This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good afternoon, everyone. Thank you for participating in Forge Group's first quarter 2022 conference call. We issued our first quarter earnings press release today in furniture related 8K to the SEC. The press release can be found on our investor relations website at ir.forgegroup.com. Joining us today are Matt Ehrlichman, Forge Group's CEO, Chairman, and Co-Founder, Marty Heim-Bigner, Forge Group's CFO, Matthew Nagel, Forge Group's COO, and Adam Kornick, President of our InsurTech Division. Before we go further, I would like to read the company's safe harbor statement in the meeting of the Private Securities Litigation and Reform Act of 1995 that provides important cautions regarding foreign-looking statements. Today's discussion, including responses to your questions, reflects the management's view as of today, May 10, 2022 only. We do not undertake any obligations to update or revise this information. Additionally, we will make forward-looking statements about our future financial or business performance conditions, business strategy and plans, and anticipated impacts from pending or completed acquisitions based on current expectations and assumptions. These statements are subject to risk and uncertainty, which could cause our actual results to differ materially from these forward-looking statements, and we encourage you to consider the factors described in our SEC filings for additional information. On today's call, we will reference both GAAP and non-GAAP financial measures. For reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call, please refer to today's earnings press release. To submit a question during today's presentation, please log into the webinar and submit it through the chat function. Management will do its best to take all questions within the amount of time. As a reminder, this webcast will be available for replay shortly after the conclusion of this presentation on the investor relations section of the company's website at porchgroup.com. The slide presentation will also follow along with the presenter's commentary and can be found on the company's website. Today, in addition to covering first quarter 2022 results, 2022 guidance, and KPIs, the team provided deep dive into our insurance business. With that, let me turn the call over to Matt Erichman, CEO, Chairman, and Founder of Porch Group.
spk11: Matt? All right. Thanks, Walter. Appreciate it. Good afternoon, everybody. This marks Porch Group's sixth quarter so far in the public markets. Once again, we're announcing strong quarterly financial results, meaning company revenue and profit expectations. These results should give confidence and certainly has us affirming our previously disclosed guidance. and highlight the strong performance across the business and the continued success of our unique strategy in insurance and home services. Before we get started, I'm going to take a few minutes to share my thoughts. We'll then provide financial results and KPIs for the first quarter, and later dig a little deeper into some of the initiatives that will strengthen our competitive position. In particular, Adam Kornick, the president of our InsurTech group, has joined today to provide an update on our insurance segment. which includes and continues to perform well and is expected to contribute 40% of 2022 revenues. I'll kick off by noting that we are not blind to what's been happening in the market over the last five months, nor to the challenges others are seeing related to the housing and reinsurance markets. Clearly, we've gotten lumped into broad-based selling. The good news to report, the business is performing and the strategy is working. We continue to perform against near-term expectations while simultaneously making strategic progress against this massive opportunity that's in front of us. Case in point, year over year in Q1 2022, revenue was up 134% and adjusted EBITDA margins were improved by a full 25 percentage points, with us today affirming our full year 2022 revenue and EBITDA guidance. At the same time, we're excited to announce that we have filed and received official approval from three states to start using specific porch property data in pricing of insurance with more to come. As we noted, our business is not as susceptible as others to a housing decline. Approximately 70% of our revenue this year is expected to come from B2B SAS fees and insurance, both of which create a strong recurring revenue engine and neither of which would be expected to be impacted at material level by shifts in the housing market. Yes, parts of our business feel the impacts of a slowing housing market, and yes, we would be growing even faster if more homes were being sold. But as we've said, the slowing market we've seen thus far was built into our assumptions and guidance. Given we are so early in our journey with a large opportunity ahead, and given our unique strategy presents many levers to drive growth, we're performing right through this slower housing market and expect to continue to do so. For those that are new to Porch, slide six here outlines a unique strategy to win in these large home service industries. We provide software and services to businesses and select strategic verticals to help those companies grow. By doing so, we generate B2B recurring revenue from software, B2B software fees. as well as gain early and ongoing access to consumers. We help improve their home buying and home ownership journey. In this consistent stream of home buyers, we generate B2B2C, transactional revenues, by helping with the purchase of essential services. Insurance and home warranty are the services we focus on most, given when we sell them to consumers, we can create ongoing recurring revenue and a durable relationship. Here with insurance, we operate this business in a capital light manner, ceding the vast majority of premiums to third-party reinsurers who carry the bulk of the risk, volatility, and the capital requirements within expected risk levels, allowing us to get to scale both rapidly and more predictably. So starting here on the top of slide seven, our priorities for 2022 remain the same with one tweak to number six. So number one, sell vertical software to more companies, our core go-to-market. Two, embed key services and consumer experiences into our software products in a variety of ways to get in front of more consumers and increase our B2B2C transactions. We've just launched insurance embedded within our Flowify mortgage software, providing an entirely new and expanded home buyer audience to delight. Three, we extend our experiences, our digital tools, and our app to consumers we get unique and early access to in order to increase conversion rates on our B2B2C transactions. We've also advanced our consumer app and intend to provide it to every home buyer working with one of our partner inspectors. This is not only a way for us to increase conversion rates, but also to get access to far more consumers. Number four, to continue to grow our insurance business both rapidly and profitably, including launching new products and in new geographies. As you may remember, when we had first acquired HOA a little over a year ago, they were operating in six states. With our most recent announcement of expansion into Nebraska and Wyoming, we now offer our own insurance products in 17 states. We're also integrating home warranty and maintenance services to create a full home protection plan. Number five, we'll continue to build out our data platform. and start to leverage Porch's unique insights to improve pricing for our insurance and warranty products. I'm excited about what Adam will cover later on here in the insurance section. Again, we filed and received approval to use this first key data in our insurance pricing in select states. Lastly, number six, a change as it relates to our M&A priority. As we discussed last quarter, given the shift in the cost of capital, the importance of prioritizing scaling our systems, and the relative public to private market valuation gaps that can exist, we do view 2022 as a lighter year of M&A, and one where a larger focus is going to be on the integration of prior acquisitions and financial controls over our financial reporting. Certainly remain excited about how our platform can accelerate growth for the right acquired companies, and we would look to focus more effort in capital here in the future once the market normalizes. So with that, I'll turn it over to Marty Heimwigner, our CFO, to discuss our first quarter results. Marty.
