Porch Group, Inc.

Good afternoon, everyone, and thank you for participating in Porch Group's second quarter 2023 conference call. Today, we issued our second quarter earnings release and related form 8K to the SEC. The press release can be found on our investor relations website at ir.porchgroup.com. Joining me here today are Matt Ehrlichman, Porch Group's CEO, chairman and founder, Sean Tabak, Porch Group's CFO, Matthew Nagel, Porch Group's COO, and Malcolm Connor, VP and GM of Home Services and Warranty. Before we go further, I'd like to take a moment to read the company's safe harbour statement within the meaning of the Private Security Litigation Reform Act of 1995, which provides important portions regarding forward-looking statements. Today's discussion, including responses to your questions, reflects management views as of today, August 8th, 2023. 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 pending application for 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 encourage you to consider the risk factors described in our SEC fund plannings, as well as the risk factor information in these slides for additional information. 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. 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.forgegroup.com. And with that, I'll turn the call over to Matt Ehrlichman, CEO, Chairman and Founder of Forge Group. Over to you, Matt.

Thank you, Lois.

Good afternoon, everybody. I want to start by giving a shout out and sincere appreciation to the Forge team for doing exceptional work across our business units. We remain on track for adjusted EBITDA profitability in the second half of this year and beyond. And if we can achieve this in what continues to be a historically challenging macro market for both of our two industries, insurance and housing, it would be a tremendous milestone, a proud accomplishment, and it would set us up for strong growth and margins as the markets improve. While property and casualty insurance carriers across the US report massive losses in Q2, due to historically severe hailstorms and other weather. And while our portion of this can risk overshadowing the work of the team, the fact remains with a longer term view, we are poised for great things. Insurance companies will make money as more weather events allow for rates to continue to increase markedly. Our perspective is that the homeowners insurance industry TAM is poised to approximately double over the midterm and we will be beneficiaries of this. Today, the team and I will talk about Q2 results, some new initiatives we're working on, and how we're leaning into our unique and sustainable advantages to create value as markets improve. Sean will provide an update on financial results and a revised outlook for 2023. Matthew will cover KPIs and trends in the business. And then Malcolm Connor, the GM of our warranty business, will dive deeper into some of the exciting progress we're making there. Moving to slide six to review the high-level financials. Overall, we delivered solid execution in the quarter while continuing to face the same industry weather and housing-related headwinds as previous quarters. Revenue in the second quarter grew 39% to $99 million, driven by our insurance segment. Adjusted EBITDA loss in the second quarter was $43 million. Based on historic loss ratios and Texas weather seasonality, we had expected Q2 to be our largest loss-making quarter of the year. as it's typically the most expensive time for weather-related claims costs. The second quarter was on track with our expectations until, as we recently disclosed, our insurance division was impacted by catastrophic weather losses exceeding our long-term average. To give this some context, Q2 2023 was the third most costly second quarter for weather losses in the U.S. since 1950. Property claims services estimates losses were $20.6 billion nationwide, which is well above the five-year average of $15 billion. For us, these events drove an approximate $18 million incremental loss. Looking ahead, Q3 and Q4 are typically when we see fewer weather-related claims. Related to our vertical software division, industry-wide home sales declined 21% in the second quarter year over year, with those headwinds impacting for more transactional businesses like our moving group. So turning now to key updates in the quarter. First, the reciprocal exchange application continues to progress with the Texas Department of Insurance. Pending approval, we expect to launch Porch Insurance, a new brand and product that the reciprocal exchange will offer, which includes unique benefits for consumers, such as a 90-day warranty and special offers to customers within the Porch ecosystem. The HOA product will continue to be available for customers as well, and certainly we're excited about what's to come here. Second, we've continued to take aggressive underwriting actions to counter severe weather in our insurance business. We're focused on improving overall performance by increasing premiums and policy deductibles where appropriate, by lowering distribution and support costs in regions that are unprofitable given current costs of reinsurance, and shifting premiums toward the most attractive homes to underwrite. For 2023 and likely through 2024, given constraints to the reinsurance market as capital and risk mitigation partners, we will continue to carefully control gross written premium growth and balance the amount and type of premium with capital requirements, all with an eye toward profitability. We are highly confident in our ability to grow premiums when surplus builds with favorable weather results and or third-party capital and reinsurance returns. In addition to the capital-constrained and hardened reinsurance markets that we've discussed, there has just recently been a development with one of Porch's larger reinsurance platforms called Vestu. There are claims that the collateral that backed Vestu is not valid. And while it's early in our investigation, and while the reinsurance was sourced and administered by two of our reputable reinsurance brokers, we are taking this issue seriously. We've terminated this agreement, have already met with the Texas regulator, and have secured certain supplemental reinsurance. Third update, you may recall last quarter we discussed how our unique property data meaningfully impacts insurance pricing accuracy. In Q2, we received approval to use the data in two further states, bringing us now to 11 states total. Again, this data allows us to improve our risk accuracy in key insurance risk categories, and we're seeing an approximate 15 to 20% improvement with much room ahead. This means that we can charge a lower price for policies which are low risk and more accurately priced higher risk policies. Fourth, we're seeing early but promising results from partnerships with third-party insurance agencies, where we now distribute some home buyer leads generated by our software division. These agencies sell these consumers insurance and commissions generated are then shared back with Porch. In addition to helping increase conversion rates at a lower cost of Porch versus relying only on our own insurance agency, we're excited about how we can use demand to incent and motivate these third-party partners to sell more of HOA and soon Porch insurance to all of their customers. Fifth, we continue to be excited about the rapid progress our warranty business is making. It wasn't yet two years ago that we didn't offer home warranties. That business has continued to expand, offering more types of warranty products through more channels. Malcolm will cover this later. I'll now hand over to Sean to cover our financial performance and guidance. Over to you, Sean. Thanks, Matt.