Q3 2024 Porch Group Inc Earnings Call
Good afternoon everyone and thank you for participating in Port Group's third quarter 2024 conference call. Today we issued our earnings release and filed our related Form 8K with the FEC. The press release can be found on our investor relations website at ir.portgroup.com.
Joining me here today are Matt Ehrlichman, Porch Group CEO, Chairman and Founder, Shawn Tabak, Porch Group CFO, Matthew Neagle, Porch Group COO, and Nicole Pelli, EVP and GM of the Porch Platform.
Before we go further, I would like to take a moment to review the company's safe harbor statement within the meaning of the Private Security Litigation Reform Act of 1995, which provides important cautions regarding forward-looking statements.
Today's discussion, including responses to your questions, reflects management's views as of today, November 7, 2024. We do not undertake any obligations to update or revise this information.
Additionally, we will make forward-looking statements about our expected future financial or business performance or conditions, business strategy and plan, including the expected benefits and timing of the launch of the reciprocal exchange, based on current expectations and assumptions.
These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from 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 uncertainties described in our SEC filings, as well as the risk factor information in these slides. For additional information, including factors that could cause our results to differ materially from current expectations.
We will reference both GAP and non-GAP financial measures on today's call. Please refer to today's press release, Reconciliations of Non-GAP Measures, The Most Comparable GAP Measures, discussed during this earnings call, which are available on our website.
The financial information provided today is preliminary and audited and subject to revision upon completion of the closing and audit processes.
As a reminder, this webcast will be available for replay, along with a presentation shortly after this call, on the company's website at ir.courtgroup.com.
Speaker Change: Thank you, I'll now turn the call over to you Matt.
Matt Ehrlichman: Thanks, Lois. Good afternoon, everybody. Thanks for joining us. We are excited, certainly, about today's update, so let's get started.
Matt Ehrlichman: In October, we announced that the Texas Department of Insurance approved our application to form and license Porch Insurance Reciprocal Exchange, or PIRE, with the core structural and economic terms aligned with what was proposed in our application.
Matt Ehrlichman: In the coming weeks, we expect to complete customary administrative procedures.
Matt Ehrlichman: and form and fund the reciprocal. File appropriate rates for PIR and complete the acquisition of HOA at the start of January 2025 when porch insurance will officially be available to policyholders.
Matt Ehrlichman: We then expect our insurance business to be conducted under this new model, with Porch Group acting as the operator of the reciprocal, mitigating direct exposure to insurance claims and weather events for Porch Group shareholders.
Matt Ehrlichman: This announcement is a long time coming, a key milestone for PORCH and the result of tremendous work by our team. I send my thanks to our partners at the TDI as well.
Matt Ehrlichman: We believe a reciprocal is the optimal structure, expected to result in higher margins and more predictable financial results for porch, and believe it will allow us to scale our insurance operations more profitably over time.
Matt Ehrlichman: While we've constrained premium growth to approximately flat until we received this approval, just this past week we announced sports insurance in Texas, reactivated many channel partners, and launched our premium growth plan with an eye toward a strong 2025.
Matt Ehrlichman: Shawn and Nicole will share next steps for Pyre and the value creation opportunities ahead shortly.
Matt Ehrlichman: All right, here I'll hit on some Q3 accomplishments. First, we are profitable. We delivered record quarterly results with adjusted EBITDA at positive $17 million and achieved positive operating cash flow of $12 million, both exceeding expectations.
Net income in Q3 was positive at $14 million.
Matt Ehrlichman: This is all despite Hurricane Beryl, a severe weather event, occurring in early Q3, which we had mentioned last quarter.
Matt Ehrlichman: Importantly, we expect to be a Justity Without Profitable ongoing, marking today as a significant milestone for the business.
Matt Ehrlichman: Our insurance profitability actions are compounding and making a substantial impact.
Matt Ehrlichman: Pricing, deductibles, the use of home factors, our unique property data, all contributing.
Matt Ehrlichman: We implemented further insurance premium for policy increases and total premium for policy increased 25% year-over-year.
Our growth-loss ratio in Q3 was 57%.
Matt Ehrlichman: And without catastrophic weather, our attritional loss ratio was 21%, again, outperforming expectations.
Matt Ehrlichman: The insurance carrier is healthy and expected to approach $100 million of surplus at the end of the year, which would be by far its highest in its history, and is expected to post strong positive net income for the full year 2024.
