30 million net impact Jive. The barrel is not just all HOA, we have our captive reinsurer as well that sits behind it and so if you're thinking about your question might have been thinking about okay. What happens to HOA surplus we actually we expect HOA surplus to remain consistent and actually grow you'll hear it as it goes throughout the year and remain in a strong.

Speaker Change: Position, so that you kind of what you were thinking about we're well set up to make sure HOA continues to be healthy and we do not expect additional.

Speaker Change: Contributions into HOS, including putting given barrel.

Unknown Executive: Okay, great. Yeah, thanks for clarifying that, Matt and Shawn. And then on the accounting treatment, Shawn, you already kind of touched on that. But I guess it's a bit of an interesting kind of dynamic here, trying to understand if there's any triggering event for that accounting treatment to change. Once you hopefully get the reciprocal off the ground, if ultimately those shares would be included in a consolidated share count after you deconsolidate, HOA.

Speaker Change: Okay, great yeah, thanks for clarifying that Matt and Sean.

Speaker Change: And then just on the accounting treatment Shaun you already kind of touched on it but.

Speaker Change: I got a.

Speaker Change: A bit of an interesting one.

Speaker Change: Dynamic here trying to understand if.

Speaker Change: If theres any a triggering event for that accounting treatment to change.

Speaker Change: Once you hopefully get the reciprocal off the ground if ultimately those shares would be <unk>.

Speaker Change: Included in the consolidated share count after you consolidate.

Unknown Executive: Just trying to understand the accounting there on the map because, you know, clearly this is real capital that was issued to backfill the HOA balance sheet. So if you can just walk us through how that accounting may or may not change going forward, yeah.

Speaker Change: Oh boy.

Speaker Change: I'm just trying to understand the accounting there on the box because clearly this is real capital that was issued to backfill HOA balance sheet. So if you can just walk us through.

Speaker Change: That accounting may or may not change going forward.

Shawn Tabak: Yeah, I think one thing that's important to note is, in addition to the flywheel that we talked about and supporting more capital HOA, when we do the reciprocal exchange and effectively transfer HOA to the reciprocal, we'll get a surplus note back equal to, you know, effectively the net F of eBay, plus or minus some adjustments. And so that would include whatever the share value is at that point in time.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: I think one thing that's important to note is in addition to the flywheel that we talked about and.

Speaker Change: And supporting our capital HOA.

Speaker Change: When we do that.

Speaker Change: Reciprocal exchange and effectively transfer.

Speaker Change: <unk> to the reciprocal will get a surplus note back equal to.

Speaker Change: Yes, effectively the net assets.

Speaker Change: Hum.

Speaker Change: Plus or minus some some adjustments there and so that would include the whatever the share value is at that point in time.

Shawn Tabak: And, you know, I guess on the consolidated, you know, VIE accounting, I will probably cover that at a future date. But for now, those are the additional sources of value and how we would, you know, operate there as the reciprocal is launched.

Speaker Change: And.

Speaker Change: I guess on the.

Speaker Change: Dated VA accounting I have will probably cover that at a future date, but.

Speaker Change: For now those are the additional sources of value and how we would.

Speaker Change: You know operate there.

Speaker Change: As the reciprocal is launched.

Unknown Executive: Okay, thanks for taking the questions.

Speaker Change: Okay. Thanks for taking the questions.

Ryan Tomasello: Thanks Ryan.

Unknown Executive: Your next question comes from the line of Jason Kreyer from Craig Hallam Capital Group. Your line is open.

Speaker Change: Your next question comes from the line of Jason <unk> from Craig Hallum Capital Group. Your line is open.

Unknown Executive: Great, thanks you guys. Matt, earlier this year, you talked about the addition of some hail and wind coverage you put in place. I'd be curious if that helped you at all in this quarter, if that's in position to help you as we get into the back half of the year.

Jason: Great. Thank you guys. So Matt earlier this year you talked about the addition of some hail and wind coverage you put in place just curious if that helped you at all in this quarter. If that then position to help you as we get into the back half of the year.

Shawn Tabak: Yeah, I could take that one. Yeah, so as a reminder for folks, I think what Jason is referring to, this year, we secured an additional kind of reinsurance product for severe convective storms, or severe convective storm parametric coverage. I think what we had articulated earlier this year is that we purchased $30 million of aggregate severe convective storms, and that includes hail. And the coverage there was really geared towards a series of smaller storms or hail-related losses, which is really what we saw in the first half of 2023.

