Q2 2026 Neptune Insurance Holdings Inc Earnings Call

July 22, 2026

Speaker #1: Good morning, and thank you for standing by. My name is Jean, and I will be your conference operator today. At this time, I would like to welcome everyone to the Neptune Insurance Holdings Q2 earnings conference call.

Operator: Good morning, thank you for standing by. My name is Jeanne, I will be your conference operator today. At this time, I would like to welcome everyone to the Neptune Insurance Holdings Q2 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Jonathan Carlon, Director of Corporate Development. You may begin.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

Operator: If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Jon Carlon, Director of Corporate Development. You may begin.

Speaker #1: If you would like to withdraw your question, please press star 1 again. Thank you. I would now like to turn the conference over to John Carlin, Director of Corporate Development.

Speaker #1: You may begin.

Speaker #2: Thank you, and good morning. With me here today are Trevor Burgess, Chairman and CEO; Matt Duffy, President and Chief Risk Officer; and Jim Steiner, CFO and COO.

Jonathan Carlon: Thank you, good morning. With me here today is Trevor Burgess, Chairman and CEO, Matt Duffy, President and Chief Risk Officer, and Jim Steiner, CFO and COO. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements, including, among others, statements about our expectations for our future financial performance, growth opportunities, business strategy, market trends, and capital allocation plans. These statements are based on our current views and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. We direct you to our recent SEC filings for a full description of these risks. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. We will also reference certain non-GAAP financial measures.

Jon Carlon: Thank you, good morning. With me here today is Trevor Burgess, Chairman and CEO, Matt Duffy, President and Chief Risk Officer, and Jim Steiner, CFO and COO. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements, including, among others, statements about our expectations for our future financial performance, growth opportunities, business strategy, market trends, and capital allocation plans. These statements are based on our current views and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. We direct you to our recent SEC filings for a full description of these risks. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. We will also reference certain non-GAAP financial measures.

Speaker #2: Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements, including, among others, statements about our expectations for future financial performance, growth opportunities, business strategy, market trends, and capital allocation plans.

Speaker #2: These statements are based on our current views and assumptions, and are subject to risks and uncertainties that could cause actual results to differ materially.

Speaker #2: We direct you to our recent SEC filings for a full description of these risks. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Speaker #2: We will also reference certain non-GAAP financial measures. These measures should be considered only as supplements to their comparable GAAP measures. Additional information, including reconciliations of the non-GAAP measures to their most comparable GAAP measures, can be found in our earnings release at investors.neptuneflood.com and in our current report on Form 8-K that was publicly filed with the SEC on July 21, 2026.

Jonathan Carlon: These measures should be considered only as supplements to their comparable GAAP measures. Additional information, including reconciliations of the non-GAAP measures to their most comparable GAAP measures, can be found in our earnings release at investors.neptuneflood.com and in our current report on Form 8-K that was publicly filed with the SEC on 21 July 2026. I'd like to turn the call over to Trevor.

Jon Carlon: These measures should be considered only as supplements to their comparable GAAP measures. Additional information, including reconciliations of the non-GAAP measures to their most comparable GAAP measures, can be found in our earnings release at investors.neptuneflood.com and in our current report on Form 8-K that was publicly filed with the SEC on 21 July 2026. I'd like to turn the call over to Trevor.

Speaker #2: Now, I'd like to turn the call over to Trevor.

Speaker #3: Good morning, and thank you for joining us for Neptune's Q2 earnings call. Let's start with the headline: this was the best quarter in Neptune's history, and it wasn't close.

Trevor Burgess: Good morning, and thank you for joining us for Neptune's Q2 earnings call. Let's start with the headline. This was the best quarter in Neptune's history, it wasn't close. Revenue came in at $55.9 million, up 33% year-over-year. Adjusted EBITDA hit $34.5 million, up 36% at a 62% margin. That's up 165 basis points from a year ago. Premium in force reached $419 million, up 32%, and we now have over 316,000 policies in force, up 29%. Summing it all up, on a trailing 12-month basis, revenue per employee and adjusted EBITDA per employee both reached record new highs, $3 million and $1.8 million, respectively. However you want to slice it, we grew across nearly every measure of this business. What's driving it? I'd point to three things.

Speaker #3: Revenue came in at $55.9 million, up 33% year over year. Adjusted EBITDA hit $34.5 million, up 36%, at a 62% margin. That's up 165 basis points from a year ago.

Speaker #3: Premium in force reached $419 million, up 32%, and we now have over 316,000 policies in force, up 29%. And so, summing it all up, on a trailing 12-month basis, revenue per employee and adjusted EBITDA per employee both reached record new highs.

Speaker #3: $3 million and $1.8 million, respectively. However you want to slice it, we grew across nearly every measure of this business. So, what’s driving it?

Speaker #3: I'd point to three things. First, we are seeing real momentum across our distribution network, both with agents who have been with us for years and with new partners we're bringing on.

Trevor Burgess: First, we are seeing real momentum across our distribution network, both with agents who've been with us for years and with new partners we're bringing on. Second, the FEMA Review Council process has put a spotlight on the long-term status of the NFIP, we think that's pushing more agents and their customers to take a serious look at private flood as the more durable option. I'd like to spend a moment on the FEMA Review Council's report because one of its recommendations is particularly exciting to us, it's one FEMA can act on without any congressional action. We believe this single action could have the largest impact of any recommendation on our business. I recently wrote an editorial in The Hill that focused on telling the truth to Americans about their flood risk. Research confirms FEMA's current flood maps understate high-risk properties by more than two-thirds.

Speaker #3: Second, the FEMA review council process has put a spotlight on the long-term status of the NFIP, and we think that's pushing more agents and their customers to take a serious look at private flood as the more durable option.

Speaker #3: I'd like to spend a moment on the FEMA Review Council's report because one of its recommendations is particularly exciting to us, and it's one FEMA can act on without any congressional action.

Speaker #3: We believe this single action could have the largest impact of any recommendation on our business. I recently wrote an editorial in The Hill that focused on telling the truth to Americans about their flood risk.

Speaker #3: Research confirms FEMA's current flood maps understate high-risk properties by more than two-thirds. If FEMA acts on the council's recommendations to modernize the maps with data it already has, millions of properties now classified as low-risk would move into mandatory purchase zones, giving homeowners accurate information and meaningfully expanding the mandatory purchase requirement for flood insurance.

Trevor Burgess: If FEMA acts on the council's recommendations to modernize the maps with data it already has, millions of properties now classified as low risk would move into mandatory purchase zones, giving homeowners accurate information and meaningfully expanding the mandatory purchase requirement for flood insurance. As Matt will mention, more than half of our sales are outside of these mandatory zones, we'll still be thrilled to have more Americans know the truth about their flood risk. Third, our team has been executing at a pace I haven't seen before, across nearly every part of this business all at once. We're adding to the core product, building entirely new products, completely redesigning the user interface, building Atlas+, growing our agent outreach, growing how we communicate with the market, and refining how we market ourselves.

Speaker #3: As Matt will mention, more than half of our sales are outside of these mandatory zones, but we'll still be thrilled to have more Americans know the truth about their flood risk.

Speaker #3: And third, our team has been executing at a pace I haven't seen before. Across nearly every part of this business, all at once. We're adding to the core product, building entirely new products, completely redesigning the user interface, building Atlas Plus, growing our agent outreach, growing how we communicate with the market, and refining how we market ourselves.

Speaker #3: None of that shows up in a single line item on the income statement, but it's exactly the kind of work that sets us up for the next 24 months.

Trevor Burgess: None of that shows up in a single line item on the income statement, it's exactly the kind of work that sets us up for the next 24 months, and I think you're already seeing the early returns of it in this quarter's numbers. I want to spend a minute on something that's been on investors' minds this year because I think the market had it backwards. The fear that AI would replace insurance agents outright, and that this would somehow be bad for Neptune. Here's what I'd say to that. First, even if that fear played out exactly as people worried, it still wouldn't be bad for us. Paying our agents is the single largest expense we have. In a world with less need for agent labor is a world with a better cost structure for Neptune, not a worse one.

Speaker #3: And I think you're already seeing the early returns of it in this quarter's numbers. I want to spend a minute on something that's been on investors' minds this year, because I think the market had it backwards.

Speaker #3: The fear that AI would replace insurance agents outright, and that this would somehow be bad for Neptune. Here's what I'd say to that: First, even if that fear played out exactly as people worried, it still wouldn't be bad for us.

Speaker #3: Paying our agents is the single largest expense we have, and a world with less need for agent labor is a world with a better cost structure for Neptune, not a worse one.

Speaker #3: But second, and more importantly, that's not actually the bet we are making. We don't think agents are going away. And we're not trying to build the AI that replaces them.