spk08: Thanks, Matt. And good afternoon, everyone. As Matt mentioned, our business is performing very well and was able to report another strong quarter, putting us in an excellent position for the remainder of 2022 and is keeping us on track to achieve great results for our shareholders, including breakeven adjusted EBITDA for the second half of 2023. In parallel, we have accelerated key hires across the accounting and IT organizations to address internal controls and compliance with our obligations under the Sarbanes-Oxley law. Looking at slide nine, the year-over-year comparison of our first quarter results is impressive. For the first quarter of 2022, Porch Group's total revenue grew 134% to $62.6 million, an increase of $35.9 million from the prior year, same quarter, and ahead of expectations. In addition to the strong revenue performance, revenue, less cost of revenue, was 66% in line with our expectations. An adjusted EBITDA margin was a negative 11%, a 25 percentage point improvement from the prior year. Adjusted EBITDA loss was approximately $7 million in Q1, a nice year-over-year improvement. Gross written premium was a healthy $102 million in Q1, which is our seasonally low quarter. We provided annual guidance about eight weeks ago when we already had good visibility into Q1. We are certainly pleased with the performance of our business so far this year, and are affirming our full-year 2022 guidance, with revenue guidance of $320 million, up 66% year-over-year, and revenue, less cost of revenue, what we use as a measure of gross profitability, of $210 million, up 57% year-over-year. 2022 EBITDA guidance also remains unchanged. approximately a 400 basis points year over year margin improvement, which produces close to negative 9% adjusted EBITDA margin and improved full year adjusted EBITDA dollar performance. We continue to invest in strategic growth initiatives as well as acquisition integrations to address our internal control environment. Because much of our cost structure is fixed and the underlying margins of our business are strong, we are able to manage the growth of these expenses and to be confident in achieving our medium-term goal of breakeven for the second half of 2023 and our long-term target of 25% adjusted EBITDA margins. Additionally, we are pleased with what we expect to be our $600 million gross written premium insurance business, and we'll share more about progress here later in the presentations. Given the strong Q1, we are excited about the ongoing performance and momentum at Porch. With that, I'll turn it over to our Chief Operating Officer, Matthew Nagel, to discuss our operating segments and KPIs.
spk15: Thanks, Marty. And hello, everyone. I agree. We certainly feel good about how the business continues to perform and how it has performed over time, as you see here on slide 11. You can see strong 66% year-over-year revenue growth that we expect in 2022. The most significant potential areas of positive upside to this year are initiatives such as the initial integrations with Flowify and the rollout of our app to consumers, to all inspectors. Other factors that may impact our results include unusual weather, especially in Texas, which can be muted given our reinsurance strategy. and also the timing of the CSE acquisition, which is assumed and remains on track for mid 2022. We feel comfortable with the current expectations of softness within the housing market that have been built into guidance and our reinsurance relationships landed largely as expected for the 22 year. I'll first jump in and share 2022 guidance for our operating segments and then report on our KPI performance from Q1 2022. Turning to slide 12, the most valuable, strategic, and re-incurring elements of our revenues are growing the fastest. We generate revenue from two segments. Overall, our vertical software segment is expected to produce approximately $190 million in revenue in 2022. We generate this revenue from our software through both B2B SaaS fees and transactions. The other high retention in recurring portion of our business is insurance segment revenue, which is also growing rapidly and is expected to contribute 40% of overall revenue in 2022. As one thinks about our current valuation, a few things I believe are worth a reminder. You can see here on slide 13, that approximately half of our vertical software segment revenue or approximately 30% of overall company revenue comes from B2B subscription fees. The monthly fees companies pay us for our software and services. This revenue stream alone is expected to near $100 million this year and is high margin revenue. We have built or acquired and accelerated the high quality leading software companies in large key vertical markets, with the three most important being ISN, Flowify, and Rhino. So if Porch's only revenue stream was the approximately $100 million of SaaS fees, the comps and respective multiples for that business would be quite clear and represent a substantially higher market capital. Similarly, we'll highlight insurance on slide 14 We'll recognize revenue as a percentage of gross written premiums in the mid 20% range, depending on the quarter. This contrast with a more traditional reinsurance approach that would have us recognize the vast majority of premiums as revenue and retain more risk overall. This means our business requires less capital and would be expected to experience lower volatility with an expected risk levels in our P&L than other insurance companies. our insurance revenues become consistent, more predictable, and higher margin in this context. If our business were only an insurtech business, the industry multiples would be clear in considering our $600 million of gross written premium, our capital light strategy, our profitability and fast growth, and our long-term CAC and data advantages. On this basis alone, valuation would also be a substantial step up. Value will be recognized over time. In the meantime, we will continue to execute effectively and ignore the noise. Despite any near-term dislocation and though there aren't any companies that do exactly what we do, we are certain that the software plus insurance combination is working well, should continue to scale rapidly with high margins, and gives us substantial long-term advantages. You can see our unique strategy continuing to work as we turn to our KPIs. Beginning with companies here in slide 16, we saw growth in the average number of companies in the first quarter to more than 25,500, which is up from approximately 24,600 in Q4 2021. Revenue per company per month in Q1 was approximately $817 per month, up approximately 28% from the same quarter prior year. There is substantial runway to continue to drive growth in revenue per company as we continue to