Porch Group Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 10 speakers on the call.

Operator

Good afternoon everyone and thank you for participating in Port Group's Q3 2024 Conference Call. Today we issued our earnings release and filed our related Form 8 ks with the SEC. The press release can be found on our Investor Relations website at ir.portgroup.com. Joining me here today are Matt Ehrlichman, Portrait Group's CEO, Chairman and Founder Sean Tabak, Portrait Group's CFO Matthew Nagel, Portrait Group's COO and Nicole Pelle, EVP and GM of the Port platform. Before we go further I would like to take a moment to review the company's Safe Harbor statement within the meaning of the Private Security Litigation Reform Act of 1995 which provides important cautions regarding forward looking statements.

Operator

Today's discussion including responses to your questions reflects management's views as of today November 7, 2024. We do not undertake any obligations to update or revise this information. Additionally, we will make forward looking statements about our expected future financial or business performance or conditions, business strategy and plans, including the expected benefits and timing of the launch of the Reciprocal Exchange, based on current expectations and assumptions. These statements are subject to risks and uncertainties which could cause our actual results to differ materially from these forward looking statements. We disclaim any obligation to update publicly any forward looking statements whether in response to new information, future events or otherwise except as required by applicable law.

Operator

We encourage you to consider the risk factors and other risks and uncertainties described in our SEC filings as well as the risk factor information in these slides for additional information including factors that could cause our results to differ materially from current expectations. We will reference both GAAP and non GAAP financial measures on today's call. Please refer to today's press release for reconciliations of non GAAP measures to the most comparable GAAP measures discussed during this earnings call which are available on our website. The financial information provided today is preliminary, unaudited and subject to the revision upon completion of the closing and audit processes. As a reminder this webcast will be available for replay along with a presentation shortly after this call on the company's website at ir.portgroup.com.

Operator

Thank you. I'll now turn the call over to you Matt.

Speaker 1

Thanks Lois and good afternoon everybody. Thanks for joining us. We are excited certainly about today's update, so let's get started. In October, we announced that the Texas Department of Insurance approved our application to form and license Forch Insurance Reciprocal Exchange, or PIR, with the core structural and economic terms aligned with what was proposed in our application. In the coming weeks, we expect to complete customary administrative procedures and form and fund the reciprocal, file appropriate rates for PIR and complete the acquisition of HOA at the start of January 2025 when porch insurance will officially be available to policyholders.

Speaker 1

We then expect our insurance business to be conducted under this new model with Porch Group acting as the operator of the reciprocal, mitigating direct exposure to insurance claims and weather events for Porch Group shareholders. This announcement is a long time coming, a key milestone for Porch and the result of tremendous work by our team. I said my thanks to our partners at the TDI as well. We believe a reciprocal is the optimal structure, expected to result in higher margins and more predictable financial results for Porch and believe it will allow us to scale our insurance operations more profitably over time. While we've constrained premium growth to approximately flat until we receive this approval, just this past week we announced Port Insurance in Texas, reactivated many channel partners and launched our premium growth plan with an eye toward a strong 2025.

Speaker 1

Sean and Nicole will share next steps for Pyre and the value creation opportunities ahead shortly. All right, here I'll hit on some Q3 accomplishments. 1st, we are profitable. We delivered record quarterly results with adjusted EBITDA at positive $17,000,000 and achieved positive operating cash flow of $12,000,000 both exceeding expectations. Net income in Q3 was positive at $14,000,000 This is all despite Hurricane Beryl, a severe weather event occurring in early Q3 which we had mentioned last quarter.

Speaker 1

Importantly, we expect to be adjusted EBITDA profitable ongoing marking today as a significant milestone for the business. Our insurance profitability actions are compounding and making a substantial impact. Pricing, deductibles, the use of home factors, our unique property data, all contributing. We implemented further insurance premium per policy increases and total premium per policy increased 25% year over year. Our gross loss ratio in Q3 was 57% and without catastrophic weather our attritional loss ratio was 21%, again outperforming expectations.

