Porch Group, Inc.

Good afternoon, everyone, and thank you for participating in Porch Group's first quarter 2025 conference call. Today, we issued our earnings release and filed our related Form 8K with the SEC. The press release can be found on our investor relations website at ir.porchgroup.com. 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 6th, 2025. 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. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from these forward-looking statements. Please refer to the information on this slide and in our SEC filings for important disclaimers. 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 owner's call, which are available on our website. As a reminder, this webcast will be available for replay along with the presentation shortly after this call on the company's website at ir.portridgegroup.com. Joining me here today are Matt Ehrlichman, Forge Group CEO, Chairman and Founder, Sean Tabak, Forge Group CFO, and Matthew Nagel, Forge Group COO. Thank you. I'll now turn the call over to Matt for his key updates.

Good afternoon, everyone. Thanks for joining us. I've never been more excited to report on quarterly earnings as I am here for Q1 2025. After launching the member-owned Port Reciprocal Exchange on January 1st and the corresponding sale of our Homeowners of America insurance carrier into the reciprocal, this is the first quarter in which our business is, in our view, optimally structured. We've fully transformed to a simpler commission and fee-based higher margin model that is more predictable for shareholders. and I'm pleased to report that the results are strong. Because of the standout Q1 results and the trends we're seeing, we are again increasing 2025 guidance. As I look ahead to the next several years, my expectation is very clear that we will grow profitability and cash flow faster than previously anticipated. Sean will take you through the results, the increase in our guidance, and the increase in our long-term model and margins shortly. So this quarter marks a special time for the company. It's the moment Port shareholders are no longer in the catastrophic weather claims business while still participating in the attractive growth of the homeowners insurance industry and with durable competitive advantages. This quarter demonstrates how effectively our business is now structured to scale. Overall, we delivered results for Port shareholders that are exciting. Revenue of $85 million. generated predominantly from 97 million of premium written at the carrier, which we'll label reciprocal written premium. Both of these numbers exceeded expectations. Now as the manager of the reciprocal rather than the carrier itself, revenue isn't apples to apples when comparing year over year, given our transformation. However, gross profit and adjusted EBITDA certainly are good to look at to assess year over year growth and performance. And so we're happy to report that in Q1, we realized 82% gross margins, which we expect will continue forward, demonstrating what we've been saying about the high margin nature of our go forward business. This produced Q1 gross profit of $69 million, which was a $32 million or 86% increase compared to gross profit in Q1, 2024. Our business is now highly profitable. Net income attributable to Porch was positive at $8 million. We produced our highest ever Q1 adjusted EBITDA of $17 million, which is a 20% margin and above expectations. This was a $34 million increase over the prior year. Resulting from this, I'm excited to share that We not only generated positive cash for port shareholders, but significantly so, at $27 million of positive cash flow from operations for port shareholders in the quarter, which includes $7 million collected related to the past Vestu pursuits. Operationally, we performed strongly. New business premium at our insurance business is performing well. Our software and consumer service operations are progressing nicely, and we are investing more aggressively across these businesses to drive faster growth in 2026 and beyond. Finally, the reciprocal remains healthy. The reciprocal's April 1st reinsurance renewals were strong, lowered its catastrophic weather risk, and provides port shareholders certainty and clarity as we move forward. This reciprocal's cost of reinsurance decreased year over year, given our strong underwriting results in 2024 and Porch's unique home factors property data. Meanwhile, the reciprocal is healthy with $198 million of surplus combined with non-admitted assets at the end of Q1. Similar to a strong comparison we shared about 2023 performance, I'm pleased to share the AM Best report comparing results across carriers for 2024, the final year in which we owned Homeowners of America. As you can see on the slide, the carrier was number one in direct combined ratio performance in Texas out of carriers with more than $50 million in homeowners insurance premiums in the state. Across a U.S.