Trevor Burgess: Second, and more importantly, that's not actually the bet we are making. We don't think agents are going away, and we're not trying to build the AI that replaces them. We're building the AI that arms them. Last quarter, I talked about turning agents into what we call super agents. This quarter is what that looks like when it starts to work. The first piece of Atlas+, the expert sitting right there on the quote screen, answering an agent's questions in real time, drafting the follow-up email, explaining why a customer needs excess flood coverage, is live today and agents are using it. By the end of the quarter, nearly 3,700 agents had exchanged 33,000 messages with Atlas+. We have placed the best flood underwriter sitting side by side with our agents. The second piece goes live in the next few weeks.

Speaker #3: We're building the AI that arms them. Last quarter, I talked about turning agents into what we call superagents. This quarter is about what that looks like. The first piece of Atlas Plus—the expert sitting right there on the quote screen, answering an agent's questions in real time, drafting the follow-up email, explaining why a customer needs excess flood coverage—is live today, and agents are using it.

Speaker #3: By the end of the quarter, nearly 3,700 agents had exchanged 33,000 messages with Atlas Plus. We have placed the best flood underwriter sitting side by side with our agents.

Speaker #3: The second piece goes live in the next few weeks. Instead of an agent staring at a blank screen, wondering what to do next, Atlas Plus will hand them a ranked list of tasks, with the single most valuable thing they could be doing right now—as ranked by our data science team—sitting at the top.

Trevor Burgess: Instead of an agent staring at a blank screen wondering what to do next, Atlas+ will hand them a ranked list of tasks, with the single most valuable thing they could be doing right now, as ranked by our data science team, sitting at the top. Atlas+ does a lot of the work of getting that task done. We are not asking the more than 55,000 agents who have signed up for individual user accounts on our platform to go and build their own AI. We are building it for them. We're handing it to them. We are using AI to help our agents become super agents and to help the US close the massive flood insurance gap. Remember, there are over 100 million buildings in the US and only about 4 million flood policies.

Speaker #3: Then Atlas Plus does a lot of the work of getting that task done. We are not asking the more than 55,000 agents who have signed up for individual user accounts on our platform to go and build their own AI.

Speaker #3: We are building it for them. We're handing it to them. We are using AI to help our agents become superagents, and to help the US close the massive flood insurance gap.

Speaker #3: Remember, there are over 100 million buildings in the U.S., and only about 4 million flood policies. With that, I'll turn things over to Matt to walk us through the business in more detail.

Trevor Burgess: With that, I'll turn things over to Matt to walk us through the business in more detail.

Speaker #2: Thank you, Trevor. The second quarter was another record quarter for Neptune. But what stood out to me wasn't any single result; it was the pace of execution across the business.

Matt Duffy: Thank you, Trevor. Q2 was another record quarter for Neptune. What stood out to me wasn't any single result. It was the pace of execution across the business. We shipped more technology than we ever have. We expanded our product offering, renewed our two largest programs on improved terms, kept growing our distribution network, and started to see the investments we've made in AI change the way the business operates every day. Before I get into the detail, one point. People often ask whether AI is mainly about reducing costs. That's not how we think about it. Neptune already operates with exceptionally high efficiency, and our objective isn't to grow by adding large numbers of people. It's to keep growing revenue while increasing headcount far more slowly. You can see that in a single metric.

Speaker #2: We shipped more technology than we ever have. We expanded our product offering, renewed our two largest programs on improved terms, kept growing our distribution network, and started to see the investments we've made in AI change the way the business operates every day.

Speaker #2: Before I get into the details, one point: people often ask whether AI is mainly about reducing costs. That's not how we think about it.

Speaker #2: Neptune already operates with exceptionally high efficiency. And our objective isn't to grow by adding large numbers of people. It's to keep growing revenue while increasing headcount far more slowly.

Speaker #2: You can see that in a single metric. On a trailing 12-month basis, revenue per employee reached a record $3 million this quarter. That number captures how the business is evolving, and it's one of the results I'm most excited about.

Matt Duffy: On a trailing 12-month basis, revenue per employee reached a record $3 million this quarter. That number captures how the business is evolving, and it's one of the results I'm most excited about. Let me give you the detail behind what Trevor described, starting with technology. If you look at everything the engineering team delivered over the last three months, it's a remarkable amount of work. We launched commercial and condominium earthquake products. We completed a full redesign of the agent portal and quoting experience. We extended the first phase of Atlas+ to all of our distribution partners. We introduced new portfolio insight capabilities for agents. We deployed a new machine learning model in the underwriting process. We expanded our flood products with new coverages, completed major underwriting infrastructure projects, and delivered dozens of additional improvements across the platform.

Speaker #2: Let me give you the detail behind what Trevor described, starting with technology. If you look at everything the engineering team delivered over the last three months, it's a remarkable amount of work.

Speaker #2: We launched commercial and condominium earthquake products; we completed a full redesign of the agent portal and quoting experience; we extended the first phase of Atlas Plus to all of our distribution partners; we introduced new portfolio insight capabilities for agents; we deployed a new machine learning model in the underwriting process; we expanded our flood products with new coverages; completed major underwriting infrastructure projects; and delivered dozens of additional improvements across the platform.

Speaker #2: That's comfortably the most we've ever delivered in a single quarter. Twelve months ago, I'd have looked at that roadmap and assumed we'd need a much larger engineering organization to deliver it.

Matt Duffy: That's comfortably the most we've ever delivered in a single quarter. 12 months ago, I'd have looked at that roadmap and assumed we'd need a much larger engineering organization to deliver it. Instead, we changed the way our engineers work. AI now supports our developers throughout the software development process, helping write code, review code, test software, and investigate issues. Our engineers still make every important decision. They're simply spending far more of their time designing and building products and far less on repetitive development tasks. The result is that our engineering team delivered more than twice the work it did in Q4 2025 and over 50% more than Q1 2026, with a team that's remained broadly the same size. Ultimately, this isn't about writing code faster.

Speaker #2: Instead, we changed the way our engineers work. AI now supports our developers throughout the software development process—helping write code, review code, test software, and investigate issues.

Speaker #2: Our engineers still make every important decision. They're simply spending far more of their time designing and building products, and far less on repetitive development tasks.

Speaker #2: The result is that our engineering team delivered more than twice the work it did in the fourth quarter of 2025, and over 50% more than in the first quarter of 2026, with a team that's remained broadly the same size.

Speaker #2: Ultimately, this isn't about writing code faster. It's about giving the business the ability to launch more products, respond to opportunities more quickly, and keep growing without expanding the organization at the same rate.

Matt Duffy: It's about giving the business the ability to launch more products, respond to opportunities more quickly, and keep growing without expanding the organization at the same rate. We're seeing the same thing outside engineering, and our customer success team is a good example. Compared to Q2 of last year, each customer success representative now manages roughly 25% more policies while we've reduced customer wait times and improved the quality of the responses customers receive. The goal was never to shrink the team. It was to let the same highly skilled professionals support a much larger business and deliver an even better experience. Let me turn to underwriting performance, which we report once a year on our Q2 call. Our lifetime written loss ratio is now just 19.5%, down over 500 basis points from a year ago.

Speaker #2: We're seeing the same thing outside engineering. And our customer success team is a good example. Compared to the second quarter of last year, each customer success representative now manages roughly 25% more policies.

Speaker #2: While we've reduced customer wait times and improved the quality of the responses customers receive, the goal was never to shrink the team. It was to let the same highly skilled professionals support a much larger business and deliver an even better experience.

Speaker #2: Let me turn to underwriting performance, which we report once a year on our second-quarter call. Our lifetime written loss ratio is now just 19.5%.

Speaker #2: Down over 500 basis points from a year ago. For this peril, that's an exceptional number. And it's the clearest proof of what our pricing and underwriting platform, Triton, has delivered across eight storm seasons and now into a ninth.

Matt Duffy: For this peril, that's an exceptional number, and it's the clearest proof of what our pricing and underwriting platform, Triton, has delivered across eight storm seasons and now into a ninth, and through 21 landfall hurricanes during that time. It's also one of the reasons our capacity providers continue to grow alongside us, which brings me to capacity. During the quarter, we renewed our two largest programs, both renewed on improved economic terms, reflecting the confidence our partners have in Neptune's underwriting platform and the results we've delivered together. We also welcomed additional capacity providers, bringing our panel to 45. Alongside those renewals, we increased building coverage limits to $15 million across every property type and expanded coverage across all of our flood programs. Those enhancements further differentiate the products for our distribution partners and improve the value proposition for policyholders.

Speaker #2: And through 21 landfall hurricanes during that time. It's also one of the reasons our capacity providers continue to grow alongside us, which brings me to capacity.

Speaker #2: During the quarter, we renewed our two largest programs. Both renewed on improved economic terms, reflecting the confidence our partners have in Neptune's underwriting platform and the results we've delivered together.

Speaker #2: We also welcomed additional capacity providers, bringing our panel to 45. Alongside those renewals, we increased building coverage limits to $15 million across every property type and expanded coverage across all of our flood programs.

Speaker #2: Those enhancements further differentiate the products for our distribution partners and improve the value proposition for policyholders. And late in the quarter, we extended our earthquake platform with the commercial and condominium products I mentioned.