Speaker 1

The insurance carrier is healthy and expected to approach $100,000,000 of surplus at the end of the year, which would be by far its highest in its history and is expected to post strong positive net income for the full year 2024. Next, we have fully implemented AI models into our data platform and home factor data products. We launched 3 new HomeFactors in the quarter and are seeing incredible results in better predicting losses and risk of a home. Multiple third party carriers are currently testing our HomeFactors data products against their historical claims and the results are resounding. We can help unlock meaningful underwriting and pricing advantages given our unique insights into approximately 90% of homes in the U.

Speaker 1

S. In the vertical software segment, we continue to roll out new products and features as we increase pricing. I'm very pleased with how high our customer retention rates remain. And finally, during the Q3, we used $20,000,000 of cash to repurchase $43,000,000 of our September 2026 unsecured debt, bringing us to a total of $51,000,000 par value repurchased this year. Now over to you, Sean, to cover the financials.

Speaker 2

Thanks, Matt, and good afternoon, everyone. Let's turn to our Q3 financial results. First, a quick reminder that Q3 is a difficult comparison against the prior year. Last year in Q3, we discovered that one of our legacy reinsurance partners, Vestu, had committed a global fraud and therefore we terminated that reinsurance contract and looked for replacement reinsurance. During that period of time, we had a period of lower reinsurance seating, which resulted in additional revenue of $30,000,000 in the Q3 of 2023.

Speaker 2

Additional revenue less cost of revenue of $10,000,000 and adjusted EBITDA of $2,000,000 With that as a backdrop, Q3 2024 revenue was 111 $200,000 in line with our expectations. This was a 14% decrease from the prior year, driven by the best food matter, and it was offset by a 25% increase in premium per policy in our insurance segment. Revenue less cost revenue was $64,100,000 a margin of 58% and ahead of our expectations. Adjusted EBITDA was $16,900,000 an $8,100,000 improvement from the prior year and ahead of our expectations, driven by the insurance segment and strong cost control. Gross written premium decreased 10% from the prior year, driven by the divestiture of our legacy insurance agency, EIG, in the Q1 of this year.

Speaker 2

We have managed HOA gross written premiums to be roughly flat year over year. With the recent approval of the reciprocal, we will now begin to execute our premium growth plan Taking a closer look at revenue, the insurance segment was 72% of total revenue in the 3rd quarter, relatively consistent with the prior year. Revenue from our insurance segment was $79,900,000 a 16% decrease from the prior year, driven by the best do matter. Vertical software segment revenue was $31,300,000 a decrease of 9% from the prior year. Within this segment, software and services subscriptions revenue increased 7% from the prior year, a 300 basis point acceleration over the growth rate in the Q2 of 2024 and driven by price increases in Rhino and inspection software.

Speaker 2

This was offset by a revenue decline in the moving business, which exited the unprofitable corporate relocations offering, redirecting focus to higher margin services. Now let's dig into the insurance segment. Cost of revenue. Cost of revenue related to attritional claims was $16,000,000 better than our expectations by $13,000,000 Cost of revenue related to catastrophic weather claims was $26,000,000 In the quarter, there were 2 hurricanes that drove approximately $37,000,000 in cost of revenue, net of reinsurance. Hurricane Beryl was a 1 in 10 year event that occurred in early July, and Hurricane Helene was a smaller event for us that developed later in the quarter and impacted the Carolinas.

Speaker 2

This was partially offset by $13,000,000 of favorable prior period development with our underwriting changes. Previous weather events were smaller than we had previously estimated. Recently, Hurricane Milton occurred in early October. And as a reminder, we do not have exposure in Florida and therefore no exposure to this event. Moving to adjusted EBITDA.

Speaker 2

Overall, adjusted EBITDA was $16,900,000 in the Q3 of 2024, a positive improvement from the prior year. The insurance segment adjusted EBITDA was $24,800,000 a $5,700,000 increase from the prior year, driven by the insurance profitability actions that Matt mentioned. The vertical software adjusted EBITDA was $5,100,000 a $1,900,000 improvement from the prior year, driven by price increases in our software and services subscription businesses and strong cost control. The vertical software adjusted EBITDA margin increased to 16% in the quarter. Corporate expenses were $13,000,000 or 12% of total revenue, broadly flat from the prior year.