sell in more software modules to increase our B2B SaaS fees, as we get access to more consumers from these companies, and as we then help these consumers with more services. The opportunity here is large, with many years of continuous improvement ahead. As we noted in previous calls, we expect net new company ads to continue to grow, but more slowly in 2022 versus 2021. What we saw between Q4 2021 In Q1 2022 is what we expect to be a reasonable and sustainable pace of growth during 2022. While there were no acquisitions during Q1, I would note that Q2 will include RWS, which will add approximately 1,000 companies. As you can see on slide 17, in Q1 we continue to see strong growth across all types of monetized services. with us recording over 254,000 for the quarter, representing 40% year-over-year growth. We saw $176 per monetized service, a 91% increase year-over-year, and a nice step up from Q4 2022 as we continue improving our insurance sales efforts. Insurance and home warranties are our fastest growing services with moving as the next. Let's now jump into additional disclosure related to our two operating segments. I'll take vertical software, and Adam Kornick, the president of our insure tech division, can jump in to begin updates and a deep dive into our insurance business. On the left-hand side of slide 18, we provide Q1 results for our vertical software segment. We realized $34.7 million in revenue, a 40% increase from the prior year. and 55% of our total Q1 revenue. Of this, the majority is B2B SaaS fees, with the substantial balance being transactional revenue we generate from the consumers who work with the companies we serve. Adjusted EBITDA margins for this segment are generally lower in Q4 and Q1, given the seasonal aspect of this business. As a reminder, our software companies service more customers in Q2 and Q3. which then generates more transactional revenue for us in those quarters. Q1 is also historically our lowest quarter from a seasonality perspective. And at almost 140 million ARR, we are in a good spot against our full year guidance. Adam, over to you for our insurance segment.
spk07: Thanks, Matthew. On the right-hand side, our insurance business continues to grow rapidly and demonstrate strong margins. In Q1 2022, gross return premiums were $102 million, with a reminder that Q1 is the seasonally low quarter each year, and before adding RWS and CSE. Segment revenue was $27.9 million. Given our capital-light approach to insurance, the predictability of revenue margins and retention rates are very similar to typical BV SAS fees, as you can see with the underlying margins. We derive much of our insurance segment revenue from insurance carrier commissions, reinsurer seating commissions, and fees. Thus, as you see, we had strong underlying margins, around 12% adjusted to the margin. We are different than others in that our insurance business is already nicely profitable, despite rapid geographic expansion and product investments. HOA and our warranty business were profitable pre-application, And our insurance agency has privileged and lower cost access to demand, which is typically one of the larger costs for a business like this. Fundamentally, we have a low CAC, strong underwriting that will continue to improve with our proprietary data. And given this strong underwriting history, lower volatility and capital requirements, all of which helps to create a high margin opportunity. Here on slide 19, with regard to our insurance specific KPIs, at the end of Q1, We had approximately 338,000 policies, and we're generating an average of $330 of revenue per policy per year. On a rolling 12-month basis, as of March 31st, 2022, we had an 89% customer retention rate in our HOA business. You can see we now offer our own insurance products in 17 states. We'll now dig into a few other topics related to insurance. An update on CSE, the California insurance acquisition we signed in the fall of 2021. We continue to work through the regulatory process and still anticipate closing likely in mid-2022. Here on slide 21, you can see HOA's continued strong underlying and derogating performance. Note this is looking only at our Homeless America carrier and MGA. Our agency is not included here as they sell policies and receive distribution commissions without any underwriting units. Over the past five years, we have performed favorably compared to the broader homeowner's industry with an average 68% loss ratio versus the industry's 70%. This includes the challenging year that Texas underwriters saw in 2021. Our 2021 loss ratio of 100% was driven by the severe weather events in Texas. of a state that currently represents the majority of our carrier premiums, where the overall taxes industry saw a one of six loss ratio. There are a couple of data points to see how well we have performed in underwriting over time. First, you can see we have broken out attritional loss ratio, which is all non-lever and non-catastrophe claims. You can see in light blue that the performance here has been consistently exceptional, averaging 20% over the last five years. Separately, looking back at the prior four-year period from 2017 to 2020, our average loss ratio was 60% versus the U.S. industry average of 70%. These figures are industry-wide comparisons where we show very low. I would note that if you look at some of the faster-growing tech-enabled platforms, we compare even more favorably. A reason we believe our capital light model is attractive Even with a high loss environment across the industry in 2021, our insurance segment still recorded a 16% positive adjusted EBITDA margin. As we continue to expand, our underwriting results will be less tied to Texas via geographic diverse location. As we continue to bring in more post-proprietary data, our pricing accuracy will only continue to improve. Our solid historical underwriting performance is important to maintaining our favorable relationships with our reinsurance partners And one of the reasons we have performed as well as we have in our annual renewals in a difficult macro reinsurance backdrop. Let's turn to slide 22 for an update on our capital light model and the 2022 reinsurance renewals. We are proud of our long-term partnerships with our reinsurers. As you can see here on slide 2022, over the prior three-year period from 2019 to 2021, we seeded over 91% of our gross return premiums. We strive to provide access to a profitable underwriting business for our reinsurance partners, and this is what allowed us to rapidly grow our business without the same need for capital we would have if we retained premiums in line with the broader reinsurance. While 2021 was a challenging last year globally for the reinsurance industry, we were well positioned for reinsurance