Porch Group Inc - Ordinary Shares - Class A Stock

Good afternoon, and thank you for participating in Porch Group's Second Quarter 2022 Conference Call. Earlier today, we issued our press release and filed our related Form 8-K with the SEC. The earnings release and today's presentation are available on our Investor Relations website at ir.porchgroup.com.

Before we begin, I'd like 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, reflect management's views as of today, July 29, 2026. We undertake no obligation to update or revise these remarks. We will make forward-looking statements that involve risks and uncertainties, and actual results may differ materially. Please refer to the information on this slide and our SEC filings for additional detail. We will also reference certain non-GAAP financial measures.

Reconciliations to the most directly comparable GAAP measures are included in today's earnings release available at ir.porchgroup.com. A replay of this webcast will be available shortly after the call, again, on our Investor Relations site. Joining me here today are Matt Ehrlichman, Porch's CEO, Chairman and Founder; Shawn Tabak, Porch's CFO; and Matthew Neagle, Porch's COO. With that, I'll turn the call over to Matt for his key updates.

Thank you, John. Good afternoon, everyone. It's be another fun call here today. We are pleased to report a fantastic second quarter where we again delivered results that exceeded expectations and are raising guidance substantially across the board. We generated positive net income attributable to Porch in the quarter and expect that to be true for the full year 2026, 2027 and the years ongoing. I was excited to share this. Overall, now with Q2 revenue growth, excluding the reciprocal at 23% and adjusted EBITDA margin, excluding the reciprocal at 30%, we are now a Rule of 50 company. Insurance Services, our core largest and fastest-growing business stands out even more with 38% revenue growth and a 48% adjusted EBITDA margin this quarter. Policy growth at our insurance business grew by the same 38% year-over-year. This is a big deal. Our insurance service business generates its economics based, yes, on reciprocal written premium volume, but also meaningfully based on total number of policies given the policy fees that are charged to each policyholder. We managed to our financial results based both on premium and policy count, which I'm not sure is fully appreciated. Incremental margins at Insurance Services are exceptional, which you can see based on the fact that incremental revenues flowed almost fully into higher adjusted EBITDA. For our entire company, adjusted EBITDA, excluding the reciprocal grew 2.5x year-over-year. The progress we've made on profitability is strengthening our balance sheet profile. We're announcing today increased 2026 guidance of $122 million of adjusted EBITDA at the midpoint. This puts our leverage below 3x this year. The reciprocal is healthier than it's ever been with statutory surplus growing quarter-over-quarter and loss ratios that continue to be truly exceptional. So the key message is that the system is working, -- we built a differentiated insurance platform with strong capacity, expanding distribution and proprietary data, which creates a fundamental margin advantage relative to competitors. So Q2 results were strong. Shawn is going to dive in more deeply momentarily, but quickly just a few highlights. We circled written premium or RWP, was $140 million, up 16% year-over-year. First half RWP landed right in line with our internal targets at the start of the year.

We're managing this well toward our $600 million annual target while sustaining strong margin across the system and doing so in a homeowners insurance market that is healthy but has softened. As I mentioned, written policies were up 38% year-over-year. These premium and policy volumes helped drive quarterly consolidated revenue of $141 million, up 12% year-over-year. and our new, excluding the reciprocal of $132 million, up 23% year-over-year, with continued strong gross margins of 85% for this quarter.

RVP flowed through to Insurance Services adjusted EBITDA at a 32% conversion rate, demonstrating the strong incremental margins of this business and a new view RP flowed through to company adjusted EBITDA, excluding the reciprocal at a 28% conversion rate.

That translated again to overall adjusted EBITDA, excluding the reciprocal of $39 million up 2.5x the prior year period. Q2 showed the earnings power of the model we built with premium volumes certainly translating into high-margin earnings. Scaling our insurance business is straightforward. -- statutory surplus creates capacity, topafunnel consists of insurance agencies, driving quote volume and quotes converts to policies written in RP.

Over the next few slides, I'll walk through each piece of the growth engine and why we believe the foundation continues to strengthen. I'll start here with the result, which is the most important metric -- in Q2, again, total reciprocal policies written across new and renewal, grew 38% year-over-year to 59,000.

We expect a rapid policy growth rate to continue throughout the year, ramping to more than 70,000 per quarter by year-end. We are well ahead of our start-of-year policy count expectations with pricing slightly below due to a softer insurance market with competitors lowering prices.

While price can move up or down based on market cycles. Policy growth is the key as it's the leading indicator of future growth and as premium for renewing customer naturally increases. There's substantial excess capital to support this level of growth. The reciprocal ended Q2 with statutory surplus of $170 million, up meaningfully versus the prior year period. That's a strong outcome, particularly given Q2 is typically the seasonal period in Texas when weather activity most impacts surplus, and we did see some of that this quarter.

The $43 million gained over the last year translates to more than $200 million of additional RWP capacity. Overall, the reciprocals Q2 statutory surplus supports over $800 million of premium including non-admitted assets, primarily the shares on by the reciprocal, it has the ability to support what's approaching $2 billion of premium.

Looking ahead, the reciprocal surplus position gives us plenty of room to support our organic and inorganic growth goals. To capacity in place, the next driver is top of funnel through independent insurance agencies. We continue to increase the top of funnel with a land and expand strategy.

This is a key strategic proof point in the quarter. Producing agency branch locations grew 148% year-over-year and quote volumes grew 87% year-over-year and increased sequentially for the seventh straight quarter. That means we are significantly expanding the number of opportunities for us to win attractive low-risk business. The distribution engine is expanding and quote volumes continue to build, which sets a strong foundation for sustained premium growth.

Looking ahead, we have a fraction of the total agencies even in our largest markets, so we certainly are in the early innings here. Moving down the funnel, conversion is the lever that turns quote volume into new customers and premium. as shown here, our conversion remained meaningfully above prior year levels, but we thought it would be helpful to see the impact when we refer to a softer market and how we can respond given our margin advantages.

As you can see here, conversions stepped down a tick in May without actions on our side simply due to competitors being more aggressive in their pricing, likely due to lower reinsurance costs. We responded with targeted pricing adjustments in specific areas, which resulted in improvements and reacceleration of conversion rates in June.

In Texas, our largest state, conversion reached high watermarks in the final week of June, with broad-based improvement across the areas where we focus our actions. So the risk for us is less about managing to our medium and even short-term growth goals. In fact, we have a big advantage in our ability to perform across market cycles. The rest is simply in a given month, the execution and filing time required.

The fact that we delivered these results in this market, with premium per new customer only down 4% year-over-year in Q2 means that we are sustaining the well above-market margins that we've demonstrated. So put all that together, we continue to see strong growth in RWP from new customers, which more than tripled year-over-year.

We're adding new customers at a rapid rate, building a larger renewal base and keeping premium for new customer relatively stable.

With that, I'll turn it over to Shawn to cover the financials and guidance.

Thank you, Matt. Good afternoon, everyone. One quick housekeeping item before I dive into the results. Following feedback, we've updated our reporting format to provide more detail on our consolidated GAAP results, which include the reciprocal -- we've also renamed core shareholder interest to port owned segments for revenue, gross profit and adjusted EBITDA, excluding the reciprocal.

We've done that to ensure clarity, and this is a naming change only. Now let's dive into the results. I'll start off with a high-level summary of our financials. In Q2, we saw strong results from the Insurance Services segment, which drove significant growth in adjusted EBITDA. Policies written of 59,000 were up 38% year-over-year, driven by new customer additions. RWP of $140 million drove adjusted EBITDA, excluding the reciprocal of $39 million.

That's growth of 150% year-over-year. Net income attributable to Port shareholders was $6 million, an important milestone for the business. Overall, these results highlight the strong growth in our Insurance Services business and its operating leverage as RWP and policies scale.

As our insurance services business has grown, it's become the clear engine of our earnings growth. And as such, will highlight its performance in today's discussion. Now let's walk through revenue before we move into the segment results. Total consolidated GAAP revenue was $141 million up 12% year-over-year. Revenue for the port owned segments, excluding the reciprocal, was $132 million, up 23% year-over-year.

And within that, Insurance Services delivered $93 million in revenue, up 38% year-over-year. And now let's dive into the segment results. Insurance Services is the segment driving the majority of our adjusted EBITDA and adjusted EBITDA growth. Revenue grew 38% year-over-year to $93 million, driven by higher fee-based revenue with higher policies written, RWP volume and new customer additions.

In the quarter, we saw a 38% growth in policies written year-over-year, which was a 500 basis point acceleration from the Q1 growth rate. Gross profit was $81 million, up 40% year-over-year. Gross margins in this segment are strong and predictable at 87% for Q2.

Insurance Services adjusted EBITDA was $44 million, up 126% year-over-year. Adjusted EBITDA margin was 48% compared to 29% in the prior year period, driven by operating leverage as RWP and policies written scale. 2 notes here first, as a reminder, the majority of the high-margin management fee we charge is recognized upfront, but a portion is deferred over 18 months. Thus, while last year was year 1 of operating the reciprocal, 2026 is the first year where we benefit from that deferred revenue and corresponding margin.

Second, the margin improvement also reflects a roughly $3 million benefit from an expense true-up in the quarter, which we don't expect to recur. Overall, Insurance Services continues to demonstrate a very high margin profile with even higher incremental margins, given the largely fixed cost base.

Shifting now to Software and Data and Consumer Services segments, which overall were relatively flat year-over-year against the backdrop of a stagnant U.S. housing market. Starting with software -- as a reminder, we sunset certain legacy home contractor SMB-focused products. which drove the year-over-year decline.

Our inspection and title insurance software businesses remained solid despite the staggering market. Gross profit was $17 million with gross margin of 75%, adjusted EBITDA was $5 million. Moving to Consumer Services. Revenue was $18 million. Gross profit was $15 million with gross margin of 84% and adjusted EBITDA was $3 million.

Turning to the reciprocal now. Statutory surplus was better than our expectations, ending the period at $170 million, up 33% year-over-year and up 3% quarter-over-quarter. This is a strong result as the reciprocal typically incurs the most weather claims in Q2, including a $14 million storm in the quarter. Loss ratios remained strong. gross loss ratio was 38% and attritional loss ratio was 18% in Q2, reflecting continued pricing and underwriting discipline and a meaningful margin advantage.

And finally, after selling 2.1 million Corp shares to Ports Group in Q2, the reciprocal now owns 16.2 million port shares, of which the majority of the value is considered non-admitted assets and incremental to statutory surplus.

Okay. Moving on to the balance sheet. Porch ended Q2 with $127 million in cash and investments, down slightly versus Q1. The decrease reflects the purchase of the 2.1 million port shares during the period, along with $17 million in interest expense and timing of working capital. And all of that partially offset by adjusted EBITDA generated in the period.

As a reminder here, over time, we expect cash generated for ports to track with adjusted EBITDA, excluding the reciprocal minus the cash interest on our notes. Q2 was consistent with that framework. Adjusted EBITDA generation largely offset the by annual interest payment and the $2.1 million share purchase from the reciprocal. On the reciprocal side, it held cash and investments of $331 million at the end of Q2.

Okay. Shifting now to guidance. We're raising our guidance across the board given the strong 2Q performance and outlook for the remainder of the year, driven by insurance services. We're increasing guidance for revenue, excluding the reciprocal to a range of $506 million to $517 million. The midpoint of $512 million represents a 22% year-over-year growth rate, up from the 22% growth rate that was implied in the prior guidance midpoint.

We're increasing guidance for gross profit, excluding the reciprocal to a range of $419 million to $429 million, now representing 23% growth at the midpoint, up from 18% growth at the prior midpoint. We're increasing our guidance for adjusted EBITDA, which excludes the reciprocal to a range of $119 million to $125 million.

The midpoint of $122 million represents a 59% year-over-year growth rate, up from 38% growth at the prior midpoint. Taking a step back, we started the year with adjusted EBITDA guidance of roughly $100 million at the midpoint. Halfway through the year, we've delivered $59 million of adjusted EBITDA, excluding the reciprocal -- and in 6 months, we've increased our guidance by more than $20 million at the midpoint.

As Matt highlighted, we expect net income attributable to Port shareholders to be positive for the full year and on a go-forward annual basis. The trend here is clear. Adjusted EBITDA is scaling, Insurance services is driving operating leverage and the business is moving into a profitable position. Quarter-to-quarter, GAAP net income can still move with mark-to-market adjustments and other noncash items, but that doesn't change the underlying trajectory.

This positive net income milestone and overall earnings growth trajectory also translates to a strengthening and more durable financial profile. With our updated guidance, we expect our leverage ratio to be better than 3x this year, consistent with the 2 to 3x target range we discussed in our 2024 Investor Day.

Now I'll hand it over to Matthew to provide a strategic update.

Thank you, Shawn. I'll provide a brief operating update and walk you through the key KPIs across our segments. Last quarter, we discussed AI, how we're using it and ports today, how we plan to use it over time and why we believe AI strengthens rather than threatens our position. .

Today, I want to give a few concrete examples of how that is starting to show up operationally. We believe our proprietary data assets become more valuable as AIA capabilities mature. Our data platform gives us unique insights on approximately 90,000 -- sorry, 90% of U.S. residential properties and early signals into 90% of U.S. home buyers each month.

Not only does AI allow us to accelerate the breadth and depth of our data platform, we are able to leverage it to better price and predict risk. In engineering, we are seeing broad adoption of AI tooling and productivity improvements, including a 2.4x increase in lines of code changed and a 73% increase in merger requests created.

Nearly all of our engineers leverage available tools to meaningfully accelerate their work. AI is helping identify and reduce underutilized compute resources across targeted cloud compute infrastructure, with net savings approaching 10%. Across, AI is improving product and support capabilities. And just 1 example in our movie group, -- we've shifted to AI-assisted call reviews, which is already having a major impact on conversion, and support is becoming faster, cheaper and higher quality. These are just a few of many examples.

Our company already looked at Velocity as a competitive advantage versus our competitors and the tools available will help us accelerate. Shifting gears to the Q2 insurance KPIs. The key operating story is volume growth. We continue to expand the customer base at a strong growth rate with reciprocal policies written of approximately 59,000 growing 38% year-over-year.

Reciprocal written premium was $140 million and RWP for policy written was $2,383. Similar to recent quarters, RWP, per policy written was down year-over-year given the mix shift toward a higher percentage of new customers versus higher-priced renewing customers. As Matt mentioned, the premium per new customer in Q2 declined only 4% year-over-year, which is the appropriate apples-to-apples comparison. The progress we've made in our insurance services business is clear to see in the financials and KPIs, but there's more to the story.

The most important point is that insurance services is not just getting bigger. It's becoming more scalable and more efficient. We continue to make progress across the various operations that support the insurance business. On pricing and underwriting, we are continuing to improve the precision of how we select price and manage risk. This matters because it supports disciplined growth helping us compete for the right policies and maintaining attractive unit economics by avoiding bad risks.

Our agency experience continues to improve. Here, we've seen a 30-point improvement in NPS driven by our product investment, better support and responsiveness and execution by our teams. We're continuing to invest in the technology behind our insurance workflows using automation and AI to improve velocity and increase efficiency across the organization. So when you look at the quarter, the takeaway is more than the strong financial execution, but the deep investments we're making at the same time to set the business up for years of strong performance ahead.

Moving to software and data and consumer services. Both businesses remain tied to the U.S. housing market, which continues to present a challenging backdrop. Our focus is straightforward, manage these businesses we have discipline today while continuing to strengthen the product and partnerships for our future market recovery.

Starting with the software and data KPIs, the total number of companies served was approximately 19,000. The majority of the decline was driven by the previously discussed planned sunset of a legacy product that served roughly 4,000 small home service contractors. Annualized revenue per company increased 24% year-over-year to $4,926, reflecting the higher mix of larger, higher value customers.

In Consumer Services, the team continued building partnership momentum in advancing properties such as Movieplace.com. For the quarter, Consumer Services had 84,000 monetized services with annualized revenue per monetized service of $216, growing 7% year-over-year driven by upsell and cross-sell efforts.

Beyond the KPIs, we continue to make progress on the product and customer experience side of the business. In software and data, the Home Factors pipeline is progressing nicely with carriers of all sizes, testing the product with successful results. In the quarter, ISN launched a redesigned order form in auto provisioning for new inspectors. And last year, ISN rolled out AI defect detection and uses has doubled across our core inspection software products.