Speaker 2

Operating cash flow was positive at $12,000,000 in the Q3 of 2024. As of September 30, 2024, we had $405,000,000 in cash, cash equivalents and investments. Excluding the $317,000,000 at HOA, Porch held $88,000,000 This was $29,000,000 lower than the prior quarter, predominantly due to the repurchase of $43,000,000 in par value of the 2026 unsecured notes for $20,000,000 of cash. The repurchases were done at an average of 47 percent of par value. Taking a step back, I wanted to provide some context on capital allocation.

Speaker 2

1st, we maintain an appropriate minimum level of operating cash to run the business. 2nd, we allocate capital toward investment opportunities that we expect to generate the highest risk adjusted return and in excess of our internal hurdle rate, which is well above our weighted average cost of capital. Given the performance in our insurance business in Q3, we had excess cash available and were presented with an opportunity to deploy it against the unsecured notes at appropriate rates despite the low coupon. In Q4, we expect to have 2 primary uses of cash $10,000,000 for an interest payment on the secured notes and $10,000,000 for the seed funding of the reciprocal exchange entity, which we will cover in more detail shortly. As we shift to the reciprocal model and launch Pyre, we will continue to focus on the health of the insurance carrier and its surplus and on satisfying related regulatory capital and other requirements.

Speaker 2

After the $10,000,000 injection to start Payer, we do not anticipate the insurance entities will need additional cash nor equity from Porch Group. Case in point, we expect HOA will end this year at record high surplus at approximately $100,000,000 compared to $50,000,000 at the end of the prior year. HOA surplus on September 30 was approximately $70,000,000 Shifting now to guidance, we are updating our full year guidance today, reflecting our strong Q3 performance. We expect 2024 revenue of $440,000,000 to $455,000,000 with 2% to 6% growth. One thing I'll note is the prior year revenue was higher due to the vest due fallout in Q3 2023 and the divestiture of EIG in January of this year.

Speaker 2

Revenue less cost revenue guidance is updated with a $10,000,000 improvement, now $200,000,000 to $210,000,000 Overall, we expect adjusted EBITDA loss of $7,500,000 to a profit of $2,500,000 a $12,500,000 improvement compared to previous guidance. The midpoint of this range results in $32,000,000 of adjusted EBITDA in the 4th quarter, which is a $20,000,000 improvement over the Q4 of 2023. For the full year, the midpoint would be a $40,000,000 improvement over full year 2023, highlighting the profitability improvements of the business. We expect gross written premiums of $460,000,000 to $470,000,000 We'll now focus on our reciprocal exchange deep dive for this quarter. I'm pleased to have Nicole here to discuss this section with me.

Speaker 3

Hi, everyone. I'm excited to be here again updating you on our progress and next steps. We've been working on this for a while and we appreciate your support. First, Sean will review the new structure of our insurance business once the reciprocal is launched, and then I will talk you through next steps as well as the value proposition for our insurance customers.

Speaker 2

Now that we have TDI approval, we will form a new entity called Porch Insurance Reciprocal Exchange or HIER. We will provide an initial $10,000,000 of funding in exchange for a surplus note on or around January 1, 2025. We expect to complete the sale of HOA, our existing insurance carrier to Pyre and receive an additional surplus note in exchange. The amount of this surplus note will be equal to the difference between HOA's statutory surplus on the date of the sale minus our existing $49,000,000 surplus note, which will continue forward. Given HOA's performance, its surplus has been growing.