Matt Ehrlichman: Next, we have fully implemented AI models into our data platform and Home Factor data products. We launched three new Home Factors in the quarter and are seeing incredible results in better predicting losses and risk of a home.
Matt Ehrlichman: Multiple third-party carriers are currently testing our Home Factors data products against their historical claims and the results are resounding.
Matt Ehrlichman: We can help unlock meaningful underwriting and pricing advantages given our unique insights into approximately 90% of homes in the U.S.
Matt Ehrlichman: In the vertical software segment, we continue to roll out new products and features as we increase pricing. I'm very pleased with how high our customer attention rates remain.
Matt Ehrlichman: And finally, during the third quarter, we used $20 million of cash to repurchase $43 million of our September 2026 unsecured debt, bringing us to a total of $51 million par value repurchased this year.
Now over to you, Shawn, to cover the financials.
Thanks, Matt, and good afternoon, everyone.
Matt Ehrlichman: Let's turn to our third quarter financial results. First, a quick reminder that Q3 is a difficult comparison against the prior year. Last year in Q3, we discovered that one of our legacy reinsurance partners, Vestu, had committed a global fraud and therefore we terminated that reinsurance contract and looked for replacement reinsurance.
Matt Ehrlichman: During that period of time, we had a period of lower reinsurance seating, which resulted in additional revenue of $30 million in the third quarter of 2023, additional revenue, less cost of revenue of $10 million, and adjusted EBITDA of $2 million.
Matt Ehrlichman: With that as a backdrop, third quarter 2024 revenue was $111.2 million, in line with our expectations.
Matt Ehrlichman: This was a 14% decrease from the prior year driven by the Vestu matter and it was offset by a 25% increase in premium for policy in our insurance segment.
Matt Ehrlichman: Revenue less cost revenue was $64.1 million, a margin of 58%, and ahead of our expectations.
Matt Ehrlichman: Adjusted EBITDA was $16.9 million, an $8.1 million improvement from the prior year, and ahead of our expectations.
driven by the insurance segment and strong cost control.
Matt Ehrlichman: Gross written premium decreased 10% from the prior year, driven by the divestiture of our legacy insurance agency, EIG, in the first quarter of this year.
Matt Ehrlichman: We have managed HOA gross rate and premiums to be roughly flat year-over-year. With the recent approval of the reciprocal, we will now begin to execute our premium growth plan.
Matt Ehrlichman: Taking a closer look at revenue, the insurance segment was 72% of total revenue in the third quarter, relatively consistent with the prior year.
Matt Ehrlichman: Revenue from our insurance segment was $79.9 million, a 16% decrease from the prior year, driven by the Best Do Matter.
Matt Ehrlichman: Vertical software segment revenue was $31.3 million, a decrease of 9% from the prior year.
Matt Ehrlichman: Within this segment, software and services subscriptions revenue increased 7% from the prior year, a 300 basis point acceleration over the growth rate in the second quarter of 2024, and driven by price increases in Rhino and Inspection software.
Matt Ehrlichman: This was offset by a revenue decline in the moving business, which exited the unprofitable corporate relocations offering, redirecting focus to higher margin services.
Matt Ehrlichman: Now let's dig into the insurance segment, cost of revenue. Cost of revenue related to attritional claims was $16 million, better than our expectations by $13 million.
Matt Ehrlichman: Cost of revenue related to catastrophic weather claims was $26 million. In the quarter, there were two hurricanes that drove approximately $37 million in cost of revenue net of reinsurance.
Matt Ehrlichman: Hurricane Beryl was a one in ten year event that occurred in early July and Hurricane Helene was a smaller event for us that developed later in the quarter and impacted the Carolinas.
Matt Ehrlichman: This was partially offset by $13 million of favorable prior period development. With our underwriting changes, previous weather events were smaller than we had previously estimated.
Matt Ehrlichman: Recently, Hurricane Milton occurred in early October, and as a reminder, we do not have exposure in Florida, and therefore no exposure to this event.
Matt Ehrlichman: Moving to Adjusted EBITDA. Overall, Adjusted EBITDA was $16.9 million in the third quarter of 2024, a positive improvement from the prior year.
Matt Ehrlichman: The insurance segment adjusted EBITDA was $24.8 million, a $5.7 million increase from the prior year, driven by the insurance profitability actions that Matt mentioned.