Speaker Change: Yeah, I can take that one.

Matt Eichmann: Yes, so as a reminder for folks I think what Jason is referring to.

Matt Eichmann: This year, we secured an additional kind of reinsurance product for severe convective silkworm severe convective storm parametric coverage.

Matt Eichmann: I think we had articulated earlier this year as we purchased $30 million of aggregate.

Matt Eichmann: Severe convective storms and that includes a hail.

Speaker Change: And the coverage there was really geared towards a series of smaller storms or hail related losses.

Matt Eichmann: Which is really what we saw in the first half of 2023 and the approximate cost there for this coverage was about $5 million.

Shawn Tabak: And the approximate cost there for this coverage was about $5 million for the year. So a couple of things to note there, and that's just a reminder of what the product is. So a couple of things to know, it's aggregate cover, so it's evaluated over the course of the full year. We'll have more information on the cover received there later this year. Additionally, another thing I'd note is that the May Houston event was primarily a large wind, really it was a hurricane-like event, you know, with wind speeds up to 100 miles per hour on a straight line and sustained basis. So as of now, we've not included any assumptions in our financials or guidance for that as of June.

Matt Eichmann: For the year.

Matt Eichmann: So a couple of things to note there and that's just a reminder, on what the product is so a couple of things to notice an aggregate cover so it's evaluated over the course of the full year.

Matt Eichmann: So we'll have more information on the cover received there later this year.

Matt Eichmann: Additionally, the other thing I'd note is that the many Houston event was primarily a large wind really it was a hurricane like events.

Matt Eichmann: With wind speeds up to 100 miles per hour.

Matt Eichmann: On a straight line and sustained basis.

Speaker Change: So as of now we've not included any assumptions in our financials or our guidance.

Speaker Change: For for that attitude.

Unknown Executive: Okay, thank you for that. And then any early perspective on exposure to Debbie, and I know that that kind of just hit her is just happening. But just as we think through where you've got more density of policies, if you feel like you've got exposure there. Yeah, so

Speaker Change: Okay. Thank you for that and then.

Speaker Change: Just any early perspective on exposure to Debbie and I know that that kind of just hit or is just happening, but just as we think through.

Speaker Change: Where you've got more density of policy that you feel like you've got exposure there.

Unknown Executive: Yeah, so first and foremost, I think, as Matt mentioned, our thoughts are with the customers and community, rather, of those that are impacted by the hurricane. A couple things to note.

Speaker Change: Yeah, So first and foremost I think as Matt mentioned, our thoughts are with the customers.

Matt Eichmann: Community rather of those that are impacted.

Unknown Executive: We don't write policies in Florida. We talked about a couple quarters ago how we've moved out of Georgia. In South Carolina, we don't rank within 50 miles of the coast, and overall, I would say in South Carolina, we've also reduced our exposure as part of the portfolio profitability actions that we talked about. So far, this looks to be mostly a rain event. And as a reminder, we don't cover this event, so the event is obviously happening as we speak, but I think that can give some context as to our coverage in the region.

Speaker Change: By the Hurricane.

Speaker Change: Couple of things to note, we don't write policies in Florida.

Speaker Change: We talked about a couple of quarters ago, how we've moved out of Georgia.

Speaker Change: In South Carolina, we don't rank within 50 miles of the coast and overall I would say in South Carolina, We've also reduced our exposure.

Speaker Change: As part of the portfolio of profitability actions that we talked about.

Speaker Change: So far this looks to be mostly.

Speaker Change: Rain event and as a reminder, we don't.

Speaker Change: Cover flood.

Speaker Change: So the event is obviously happening as we speak but I think that can give some context as to.

Speaker Change: Our exposure in the region there.

Unknown Executive: Got it. Thanks for the color.

Speaker Change: Got it thanks for the color.

Unknown Executive: There are no further phone questions. Lois, do we have any written questions? Thank you for having me.

Speaker Change: There are no further phone questions Lois do we have any written questions.

Unknown Executive: Thanks Rob, we have one here. Shawn, you mentioned the four-year adjusted EBITDA possible target. What are you doing to drive it?

Speaker Change: Wholesale we walk on hall.

Speaker Change: Sean you mentioned the whole wall move about.

Speaker Change: Paul.

Paul: What do you quantify that.