Importantly, customer satisfaction for our software products remain strong and improving. The latest NPS was 51% for inspection software, up 14% year-over-year, 61% for our Flow mortgage software, up 23% and 71% for Rhino up 14%. That is encouraging in any environment, but especially against a housing market that remains near cyclical trough levels.

We see additional opportunity to improve product value and customer experience, which we believe can further strengthen our already strong market positions, including inspection where we serve roughly half of the market, in title where we have roughly 40% share.

I'll now pass it back to Matt to wrap us up.

Thank you, Matthew. Okay. I want to wrap up by briefly reinforcing the most important messages from today. First, we're executing well. We exceeded expectations across the board and raised our outlook. Adjusted EBITDA, excluding the reciprocal is now $122 million at the midpoint and $125 million at top end of guidance, driven by the very high incremental margins of our Insurance Services business.

We are ahead of schedule in tracking to our medium-term target of $3 billion in premium, $2.3 billion in revenue and $660 million in adjusted EBITDA, excluding the reciprocal. Second, we are pleased with the progress on growth. As we mentioned, total policies written grew 38% year-over-year. Insurance Services similarly had 38% year-over-year revenue growth. The number of producing agency branches more than doubled and statutory surplus reciprocal is in a very strong position.

And third, our financial profile has strengthened. We're now a rule of 50 company. Our leverage ratio is better than 3x this year, and we delivered positive net income attributable to Porch in Q2, while expecting to remain positive for the full year.

With that, John, please open the call up for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Dan Kurnos with Sonex. .

Great. Thanks. Good evening, everyone. Thanks for all the additional color tonight, especially Matt, refocusing on policy count -- can you just broaden your thoughts a little bit? I mean I really appreciate the slide in terms of sort of the targeted actions you guys took. So just help us think through what you saw how you guys reacted -- and to what extent the market is dictating those choices and when you might choose to get more aggressive or not because you guys are in a rather enviable position from a margin perspective and you have a lot of leeway.

Yes. Thanks. Appreciate it. Yes. The first point that you make is just the point we wanted to lay on, which is I'm not sure if folks have really understood and appreciated. We talked about how we generate revenue in a few different ways, management fees and policy fees as examples. But the policy fees and really the count of policies is really impactful to our financial model. And so we just wanted to make sure that was clear to folks.

In terms of conversion rate, I mean, you saw it on the graph, but it is interesting to see across different market cycles, conversion rates will naturally move up and down slightly -- and the advantage that we have is just because we have such better loss ratios than the market, we are able to manage against that. And so I certainly was proud of the team's ability to kind of recognize changes in the elasticity curve of the conversion rates be able to put new actions in.

And again, like I mentioned, really a fairly minor change is that 4% year-over-year change in the premium per new customer, but to be able to respond quickly and ensure that we're managing to the outcomes that we want to manage to for this year.

I think you're right, then there's a lot of runway ahead. And as I've talked about, we want to just stack year after year after year after year, really strong, consistent growth while we're maximizing margin dollars within our growth goals, and that's the playbook we're executing against. .

And then if I could just follow up just secondary pieces. First, just any update on how Michigan is going, learnings there? Obviously, it's going to take a while to sort of prove out the data case, but just love an update and you mentioned it yourself, you just added a little bit more to the surplus, especially in the statutory side, you had a phenomenal 2Q, especially given timing and seasonality book rolls, M&A? Any reason to get more aggressive? Or are you -- I know you just finished telling me that you're trying to maximize margin dollars, but those all accrue Matt to shareholder interest. So just any thoughts there would be great. .

Well, why don't I take the second one? And Matthew, maybe you can give an update on Michigan is your home state after all. So I give you the glare there. The I'm not going to answer much of your question on M&A, of course, Dan. But I will say that there are lots of interesting opportunities. Our corporate development team has never been busier. It's part of our playbook. And so like what -- just to be super clear, what we're managing to and what we've talked about in terms of our goals this year. Those are our pure organic goals. So if we were to do anything else, that would sit on top, certainly, in terms of what we look to do and more to come as in the right time, certainly. Is there something to share. But Matthew, do you want to hand on Michigan?

Yes, yes. I think we're excited about Michigan. We're excited about any new state expansion -- you're right, it does take time, but our team is focused on growing distribution there. So there's lots of opportunity for us around agencies, and we're getting them appointed. We're starting to see quote flow. The other thing I would say about the data that's interesting is we're now smart enough with our data that even if we don't have data in a home, we have enough data and related homes that we can start to infer things about homes.

The reason why that gets important is when you're heading into a new state, there's always an amount of time where you're learning about how risk behaves in those homes and you accumulate that over time by getting more claims there and working with more customers. We think we'll have sort of an advanced start because of our data based on kind of what we've been seeing in our modeling.

Our next question comes from the line of Jason Helfstein with Oppenheimer. .

So this is now 2 solid quarters of very nice take rate. Can you just talk about is this the new normal and how mix kind of plays into the take rate? And then secondly, I think that the rest of the industry -- or I guess, in general, right, the industry is losing the pricing tailwind but yet it doesn't seem to kind of impact your efficiency on marketing for a lot of the reasons that you've talked about and we all know. Just maybe talk about how you think like that dynamic, that kind of change in the industry kind of impacts your ability to be efficient, adding policies. .

Shawn, why don't you take the first, and I can layer in the second .

Yes, sure. For the take rate context there for folks, sometimes folks think of the insurance services revenue as a percentage of as effectively the take rate. So I think that was the question there from Jason, that that percentage was 66% in Q2. It was 65% in Q1. So Jason, I think your commentary there. We have seen it now for a couple of quarters, sustain that higher mark.

We're pleased with that conversion, both in the insurance services revenue and ultimately into adjusted EBITDA given the relatively fixed cost base that's creating a lot of earnings. And so something in that 60% to 65% range is kind of the the area we've seen it over the last couple of quarters.

And the last thing, I guess, I would just say there, mechanically, just so also last year was our -- I mentioned this in the prepared remarks, but we are seeing some deferred revenue flowing through into that, and we expect that to continue ongoing. I mentioned last year it was the first year under the reciprocal structure. And so some of the fees get deferred, and so that's coming in this year and that will continue. We expect that to continue, obviously, in future years as well.

And then on the second one, maybe just high level can Jason, fundamentally, what I think this game is around is if 1 can be able to better assess, predict and price risk fundamentally, you'll win. And I think we've clearly demonstrated over an extended period of time now that we have abilities to be able to produce lower loss ratios than others do. And with lower loss ratios and low attritional loss ratios, it just means that there's more margin in the system overall.

And then you can choose how you want to deploy the margin. You can be able to -- obviously, we have a very healthy flow through in terms of Porch group EBITDA. We obviously are growing the capital base at the reciprocal really effectively. -- you're able to allocate to a really healthy reinsurance program to make sure the reciprocal is protected. But you can also use it for growth. And we've effectively put a little bit of the margin back to customers via that 4% decline in premium per new customer -- and through that, you're able to control and impact those conversion rates, which, in turn, help us to be able to grow faster or policy count faster. And so that is a great position to be in, where we can manage this margin advantage that we have to be able to produce the outcomes that are going to create shareholder value over time. .

Our next question comes from the line of Matthew VanVliet, Cantor Fitzgerald. .

This is Mason Marion on for Matt. So your proprietary day is 1 of your real competitive advantage. -- and you kind of talked to it on the call, but how is AI helping you further expand this advantage? Are you leveraging your home inspection data in any new or interesting ways today compared to, say, maybe the beginning of the year? .

Yes. Go ahead. Go ahead. .

So we do have a large set of proprietary data, and we continue to look for different attributes or conditions of homes that we think could be predicted of risk, and we call those home factors. And so we're now up to 100 home factors. So we continue to build out insights from the data that we have. In terms of AI, I would highlight a couple of things. Our ability to go model and identify those home factors is getting faster.

And so we are able to get through building out all of the different insights we think are within our data more quickly. I think the other things there are certain types of data, particularly around digital information which before felt very hard to go and extract insights from are now becoming much more reachable with AI. And so that just allows us to go deeper into the data to build out these some factors that help our business, and we think will help other insurance businesses.

Then maybe a modeling 1 here to follow up. So your EBITDA guide, if I'm doing my math right here, you raised it by about $16 million, while revenue was raised by about $11 million. I mean you have really strong incremental margins. Can you kind of talk to where you're seeing really strong leverage and how that factored into the guidance? .

Yes, sure. Maybe I'll start with the results in the second quarter here. you could see it really clearly in insurance services, adjusted EBITDA, if you look at the segment, the costs are relatively fixed. I think this has been part of the story that we've been telling for many quarters now. And I think this quarter was just a great example where the numbers are clearly showing that also. And we see that in prior quarters as well, but it's growth in policies written and relatively fixed cost.

I did mention there's a $3 million nonrecurring benefit in this period. So make sure we account for that. But the margins are phenomenal. And so obviously, we're pleased today to continue to increase our guidance -- in the last 6 months, we've increased our adjusted EBITDA guidance by over $20 million. And are now guiding to $122 million at the midpoint. We're very pleased with how the year is progressing, and we're excited.

Our next question comes from the line of Ryan Tomasello from KBW. .

Hi, everyone. On the revised guidance, -- can you say what that is now baking in for reciprocal written premium for the full year and in the second half whether or not we're now talking about something north of $600 million, which is what I believe you initially set out to achieve to start the year. .

Yes. The target on RWP is $600 million. Let me maybe provide some context and break that down for folks. We're halfway through the year. We've done $25 million million of RWP, -- that means in the second half of the year, we're expecting a $345 million of RWA -- we talked about on the call today, policy growth has been fantastic, and we're seeing a lot of volume, and we expect volume to continue to ramp sequentially ending the year with more than 70,000 policies per quarter written per quarter. .

So those are some of the components to it. If you put that in context, in Q2, we wrote just under 60,000 policies, and we'll continue to increase the policies written with the things that are -- have been working very well for us, top of funnel distribution, continuing to add agents using our land-and-expand approach, conversion with targeted actions, all the things -- some of the things that we saw today that have been working quite well.

I guess, given the momentum you've seen in the first half, is there potentially some offsets to that, that are reducing the upside to that $600 million for the year or why the second half isn't baking in more upside? Just trying to understand the moving pieces here just given how strong the results have been thus far and the guide up despite the RWP guide seemingly unchanged? .

Well, again, it's 1 of the message Joe is trying to land in, just to make sure it's clear. We're obviously managing to our our financial results in terms of kind of where what we want to deliver. And certainly, you see that just with how we're executing against that, obviously, with both the beat today and the substantial raise -- the thing, again, I just don't think -- I think people have been very focused on just an RWP, but our economic model is driven through both RWP and policies written.

And we just want to make sure that's clear. We charge policy fees to every new and renewing policyholder. And so that is a way that we generate money. And so you really have to look at both of those 2 things. Policy growth is -- as we talked about today several times, it's growing very, very rapidly. And so we just -- we can balance those 2 things, how fast we want to go the total premium and how fast we're going to grow the policies. At the end of the day to be able to accomplish our organic growth goals for our business. And that's the way that we'll approach it. .

Our next question comes from the line of Timothy D'Agostino with B.Riley Securities. .

Just quickly on my end, it'd be great to just get some color on the products, the legacy product and the port insurance product. RWP from new customers obviously tripled year-over-year. Are you seeing a lot of interest in demand for the new product? Or is it still towards that legacy product? And then as well for the branch growth, do you see new branches that come online? Are they interacting with that new product more? Any color around that would be great. .

Yes. I mean it's -- but I mean, my definition, obviously, in the way that just insurance works, the vast majority of policies are going to be with our legacy homeowners of America. -- product because it has all of the renewing customers on it.

And so we are excited about Porch insurance and the value prop as a reminder, it's only launched in 1 state as well. And so even in that one state, you have to go and ramp up the number of agencies that they're able to sell and distribute it. So when you launch a new product, it does take time to ramp both within that state across more states and then to start building a renewal base.

But we continue to be excited about fundamentally offering a different product to consumers, being able to bring a full home warranty being able to bring 4 hours of moving service. And we do want to be known as providing the best product for a home buyer period of full stop. And we've got unique capabilities in our consumer services area to be able to do that. But it's early days, just given kind of how the model works, I got described.

Our next question comes from the line of Oscar. Go ahead. Mr. Oscar, your line is open. Please go ahead. In the meantime, we'll move on to our next question. Our next question comes from the line of Jason Kreyer with Craig-Hallum. .

So in the quarter, you kind of had the first transaction to monetize some of the shares held inside of the reciprocal -- just curious, how should we think about the other 16 million shares and what your strategy is going to be there over the coming quarters or the coming years? .

Obviously, we're excited about where the value of a share is going to go over time. As we said before, publicly, there is -- our view of intrinsic value is certainly different than where the shares are today. And we think as we just keep stacking quarters and just executing like we are, that gap shrinks. And so there will be a time in the future where it's going to make sense to start selling some small portion of shares at the reciprocal to move some of the capital from non-admitted assets into statutory surplus.

We talked about that being part of the playbook that we have, but we're in no hurry. Obviously, we have so much capital at the reciprocal to be able to support far more premium growth than we're tracking for this year. We want to continue to maintain a nice healthy margin of excess capital. And so we'll just manage the business to make sure that we're accomplishing that.

I don't disagree with your assessment of value of shares. Just as a follow-up, Matt, at the end of the quarter, I think the reciprocal secured $100 million cap bond. Can you just talk about what that means for the health of the recyclical -- and if there's any anticipated cost savings on reinsurance coming out of that cap on? .

Yes, I can cover that one. So -- and just for context for folks a cap on is a type of fully collateralized reinsurance. We placed it at the very top of the reinsurance tower. So it's covering very, very low likelihood events. But given the growth that we're seeing after reciprocal, we thought it was prudent to ensure we were adding that. .

It was our inaugural cap on offering for the reciprocal, and we are very pleased with the outcome. We partnered with a very strong slate investors there. So I want to give a nod to those folks as well. But overall, we think it's an attractive instrument and an attractive way to procure reinsurance.

And our next question comes from the line of Oscar Nieves, Stephens.

My first question is you highlighted that new customer RWP, grew 26% year-over-year. while total RWB grew 16%. So should investors expect that gap to persist? Or will renewal growth become a larger contributor over time? .

Well, we expect new customer growth will continue. Like obviously, we have a really healthy engine as we continue to add more agencies and then have agencies deliver more quotes and be able to have those quotes convert into policies.

So like we talked about, we expect new -- the number of new policies to continue to grow here as we continue forward. It's a beautiful game insurances, which customers now at a really, really high clip. And the vast majority of customers pay with escrow and it's just a very sticky product fundamentally.

And so -- so we're not commenting on like the mix and how we expect the mix to transition over time. But certainly, I can give you that comment, which is we certainly expect new customers will continue to grow quickly, and those customers do become long-term customers generally, where the price per customer will tick up year after year after year as they renew. That's quite common. .

All right. That's super helpful. And then my second 1 is on statutory surplus, which you mentioned increased to close to $170 million. So how should we think about the relationship between surplus growth and premium growth over the next, say, 12 to 24 months?

Yes, I can take that one. So we're quite pleased with where the statutory surplus is $170 million at the end of Q2. This year, year-to-date, it's up $15 million. And especially just having gone through the quarter with the highest weather claims typically, that's our place to be and better than what I would have expected starting the year. .

And so we're certainly pleased with that outcome. The kind of required base requirement that we've historically talked about is a 5:1 RWP, to surplus and actually in some of the prior quarters, we've talked about it actually being a little bit better than that now. But those are some of the guardrails that folks can think about there. But I would say very pleased with the statutory surplus and the loss ratios and just the underwriting discipline and how the reciprocal is performing.

Thank you, and that concludes our Q&A session for today. I would now like to turn the call back over to Matt Erlichman, for closing remarks.

I appreciate everybody being on the call. Thanks for the questions. I think you can get a feel for the energy. We remain very confident in where we're at and how we are executing. I mean it is fun now to be a rule of 50 company. I feel really good about our leverage being better than 3x this year. We're just making strong progress and certainly now being net income positive this year, all great markers. For us, we believe -- again, I feel very confident we've constructed a durable model with significant opportunity where we can scale a premium and convert that premium into high-margin earnings. And continue to add products and capabilities that set us up to go after this $200 billion TAM with just fundamental advantages.

