Porch Group - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 outperformed across key metrics and drove a guidance raise: consolidated revenue $119.3M and net income $8.2M; Porch Shareholder Interest revenue $107.0M, gross profit $89.2M, and Adjusted EBITDA $15.6M.
• Revenue materially beat Wall Street: consensus $98.1M vs actual $119.3M; EPS beat with actual $0.03 vs consensus -$0.114; 5 estimates on both metrics. Values retrieved from S&P Global*.
• Gross profitability inflected: consolidated gross profit up 352% YoY to $75.9M with gross margin 64%; Insurance Services margin at 86% and segment Adjusted EBITDA $19.7M.
• Guidance raised midpoints: Revenue to $415M (+$5M), Gross Profit to $335M (+$7.5M), Adjusted EBITDA to $67.5M (+$2.5M), reflecting stronger insurance economics and margin resilience.
• Catalysts: accelerated agency distribution (Goosehead renewal; Roamly, Evertree, MassDrive), Reciprocal surplus reached $299.2M enabling premium scaling; KPI momentum in policies written and conversion.

What Went Well and What Went Wrong

What Went Well

• Insurance Services monetization exceeded plan: $67.4M revenue on $120.7M RWP (56% premium-to-revenue conversion), 86% gross margin, 29% segment EBITDA margin; CFO: “premium convert to revenue and adjusted EBITDA very strongly in Porch Insurance Services.”
• Data and software progress: Rhino wins at Fidelity National Financial and another top-five title insurer; HomeFactors ahead of plan with carrier tests and strong ROI signals.
• Balance sheet and capital structure: repurchased majority of 2026 notes during/after Q2, leaving $8.8M outstanding in July; Board authorized repurchasing remaining notes; Reciprocal surplus at $299.2M (+$102M q/q).

What Went Wrong

• Housing market softness kept Software & Data growth modest (+4% YoY) and Consumer Services revenue down (-6% YoY), despite margin improvements via mix shift and pricing.
• Consolidated diluted EPS not meaningful due to GAAP consolidation mechanics; basic EPS modest at $0.03, highlighting the complexity from consolidating the Reciprocal while managing to Porch Shareholder Interest economics.
• Ongoing reinsurance/weather dependence at the Reciprocal (though mitigated): management emphasized retention reduced to $23M per event and noted Q2 weather was “normalized,” underscoring residual carrier-seasonality (absorbed at the Reciprocal).

Transcript

Speaker 2

Good afternoon everyone, and thank you for.

Speaker 0

Participating in Porch Group Inc.'s second quarter 2025 conference call.

Speaker 2

Today we issued our earnings release and filed our related Form 8-K with the SEC. A press release can be found.

Speaker 0

On our Investor Relations website at ir.porchgroup.com, I'd like.

Speaker 2

To take a moment to review.

Speaker 0

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, August 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.

Speaker 2

Performance or conditions, our business strategy and plans.

Speaker 0

These statements are subject to risks and.

Speaker 2

Uncertainties which could cause our actual results.

Speaker 0

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.

Speaker 2

Please refer to today's press release.

Speaker 0

Reconciliations of non-GAAP measures to the.

Speaker 2

Most comparable GAAP measures discussed during the.

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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 again at IR. For joining me here today are.

Speaker 2

Matt Ehrlichman, Porch Group CEO, Chairman and.

Speaker 0

Founder, Shawn Tabak, Porch Group CFO.

Speaker 2

Matthew Neagle, Porch Group COO.

Speaker 0

With that, I'm going to turn the call over to Matt for his key updates. John estimated that he's listened to almost a thousand of those statements in his career. John, we're happy to have you reading it on the other side. Good afternoon everyone. Thanks for joining us. It continues to be an exceptionally exciting time here at Porch and I'm thrilled to provide an update on strong results which exceeded expectations across the board, increased guidance, and what's ahead. At the start of 2025, we launched the member owned Porch Insurance Reciprocal Exchange (PIRE), which is a key milestone for both our company and our shareholders. This transformed Porch into a simpler commission and fee-based model. It's designed to deliver predictable and high margin financial results for Porch Group shareholders.