Speaker 2

And at this time, we expect HOA's surplus at the end of the year to be approximately $100,000,000 This means that in total, our expectation is for a Porch Group to hold approximately $110,000,000 of surplus notes, all expected to bear a coupon of 9.75 percent plus over. After the acquisition of HOA, Hyre will hold all policies, premiums and pay certain expenses, including claims, agent commissions and reinsurance expenses. As with all reciprocal exchanges, the entity will be owned by its policyholders who will make surplus contributions in addition to their premiums, which is expected to result in faster surplus growth over the long term. At Porch Group, within our new insurance services segment, we will operate 2 business units. 1st, Porch Risk Management Services or PRMS, which will be the operator and attorney in fact of Peyer and HOA.

Speaker 2

PRMS will operate with mostly fixed costs and will receive high margin commissions and fees that build up to a take rate of approximately 20% of gross written premium. The 2nd business unit will be Porch Insurance Capital Solutions or PICS, which will hold the surplus note. Stepping back and looking at the new insurance services segment holistically, we expect revenue to decrease under this new model with higher adjusted EBITDA dollars and margins. Incremental margins are expected to be particularly strong given most of PRMS expenses are fixed. Cash flow dynamics are attractive as well as fees are paid to PRMS upfront.

Speaker 2

And we expect for our insurance services segment to move away from weather related volatility, making it more predictable. We are excited to walk through the go forward financial model in detail at an upcoming Investor Day in December. And Nicole will now take us through the launch plan.

Speaker 3

Thanks, John. 1st, as mentioned, we received prior approval from both the TDI and the Porch Board. This was a key milestone for us that provides us certainty and clarity on the path forward. We now move to prepare for the launch, including system programming and operational readiness and finalizing the Port Insurance value proposition and independent agent onboarding and training. Next up will be the launch, targeted for the start of January 2025.

Speaker 3

At that point, the HOA sale will be completed and the existing carrier, including its entire book of policies, not just Texas policies, will transfer to be a subsidiary of Pyre. At that same time, we will launch Port Insurance, a new homeowners insurance product with an enhanced value proposition. Here, consumers pay a surplus contribution in addition to their premium, helping to build surplus more quickly. We will offer both Porch Insurance and HOA products to new and renewing Texas policyholders. We will initially launch the Porch Insurance product in Texas, our largest state.

Speaker 3

In 2025 and ongoing, we will look to roll out the Porch Insurance product to other states for HOA rights policies. But again, to make it clear, Peyer rolling out into more states doesn't impact Porch Group's financial results. As of the time HOA is sold to Peyer in January 2025, all premium will be at the reciprocal and Porch Group's insurance services segment revenue will be generated through our approximately 20% commission and fee take rate on total gross written premium. State expansion is just about offering another product in the market to consumers and to enable the surplus contribution, the reciprocal offers, to aid in growing surplus faster. I mentioned the extra value we'll offer to consumers through the Porch Insurance product.

Speaker 3

So let's take a moment to talk through this. Porch Insurance customers are more than policyholders. They are owners and members of the reciprocal. First, we offer more protection. Our insurance protects the home structure from everyday and catastrophic risks.

Speaker 3

While our warranty product preserves the inside of the house such as the appliances. New porch insurance members get a 90 day warranty, some new coverages such as service lines for gas, water and sewer lines, refrigerated property protection and other features to protect the home such as appliance recall check monitoring. 2nd, porch insurance is designed for homebuyers and homeowners who maintain their home. Homebuyers save approximately 16% on homeowners insurance and can use our app or moving concierge to schedule movers, coordinate TV Internet setup, and manage their home and moving tasks. 3rd, we reward our members.

Speaker 3

We want to make it easy to care for their homes and to be rewarded as a community as they do so. Homeowners can use our Porch app to manage their home and their to do lists, find pros for projects, and as part of our community, keep their homes safer. We will offer discounts on well maintained homes as we price risk more accurately by utilizing the insights from Home Factors. Speaking of our property data product Home Factors, we're pleased with the continued progress of our data product of our data platform and the use of AI and machine learning techniques that help us to extract and structure more home factors with increased accuracy. We released 3 new insights this quarter, each of which relate to the electric system in the home.