Matt Duffy: Late in the quarter, we extended our earthquake platform with the commercial and condominium products I mentioned. It's early, but the response from agents and customers has been encouraging, and we'll keep testing that business thoughtfully. Turning to distribution. Since launching individual user accounts in December, more than 55,000 insurance professionals have created verified Neptune accounts, each secured with multi-factor authentication. Every interaction helps us understand how agents work, which lets us keep improving Atlas+, refining the experience, and building better tools. That momentum continues to translate into growth. One statistic stood out this quarter. More than 55% of our new business came from properties outside FEMA's Special Flood Hazard Areas, and over 75% came from voluntary, not bank-mandated purchases. We think that's an important signal of where the private flood market is heading.

Speaker #2: It's early, but the response from agents and customers has been encouraging. And we'll keep testing that business thoughtfully. Turning to distribution. Since launching individual user accounts in December, more than 55,000 insurance professionals have created verified Neptune accounts each secured with multifactor authentication.

Speaker #2: Every interaction helps us understand how agents work, which lets us keep improving Atlas Plus, refining the experience, and building better tools. That momentum continues to translate into growth.

Speaker #2: One statistic stood out this quarter: more than 55% of our new business came from properties outside FEMA's Special Flood Hazard Areas, and over 75% came from voluntary, not bank-mandated, purchases.

Speaker #2: We think that's an important signal of where the private flood market is heading. For years, we've said the opportunity isn't simply moving policies off the National Flood Insurance Program.

Matt Duffy: For years, we've said the opportunity isn't simply moving policies off the National Flood Insurance Program. The far larger opportunity is expanding the market, protecting properties that historically haven't carried flood insurance at all. We continue to show great success in that area. The FEMA Review Council report generated a lot of discussion during the quarter, and we've had a number of questions about what that means for Neptune. I think it's an encouraging report. It recognizes the role the private market can play in closing America's flood insurance gap. The spotlight that it's put on the long-term future of the NFIP is prompting more agents and customers to take a serious look at private flood. That's helping demand today. What I'd be clear about is this: whether the longer-term recommendations are implemented and over what timeframe remains uncertain, and none of that is built into our projections.

Speaker #2: The far larger opportunity is expanding the market, protecting properties that historically haven't carried flood insurance at all. We continue to show great success in that area.

Speaker #2: The FEMA Review Council report generated a lot of discussion during the quarter, and we've had a number of questions about what that means for Neptune.

Speaker #2: I think it's an encouraging report. It recognizes the role the private market can play in closing America's flood insurance gap. And the spotlight that it's put on the long-term future of the NFIP is prompting more agents and customers to take a serious look at private flood.

Speaker #2: That's helping demand today. What I'd be clear about is this: whether the longer-term recommendations are implemented, and over what timeframe, remains uncertain. None of that is built into our projections.

Speaker #2: The record quarter we're discussing wasn't driven by changes in government policy. It came from executing the same strategy we've followed for years. Better products, better technology, empowering agents, and expanding distribution.

Matt Duffy: The record quarter we're discussing wasn't driven by changes in government policy. It came from executing the same strategy we've followed for years: better products, better technology, empowering agents, and expanding distribution. If additional opportunities emerge over time, we're best positioned to pursue them. Before I hand it over to Jim, let me touch on our outlook. We've had a very strong H1. The business continues to perform, distribution continues to grow, and we're seeing the benefits of the investments we've made across the platform. Based on that performance, we are raising our full year expectations. We now expect 2026 revenue of $199 million, which would represent top-line growth of 25% and an adjusted EBITDA margin of 60% to 61%. That outlook reflects the momentum in the business today. It does not assume any acceleration from future FEMA initiatives or broader changes to the National Flood Insurance Program.

Speaker #2: If additional opportunities emerge over time, we're best positioned to pursue them. Before I hand it over to Jim, let me touch on our outlook.

Speaker #2: We've had a very strong first half. The business continues to perform, distribution continues to grow, and we're seeing the benefits of the investments we've made across the platform.

Speaker #2: Based on that performance, we are raising our full-year expectations. We now expect 2026 revenue of $199 million, which would represent top-line growth of 25%, and an adjusted EBITDA margin of 60% to 61%.

Speaker #2: That outlook reflects the momentum in the business today. It does not assume any acceleration from future FEMA initiatives or broader changes to the National Flood Insurance Program.

Speaker #2: And it also accounts for the below-average Atlantic hurricane season projections released by the National Oceanic and Atmospheric Administration. When I look across Neptune, what gives me confidence isn't any single launch or metric.

Matt Duffy: It also accounts for the below average Atlantic hurricane season projections released by the National Oceanic and Atmospheric Administration. When I look across Neptune, what gives me confidence isn't any single launch or metric. It's that every part of the business is moving in the same direction. More technology, more products, teams supporting a larger business without growing at the same pace, better tools for our agents, and capacity partners expanding alongside us. All of it's translating into stronger financial performance. That's exactly the business we've been building for years, and I think this quarter shows what's possible as those investments begin to compound. With that, I'll hand things over to Jim.

Speaker #2: It's that every part of the business is moving in the same direction: more technology, more products, teams supporting a larger business without growing at the same pace, better tools for our agents, and capacity partners expanding alongside us.

Speaker #2: All of it is translating into stronger financial performance. That's exactly the business we've been building for years, and I think this quarter shows what's possible as those investments begin to compound.

Speaker #2: With that, I'll hand things over to Jim.

Speaker #1: Thanks, Matt. Today, I'll cover three things: how the quarter looks financially, why the model produces these results, and how we're deploying capital. Starting with the quarter.

Jim Steiner: Thanks, Matt. Today, I'll cover three things: how the quarter looks financially, why the model produces these results, and how we're deploying capital. Starting with the quarter. We had strong growth. Revenue of $55.9 million, up 32.8% year over year with both record new business and a larger base of in-force premium contributing. Adjusted EBITDA was $34.5 million, and margin expanded to 61.7%, up roughly 165 basis points from a year ago. We grew and became more profitable in the same quarter, which is a balance we're always trying to strike. Policy retention rate of renewal also improved year over year to 86%. That continues to be a driver of the top line as we compound a larger and larger renewal book, which contributes more revenue each passing year. A question we hear often is how margins hold as we grow. The answer is in the structure of the business.

Speaker #1: We had strong growth. Revenue of 55.9 million, up 32.8% year over year, with both record new business and a larger base of enforced premium contributing.

Speaker #1: Adjusted EBITDA was $34.5 million, and margin expanded to 61.7%, up roughly 165 basis points from a year ago. We grew and became more profitable in the same quarter.

Speaker #1: Which is a balance we're always trying to strike. Policy retention rate renewal also improved year-over-year to 86%. That continues to be a driver of the top line as we compound a larger and larger renewal book, which contributes more revenue with each passing year.

Speaker #1: The question we hear often is: How do margins hold as we grow? The answer is in the structure of the business. We carry no underwriting risk.

Jim Steiner: We carry no underwriting risk, our capacity partners do. Growth does not consume capital. The decisions about which risk to bind for whom and at what price are made in software. Growth does not require us to add people in proportion. We expand by writing policies and writing code, not by expanding the balance sheet or payroll, which is why a quarter like this one lifts margin rather than compressing it. The per employee numbers tell the same story. On a trailing 12-month basis, revenue per employee and adjusted EBITDA per employee both set records at three million and 1.8 million, respectively. Figures you would expect from a software company rather than an insurer. To us, that's the clearest evidence of what we have built, and we believe that we are the only public company of our kind.

Speaker #1: Our capacity partners do. The growth does not consume capital. And the decisions about which risk to bind, for whom, and at what price are made in software. The growth does not require us to add people in proportion.

Speaker #1: We expand by writing policies and writing code, not by expanding the balance sheet or payroll. That’s why a quarter like this one lifts margin, rather than compressing it.

Speaker #1: The per-employee numbers tell the same story. On a trailing 12-month basis, revenue per employee and adjusted EBITDA per employee both set records, at $3 million and $1.8 million, respectively.

Speaker #1: These are figures you would expect from a software company rather than an insurer. To us, that's the clearest evidence of what we have built, and we believe that we are the only public company of our kind.

Speaker #1: On the balance sheet, this was another quarter of deleveraging. We finished at $240 million drawn on our $260 million revolver, roughly 2.1x trailing adjusted EBITDA.

Jim Steiner: On the balance sheet, this was another quarter of deleveraging. We finished at $240 million drawn on our $260 million revolver, roughly 2.1 times trailing adjusted EBITDA. This reflects the net increase of $13 million in debt since the end of the Q1, which was utilized to repurchase shares during a secondary offering, as I'll discuss in a moment. After the end of the quarter, we paid down $7 million, bringing our current balance to $233 million. We were also active in returning capital to shareholders in two ways this quarter. First, we repurchased $26 million in stock when our private equity shareholders completed its secondary offering in May. A healthy step that expanded our public float, improved trading liquidity, and broadens the shareholder base. Second, we repurchased a further $6 million in the open market. Our priorities from here are straightforward.