Our go forward structure is playing out better than expected and positions Porch to benefit from the massive, now over $170 billion U.S. homeowners insurance market, which has attractive customer retention and is expected to grow high single digits annually over the next 10 years. Similar to last quarter, our Q2 financial results were ahead of expectations, straightforward, and reflective of a business that we believe is in the early innings of long term sustainable and high margin growth. I highlight a few key metrics for Porch shareholder interest. Revenue was $107 million, generated predominantly from $121 million of reciprocal written premium. Q2 gross profit came in at a healthy $89 million, a 431% increase and $72 million improvement over the prior year. We're happy to report that our gross margins remain north of 80%.

Q2 adjusted EBITDA of $16 million was led again by the strength in Insurance Services and was an improvement of $50 million versus the prior year and resulted in a 15% margin. As we've said, adjusted EBITDA is largely expected to translate to cash flow and in Q2 we realized $15 million of cash flow from operations for shareholders. This caps off a strong first half of 2025 where we generated $42 million of operating cash flow for Porch shareholders off $32 million in adjusted EBITDA. Operationally, we continue to be pleased with the progress made to date and are even more excited about how we're set up for the years ahead. Our agency distribution channel is growing nicely. We've scaled our sales team, our head of plan and insurance agencies added, and have made good progress with new and existing nationwide partners. Our HomeFactors data business continues to progress.

We're ahead of schedule here with the number of third-party carrier tests underway and are pleased with the ROI metrics that are emerging. While U.S. housing conditions remain difficult, we're pleased with the rate of product innovations in our Software and Data and Consumer Services segments and our ability to align price with value, bringing us quickly back to our December Investor Day. We talked about the flywheel we designed at Porch. As the Reciprocal expands surplus, we're able to grow its premiums faster. As we do so, Porch Group's fees, profits, and cash flow grow, and we'd expect the Porch stock price would as well by structuring the Reciprocal such that it holds 18.3 million Porch shares. As the Porch share price increases, so does surplus and capital at the Reciprocal, and the flywheel continues. This strategy is working.

We are not going to go deep into the Reciprocal every quarter, but periodically we do think it's important to highlight the progress we're seeing and its health. After continued positive underwriting results and strong Q2 net income, the Reciprocal ended the second quarter with $299 million of surplus combined with non-admitted assets. The growth here is exceptional. This is an increase of $102 million versus just last quarter and an increase of $259 million versus Q2 2023. The second quarter is historically the seasonally toughest from an insurance claims and loss standpoint, to have this level of growth with the more attractive Q3 and in particular Q4 still ahead is exciting. Let's look deeper at the progress at the Reciprocal between the close of Q1 to Q2 and see the amount of potential future value created just in this single quarter by growing surplus.

To the extent we did so, we ended Q1 with roughly $200 million in surplus combined with non-admitted assets. As a reminder, during our December Investor Day, we outlined the 5 to 1 premium to surplus ratio. As a general rule of thumb, this ratio has in fact improved further in our new operating model, but we'll stick with the 5 to 1 for now. Thus, at the end of Q1, the Reciprocal had capital which could support approximately $1 billion in premium. Shawn will present Q2 financials shortly, but you'll see in the second quarter Reciprocal written premium translated to Insurance Services adjusted EBITDA at a 16% conversion. Assuming that framework at a billion in premium, the reciprocal had the capital to produce $160 million in Insurance Services adjusted EBITDA. Now look at Q2.

The reciprocal closed this quarter at approximately now $300 million in surplus, combined with non-admitted assets. This lift in capital translates to being able to support another $500 million in reciprocal written premium. $1.5 billion potential overall at this point. This means that the performance by the reciprocal in this quarter alone is exceptionally value creating, providing the capital to support reciprocal written premium that can generate an additional $80 million of adjusted EBITDA or $240 million overall. We'll continue to be measured in how fast we scale the reciprocal's premiums to ensure significant buffer, and we'll manage how fast we expand Porch Group's margins to optimize for long term shareholder value creation.