Matt Ehrlichman: The vertical software adjusted EBITDA margin increased to 16% in the quarter.
Matt Ehrlichman: Corporate expenses were $13 million, or 12% of total revenue, broadly flat from the prior year.
Matt Ehrlichman: Operating cash flow was positive at $12 million in the third quarter of 2024.
Matt Ehrlichman: As of September 30, 2024, we had $405 million in cash, cash equivalents, and investments.
Excluding the $317 million at HOA, courts held $88 million.
Matt Ehrlichman: This was $29 million lower than the prior quarter, predominantly due to the repurchase of $43 million in par value of the 2026 unsecured notes for $20 million of cash. The repurchases were done at an average of 47% of par value.
Matt Ehrlichman: Taking a step back, I wanted to provide some context on capital allocation.
Matt Ehrlichman: First, we maintain an appropriate minimum level of operating cash to run the business.
Matt Ehrlichman: Second, we allocate capital toward investment opportunities that we expect to generate the highest risk-adjusted return and in excess of our internal hurdle rate, which is well above our weighted average cost of capital.
Matt Ehrlichman: Given the performance in our insurance business in Q3, we had excess cash available and were presented with an opportunity to deploy it against the unsecured notes at appropriate rates, despite the low coupon.
Matt Ehrlichman: In Q4, we expect to have two primary uses of cash, $10 million for an interest payment on the secured notes and $10 million for the seed funding of the reciprocal exchange entity, which we will cover in more detail shortly.
Matt Ehrlichman: As we shift to the reciprocal model and launch PIRE, we will continue to focus on the health of the insurance carrier and its surplus and on satisfying related regulatory capital and other requirements.
Matt Ehrlichman: After the $10 million injection to start PIRE, we do not anticipate the insurance entities will need additional cash nor equity from Porch Group.
Matt Ehrlichman: Case in point, we expect HOA will end this year at record high surplus at approximately $100 million, compared to $50 million at the end of the prior year.
HOA surplus on September 30 was approximately 70 million dollars.
Matt Ehrlichman: Shifting now to guidance, we are updating our full year guidance today reflecting our strong Q3 performance.
Matt Ehrlichman: We expect 2024 revenue of $440 million to $455 million, with 2% to 6% growth.
Matt Ehrlichman: One thing I'll note is the prior year revenue was higher due to the Vestu fallout in Q3 2023 and the divestiture of EIG in January of this year.
Matt Ehrlichman: Revenue Less Cost of Revenue Guidance is updated with a 10 million dollar improvement, now 200 million dollars to 210 million dollars.
Matt Ehrlichman: Overall, we expect adjusted EBITDA loss of seven and a half million dollars to a profit of two and a half million dollars.
A $12.5 million dollar improvement compared to previous guidance.
Matt Ehrlichman: The midpoint of this range results in $32 million of adjusted EBITDA in the fourth quarter, which is a $20 million improvement over the fourth quarter of 2023.
Matt Ehrlichman: For the full year, the midpoint would be a $40 million improvement over full year 2023, highlighting the profitability improvements of the business.
Matt Ehrlichman: We expect gross written premiums of $460 million to $470 million.
Matt Ehrlichman: We'll now focus on our Reciprocal Exchange Deep Dive for this quarter. I'm pleased to have Nicole here to discuss this section with me.
Nicole Pelli: Hi, everyone. I'm excited to be here again, updating you on our progress and next steps.
Nicole Pelli: We've been working on this for a while and we appreciate your support.
Nicole Pelli: First, Shawn will review the new structure of our insurance business once the reciprocal is launched. And then I will talk you through next steps as well as the value proposition for our insurance customers.
Nicole Pelli: Now that we have TDI approval, we will form a new entity called Fortune Insurance Reciprocal Exchange, or PIRE.
Nicole Pelli: We will provide an initial $10 million of funding in exchange for a surplus note.
Nicole Pelli: On or around January 1st, 2025, we expect to complete the sale of HOA, our existing insurance carrier, to Pyre and receive an additional surplus note in exchange.
Nicole Pelli: The amount of this surplus note will be equal to the difference between HOA's statutory surplus on the date of the sale minus our existing $49 million surplus note, which will continue forward.
Nicole Pelli: Given HOA's performance, its surplus has been growing, and at this time, we expect HOA's surplus at the end of the year to be approximately $100 million.
