Porch Group, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Transformation and Results: Porch launched the Porch Reciprocal Exchange and transformed to a commission and fee-based, higher-margin model. Q1 2025 revenue was $85 million, with 82% gross margins. Gross profit was $69 million, an 86% increase from Q1 2024. Adjusted EBITDA was $17 million, a 20% margin.
• Reciprocal Health: Reciprocal's April 1 reinsurance renewals were strong, lowering catastrophic weather risk. Surplus combined with non-admitted assets was $198 million at Q1 end.
• Market Resilience: Believes the business is protected in various economic scenarios, with homeowners insurance premiums continuing to grow historically across cycles.

Segment Performance

• Insurance Services: Generated ~$49.8 million in revenue from $97 million of reciprocal written premium. Associated gross profit was $42.3 million with an 85% gross margin. Adjusted EBITDA was $25.8 million with a 52% margin.
• Software and Data: Revenue was $22 million, a 4% year-over-year increase. Gross profit was $16.5 million with a 75% gross margin. Adjusted EBITDA was $4.6 million, a $2 million increase from the prior year.
• Consumer Services: Revenue was $14.7 million, a 9% year-over-year decrease. Gross profit was $12.2 million with an 83% gross margin. Adjusted EBITDA loss was $700,000, a $2.2 million decrease from the prior year.
• Corporate: Expenses decreased to $12.8 million in Q1 2025 from $15 million in the prior year.

Guidance

• Revenue: Increased 2025 revenue guidance by $10 million, ranging from $400 million to $420 million.
• Gross Profit: Increased 2025 gross profit guidance by $10 million, ranging from $320 million to $335 million, with a gross margin of approximately 80%.
• Adjusted EBITDA: Increased 2025 adjusted EBITDA guidance by $5 million, ranging from $60 million to $70 million, reflecting Q1 outperformance, positive Insurance Services segment performance, and partial offset by additional growth investments.

Risks

• Tariffs: Expected mid-single-digit adjusted EBITDA impact, factored into increased guidance.
• Recession: Business is well protected, with homeowners insurance premiums growing in all economic cycles.
• Inflation: Homeowners insurance price increases could accelerate, boosting high-margin management fees.
• Weather: More weather-related claims lead to premium increases, growing fees for Porch and shareholders, with Porch not absorbing catastrophic claims under the reciprocal structure.

Question and Answer

• **Q: Why was the take rate high in Q1?

A: Reciprocal written premium converted to revenue at about 50%, including policy fees and management fees. Surplus is healthy at $198 million, contributing to strong new business growth.

• **Q: HOA surplus and drawdown?

A: Surplus combined with non-admitted assets was $198 million at Q1 end. Statutory surplus is around $105 million, with the $198 million including non-admitted assets. Surplus has seasonality, with losses in first half and income in second half.

• **Q: Reinsurance process and reinsurer appetite?

A: Proud of reinsurance relationships. Renewal set retention limit at $25 million, mitigating catastrophic risk, and pricing benefited from strong carrier performance.

• **Q: Growth levers for Reciprocal and agent channel?

A: Reciprocal written premium growing due to new business, including homebuyers and new construction. Agent channel is growing, with focus on engaging more agents and expanding into new states.

• **Q: Software and Consumer Services performance and future?

A: Software and Data investing in innovation for price increases. Consumer Services impacted by housing volumes but investing in moving services and partnerships to access more consumers.