Porch Group, Inc.

Good afternoon, everyone, and thank you for participating in Porch Group's first quarter 2024 conference call. Today, we issued our 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 Ephraim Ware, President and GM of Homeowners of America, Fortress Insurance Carrier. 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 Securities Litigation Reform Act of 1995, which provides important cautions regarding forward-looking statements. Today's discussion, including responses to your questions, reflects management's views as of today, May 8th, 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 application 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. We encourage you to consider the risk factors and other risks and uncertainties described in our SEC filings, as well as 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 gap and non-gap financial measures on today's call. Please refer to today's press release, Reconciliations of Non-Gap Measures, to the most comparable gap measures discussed during this earnings call, which are available on our website. The financial information provided today is preliminary, unaudited, and subject to revision upon completion of closing and audit processes. As a reminder, this webinar will be available for replay along with the presentation shortly after this call on the company's website at ir.portraitmove.com. I'll now turn the call over to Matt Willigman, CEO, Chairman and Founder of Force Group. Over to you, Matt.

Thanks, Lois. Good afternoon, everybody. Thanks for joining. We're pleased with how the business performed in the first quarter and how we're set up for the 2024 year. We've delivered strong operating execution across our businesses and saw year-over-year improvements of more than 30% revenue growth, a $5 million adjusted EBITDA improvement, and continued best-in-class gross loss and combined ratios versus peers. We're advancing the work across our data platform successfully. We're very pleased with our April 1st reinsurance renewals and are seeing continued progress and price increases with our software businesses, all of which we'll discuss today. With the reinsurance coverage placed and strong execution across our business, providing increased confidence in the remainder of 2024, this results in us raising our full year adjusted EBITDA guidance today. And this full year guidance raise is despite the Texas spring storm season starting early this year. A $20 million Texas hail storm developed in the second half of March and caused Q1 claims from catastrophic weather events to be $8 million worse than we had expected. If it wasn't for this, the year-over-year improvement in adjusted EBITDA would have been even greater, and we're excited because we expect our reinsurance renewals and operating results to more than make this up. Sean will take you through this shortly. For those new to what we're building, Forge is a new kind of homeowners insurance company. What is unique to our strategy is that we power leading software platforms for home inspectors, title agents, and loan officers. Maintaining our strong client retention with these companies through ongoing product innovation creates long-term competitive advantages, including valuable introductions to home buyers and unique insights into properties. At Porch, we are building a homeowner's insurance company with lower volatility and higher margins. We'll win with our three differentiators highlighted here in yellow. Advantage underwriting, the ability to price more accurately than others, being the best insurance partner for home buyers, by being more than just insurance and helping them with their entire move, and providing a whole home protection with various products designed to protect the consumer's largest asset, their home. Okay, so our insurance profitability actions continue to improve our performance year over year. But as we discussed, the first quarter saw seasonally higher claims related to weather. So in the first quarter, revenue grew 32% to $115 million. Revenue less cost revenue grew 10% to $40 million. This included a 71% gross loss ratio for the quarter, of which approximately half of the claims were from catastrophic weather and the balance from a 33% attritional loss ratio, which improved from 40% in the same quarter prior year. We continue to demonstrate our ability to achieve best in class loss ratios. Adjusted EBITDA loss was $17 million, a $5 million improvement compared to Q1 2023. The best way to compare the insurance combined ratios is to look at reputable third-party data published annually. Today, we're pleased to share the AMBEST report covering 2023 performance. Out of the top 50 US homeowners insurance carriers by direct written premium, we had the fifth best direct combined ratio. And we were the top performer in Texas, our largest state. We again outperformed our peers, which is a testament to our risk strategy and insurance profitability actions, where we were ahead of the market in implementing price increases. We used our unique data and risk modeling to non-renew higher risk policies and roll out other underwriting actions. All of this equates to strong results. I want to provide a few highlights across some of our businesses. First, as I mentioned, our reinsurance placements renewed on April 1st, and we're pleased with the favorable terms we negotiated, demonstrating the strength of our underwriting. We secured better terms for our excess of loss reinsurance, which helps protect against significant events. The quota share reinsurance terms were also better than expected, resulting in seating levels slightly higher than we had anticipated. Overall, it's great news and helps tighten the 2024 revenue guidance range and increase adjusted EBITDA guidance, given the clarity and contracts now in place. Next, our software businesses continue to roll out new products and enhancements to maintain our strong client retention. As discussed last quarter, Rhino successfully rolled out its latest product, Rhino Verify, and its corresponding price increase of more than 20%. ISN, our largest inspection software brand, launched more than 20 core feature enhancements last year. This included additional report writer capabilities, a Florida wind mitigation inspection template, and Flex Fund enhancements to allow customers to pay for inspection services at close. As a note, inspectors that use Flex Fund typically see increased invoice sizes by 30% plus, as it makes it easier for consumers to purchase more of their services. As a result of the product innovations, ISN increased its transaction fees by approximately 20% and increased monthly minimum fees as well. Next, we received approximately $35 million in cash in the quarter from the Aon Business Collaboration Agreement and the sale of EIG, which we mentioned last quarter. And lastly, we continue to pursue parties in relation to Vestu-related claims. We mentioned previously that we had engaged a top-tier contingent fee law firm, and we are vigorously enforcing our rights and pursuing damages. Now over to you, Sean.