Speaker #1: This reflects the net increase of $13 million in debt since the end of the first quarter, which was utilized to repurchase shares during a secondary offering, as I'll discuss in a moment.

Speaker #1: After the end of the quarter, we paid down $7 million. Bringing our current balance to $233 million. We are also active in returning capital to shareholders in two ways this quarter.

Speaker #1: First, we repurchased $26 million in stock on a private equity shareholders completed a secondary offering in May. A healthy step that expanded our public float, improved trading liquidity, and broadened the shareholder base.

Speaker #1: Second, we repurchased a further $6 million in the open market. Our priorities from here are straightforward. Reinvestment in the platform comes first, because that's where a dollar compounds the best for us.

Jim Steiner: Reinvestment in the platform comes first because that's where a dollar compounds the best for us. Beyond that, we return capital to shareholders. There's $100 million repurchase authorization the board put in place in April, of which there is $94 million remaining, and through the upcoming net settlement of our RSUs as they vest in September. Taken together, this is a business that grows quickly, turns that growth into cash, and becomes more efficient as it scales. That profile is rare in any industry, and we believe it is singular in ours. With that, I'll turn it back to Trevor.

Speaker #1: Beyond that, we return capital to shareholders. There's the $100 million repurchase authorization the Board put in place in April, of which there is $94 million remaining, and through the upcoming net settlement of our RSUs as they vest in September.

Speaker #1: Taken together, this is the business that grows quickly, turns that growth into cash, and becomes more efficient as it scales. That profile is rare in any industry, and we believe it is singular in ours.

Speaker #1: With that, I'll turn it back to Trevor.

Speaker #3: I'll close with this: This was the strongest quarter in Neptune's history, and I don't say that lightly. As Matt walked through, our lifetime loss ratio has now fallen below 20% for the first time.

Trevor Burgess: I'll close with this. This was the strongest quarter in Neptune's history. I don't say that lightly. As Matt walked through, our lifetime loss ratio has now fallen below 20% for the first time. Extraordinary for this industry, proof of what Triton has delivered through eight storm seasons, and now into a ninth. What has me most excited isn't a number from this quarter, it's what this team is building towards over the next few years. We're adding to the product, building entirely new products, completely redesigning the interface, expanding agent outreach, sharpening how we communicate, and refining how we market. We're doing this all at once. In Q3, agents get the next piece of AI in Atlas+, a rank list of exactly what to do next. Most valuable task first, with Atlas+ doing the heavy lifting to get it done.

Speaker #3: Extraordinary for this industry, and proof of what Triton has delivered through eight storm seasons and now into a ninth. But what has me most excited isn't a number from this quarter.

Speaker #3: It's what this team is building toward over the next few years. We're adding to the product, building entirely new products, completely redesigning the interface, expanding agent outreach, sharpening how we communicate, and refining how we market.

Speaker #3: And we're doing this all at once. And in the third quarter, agents get the next piece of AI in Atlas Plus—a ranked list of exactly what to do next, most valuable task first, with Atlas Plus doing the heavy lifting to get it done.

Speaker #3: We've spent years trying to change agent behavior one conversation at a time. This is how we turn every one of them into a superagent.

Trevor Burgess: We've spent years trying to change agent behavior one conversation at a time. This is how we turn every one of them into a super agent, at scale, all of this for the people who sell 98% of our policies. We're just getting started. Thank you to our agents, to our capacity providers, our policy holders, and to our employees for making this quarter possible. Thank you for joining us. I'll now open the call to questions.

Speaker #3: At scale, all of this is for the people who sell 98% of our policies. And we're just getting started. Thank you to our agents, our capacity providers, our policyholders, and our employees for making this quarter possible.

Speaker #3: Thank you for joining us. I'll now open the call to questions.

Speaker #4: At this time, I would like to remind everyone that in order to ask a question, please press star, then the number one on your telephone keypad.

Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of Charlie Lederer with BMO Capital Markets. Please go ahead.

Speaker #4: And your first question comes from the line of Charlie Letterer with BMO Capital Markets. Please go ahead.

Speaker #5: Hey, good morning. Thanks. On your comments on agents being more interested in Neptune or private flood insurance because of the FEMA review councils report, can you unpack what you're seeing that's leading you to believe that's driving agent interest and how we should think about that as a near-term catalyst for the back half of the year?

Charlie Lederer: Hey, good morning. Thanks. On your comments on agents being more interested in Neptune or private flood insurance because of the FEMA Review Council's report, can you unpack what you're seeing that's leading you to believe that's driving agent interest, and how we should think about that as a near-term catalyst for the back half of the year? Thanks.

Speaker #5: Thanks.

Speaker #3: I think some of this goes back to what we saw coming out of the government shutdown. We had the longest government shutdown in history.

Trevor Burgess: I think some of this goes back to what we saw coming out of the government shutdown. We had the longest government shutdown in history. There was no access to the NFIP, and many agents who had used the NFIP for decades now needed some alternative, and they obviously found Neptune, used us, liked us, saw how easy it was, how the product is better, and have stuck with us. The FEMA Advisory Council talking about the long-term government goal of growing the participation of the private marketplace is just another set of data that those analysts need to incorporate into their thinking about how they spend their time. We're having a number of very senior discussions with large organizations that are thinking about what is their five-year plan when it comes to the NFIP versus private flood.

Speaker #3: There was no access to the NFIP. And many agents who had used the NFIP for decades now needed some alternative, and they obviously found Neptune used us, liked us, saw how easy it was, how the product is better.

Speaker #3: And have stuck with us. The FEMA Advisory Council, talking about the long-term government goal of growing the participation of the private marketplace, is just another set of data that those analysts need to incorporate into their thinking about how they spend their time.

Speaker #3: We're having a number of very senior discussions with large organizations that are thinking about what their five-year plan is when it comes to the NFIP versus private flood.

Speaker #3: And we're excited to be in the room and to be having those discussions. For now, what I would say is, what we're seeing on the ground is active engagement—better engagement than we have ever seen before. More agents are purchasing policies for their customers.

Trevor Burgess: We're excited to be in the room and to be having those discussions. For now, what I would say is what we're seeing on the ground is active engagement, better engagement than we have ever seen before. More agents purchasing policies for their customers. We've had a very slow start to the storm season. We had these tiny A and B storms that have happened. All of the performance in Q2 really came from agents engaging with Neptune in higher and special ways. The backdrop is we still have a terrible housing market also. Someday when we have a good housing market and we have all of these agents who love Neptune, then we'll really see what we can produce.

Speaker #3: We've had a very slow start to the storm season. We had these tiny A and B storms that have happened, so all of the performance in the second quarter really came from agents engaging with Neptune in higher and special ways.

Speaker #3: The backdrop is we still have a terrible housing market also. So someday, when we have a good housing market and we have all of these agents, who love Neptune, then we'll really see what we can produce.

Speaker #5: Got it, thanks. And then, you also called out the improved economic terms on your two largest programs. Can you help us think through the magnitude and whether that had an impact in Q2, or if that's more of a back-half and beyond impact?

Charlie Lederer: Got it. Thanks. You also called out the improved economic terms on your two largest programs. Can you help us think through the magnitude and whether that had an impact in Q2 or if that's more of a back half and beyond impact? Thanks.

Speaker #5: Thanks.

Speaker #3: That's more of a back-half impact. Those programs were June 1 renewals, so we had a one-third-of-the-quarter impact from having them. And you're talking half a point or something like that on the program's improvement in the economics.

Trevor Burgess: That's more of a H2 impact. Those programs were 1 June renewals, so we had a one-third of the quarter impact from having them, and you're talking half a point or something like that on the program's improvement in the economics. Again, we view these relationships as long-term critical relationships where we want over good years, bad years, 10 years, it to be a great economic outcome for both Neptune and for our risk-taking partners. We're not interested in running a reverse Dutch auction at the end of every quarter to see how we can make the very highest ceding commission possible. We want to make sure that there's a fair split that takes place over time of those premium dollars.

Speaker #3: Again, we view these relationships as long-term, critical relationships where we want, over good years, bad years, 10 years, it to be a great economic outcome for both Neptune and for our risk-taking partners.

Speaker #3: We're not interested in running a reverse Dutch auction at the end of every quarter to see how we can make the very, at the end of every program, to see how we can make the very highest seeding commission possible.

Speaker #3: We want to make sure that there's a fair split that takes place over time of those premium dollars, and we've continued to be able to find tremendous partnerships and that fair split continuing.

Trevor Burgess: We've continued to be able to find tremendous partnerships and that fair split continuing.

Speaker #5: Thank you.

Operator: Thank you.

Charlie Lederer: Thank you.

Speaker #4: Your next question comes from the line of Pablo Singson with JP Morgan. Please go ahead.

Operator: Your next question comes from the line of Pablo Singzon with JPMorgan. Please go ahead.

Speaker #5: Hi, good morning. To start off, I was curious if you could break out how much the Baltimore Book contributed to the 40% e-business growth this quarter.

Rachel Smith: Hi, good morning. To start off, I was curious if you'd break out how much the Palomar book contributed to the 40% EBIT growth this quarter.