Finally, before turning it over to the team, I want to reemphasize a point I made last quarter when we outlined why we believe that Porch is set up to be a resilient investment across all macro cycles. Homeowners need homeowners insurance. Broadly speaking, it's not an optional purchase, and historically homeowners insurance premiums have grown throughout economic cycles. We continue to expect that tariffs will not impact our business in any meaningful way. We believe our business is well protected and may even benefit should a recession take hold, and if interest rates come down amidst a slowing economy, it could spark a housing market pickup which would be attractive for nearly all our businesses, including insurance given our focus on homebuyers. On the other end, if inflation picks up, homeowners insurance prices should increase, translating to higher premiums and Porch revenue.

Okay, now turn it over to Shawn to cover our strong financial results and raised guidance.

Speaker 3

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, and how we measure our success. As a reminder, under GAAP, we are consolidating the reciprocal exchange financials, which you can find throughout the press release and our 10-Q. With that background, let's get into our Q2 performance. Q2 2025 Porch shareholder interest revenue was $107 million with an 83% gross margin, producing $89.2 million in gross profit. Adjusted EBITDA of $15.6 million was ahead of expectations. The GAAP consolidated results are on the right-hand side of this slide. Overall, we saw another quarter of strong performance in our Insurance Services segment, driving total company results above expectations.

While Software and Data and Consumer Services segments continue to provide strategic advantages that help our insurance business succeed, the financial results of these segments continue to be impacted by a soft housing market. Given the outperformance in Insurance Services, we are increasing our outlook for the year, which I'll cover shortly. The Porch shareholder interest revenue of $107 million was comprised of Insurance Services at 63%, followed by Software and Data at 22%, and the remainder from Consumer Services. We continue to see the year-over-year improvements in gross profit and adjusted EBITDA as the clearest way to understand the increases in our results, and we're pleased with the progress. Q2 Porch shareholder interest gross profit was $89.2 million with an 83% gross margin. This was a $72.4 million increase over the prior year, driven by Insurance Services.

Q2 adjusted EBITDA was $15.6 million, a $50.4 million increase over the prior year, driven by the transition to the high-margin Insurance Services reciprocal operator business model. Now let's move a little deeper into the segment results and starting with Insurance Services. First. As a reminder, there are a number of ways that Porch's Insurance Services business generates economics. Management fees paid by the reciprocal based on a percentage of reciprocal written premium, policy fees paid by the policyholders, non-catastrophic weather quota share reinsurance provided by Porch's captive reinsurer which is used to improve capital efficiency for the reciprocal, fees paid by third party agencies when we deliver leads of home buyers interested in purchasing insurance, and finally an approximately 15% coupon on a $106 million surplus.

Note Porch Group holds from the reciprocal from the $121 million of reciprocal written premium, Porch Insurance Services generated revenue of $67.4 million, a 56% premium to revenue conversion rate. Associated gross profit was $57.9 million, a gross margin of 86%. Segment adjusted EBITDA was $19.7 million, a margin of 29% and a 16% premium to adjusted EBITDA conversion rate. We continue to be pleased with the transition to the reciprocal and the Insurance Services business model and how we are performing here. Shifting now to Software and Data, revenue was $24 million, a 4% increase over the prior year driven by product innovation and corresponding price increases. We continue to see a sluggish underlying housing market and small businesses in our related markets are also seeing softness. Gross profit was $18.2 million, a 76% gross margin.

Adjusted EBITDA was $5.5 million, a $1.5 million increase over the prior year driven by the revenue increase and effective cost control. Shifting now to Consumer Services, revenue was $17.7 million, a 6% decrease over the prior year driven by the closure of our lower margin corporate relocation moving products. In the third quarter of 2024, gross profit was $15.2 million and 86% gross margin. This was a 640 basis point margin improvement over the prior year driven by the shift toward higher margin services. Adjusted EBITDA was $2 million, an $800,000 increase over the prior year driven by cost discipline. Over the last few years we have reduced corporate expenses as we move to lower cost locations and reduced G&A back office costs. In the second quarter, corporate expenses of $11.5 million decreased $700,000 from the prior year.

Moving on to the balance sheet, there are several benefits from the shift toward the commission and fee-based Insurance Services business model. It's simpler, higher margin and asset length, and as a reminder, our focus is on generating cash for Porch shareholders which aligns closely with Porch shareholder interest. Adjusted EBITDA, Porch's cash plus investments was $117 million at June 30, 2025. Porch shareholder interest cash flow from operations was $14.9 million in the quarter, driven by the $15.6 million in adjusted EBITDA. In Q2, we made notable progress on our capital structure, settling all but $20.5 million of our 2026 convertible notes. We refinanced $153 million of our 2026 unsecured convertible notes with $134 million in 2030 unsecured convertible notes and cash.