Nicole Pelli: After the acquisition of HOA, PIER will hold all policies, premiums, and pay certain expenses, including claims, agent commissions, and reinsurance expenses.
Nicole Pelli: As with all reciprocal exchanges, the entity will be owned by its policyholders.
who will make surplus contributions in addition to their premiums.
Nicole Pelli: which is expected to result in faster surplus growth over the long term.
Nicole Pelli: At Porch Group, within our new insurance services segment, we will operate two business units. First, Porch Risk Management Services, or PRMS, which will be the operator and attorney-in-fact of Pyre and HOA.
Nicole Pelli: PRMS will operate with mostly fixed costs and will receive high margin commissions and fees that build up to a take rate of approximately 20% of gross written premium.
Nicole Pelli: The second business unit will be Porch Insurance Capital Solutions, or PIPS, which will hold the surplus notes.
Nicole Pelli: Stepping back and looking at the new insurance services segment holistically, we expect revenue to decrease under this new model with higher adjusted EBITDA dollars and margins.
Nicole Pelli: Incremental margins are expected to be particularly strong given most of PRMS's expenses are fixed.
Nicole Pelli: Cash flow dynamics are attractive as well as fees are paid to PRMS upfront.
Nicole Pelli: And we expect for our insurance services segment to move away from weather-related volatility, making it more predictable.
Nicole Pelli: We are excited to walk through the GoForward financial model in detail at an upcoming Investor Day in December.
And Nicole will now take us through the launch plan.
Nicole Pelli: Thanks, Shawn. First, as mentioned, we received prior approval from both the TDI and the Porch Board. This was a key milestone for us that provides us certainty and clarity on the path forward.
Nicole Pelli: We now move to prepare for the launch, including system programming and operational readiness, and finalizing the Port Insurance Value Proposition and Independent Agent Onboarding and Training.
Nicole Pelli: Next up will be the launch, targeted for the start of January 2025. At that point, the HOA sale will be completed and the existing carrier, including its entire book of policies, not just Texas policies, will transfer to be a subsidiary of Pyre.
Nicole Pelli: At that same time, we will launch Port Insurance, a new homeowners insurance product with an enhanced value proposition.
Nicole Pelli: Here, consumers pay a surplus contribution, in addition to their premium, helping to build surplus more quickly.
Nicole Pelli: We will offer both porch insurance and HOA products to new and renewing Texas policyholders.
Nicole Pelli: We will initially launch the Porch Insurance product in Texas, our largest state.
Nicole Pelli: In 2025 and ongoing, we will look to roll out the Porch Insurance product to other states for HOA rights policies.
Nicole Pelli: But again, to make it clear, higher rolling out into more states doesn't impact Porch Group's financial results.
Nicole Pelli: As of the time HOA is sold to Pyre in January 2025, all premiums will be at the reciprocal and Porch Group's insurance services segment revenue will be generated through our approximately 20% commission and fee take rate on total gross written premiums.
Nicole Pelli: State expansion is just about offering another product in the market to consumers and to enable the surplus contribution the reciprocal offers to aid in growing surplus faster.
Nicole Pelli: I mentioned the extra value we'll offer to consumers through the Port Insurance product. So let's take a moment to talk through this.
Porch insurance customers are more than policyholders.
They are owners and members of The Reciprocal.
Nicole Pelli: First, we offer more protection. Our insurance protects the home structure from everyday and catastrophic risks.
Nicole Pelli: Well, our warranty product preserves the inside of the house, such as the appliances.
Nicole Pelli: New Ports Insurance members get a 90-day warranty, some new coverages such as service lines for gas, water, and sewer lines, refrigerated property protection, and other features to protect the home such as appliance recall check monitoring.
Nicole Pelli: Second, Porch Insurance is designed for homebuyers and homeowners who maintain their home.
Nicole Pelli: Homebuyers save approximately 16% on homeowners insurance and can use our app or moving concierge to schedule movers, coordinate TV internet setup, and manage their home and moving tasks.
Nicole Pelli: Third, we reward our members. We want to make it easy to care for their homes and to be rewarded as a community as they do so.
Nicole Pelli: Homeowners can use our porch app to manage their home and their to-do lists, find pros for projects, and as part of our community, keep their home safer.
Nicole Pelli: We will offer discounts on well-maintained homes as we price risk more accurately by utilizing the insights from Home Factors.