Pablo Singzon: Hi, good morning. To start off, I was curious if you'd break out how much the Palomar book contributed to the 40% EBIT growth this quarter.

Speaker #3: Yeah, we're not breaking that out individually, but it's something like about half of it. So we still would have seen very, very strong organic growth without the Palomar book.

Trevor Burgess: Yeah. We're not breaking out individually, but it's something like about half of it. We still would've seen very strong organic growth without the Palomar book.

Speaker #5: Yes, thank you, Trevor. Secondly, I think you made several interesting comments about efficiency and productivity gains from AI in your technologies. Having strong sales, as you did this quarter, clearly helps margins.

Rachel Smith: Yep. Thanks, Trevor. Secondly, I think you made several interesting comments about efficiency and productivity gains from AI in your technologies and having strong sales, as you did this quarter, does help margins, clearly. I was wondering how you think about these new tools going forward, right? To your point, Neptune is highly profitable, right? It seems like just given technology today, there might be some optionality to bring that even higher. Just curious about how you're thinking about the potential there.

Pablo Singzon: Yep. Thanks, Trevor. Secondly, I think you made several interesting comments about efficiency and productivity gains from AI in your technologies and having strong sales, as you did this quarter, does help margins, clearly. I was wondering how you think about these new tools going forward, right? To your point, Neptune is highly profitable, right? It seems like just given technology today, there might be some optionality to bring that even higher. Just curious about how you're thinking about the potential there.

Speaker #5: But I was wondering how you think about these new tools going forward, right? Because to your point, Neptune is highly profitable, right? But it seems like just given technologies today, there might be some optionality to bring that even higher.

Speaker #5: So, it just depends on how you're thinking about the potential there.

Speaker #3: You know, we reached a peak of, I think, 62 employees. I think we're at 59 today, just as there's some general churn. So it wasn't by design, but it's also somewhat that, with the AI tools that we're using and implementing, there's not a rush to need to get back to 62.

Trevor Burgess: We reached a peak of, I think, 62 employees. I think we're at 59 today. Just as there's some general churn. It wasn't a design, but it's also somewhat that with the AI tools that we're using and implementing, there's not a rush to need to get back to 62. This is a business that can become more efficient. As Matt talked about, we're really trying not to spend a lot of time on cost reductions with AI. That doesn't make much sense when you only have 59 people, right? All of our effort utilizing AI is how we grow the top line. How do we find ways to help our agents become super agents, to sell more, to close that protection gap. We're excited to see how Atlas+ and other initiatives can drive that going forward.

Speaker #3: So, this is a business that can become more efficient. But as Matt mentioned, we're really trying not to spend a lot of time on cost reductions with AI.

Speaker #3: That doesn't make much sense when you only have 59 people, right? All of our effort utilizing AI is focused on how we grow the top line—how do we find ways to help our agents become super agents, to sell more, to close that protection gap—and we're excited to see how Atlas Plus and other initiatives can drive that going forward.

Speaker #3: But certainly, if we're holding expenses largely steady, all new business that's coming in that comes through agents comes in at about a 70% EBITDA margin.

Trevor Burgess: Certainly, if we're holding expenses largely steady, all new business that's coming in that comes through agents comes in at about a 70% EBITDA margin. It averages in well and drives that number up.

Speaker #3: So it averages in well and drives that number up.

Speaker #5: Thanks, Trevor.

Rachel Smith: Thanks, Trevor.

Pablo Singzon: Thanks, Trevor.

Speaker #4: Your next question comes from the line of Josh Shanker with Bank of America. Please go ahead.

Operator: Your next question comes from the line of Josh Shanker with Bank of America. Please go ahead.

Speaker #6: Yeah, thank you for taking my question, everybody. Trevor, you made your comments about A and B storms, B being Bertha. I asked what was happening.

Josh Shanker: Yeah, thank you for taking my question, everybody. Trevor, you made your comments about A and B storms, B being Bertha. As it was happening, it looked like, it's still underway, but it's a low-grade storm producing a lot of water along those low-lying areas. Is this going to be a FEMA loss? Does Neptune have exposure to that area generally? Could it stimulate demand?

Speaker #6: It looks like it's still underway, but it's a low-grade storm producing a lot of water along those low-lying areas. Is this going to be a FEMA loss?

Speaker #6: And does Neptune have exposures to that area generally? Could it stimulate demand?

Speaker #3: These kinds of storms are not material losses for Neptune or won't generate material losses for Neptune, nor will they generate material losses for the NFIP.

Trevor Burgess: These kinds of storms are not material losses for Neptune or won't generate material losses for Neptune, nor will they generate material losses for the NFIP. What these kinds of storms do is really raise awareness, which raises demand, which leads to fairly short periods of increased sales activity. We're happy for that awareness, even though unfortunately it does lead to flooding in low-lying areas and certainly is meaningfully impactful to the families and businesses in its path. These kinds of storms that we had with A and B are nothing that really changes the overall impact. You need a storm more akin to Hurricane Helene of 2 years ago, that has a sort of massive impact to have something or Hurricane Harvey, or Hurricane Sandy, those fundamentally changed the demand curve in the areas that were impacted, right?

Speaker #3: What these kinds of storms do is really raise awareness, which raises demand. Which leads to fairly short periods of increased sales activity. And we're happy for that awareness, even though, unfortunately, it does lead to flooding in low-lying areas.

Speaker #3: And certainly, it's impactful, meaningfully impactful to the families and businesses in its path. But this is not these kinds of storms that we had with A and B are nothing that really changes the overall impact.

Speaker #3: You need a storm more akin to Helene of two years ago, that has sort of massive impact, to have something where—or Hurricane Harvey or Sandy—those fundamentally changed the demand curve in the areas that were impacted.

Speaker #3: We still sell way more policies in New Jersey because of Sandy than we otherwise would have. But you need a really big storm to really fundamentally change the elasticity curve.

Trevor Burgess: We still sell way more policies in New Jersey because of Hurricane Sandy, than we otherwise would have. You need a really big storm to really fundamentally change the elasticity curve.

Speaker #5: And then changing gears a little bit, what's your expectation on take-up of the higher value offerings that you're given that current customers will buy up more coverage?

Josh Shanker: Changing gears a little bit, what's your expectation on take-up of the higher value offerings that you're given that current customers will buy up more coverage?

Speaker #3: Yeah, we really have two opportunities there. One is the one you mentioned, where we can go back to all of the existing customers who bought $7 million of building cover on their home, and now we offer $15 million.

Trevor Burgess: Yeah, we really have two opportunities there. One is the one you mentioned, where we can go back to all of the existing customers who bought $7 million of building cover on their home, and now we offer $15 million. We can go back to them and say, "Hey, would you like to increase at renewal or even mid-year? Would you like to increase to the new higher limits?" Obviously there are fewer $15 million homes than $7 million homes, but we do think that that is an interesting driver of growth. What we're seeing on the new business side is very good take-up. Just even in the past couple of weeks since it's been available. We're seeing healthy impact and nearly every day we're selling a new $15 million policy. That obviously will do some help in driving up the average premium.

Speaker #3: We can go back to them and say, hey, would you like to increase at renewal or increase to the new higher limits? And obviously, there are fewer $15 million homes than $7 million homes.

Speaker #3: But we do think that is an interesting driver of growth. And then, what we're seeing on the new business side is very good take-up.

Speaker #3: Just even in the past couple of weeks that it has since it's been available, we're seeing healthy impact and nearly every day, we're selling a new 15 million dollar policy.

Speaker #3: So that obviously will have some help in driving up the average premium.

Speaker #5: And if I can just sneak another one in, and the multi-family product offering, what that means for that offering?

Josh Shanker: If I can just sneak another one in. The multifamily product offering, what that means for that offering?

Speaker #3: I'm sorry. Can you say that again?

Trevor Burgess: I'm sorry, can you say that again?

Speaker #5: And for the potential for growth in multi-family, what's the opportunity there with the higher limits?

Josh Shanker: For the potential for growth in multifamily, what's the opportunity there with the higher limits?

Speaker #3: Yeah. So, multi-family—and that includes both condominiums and apartment buildings—this is one of the major reasons why we push for these higher limits.

Trevor Burgess: Yeah. Multifamily, and that includes both condominiums and apartment buildings. This is one of the major reasons why we push for these higher limits, is to be able to serve that marketplace in a meaningful way. If you think about if you've got an apartment building and you have an NFIP policy, you have a $500,000 limit and no loss of rents coverage. With Neptune, you can now get $15 million of coverage on that building and $1 million of loss of rents coverage. The product differential is now so large versus the NFIP, really calls into question why anyone would buy the NFIP policy.

Speaker #3: ...is to be able to serve that marketplace in a meaningful way. If you think about it, if you've got an apartment building and you have an NFIP policy, you have a $500,000 limit, and no loss of rents coverage.

Speaker #3: With Neptune, you can now get $15 million of coverage on that building and $1 million of loss of rents coverage. So, the product differential is now so large versus the NFIP, it really calls into question why anyone would buy the NFIP policy.