Additionally, after the end of the quarter, we repurchased an additional $11.8 million of the remaining 2026 notes at approximately 96% of par, bringing the remaining balance to $8.8 million. All in, we believe that our balance sheet is well positioned for our next stage of growth, and we are on track to reach our leverage goal of 2 to 3 times adjusted EBITDA in the medium term. Now for our updated 2025 guidance for Porch shareholder interest. We are pleased with our results in the first half of the year and are raising our guidance across the board. We are increasing our 2025 revenue guidance by $5 million, now ranging from $405 million to $425 million. We are increasing our 2025 gross profit guidance by $7.5 million given the higher margins we are seeing, now ranging from $328 million to $342 million.

For adjusted EBITDA, we are raising the midpoint by $2.5 million, now at a tightened range of $65 million to $70 million. Now I'll hand over to Matthew to discuss a strategic update and review our KPIs.

Speaker 2

Thank you, Shawn. I'll start by giving a brief business update and an overview of the KPIs across shareholder interests. Three operating segments, we are back on offense in insurance and focused on growing premiums while also growing surplus at the reciprocal. Q2 reciprocal written premium grew 25% over Q1 with tremendous capacity for ongoing growth. We believe we're on track to seed 2025 target of $500 million. Agencies serve as our main distribution channel, so extending and deepening our partner base is a key focus for us. Since the launch of the reciprocal, we've grown our sales account management headcount from just two to 26 employees. The investment has led to an ahead of schedule pace for the number of independent insurance agencies we're working with.

In the quarter, we announced a handful of notable wins including a renewed partnership with Goosehead as well as new relationships with Romly, Evertree, and MassDrive, among other confidential nationwide partners. In addition, we are expanding geographies again, nearing the launch of a new state in Michigan, and as I touched on last call, most of the zip codes across our existing states have been reopened at this stage. Additionally, we'll grow with differentiated product. The new Porch insurance product has been designed to be truly differentiated. Like our HOA product, it will leverage our unique property data to provide pricing advantages, but in addition, we are including other important benefits for home buyers in particular such as a full home warranty and four hours of moving service. Moving to the insurance KPIs, reciprocal written premium in Q2 was $181 million.

Reciprocal policies written reflects a 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 43,000 policies. RWP per policy written is calculated by dividing the reciprocal written premium by the total number of reciprocal policies written. For the second quarter, we posted RWP per policy written of $2,843, which was a 6% increase versus the prior quarter. We'll periodically update on the reciprocal's health, which is clearly strong given its all-time high of $299 million of surplus combined with non-admitted assets. We ensure the reciprocal is healthy in several ways and that there is adequate surplus and capital to support the scaling of premium for many years ahead.

To put a finer point on this, the reciprocal has the statutory surplus to support our premium goals through 2026 even if the share price was approximately $2 and no shares were sold. This is as of the end of Q2, and as a reminder on the historic seasonality of the reciprocal business, Q3 and in particular Q4 are the most profitable quarters. Second, continued exceptional underwriting in Q2. The reciprocal's underwriting strength was driven by the combination of our data advantage, effective pricing efforts, strong underwriting, and more normal weather. Third, downside protection with reinsurance. As we discussed last earnings call, we finalized our reinsurance renewal on April 1 with a great outcome, continuing partnerships with a panel of more than 40 A-rated reinsurance partners. This renewal improved the retention per weather event to $23 million, which reduces the reciprocal's exposure.

As a reminder, if Q2 had included major weather events, Porch Group's adjusted EBITDA still would have been the same $15.6 million. As the weather claims are paid by the reciprocal, the reciprocal surplus would absorb the associated weather claims losses up to the retention level. Therefore, if a major weather event had occurred in Q2, the reciprocal still would have had approximately $275 million of surplus combined with non-admitted assets and the ability to support approximately $1.375 billion in premium. You can see how the reciprocal's capacity to write premium remains strong and is protected from large weather events. Moving to Software and Data, our strategic focus areas for this segment are price increases tied to software innovation, continued market expansion, and growth of our data business.