Nicole Pelli: Speaking of our property data product home factors, we're pleased with the continued progress of our data product, our data platform, and the use of AI and machine learning techniques that help us to extract and structure more home factors with increased accuracy.
Nicole Pelli: We released three new insights this quarter, each of which relate to the electric system in the home.
Nicole Pelli: First, the condition of the electrical wiring and whether it needs to be repaired or replaced.
Second, the capacity of the electrical panel.
Nicole Pelli: and third, the condition of the electric panel and whether that needs to be repaired or replaced.
Nicole Pelli: Each of these are unique to PORCH and not readily available data.
Nicole Pelli: Taking a deeper look at panel repair replace status as an example.
Nicole Pelli: power outages from an unreliable power supply, damaging sensors, electronics, or the inability to support upgrades for new appliances, such as installing electric car chargers or modern HVAC systems.
Nicole Pelli: Comparing this insight against our historical claims data indicates a 41% higher claims frequency at a comparable severity level.
Nicole Pelli: Therefore, it's valuable in evaluating risk and underwriting and pricing policies appropriately.
Nicole Pelli: This indicates we should offer an 18% discount to homes with panels that do not require repair and a 13% surcharge to those that do.
These are just a few of the new examples.
Nicole Pelli: We are submitting multiple new filings by the end of 2024 that include home factors data, such as the presence of skylights and additional roof factors.
Nicole Pelli: As a reminder, last quarter we announced we are in the market selling Home Factors to third parties with strong early results.
Speaker Change: Thank you all for your time today, and I'll now hand it over to Matthew to cover our KPIs.
Matthew Neagle: Thanks, Nicole. Hello, everyone. As Shawn mentioned, once we enter into 2025, we will make small adjustments to our reporting segments in light of the reciprocal formation, and at that time, update our KPIs for our go-forward operating model.
We'll share more at the upcoming Investor Day.
Matthew Neagle: Until then, I'll quickly cover the current KPIs we have been using.
First, the average number of companies was 28,000 in Q3.
Matthew Neagle: Average revenue per company per month decreased 8% to $1,318 from the prior year, driven by the VEST-2 impact Shawn mentioned.
We had 245,000 monetized services in the quarter.
A 9% increase over the prior year.
The average revenue per monetized service was $377.
Matthew Neagle: 26% lower than prior year, similarly driven by the Vestu matter.
Looking now at our insurance segment KPIs.
Matthew Neagle: As a reminder, 2023 included the EIG Insurance Agency that was divested in January 2024.
And thus, year-over-year comparisons are not apples-to-apples.
Matthew Neagle: In the third quarter, 2024, gross rate and premium was $139 million from 219,000 policies enforced.
Matthew Neagle: As we've discussed, we've constrained premium growth to focus on profitability and are nearing the time when we begin to grow premium once again.
Annualized revenue per policy was $1,460.
Matthew Neagle: An increase of 28% from the prior year, driven by premium for policy increases.
Matthew Neagle: Focusing on HOA, the annualized premium for policy increased 25% to $2,208.
Premium retention was 100%.
Matthew Neagle: The non-renewals are now complete and we expect to see the benefit of continued price increases as we look ahead.
Matthew Neagle: Our gross loss ratio was 57% in the third quarter, a strong result given the two hurricane events.
Matthew Neagle: Slide 23 presents the gross loss ratio and splits out attritional losses.
Our non-cat loss performance was exceptional.
Matthew Neagle: delivering a gross nutritional loss ratio of 21% and 11% improvement from the prior year.
I'll touch more on this shortly.
Matthew Neagle: As Shawn said, seasonal catastrophic weather performed well outside the two hurricane events.
Matthew Neagle: The K-tastrophe gross loss ratio was 36% in the third quarter, which was primarily driven by Barrow. Our gross combined ratio in Q3 was 89%.
Matthew Neagle: I'd like to now provide some insight and data into how our attritional losses have significantly outperformed in the last two quarters.
first products.
A Risk Selection Benefit from Home Factors.
Matthew Neagle: with their unique data helping us better assess price risk and apply discounts and surcharges where appropriate.
We're also revising deductibles and policy terms.
therefore reducing our risk of exposure.
Second portfolio.
Matthew Neagle: We've completed our risk selection review, during which we non-renewed higher risk policies that our data and modeling showed were unlikely to be profitable.
Matthew Neagle: We have exited Georgia and pulled back from coasts on Texas and South Carolina.
Third Price.