Josh Shanker: Thank you for all the details. Great quarter.

Speaker #5: Thank you for all the details. Great quarter.

Speaker #3: Thank you.

Trevor Burgess: Thank you.

Speaker #4: Your next question comes from the line of Rob Cox with Goldman Sachs. Please go ahead.

Operator: Your next question comes from the line of Rob Cox with Goldman Sachs. Please go ahead.

Speaker #5: Hey, thanks. Good morning. Yeah, I just wanted to go back to the flood map discussion. I'm just curious if you have a sense of how much of a addressable market expansion increasing or modernizing the flood maps would be for Neptune, just in the flood zone area.

Rob Cox: Hey, thanks. Good morning. Yeah, just wanted to go back to the flood map discussion. I'm just curious if you have a sense of how much of an addressable market expansion increasing or modernizing the flood maps would be for Neptune, just in the flood zone area.

Speaker #3: So the math looks something like this. Right now, there are about 3 and a half let's call it 3 million mandatory policies out of 9 million mandatory zone buildings.

Trevor Burgess: The map looks something like this. Right now, there are about, let's call it 3 million mandatory policies out of 9 million mandatory zone buildings. Some of that gap is because of non-compliance with the law, and some of that gap is because people don't have a federally backed mortgage, so they paid cash for their house or whatever it may be. About 3 of 9. If that same ratio holds and you go to 2024, you're talking about 8 million from 3. An additional 5 million mandatory policies, plus added awareness for everybody else. We think it could have. That's why we talk about it potentially having the largest impact, maybe even larger than sort of a takeout or any of those kinds of things that would require congressional action.

Speaker #3: Some of that gap is because of noncompliance with the law, and some of that gap is because people don't have a federally backed mortgage.

Speaker #3: So they paid cash for their house or whatever it may be. So, about 3 of 9. If that same ratio holds and you go to 24, then you're talking about 8 million from 3.

Speaker #3: So, an additional 5 million mandatory policies, plus added awareness for everybody else—we think it could have a significant impact. That's why we talk about it potentially having the largest impact, maybe even larger than a takeout or any of those kinds of things that would require congressional action.

Speaker #5: Yeah, that seems meaningful. And then I just wanted to double-click.

Rob Cox: Yeah, that seems meaningful. Then I just wanted to double-check.

Speaker #3: And I would just maybe I should just add that some of this is happening this will happen over time anyway. So last year, Broward County changed their maps.

Trevor Burgess: I would just.

Rob Cox: Yeah.

Trevor Burgess: Maybe I should just add that some of this is happening, this will happen over time anyway. Last year, Broward County changed their map. It added 80,000 people in that Florida county to the 80,000 buildings to the high-risk flood zones. Harris County, Texas, is right now going through new maps. When those new maps finally get published in the next year or so, that will add 170,000 buildings to the high-risk flood zones. What we're trying to encourage is FEMA to do this sort of all at once, do a modernization exercise and do it all at once. If they don't do that, it's still going to happen over the next 5 to 10 years. We're still going to get to the same place. It's just it's going to take longer.

Speaker #3: It added 80,000 people in that Florida county to the 80,000 buildings to the high-risk flood zones. Harris County, Texas, is right now going through new maps.

Speaker #3: When those new maps finally get published in the next year or so, that will add 170,000 buildings to the high-risk flood zones. So what we're trying to encourage is FEMA to do this sort of all at once—do a modernization exercise, and do it all at once.

Speaker #3: If they don't do that, it's still going to happen over the next 5 to 10 years. We're still going to get to the same place.

Speaker #3: It is just going to take longer.

Speaker #5: Yep, that's super helpful. And just on guidance, I want to make sure I understand. So it seems like there are plenty of positive factors: increasing building coverage limits, expanded product offerings, and improved economic terms.

Rob Cox: Yep. That's super helpful. Just on guidance, I just want to make sure I understand. It seems like there's plentiful positive factors, increasing building coverage limits, expanded product offering, improved economic terms. You've got Atlas+ coming in a more expanded way in Q3. Is there any offsets that would be causing you to otherwise increase guidance less on the back of those tailwinds?

Speaker #5: You've got Atlas Plus coming. In a more expanded way, in the third quarter, is there any offsets that would be causing you to otherwise increase guidance less on the back of those tailwinds?

Speaker #3: I think the thing that you have to remember is that the second half of the year is normally dominated by storm-driven sales. And, given the forecast, as Matt mentioned in his remarks, we're just taking down those expectations of any storm-related impacts.

Trevor Burgess: I think the thing that you have to remember is that H2 is normally dominated by storm-driven sales. Given the forecast, as Matt mentioned in his remarks, we're just taking down those expectations of any storm-related impacts. Now, in El Niño years, there have been massive storms, including Hurricane Andrew. It is possible that there could be something really, really big that happens this year, and we're just not taking that into account in our forecast. Our forecasts include a very benign storm year.

Speaker #3: Now, in El Niño years, there have been massive storms, including Hurricane Andrew. So it is possible that there could be something really, really big that happens this year.

Speaker #3: And we're just not taking that into account in our forecast. So, our forecasts include a very benign storm year.

Speaker #5: Okay, got it. Just more conservative on the weather. Perfect.

Rob Cox: Okay. Got it. Just more conservative on the weather. Perfect.

Speaker #3: Yeah, that's the one thing I can't control.

Trevor Burgess: Yeah. That's the one thing I can't control.

Speaker #4: Your next question comes from the line of Tommy McJoint with KBW. Please go ahead.

Operator: Your next question comes from the line of Tommy McJoynt with KBW. Please go ahead.

Speaker #6: Hey, good morning. Looking at the fee income line in the revenue section, if I look at that as a percentage of written premiums, that saw a modest uplift of its own in the quarter.

Tommy McJoynt: Hey, good morning. Looking at the fee income line in the revenue section. If I look at that as a percentage of written premiums, that saw a modest uplift of its own in the quarter. First off, can you remind me, those are fees paid by policyholders, right? Is the higher percentage just driven by a geographic mix, or was there an active change in the fee schedules that you set? Should we think about that Q2 level as fair to run rate, think of it as sustainable? Thanks.

Speaker #6: First off, can you remind me, those are fees paid by policyholders, right? And is the higher percentage just driven by a geographic mix, or was there an active change in the fee schedules that you set?

Speaker #6: And should we think about that two Q level as fair to run rate? Think of it as sustainable. Thanks.

Speaker #3: Yeah, so those are fees that are paid by the policyholder at new business in every renewal thereafter. And it's mostly two things. Some is geographic.

Trevor Burgess: Yeah. Those are fees that are paid by the policyholder at new business and every renewal thereafter. It's mostly two things. Some is geographic. Some states have limitations on what those fees are, and we have more growth in unlimited states. We also saw some uptick in the commercial business, which has higher fees, in part due to the higher limits that we have in place. We did not make any changes during the quarter to the fee schedule itself, although that is something that we continuously look at and want to have the right balance over time.

Speaker #3: We have some states that have limitations on what those fees are, and we have more growth in unlimited states. We also saw some uptick in the commercial business, which has higher fees.

Speaker #3: In part, due to the higher limits that we have in place. But we did not make any changes during the quarter to the fee schedule itself, although that is something that we continuously look at and want to have the right balance over time.

Speaker #6: Got it, thanks. And then switching over, in the past couple of quarters, you've talked about starting to experiment a little bit with looking at price elasticity.

Tommy McJoynt: Got it. Thanks. Then switching over. In the past couple of quarters, you've talked about starting to experiment a little bit with looking at price elasticity for the cost of your policies and thinking about a potential higher uptake of customers adopting flood policies. Are there any updates on that experimentation? Certainly in the context of thinking about a sub 20% lifetime to date loss ratio for your capacity providers, it seems like there would be some price elasticity there. Any updates around that program? Thanks.

Speaker #6: For the cost of your policies, and thinking about a potential higher uptake of customers adopting flood policies, are there any updates on that experimentation?

Speaker #6: Certainly, in the context of thinking about the sub-20% lifetime-to-date loss ratio for your capacity providers, it seems like there would be some price elasticity there.

Speaker #6: So, any updates around that program? Thanks.

Speaker #3: Yes, what we call the quota buying model continues to—it is now fully deployed and is live at reducing prices for customers for new business.

Trevor Burgess: Yes. What we call the quote-to-bind model is now fully deployed and is live at reducing prices for customers for new business, in areas where, and for property types where we think it can make a change in the likelihood of someone purchasing, and that is definitely having a positive impact on the new business sales. I would say that the data science models that we have built are performing as we expected and are having an impact. What I'm excited about is this is lowering prices to get more people covered, which is part of our fundamental mission to help close this protection gap that exists.

Speaker #3: In areas where, and for property types where, we think it can make a change in the likelihood of someone purchasing, that is definitely having a positive impact on the new business sales.

Speaker #3: So I would say that the data science models that we have built are performing as we expected and are having an impact. What I'm excited about is that this is lowering prices to get more people covered, which is part of our fundamental mission to help close this protection gap that exists.