Shawn Tabak: Yeah, I can take that one. So I wanted to first make sure we are clear on some of the things we talked about today in terms of the improvements and the performance of the business. You know, what we've guided to today is essentially a $30 million improvement year-over-year based on the midpoint of our full-year adjusted EBITDA guidance, and that's even with $53 million of additional costs from these two one in 10 year events.

Paul: Yeah, I can take that one.

Paul: So.

Speaker Change: Wanted to first make sure.

Speaker Change: We are.

Speaker Change: It's clear some of the things we talked today about today in terms of the improvements in the performance of the business.

Speaker Change: You know what we've guided to today is essentially a 30 million dollar improvement year over year based on the midpoint of our full year adjusted EBITDA guidance.

Speaker Change: And that's even with $53 million the additional costs from these two one in 10 year events.

Shawn Tabak: And as we mentioned, I think, today, a couple of times driven by the profitability actions, the price increases in software, and Strong Cost Control. Now, we typically buffer for, we have enough buffer for one, one in 10 years. This year, it looks like we're having two. Barrel, obviously, in addition to the mayor.

Speaker Change: And as we mentioned I think today, a couple of times driven by the profitability actions the price increases in software.

Speaker Change: And strong cost control now, we typically buffer for AR.

Speaker Change: We have enough buffer for one one in 10 year event.

Speaker Change: This year it looks like we're having to.

Speaker Change: Barrel, obviously in addition to the mayor.

Shawn Tabak: So overall, if I just step back from that, I think what it highlights is the improvement in the business. And also that what we have been presented this year is 2, 1, and 10 years old. I'd say there are other things we're working on that are outside the scope of what we typically would include in our guidance to try and offset the impact of these items. And overall, we remain very focused on our profitability goals.

Speaker Change: So overall, if I just step back from that I think what it highlights.

Speaker Change: The improvement in the business.

Speaker Change: And also that what we have been presented this year as to when the 10 year events.

Speaker Change: I'd say there are other things we're working on that are outside the scope of what we typically would include in our guidance to try and offset the impact of these items.

Speaker Change: And overall, we remain very focused on our profitability goals at the company.

Matthew Ehrlichman: That concludes our question and answer session. I will now turn the call back over to Matt for his closing remarks.

Speaker Change: That concludes our question and answer session I will now turn the call back over to Matt for closing remarks.

Matthew Ehrlichman: Thank you. Thank you all for the questions. I appreciate it.

Matt Eichmann: Thank you.

Matt Eichmann: Thanks, all for the questions I appreciate it.

Unknown Executive: Um, you know, as we talked about, it's a pretty, pretty exciting time and a pretty new time for the company. Um, you know, obviously, we're working hard to get the reciprocal on file and get the business structure in the ideal way that we would like to. And we're excited to share more when it's the right time around some of the details there. Uh, you know, per the question, we're excited and focused on growing premium while still executing on the profitability that Shawn just talked about.

Matt Eichmann: As we talked about it's a.

Matt Eichmann: Pretty pretty exciting diamond pretty new time for the company.

Speaker Change: We're working hard to get the reciprocal.

Matt Eichmann: On file and get the business structure and the ideal way that we would like to and.

Matt Eichmann: Brookside to share more when it's the right time around some of the details there.

Speaker Change: Further question, we're excited and focused on growing premiums while still executing on the profitability of the China, just just talked about.

Unknown Executive: Um, and hopefully at some point in the not too distant future, some of the, what has been headwinds, you know, like the housing market, um, will start to turn to tailwinds. We know that will happen. It's just a matter of, of how far off in the future and we will be able to benefit meaningfully, you know, as that, as that does, does happen. Uh, and then lastly, maybe I'll just close with, you know, fun to be able to announce kind of the launch of a new key product, Home Factors, that has, we believe, again, a tremendous amount of potential. Um, and, and very high margins. With that, I appreciate everybody's time and the continued support, certainly. We will talk to you guys again at our Q3 earnings in November. Until then.

Speaker Change: Hopefully at some point about to some future of some of the what has been headwinds like the housing market will start to turn to a tailwind. We know that will happen. It's just a matter of how far off into the future and we will be able to benefit meaningfully as that does.

Matt Eichmann: Those happen.

Matt Eichmann: And then lastly, maybe I'll just close with.

Matt Eichmann: But to be able to announce the launch of a new key product form factors that as we believe again to turn a tremendous amount of potential and very high margins.

Matt Eichmann: With that I appreciate everybody's time and the continued.

Matt Eichmann: Support certainly we will talk to you guys again at our Q3 earnings in November until then.

Unknown Executive: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: [music].