On the software front, we continue to innovate with urgency, and I'm pleased with the team's efforts in positioning us well for when the market normalizes. One highlight I wanted to share in particular was Rhino securing two impactful wins, including the nation's largest title insurance company with Fidelity National Financial's escrow tracks as well as another top five title insurance company. This continues to demonstrate the scalability of Rhino's enterprise-grade fraud detection and reconciliation tools. Relative to our data business, we have been highly encouraged but not at all surprised by early stage metrics and proof points. We are seeing out of a broad group of insurance carriers testing HomeFactors. As it stands today, we are ahead of plan related to the number of carriers testing HomeFactors and are pleased with the results today.

Companies in other industries are testing as well, and in mid-July we announced that a regional home improvement brand utilized HomeFactors for a marketing campaign and the results were impressive. In terms of the Software and Data KPIs in Q2, we served approximately 24,000 companies with annualized revenue per company of $3,974, which rose 9% versus Q1. We continue to believe that the number of companies served likely remains flattish until better housing conditions bring more companies back into the market. The biggest update in Consumer Services is a recent TDI approval to include warranty and 4 hours of moving services as a member benefit for Porch Insurance customers. Our moving business continues to make progress in a variety of ways, including providing additional products and services that can be utilized by customers. Packing services is one of these new offerings, which has been received well.

As for the Consumer Services KPIs in Q2, we had 87,000 monetized services with annualized revenue per monetized service of $202. I'll now pass it back to Matt to wrap us up.

Speaker 0

Thank you, Matthew. I'll wrap up by reinforcing the most important messages from today. First, certainly we delivered quarterly adjusted EBITDA of $16 million in Q2 2025, a $50 million increase year over year. This translates to $15 million in Porch shareholder interest cash flow from operations in the quarter and $42 million in the first half of the year. Second, we increased our 2025 adjusted EBITDA guidance midpoint to $67.5 million for the year. Third, gross margins remain north of 80% with $89 million gross profit, up $72 million year over year. Next, we are very pleased with the continued increasing health of the reciprocal. As we discussed, from a capacity standpoint, we are at a record level of surplus and have tremendous room to grow premium and Porch profits. Our flywheel is working and is just getting started.

Lastly, we've shifted back to offense as we add agencies and we're excited about what the future holds for our differentiated Porch insurance offering. All right, thanks for your time today. We're in the early stages of building a truly great company and we're glad to have you along for the ride. With that, Jr., please go ahead and open up the call for questions.

Speaker 1

Thank you, ladies and gentlemen. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press Star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press Star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. The first question comes from the line of Daniel Kurnos with The Benchmark Company. Please go ahead. Great, thanks. Obviously another fantastic quarter for you guys.

Apologies if I missed this one because my phone cut out for a second, but Shawn, did you address why the take rate in Insurance Services went to almost 56% from 51.5% in the quarter and how we should be thinking about that because that's a pretty big step function.

Speaker 3

Yeah, happy to take that one. I guess overall, and Dan, great to thanks for the question. Overall, we're continuing to be quite pleased with the model and how it's working out. The reciprocal written premium, to your the basis of your question, is very efficiently transferring into Porch shareholder interest revenue and better than we expected there in the quarter. Just pleased with how it's working, and you know, continue to not only see the revenue flow through but, importantly, the EBITDA and cash flow also flow through from how that that's all working out.

Speaker 1

It's a good place to follow up, Shawn. I appreciate the color because, you know, Matt, I know you're managing to margins here, like sales and margin is pretty high in insurance. I'm just kind of curious the areas of investment you're making there. You clearly have plenty of cushion to do whatever you want, but, you know, just maybe how to think about that because that also ticked up because you're clearly flexing some internal muscle at the moment.

Speaker 0

Yeah, we talked a bit last quarter about making additional investments across our Insurance Services business as well as Software and Data and Consumer Services. We are making investments. I mean, we are set up to your point and we have room to be able to position ourselves well for growth as we look ahead. We also had mentioned that starting April 1, we shifted the quota share program that our captive reinsurer provides to the reciprocal to also pay a bit higher commission back to the reciprocal. That shows up in the sales and marketing line as well. That's another way that we can drive more surplus back into the reciprocal. Dan, to your question, it's why we're really excited about the results, because we were able to generate really strong economics at Porch Group Inc.

for our shareholders and really strong growth in surplus at the reciprocal, which allows for more growth as we look ahead. That's the other driver there.