Speaker #6: Great. Thanks, Trevor.

Rustin Getzoff: Great. Thanks, Trevor.

Tommy McJoynt: Great. Thanks, Trevor.

Speaker #4: Your next question comes from the line of Ristian Getzof with Wells Fargo. Please go ahead.

Operator: Your next question comes from the line of Rustin Getzoff with Wells Fargo. Please go ahead.

Speaker #6: Hi, good morning. My first question is on PIF growth. So PIF growth was up about 29% year over year, which the first half tends to be seasonally weaker.

Rustin Getzoff: Hi. Good morning. My first question is on PIF growth. PIF growth was up about 29% year-over-year, which the H1 tends to be seasonally weaker. I guess, how should we think about the year-over-year growth trends in the H2 in terms of versus the H1? Could we still see an acceleration even if we have a benign hurricane season? Are the year-over-year comps also a little bit impacted since last year you also benefited from the government shutdown? Thank you.

Hristian Getsov: Hi. Good morning. My first question is on PIF growth. PIF growth was up about 29% year-over-year, which the H1 tends to be seasonally weaker. I guess, how should we think about the year-over-year growth trends in the H2 in terms of versus the H1? Could we still see an acceleration even if we have a benign hurricane season? Are the year-over-year comps also a little bit impacted since last year you also benefited from the government shutdown? Thank you.

Speaker #6: I guess, how should we think about the year-over-year growth trends in the back half in terms of versus the first half? Could we still see an acceleration even if we have a benign hurricane season?

Speaker #6: Or are the year-over-year comps also a little bit impacted since last year? You also benefited from the government shutdown. Thank you.

Speaker #3: Yeah, you've hit the nail on the head. I can't control the weather, and I also can't control whether or not there's going to be a government shutdown.

Trevor Burgess: Yeah, you've hit the nail on the head. I can't control the weather, and I also can't control whether or not there's going to be a government shutdown. Last year, the weather didn't help us, but we had the government shutdown. The government shutdown last year really impacted Q4. Q3 is really more the weather one. If we have a benign Q3 last year and we have a benign Q3 this year, we don't think that that's where the change will take place. The harder comp comes in Q4 if we have benign weather and no government shutdown.

Speaker #3: So last year, the weather didn't help us, but we had the government shutdown. The government shutdown last year really impacted Q4.

Speaker #3: Q3 is really more the weather one. And if we have a benign Q3 last year and we have a benign Q3 this year, we don't think that that's where the change will take place.

Speaker #3: The harder comp comes in Q4 if we have benign weather and no government shutdown.

Speaker #6: Got it. And then for my second question, you've talked about before about 400 to 500K of new business at-bats per year. Are you seeing an increase in those at-bats as you kind of get more agents in your distribution?

Rustin Getzoff: Got it. For my second question, you've talked about before about 400,000 to 500,000 of new business at-bats per year. Are you seeing an increase in those at-bats as you get more agents in your distribution and as more of the business goes to the private side? I guess, how should we think about that year-over-year growth in at-bats on a normalized basis as you look out a few years from now?

Hristian Getsov: Got it. For my second question, you've talked about before about 400,000 to 500,000 of new business at-bats per year. Are you seeing an increase in those at-bats as you get more agents in your distribution and as more of the business goes to the private side? I guess, how should we think about that year-over-year growth in at-bats on a normalized basis as you look out a few years from now?

Speaker #6: And is more of the business goes to the private side? And I guess, how should we kind of think about that year-over-year growth in at-bats on a normalized basis as you kind of look at a few years from now?

Speaker #3: Yeah, we're seeing steady growth. It's really tied to the number of agents that are interacting with our system. We are working on some larger new API partners that could drive that higher.

Trevor Burgess: Yeah, we're seeing steady growth that's really tied to the number of agents that are interacting with our system. We are working on some larger new API partners that could drive that higher. We're excited to obviously help current distribution partners transition from manual use of our system to a more automated use. It's not because we don't have the technology that's available to do that. It's very often these large partners getting on their development schedules and prioritization schedules just can take years. We're now actively working on some big ones, and I'm excited to see what that can bring in H2.

Speaker #3: And we're excited to obviously help current distribution partners transition from manual use of our system to a more automated use. It's not because we don't have the technology that's available to do that.

Speaker #3: It's very often these large partners getting on their development schedules and prioritization schedules just can take years. And but we're now actively working on some big ones and I'm excited to see what that can bring in the second half.

Speaker #6: Gotcha. And if I could just squeeze in one more question about the flood map modernization, I guess, what does that timeline look like, just given we're kind of near the midterms?

Rustin Getzoff: Got you. If I could just squeeze one more. For the flood map modernization, I guess, what does that timeline look like, just given we're near the midterms? Do you think the midterms could impact or delay that decision? Also, if it does get enacted, it sounds like it could happen all at once. Would new business pick up over the next couple of quarters by the 5 million households?

Hristian Getsov: Got you. If I could just squeeze one more. For the flood map modernization, I guess, what does that timeline look like, just given we're near the midterms? Do you think the midterms could impact or delay that decision? Also, if it does get enacted, it sounds like it could happen all at once. Would new business pick up over the next couple of quarters by the 5 million households?

Speaker #6: Do you think the midterms could impact or delay that decision? And also, if it does get enacted, it sounds like it could happen all at once.

Speaker #6: So would new business pick up over the next couple of quarters by the 5 million households?

Speaker #3: So a couple of things. First, one of the reasons we really like this recommendation is it doesn't require an active Congress. The existing law, in fact, says that every flood map should be updated every five years.

Trevor Burgess: A couple of things. First, one of the reasons we really like this recommendation is it doesn't require an act of Congress. The existing law, in fact, says that every flood map should be updated every five years, and the vast majority of flood maps have not been updated in the last five years. Some of this is just follow the existing law and update them every five years. On the other side, the good news is you don't need Congress. Midterms have nothing to do with it. What you need, though, are people at FEMA who are making that decision that, okay, let's go ahead and do this, and let's put more initiative, energy, people towards that. The number of people working at FEMA has reduced dramatically.

Speaker #3: And the vast majority of flood maps have not been updated in the last five years. So some of this is just follow the existing law and update them every five years.

Speaker #3: On the other side—so that's the good news: you don't need Congress. Midterms have nothing to do with it. What you need, though, are people at FEMA who are making that decision, that, OK, let's go ahead and do this, and let's put more initiative, energy, people towards that.

Speaker #3: But the number of people working at FEMA has reduced dramatically. And so whether or not the government can make that a priority given the current levels of staffing is an interesting question.

Trevor Burgess: Whether or not the government can make that a priority, given the current levels of staffing, is an interesting question. We do not know the answer about timing. We do not have a good sense of if it will happen, but we're encouraging it to happen because it's the right thing for Americans to know about their risk, and it is something that does not require an act of Congress. If writing an editorial in The Hill is lobbying, then that's the lobbying that we're doing and trying to put our energy towards.

Speaker #3: So, we do not know the answer about timing. We do not have a good sense of if it will happen. But we're encouraging it to happen because it's the right thing for Americans to know about their risk, and it is something that does not require an active Congress.

Speaker #3: So if writing an editorial in The Hill is lobbying, then that's the lobbying that we're doing and trying to put our energy towards.

Speaker #6: Got it. Thank you. Congrats on the quarter.

Rustin Getzoff: Got it. Thank you. Congrats on the quarter.

Hristian Getsov: Got it. Thank you. Congrats on the quarter.

Speaker #3: Thank you.

Trevor Burgess: Thank you.

Speaker #4: Your next question comes from the line of Peter Knudsen with Evercore ISI. Please go ahead.

Operator: Your next question comes from the line of Peter Knudsen with Evercore ISI. Please go ahead.

Speaker #5: Hey, good morning. Thanks for taking my questions. My first one is on the FEMA review council recommendations that you think would need congressional action.

Peter Knudsen: Hey, good morning. Thanks for taking my questions. My first one is on the FEMA Review Council recommendations that you think would need congressional action. I guess could you just help me think about the depopulation and the changes to the Write Your Own compensation scheme. To what degree those do need congressional action, and essentially, is there sort of like a shaved-down workaround version of either of those, such that you think there's the potential that some changes are made without needing congressional approval?

Speaker #5: I guess, could you just help me think about the depopulation and the changes to the write-your-own compensation scheme? To what degree do those need congressional action?

Speaker #5: And essentially, is there sort of like a shaved-down, workaround version of either of those, such that you think there's the potential that some changes could be made without needing congressional approval?

Trevor Burgess: Matt, do you want to take that?

Speaker #3: Matt, do you want to take that?

Speaker #2: Yeah, hey, Pete. Good morning. The short answer is that we don't know the answer to that question. There's a spectrum of possibilities here for each of the suggestions that were made in the FEMA review council report.