rewards. Given the better-than-industry underwriting results discussed in the previous slide, we have maintained good relationships with reinsurers, and our overall 2022 reinsurance reflects this trend. Our reinsurance program generally renews on January 1st and April 1st for our quality of share and excessive loss relationships, respectively. In total for 2022, we are retaining approximately 12% to 14% of premiums. More than the previous year, given the reinsurance market, but in line with our expectations and what we had assumed in 2022 guidance. We have done this while effectively managing the cost of reinsurance and our effective seating commission. Again, both are in line with our expectations and guidance. We believe this is different and better than the overall market because of strong historic underwriting results over many years. Strong growth with consistently profitable performance. and more underwriting advantages ahead as we utilize more of Forza's proprietary data to create value results. As we've noted before, we did put in place pricing increases in advance of the 2022 renewals. We have not seen any change in retention rates with these increases. When we continue to grow the number of consumers, we are helping with insurance and warranties. We feel good about the new insurance renewals and the 2022 program, especially in light of the challenging backdrop for reinsurance. We are confident in our ability to continue to scale our insurance operations and deliver for consumers, reinsurers, independent agents, and carrier departments. Turning to page 23, we are excited to share our product enhancements, which are now live for consumers using a full-fledged mortgage point-of-sale software. Now when the consumers are getting a loan, we have integrated homeowner's insurance, making it easier for these homebuyers to include this requirement. We launched in beta within the last month, to provide loan applicants an easy way to compare rates from multiple carriers. We are excited to help loan officers provide a better experience with higher conversion to their customers and to continue making the home buying process easier. As always, we first throw out features to a subset of customers, which is the current stats. We've seen positive reactions from loan officers and believe this is another example of how our unique capabilities help simplify loans. Lastly, here on slide 24, I wanted to give an exciting update on the first milestone of using Porch's proprietary property data to improve pricing accuracy for Homeless America customers. As discussed in the past, Porch has unique data about properties that only we have access to. We are confident this data will be able to lower the price for lower risk consumers and raise the price of insurance for those with more risk. We have now successfully demonstrated that we can leverage PORTS data in our insurance underwriting, file new pricing changes, and get approval from state regulators. By utilizing our inspection data set and handling the 15 plus years of claims data, we were able to model, file, and implement new pricing. So far, the states of Arizona, Virginia, and Georgia have approved our use of the location of water heater as part of pricing. Our data shows that as the water heater is in the garage or basement, The consumer would incur lower claims costs than if a hot water heater leads elsewhere. We have now built in the appropriate pricing based on location. This is only one example of the data fields that an inspection report can uncover for use in insurance underwriting. Looking ahead, we continue bringing in more data And we're working to evaluate piping material, roof condition, system age, the number of issues identified in the home, and more. We will continue to refine our pricing models to drive profitable growth. And this is just the start of what we will be able to incorporate to create advantages that are difficult for owners to replicate. Winning in insurance is first and foremost about pricing accuracy. And we have a long runway ahead to continue to improve and leverage our platform. With that, I'll turn it back over to Matt.
spk11: Thank you, Adam. I'm fired up about the work that's happening there. It's great, great progress. I'll wrap up with a brief note of encouragement for our long-term shareholders. Focus on the fundamentals and be patient. The current short-term equity market, in our view, is illogical. We have a business here that we expect to continue to grow revenues and margin nicely, but even more so has the opportunity to become a great, truly great generational company and a winner in multiple massive industries. With our unit economic advantages that we have today, we believe we'll win in providing software to key strategic home service verticals. With our expected demand and data advantages, we believe we'll be able to build one of the largest and most profitable homeowners insurance companies over time. So looking ahead, we have sufficient cash to execute on our strategy. We have more than four years prior to the maturity of our convertible note. We're prioritizing and making excellent progress on integrating past acquisitions and ensuring that the appropriate controls are in place. And we continue to make strides toward having strong governance where we just announced the shareholder friendly approach of board declassification. We'll continue to do what we've done since we've gone public, execute, make substantial strategic progress that deepens our competitive moats and deliver solid and consistent results. We had a great Q1. I'm fired up for the remainder of 2022. And with that, management team, we'll take your questions. So, Walter, if you can go ahead and open up the line for Q&A, I'd appreciate it.
spk03: Thanks, Matt. We have approximately 30 minutes for questions. We'll start by taking questions from Purchase Southside analysts. First question comes from Jason Helfstein from Oppenheimer.
spk04: We'll move to John Campbell from Stevens. Hey, guys. You hear me okay? Hey, guys.
spk11: John, how are you doing?
spk12: Hey, doing well. Doing well. Thanks for taking my questions. So, Matt, you guys have expanded HOA into a handful of states since the acquisition. I know it takes a little bit of time to kind of get up and running in each new state. You've got to win the business, and then the recurring revenue has to obviously build up over time. You know, we've looked at some of the HOA state filings, you know, pre-porch days, and some of the states they launched in, there was pretty impressive growth, I feel like, in the early stages. So I'm curious if you're seeing that with those guys under your ownership, and also kind of with regards to guidance, if you're assuming any kind of new state impact for the full year.
