Porch Group, Inc. Q3 FY2024 earnings call

• The Texas Department of Insurance approved the Porch Insurance Reciprocal Exchange (PIRE), with expectations to form and fund PIRE, acquire HOA in January 2025, and have Porch Group act as the operator of the reciprocal.
• Q3 was profitable with adjusted EBITDA at $17 million and positive operating cash flow of $12 million. Net income in Q3 was $14 million.
• AI models fully implemented into data platform and Home Factors data products, with 3 new Home Factors launched, showing strong results in predicting losses and risk.
• Vertical Software continued rolling out new products/features with high customer retention rates.
• Repurchased $43 million of September 2026 unsecured debt using $20 million of cash, with $51 million par value repurchased this year.

In the third quarter of 2024, the Insurance segment accounted for 72% of total revenue, with revenue of $79.9 million, a 16% decrease from the prior year due to the Vesttoo matter. The Vertical Software segment had revenue of $31.3 million, a 9% decrease from the prior year. Within Vertical Software, software and services subscriptions revenue increased 7% from the prior year, while the moving business declined due to exiting unprofitable corporate relocations. Adjusted EBITDA for the Insurance segment was $24.8 million, an increase of $5.7 million from the prior year, driven by insurance profitability actions. The Vertical Software adjusted EBITDA was $5.1 million, an increase of $1.9 million from the prior year, driven by price increases in software and services subscriptions and strong cost control.

• Updated full-year 2024 guidance: revenue expected to be $440 million to $455 million (2%-6% growth), revenue less cost of revenue $200 million to $210 million (a $10 million improvement), adjusted EBITDA loss $7.5 million to profit $2.5 million (a $12.5 million improvement), and gross written premiums $460 million to $470 million.
• Midpoint of adjusted EBITDA for Q4 2024 is $32 million, a $20 million improvement over Q4 2023.

No specific detailed risks discussed beyond general forward-looking statement risks as outlined in the Safe Harbor, including potential differences between actual results and forward-looking statements due to various uncertainties.

Q: How does the reciprocal exchange differ from the past and how does it tie moving services to insurance policies for better synergies?

A: Matthew Neagle mentioned they've built moving capability over the years, target homebuyers, and the concierge service is part of the Porch value prop for insurance, with HOA not previously leaning into Porch capability but now integrating it.

Q: Talk about the decision to exit the corporate relocation business and its impact on Vertical Software?

A: Matthew Neagle said less corporate relocation due to remote work, scale issue, with move-related revenue down but still opportunity in labor-only services.

Q: How does the reciprocal impact corporate revenue/expenses and process for extracting capital?

A: Shawn Tabak said reciprocal shift leads to relatively fixed expenses for insurance segment, Matt Ehrlichman mentioned potential for third-party capital in future, with surplus note paying coupon and options to use capital for surplus growth or debt paydown.

Q: What's the go-to-market for growing policies and role of Home Factors?

A: Matthew Neagle said focus on growing premium in Texas and other states, primary go-to-market through agents with investments in growth teams, commission changes for growth and profitability, and Home Factors help identify lower risk homeowners and price risk appropriately.

Q: Update on Floify performance and embedded insurance opportunity?

A: Matthew Neagle said Floify saw stabilized attrition, market headwinds, prioritized features for other software businesses over embedded insurance in mortgage due to market turmoil.

Q: Talk about the Home Factors opportunity and its materiality for Porch?

A: Nicole Pelley said huge opportunity with unique data, positive feedback from third parties, new use cases in underwriting, pricing, and reinsurance optimization, believing it can be a major pillar of the business in the future.