-wide comparison of carriers with more than $350 million of premium, our carrier was number three. This outperformance versus the market demonstrates the ability for the reciprocal to pay attractive management fees to Porch Group ongoing while continuing to build surplus. And it reinforces our differentiated capabilities that will sustain advantages for the long term. We believe Porch is an excellent company to own during a turbulent time in the markets. First, we do not believe tariffs will have a significant impact on our business. We expect a mid single digit adjusted EBITDA impact at most, which has been built in and assumed in the increased guidance Sean will share shortly. Second, if there is a recession, we believe our business is well protected and may even benefit. The majority of our business and income is generated from homeowners insurance premiums at the reciprocal. As you can see in the chart on this slide, historically, homeowners insurance premiums just continue to grow in all economic cycles. It's an attractive industry to be playing in, especially in a commission and fee model without absorbing the weather volatility. If interest rates come down amidst the slowing economy, it could spark a housing market pickup, which would be attractive for our software, consumer service, and insurance businesses. Third, if inflation picks up, we expect homeowners insurance price increases will accelerate, directly increasing our high margin management fees. And finally, if weather worsens, it can now help our business. Porch doesn't absorb nor pay for the catastrophic weather claims under this reciprocal structure. More weather related claims means premiums will increase over time, growing fees produced for Porch and for our shareholders. The nice thing is generally homeowners need homeowners insurance. So we don't see risk of this industry as a whole doing anything but continuing to grow. And our competitive advantages help us to consistently stand out. I'll now turn it over to Sean to cover our strong financial results and raise guidance.

Thank you, Matt. And good afternoon, everyone. As previously discussed, we changed our segments as of January 1st, 2025 to align with the new business model following the launch of insurance services and the Porch reciprocal exchange. I'll focus my comments today on the Porch shareholders component of our Q1 25 financials. As a reminder, and as we discussed last quarter and at our investor day, There are three segments that generate cash for Porch shareholders, insurance services, software and data, and consumer services, offset by corporate. We call this Porch shareholder interest. And since generating cash for Porch shareholders is our ultimate goal and how we measure our success, this is what we will focus our commentary on in this earnings call and ongoing. As a reminder, under GAAP, for the time being, we are consolidating the Porch Reciprocal Exchange, given the surplus note relationship between the reciprocal and our business. We do provide a reconciliation in our 10Q and press release between Porch Shareholder Interest and GAAP Consolidated Financials, with the difference being the reciprocal segment. Where relevant, we will present the prior year financials on a comparative basis so folks can better understand the trends in our business. For software and data and consumer services, the comparison will be apples to apples. But because the reciprocal model didn't exist in 2024, the comparison for insurance services and therefore port shareholder interest will not be apples to apples. Okay, with that background, let's get into our strong Q1 results, which exceeded expectations. Q1 2025 Port Shareholder Interest Revenue was $84.5 million, with 59% of revenue from insurance services, 26% from software and data, and the remainder from consumer services. Associated gross profit was $69.1 million, with a gross margin of 82%. Insurance services had an 85% gross margin, software and data was at 75%, and consumer services, 83%. Overall gross profit grew 86% year over year. Q1 2025 port shareholder interest adjusted EBITDA was $16.9 million, a $33.6 million improvement over the prior year, driven by the shift to the insurance services business model. As Matt mentioned, we see the year over year improvements in gross profit and adjusted EBITDA as the clearest way to understand the increase in our results. we're off to a strong start in delivering what we said we would as the operator of the reciprocal, higher margins and predictable results. Now let's dig into the segment results, starting with insurance services. There are a number of ways that Porch's insurance services business generates economics. management fees paid by the reciprocal based on a percentage of its written premium, policy fees paid directly by the policyholders, non-catastrophic quota share reinsurance provided by Porch's Captive Reinsurer to improve capital efficiency for the reciprocal. And as a reminder, this reinsurance only is on attritional losses and does not include catastrophic weather. also fees paid by third-party agencies when we deliver home buyer leads, and an approximately 15% coupon on a $106 million surplus note Porch Group holds with the reciprocal. From the $97 million of the reciprocal's written premium, Porch Insurance Services generated revenue of approximately 50%, or $49.8 million, which is high margin and predictable. Associated