Lastly, core thing we talked about is creating long-term shareholder value for shareholders as part of building a truly great an enduring company. And so certainly, just rest assured that that's what we are focused on, and I think, making great progress against each day. With that, we'll close the call. Have a great rest of the day. Take care, everybody. .

Ladies and gentlemen, that concludes today's call. You may now disconnect.

Good afternoon, and thank you for participating in Porch Group's First Quarter 2026 Conference Call. Earlier today, we issued our earnings release and filed our related Form 8-K with SEC. The earnings release and today's presentation are available on our Investor Relations website at ir.porchgroup.com.

Before we begin, I'd like 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, April 28, 2026. We undertake no obligation to update or revise these remarks. We will make forward-looking statements that involve risks and uncertainties, and actual results may differ materially. Please refer to the information on this slide in our SEC filings for additional detail. We will also reference certain non-GAAP financial measures. Reconciliations are included in today's earnings release. And also a replay of this webcast is going to be available shortly after the call on our Investor Relations site.

So joining me here today are Matt Ehrlichman, Porch's CEO, Chairman and Founder; Shawn Tabak, Porch's CFO; and Matthew Neagle, Porch's COO.

With that, I'll turn the call over to Matt for his key updates.

Thank you, John. Good afternoon, everyone. We are pleased to report a strong start to 2026. Q1 results exceeded expectations, and we're raising our full year guidance for Porch shareholder interest revenue, gross profit and adjusted EBITDA. Porch [indiscernible] as simpler, higher-margin fee and commission-based business 1 that's built to compound premium and cash flow over time without the earnings volatility often associated with risk-bearing insurance carriers.

Last year, we proved out the profitability of our business model. 2026 is the first year with tangible year-over-year comparables for Porch shareholder interest results, and we demonstrated significant and sustainable growth especially in Insurance Services, which delivered 50% year-over-year revenue growth in the quarter. From here, our strategy is straightforward, scale rapidly and with discipline and continue to invest in the differentiated assets that strengthen our moat, our data advantage, our underwriting and pricing capabilities and our differentiated products for consumers.

Okay. So for the first quarter, we delivered results for Porch shareholder interest that reflected continued strength in Insurance Services and continued discipline across the business. Specifically, you can see here, Reciprocal written premium or RWP, was $114 million, up 18% year-over-year. Revenue was $109 million, up 29% year-over-year. Q1 gross profit was $91 million, resulting in an 83% gross margin. Q1 adjusted EBITDA was $20 million, an 18% margin. Earlier I said, we intend to scale rapidly with discipline. The clearest way to see that is through our insurance growth engine, capacity, top-funnel and conversion as well as the latest underwriting results.

Over the next 4 slides, you'll see the progress we've made. And importantly, after seeing these drivers in sequence, I think it becomes clear why we're confident in continued RDP growth acceleration. So first, here, capacity. Statutory surplus is the key guidepost and you can see the progress over the last year, growth of 59% and $61 million year-over-year. The takeaway is that the capital foundation is far stronger today and supports our growth plans not just this year but well into the future. Q1 statutory surplus of $165 million supports north of $800 million in premiums, well above our $600 million RWP target for this year. When including incremental non-admitted assets of a little north of $100 million, the Reciprocal then has the ability to support more than $1.25 billion of premium. The Reciprocal's reinsurance program is in place to protect this capital across cycles. On April 1st, the Reciprocal wrapped up a very successful renewal of its reinsurance program. Similar to prior years, this included a panel of 40-plus A-rated partners, offering catastrophic weather protection. We're happy to report that the Reciprocal will benefit from an approximately 20% decline in costs for excess of loss reinsurance, driven by strong underwriting results and improved risk performance which further bolsters its surplus and overall margin in the system.

To have capacity in place, the next driver is distribution, and this starts with agency growth. Think of this as a land and expand strategy. We're growing our agency footprint and expanding production across our existing partners' locations. That's why we highlight producing agency branch locations. It's a metric we use internally to gauge distribution depth as we expand and reach an existing agencies, this translates to quote volumes. For Q1, you can see here producing agency branch locations increased 181% year-over-year, while coal volumes grew 69% year-over-year and improved on an absolute basis for the sixth straight quarter. All in, the funnel is expanding, and we're increasing the pool of potential new customers.

Moving down the funnel, conversion is the lever that turns quote volumes into new customers and premium. The Reciprocal as stellar pricing and underwriting results means we have more margin in the system than other carriers. Given that and our understanding of the elasticity of the conversion rate curve, we can take targeted actions like those we started in November to bring in more low-risk consumers and grow premium at our targeted rates while maintaining the Reciprocal's exceptional underwriting outcomes and profitability. In the chart here, you can see the clear step-up in conversion that began in Q4 following the activation actions. That improvement continued into Q1 and year-over-year conversion rates have almost doubled. Note that we've only seen a 5% year-over-year decline in premium per new customer, while producing these Q1 gains. At the start of 2026, we launched Fortune Insurance in Texas. Over time, Fortune Insurance will serve as another tailwind for conversion as its product differentiation helps open us up to new segments of consumers.

All right. So now the results. And this is probably the most important message today, when capacity top of following conversion improve together, it shows up in new customer growth. As this chart shows, RWP, from new customers stepped up meaningfully approximately tripling year-over-year, which is the clearest proof that the growth engine is working. We're certainly excited about continuing this momentum. We've reached an inflection point for growth. But what's notable is the way we are driving this growth. In Q1, total policies written across new and renewal grew 33% year-over-year. [indiscernible] proof point that the growth engine is on track. Matthew will cover this in more detail later in the call.

All right. So we just walked through the premium drivers and now -- and how the system is designed to deliver rapid growth, and now we move into the discipline and sustainability side of it, which you can see through the reciprocal's underwriting results. These charts depict the 2025 A.M. Best annual market share data. The takeaway is simple. The Reciprocal continues to perform among the best in its peer set, top quartile nationally and in Texas for the combined ratios. Here's what's so exciting about these combined ratios. This includes all of the margin paid via fees to Porch Group as part of the Reciprocal's expenses. In 2025, Fortress Insurance Services segment saw a margin of adjusted EBITDA to RWP of 21%. So you can do the math. If you were to reduce the expenses and thus, the combined ratio by this amount, it truly is exceptional combined ratio results. Putting all this together, our goal is simple. We aim to drive compounded porthole interest earnings growth while maintaining strong health at Reciprocal. As we deliver on those two key objectives, we can scale this business rapidly and profitably for decades to come.

With that, I'll turn it over to Sean to cover the financials and guidance.

Thank you, Matt. Good afternoon, everyone. I'll start off with a high-level summary of our financials. Overall, we're pleased with our first quarter results. which exceeded expectations across Reciprocal written premium, revenue, gross profit and adjusted EBITDA. We raised our outlook for the year, driven by our Insurance Services segment. Insurance Services delivered strong Q1 results, particularly in RWP, driven by new customer additions. The team continues to add agencies and quotes and we saw higher quote-to-bind conversion rates, as Matt noted. Two quick housekeeping items before we dive deeper into the results. First, as a reminder, we launched the reciprocal on January 1, 2025, we updated our segment reporting at that time. As a result, this Q1 2026 represents the first period with tangible year-over-year comps and for RWP, as well as port shareholder interest and insurance services financials. And second, related to that, Q1 2025 and was the final quarter of the legacy captive reinsurance terms that benefited the prior year quarter by $16 million. So while adjusted EBITDA still grew nicely this quarter, Q1 2025 is our last tough comp.

Okay. Similar to Matt's remarks, my comments focus on Porch shareholder interest since generating cash for for shareholders remains our ultimate objective. Under GAAP, we consolidate the reciprocal exchange financials, which are included in the press release and our 10-Q. Q1 2026 Porch shareholder interest revenue was $109 million. Insurance Services contributed 68%, software and data 20% with the remainder from Consumer Services. Associated gross profit was $91 million with an 83% gross margin, driven by Insurance Services 85% gross margin. Adjusted EBITDA was $20 million ahead of expectations with Insurance Services, delivering a 37% adjusted EBITDA margin.

Okay, now let's move a little deeper into the segment results, starting with Insurance Services. Insurance Services revenue was $75 million, growth of 50% over the prior year and exceeding expectations, driven by higher fee-based revenue with higher RWP volume and new customer additions. As Matt highlighted, premium for new customers almost tripled year-over-year, and we saw a 33% increase in total Reciprocal policies written. Gross profit was $64 million, delivering a strong 85% gross margin. Adjusted EBITDA was $27 million or a 37% margin. While we continue to see strong incremental EBITDA margins from revenue growth, particularly the fee revenue that has a relatively fixed cost base. The year-over-year margin decline simply reflects the changes to our captive reinsurance terms that I mentioned. Overall adjusted EBITDA as a percentage of RWP, was 24% in Q1, reflecting a strong margin as we scale RWP, and continued operating leverage in insurance services. On a trailing 12-month basis, adjusted EBITDA as a percentage of RWP, was 20%.

Okay, shifting to software and data. As a reminder, most of our vertical software businesses charge per transaction. So results do remain tied to U.S. housing activity, which continues to be a near cyclical trough levels. And we do expect tailwinds as housing recovers. In the first quarter of 2026, results were relatively flat year-over-year. Software and data revenue was $22 million. Gross profit was $17 million with a 75% gross margin. Adjusted EBITDA was $4.6 million. Consumer Services also reflects softer housing conditions. Segment revenue was $15 million, increasing slightly over the prior year. Gross profit was $13 million, an 87% gross margin and up 390 basis points year-over-year, driven by mix shift to higher quality revenue. And finally, adjusted EBITDA was approximately breakeven.

Moving now to the balance sheet. We ended Q1 with cash plus investments of $134 million, up $13 million from December 31, 2025. Porch shareholder interest cash flow from operations was $20 million in the quarter. As a reminder, cash flow timing is seasonal, we pay interest on our notes in the second and fourth quarters of each year. In March, we exhausted the share repurchase authorized by the Board and repurchased 334,000 shares for $2.5 million or an average of $7.48 per share. And as a reminder, this was the maximum amount allowed by our 2028 notes indenture. Our 2026 notes have a remaining balance of $7.8 million, which we expect to settle at maturity on September 15, 2026, with cash from the [indiscernible].

Okay. And shifting to our 2026 guidance for Porch shareholder interest. Our 2026 target of $600 million organic RWP represents 25% year-over-year growth. Given the strong start to the year, we are raising our guidance for revenue, gross profit and adjusted EBITDA. We are raising our revenue guidance to a range of $495 million to $507 million representing 20% year-over-year growth at the midpoint, up 400 basis points versus prior guidance. We are raising our gross profit guidance to a range of $401 million to $413 million, still with an 81% gross margin at the midpoint. We are raising our adjusted EBITDA guidance to a range of $103 million to $109 million, still a 21% adjusted EBITDA margin at the midpoint. From a modeling perspective, we continue to expect trough-like U.S. housing conditions and thus, flattish year-over-year results in Software and Data and Consumer Services, with the guidance increase attributable to strength in insurance services.

And I'll now hand over to Matthew to provide a strategic update and the KPI review.

Thank you, Shawn. I'll start by giving a brief business update and then dig into our KPIs. I first want to touch briefly on AI, about how we're using it and why we believe it strengthens rather than threatens our position. Across Porch, AI is meaningfully improving our engineering velocity and our operations. Our engineers are shipping faster and with higher quality and we are seeing productivity gains that are fundamentally changing how we build software. In customer support, AI is now handling a significant share of initial customer contacts, reducing costs and improving response times. We are seeing real productivity gains across the business. On the disruption question, let me be clear. In insurance, AI does not change the fundamental nature of what we do. Insurance is a balance sheet promise. It is regulated, capital-intensive and requires real financial backing. AI will make underwriting claims and customer interaction more efficient, and we are investing aggressively to lead there, but it does not alter the structure of the industry or eliminate the need for the product. We think we are well positioned here. So why do we think our vertical software businesses are well positioned in an AI world? Well, these are systems of records built on decades of real transaction data inside regulated industries where compliance audit trails and security are non-negotiable. They are the bones of a home purchase or a refinance transaction and are not optional tools.

Our customers rely on them deeply, which shows up in high NPS scores, and we wrap meaningful services around the software itself. For inspectors, that includes payment processing, warranties, recall type monitoring in a call center, making us much harder to displace in a stand-alone SaaS product, and we are not standing still. We are investing and innovating faster than we ever have. In our inspection software, we're using AI to improve report quality and speed, defect detection, narrative assistance embedded directly into the workflow inspectors are to use.

In Rynoh, our title insurance software, we're applying AI to high stakes workflows like reconciliation, verification and fraud monitoring, where accuracy and auditability are everything. In Floify, our mortgage point-of-sale platform, we're moving towards letting a bower generate a pre-approval letter from their phone in just a few clicks. Lender customers are expressing real excitement and willingness to pay for this as a premium feature.

Finally, we believe AI will disproportionately benefit companies with unique data assets like ours. Underlying our entire business is our data platform with proprietary data covering approximately 90% of U.S. residential properties and early insight into 90% of homebuyers each month. Simply put, AI is additive to Porch's long-term position. Let's move to Q1 insurance KPIs. Reciprocal rate premium was $114 million, ahead of expectations, and up 18% versus prior year. Reciprocal policies written was nearly 48,000 policies, up 33% year-over-year and continuing the momentum we saw in Q4. RWP per policy written was $2,386. This was down on a year-over-year basis, but I want to be clear on what's driving this. it is largely a function of mix shift, not competition or price. The premium per new customer is always less than premium per renewing customer. As new customer growth has accelerated, they represent a larger share of the mix, which pulls the average down.

To put a number on it, premium per new customer was only 5% lower on a year-over-year basis, meaning that we have been able to increase conversion rates without meaningful decreases in price or profitability. In total, when you pair the top of funnel strength, with the conversion rate improvements we've put in place, you arrive at a very strong outcome in new customer RWP, which was 3x higher versus the prior year.

Moving to Software and Data. The housing market remains challenging, but that's not slowing our pace of innovations. At the start of the new year, we launched Rynoh product hub, the new central home for all Rynoh products and services. In March, Floify released Dynamic Apps 2.0 to allow mortgage teams to tailor borrower applications. We continue to see strong interest in home factors and compelling new data customers, and we'll share more here when we are able to. In terms of Software and Data KPIs. In Q1, we served approximately 22,000 companies with annualized revenue per company of $3,918. As a reminder, as part of our strategy to focus on larger customers, we sunset certain legacy software products that serve very small contractors, which is expected to lead to a few million dollar revenue headwind, but a slight positive effect to segment profitability. For Q1, the wind-down resulted in roughly 1,800 less companies in the quarter. However, as you can see from the 8% year-over-year increase in annualized average revenue per company, there was a fairly limited effect on segment revenue.

In Consumer Services, our moving group focus is twofold: drive better monetization per move today and build a scalable demand engine for the next leg of growth. In Q1, movie group's upsell and cross-sell efforts drove a 9% year-over-year increase in average revenue per move. On the demand side, we're investing in exciting new partnerships, direct-to-consumer expansion and the moving Place platform. Like Software and Data, we feel our targeted investments and lean cost structure positions us well for when the housing cycle turns. As for the KPIs, in Q1, we had 69,000 monetized services with annualized revenue per monetized service of $220.

I'll now pass it back to Matt to wrap us up.

Thank you, Matthew. For closing the call, I do want to comment briefly on the macro environment. It's useful to re-anchor on why the homeowners insurance industry remains durable across cycles and why our operating model is built for the long term. First, demand is structurally embedded. The majority of U.S. households have a mortgage or homeowners insurance is required by the lender, regardless of the economy. More broadly, homeowners insurance is carried by nearly 90% of U.S. homes on an annual basis. Not surprising, given the home is often a family's largest financial asset. Second, the homeowners insurance premium pool has grown through cycles. You can see on the chart on the left, it makes it clear, and it has natural tailwinds. Inflation tends to scale premiums over time. And if the weather gets worse, it only means the homeowners insurance industry will grow faster. In the current environment, there's talk of a softening market and competition, but we're really not seeing that in any meaningful way in our Q1 results and strengthening funnel demonstrate that. Third, what's important for Porch is our model. We're able to participate in that growing industry premium pool, while separating Porch's financial results and profitability from weather volatility and risk. And lastly, like Matthew just talked about, we don't see AI disruption risk as it relates to the foundational elements of the insurance industry. Again, insurance is a balance sheet promise, not a workflow regulation and capital requirements create real moats. We see AI enhancing the advantages for companies with unique data, and we've built our entire business around our data platform.