Matt Duffy: Yeah. Hey, Peter. Good morning. The short answer is that we don't know the answer to that question. There's a spectrum of possibilities here for each of the suggestions that were made in the FEMA Review Council report and the extent to which those implementations are or those suggestions are implemented and the timeline on which are the two axes that we're looking at here. We believe that both of the two that you mentioned, at least, would require some changes to the legislation or some congressional action. We do not know the extent to which there's appetite within the administration today to make administrative changes outside of the congressional process there. I think that's the question that remains up in the air.

Speaker #2: And the extent to which those implementations are—or those suggestions are—implemented, and the timeline on which, are the two axes that we're looking at here. We believe that both of the two that you mentioned, at least, would require some changes to the legislation or some congressional action.

Speaker #2: We do not know the extent to which there's appetite within the administration today to make administrative changes outside of the congressional process there. And so I think that's the question that remains up in the air.

Speaker #5: Yeah, OK, thank you. That's helpful. And then just going back to the improved economic terms, those were the two largest providers. I guess, are you guys expecting further improvements from the rest of the capacity providers?

Peter Knudsen: Yeah. Okay. Thank you. It's helpful. Just going back on the improved economic terms, those were with the two largest providers. I guess, are you guys expecting further improvements on the rest of the capacity providers? Could you just remind me, I guess maybe it's on a rolling basis, but when those were new, and if so, I guess it sounds like that wasn't even really an impact on the increased commission rate in the quarter. Is it fair to assume commission rates can tick up even further in the near term?

Speaker #5: And could you just remind me, I guess maybe it's on a rolling basis, but when those were new? And if so, I guess it sounds like that wasn't even really an impact on the increased commission rate in the quarter.

Speaker #5: So is it fair to assume commission rates can tick up even further in the near term?

Speaker #3: Well, we had, again, a one-third impact in the quarter because they were 6.1 programs. And June was certainly a stronger month than April. So, there was some impact in the second quarter, but there will be a slightly larger impact in the third quarter and beyond.

Trevor Burgess: Well, we had, again, a one-third impact in the quarter because they were 6-1 programs, and June was certainly a stronger month than April. There was some impact in Q2, but there will be a slightly larger impact in Q3 and beyond. Every time one of our programs comes up for renewal, we have this discussion, our two largest programs are 6-1, but we have a small program on 1 December. We have a program.

Speaker #3: Every time one of our programs comes up for renewal, we have this discussion. Our two largest programs are $6.1 million, but we have a small program on December 1.

Speaker #3: We have a program in October. So as the October and December ones come up, we will have those discussions with those partners and try to reach a mutually beneficial outcome on both.

Matt Duffy: October

Trevor Burgess: October. As the October and December ones come up, we will have those discussions with those partners and try to reach a mutually beneficial outcome on both. One of the programs that we renewed earlier this year, we ended up doing a 2-year agreement where it was 1.25% spread over 2 years. Half and half. Sometimes we're able to negotiate sort of a multi-year easing in of increases. Again, we're not going to get 5 more percentage points, but are we looking to get 25 to 50 basis points on each program each year if we can? Yes. Does that go on forever? No, it does not. At some point the economics, they'd be better off doing a different form of insurance than flood.

Speaker #3: One of the programs that we renewed earlier this year we ended up doing a two-year agreement where it was 1.25% spread over two years.

Speaker #3: And so, half and half. Sometimes we're able to negotiate a sort of multi-year easing in of increases. So, again, we're not going to get five more percentage points, but are we looking to get 25 to 50 basis points on each program each year, if we can?

Speaker #3: Yes. Does that go on forever? No, it does not. Because at some point, right, the economics would be better off doing a different form of insurance than flood.

Speaker #3: But I think we have a little ways to go. And the more history we have and quite frankly, the more history we have with landfall hurricanes, right, we've had 21 in our history.

Trevor Burgess: I think we have a little ways to go, and the more history we have, and quite frankly, the more history we have with landfall hurricanes, we've had 21 in our history. If we can get up that we've had 30 or 40 in our history and are still delivering incredibly outsized returns, then we will be able to get even healthier economics than we get today.

Speaker #3: If we can get up, we've had 30 or 40 in our history and are still delivering incredibly outsized returns. Then we will be able to get even healthier economics than we get today.

Speaker #5: Thanks.

Peter Knudsen: Thanks.

Speaker #4: Your next question comes from the line of Mitch Rubin with Raymond James. Please go ahead.

Operator: Your next question comes from the line of Mitch Rubin with Raymond James. Please go ahead.

Speaker #5: Hey, good morning. This is Mitch on for Greg. You've talked about how every quote gets priced without a human in the loop. In June, the Texas DOI issued a bulletin stating that when AI drives a consequential consumer decision, they expect a person to review and approve before it's acted on.

Mitch Rubin: Hey, good morning. This is Mitch on for Greg.

Trevor Burgess: Hello.

Mitch Rubin: You've talked about how every quote gets priced without a human in the loop. In June, the Texas DOI issued a bulletin stating that when AI drives a consequential consumer decision, they expect a person to review and approve before it's acted on, and they plan to examine governance and internal controls around AI use. Is there a point where Neptune has to add oversight or compliance roles?

Speaker #5: And they plan to examine governance and internal controls around AI use. Is there a point where Neptune has to add oversight or compliance roles?

Speaker #3: First of all, this is not covered by the Texas matter because we're not using AI to set pricing. In the way that you think about AI in that directive, they're talking about generative AI, like ChatGPT or Anthropic.

Trevor Burgess: First of all, this is not covered by the Texas matter because we're not using AI to set pricing in the way that you think about AI in that directive. They're talking about generative AI like ChatGPT or Anthropic, and that's not what we're doing. All of the AI that we're using is algorithmic. It can be turned into just straight math. It's just not applicable for what we're doing.

Speaker #3: And that's not what we're doing. All of the AI that we're using is algorithmic; it can be turned into just straight math. So, it's just not applicable for what we're doing.

Speaker #5: Got it. I appreciate the color. And for my next question—so clearly the focus today is on under-insurance in the U.S. But in the S-1, international expansion was framed as a longer-term opportunity.

Mitch Rubin: Got it. I appreciate the color. Clearly the focus today is on underinsurance in the US, but in the S-1 international expansion was framed as a longer-term opportunity. With the severe flooding across Asia this year and Europe in 2025, can you refresh us on where you stand with that and if you've seen any incremental appetite from capacity providers to expand outside the US? Thanks.

Speaker #5: With the severe flooding across Asia this year and Europe in 2025, can you refresh us on where you stand with that? And if you've seen any incremental appetite from capacity providers to expand outside the US?

Speaker #5: Thanks.

Speaker #3: Yeah, we certainly have tremendous appetite from our risk-taking partners to have us go elsewhere in the world with our technology. And that's not just on flood, but on other perils as well.

Trevor Burgess: Yeah, we certainly have tremendous appetite from our risk-taking partners to have us go elsewhere in the world with our technology. That's not just on flood, but on other perils as well. We're continuously considering those options and weighing them versus the opportunity that is available at home. What I can tell you so far is nothing has crossed the bar as a better use of our time than focusing on the United States, where you've got 25 million buildings at high risk of flooding and only 4 million policies. There's not another opportunity worldwide that we're aware of where you've got 21 million buildings that absolutely need to have it where we're live and can actively work on attacking those.

Speaker #3: And we're continuously considering those options and weighing them versus the opportunity that is available at home. What I can tell you so far is nothing has crossed the bar as a better use of our time than focusing on the United States, where you've got 25 million buildings at high risk of flooding and only 4 million policies.

Speaker #3: There’s not another opportunity worldwide that we’re aware of where you’ve got 21 million buildings that absolutely need to have it, where we’re live and can actively work on attacking those.

Speaker #5: Thank you.

Mitch Rubin: Thank you.

Speaker #4: That concludes our question and answer session. I will now turn the conference back over to Trevor Burgess for closing remarks.

Operator: That concludes our question and answer session. I will now turn the conference back over to Trevor Burgess for closing remarks.

Speaker #3: Listen, thank you to everyone for joining, and thank you for the questions. We're very excited about the trajectory of this business. The team is working so hard, with incredible tools at its disposal, to drive business.

Trevor Burgess: Listen, thank you to everyone for joining, and thank you for the questions. We are very excited about the trajectory of this business. The team is working so hard with incredible tools at its disposal to drive business. Matt talked about it, the fact that we deployed twice as many tickets as we did in Q4 with a slightly smaller team is just incredible. Being able to do live iterations, respond to customer needs, respond to agent needs, I have never been more excited about this business than I am today. Thank you all for your interest and for the questions, and we will get back to work on Q3 and beyond.

Speaker #3: Matt talked about it, but the fact that we deployed twice as many tickets as we did in the fourth quarter, with a slightly smaller team, is just incredible.

Speaker #3: And being able to do live iterations, respond to customer needs, respond to agent needs—I have never been more excited about this business than I am today.

Speaker #3: And so, thank you all for your interest and for the questions. We'll get back to work on Q3 and beyond.

Operator: This concludes today's conference call. You may now disconnect.

Q2 2026 Neptune Insurance Holdings Inc Earnings Call

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