Speaker 3

1st, the condition of the electrical wiring and whether it needs to be repaired or replaced. 2nd, the capacity of the electrical panel. And 3rd, the condition of the electric panel and whether that needs to be repaired or replaced. Each of these are unique to porch and not readily available data. Taking a deeper look at panel repair replace status as an example, a panel in need of repair in a home presents various risks, such as overloading circuits causing electrical fires, power outages from an unreliable power supply, damaging sensitive electronics, or the inability to support upgrades for new appliances such as installing electric car chargers or modern HVAC systems.

Speaker 3

Comparing this insight against our historical claims data indicates a 41% higher claims frequency at a comparable severity level. Therefore, it's valuable in evaluating risk and underwriting and pricing policies appropriately. This indicates we should offer an 18% discount to homes with panels that do not require repair and a 13% surcharge to those that do. These are just a few of the new examples. We are submitting multiple new filings by the end of 2024 that include Home Factors data such as the presence of skylights and additional roof factors.

Speaker 3

As a reminder, last quarter we announced we are in the market selling Home Factors to 3rd parties with strong early results. Thank you all for your time today. And I'll now hand it over to Matthew to cover our KPIs.

Speaker 4

Thanks, Nicole. Hello, everyone. As Sean mentioned, once we enter into 2025, we will make small adjustments to our reporting segments in light of the reciprocal formation and at that time, update our KPIs for our go forward operating model. We'll share more at the upcoming Investor Day. Until then, I'll quickly cover the current KPIs we have been using.

Speaker 4

First, the average number of companies was 28,000 in Q3. Average revenue per company per month decreased 8% to $13.18 from the prior year, driven by the Vesto impact Sean mentioned. We had 245,000 monetized services in the quarter, a 9% increase over the prior year. The average revenue per monetized service was $377 26% lower than prior year, similarly driven by invest do matter. Looking now at our insurance segment KPIs.

Speaker 4

As a reminder, 2023 included the EIG insurance agency that was divested in January 2024, and thus year over year comparisons are not apples to apples. In the Q3 2024, gross written premium was $139,000,000 from 219,000 policies in force. As we've discussed, we have constrained premium growth to focus on profitability and are nearing the time when we begin to grow premium once again. Annualized revenue per policy was $14.60 an increase of 28% from the prior year driven by premium per policy increases. Focusing on HOA, the annualized premium per policy increased 25% to $2,208 Premium retention was 100%.

Speaker 4

The non renewals are now complete, and we expect to see the benefit of continued price increases as we look ahead. Our gross loss ratio was 57% in the Q3, a strong result given the 2 hurricane events. Slide 23 presents the gross loss ratio and splits out attritional losses. Our non cat loss performance was exceptional, delivering a gross attritional loss ratio of 21%, an 11% improvement from the prior year. I'll touch more on this shortly.

Speaker 4

As Sean said, seasonal catastrophic weather performed well outside the 2 hurricane events. The catastrophe gross loss ratio was 36% in the 3rd quarter, which was primarily driven by barrel. Our gross combined ratio in Q3 was 89%. I'd like to now provide some insight and data into how our attritional losses have significantly outperformed in the last few quarters. First, product.

Speaker 4

Our risk selection benefits from home factors with our unique data helping us better assess and price risk and apply discounts and surcharges where appropriate. We're also revising deductibles and policy terms, therefore reducing our risk exposure. 2nd, portfolio. We've completed our risk selection review during which we non renewed higher risk policies that our data and modeling showed were unlikely to be profitable. We have exited Georgia and pulled back from coasts on Texas and South Carolina.

Speaker 4

3rd, price. We continue to increase pricing across states where appropriate. We are not alone here in our price increase actions. With historic losses, inflation and increased reinsurance costs and expenses, premiums have had to increase significantly across the homeowners insurance industry. Let's focus on Texas, our largest state, to highlight our premium per policy increases have improved our attritional loss ratios.