gross profit was $42.3 million with a gross margin of 85%. Adjusted EBITDA was $25.8 million with a margin of 52%. Shifting now to software and data. Revenue was $22 million, a 4% increase over the prior year, driven by product launches and associated price increases at several of our software businesses, and partially offset by a non-recurring revenue transaction. We expect growth in this segment to accelerate in Q2 to high single digits as we normalize for the Q1 non-recurring item. Gross profit was $16.5 million with a 75% gross margin. Adjusted EBITDA was $4.6 million, a $2 million increase over the prior year. As a note, in Q1 2025, the housing market existing home sales were 2% lower than prior year, with continued slow turnover. As interest rates decline in the future, we expect to see tailwinds driven by the pent-up demand. But for now, we remain cautious and are assuming a flat housing market for the year. Shifting now to consumer services, revenue was $14.7 million, a 9% decrease over the prior year, driven by the closure of our lower margin moving products, such as corporate relocation in the third quarter of 2024. Gross profit was $12.2 million, with an 83% gross margin. Adjusted EBITDA loss was $700,000, a $2.2 million decrease over the prior year, driven by investments to drive growth in 2026 and beyond. We've reduced corporate expenses significantly over the last couple of years as we moved to lower cost location and reduced G&A back office type costs. You can see here the benefit of our cost control actions. Corporate expenses decreased $2.2 million to $12.8 million in Q1 2025, compared to $15 million in the prior year. Moving on to the balance sheet. There are several benefits from the shift toward the commission and fee-based insurance services business model. It's simpler, higher margin, and asset length. As a reminder, our focus is on generating cash for Porch shareholders, which aligns closely with adjusted EBITDA. In Q1, we have also provided additional information on cash flow from operations of the Porch shareholder interest. Porch cash plus investments was $114 million at March 31st, 2025. Porch shareholder interest cashflow from operations was $27 million driven by adjusted EBITDA in the quarter of $17 million and $7 million of cash from the Vestu bankruptcy process with potential for more over time. Additionally, our litigation against other parties remains ongoing and we will keep you posted as things developed. Now for our updated 2025 guidance for Porch shareholder interest. Now that we are through our first full quarter post the launch of the reciprocal and our transition to a high margin operator, we've seen the results. Good news, the model is performing even better than we had previously expected. And despite the macro economic turmoil and tariffs, which have been factored in, we are increasing our 2025 guidance across the board. We are increasing our 2025 revenue guidance by $10 million and now ranging from $400 million to $420 million. We are increasing our 2025 gross profit guidance by $10 million and now ranging from $320 million to $335 million, still within an associated gross margin of approximately 80%. We are increasing our adjusted EBITDA guidance by $5 million, now ranging from $60 million to $70 million. This increase in adjusted EBITDA guidance reflects three things. First, Q1 2025 adjusted EBITDA was ahead of our internal expectations by approximately $5 million. Second, we are pleased with our insurance services segments performance post-reciprocal transition. So we are raising guidance for the rest of the year by $5 million, which factors in the mid single digit millions of tariff related impact Matt had mentioned. Finally, those increases are partially offset by an approximately $5 million of additional 2025 investments to accelerate growth in 2026 and beyond. Starting April 1, when we renewed our reinsurance contracts, we improved the terms of the non-catastrophic quota share contract for the reciprocal to build even more surplus cushion there and scale insurance premiums. With this change, Q2 adjusted EBITDA for Porch is expected to be approximately $5 to $7 million lower than Q1 and continue to grow nicely in Q3 and again in Q4. Given this is our first quarter with actual results in our go forward structure, we wanted to provide what we shared at our investor day. We wanted to update what we shared at our investor day in December. As a quick note, we won't be updating the long-term model quarterly, but since it was the first quarter of results, we thought it was relevant. As we saw in the Q1 results, we now expect the reciprocals written premium to convert to porch insurance services revenue at approximately 50% versus 40% previously. If we apply that higher conversion to our long-term $3 billion premium target and our long-term porch shareholder, our long-term target porch shareholder revenue is $2.3 billion. Aligned with our Q1 results, we still anticipate 80% gross margins and a 30% adjusted EBITDA margin. This means that at $3 billion of premium, we now expect adjusted EBITDA of $660 million. I'll now hand it over to Matthew to discuss a strategic update and review our KPIs.