I want to wrap up by briefly reinforcing the most important messages from today. First, we're off to a strong start in 2026. There's no doubt. Second, we've raised our outlook meaningfully for the year. Third, we're seeing momentum because the insurance growth engine is working. Capacity, distribution conversion are all moving in concert in the right direction. Overall policy count is growing rapidly as is premium from new customers, and we're accomplishing this while maintaining some of the top underwriting results in the entire homeowners insurance industry. This creates differentiated margins and as a result, a stronger growth engine as we look ahead.

Thanks, everybody, for your time today. I just want to thank, in particular, my fellow shareholders for their support and belief in our organization. We can't control market volatility, but we can -- we will control our focus, strategy and execution. In just a little over a year, we've transformed Porch into a simpler high-margin cash-generated business. We've built the foundation, and now we scale profitably invest.

With that, John, please open the call for questions.

[Operator Instructions] Our first question comes from the line of Dan Kurnos with StoneX.

The results obviously speak for themselves, guys, a hell of a quarter. I guess the kind of question, I just want to anchor to, Matt, a little bit either Matt or Matthew, is there any thoughts on kind of the RWP guide for the year? Is that a little bit higher now just given the increase in revenue and given what you guys put up in Q1. And to sort of unpack what you guys are talking about, and I appreciate the color on the premium per new policy written. Obviously, we've all been excited for Porch Insurance to kind of get launched into the market. But if your blended policy premium per policy is down because of mix and Porch Insurance is kind of a higher price point. And obviously, you guys can correct me if I'm wrong on that. Do we think that like the initial start to this year is actually driven by real strength in the legacy products even across agents as you turn them back on and Porch Insurance is then going to be incrementally on top of that, and we should see the premium per policy start to blend up as that comes into the market, or am I thinking about that wrong?

Yes, I'll just take the second one first. It's a good question. Porch Insurance will make a bigger, bigger impact as we go throughout the year and ongoing as we have more and more agencies activated and turned on using it. I do think as you look forward, yes, the Fortune Insurance product designed to be, give or take, 10% higher all-up price than the homeowners of America product and then includes a lot more value for the consumer, right? The warranty, the moving services and then actually higher commission as well for the agencies to have additional incentive. And so -- and as an aside, it does also create more margin. So you're right, as Porch insurance becomes -- just continue is really through its journey, and we're very excited about what's ahead there. Yes, I think that can create tailwinds to your question, Dan, on the premium per new policy. Overall, though, obviously, you heard us emphasize it, we are very pleased with the gains in conversion rates, and how we've been able to just drive premium growth without meaningful decreases in the premium per new customer, that's a big deal. And again, it just emphasizes that we're going to be able to continue to grow margin across the system in really attractive ways, second question. On the first one, Shawn, maybe you can take the RWP guide question.

Yes. I mean, I'd say a couple of things. First of all, Dan, thanks for the remarks. I'd say a couple of things. One, it's early in the year, so I'll just note that. Two, I'd say we were quite pleased with the funnel performance in the first quarter. I think as we talked about throughout each of the metrics, agents, quotes, conversion, we saw outperformance. And so that gives us confidence. Now we did today, increase the revenue guidance 4 percentage points of growth at the midpoint. So now the revenue guidance is a 20% year-over-year growth. And again, that's all driven by just adding -- continuing to add in new customers and the increased confidence that we see there. And sorry, maybe I leave it there. And...

Thanks, Dan.

That's fine, Shawn. Thanks. Yes. I appreciate it. And Matt, I think the point I was trying to make is that you guys did this without really Porch Insurance filtering into the market yet. So obviously, seller results to start...

Yes. Thank you. We appreciate it.

Our next question comes from the line of Jason Kreyer with Craig-Hallum Capital Group.

And I'll echo congrats on an excellent quarter here. Wondering if you can talk about loss ratios or combined ratio trends for Q1, and just how that compares to historic quarters?

Yes. I mean, we continue just to perform exceptionally well. Gross loss ratios in Q1 was 24%. And attritional loss ratios, which, as a reminder, for those on the call, is losses not including catastrophic weather. That was 19%. And -- so just exceptional results. Actually, the team have gone looked, we're in the top handful across the country and Texas in terms of top performers as it relates to loss ratios. Actually a little Tibet, Jason, that was interesting to us. Some of the areas carries attractive loss ratios and then we'll have really bad loss ratios the next year as it bounced around with some volatility. We are the only company in the homeowners insurance industry that's been in the top handful each of the last several years. We think that's really telling. Just there's that consistency of having just exceptional loss ratio and attritional loss ratio results.

When you look at the levers that you can pull, just in terms of price and promotion, agency commission, stuff like that. I wanted to ask about those levers in terms of existing customers. Any changes to the strategy of the existing customer base and any changes to the trend as far as retention or attrition rates.

I can speak to that. We've taken a number of steps across our distribution strategy and our product strategy to position ourselves for growth. And as Matt said in his remarks, we think we have a growth engine built and now it's time to scale. We are still early in building out our distribution when you consider the number of agents that we have and the number of agents that are available. We always have the lever to tweak price to drive up conversion rate. And I do think there is room there when you look at our cost and our margin structure. We haven't had to be that aggressive so far to be able to hit our growth numbers. And then as Dan mentioned earlier, we are excited about what Porch Insurance could do. So in terms of the biggest product strategy, being able to have a premium product in the market that has higher commissions that has the referral value of a warranty and moving services and other things to the consumer, we think gives us another lever to drive growth.

Let me just layer one thing on just to make sure that it landed clearly just on this topic. Fundamentally, what the whole advantage comes down to is that we have more margin across the entire system than other carriers do. And it's because we have unique insights about properties which allow us to be able to win more low-risk customers and not win higher-risk customers, they're going to have lots of losses. Fundamentally, those insights allow us to create more margin. And you can see that showing up in both the private margins at Porch Group plus how much surplus is growing at the Reciprocal because the margin is the combination of those two things. And that's a big deal because like Matthew just noted, because you have more margin in the system, if we wanted to, we could tweak pricing down, still create tremendous margin and be able to grow conversion rate and premium faster. Right now, we're very pleased with the outputs that we're seeing in terms of premium growth, but it is certainly nice to be in that position and have those controls.

Our next question comes from the line of Jason Helfstein with Oppenheimer.

I guess two questions. Just when -- the start of the last exciting one. But -- so like the Reciprocal looks like you burned, I guess, cash flow for operations like about $7 million in the quarter. How do you think about like where that comment potentially shakes out, I guess, annually? And just like broadly, I guess the point is like over time, right? Obviously, you play cushion, but that should number become positive over time? And then any update on home factors, we kind of haven't really heard you talk about it in a little while. Is it still a business opportunity, or are you more focused on using the data for first-party underwriting?

Why don't, Shawn, you take the first one, and Matthew, maybe the second.

Yes, cash flow timing for the Reciprocal is just seasonal. It's just working capital inflows and outflows. The thing I would point to there is the statutory surplus at the Reciprocal increased $10 million from the end of Q4 to the end of Q1. And that's with the value of the port shares coming down. So the operating profit from the reciprocal was in the mid-teens there in terms of millions of dollars. That's a big deal in Q1 for the Reciprocal. Typically, we're a little -- we're around breakeven in the first quarter. And then obviously, Q2 is when many of the claims come. So to generate incremental statutory surplus in Q1 is a great result for the Reciprocal. It means that the statutory surplus is even stronger to support growth in future years. And so we feel well positioned from that perspective. As a reminder, since I'm talking about the Reciprocal surplus, Q2 is typically when we see most of the weather, and just as a reminder, in that results in more claims and put some pressure on [indiscernible]. We do expect on it, and we plan for it. And if it doesn't come, that's great. But we do diligently plan for and expect that.

And [indiscernible] ongoing, I'd be more focused on that. The stack stat surplus, and the [indiscernible], there's lots of cash in the Reciprocal, but really, we are focused on that stat surplus number like Shawn's noting there.

Yes, over $300 million of cash and investments at the Reciprocals. So it's definitely a cash range.

And then on Home factors, you pointed out two opportunities for us. One is how we leverage it internally and then be able to commercializing externally. Just firstly on internally, we are using it and do see a significant impact, and you're seeing that showing up in our results. And we are bullish on the midterm opportunity. The thing that I would point to that gives us confidence we have a very active and increasing pipeline of carriers, who are in the testing process. And the test results are showing in ROI. And I think what we're seeing, which is what we expected is just that the sales cycle because you have to go through testing and procurement in some of these carriers that it will take time to be able to bring those into a formal contract and revenue. With all that said, we remain optimistic that we can build up a business, tied to home factors. What we've said in the past remains true, which is we do expect modest early-stage revenue contribution in 2026. That's on track, and then we expect it to build over time. The last thing that I would just mention is there are faster ways we could go to market, so we could partner with certain providers in the space. We've intentionally chosen not to take that route because we're convicted in the long-term opportunity of being able to go direct, and we want to make sure we maintain kind of control over how the data is distributed in the market.

Our next question comes from the line of Adam Hotchkiss with Goldman Sachs.

Matt or Shawn, I would love to just go back to price, Matt. I know you took some pricing action, I think, late last year and possibly in the beginning of this year. Obviously, the conversion rates have improved. Could you maybe parse out for us how much of the conversion rate improvement was things like agency branch location increases and the 181% year-over-year increase that you showed versus the pricing action? And maybe just any learnings from the pricing action itself and in the sort of visibility that gives you to the conversion curve. That would be helpful.

Yes. I mean the growth in agencies really doesn't impact the conversion rate. I mean, certainly, as you build and deepen your relationships with those agencies. Yes, they will lead with you more or -- and so it does have influence, but I would say the largest impact in terms of conversion rate is being able to take certain actions to be able to be more attractive for the right customers. And that's really the key is through our data, and through our insights into where the conversion rate curve is steep, and where are those attractive sets of customers. You can be surgical with being able to increase conversion rate for the right customers that we want and you saw the results, which is -- and we can do that without having meaningful changes in the price per new customer overall. Again, like you highlight, it's a big deal because the system is going to be very, very healthy, very, very profitable, and we doubled conversion rate. year-over-year. But yes, those actions that we've taken have been the primary drivers, I would say, tied to conversion rate, but all the work the distribution team has done with agencies certainly has been a tailwind in his help there.

Okay. Yes, that's really helpful color. And then, Shawn, just on RWP seasonality, I think the $600 million does imply that things do accelerate a bit year-over-year into the last three quarters, sort of what gives you confidence there? And then when we think about just premium seasonality through the last three quarters. Should we expect that curve to look a lot like last year, or any changes that you would expect? I appreciate it.

Yes. The seasonality of RWP, some of that is -- a lot of that was driven by when customer homeowners buy their homes and therefore, either buy homeowners insurance or in subsequent years, renew their homeowners insurance. And so obviously, most folks are buying their homes, therefore, owners insurance and renewals in Q2 and in Q3. And then I'd say from there, probably Q4 and then lease them out in Q1, actually. So I guess, seasonally adjusted, this is the lowest quarter Q1 is. What gives us confidence in the ramp is the fun. We talked about in Q1, we were pleased that really, we exceeded expectations -- our own expectations even throughout each metric in the funnel. So we -- agency additions was really strong, not driving quotes and the conversion. And so all of those things also bolster future quarters, RWP. And so that's a key thing that we saw in Q1.

Our next question comes from the line of Ryan Tomasello with KBW.

This is Juan on for Ryan. Congrats again on the print. Thanks for walking through the productivity gains from AI earlier, and how the insurance self is insulated from AI disruption. But what do you think about that potential top of funnel disruption from AI on the insurance side. On the one hand, these tools could affect that great high-intent funnel that you have at closing. But on the other, it also could expand distribution to a broader audience. So do you see Porch is like a net AI beneficiary here?

So yes, for us, it doesn't really matter where the consumer is buying homeowners insurance. We want to be plugged into those channels. And so if digital agencies or our existing agency partners as they will get integrated into the various AI systems, that's great. We're just one of the options that's there for the consumers and because we have more insights about that consumer's home. If it's a lower-risk consumer, we're going to be a very attractive option for them. And so we are focused on partnering with all of these different great agencies that are out there, having really deep relationships and partnerships with them being a great partner for them in helping these agencies to grow their business. And we believe insurance as a product that is a complex product to buy and that consumers need and want a licensed agent to work with them. And if consumer behavior changes, we're going to be where those consumers are, whether it's digital agencies or other. But being the actual insurance product for us in this role is a great place to be and being an insurance product that has differentiated data and therefore, differentiated pricing is a really great place to be because at the end of the day, insurance -- consumers need insurance, and we're going to be a really good option for them.

Got it. Yes, that makes a lot of sense. Are there any changes in your appetite to deploy the excess surplus at the Reciprocal for M&A?

Perhaps. I mean, we mentioned last quarter that -- actually, we really mentioned several quarters ago that we're turning on the M&A engine and starting to build the pipeline. And so certainly, we're executing against that part of the strategy. We do expect over time that when there is the right opportunity, that we will take advantage of it. Certainly, the capital exists, as we talked about today, at the Reciprocal to be able to execute against the right opportunities. We're excited about that. We're excited about our capabilities to do some really good things there. But we're going to be very disciplined and pragmatic about it and make sure that the first things we do are right down the middle of the fairway. So but yes, I do -- it's certainly an opportunity, and we'll share more when it's the right time.

Our next question comes from the line of Timothy D'Agostino with B. Riley Securities.

Congrats on the quarter. Do you want to touch back on the rollout of the Porch Insurance product. And you all have provided really helpful commentary. But I guess, at the start of 2Q, so in the sample time line, compared to January when it originally rolled out, could you maybe provide some more color to us on are you seeing more agents interact with it? Are you getting better feedback just overall just color, as we enter the second quarter with this product, what agents are saying and maybe what homeowners you're saying? That would be great color.

Sure. We remain excited about the Porch Insurance offering that we just rolled out here a little while ago to agents. And what I would say is, there's a lot of excitement from the agents. We're learning a lot from having the product in market. And we do expect it to ramp over time, both as we get new policies in and then we get renewal policies there. Some of what agents are excited about, it is the only product in the market that has a warranty attached to it. It is also a product that is designed for home buyers, in that we provide free moving services and a moving concierge. Agents are also excited about the premium commission that we can afford to pay as part of the Porch Insurance product. And so all of that has generated energy and excitement in the industry. And I think it will just take time as we build up our book. The HOA book, we've built up over 15 years now. And so we're going to start building and that has already started to happen.

Okay. Great. And then I just wanted to turn to software and data and consumer services. I know there was some color about kind of the go-forward plan there. But I guess, when we do start to see an unthawing in the housing market, should we expect like the annualized average revenue per company and revenue per monetized transaction to continue to increase. Just kind of getting a better understanding of how we should think about these KPIs when we get to a point when the housing market starts to unfold a little bit.

Sure. The -- so I'll separate from software and data KPIs versus consumer services. The software and data is more closely tied to transaction volumes in the housing market. As Shawn mentioned in the comments, most of those software services are priced on a per transaction basis. And so we do expect that as housing market activity picks up, you would see an increase in the average revenue per company because each of those -- on average, those companies we'll do more transactions. We have taken steps over the last couple of years as the market has been slow to position those companies for growth. And so we've invested in innovation. We've invested in pricing. And so we do believe that as the marketing -- or the housing activity picks up, we will see top line growth and that most of that top line growth can flow to the bottom. On the consumer services side, there are some parts of that business that are tied to housing market activity, most notably our moving group. And so you would see some tailwind in moving as housing activity picks up? And we see that in a number of transactions, not necessarily in the revenue per transaction.

Our next question comes from the line of Matt VanVliet with Cantor.

Maybe I wanted to narrow in on the forward trajectory of the metric around agency branch locations. I know that was a big driver over the last several quarters to build that number. But where are we in terms of saturation in your key markets? How much more room does that have to grow as a near-term driver?

Yes. So the -- I'll take that, and Matt, you can add on if there's anything there. I would say we're still relatively early. We have invested in building out the distribution team it's only been fairly recently that we've been at kind of the full capacity as we build up that team. We've also invested in senior leadership there. And we can foresee several years of runway with the team that we have. Some of that is still in our core market of Texas, but there's a lot of room in the geographies outside Texas. And then you also have to think that over time, we can expand into additional geographies beyond the ones where we are today. And so I don't see any near-term constraints on our ability to grow agent distribution.