Matthew Neagle: We continue to increase pricing across states where appropriate. We are not alone here in our price increase actions.
Matthew Neagle: With historic losses, inflation, and increased reinsurance costs and expenses, premiums have had to increase significantly across the homeowner's insurance industry.
Matthew Neagle: Let's focus on Texas, our largest state, to highlight how premium per policy increases have improved our attritional loss ratio.
Matthew Neagle: In response to market shifts we've implemented rate hikes, deductible changes, and water coverage surcharges.
Matthew Neagle: Since 2021, our premium per policy in Texas has grown at a 42% CAGR, now reaching $2,508.
Matthew Neagle: The chart shows how these actions, particularly around water and fire perils, have improved loss ratios over the past four years.
Matthew Neagle: While inflation and rising reinsurance costs drove ratios higher in 21-22, they've since improved in 23-24.
reflecting the success of our strategic measures.
Speaker Change: Thanks everyone. I will hand it to Matt to wrap this up.
Matthew Neagle: Thanks, Matthew. Thank you, team. We couldn't be more excited about what's ahead. To recap...
Matt Ehrlichman: One, the Port Insurance Reciprocal Exchange is approved and the acquisition of HOA by PYRE is expected to be complete at the start of January.
Second, we lowered the amount of outstanding unsecured debt.
Three, are insurance businesses demonstrating industry-leading attritional loss ratios?
Matt Ehrlichman: We continue to roll out new home factors and are getting a strong positive response in the market. And five, for the full year, we are still focused on our target of achieving full-year profitability in 2024, delivering positive adjusted EBITDA each quarter ongoing and delivering predictable cashflow results for porch group shareholders in 2025 and beyond.
Matt Ehrlichman: We look forward to our Investor Day next month, where we'll share more detail about the economic model for Porch Group, Post-Reciprocal, the financial health of the insurance carrier,
Matt Ehrlichman: financial targets with long-term growth and margins and details into a variety of our business units.
Matt Ehrlichman: We'll share updated segments and reporting KPIs. We'll begin Q1 2025.
Matt Ehrlichman: With what we expect in terms of 2025 and 2026 results, it's going to be a fun run here coming up.
Speaker Change: With that, we will wrap the prepared remarks and pass the call to the operator. Christina, please go ahead and open up the call for Q&A.
Christina: Thank you. And at this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Once again, to ask a question at this time, please press star one. And we'll pause for just a moment to compile the Q&A roster.
Speaker Change: Thank you. Your first question comes from the line of John Campbell from Stevens. Your line is open.
Speaker Change: Hey guys great work on the profitability. I know you guys had to contend with some pretty wild weather in the quarter. That's great
Speaker Change: On the reciprocal exchange and new value proposition for consumers, you guys did touch on kind of overlaying the moving concierge service. So my main question is, how does this differ from what you've done in the past? And maybe if you could also talk to, you know, how you've been able to, how well you've been able to tie the moving services to the past insurance policies and why you feel like this could drive better synergies across the two segments.
Speaker Change: Sure, I can take that. Nicole, feel free to layer in. You know, we have built up a lot of capability around helping people to move over the past X years that we've been focused on that business.
Speaker Change: We're also very interested in targeting homebuyers, so people who are going through a home purchase.
Speaker Change: and moving and being able to provide additional services to them, things like a 90-day warranty, a moving concierge, as a way to help differentiate us as the best insurance for homebuyers.
Speaker Change: We operate the concierge all over the country in all states. We operate it in Texas.
Thus far, HOA hasn't leaned into the porch capability.
Thank you, and sir, does that complete your question?
Speaker Change: Yes, I'm sorry my line cut out there. I had one more and I apologize guys I had to hop on the call a little bit late here so apologies if I missed this explanation but could you maybe talk to the decision to exit the corporate relocation business and kind of help size up the impact within vertical software?
Yeah, I can speak to that too.
Speaker Change: There were a couple of trends working against us, you know, there's more remote work that's happening. There's less corporate relocation happening. And we provided a certain type of service to meet that segment.
So you will see the impact in the move-related revenue.
Speaker Change: in the corridor. The one thing that I will say is there's still opportunity for us in moving. We are a leader in labor-only services and we still do that for certain partners in the corporate relocation space as well as other leading brands.
Speaker Change: But it was a key driver for why the move related revenues down this court.
Got it. Makes sense. Thanks, guys.