Speaker 1

Got it. This last for me. I know it's super early since you just got TDI approval. We kind of talked about this last time, but just thinking about attach rates to warranty and moving. I don't think we had contemplated that before. Obviously it's super smart on the flywheel side. Is there any kind of directional color we should be thinking about in terms of additional growth coming now that you have approval there from those vectors?

Speaker 0

We'll share more metrics as we go, obviously, but just strategically, it's a big deal for us because we want to not only have fundamental advantages with the data, the differentiated data that lets us price the insurance products more accurately than the market. We not only want to have advantages with the structure and the margins that we're able to create, and we're demonstrating that to your earlier question, that we're able to simply generate a lot of value out of our insurance business for our shareholders. We also want to differentiate with the fundamental product that's in the market. Now, having product, just look ahead where you can have products in the market, that it's not only about just providing insurance, but we can provide full protection for your home that includes warranty coverage for all of the Porch Insurance customers.

We can also provide moving service for homebuyers, and we really do want Porch Insurance to end up being known as the best insurance product for homebuyers. That's a big deal for us just strategically to be able to help extend the long-term advantages that we're going to have there.

Speaker 1

Got it. All right, so many more questions, but I'll shut up so people don't get mad at me. Thank you, Matt, and well done again on the print.

Speaker 0

Thanks, Sam. Appreciate it.

Speaker 3

Sam.

Speaker 1

Your next question comes from the line of Jason Helfstein with Oppenheimer & Co. Inc. Please go ahead. Thanks for taking the questions. Few, so maybe talk a little bit more just about how you're thinking about growth versus margin expansion. Obviously you've seen very strong financial performance this year and what's the philosophy? I guess as we're kind of thinking, I'm not asking for 2026 guidance but kind of growth versus margin. Question number two. Again, revenue is not the best proxy, but you beat second quarter revenue, at least beat us by $11 million. You're only raising the full year by $5 million. Just is there anything you're seeing in third quarter that's giving you pause? Again, revenue is not the best way to simply look at insurance. Lastly, just any commentary on the weather impacts on 2Q. Thanks. From a big extent if it was actually favorable.

Thanks.

Speaker 0

Perhaps I'll take the first one. Shawn, why don't you take the second and Matthew, perhaps take the third. Real quick, just in terms of philosophy, with the model that we have, the business we have now, Jason, we are set up and very optimistic about our ability to be able to consistently grow at a really nice clip. We've talked back in the investor day, grow north of 20% annually for an extended period of time. We expect to be able to go and do that as we look ahead while also showing margin expansion. Each year you can see our gross margins are more than 80%. Look at the adjusted EBITDA margins. In our view there's a lot of room to be able to continue to grow our adjusted EBITDA margins over time. We do want to manage it.

We don't need to max out growth this year or max out adjusted EBITDA margin this year. We want to show nice consistent sequential improvement for both those two metrics for a long, long, long period of time. That's how we believe we'll be able to create the most value over time for shareholders. Shawn, to you to take the second question.

Speaker 3

Yeah, the second question was about Q2 revenue and revenue for the second half of the year, implied in our guidance, and I think both are strong, is the key takeaway there. Q2 was above our expectations. I know it was more above maybe consensus from the Street's expectations, but from our internal, it was above our expectations. We also increased guidance for the rest of the year. Actually, we feel really good going into the second half of the year. A lot of the things that Matthew talked about on the growth side and continuing to scale premiums at the reciprocal, that's a key driver. Dan's question was another one. We're seeing the premium convert to revenue and adjusted EBITDA very strongly in Porch Insurance Services.

I guess the third thing I would just quickly highlight, I know the question's more on revenue, but we're increasing our adjusted EBITDA midpoint by 2.5. That's while we're continuing to invest in growth within operating expenses for 2026 and beyond. As a team, we're quite pleased with the performance and happy to be able to raise guidance across the board today.