I'm going to just delve down on the last point to make sure, [ Doug, ] which is Texas, our largest most mature market, still has a long way to go, like we have just a fraction of the total agencies. The other states that are newer is very early in the number of agencies versus the total. And then like Matthew just talked about, there's lots of other states we want to expand into. And we're getting to that point where we can start to be able to reopen more states, and that will be an exciting time, certainly for us because that just opens up big new pools of opportunities. But there's give or take, almost 40,000, I think it is independent agents. And so there's a lot of opportunity out there.

All right. Very helpful. And you drove very nice growth in the conversion rates, and it sounds like that was a big driver in the quarter, but you mentioned to one of the questions earlier that you really haven't necessarily used some of the the levers you have there to drive maybe even greater quote and then conversion rates. So what would you want to see in the market? What would you want to hear from maybe the agents to start using that lever a little bit more aggressively, whether that's through commission rates or just pure pricing or policies. Curious on what you're watching and when or if that might be a greater lever to pull?

Yes. I mean I think the key thing there -- it's a really good question. The key thing there is that we and just personally me, I just want to do this for a long, long time. This is the last thing I'm going to do. And so to your question, it's a good one. Could we grow much, much faster this year? Yes. I mean there's plenty of capital, there's plenty of quote volume, plenty of margin in the system. We could grow much faster this year. But we really want to be able to stack year after year after year after year of really attractive growth, expanding margins each year at Port Group for shareholders and then also continuing to grow statutory surplus. And so for us to be able to grow like we are, while also growing statutory surplus and seeing the margin expansion that we're going to be demonstrating here this year. That combination, we believe, will be to stack those years. It becomes really, really valuable here over time, and we'll just prove through the results, that we're able to go and deliver that. But for us, we think that turns into a really exceptional and very sustainable outcome over time. And so that's really what we're trying to solve to. Yes, we could grow much faster. Yes, there may be opportunities in the market where we would pull that lever harder. But right now, I mean, you can see we're certainly pleased with kind of the type of growth. We're not really going to move the price per new customer that much and be able to get the kind of results that we are.

And at this time, we have no further questions. That concludes our Q&A session. I will now turn the call back over to Matt Ehrlichman, for closing remarks.

I'll just say I appreciate first of all the questions. Thank you all. I appreciate those that are along in this journey with us. This is an exciting time for the company. The feel of the company is fantastic. The energy is great. I do think the teams are executing really well and are excited about where we're going. It's clear to us these next several years are going to be really fun years, and I appreciate those that are with us on that ride. Have a great day, everybody. Talk to you soon.

This concludes today's conference call. You may now disconnect your lines. Have a pleasant day.

Good afternoon, everyone, and thank you for participating in Porch Group's Fourth Quarter 2025 Conference Call. Today, we issued our earnings release and filed our related Form 8-K 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, reflect management's views as of today, February 11, 2026. 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 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 and these slides, both available on our website for reconciliations for non-GAAP measures to the most directly comparable GAAP measures discussed during this call. As a reminder, this webcast will be available for replay along with the presentation after this call on the company's website at ir.porchgroup.com.

So joining me here today are Matt Ehrlichman, Porch's CEO, Chairman and Founder; Shawn Tabak, Porch's CFO; and Matthew Neagle, Porch's COO. With that, I will turn the call over to Matt for his key updates.

All right. Good afternoon, everybody. Thank you for joining us. Q4 capped a transformational year for Porch. Throughout 2025, we delivered results ahead of expectations and made meaningful progress toward building a simpler, higher-margin fee and commission-based business. Full year 2025 adjusted EBITDA ended at $77 million, an 11x increase over 2024. This translated into $65 million in Porch shareholder interest cash flow from operations for the year.

Profitability was a highlight, but 2025 was also about positioning the company for durable profitable growth. Statutory surplus at the reciprocal grew approximately $50 million, incremental value creation on top of our adjusted EBITDA. And it ended 2025 almost 50% higher than 2024. We strengthened the top of the funnel, more than doubling the number of active agencies and nearly tripling quote volumes year-over-year. With some actions we put in the market, we saw new policyholder conversion rates grow substantially at the tail end of 2025 and continue into 2026.

With this foundation in place, we're confident in delivering against our 2026 plan, $600 million in organic reciprocal written premium, an implied 25% growth rate and $100 million in adjusted EBITDA. We positioned the business for rapid premium growth through multiple levers, growing agency and quote volumes, pricing adjustments and agency incentives to increase conversion rates and the launch of Porch Insurance, which went live for all Texas agents at the start of 2026.

So Q4 performance was strong with every metric better than expectation, consistent with the progress we've seen really all year. Reciprocal written premium, or RWP, was $126 million. Revenue was $112 million. Q4 gross profit was $91 million, resulting in an 81% gross margin. Q4 adjusted EBITDA was $23 million, a 21% margin. Cash used in operations was negative $5.5 million due to the timing of our interest payments and working capital. For the full year, cash flow from operations was a positive $65.4 million, reflecting the strong cash-generative nature of the model. We continue to deliver predictable high-margin results for Porch shareholders.

There are three components to growing our insurance premiums: statutory surplus, which dictates the capacity to scale; quote volume, which is our top of the funnel and sets the growth potential; and then conversion rate, which dictates then the volume of new policies. In the second half of last year, we prioritized growing statutory surplus at the reciprocal faster than planned, and we're certainly pleased with the outcome. Statutory surplus grew again in Q4 despite a decline in the Porch stock price in the quarter. For the year, stat surplus rose 47%. And as a result, we have substantial capacity well in excess of what is needed to support our 2026 RWP target.

We achieved meaningful gains in both capacity and top-of-funnel activity throughout 2025. Late in the year, we began realizing gains in conversion rates as well. Matthew will outline these actions and our go-forward plans later in the call, but let me just say momentum is building. Premiums from new business in November increased 61% versus the January through October 2025 monthly average. December new business premiums accelerated further, rising 104% versus that same baseline.

Next, Porch Insurance. Our new homeowners insurance product was fully rolled out in Texas at the start of January, giving agents a product they can sell alongside HOA. Offering now a second product that is unique and higher-end will further improve conversion rates. Porch Insurance is an important part of our long-term strategy as it's better for homeowners, better for agents, the reciprocal and therefore, us. For policyholders, included in the offering is a full home warranty and other coverages as well as 4 hours of movers and other offerings for homebuyers. Agents make more money when they sell Porch Insurance. And for the reciprocal, more margin is created via surplus contribution that customers pay.

Overall, we are not seeing any changes in competition that impacts our quote volumes or conversion rates, and we remain confident in our ability to deliver on our organic RWP target this year. Our strategy, which gives us a structural advantage in underwriting, creates durable advantages for Porch. We spent years building the data, software and inspection ecosystem needed to understand homes better than anyone in the market. That shows up in how we select risk, how we price it and ultimately in the loss ratios we deliver.

HOA and other reciprocal have routinely produced top-tier underwriting results with loss ratios improving even through inflation and weather pressure. It's not luck. It's a result of advantaged risk assessment with our home factors data, which provides insight into 90% of U.S. homes due to disciplined underwriting, winning low-risk customers and avoiding bad ones. 2025 proved this point. The reciprocal saw full year gross loss ratios of 27% and attritional loss ratio of just 17%. While 2023 and 2024 were historically bad weather years, 2025 was more of a normal weather year in Texas.

You can really see the gains we've created in the yellow line here on this chart, which highlights the attritional loss ratio, which includes all claims outside of catastrophic weather. These exceptional industry-leading results creates more margin in the system, part of which flows to surplus at the reciprocal to support future growth and part of which flows to Porch Group and our shareholders. It's a durable advantage, and it's only getting stronger.

With that, let's take a look at how this margin advantage supports the surplus at the reciprocal. We've previously shared the reciprocal's statutory surplus combined with non-admitted assets, which ended the year at $289 million. This is the total capital base at the reciprocal and includes the full value of the 18.3 million Porch Group shares it owns. We think this is an important number as it highlights the amount of opportunity we have ahead to scale premium without the capital base growing further. In fact, even after a decline in the stock price after Q3 earnings, this capital could still support approximately $1.5 billion of premiums as we look ahead.

A component of this number is the statutory surplus, where there's a cap on the value of a single equity and is used on a quarter-to-quarter basis to ensure insurance companies are healthy and appropriately capitalized to support its premium. As you can see from this chart in blue, because of the cap value of the shares, statutory surplus does not move up or down meaningfully based on the share price volatility. The reciprocal ended the year with $155 million of statutory surplus, up further from Q3 and again, up $49 million year-over-year. This value created across the system is incremental to the $77 million of adjusted EBITDA produced at Porch Group.

So the takeaway, without the reciprocal growing its statutory surplus any further, it can support approximately $780 million of premium at our 5:1 or better premium to stat surplus rule of thumb. This is without the reciprocal selling any shares. And as you can see, short-term stock price volatility won't impede our plans. I'll now turn it over to Shawn to cover our financial results.

Thank you, Matt, and good afternoon, everyone. Before we dive into the results, I'll summarize the key financial highlights for Q4 and the full year. One, we delivered a strong Q4, outperforming expectations across each metric. We ended the year with adjusted EBITDA of $76.6 million, an 11-fold increase over the prior year. We are quite pleased with this outcome.

Two, Insurance Services RWP and revenue exceeded expectations, driven by growth in total customers, including strong performance with new customer additions. As discussed previously, in Q4, we updated new customer pricing and agency incentives to accelerate premium. These actions increased the new customer quote conversion rate.

Number three, reciprocal surplus finished the year in a strong position with $289 million of surplus combined with non-admitted assets and $155 million of statutory surplus. Statutory surplus grew again quarter-over-quarter and increased $49.4 million from the beginning of 2025. We're pleased with this performance because it positions us to scale RWP effectively.

And finally, number four, looking ahead to 2026, we are accelerating toward our RWP target of $600 million. This is largely driven by an increase in new customer additions, driven by the quote and conversion rate increases we are already seeing. Similar to Matt's overview, my comments will address performance of the Porch shareholder interest since generating cash for Porch shareholders remains our ultimate goal. Under GAAP, we consolidate the reciprocal exchange financials, which are available in the press release and our 10-K when it is filed.

Now let's dive into Q4 results. Q4 2025 Porch shareholder interest revenue was $112.3 million, with Insurance Services generating 67%, followed by Software & Data at 20% with the balance from Consumer Services. Associated gross profit was $91.4 million with an 81% gross margin, led by our Insurance Services segment, which had an 86% gross margin. Adjusted EBITDA of $23.5 million was ahead of expectations driven by Insurance Services, which delivered a 38% adjusted EBITDA margin. Q4 adjusted EBITDA declined year-over-year, and that was due to the seasonality of the legacy carrier model when we own HOA, which favored Q4. As a reminder, full year adjusted EBITDA increased 11-fold year-over-year.

Now let's move a little deeper into the segment results, starting with Insurance Services. In the quarter, RWP was $125.7 million, ahead of expectations driven by new customer additions. As a reminder, RWP is typically higher in Q2 and Q3 as home buying activity drives new and renewal policies.

Typically, the seasonal decline from Q3 to Q4 is much greater, but this year was offset by the acceleration and execution of stronger-than-expected customer additions Matt mentioned previously. Insurance Services revenue was $75.7 million or 60% of RWP. Revenue comes from four sources: commissions based on RWP, policy fees based on policies written, the premium from the captive and lead fees from third-party agencies. Segment gross profit was $65.1 million with a gross margin of 86%. Segment adjusted EBITDA was $29 million, a margin of 38%. Adjusted EBITDA as a percent of RWP was 23%, 465 basis points higher than Q3 and primarily driven by the higher revenue. We held operating expenses flat quarter-over-quarter, producing strong incremental margins.

Shifting now to Software & Data. As a reminder, weak housing conditions impact transaction volumes for companies we serve and therefore, our results. Most of our software businesses charge per transaction, so we are positioned to benefit from an increase in housing conditions. Segment revenue was $22.3 million, a 3% increase over the prior year, driven by price increases. Gross profit was $14.4 million, a 65% gross margin, which is a 580 basis point decline over the prior year, driven by $2.1 million of incremental and nonrecurring cost of revenue related to software expense in Q4, which did not impact adjusted EBITDA. Adjusted EBITDA was $3.7 million. This includes the investments we've discussed around product innovation in our software businesses, which position us well to benefit from a housing market recovery and in our Home Factors go-to-market organization.

Shifting to Consumer Services, which is also impacted by the weak housing conditions. Revenue was $16.6 million, a 2% increase over the prior year. Gross profit was $14.2 million, an 85% gross margin, which is a 450 basis point increase over the prior year. Adjusted EBITDA for this segment was $1 million.

Now let's take a step back and review our financial results in our first year under the reciprocal operating model. I think we can all agree it's been a tremendous and breakout year for Porch. Full year 2025 Porch shareholder interest revenue was $418.9 million, with Insurance Services generating 64%, followed by Software & Data at 22% with the balance from consumer services. Associated gross profit was $343.9 million, an 82% gross margin and a 74% increase over GAAP gross profit in the prior year. 2025 corporate expenses of $46.8 million decreased $5.5 million from the prior year. 2025 adjusted EBITDA was $76.6 million, an 11-fold increase over the prior year. Adjusted EBITDA margin was 18%. The adjusted EBITDA was high quality with an 85% conversion to cash provided by operating activities for Porch shareholders, which was $65.4 million and includes $29 million in cash used for interest payments on debt.

Moving on to the balance sheet. In 2025, we increased our cash position while also decreasing our debt. We closed the year with Porch cash plus investments of $121.2 million, a $31.3 million increase from the beginning of the year, driven by $65.4 million in Porch shareholder interest cash flow from operations and partially offset by $17.2 million, which was used to reduce our debt. Our 2026 notes have a remaining balance of $7.8 million, which we expect to settle at maturity on September 15, 2026, with cash from the balance sheet.

In Q4, cash flow used in operations for Porch shareholders was $5.5 million as the adjusted EBITDA was offset primarily by the $17 million coupon on our convertible notes, which is paid twice per year in Q4 and Q2 and working capital changes. Additionally, our Board of Directors has authorized a $2.5 million share repurchase program, which is the maximum amount permitted under our 2028 indenture.

Lastly, shifting to our 2026 guidance for Porch shareholder interest. Underpinning our annual financial guidance is the expectation that we deliver $600 million of organic RWP, representing 25% year-over-year growth. For 2026 Porch shareholder interest guidance, we are starting the year with revenue growth expectations of 13% to 17%, resulting in a range of $475 million to $490 million. We assume associated gross margin of 81% to 82%, consistent with 2025, resulting in a gross profit range of $385 million to $400 million. Adjusted EBITDA is expected to be between $98 million to $105 million, representing a margin of approximately 21%.

From a modeling standpoint, we expect Insurance Services revenue growth north of 20% year-over-year, with the Software & Data and Consumer Services segments expected to grow modestly given our assumption that U.S. housing activity remains at trough-like levels in 2026. As a reminder of the framework we shared at our 2024 Investor Day, the MBA had initially projected a 20% rise in home purchases from 2024 to 2026. However, their latest forecast suggests only a modest 3% increase. While the soft U.S. housing conditions are persisting longer than expected, our Insurance Services division is more than offsetting that market headwind.

One final modeling point relates to the cadence of adjusted EBITDA in 2026. While Q1 revenue and RWP are expected to be higher versus the prior year, we currently expect adjusted EBITDA to be modestly lower year-over-year due to a tough comparison with the legacy captive reinsurance terms. Beyond that, we expect adjusted EBITDA to sequentially improve throughout the remainder of the year in addition to an accelerating top line growth rate. And now I'll hand over to Matthew to provide a strategic update and KPI review.

Thank you, Shawn. I'll start by giving a brief business update and then dig into our KPIs. Our 2026 RWP target implies organic premium growth of 25%. In order to achieve that type of lift, we knew we'd need to scale agents and quotes, increase conversion rates and grow statutory surplus. This is what we got done in a major way in 2025.

Last quarter, we spoke to the strong progress we made at the top of the insurance funnel, and we're excited to report that the momentum continued in Q4. The number of agencies we added in the quarter more than doubled year-over-year and grew more than 30% sequentially from an already strong Q3 base. This is fantastic, but still only a very small fraction of the total number of agencies in our existing states. Beyond the increase in agency count, the quality of our partnerships continues to improve. In Q4, we deepened our relationship with Baldwin Group and prepared for a Q1 launch with Smart Choice, one of the nation's premier agent networks.