Thank you. Bye-bye.
Speaker Change: Your next question comes from the line of Jason Helstein of Oppenheimer. Your line is open.
Jason Helstein: When a reciprocal is done and you think about bringing in outside capital to fund it, what's the process with which then you're able to extract your capital back out of the reciprocal? Thanks.
Speaker Change: Yeah, I could cover the expense profile. I think if I just take a step back for a sec, the reciprocal, one of the reasons, you know, we are excited about the shift to that model is that our expenses for our insurance segment,
the entities I talked about today, PRMS.
will be relatively fixed, mostly employee-type expenses.
Speaker Change: And we'll provide a lot more detail on that as well as.
Speaker Change: other expenses around the business at the investor day. But for now, as I think we have announced today, and the take rate at 20% gross written premium combined with that.
Speaker Change: expense profile and a relatively fixed expense profile that scales quite nicely. We're excited about the opportunity ahead and what that presents for us.
Noah: And I think your second question was on surplus, Noah, was that?
Speaker Change: Yeah, that's right. I can take that. So, we've mentioned before, Jason, that, you know, once the reciprocal is launched, it can make sense at some point to go out and raise third-party capital, third-party surplus known investors for the insurance entities. You know, we'll see when the right time is to do that.
Speaker Change: Yes, when we go and look to pursue that, we have two choices. One is to keep additional capital inside the insurance entities to be able to build surplus and grow premium that much faster.
Speaker Change: or to be able to to pay down some of Forge Group's existing and expanded now surplus surplus note.
Thank you, and does that complete your question?
Speaker Change: Hi, this is Steve on for Jason. Yeah, he's all good. Thank you.
Okay, thank you.
Speaker Change: And once again, if you do have a question at this time, please press star 1 on your telephone keypad. Again, that is star 1 to ask a question.
Speaker Change: Your next question comes from the line of Jason Cryer from Craig Columb. Your line is open.
Jason Cryer: Hey, thank you guys. So now that you've got the kind of a deadline set for triggering the reciprocal as we get into next year, I think the focus probably starts on growing policies enforced. Just curious what that looks like from a go to market perspective, as far as finding new policies, you know, whether that be geographically, and then how you tap into some of that like home factors type of data to find those homeowners that have the most attractive risk profiles.
Speaker Change: Sure, I can take that. We are excited now that the reciprocal has been approved to move into growing premium. Our focus is on growing premium next year.
Speaker Change: I would highlight a couple of things. The first is, you know, we still have a lot of opportunity in Texas.
Speaker Change: And we have opportunity in the 21 other states that we operate in.
Speaker Change: And so we'll take advantage of that open space. The second is our primary go-to-market.
Speaker Change: is through agents and there's a lot of room for us to add more appointed agents and so we are now starting to make investments into the growth teams that will help us to recruit more agents, activate and support those agents.
Speaker Change: We've also started to make changes to our commission, the commission that we provide to agents.
Speaker Change: to really incent two things. One is growth, and then the other is profitability. And so those changes make us very competitive in the market. And if we're successful at driving growth profitably, there's opportunities for those agents to even potentially get above market.
Speaker Change: And so we're excited to work with our agent team and our agents to be able to go do that.
and then most certainly Home Factors.
Speaker Change: is a key part of how we want to grill profitably. It helps us to identify homeowners that are lower risk or to be able to price the risk more appropriately.
Speaker Change: It's also particularly helpful in one of our key target segments of homebuyers because the data that we have is fresh when somebody has recently done an inspection. And so I think we're excited about starting to grow premium next year.
Speaker Change: Thank you. And then just want to ask about that in that commission fee of 20%. How how sticky is that? Like does that move around over time? Does that move around kind of annual or over several years? Or should we expect that 20% to be a pretty stable figure as we look forward?
Speaker Change: Okay, go ahead, Shawn, if you want to. Yeah, I was just going to say, you know, I think it's
A great rate for us to start out at.
Speaker Change: and there are opportunities potentially in the future for that to go up.
Speaker Change: and that could be part of the open growth plan for Records Group as we move forward. We'll cover these sorts of things, obviously, in...
Speaker Change: More detail at the analyst day, but I think, as I said before, I think the 20% is a good take rate for us and will drive, you know, a good amount of profitability.
All right. Thank you.
Speaker Change: Your next question comes from the line of Ryan Tomasello from KBW. Your line is open.