spk11: I'll kick it off, and then I want you to layer on top. We have made Great progress, obviously, with geographic expansion. It's been one of the many things that Adam and his team have focused and I think executed really well on. So kudos, certainly, to that team. Going from six states, which is where that company had been for quite a while, to all of a sudden being now 17 states, a little more than a year later, was a good accomplishment. John, one of the things that we do is when we first launch in a state, the team... has obviously all the models in place to say, hey, this is what we think is ideal pricing for this particular consumer in this particular home. But we actually artificially start in a more conservative place. So we increase the price to make sure that we just aren't making any mistakes. And as they start to get the data feedback loop in, we'll then be able to start bringing pricing down. And that process, it varies by state and the amount of data that we're seeing. But give or take six months before you would really start to see much of a meaningful impact. And then to your point, as you start to sell more consumers from that state, significant portion of that revenue you're recognizing over the course of that 12 months because it's spread out after you sell that policy. So is there significance in terms of what we're assuming for this year? I would say we're not being overly aggressive, certainly in terms of how much we're betting on new states. But I would say we're in line with what we have seen in past performance markets. Anything else I missed that you'd want to layer on top with?
spk07: Yeah, I think I would just sum that up by saying that we do all those things as Matt described, and we're comfortable with how that's panning out and sort of the guidance that we've given and how we're running the business. So we feel great about that approach, and it's what's leading to the profitable growth that we have.
spk12: Makes sense. And then, Matt, just as a follow up, I mean, as much as I want you to take the gloves off and kind of fire back at the shorts in your stock, I think you've taken the right kind of professional approach. And, you know, obviously the continued strides in the business, I think kind of speaks for itself. You're a better man than me, but if I can maybe pull you into the arena for just a minute here, you know, what you just announced with the approval of state data, I think that's pretty good evidence kind of backing your long-term vision. That's clearly an angle that shorts have taken seeing that the, you know, the data is either worthless or you cannot use it. So I just maybe want to get your, take a big step back and get your take on, you know, the extent and the type of data you're collecting on a daily basis, just through your software and then how you kind of envision that transforming the model over time, just as a kind of a recap.
spk11: Yeah. I appreciate the question, John. It's, um, as I tell the team, you know, the best thing for us to do is just like Matthew said it well, ignore the noise, just execute the heck out of the business. I mean, I feel very confident in what is ahead, you know, for the company. And I think you can, you know, people that know the business well, you can see it showing up in the results. I agree with you. I think that, um, We've talked about how insurance, the two most important things of building a very large insurance company, one, who can get access to consumers and demand at a lower cost. And obviously, we have a huge portion of the U.S. homebuyers that are going through our systems that lowers our cap. And then secondly, is data. Who can be able to price most effectively? We haven't provided an update on our market share in the home inspection industry, but we will do that at some point here this year because we're excited about our progress. But last update, 28% of all the home inspections that happen in the country are flowing through our software system. It just means that we know a huge amount about properties and uniquely valuable information. about properties because the person's in the home for three or four hours documenting everything about the home. And so anyone, I hear these questions occasionally about, you know, is this data valuable? If any one of those people were to just go sit down with an insurance actuary or a data scientist that does this for the living, like they would, it's almost disbelief when we tell those people that people don't think that information will be valuable because how can it not be valuable? You have 40 pages of information about a home that, you know, includes the type of pipe for the home. That's incredibly valuable information that we can be able to use to be able to price more effectively. So we're excited about it. It'll show up in the results over time, and we'll just continue to do our thing and execute. Adam, anything? I know you're excited about that initiative. Anything you'd want to add there as well?
spk04: Yeah, I think you said it well.
spk07: I would say I like to talk less and show results more, and this is a great place to do it.
spk04: So that's my goal. Thanks, guys. Thanks, John.
spk03: Thanks, John. Next question from Jason Elfstein from Oppenheimer.
spk09: Hey, guys. Thanks. So first, one of the themes that we're hearing with insured tech is inflationary pressure. So maybe talk about why you think you're well insulated from it or how you plan to manage it. And then second, I don't know if you already covered this because I'm multitasking, but gross margins are obviously down a bunch year over year. How much of it was the acquisitions mix versus any other factors? Thanks.
spk11: Adam, do you want to take the inflationary question? And then, Marty, you can take gross margin if you'd like.
spk07: Sure. So, Jason, I think the place to focus is HOA. given that the inflation in home values in the U.S. is really what's driving a lot of this. So two things to think about. HOA uses the Census Constant Quality Price Index to adjust the coverage A, or home value, of an insured home with each renewal. So as of today, that index, it's a publicly available index that we use, and every renewal is increasing the home value by low double digits, and there's a corresponding increase in premiums. So we have that, we're aware of that inflationary metric and we designed the HOA insurance products to take that into account. And then in addition, HOA filed average price changes of low double digit percentages separately from the inflation measures in 2021. So when we put those two things together, we completely agree that inflation in the U.S., particularly in homes, is real. But we're addressing them both with the product design and with how we change the pricing. Marty?
spk08: Yes, Jason, you're correct on the revenue, less cost of revenue margin was 66% in the first quarter of 2022 versus 78% in the prior year. That primarily reflects the fact that in April of 2021, we acquired Homeowners of America. And then later in the year, in September, we acquired American Home Protect, our warranty business. So what you're seeing there is that both the claims related expenses for the insurance business and the warranty business show up in cost of revenue in the first quarter of 2022. When you compare to 2021, we did not have a risk-bearing entity. We just had our insurance agency business. So the prior year was more of a pure vertical software company with our agency business. And so that explains the lower cost of revenue, less cost of revenue margin.
spk11: And just to reiterate, Jason, what we're seeing in Q1 is exactly what we had guided to for the year and what we had expected. So certainly nothing that was different than what we've communicated previously.