Speaker 4

In response to market shifts, we've implemented rate hikes, deductible changes and water coverage surcharges. Since 2021, our premium per policy in Texas has grown at a 42% CAGR now reaching $2,508 The chart shows how these actions, particularly around water and fire perils, have improved loss ratios over the past 4 years. While inflation and rising reinsurance costs drove ratios higher in 'twenty one to 'twenty two, they've since improved in 'twenty three to 'twenty four, reflecting the success of our strategic measures. Thanks, everyone. I will hand it to Matt to wrap this up.

Speaker 1

Thanks, Matthew. Thank you, team. We couldn't be more excited about what's ahead. To recap, 1, the Porch Insurance reciprocal exchange is approved and the acquisition of HOA by Pyre is expected to be complete at the start of January. 2nd, we lowered the amount of outstanding unsecured debt.

Speaker 1

3, our insurance business is demonstrating industry leading attritional loss ratios. We continue to roll out new home factors and are getting a strong positive response in the market. And 5, for the full year, we are still focused on our target of achieving full year profitability in 2024, delivering positive adjusted EBITDA each quarter ongoing and delivering predictable cash flow results for Porch Group shareholders in 2025 and beyond. We look forward to our Investor Day next month where we'll share more detail about the economic model for Porch Group post reciprocal, the financial health of the insurance carrier, financial targets with long term growth and margins, and details into a variety of our business units. We'll share updated segments and reporting KPIs that will begin Q1 2025.

Speaker 1

With what we expect in terms of 20252026 results, It's going to be a fun run here coming up. With that, we will wrap the prepared remarks and pass the call to the operator. Christina, please go ahead and open up the call for Q and A.

Speaker 5

Thank you. Thank you. Your first question comes from the line of John Campbell from Stephens. Your line is open.

Speaker 6

Hey guys, great work on the profitability. I know you guys had to contend with some pretty wild weather in the quarter. That's great. On the reciprocal exchange and new value proposition for consumers, you guys did touch on kind of overlaying the moving concierge service. So my main question is, how does it differ from what you've done in the past?

Speaker 6

And maybe if you could also talk to how you've been able to how well you've been able to tie the moving services to the past insurance policies and why you feel like this could drive better synergies across the 2 segments?

Speaker 4

Sure. I can take that. Nicole, feel free to layer We have built up a lot of capability around helping people to move over the past X years that we've been focused on that business. We're also very interested in targeting home buyers. So people who are going through a home purchase and moving and being able to provide additional services to them, things like a 90 day warranty, a moving concierge as a way to help differentiate us as the best insurance for homebuyers.

Speaker 4

We operate the concierge all over the country. In all states, we operate it in Texas. Thus far, HOA hasn't leaned into the ports capability. And that's been intentional because we want to make it part of the porch value prop for insurance. And so we're

Speaker 5

Thank you. And sir, does that complete your question?

Speaker 6

Yes. I'm sorry, my line cut out there. I had one more. And I apologize, guys, I had hopped on the call a bit late here. So apologies if I missed this explanation.

Speaker 6

But could you maybe talk to the decision to exit the corporate relocation business and kind of help size up the impact within vertical software?

Speaker 4

Yeah, I can speak to that too. There were a couple of trends working against us. There's more remote work that's happening. There's less corporate relocation happening. And we provided a certain type of service to meet that segment that just as the scale went down, it really didn't make sense for us to focus on it.

Speaker 4

So you will see the impact in the move related revenue in the quarter. The one thing that I will say is there's still opportunity for us in moving. We are a leader in labor only services and we still do that for certain partners in the corporate relocation space as well as other leading brands. But it was a key driver for why the move related revenue is down this quarter.

Speaker 6

Got it. Makes sense. Thanks, guys.

Speaker 5

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

Speaker 7

Thanks. Just want to ask when you're done with the reciprocal or the transaction is done, how do you think about that impacting overall corporate revenue or corporate expenses? And then secondly, when the reciprocal is done and you think about bringing outside capital to fund it, is what's the process with which then you're able to extract your capital back out of the reciprocal? Thanks.