Hi everyone, thanks for taking the questions.
Speaker Change: Maybe just zooming in on another part of the business, Flowify.
Speaker Change: Just was hoping you can provide an update on how that business is performing in terms of the sales environment and whether or not attrition I know has been a headwind for a lot of players like Flowify if you feel like that's bottomed out.
Speaker Change: and then also related to Flowify, you know, the embedded insurance marketplace opportunity, something that was a big part of that story. Just was wondering if there's any update there on how that fits into the whole, you know, insurance strategy overall. Thanks.
Speaker Change: Yeah, I can speak to Flowify. You know, across all of our vertical software businesses,
Speaker Change: You know we are focused on continuing to innovate, continuing to take price for the value that we can create.
and it has certainly been a headwind market.
Speaker Change: Flo-Fi, in addition to, you know, the transaction volume falling, falling down, you also see a lot of loan officers exiting the market, and a lot of the way they monetize their business is through those loan officers.
Speaker Change: We are excited about some of the things we are working on. We see opportunities for us to provide services and monetize going forward on a more transactional basis.
Speaker Change: which will give us an opportunity, as transaction volumes return, to participate in that growth in addition to the growth of loan officers, which we would expect to come back, but probably more slowly.
Speaker Change: and transactions. There's also been some interesting sort of movements in the market with competitive players that have opened up some avenues for us.
Speaker Change: to grow, share, and focus on certain parts of the market.
Speaker Change: And so, you know, we've seen if you look in our vertical software segment, we've seen margin extension. So the team has done an excellent job in these headwinds.
Speaker Change: of staying focused on driving new innovation while really keeping a close eye on profitability, which just positions us really well as the growth comes back over the next one, two, three years in the real estate market.
Speaker Change: In terms of the embedded insurance. Great, thank you for taking the questions.
Speaker Change: Yeah, let me finish out the question for you, and I will say, overall, just to echo what Matthew said, Teams has done a really good job. I would say each of our software business leaders and teams have done a really nice job in this market, but give Flowfi real credit. Things like the metrics you're asking about there, Ryan, you know, attrition, have really stabilized and actually done quite well. In terms of the embedded insurance opportunity,
Speaker Change: We focused, I would say, more of our energy on some of our other software, you know, products, like some of the things in the inspection, you know, industry, just given the market, you know.
Speaker Change: turmoil in the mortgage industry. We've prioritized on building features for those businesses that they really need to be able to stabilize and run their businesses. So it hasn't been a high priority for us here recently.
Got it. I appreciate all the color. Thanks, Ryan.
Speaker Change: Thank you, and there are currently no further questions on this end. Lois, do you have any preceded questions?
Lois: Yes, I've got one here. I think this is for you, Nicole. Can you talk about the home factors opportunity and would it be material support in the future?
Nicole Pelli: Yeah, so I would say first and foremost, I'm just hugely excited about the opportunity here with Home Factors.
Nicole Pelli: There is a tremendous amount of money that is spent on data industry-wide.
Nicole Pelli: We'll spend more time on that as we go through Investor Day, but the opportunity here is very large. I truly believe that this can be one of the largest pillars of our business, given the uniqueness of the data and the results that we've seen within our own insurance company. But not only that, you know, we're just getting started. But the feedback we've heard from third parties that are testing is just really positive.
Nicole Pelli: And then the last thing I'd sort of highlight is we continue to find new use cases for how we can use the data. So clearly, there's an opportunity within underwriting to be more effective. Same with pricing.
Nicole Pelli: But there's also opportunities to accelerate underwriting, just move with more speed to close more business, reducing onsite inspections, and optimizing reinsurance. And so, you know, as I think about it, the opportunity is really big, the results are really strong, and then there are many ways that the data adds value. So while we're early here, I believe over the next set of years, there's a really large opportunity here for us to be a major pillar of value for the company.
Speaker Change: Great. Thank you. And with that, I'd like to turn the floor back over to Matt for closing remarks.
Matt Ehrlichman: Perfect. Thank you, everybody. Hey, I really do appreciate the time and just the continued support. We're at a, like I said, a really fun moment in our company's history, where we can see what's ahead. And we're excited. We look forward to speaking to you more shortly here at the Investor Day in early December, providing more details about
Matt Ehrlichman: that future. Details for the event will follow and be available on our investor relations website here soon. And with that, enjoy the rest of your day. Take care, everybody.
Thank you.