spk09: And then just a quick follow up. When you guys follow the 10Q, will there be pro formas in there of the acquisitions or probably not?
spk08: We have segment disclosures in Q1. the MDNA portion of the financial statements that provides further breakout on our segments.
spk04: Okay, thank you.
spk08: Thanks, Jason.
spk03: Thanks, Jason. The next question comes from Ryan Tomasello from KBW.
spk02: Hi, everyone. Thanks for taking the questions and congrats on the strong start to the year. You know, nice to see the reaffirmed 2022 guidance in light of, you know, there's such a fluid backdrop in housing. you know, you elaborated the different video synchronicities across the business, but can you say if your outlook for the year has changed at all in specific areas of the business, maybe with stronger trends in certain segments, offsetting larger headwinds and others, if that's the case at all?
spk15: Yeah, I can, I can speak a little bit to that. The You know, as we said in our prepared remarks, we are seeing some impact as a result of the slowing housing market. But we had anticipated that and we had built it into our guidance. Most, in fact, the majority, 70% of our revenue are recurring revenue from either our software or our insurance. If you get... Deeper into say, you know, some of our inspection and real estate businesses, you know, some of our pricing models there are actually well insulated because they're on a per seat basis as an example. So, you know, we'll feel it a little bit there, but overall not enough to fundamentally change our guidance and not enough to have like a, you know, this is doing better than that. A lot of this and built into our guidance for this year.
spk02: Got it. And, you know, congrats on the Flowify embedded assurance product launch in beta. I realize it's still early days there, but are there any initial stats or just general commentary you can provide on how that rollout is going, maybe attach rates, and I guess what the extent of the beta actually is today across the Flowify platform? Yeah, no.
spk15: Go ahead. You can take it. You got it. That's fine. So we have launched it for an initial set of customers. And as we always do, we're rolling it out in a controlled manner. We want to ensure the experience for consumers and for loan officers is great. While we don't share conversion rates publicly, we are excited about the product. You know, some of the things that we're hearing from loan officers, you know, they really love the UI. They think it's a great use case, you know, especially when borrowers need homeowners insurance ASAP. And then there's certain segments, you know, such as our builder division where you're working with builders who just really dislike, you know, doing the manual insurance stuff. And so they have found it really valuable. But, you know, it's seamlessly integrated into that experience. And so we're super, super excited about it.
spk04: Great. Thanks for taking the questions. Thanks, Ryan. Thanks, Ryan. Next question comes from Yagal Arun from Wedbush. Hey, guys. Good afternoon.
spk10: First, just on the reinsurance challenges and the relationships, it sounds like they're kind of coming in as expected on the renewals, but at the same time, you're hanging on to a little bit more of the underwritten premium. Just help us think about how that might trend. We're close to halfway through the year, and is that something you expect to kind of revert back to normal levels? Given the environment, does it make sense to hang on to more? Just how to think about how that evolves in the second half and maybe as we get into next year.
spk11: Adam, do you want to jump in and take that one?
spk07: Yeah, absolutely. So the main thing I start with is those contracts are almost always for a year. So we would not expect to see variations within the year of the contract. It can be for more than one year in some cases, but I'm not familiar with any time whenever being less than a year. So we wouldn't see any variation there that we would expect. That I can think of. And then, you know, our reinsurance program includes a couple of facets, quota share and as well as excess of loss. So we use those together. So we might be seeing a little bit less of a quota share, but we're buying more excess of loss. We think that protects us. And I don't have any view on what the right design yet will be for 2023. I think that's something we'll tackle, but we're really comfortable in the capability we have and the ability to manage that through strong partnerships and by taking advantage of those different levels.
spk10: Okay, thanks. And then on the vertical software, certainly appreciating overall, there's just less exposure to housing. you know, as your overall revenue. But just looking at the monetized services, you know, the growth, it was down sequentially from 4Q, the growth slowed, you know, year over year from 4Q, you know, Just help us think through the moving pieces on the monetized services. Is that the exposure you're talking about on the housing market? Is it seasonality? And then at the same time, the revenue per monetized service was up. It's actually, I think, looks like kind of by far the highest ever. So just what's going on there in that number? Thanks.
spk15: Sure. I can speak to this. I'll start first with revenue per monetized service. It has been and continues to be a core strategy for us to focus on high value services, most notably insurance and warranty. We've communicated, we see upside in revenue per monetized service because of that strategy of really focusing on those higher value services. So a lot of that is just the success and the expected impact of where we have been focused. on higher value services. In terms of number of monetized services, you know, there is certainly seasonality at work, you know, between Q4 and Q1. I don't want to say we're seeing anything unexpected. And I would certainly expect us to see, you know, material growth in Q2 and Q3. But, you know, that's, I don't know if you would add anything more to that map.
spk11: No, I just would say it's generally seasonality. You can see in previous years, you typically will see a little bit of a tick back from Q4 to Q1. That's just how the cycle works.
spk04: Great. Thank you so much.
spk03: Thank you, Yigal. Next question comes from Justin Nages from Berenberg. Hi, how's everyone doing?
spk13: Good. Thanks. Thanks for the questions. Yeah, I was just hoping to first dig in a bit on the $600 million of gross written premiums. Good that that was maintained in this market, but what's it going to take for that to go up in terms of obviously more states, but going deeper, is it a headcount thing? You need to hire more people to get that up? Just hoping to get a little more there.