Speaker 2

Yes. I could cover the expense for a while. I think if I just take a step back for a sec, the reciprocal, one of the reasons we are excited about the shift to that model is that our expenses for our insurance segment, the entities I talked about today, PRMS, will be relatively fixed, mostly employee type expenses. And we'll provide a lot more detail on that as well as other expenses around the business at the Investor Day. But for now, as I think we announced today and the take rate at 20% gross written premium, combined with that expense profile and a relatively fixed expense profile that scales quite nicely.

Speaker 2

We're excited about the opportunity ahead and what that presents for us. And then I think your second question was on surplus note. Was that?

Speaker 1

Yeah, that's right. I can take that. So, we've mentioned before, Jason, that once the reciprocal is launched, it can make sense at some point to go out and raise 3rd party capital, 3rd party surplus note investors for the insurance entities. We'll see when the right time is to do that. Yes, when we go and look to pursue that, we have 2 choices.

Speaker 1

1 is to keep additional capital inside the insurance entities to be able to build surplus and grow premium that much faster or to be able to pay down some of Porch Group's existing and expanded now surplus, surplus note. Obviously, in the interim, that surplus note is paying a coupon that 9.75 plus sulfur coupon. But we will, like Sean had mentioned, give or take, we expect approximately $110,000,000 of surplus notes you'll hear once the transaction goes through.

Speaker 5

Thank you. And does that complete your question?

Speaker 8

Hi, this is Steve on for Jason. Yes, he is all good. Thanks, Kirk.

Speaker 5

Okay. Thank you. Your next question comes from the line of Jason Kreyer from Craig Hallum. Your line is open.

Speaker 9

Hey, thank you guys. So now that you've got the kind of a deadline set for triggering the reciprocal as we get into next year, I think the focus probably starts on growing policies in force. Just curious what that looks like from a go to market perspective as far as finding new policies, whether that be geographically and then how you tap into some of that like home factors type of data to find those homeowners that have the most attractive risk profiles?

Speaker 4

Sure. I can take that. We are excited now that the reciprocal has been approved to move into growing premium. Our focus is on growing premium next year. I would highlight a couple of things.

Speaker 4

The first is we still have a lot of opportunity in Texas and we have opportunity in the 21 other states that we operate in. And so we'll take advantage of that open space. The second is our primary go to market is through agents and there's a lot of room for us to add more appointed agents. And so we are now starting to make investments into the growth teams that will help us to recruit more agents, activate and support those agents. We've also started to make changes to our commission the commission that we provide to agents to really incent 2 things.

Speaker 4

1 is growth and then the other is profitability. And so those changes make us very competitive in the market. And if we're successful at driving growth profitably, there's opportunities for those agents to even potentially get above market. And so we're excited to work with our agent team and our agents to be able to go do that. And then most certainly, Home Factors is a key part of how we want to grow profitably.

Speaker 4

It helps us to identify homeowners that are lower risk or to be able to price the risk more appropriately. It's also particularly helpful in one of our key target segments of homebuyers because the data that we have is fresh when somebody has recently done an inspection. And so I think we're excited about starting to grow premium next year.

Speaker 9

Thank you. And then just want to ask about that commission fee of 20%. How sticky is that? Like, does that move around over time? Does that move around kind of annual or over several years?

Speaker 9

Or should we expect that 20% to be a pretty stable figure as we look forward?

Speaker 1

I think it's okay. Go ahead, John, if you want to.

Speaker 2

Yeah. I was just going to say, I think it's a great rate for us to start out at. And there are opportunities potentially in the future for that to go up. And that that could be part of the growth plan for Reports Group as we move forward. We'll cover these sorts of things, obviously, in more detail at the Analyst Day.

Speaker 2

But I think, as I said before, I think the 20% is a good take rate for us and will drive a good amount of profitability.

Speaker 9

All right. Thank you.

Speaker 5

Your next question comes from the line of Ryan Tomasello from KBW. Your line is open.

Speaker 8

Hi, everyone. Thanks for taking the questions. Maybe just zooming in on another part of the business, Flowify. Just was hoping you can provide an update on how that business is performing in terms of the sales environment and whether or not attrition I know has been a headwind for a lot of players like Flowify, if you feel like that's bottomed out. And then also related to Flowify, the embedded insurance marketplace opportunity is something that was a big part of that story.