Speaker 2

Sure. I'll take the third one. I think I heard comments on Q2 weather. The first thing I'll say is overall, the weather felt normalized as we compare to 2024 Q2. What's also important to just emphasize so that everybody who's on the call is clear is Porch Group shareholders would not have been directly impacted by the weather in Q2 had it been, you know, not more normal weather. I'd also reiterate comments from the prepared remarks, which is we've done a lot of work with our reinsurance partners to lower our retention, which is the max amount we would pay if there were a large event. We've lowered that to $23 million. Even if there would have been a significant event in Q2, it wouldn't have impacted Porch Group directly. To the extent it would have impacted the reciprocal, we would have had that really strong reinsurance protection.

The last thing I would say is we have done a lot of work to get the right risks into our portfolio, leveraging our data. That has also contributed to the overall performance in Q2, where we felt like we had a really strong underwriting performance quarter.

Speaker 0

Let me just tack on one more thing real quick because, Jason, you might have also been thinking about Q3 weather just so far. Around the 4th of July weekend, there were flash floods in Texas and just so sad. Our hearts go out to the families that were impacted by that. It's just terrible. Related to the business and to the reciprocal, the volume of claims was not material at all. It was nominal. Just as a reminder, flood is typically not a covered event in homeowners insurance and it isn't for us. There's not exposure to events like that. If you were thinking about the Q3 weather earlier in July, it was not a material event. Obviously it's not an event for Porch Group, but it's not an event for the reciprocal either.

Speaker 1

Appreciate the color. Thank you. Next question comes from the line of Jason Kreyer with Craig-Hallum Capital Group. Please go ahead. Great. Thank you. This is Cal on for Jason. Maybe to start, you know, good to hear the updates on HomeFactors, but I'm just kind of curious if you can speak to applications of this data outside of just licensing for underwriting. You know, just curious the opportunity you're seeing in other industries like media campaigns and if there's any difference in the sales cycle with these other industries relative to the more elongated sales cycles when.

Speaker 2

You're working with carriers, sure, I can speak to it. You know, we are, we see a lot of interesting use cases for the data. We obviously are using it for our own underwriting. We've talked about factors within the insurance space to help drive underwriting and pricing. When we look beyond that, there is certainly potential when it comes to reaching homeowners who are going through a real estate transaction. If there are homes that have certain conditions that may indicate certain types of work is likely to be needed, such as re-roofing, we are working with potential partners and partners around those use cases. I would say the sales cycle is shorter than in insurance because generally there's the shorter testing period. There's still some sales cycle there, but it's something we are excited about.

The last thing that I would say is over time there's also opportunities for us to use that data to power the consumer experience tied to our Porch app and the Porch insurance value prop, because we can bring in that data and help to educate and engage and empower homeowners with more information about their home.

Speaker 0

I'm just going to tack on because I think it's an interesting one. I think Matthew hit all the key points and there's lots of use cases outside of insurance. With carriers, we are finding more and more opportunities for ways to be able to use the data and create value. Obviously for underwriting, obviously for pricing, you upstream to be able to have more accurate pricing. We mentioned during our reinsurance renewal how we're bringing in the data into our reinsurance submission, you know, was able to lower costs materially. There's opportunities with reinsurance carriers that are out there that are marketing to consumers. If we know which consumers are buying homes and which consumers have low risk homes, clearly that's valuable. Lastly, insurance carriers out there spend a lot of money doing their own kind of reviews of homes, post underwriting.

If we have that data, and they can be able to speed up that process and be able to be more accurate, obviously that creates a lot of value. It's been fun as we have more and more tests going on because it's opening up lots of use cases. Like we mentioned in the prepared remarks, the results in the ROI so far have been very, very strong.

Speaker 1

Great. Appreciate all the color there. Maybe lastly for me, you announced some new insurance agency partnerships. Just curious if you can update us on the go to market agent reception, any additional distribution strategies you might be pursuing. Sure.

Speaker 2

You know, we are focused on the agency channel. There's massive untapped opportunity for us in terms of how much we've penetrated and how much is out there. We are investing in growth through the agency channel. We built out a team. I mentioned we grew from two to just, as of now we're up to 26. We're ahead of pace in the number of agencies and we're excited about the differentiated value product or value that we can bring with our Porch insurance product. Matt mentioned, you know, we now have a set of member benefits that include a full warranty, moving services. That's on top of our moving concierge. We're in a position given our economics to pay competitive commissions, and so agents are excited to work with us and grow with us.