spk11: I mean, there's a lot of levers that are ahead of us to grow that. It's one of the reasons that we're just... excited about what this next set of years looks like, but I'll go through a handful of them. It starts for us at being able to add more companies. So interestingly, again, our core go-to market is selling software to more companies. Those companies then provide us access to more and more consumers. Now, When we bring new companies into our software, the vast majority of those companies were also getting access to their consumer and introduced to their consumer. But there's other tactics that we're deploying, like we talked about with embedding insurance in Flowify, rolling out our consumer app, that we can be able to get access to even far more consumers to then help them with key services like insurance, which is what we focus on. So there's multiple steps in that funnel where we'll continue to be able to grow the volume of customers that we sell insurance to. And then, yes, you're exactly right. There's other things that we can do, such as expanding into more geographies for our own insurance products. There's obviously the opportunity to bundle warranty and to be able to cross-sell both insurance and warranty together to fully protect a home. There might be other insurance products that make sense for us to be able to bundle for those customers. So a number of different levers that we'll pull as we go forward Last comment would be that of our base of consumers that are insurance customers of ours, they renew at a very, very high rate. So 89% renewal rate is what we just noted. So you get to roll that forward as you move into the next year.
spk13: All right. That's helpful. Thank you. And then switching gears a bit, and I know it's early that you just kind of... We're testing it last quarter and mentioned it briefly this quarter. How has the early returns been on the new Porch app? Seeing good connectivity, just any update there would be helpful. Sure.
spk15: What we can share is we're focused on rolling out the app to a larger set of customers. We're currently in closed beta. You know, the feedback's been very positive, lots of helpful thoughts on how we can improve the experience. We remain very excited about the opportunity with our app. You know, and we have a big opportunity to incorporate a lot of the data that we have to provide some unique consumer experiences. And, you know, the update we can provide from a timing perspective is, you know, we're looking to move out of our closed beta in the middle of this year.
spk11: So still early, but we're excited. And Justin, what we typically do is we go through, as we did today, a certain deep dive each quarter. At some point, I would imagine we'll do a deep dive into the app, have our product leader join and be able to provide some deeper insight there. So I look forward to that at some point.
spk13: I appreciate the answer to the question, guys. Thank you.
spk04: Thanks, Justin. Thanks, Justin.
spk03: Next question comes from Dan Kernos from Benchmark.
spk06: Hey, everybody. Matt, can we just double-click on the data proof points in the quarter? I think most of us thought that that was going to be probably a back half, and while it is three states, it's still what I would consider meaningfully ahead of schedule, I'm sure. It's not ahead of your schedule, but ahead of what I think people were anticipating. You talked about how that flows through, but Is there any way to get maybe an updated framework for how you're thinking about the future opportunities there, whether it's this year, whether it's 2Q, whether it's 4Q, the bulk of it? And obviously, as you said, changes typically take some time to flush through the system, but do we actually start to see some of those proof points this year? Cause I know that your prior guidance did not have any, or I believe anyway, that your prior guidance did not have any of the real data upside embedded into it. That's my first question.
spk11: Yeah. Thanks Dan. I appreciate the question. So yes, I was excited to be able to share, share the updates. I think generally the expectation was, you know, for, you know, late this year and, and, even just having filed, not gotten approval, you know, from states. And so obviously, you know, they're always going to have a few cards up one's sleeve. There's a couple of different things I would think about. So one is having additional states. So we have gotten approval back from three states. There's other states that we'd be able to take this first block of data and this first set of pricing work and roll it out, you know, to more states and get approval. So that would be, you know, we'll write updates on that, you know, as we go. And then the second block is using more data. And so Adam in his section highlighted some of the additional data that we would be able to work on and bringing that through into additional filings as we would go to bring more data and get sequential approval from states. No specific timing that we're communicating yet on that, but obviously the teams are already hard at work and just be able to get that organized, structured, and then flowing through to our actuarial data science teams. Last comment I'll make, and then Adam, if you want to add anything, is we will provide updates as we go. I mean, we want to make it really clear that this data is going to be able to create value because we're very, very confident and convicted that it will. And so there's a number of things that we can share as we go. And so I would expect at some point in this year to provide another deep dive section and be able to give an update on what we're seeing. Adam, anything else you want to add?
spk07: I think in the interest of time, I just am excited, and I'm really proud that the team could get it done on this time.
spk06: Awesome. And then, Matt, interesting kind of tweak to your M&A outlook. I know you and I joke about timing of all of that stuff. I guess there's been a lot of commentary around – incremental investments and growth. And as we look at the marketplace, Matt, it might also be helpful. Clearly, you have a lot of cash on the balance sheet. So you have flexibility. How are you thinking about the puts and takes? Obviously, I know you reaffirmed your guidance. I know where you want to end up the year, inconsistent upside to EBITDA. But By the same token, the later this year, you know, let's say things get messier, you know, there could be opportunities you've heard from other companies that, you know, marketing maybe gets easier as other guys kind of pull out. So just... Again, I'm trying to keep it higher level outside of the parameters of the guidance you've given, but just maybe help us understand your thought process as you go deeper into this year and you start benefiting from a lot of the things like data that you've layered into place in 2021.
spk11: Yeah, a couple of quick thoughts will be, one, yeah, we have $305 million in cash leaving the first quarter here. And so we're well capitalized to be able to go and run our plans. Certainly, you know, we could choose to use that for M&A. But again, it just usually takes, in our view, six to 12 months for, you know, valuation kind of multiples to kind of fully move into private companies. I'll say certainly we have zero, I mean, we have zero interest in using equity even quite a while ago to go and, you know, do acquisitions. And so now it just makes no sense, right? And so we think that the prudent thing to do is just have a really clean, solid year. Just go execute and do our thing. Maybe there's something small to do, but I wouldn't expect anything substantial from an M&A perspective. And then see where the world is here as we look at the end of the year, and that could present some interesting opportunities.