Speaker 8

Just was wondering if there's any update there on how that fits into the whole insurance strategy overall? Thanks.

Speaker 4

Yes. I can speak to Flowify. Across all of our vertical software businesses, we are focused on continuing to innovate, continuing to take price for the value that we can create. And it has certainly been a headwind market. FlowFi, in addition to the transaction volume falling down, You also see a lot of loan officers exiting the market.

Speaker 4

And a lot of the way they monetize their business is through those loan officers. We are excited about some of the things we are working on. We see opportunities for us to provide services and monetize going forward on a more transactional basis, which will give us an opportunity as transaction volumes return to participate in that growth in addition to the growth of loan officers, which we would expect to come back, but probably more slowly in transactions. There's also been some interesting sort of movements in the market with competitive players that have opened up some avenues for us to grow share and focus on certain parts of the market. And so we've seen, if you look in our vertical software segment, we've seen margin expansion.

Speaker 4

So the team has done an excellent job in these headwinds of staying focused on driving new innovation while really keeping a close eye on profitability, which just positions us really well as the growth comes back over the next 1, 2, 3 years in the real estate market.

Speaker 1

In terms of the embedded insurance Thank you

Speaker 6

for taking

Speaker 8

the questions.

Speaker 1

Yeah. Let me finish out the question for you. And I will say, overall, just to echo what Matthew said, Teams done a really good job. I would say each of our software business leaders and teams have done a really nice job in this market. But, give Flowify real credit, things like the metrics you're asking about there, Ryan, you know, attrition have really stabilized and actually done quite well.

Speaker 1

In terms of the embedded insurance opportunity, we focused I would say more of our energy and some of our other software products like some of the things in the inspection industry just given the market turmoil in the mortgage industry. We've prioritized on building features for those businesses that they really need to be able to stabilize and run their businesses. So, it hasn't been a high priority for us here recently.

Speaker 8

Got it. Appreciate all

Speaker 6

the color.

Speaker 3

Thanks, Ryan.

Speaker 5

Thank you. And there are currently no further questions on this end. Lois, do you have any preceded questions?

Operator

Yes. I've got one here. I think this is for you, Nicole. Can you talk about the Home Factors opportunity and would it be material for Torch in the future?

Speaker 3

Yeah. So I would say, 1st and foremost, I'm just hugely excited about the opportunity here with Homefactors. There is a tremendous amount of money that is spent on data industry wide. We'll spend more time on that as we go through Investor Day, but the opportunity here is very large. I truly believe that this can be one of the largest pillars of our business, given the uniqueness of the data and the results that we've seen within our own insurance company.

Speaker 3

But not only that, we're just getting started. But the feedback we've heard from 3rd parties that are testing is just really positive. And then the last thing I'd sort of highlight is we continue to find new use cases for how we can use the data. So clearly, there's an opportunity within underwriting to be more effective, same with pricing. But there's also opportunities to accelerate underwriting, just move with more speed, to close more business, reducing on-site inspections, and optimizing reinsurance.

Speaker 3

And so as I think about it, the opportunity is really big. The results are really strong. And then there are many ways that the data adds value. So while we're early here, I believe over the next set of years, there's a really large opportunity here for us to be a major pillar of value for the company.

Speaker 5

Great. Thank you. And with that, I'd like to turn the floor back over to Matt for closing remarks.

Speaker 1

Perfect. Thank you, everybody. Hey, I really do appreciate the time and just the continued support. We're at a, like I said, a really fun moment in our company's history where we can see what's ahead and we're excited. We look forward to speaking to you more shortly here at the Investor Day in early December and providing more details about that future.

Speaker 1

Details for the event will follow and be available on our Investor Relations website here soon. And with that, enjoy the rest of your day. Take care, everybody.

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Earnings Conference Call
Porch Group Q3 2024
00:00 / 00:00