Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew 12% year-over-year to $111 million.
- Insurance segment revenue increased by 22%, driven by higher premiums per policy.
- Adjusted EBITDA loss improved by $8 million compared to the previous year.
- Strong cost control measures led to decreased sales and marketing expenses as a percentage of revenue.
- Launch of new data products like Home Factors, which are expected to drive future growth and profitability.
Negative Points
- Significant impact from catastrophic weather events, including a $23 million hit from a May Houston event and an expected $30 million impact from Hurricane Beryl.
- Adjusted EBITDA loss remains high at $35 million for the quarter.
- Gross written premium decreased due to nonrenewal of higher-risk policies.
- Vertical software segment revenue decreased by 5% year-over-year.
- Continued macroeconomic headwinds, including a sluggish housing market, affecting overall business performance.
Q & A Highlights
Q: Matt, it's always tricky walking the fine line between opening up the aperture and preparing the scale. And then obviously, you get these cat events that hit cash flow. So I'm just kind of curious on your sort of willingness now to invest in growth near term or more thoughts on derisking the portfolio until you get the TDI approval.
A: Yes. Happy to. Maybe I'll take the first. And Michelle, why don't you take the second. The -- so I mean, in terms of growth, Dan, kind of what we're talking about today is we don't think these events really change our plan. Obviously, you could see in our P&L this year, we just -- our business is just core outperformance could have absorbed one of these one in 10-year events, not two of those one in 10-year events. And -- but the reality is, is that we see what's happening in terms of attritional losses. We see how the business -- the core business is performing on a run rate basis. And we're not that far away in terms of our expectations from being able to get the business, in our view, again, optimally structured through the reciprocal. So like Matthew and I both mentioned, we are through that period of nonrenewals and it is time to start unlocking ZIP codes will get closed and really starting to position and open up growth, which we do expect to be able to again grow premiums nicely in 2025.
Q: Looking at insurance, in recent quarters, you guys have exited certain states where you felt like you couldn't be profitable. Would you ever consider exiting a market like Houston where these wet cat weather events are occurring and seem to be occurring on a consistent basis, it almost seems like?
A: Yes. I would say we would, of course, consider whatever creates the most shareholder value in the long term. Certainly, we are pragmatic and that is our focus, to go build a great long-term business. We do not think that means exiting Houston to be quite -- Houston has actually been over time for HOA, an attractive and highly performing market. Now obviously, there's going to be a recency bias because just in the last three months, there were two of those events. But we do think that overall, that market is well suited for us and to be effective and profitable going forward. The only other thing I would add is, again, just to stress the point, when these events happen, yes, it is unfortunate for those near-term results, but it creates a lot of opportunity in the market. And so we do think there -- it means that there will be meaningful price increases because at the end of the day, carriers, insurance carriers are going to make sure they're priced to be able to generate profit. And so we will certainly follow along with what the market would do there.
Q: Why did you guys decide to update the reciprocal application? I'm just wondering what kind of information changed versus once you initially applied whenever that was, let's say, it was like nine months ago or so.
A: I'll take the first, and Shawn or -- if you'd like to take the second. When we say update the reciprocal application, really, we're talking about just getting the reciprocal application back on file. So if you recall, more than a year ago, we were on file. We had to pull that back when there was that -- the Vesttoo fraud reinsurance partner that we had worked with. We worked with the TDI to be able to wait the appropriate amount of time, make sure the business was just performing really well, healthy. We certainly crossed the key milestones that we needed to. And now we've refiled the application. In terms of updates, you're really just updating for actuals that have happened over this period of time. But the core strategy and what we're implementing certainly remains the same.
Q: On the reciprocal exchange regarding the $18 million -- 18 million share, excuse me, contribution to HOA, was that figure determined with the consultation of TDI? And then the $40 million statutory surplus figure that you cited, is that a pro forma figure that's fully burdened for 2Q cat and the 3Q cat from Hurricane Beryl? Or is there something timing dynamic there that has yet to flow through to fully bake in that impact for the $40 million?
A: I can take that. Maybe I'll just start with the second one real quick. So that's our June 30 surplus number for HOA. We said approximately $40 million. So that's burdened by the cat that we saw in May for the Houston event. As we look forward here, one thing I would just point to is second half of the year is typically when we generate the most surplus at HOA. And in particular, with the increases in profitability that we saw this year, one data point we look at is, last year, in the second half of the year, our insurance segment did -- generated about $50 million in adjusted EBITDA. And not all of that goes to HOA, but I think it can just give you a sense as to the scale even without the additional work that we've done this year and we saw in our results in the first half, as to the general seasonality of our business and how we generate more profits in the second half of the year. The first question was about the share contribution. We, of course, contributed $18 million -- 18 million shares, excuse me, into HOA. A couple of things on that. It bolsters the balance sheet. The company independently -- to answer your specific question, the company -- we decided to do it because it has the strategic benefits that we talked about. I think Matt showed the flywheel where you can -- adding the shares in strengthens the long-term surplus. That supports future premium growth, additional premium growth in 2025 and beyond. And then we can also benefit from future appreciation of Porch shares there by adding additional -- creating additional surplus, which again, creates the opportunity for more premium. And under the reciprocal model, as we noted, that generates fees for Porch Group. I think it's also a strategic benefit. So as we launch the reciprocal, I think we can create strategic alignment with the reciprocal after launch and importantly, as we bring in external capital sources there to further generate surplus or increase surplus there. So I think the net from all of that is it supports HOA's transition to the reciprocal. And so those are really the reasons that we thought it was the right thing to do. One technical point I think that we called out, just so folks understand, the shares, they're not traded currently. They're not included in weighted average shares outstanding when we calculate our earnings per share. They're effectively treated like treasury shares. So there's -- they're not voting shares at the moment.
Q: Earlier this year, you talked about the addition of some hail and wind coverage you put in place. Just curious if that helped you at all in this quarter, if that's in a position to help you as we get into the back half of the year?
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