spk04: All right. Got it. Thanks. I appreciate it. Nice start to the year, Matt. Thanks, Dan. Thanks, Dan. Next question comes from Mark Chappelle from Luke.
spk01: Guys, can you hear me okay?
spk04: Hey, Mark.
spk01: Hi, appreciate you taking my question. Matt, question for you on the relatively new pay at close module. I was just wondering if you'd just give us an update on some of the progress you're making signing up some large home inspection companies for the new module.
spk15: Yep, I can just take that briefly. You know, we're continuing to make progress there. We're continuing to make updates to the consumer payment experience. It's obviously a really unique consumer experience to be able to take your inspection fee which is non-trivial and bring it into the close and wrap it into your mortgage um you know we're we're happy with progress right now and the team is working hard talking to inspectors to get them signed up for it but nothing nothing formal to to report out in terms of signing up large ones i will just say yes they have signed up you know some of the largest you know inspectors which you think is going to be
spk11: You know, it's just a very telling, you know, set of wins. So more to come, I'm sure, as we go throughout the year.
spk01: Okay, great.
spk11: Thank you. Thanks, Mark.
spk03: Thanks, Mark. Next question comes from Ben Sherlin from Cantor.
spk14: Hey, guys. Thanks for taking my questions. Maybe one on the consumer marketing funnel, and then I have a follow-up just on revenue drivers. In your initial presentations as a public company, you disclosed a few metrics to help estimate how many customers you had marketing rights through ISN, but a lot has changed since then. Any data points you can provide on how this funnel has changed since 2020?
spk11: Great question. We aren't providing anything new today on it, but it would be something we can note for a deep dive as a funnel. The only thing I think, Ben, that is useful to note there is with some of the technology work that we've done, you can... leapfrog really where we have been. We talked about the consumer app as an example. If you provide that to all of the consumers that are going through your inspectors, well, that's a way that you can get access to a far larger number of people quickly. Or same thing as we embed insurance into Flowify, well, that's now just in front of all of those consumers, right? And so there are some things that we're able to do, leveraging technology just to create a better experience, an easier home purchasing experience for these consumers. that we certainly are excited about. But behind the scenes, same blocking and tackling, virtually all new companies that come on board, you know, are getting access to, you know, those consumers during that implementation phase. So similar to what we've talked about in the past.
spk14: Okay, great. That's helpful. Then maybe one on the revenue drivers. Looking through the filings of the acquisitions you made in 2021, you break out V12, HOA, Rhino, AHP, and Flowify. There's also a line in there for a little over $32 million for other acquisitions that contributed about $18.5 million to reported 2021 revenue. Can you help us understand what these acquisitions were?
spk11: Yeah, there's some things that we've done that are very small, typically, that some, for competitive reasons, we wouldn't highlight publicly. So it's little things we've done in that bucket.
spk14: Is there any color you can provide on what segment they would fall into?
spk11: I mean, for the most part, the things that would be the most of the... Acquisitions that we've just generally done in our company is in the vertical software segment. The things that we've done in the insurance segment, obviously, Homeowners of America, American Home Protect for the warranty space, and more recently, RWS, are things that we've talked about on the insurance segment side.
spk03: Okay. Thanks, guys.
spk11: Thanks, Ben.
spk03: Thanks, Ben. Next question comes from Mike Grindahl from Northland. Hey, thanks, guys.
spk05: Two quick questions. One, just as it relates to the home inspection offering that you have, are you seeing any change in activity, any change in the per transaction fee or kind of customer leads that you're getting for free? And in the industry, are they waiving home inspections? Are you seeing anything around that?
spk15: Sure, I can speak a little bit to that. I mean, some of the changes that we're seeing is we're building out additional modules. We're seeing a pretty complete solution set come together, which has just given us more opportunities to engage with inspectors. It's a good time for us to engage right before they get busy in the peak season and You know, in certain areas, the market is still hot. You know, certainly some of the leading indicators are that there's some there's some slowdown. And so, you know, we don't yet see a fundamental change, say, in the behavior of inspectors. But, you know, we have highlighted in the past in competitive markets, sometimes it works against us because people. will waive inspections. And so as the market softens, you'll see less of that. You know, what that means is it just, some of the ups and downs are muted a little bit for us.
spk05: Got it. And then any quick update on mover marketing?
spk15: Yeah, we're, I'm excited. We're excited about mover marketing. We have some big logos, which we haven't disclosed publicly that have signed up for that program. You know, our V12 team, if you check out their site, you know, they are fully organized around their mover marketing offering. And we are unique in the space. We have the best data for people who want to do that type of marketing. And we're just building out, you know, the offerings and the team. But yeah, It's an exciting, unique opportunity that we have in addition to some of the other stuff that we've talked about.
spk11: Yeah, I would encourage you to go to v12data.com and take a look. It's a unique offering that we have for brands and advertisers in the market given... our knowledge to who these people are that are buying homes far earlier than anybody else. And there's some great data actually on that site in terms of impacts that we've seen from other advertisers and customers. So that's what I'd point you to.
spk04: Great. Thank you. Thanks, Mike.
spk03: With that, I'll turn it back to Matt to wrap up with his final remarks.
spk11: I appreciate the questions. Again, to the Porch team who's listening, great. quarter great to start the year um we're we're uh we're just gonna stay on track um do what we do um with that again thanks everybody for joining we appreciate it have a great rest of the day take care
Disclaimer