More agencies mean more agents, more agents mean more quotes. This is reflected clearly in the right-hand chart. Relative to the prior year period, quote volumes were up nearly 3x. And unlike typical seasonal declines, quotes increased 9% sequentially from Q3. In November, pricing adjustments for low-risk customers began to hit. We understand the elasticity of the conversion rate curve. Given we have more margin in the system than other carriers, we're able to effectively control conversion rates and therefore, growth.

We experienced triple-digit growth in Q4 new business premiums, but it's worth double-clicking on the monthly results given progress from our work really began to show up in November. The combination of higher quote volumes and greater conversion drove November new business premiums up 61% from the January to October time frame. December was 27% higher than November and up 104% versus the January to October average.

At the start of January 2026, we officially rolled out Porch Insurance, making it available to all agents in Texas. This, combined with further actions on January 1, set us up well to achieve our premium growth goals. Let's move to the Q4 insurance KPIs. Reciprocal written premium was $126 million, ahead of expectations. As you can see in the right-hand chart, the typical Q4 seasonal decline was much more muted this year. We delivered a $17 million improvement relative to the average Q3 to Q4 decline over the past 3 years. This is due to the impact from our initiatives to grow new business premium.

Reciprocal policies written reflects the total number of new and renewal insurance policies written by the reciprocal during the period. We generate policy fee revenue directly from these policyholders. In the quarter, we wrote nearly 49,000 policies. RWP per policy written is calculated by dividing the reciprocal written premium by the total number of reciprocal policies written. And this represents the amount the customer is expected to pay. For the fourth quarter, we posted RWP per policy written of $2,569.

Lastly, our RWP to adjusted EBITDA conversion rates remain strong. Simply put, we are generating more profit in doing so without earnings volatility and direct weather exposure as compared to others across our industry.

Moving to Software & Data, where we continue to invest and set these businesses up for robust growth when the housing market recovers. At ISN, we launched the AI Image defect detector, which allows inspectors to upload images and have AI flag potential defects for validation and one-click report insertion. At Rynoh, the team continued to execute well, delivering enhancements such as wire fraud protection that support ongoing pricing gains.

Within our data business, we exceeded our internal goal for Home Factor testing. Results from carrier testing continue to indicate strong implied ROI. Not a surprise to us given we know from our own work that knowing more about property enables better prediction of risk and pricing. As we've said in the past, sales and implementation cycles are long, but the team is making great progress, and we remain optimistic about how this will impact our business as we look ahead.

In terms of the Software & Data KPIs in Q4, we served approximately 23,000 companies with annualized revenue per company of $3,833, a 7% decline from Q3 due to seasonality. One thing to note, as part of our strategy to focus on larger customers, we plan to sunset certain legacy software products that serve very small contractors. This is expected to reduce segment revenue by a few million dollars, but positively impact profitability. From a KPI standpoint, this will reduce the number of companies by a few thousand, though we expect a favorable offset in the form of higher annualized revenue per company.

In our Consumer Services segment, we have been busy extending our partnership efforts and preparing the organization to support Porch Insurance. Like Software & Data, we feel our targeted investments and lean cost structure positions well for when the housing cycle returns. As for the KPIs, in Q4, we had 77,000 monetized services with annualized revenue per monetized service of $215. We are excited about these businesses beginning to fulfill their purpose and drive meaningful strategic impact.

By providing all Porch Insurance customers with an included full home warranty, 4 hours of moving service, a moving concierge assisting with TV, Internet and security, we not only differentiate in homeowners insurance with unique property and data from our Software & Data segment, but now we have a fundamentally better product for customers. Our Consumer Services business will deliver value by helping us create the best insurance product for homebuyers and growing insurance services revenue faster. I'll now pass it back to Matt to wrap this up.

Thanks, Matthew. I'll wrap by just reinforcing the most important messages from today. So first, we beat expectations and raised guidance in every quarter in 2025. Q4 adjusted EBITDA of $23 million resulted in full year adjusted EBITDA of $77 million, again, 11x 2024 and well above our initial guidance of $50 million. Cash generation was strong at $65 million for the full year. Clearly, it's a great first year under our new operating model.

Second, we successfully bolstered the reciprocal capital position with Q4 statutory surplus of $155 million, again, rising $49 million or 47% versus the end of 2024. This positions us for years of profitable growth ahead. Third, we've demonstrated our ability to manage the growth of premium and are pleased with the quote and conversion rate improvements. The 2026 RWP target of $600 million represents, again, 25% year-over-year organic growth. This will steepen our growth trajectory in 2026 and in turn, puts us on a direct path to reach our medium-term target of $660 million of adjusted EBITDA from $3 billion of premium, which would make us a top 10 homeowners insurance company.

We have a mousetrap that's uniquely profitable, where earnings isn't impacted by the volatility of weather and has long-term differentiation. So finally, I just want to thank our team. We are proud to be named a Great Place to Work for the fourth consecutive year and to be recognized in Deloitte Technology's Fast 500 ranking for 2025. Past several years have been transformative, and our culture and values is the reason we're now positioned to build what I believe will be a truly great and enduring company. So thank you all for your time today. We do appreciate it. To my fellow shareholders, thanks for your support, and we look forward to continuing this journey with you. With that, John, please go ahead and open up the call for questions.

[Operator Instructions] Our first question comes from the line of Ryan Tomasello with KBW.

Nice to see the top of funnel and new customer momentum. I guess in terms of pricing, obviously, the elasticity curve is quite steep. But can you give us a sense of the magnitude of price actions you've taken to drive the acceleration so far and whether more is needed on the pricing side or agent distribution to hit that target of $600 million for the year? And just overall, how much more flexibility do you think you have to continue to lean into pricing to drive higher conversion if you see that opportunity, just given where loss ratios are today?

Yes. I mean on the second point first, I mean, you can see based on where our loss ratios are that we have just tremendous amounts of margin in the system, right? That is fundamentally a core advantage of what we're able to do. And so if we wanted to tick down prices for low-risk new customers, right, the right particular segment of new customers that we want to win, we can do that. But to your first question, Ryan, like you said it exactly right, which is the slope of the curve of that elasticity curve for new customers is quite steep in certain places.

And so you can and we have been able to meaningfully increase conversion without dramatic changes, without giving so much price. And you can see that really in some of the metrics that Matthew shared in the KPIs where you see not that big of changes in terms of reciprocal written premium per policy as an example. So we're able to get the gains that we want with, I would say, very surgical and targeted moves there to the right segment of customers. Obviously, our unique data helps us identify who are those right customers that we want to win and who are the customers that we want to not win and where we're going to be much higher priced than the rest of the market. And so yes, we feel like we're in control of being able to drive to the right outcomes while still making sure that the reciprocal is very healthy and continuing to perform really well.

And then in terms of the RWP to EBITDA conversion, that came in at 23% in the quarter, which is obviously really strong relative to high teens last quarter. How should we think about the operating leverage in that EBITDA conversion as you scale RWP from here? And then for the guidance specifically, can you give us any color on what you're baking in for that RWP to EBITDA conversion for the outlook in 2026?

Yes, happy to take that. So to your point, Ryan, I think you hit the nail on the head. The RWP to adjusted EBITDA conversion again accelerated in the quarter and improved quarter-over-quarter sequentially. It also improved Q3 versus Q2. And a lot of that is operating discipline. You could see that even we had higher revenue and we kept the operating expenses relatively fixed quarter-over-quarter sequentially. So we're quite pleased with that outcome. And as I mentioned, that comes from cost control, being very diligent in how we're running that business and containing those costs.

With respect to the guidance for next year, we don't break out guidance by segment. Overall, for the year, obviously, we guided to about $102 million at the midpoint, which would be an increase in the overall adjusted EBITDA margin for the company by about just over 300 basis points. So we're excited to provide not only that top line growth, but also the acceleration and improvement in the adjusted EBITDA margin. The last thing I'll just say on adjusted EBITDA, if I can also, the cash conversion is another thing that we're quite pleased with. Matt mentioned it, I think I mentioned that this year, in 2025, rather, we had $65 million of cash flow from operations on $77 million of adjusted EBITDA. So again, quite pleased that that's a very high conversion rate. And I think it just shows the quality of the adjusted EBITDA that we're generating for shareholders.

Our next question comes from the line of Jason Helfstein with Oppenheimer.

Two questions. The first on Porch Insurance and the second just about the fourth quarter. So on the Porch Insurance, I guess you've already highlighted for us, it's coming out as a more premium product. You get more -- I don't call it like a Chubb like, but you get more functionality with it. I guess just talk about how you're also able to make it a better deal for agents and then kind of perhaps how the relationship, I think it's with Goosehead plays into that. And then secondly, just talk about like why -- you alluded to it, but why was the fourth quarter insurance results kind of better than you guided? And if you recall, there was a pretty steep reaction last quarter. Just maybe talk about do you have improved visibility now as you kind of enter first quarter and just broadly how you think about visibility in the insurance business for the year?

Sure. Maybe I'll take the first, Matthew layer on, if there's things you want to add. Shawn, you can take the second. We are excited about Porch Insurance. We've been working on this for a long time. And if we look back in years from now, we do think it is going to be a cornerstone of building a household brand, which we fully intend to be able to do. We talked about how it's better for consumers. You're exactly right, Jason, where they get additional coverage, full home warranty. We want Porch Insurance to be definitively known as the best insurance product for a homebuyer because they get full moving service as well. So we built these capabilities out in our company for this specific moment so that we are just dramatically differentiated for the consumer. Agents obviously, therefore, want to sell it because it convert well for them. It's the right product for their customers.

But to your question, because there's more margin in our system just overall, we can be able to deploy that, yes, for more surplus, yes, for more profit at Porch Group, but we're also providing some of that to the agents to make sure that they are compensated better than the market, better than their alternatives with bringing Porch Insurance out to the market. And so that's obviously great for them. We want to be able to be in true partnership with these agents and help them to be able to prosper as our business also grows. Lastly, consumers do pay a 10% surplus contribution, which, again, creates just more economics in the system. And so that allows us again to be able to share some of that with agents. You mentioned Goosehead specifically, great partner, great relationship. Just to be clear, Porch Insurance is a product we brought out to all Texas agencies, just to make sure that, that point was clear. Shawn, do you want to take Q4 results versus kind of expectations?

Yes, definitely happy to. And at the top level, on each metric, we performed better than expected, really across from RWP all the way down to adjusted EBITDA. I think the question was specifically for insurance services results and RWP there and revenue. And I think over there, it's really new customer additions that's driving that. We talked about the acceleration there that we saw in the quarter with the agency incentives and the pricing that we -- adjustments that we made due to the elasticity curve that drove new customer additions, new customers into the book of policies at the reciprocal. The thing I'll just highlight there, too, Matthew included in his remarks, and I think I talked about it a little bit, too.

Typically, we would expect a seasonal decline in Q4 versus Q3 that was much steeper. Like homeowners typically don't buy as many homes in Q4 and don't buy home insurance and therefore, at the same clip in Q4 as they do in Q3 and Q2. And so we more than offset the typical seasonal decline with those new customer additions. So it's just another way to think about the progress that we made there. And I think as Matthew talked about and like we continue to add even more agents that we work with. We're still really just scratching the surface there. And so that team that goes out and recruits new agents and brings them in the door to sell the products continues to exceed expectations, do a phenomenal job. And that just leads to more quotes. And then at our conversion rates, that leads to more new customers.

Our next question comes from the line of Dan Kurnos with [ Benchmark ].

Matt, let me just stick the landing in Q4, definitely better tone on the messaging, too. I guess a couple of things. If I go back to Ryan's initial question, I think what people are trying to get at effectively is understanding the confidence that you have that this scales, right? And clearly, you've got all the data. I mean you had a record take rate in the quarter. You had record RWP to EBITDA conversion. And just any comfort you can give us around sort of what the long tail looks like as you guys get towards your $3 billion in RWP over time if those metrics are sustainable would be super helpful. That's number one. And number two, you mentioned several times on the call that you've got excess surplus. I think you -- I lost track after a certain point. We know your history. I think there is a pretty big optimism out there for you guys to put that to work maybe with some what we are calling cashless M&A. So just any thoughts you want to give on that front. And just to be clear, outside of the $600 million in organic RWP, that would be super helpful.

You got good questions. I'll take them. On the first, I mean, candidly, and in all sincerity, I don't know how one doesn't grow this business sequentially for a long period of time, given we have this fundamental margin advantage in this massive industry where the industry is growing, where consumers need are required to have our products in order to have a mortgage and just the natural kind of characteristics of the market where you buy our product and you usually have it for a long time, you exist. It really is a beautiful market. And so for us, because we have more margin, we are able to drive conversion rate outcomes that we want. Now I do think we've proven a few key things that we're obviously highlighting, which is can we grow surplus? Well, clearly, we have grown surplus of the reciprocal dramatically this last year. Can we grow top of funnel? And clearly, we've dramatically grown the number of agencies and the number of quotes. And so then it really is just what the conversion rate is.

And when we talk about we're at the beginning of the journey and just scratching the surface, like we are just at the beginning of this journey. Like we are a small player in Texas, which is our largest state. But we'll continue to add more states. We'll continue to grow in existing states. We'll obviously add now the Porch Insurance product and top of HOA to kind of hit different customer demographics. So yes, I mean, to answer that first question, Dan, I would say we are sincerely in our team meetings fired up about what is ahead for these next set of years. And when we talk about that midterm goal, that $3 billion target, it's not just this number that's off there, like we are building all the business to be able to go become a top 10 player in that medium term. And then guess what, when we're there, we're going to have some other bigger, more ambitious goals. Like I'm looking to build this thing to become a real player, a very large business for a long period of time. That was a lot for answer number one.

Number two, there's a lot of ways to be able to grow premium faster with more surplus. We've talked about obviously being able to increase conversion rates. There could be other ways to be able to do certain deals to be able to bring more premium on, on top of our organic. Not only just M&A, which I know is what you're kind of asking about there, which is we've talked in the past about turning our M&A engine and building pipeline back on, but other things, book rolls or renewal rights deals like there's a variety of ways of things that we can do there. And so we're excited about that and on it, I would say, to be able to create lots of optionality for ourselves.

Our next question comes from the line of Jason Kreyer with Craig-Hallum.

So just on the insurance side, we're going from a world of pretty rapid premium increases over the last couple of years. Now I think '26 will be a little bit more muted environment. So I'm curious on that 25% growth target for RWP, how are you balancing that between premium growth and policy growth?

Sure. I can take that. We certainly are not expecting the double-digit price increases that we've seen over the last few years. We are, as Matt has mentioned, and I mentioned, looking at where we can strategically reduce price for low-risk customers to increase our conversion rate. And so we aren't materially counting on price increases next year to hit that 25% organic growth number.

I wanted to also just ask on surplus a little bit because we've talked for the last couple of quarters about Q4 being the best quarter for surplus growth. Statutory surplus was up a few million quarter-over-quarter. I'm just wondering if we can break that down, like how much the change in equity impacts that versus how much surplus gain came from operational?

Yes. I'm glad you asked that question. I think that's an important one for folks to understand. I think we've articulated a message, and you can really see it come through this quarter that the reciprocal owns these 18.3 million Porch shares and the statutory surplus just is not that sensitive to that. And that's what we saw in the quarter. The stock price, I think at the end of Q3, it was like around $17. At the end of Q4, it was around $9. So with that drop in the stock price, there was only about $10 million, a little bit more than that impact to statutory surplus quarter-over-quarter. So I think it just is the point around like it's just not that sensitive to it. And it's in a great spot and healthy to support our growth goals.

We also -- I guess, two other things I would mention, the reciprocal generated a lot of income. So it -- has to pay some taxes. So that offset some of the underwriting profit. And then all of -- those two things were offset by a really strong underwriting performance with the loss ratios, which just generates operating income at the reciprocal. So those are the components. And I guess I would just reiterate what I said that from a statutory surplus perspective, I think we're really well positioned for 2026 in our growth goals ahead.

Just to clarify, Shawn, so like absent the change in stock price, statutory surplus would have been like $10 million-ish better in the quarter. Is that -- am I understanding that right?

Yes. The impact from the stock price movement was just over $10 million. It was a little bit more than $10 million, but it was around $10 million.

Our next question comes from the line of Timothy D'Agostino from B. Riley Securities.