Thanks, Matt, and good afternoon, everyone. Moving to slide 11 to get into the financials here. Revenue was $115.4 million in the first quarter of 2024, a 32% increase over the prior year, driven by our insurance segment, which grew 50%. Revenue-less cost revenue was $39.6 million with a margin of 34% of revenue, which decreased over the prior year, primarily driven by faster growth in our insurance segment compared to our vertical software segment. In vertical software, the revenue-less cost of revenue margin increased by approximately 600 basis points to 82% due to price increases and strong cost control. The adjusted EBITDA loss was $16.8 million, a $5.1 million improvement over the prior year, driven by the insurance profitability actions, which Matthew will discuss in more detail shortly. The quarter included $36 million of net catastrophic weather loss costs, resulting in $8 million of additional cost of revenue for CAT weather compared to our expectations. Risk-written premium was $83 million, a decrease from the prior year as we reduced risk through non-renewals of higher risk policies in Q1. And after the sale of our in-house agency, EIG, in January, any policies purchased by our homeowners but written by third-party carriers are now excluded from this number. The insurance segment was 76% of total revenue in the first quarter. an increase from 67% in the first quarter of 2023. Revenue from our insurance segment was $87.9 million, a 50% increase over the prior year, driven by 33% premium per policy increases and lower reinsurance seating. Vertical software revenue was $27.5 million, a slight decline compared to the prior year, driven by moving services and lower demand for corporate relocations, and offset by software and service subscription revenue, which increased slightly year over year. Before we move on to adjusted EBITDA, I'll provide additional color on our insurance segment cost of revenue and claims. Overall, we have two main types of losses arising from insurance claims. The first is attritional losses, which are primarily driven by the home's condition and often predictable perils like fire or water damage. These losses are relatively consistent by quarter and over time and typically represent approximately half of annual claims. The second type is catastrophic weather, which are generally midsize events, and most commonly for us, severe convection storms, which drive wind and hail conditions. Cat losses are seasonal, and the Texas spring storm season is a key contributor. Although timing can vary from month to month, overall, cat losses typically average in the mid to low 30% range for the year. And when a large and unusual event does occur, excess of loss reinsurance kicks in, such as we saw in 2021 with winter storm Uri, where we were well protected. On this slide, I've split out cost of revenue for our insurance segment between attritional and other costs and catastrophic weather losses. Cost of revenue for our insurance segment was $71 million with $35 million driven by attritional and other costs and $36 million driven by catastrophic weather losses. The majority of which came from a $20 million gross Texas hailstorm that realized throughout the second half of March. For Q1, we expected $28 million of CAT losses based on historic average and trends. So we had approximately $8 million in additional cost of revenue based on the earlier Texas spring storms net of reinsurance. Moving to adjusted EBITDA by segment, overall adjusted EBITDA loss was $16.8 million. The insurance segment adjusted EBITDA loss was $2.9 million in the first quarter of 2024, an improvement of $4.3 million compared to the prior year. The vertical software adjusted EBITDA was $1.1 million, a $1.5 million improvement over the prior year, driven by price increases in our software and subscriptions businesses. Corporate expenses were $15 million, or 13% of total revenue, a 300 basis point improvement over the prior year. Operating cash flow was positive $8 million in the first quarter of 2024 and included the cash we received from the Aon deal of approximately $25 million. As of March 31st, 2024, we had $413 million in cash, cash equivalents, and investments. Excluding the $301 million at HOA, Porch held $112 million, an increase from $87 million in the prior quarter. In addition, and incremental to these totals, Porch Group held $37 million restricted cash and cash equivalents, primarily for our captive and warranty businesses. Porch Group also holds a $49 million surplus note from HOA. HOA's surplus at March 31st was $36 million. Consistent with historic norms, surplus declines in Q1 and Q2 with the seasonality trend and grows again in the second half of the year with increased profitability. And lastly, we've been asked about our plans to address the $217 million 2026 unsecured notes. The management team and board certainly discuss options, of which we have several, but we don't expect to transact on these until sometime in 12 to 24 months. Right now, given the exceptionally low coupon, we are remaining patient. Moving on to guidance. Today, we are pleased to update our full year 2024 outlook, increasing our revenue-less cost of revenue and adjusted EBITDA expectations following strong business execution and increased confidence in the full year performance. The terms available in our reinsurance renewals on April 1st resulted in us placing our quota share seating slightly higher than anticipated. Generally, this lowers revenue, decreases risk, and given the terms, increases expected profitability. With this reinsurance in place, we are updating revenue guidance and now expect $450 million to $470 million with growth of 5% to 9%. We expect year-over-year revenue growth to be front-end weighted as Q3 2023 in particular had lower reinsurance seating and thus higher revenue immediately post the best-do fraud discovery. We are increasing the lower end of our range of expectations for revenue less cost of revenue to $230 million to $240 million. we assume a 63% gross loss ratio for the full year, which aligns with our five-year weighted average. Of course, any CAT events exceeding historical experiences are not included in our guidance and would negatively affect the range. Overall, based on our reinsurance renewals and the performance across the business, we are increasing adjusted EBITDA profit guidance to $2.5 million to $12.5 million. And finally, we expect gross written premiums of $460 million to $480 million. We are managing premiums roughly flat on an apples to apples basis. As a reminder, the prior year includes EIG, our in-house agency. And going forward, third-party carrier written premiums are excluded. Thank you all for your time today. And now I'll hand over to Matthew to cover our KPIs.