I'm looking at Slide 20, and I understand quote volume kind of outgrew that seasonality. But as I look at the active agencies growth quarter-over-quarter versus quote volume, there seems to be some lag. And I guess I was wondering, is that primarily due to seasonality? Or did a lot of agencies come on closer towards the end of the quarter and that quote volume could maybe see a little bit of a tailwind in the first quarter, given maybe a lag bringing agencies on at the end of the quarter?

Yes. There is a lag. So it's just like any bringing on a new customer, there's onboarding and system setup and engagement process. And so the number of agencies is the biggest leading indicator and then it goes into quote volume. I will say we're doing a lot of things to engage and educate our distribution base. And the full rollout of Porch Insurance is something that is exciting because it offers them a way to give their consumers a new different product that has these additional things that can be helpful to them and our commission rates are very competitive with Porch Insurance. And so I'm excited about how all the work we did in Q4, building up our distribution and our number of agents is going to help push us in growth in 2026.

Our next question comes from the line of Tim Greaves with Loop Capital.

I guess my first question is around more, I guess, the competitive landscape and the dynamics there. Have you noticed like a shift in the way competition appears in your key markets? And if so, like how could that impact the business in the near and long term? And what I mean by a shift in the way competition appears is as in a focus from more in-house agents to independent agents from any competition. Clarity there would be great.

Yes. I mean there is just this slow but broad shift of -- from in-house agents to independent agents. That obviously is a positive and helpful shift for us because we distribute and work with independent agents. And so we expect that trend to continue. Overall, last metric we saw more than 60% of all homeowners insurance policies were purchased through agents. It's a complex product. We think that they're a really important part of the ecosystem, and we want to continue to partner with these agencies to be able to provide them really great products to provide to their customers. So no, it's a good question because, yes, we have seen that particular shift slowly happening. And again, that's a net good thing for us.

Okay. I guess my next question would be around affordability and shoppability conversations. What are your thoughts around the affordability conversation and its potential impact on Porch, especially with you guys are operating in relatively high priced areas compared to the broader industry? And what have you noticed in those markets around policy shopping and some -- policy shopping, what that could mean for retention rates and like competitive wins versus more like, I guess, greenfield type of wins?

Yes. I mean, certainly, affordability is currently a national conversation. As I had mentioned earlier, we aren't anticipating raising prices on our policies to be able to do what we want to do next year. And we have ways to make sure the best customers get the best rate. And so I don't think it will change anything that we are going to do. But certainly, price is on people's mind, and we're in a good position where we have that as a lever given the kind of the margin profile we currently have to be able to support our growth.

And at this time, we have no further questions. I will now turn the call back over to Matt Ehrlichman for closing remarks.

Thanks very much. Appreciate it. As always, we appreciate the questions. Appreciate the engagement. 2025 was obviously -- it's a fantastic, fun, exciting year for the company, transformational year for the company. We think 2026 is going to be another just fantastic year for us as we continue on this journey. So again, to our shareholders, we appreciate your support and partnership, and we will talk with you all soon. Take care, everybody.

Good afternoon, everyone, and thank you for participating in Porch Group's Third Quarter 2025 Conference Call. Today, we issued our earnings release and filed our related Form 8-K with the SEC.

The press release can be found on our Investor Relations website at ir.porchgroup.com. I'd 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, November 5, 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 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 the earnings call, which are also 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.porchgroup.com. With that, joining us today here are Matt Ehrlichman, Porch's CEO, Chairman and Founder; Shawn Tabak, Porch's CFO; and Matthew Neagle, Porch's COO. With that, I'll now turn the call over to Matt for his key updates.

Good afternoon, everyone. Thank you for joining us. We are proud to report another excellent quarter where we once again exceeded expectations. Before diving into Q3 results, I would like to take a moment to reflect on the progress we've made this year.

In December 2024, we held an Investor Day and told you all that we would deliver $50 million of adjusted EBITDA in 2025. I remember getting follow-up questions from investors asking why we're being that aggressive, and I understood where it came from.

The year prior, we had posted a $45 million adjusted EBITDA loss and 2024 was tracking close to breakeven. I responded that we were confident in the go-forward model of the fundamental differentiation and margin advantage that our unique data provides to our insurance business and our ability to execute to get our desired results.

Despite the low level of improvement it represented, we had ambitions to deliver more than the $50 million in adjusted EBITDA, and we thought that $70 million would be a fantastic outcome for the year. Here we are 3 quarters through 2025, and I am pleased to announce another strong quarter in which we delivered $21 million in adjusted EBITDA and $29 million in cash flow from operations for Porch shareholders.

This means that in the first 9 months of 2025, we've already generated $53.1 million in adjusted EBITDA, surpassing that initial $50 million target. We're proud of the execution this year and the control we're demonstrating over the business as we now expect to deliver full year performance at that $70 million, which represents a 10x increase versus the prior year.

Our shift to a simpler commission and fee-based model was designed to deliver straightforward, predictable and high-margin results for Porch shareholders. It has been a resounding success.

As an example, year-to-date gross profit rose 119% versus the prior year, and year-to-date adjusted EBITDA improved $88 million versus the prior year. Let me highlight a few key metrics for our Q3 for shareholder interest.

Reciprocal written premium, or RWP, was $138 million. Revenue was $115 million. Q3 gross profit was $94 million, resulting in an 82% gross margin. Q3 adjusted EBITDA was $21 million, an 18% margin. And we continue to see high rate of cash conversion with Q3 cash flow from operations for Porch shareholders of $29 million.

Operationally, we are pleased with the progress, in particular with our insurance business. The conversion rate of reciprocal written premium to Porch Insurance Services adjusted EBITDA improved again in Q3 now to 18%.

This exceeded our expectations and led to the strong profit results. Our data teams continued their progress this last quarter, launching more new home factors, bringing us to 89 unique property characteristics we know and aren't widely available in the market.

Our unique property data and capabilities such as home warranty and moving services create sustainable advantages, industry-leading loss ratios and fundamentally more margin in the system.

We see this as a structural advantage as it supports Porch shareholder interest profitability and the reciprocal surplus expansion. So outside of hitting our profitability goals, the second most important priority for us this year was to position ourselves to scale premium into the future in order to achieve our future profitability goals.

The 2 main components of doing so are: one, generating as much surplus as possible at the reciprocal; and two, to grow agent and quote volume such that we can lower price for new low-risk customers when the time is right. We've been able to deliver on this year's adjusted EBITDA guidance without needing to lower prices to scale premium faster.

This is a fantastic scenario for us as it results in surplus expanding much more than anticipated. I'm excited to share that at the end of Q3, the reciprocal surplus combined with non-admitted assets increased more than $100 million quarter-over-quarter to now $412 million.

With this capital in place, we have a clear path to scaling premiums, which we believe will drive exceptional profit growth at Porch Group. We continue to grow our insurance staff, including welcoming a new Chief Actuary, Head of Data Science and ramping up our agency recruiter and engagement teams.

Tied to these investments, we're seeing strong levels of agency appointments and quote volumes that Matthew will cover off later in the call. The strength at the top of the funnel and the reciprocals healthy capital position set us up for an exciting time ahead.

Okay, let's go into this in a little more detail by revisiting this slide here from last quarter, where we've updated for capital generated now in Q3.

On the left-hand side, as you can see, in the surplus combined with non-admitted assets chart, you'll see the reciprocal ended Q3 with $412 million. Again, this is $113 million improvement from last quarter and a $214 million improvement in just 6 months, overall, just exceptional results.

As a reminder, we talked about managing to a 5:1 premium to surplus ratio as a general rule of thumb, though it can be better over time. As you'll see in the middle chart that this level of capital could support approximately $2 billion of premium as we look ahead.

Moving to the right-hand side, in Q2, the conversion rate of RWP to Insurance Services adjusted EBITDA was 16%. This conversion rate improved to 18% in the third quarter. So you can see why we prioritize surplus generation to drive future value creation. In just the third quarter, we added more than $100 million of capital, which based on our rule of thumb supports additional adjusted EBITDA of more than $100 million annually.

Overall, with this capital already in place and without further surplus expansion, we can show the path to support more than $350 million in annual insurance services adjusted EBITDA, and we're just getting started.

This is exactly the set we've been working toward, and I couldn't be more energized for the opportunity in front of us. I'll now turn it over to Shawn to cover our financial results.

Thank you, Matt, and good afternoon, everyone. Similar to Matt's overview, my comments will address performance of the Porch shareholder interest since generating cash for Porch shareholders is our ultimate goal.

Under GAAP, we are consolidating the reciprocal exchange financials, which you can find throughout the press release and our 10-Q.

Q3 performance was strong, driven by insurance services. Q3 2025 Porch shareholder interest revenue was $115.1 million, with an 82% gross margin, producing $94.2 million in gross profit. Adjusted EBITDA of $20.6 million was ahead of expectations, driven by insurance services.

Cash flow from operations for Porch shareholders was $28.8 million. The Porch shareholder interest revenue of $115.1 million was comprised of insurance services at 64%, followed by software and data at 21% and the remainder from consumer services.

Q3 Porch shareholder interest gross profit was $94.2 million with an 82% gross margin, led by our Insurance Services segment, which had an 84% gross margin.

We are pleased with the high margin profile we are seeing across all of our businesses. Q3 adjusted EBITDA was $20.6 million with an 18% adjusted EBITDA margin overall.

This was driven by our Insurance Services segment posting a 34% adjusted EBITDA margin and good profitability overall across our other 2 core segments despite a continued challenging housing market.

Now let's move a little deeper into the segment results, starting with Insurance Services. Overall, we are pleased with the conversion rate of reciprocal written premium, or RWP, to Insurance Services adjusted EBITDA.

In Q3, the rate accelerated to 18%, 200 basis points higher than Q2. We are seeing good operating leverage here and are focused on driving efficiency. In the quarter, RWP was $137.5 million, and insurance services revenue was $73.8 million, which is a premium to revenue conversion rate of 54%.

As a reminder, there are 5 economic drivers for this segment: management fees, policy fees, quota share reinsurance, lead fees to agencies and surplus note interest.

Segment gross profit was $62.3 million with a gross margin of 84%. Segment adjusted EBITDA was $25.3 million, a margin of 34%. As a quick reminder on seasonality for the reciprocal, RWP is typically highest in Q2 and Q3 when consumers are buying their homes and therefore, buying or renewing their homeowners' insurance.

Therefore, we expect the reciprocal to experience its typical seasonal decrease in RWP from Q3 to Q4 as there are less renewals. Shifting now to software and data. As a backdrop, most of our software businesses charge per transaction, and we continue to see a trough U.S. housing market.

With that, segment revenue was $24.6 million, a 7% increase over the prior year, driven by product innovation and corresponding price increases. Gross profit was $18.2 million, a 74% gross margin. Adjusted EBITDA was $5.1 million, relatively flat with the prior year.

We continue to invest in product innovation in our software business, including incorporating AI into our product suite and the go-to-market and sales organization in our data business. We believe these businesses are set up to grow nicely as the housing market recovers.

Okay, shifting now to Consumer Services, which is also impacted by the trough housing market. Revenue was $19.4 million, a 9% increase over the prior year.

Gross profit was $16.6 million, an 86% gross margin and adjusted EBITDA for this segment was $2.5 million. Over the last few years, we've reduced corporate expenses as we move to lower-cost locations and reduced G&A back office costs. While most of the heavy lifting has been done, we continue to pursue operational efficiencies. In the third quarter, corporate expenses of $12.3 million decreased $700,000 from the prior year. Now moving on to the balance sheet, we continue to be pleased with the cash flow profile of the Insurance Services operating model.

Year-to-date, Porch shareholder cash flow from operations was $71 million, driven by $53 million in adjusted EBITDA and favorable working capital.

For Q3, we ended the quarter with Porch cash plus investments of $132 million. Porch shareholder interest cash flow from operations was $28.8 million in the quarter, driven by $20.6 million in adjusted EBITDA.

Throughout the year, we've made notable progress on our capital structure. In Q3, we repurchased an additional $12.8 million of our 2026 convertible notes, which resulted in a gain of approximately $400,000 and which leaves a remaining balance of $7.8 million.

The Board has authorized management to repurchase these remaining notes with cash from the balance sheet. And lastly, shifting to our updated 2025 guidance for Porch shareholder interest. As we've discussed, our primary goal is to generate cash flow for Porch shareholders and adjusted EBITDA is the key proxy for that metric.

As Matt said, we thought that $70 million of adjusted EBITDA would be an excellent outcome for this year, and we're proud that we are right on track to deliver this result. And we are updating our guidance accordingly. This is a $63 million or a 10x increase versus the prior year and a result that will put us amongst the top-performing companies in the S&P Small Cap Index.

It is also $20 million better than the guidance at the beginning of the year. Given where we are against our adjusted EBITDA target, in Q4, we'll continue to prioritize surplus generation at the reciprocal over the scaling of premium, which we believe will create the most long-term value. As Matt discussed, we've delivered a step function change in the reciprocals capital position year-to-date, and we expect continued progress here in Q4.

This foundation gives us the ability to scale RWP faster as we enter 2026. With that background, we are also raising our gross profit midpoint by $2.5 million with a new range of $335 million to $340 million. Our revenue midpoint remains the same with a tightened range of $410 million to $420 million. I'll now hand over to Matthew to provide a strategic update and KPI review.

Thank you, Shawn. I'll start by giving a brief business update and then dig into our KPIs. 2025 has been an important year where we generated substantial profitability and cash flow for shareholders and also positioned ourselves to scale premium sustainably in the years ahead.

Reciprocal written premium is driven by quote volume and conversion rates. We are seeing strong level of top-of-funnel activity such as agent appointments and quote volumes.

The conversion rate of RWP to adjusted EBITDA has exceeded our expectations, which has allowed us to deliver on our profit objectives while being patient in adjusting price. This has helped produce exceptional surplus generation results at the reciprocal year-to-date with more expected in Q4. Let's dive into the insurance KPIs. Reciprocal written premium in Q3 was $138 million, up 14% versus last quarter.

Reciprocal policies written reflects the total number of new and renewal insurance policies written by the reciprocal during the period. We generate policy fee revenue directly from these policyholders. In the quarter, we wrote nearly 48,000 policies. RWP per policy written is calculated by dividing the reciprocal written premium by the total number of reciprocal policies written and represents the amount the customer is expected to pay.

For the third quarter, we posted RWP per policy written of $2,884. As Matt highlighted earlier, one of the key reasons why we're well positioned to scale RWP is our top-of-funnel activity.

These 2 charts provide some context. First, the chart on the left shows total agency appointments since 2024. As we have grown our agent recruiting and account management team significantly, we have seen the expected increase in the number of appointed agencies. While this is great progress, we continue to have a fraction of the agencies in Texas and across the country.

We are just getting started here, but excited about the momentum. With more agents, we see more quote volume, as you can see on the right. More quotes allow us to see more opportunities of homeowners and homebuyers looking for a new homeowners insurance company. We can then continue to be selective with our pricing actions to win good risks and continue to avoid properties that have higher risk than the rest of the market realizes.

The key message here is that we have the capital that could support our targeted growth levels, a healthy and growing top of funnel that we can tap into, and it simply comes down to the conversion rates we manage to. Given the conversion rate elasticity in our industry and our margin advantages, we are in a strong position to control the pace of growth by adjusting pricing with the right new low-risk customers and providing the right targeted incentives to our distribution partners. Moving to software and data.

We continue to execute price increases supported by continued software innovation, ongoing market share expansion and growth of our data business. Our collection of vertical SaaS businesses rolled out over 20 product releases and enhancements in the quarter. Our data business and its Home Factors product continues to show strong promise through the ROI metrics from tests with other carriers and expanding pipeline and continued product innovation.

Our data engineering teams continue to move us forward with 89 total Home Factors now in the market after recently launching 8 new Home Factors, including Electrical Panel Location, Roof Life Stage and Plumbing Material Insights. In terms of the software and data KPIs in Q3, we served approximately 24,000 companies with annualized revenue per company of $4,140, which rose 14% versus Q2, driven by seasonality.

In our Consumer Services segment, where the housing headwinds are greatest felt, we see bright spots with home warranty claims frequency, and we continue to see positive outcomes with our partnership efforts.

Like software and data, the combination of strategic investments and a leaner cost structure positions us for outsized benefits when the housing cycle turns. As for the consumer services KPIs in Q3, we had 94,000 monetized services with annualized revenue per monetized service of $206. I'll now pass it back to Matt to wrap us up.

Thanks, Matthew. I'll wrap up by reinforcing the most important messages from today, stuff I'm most excited about. Again, once again, a strong quarter where we delivered Q3 adjusted EBITDA of $21 million and $29 million in Porch shareholder cash flow from operations.

We're proud to report that year-to-date, we've already surpassed our initial 2025 adjusted EBITDA guidance, and we're tracking towards $70 million for the full year. Second, as we talked about, we're excited about the surplus health of the reciprocal. Our unique property data allows us to assess and price risk better than the industry, which creates more margin in the system.

The gains we produced this year at the reciprocal not only create resiliency in the system, but we believe it set us up for years and years of strong profit growth ahead. With the surplus in place, we can scale RWP at the appropriate pace to achieve our desired outcomes for the next many years ahead. As Matthew mentioned, the top of the funnel metrics in insurance are growing nicely, setting us up well there also.

The work we did over the last decade got our business positioned for success with sustainable advantages. The work we've done in 2025 demonstrates the power of the system we're building and how profitable it can be.

The next few years are going to be a lot of fun. So thank you all for your time today. To my fellow shareholders, we appreciate your support, and we look forward to continuing to share this journey with you. With that, John, please go ahead and open up the call for questions.

[Operator Instructions] Our first question comes from the line of Dan Kurnos with Benchmark Company.

Matt, I just want to understand, this is going to be just one multipart question around reciprocal written premium, generally speaking. So we go into Q4, obviously, Shawn called out seasonality. But I think a lot of us were anticipating that you guys would sort of grow through seasonality just given how early you are in the process.

And I know that you've got your kind of cadence and your targets on where RWP should end. So like kind of the 2 components, one, obviously, on the volumetric side as you continue to bring agencies back on, is there anything from a competitive standpoint or something else for a reason why in sort of the near term, there's not a little bit more gas being thrown on the fire.

And then, obviously, you've got the P side of the equation where I don't know what you're underwriting for premium increases.

But in your prepared remarks, you talked about the -- maybe pricing down. And again, maybe that goes to my competitive question. So maybe just your thoughts on how the P component of the equation looks as you guys scale into 2026. I know there's a lot, but kind of one thing.

It's the right place to start. I appreciate that. I mean you can get a good sense for what we're prioritizing this year and how we're thinking about the future.

I've said this before, I'll say it again, if we wanted to go and grow premium exceptionally fast this year, we could do so very clearly. If we wanted to go and grow profit a lot faster this year, again, we could do so. What I really am focused on -- what we're really focused on is maximizing long-term shareholder value.

And what we think about is, okay, what do we want to deliver in terms of EBITDA and cash flow for shareholders this year? And then what kind of growth do we want to produce next year and the year after that and the year after that? We want to be able to show this consistent and frankly, accelerating growth curve instead of growing fast and then slowing down over time. Yes, you could increase the value today, but really, what's going to drive the most value here.

And I do believe that accelerating growth and accelerating and expanding adjusted EBITDA margins each year is going to create the most value overall. And so with that lens, we think about the target -- the adjusted EBITDA target we want to go and achieve this year that, again, I think we've made really great progress against. And like we said, within that constraint then, how do we go and maximize surplus generation at the reciprocal.

And so clearly, we've just crushed it in terms of how much progress we've delivered over the last 6 months there.

Now Matthew talked about it briefly, the elasticity curve in the insurance market is quite steep. And so you can be able to lower prices for good risks and be able to increase your conversion rate and grow faster.

By definition, you're getting a lower price point on that particular cohort of customers. And so right now, for us, it's the balance of those things. But you can hear it coming through, hopefully, which is we feel really confident in our ability to grow this business and to control the growth of the premium at the right pace, which is -- for us, it's just really, really exciting because we think it's going to be, like I said, going to be a really fun set of years.

Do you have a view on what renewals around premium look like into '26?

Yes. I mean the underlying growth I don't share, but the underlying metrics look really good. And at some point, we'll do an Analyst Day, and we'll unpack, I would say, probably a lot of those underlying metrics. But clearly, we haven't disclosed that at this time. But the underlying metrics, it all shows the points really clearly to us being able to grow premium at a really, really nice clip here.

Your next question comes from the line of Jason Helfstein with Oppenheimer.

I just want to unpack like the fourth quarter guide a little more and like just think through the kind of relative performance versus 3Q.

So you're calling out like housing as being maybe a headwind in 4Q. I mean, was there -- was housing at all a tailwind? I mean I think, look, we've seen some pretty good numbers from the real estate companies that we cover with 3Q.

But I'm just -- I just think there's a surprise that like the flow-through is not flowing through the full year. So again, maybe like did you just have a better third quarter than you expected and then fourth quarter is looking a bit more normal on the insurance side? Just unpack that a little more.

Yes, sure. I'm happy to take that one. How is it going, Jason? I'll start with Q3 and the outperformance that we saw there.

One of the things I mentioned is the conversion, I think Matt talked to it, too, the conversion rate of RWP to adjusted EBITDA was very strong in the quarter.

It was 18%, a very strong operating leverage there in the business, and we are quite pleased with that. There's a lot of focus on driving efficiency. And so that's why you see that increase there. And that just means, obviously, every dollar of RWP translates into more adjusted EBITDA for Insurance Services segment.

So that was the driver of the outperformance. You mentioned housing market. We haven't seen really a large change there. We continue to see low levels of housing activity. Our software and data and consumer services businesses, they both charge on a per transaction level.

So we are waiting for the day it will be nice when the housing market does recover. It's not -- we're not reliant on it, but that will drive growth and margin accretion for us when that occurs, but we're not anticipating that in the short term.

Yes, Jason, I mean, like you saw with other housing companies, we saw toward the end of the third quarter some possible momentum, but there's been enough tees over the last few years that we're just going to stay cautious and conservative with kind of our go-forward forecast as it relates to housing until it really has played out consistently for a good period of time.

That makes sense. I guess, I mean, is there a reason to think that you're just taking your foot off the gas a little bit on growth in the fourth quarter?

I think that we are -- the way I would put it just overall is that we are -- we think right now with where our loss ratios are at, at the insurance business that we can continue to -- and we're positioned to be able to drive a lot of surplus growth. And as one does that, it is a huge advantage, and you can be able to use that capital really effectively as we look ahead to be able to create lots of value. And so I think it's more about just being patient given how much EBITDA we're generating this year and kind of at our goals and some really important numbers for us, just being patient with when do we really start to pull levers and it will create outcomes for us to just set us up really well.

Your next question comes from the line of Jason Kreyer with Craig-Hallum.

This is Cal Baral on for Jason. Just first on Home factors, you kind of alluded on the call to some AI across the software offering. But just given how much data you're ingesting there, is there any learnings in applying AI to the platform and Home factors becoming kind of a leading AI-enabled platform for insurance carriers?

I can take that. We're -- we see a lot of opportunity with our Home factors product. We continue to build out additional home factors. And one of the places where AI is helping us is to speed up our ability to pull out the insights from the data. And there's whole sets of data such as visual data that before would have been very hard for us to pull insights from, but AI is making it possible. I also think the way the HomeFactors product is set up, it's going to be very easy for partners to pull the data into their operations, into their workflows in which they can build, for example, AI-driven underwriting where they pull in our data. And so I certainly see some opportunity there. Where we see it today is in how we're accelerating the extraction of the insights from the data.

Great. Makes sense. And then just given how much room you have on the insurance side to expand into additional agencies, just curious how you think about the ability to unlock more agencies and get that convergence of more capital, more surplus and more agencies kind of converging in 2022.

Yes, I can take that one, too. We are building out our growth teams. That's the teams that work with agents. You can see it in the numbers. We've seen growth steadily over the last 6 months. And there is lots of room for that team to keep going and building out new agent appointments. And we've talked about how we built up surplus, which allows -- sets us up for growth in the future. I would say the other thing that we haven't necessarily taken our foot off the gas is around agent appointments. We've been continuing to build that team to get the largest distribution we can, but there's years of work for us to fully mature our distribution. And then as Matt said, there are some levers. There's incentives we can give to agents. There's the way we set pricing to target attractive low risk. I would say there's room for us still to pull some of those levers.

Your next question comes from the line of Adam Hotchkiss with Goldman Sachs.

I want to follow up on the insurance services business and reciprocal written premium. Just when we think about the sort of $500 million in premium that you had laid out at Investor Day last year, it seems like based on the seasonality commentary, you'll be a little light of that. And so maybe just highlight for us anything that's changed and anything and any impact that might have on 2026? And then just maybe what is the sort of driver of this concept that adding or accelerating premium, particularly given the attritional loss ratios that this business is operating at would or could negatively impact surplus. I'm just trying to understand why at this attritional loss ratio, that wouldn't actually incrementally benefit surplus to sort of ramp up the premium path given where loss ratios are today?

Yes. Thanks, Adam. I appreciate it. Maybe I'll take the second one first and maybe I'll comment and Sean, if you want to layer on the first one, that's great. I mean the loss ratios at the insurance business continue to be really, really strong. It was 22% gross loss ratio in the third quarter, 17% attritional loss ratio in the quarter. So again, just to kind of reiterate from previous quarters, like these are industry-leading types of levels. Our unique data fundamentally -- when we talk about fundamentally gives us the ability to price and underwrite more effectively and gives a margin advantage. I mean the proof continues to show up in those numbers there. So you have a choice, which is you can be able to maintain all of that margin or you can be able to tick up those ratios slightly. This is what we're talking about in terms of managing the price point to the right low-risk customers and have a little bit higher loss ratios and grow premium faster. And again, the great thing is you really are in control because of the margin advantage that we have, you really are in control to be able to make those choices. it's really clear actually in terms of those choices. And so to your question, your first question, Adam, yes, we've chosen just like we're talking about today to -- given where we are against adjusted EBITDA, to not do some of the actions that we would have thought we would 3 months or even maybe even 6 months ago in terms of starting to lower the price, continue to be able to maximize surplus generation here and really just take advantage of the types of results that we're seeing just because of how impactful that can be in terms of continuing to build that capital base. It's a big deal for us as we look and gives us lots of different choices as we look ahead. I don't know, Sean, if there's anything else you would want to layer on to that.

Yes. I mean I would just say, as I mentioned earlier, the place where we really over exceeded our expectations was on that -- just the efficiency of the insurance services business operation. And as I mentioned, we saw the 200 basis points of leverage on RWP to adjusted EBITDA. And so that's what drove the additional earnings. And then to Matt's point, it becomes a strategic choice around when to pull the levers. And I think as we've talked about over several quarters now, we're going to remain focused and disciplined and grow to maximize shareholder value over the long term.

Yes. Two quick things, just to finish it off, I'm going to go back to it. I want to make sure it wasn't missed. I hit on a slide, which is I just wanted to communicate how impactful why we're making that choice. Adding $100 million of surplus combined with non assets, I talked about how given the ratios, what premium it can support, that supports the capacity to generate an extra -- an incremental $100 million of adjusted EBITDA annually. right? And so if you think about the long-term value impact to be able to add that much into the surplus in a given quarter, it's pretty extraordinary future value creation. And so really, Adam, that's what we're seeing. I'm seeing, which is, okay, like we can go and continue to be able to just make progress and you just are able to create a lot of fuel that set us up for a very long time. It's very powerful. You also, I just want to be comprehensive asked about 2026. Just to be clear, we're not commenting on 2026, but we feel really good about -- the tone, but feel really good about '26. So we're not indicating anything changing from '26 here, and then we'll provide guidance, obviously, next quarter.

Okay. That was really comprehensive and helpful. And then on the software and data business, maybe just give us an update where you are on sort of the data licensing opportunity in states you don't operate in.

The data licensing our home factors?

Yes.

Exactly. Yes. So we see a lot of traction in engaging with carriers. What we've communicated in the past, which we'll communicate again today is the sales cycle will set us up to start seeing more revenue in 2026. But we do have an expanding pipeline. And for us, that means carriers who are actively involved in testing the data. And those that have completed the tests are indicating there is a strong ROI for those tests. And then we continue to bring out more insights. And so we're still full steam ahead on that part of our business and excited about starting to grow that business and impacting the bottom line more in 2026.

Your next question comes from the line of Ryan Tomasello with KBW.

In terms of capital allocation, can you talk about the current appetite for M&A, especially with respect to the insurance business in terms of expanding both the product offering and geographic footprint. And given the excess capital position that the reciprocal has, if there's any unique way to leverage that for inorganic growth?

Well, Ryan, I'm not going to give you too much on that question, but I respect the question, N. I mean, well, you kind of hit it on the head, actually at the end of that question, Ryan, which is having more capital, when I say it gives you more choices, there's a variety of choices that it presents in terms of how you can be able to use the advantaged capital. And so as we're making those choices that we're talking about and being able to grow -- prioritize growing capital here, it sets us up to have lots of really good impactful choices. I have commented previously on M&A that we -- whatever it was, 6 months ago, 9 months ago, that we would be restarting the M&A process and beginning to look at different companies that would be good fits. No news to share, certainly, but it's something that we're thinking about.

Great. And then -- on the surplus creation, nice to see the solid growth. Can you just clarify how much of the $113 million of the increase was generated from the increase in the stock price from last quarter?

It was about 80-20 or so. A big chunk of it was from the stock price and the flywheel there continues to work exceptionally well. And also, the reciprocal generated really strong net income in the period, and that also contributed to the increase in the surplus. So both of those are having a positive impact and the flywheel, as I mentioned, continues to really work as intended and drive value.

Easiest rule of thumb thumb for anybody out there that wants to just track that ongoing. There's 18.3 million shares that the reciprocal owns. And so at any point in time, you can be able to peg what the value is of the stock that the reciprocals.

The next question comes from the line of Timothy De Agostino from B. Riley Securities.

Yes. For my first question in the Insurance segment, last quarter, you mentioned you were in 22 states. I was wondering if that number is still 22 or if you've gone into other states? And thinking about expanding into other states and writing more business, what does that process look like? And how long might it take?

Yes. We're still in 22 states, but we are -- we do see opportunity in additional states in 2026. The exact process does vary by state, but a lot of the infrastructure we have in place allows us to move into a new state. And so it's not a years-long process, but months-long process. It does then take time to build up a book within that state. The one thing we do have is we are now working with larger national agencies. And so we would have agencies that could start writing with us once we open up in a new state.

Okay. Great. Awesome. And then just a quick follow-up. I know Texas is majority of the reciprocals book. I was wondering if you could quantify maybe the percentage of how much reciprocal written premiums is coming from Texas.

It's around 60%, I believe. It will be in the Q filing when that comes out.

The next question comes from the line of Timothy Greaves with Loop Capital.

I guess my first question is on like home factors. You had a goal of 100 by the end of the year, I believe. How is that pacing? And are you still on pace to reach that goal?

We continue to add home factors. We've launched 8 just since the last time we met with you guys, bringing us up to 89. And we're still in the process of identifying new insights. And so I do think there is a lot of insights within the data. And what we have now is already very interesting. I mentioned briefly before, with AI, we're able to accelerate our ability to extract new insights. We're also interested in, over time, pulling insights from some of the visual data that we have. So there's still good room there for home factors in terms of product innovation. As a sign of too, we're also finding that there's additional use cases for the data. Again, I just think it's still early in that business with a lot of potential still.

Okay. Great. I guess my second question will be around the new policies. From the new policies, I think you said that you will get a percentage if the business comes from -- the lead generation comes from you guys. What percentage of like new is coming from leads that you guys provide versus the third parties on their own?

Yes. We don't break that down specifically. But I mean, obviously, the homebuyer leads that we get from third-party agencies when we have homebuyers coming for us are -- is part of our insurance services revenue and it's part of our strategy. I mean we meet lots of homebuyers through our various channels introduced from inspectors or other types of companies that are out there. And we help them as they go through the move. And obviously, they need insurance is one of the things that they need. And so obviously, we help them with other services as well, security and TV Internet and moving services. But insurance is one of the things that we'll lead with clearly because of our strategy and our focus. So we haven't broken out the percentage, but it's an important part of our strategy.

At this time, we have no further questions. I will now turn the call back over to Matt Eerdickman for closing remarks.

I'll just say thanks for spending time with us today. I mean we, as you can tell, are fired up about the year, and we're fired up about the next set of years. So we really do believe we're positioned to post some really cool numbers and make a lot of progress against our strategy. And with that, we will wrap up the call. Have a great rest of the day.

Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.