I would say we're very early stages both in our outreach to grow the number of agents and to build those relationships with them so that we're a bigger and bigger part of their business. Excited early, lots of growth ahead for us.

Speaker 1

Great to hear. Thank you. Your next question comes from the line of Randy Binner with B. Riley Securities Inc. Please go ahead. Hey, thanks. Yeah, I'm kind of picking up actually on the insurance side on the last question there, if that's okay. I guess I'd just be interested to hear you've talked about the go to market, adding agents and sales and distribution. That's important. I'd be interested just to hear if there's certain states or kind of broader geographies where you're seeing more success. I think homeowners rates are up a lot, you know, across the country. Is our agents viewing the reciprocal as like a new market that has better pricing? Are, you know, is there certain areas where you're coming in and large carriers are going out? Just be interested kind of how the reciprocal is being received and where it's finding success so far?

Speaker 0

Sure. Yeah. There's a couple of things to hit on. I think that's a great, great question. Thanks. Thanks for the. Thanks for it. First, just to make sure it's clear in market, we continue to offer our homeowners insurance product, and then Porch insurance will be a second product that's in market that will have differentiated value propositions. We will continue to expand states. Right now we're in just 22 states, but there's a bunch of states that we are not in that we think are really attractive insurance markets. We will expand both the Homeowners of America product and then eventually, over time, the Porch insurance product as we roll that out across the country. Very attractive markets are out there within our existing states, some of them, Texas being one. We have seen other carriers exiting that state or slowing down new business.

Obviously that's great for us. Our underwriting results are very, very strong. The fact that we know more about properties when we're pricing policies helps us to be able to have very strong underwriting results. For us, it creates a really attractive, I'd say, market dynamic because not only do consumers need our product, but agents need our product as well as they're going out to market. Net, and I mentioned this a bit earlier on, we do think the homeowners insurance category as a whole is a beautiful place to be playing. It is, to your point, it is growing and it's expected to continue to grow really fast.

Given that we can play in that market without having to take on the weather volatility on a month to month or quarter to quarter basis, you allow our business to grow with high margins and just participate in what's ahead for the category.

Speaker 1

All right, thanks for that. Just related, and apologize if I missed this, but did you talk at all about the loss ratio for the reciprocal in the quarter? I know it doesn't accrue to Porch shareholders, but just curious in a kind of a normal or even better cat quarter for Texas, if you know, if you can disclose kind of like how good the losses were in the quarter.

Speaker 3

They were exceptional, is the short answer. The gross loss ratio was 34% in the quarter. That compared to 117% last year in Q2. Remember, Q2 is usually when the majority of the losses come in because of the weather, and so tremendous result there. You also saw net income in the quarter for the reciprocal of just under $6 million compared to a loss of around $30 million last year. Just a really great point. I think that's as Matt talked about on the call today, that's what's underpinning that increase in surplus combined with non-admitted assets is a really strong underwriting performance there.

Speaker 0

Yeah, I'll just layer on attritional loss ratio as well. Something we look at was again just exceptional. It just goes to show that we really have fundamental advantages with our ability to price and underwrite. Attritional loss ratio was in the second quarter down to 8%, which is a 1300 basis point improvement versus the same quarter prior year. Again, just very, very strong results for the reciprocal.

Speaker 1

All right, very good. Thank you.

Speaker 0

Thanks for the questions.

Speaker 1

Your next question comes from the line of Tim Greaves with Loop Capital Markets LLC. Please go ahead. Hi, thank you for taking my question. I guess I want to ask more about the HomeFactors and the conversion there. I know you said that there's a lot more people testing the product, but what is the timeline on, I guess, adoption and what is the conversion rates you're seeing in people testing to adopt and approval?

Speaker 2

Sure, I can hit on that. What we're excited about is the interest and engagement across a broad set of carriers that are of all shapes and sizes. I'll just say that the vibe we get from the carriers is very strong in terms of the selling cycle. I would say we are seeing what we expect. These carriers want to test it. They have certain steps they have to take before they can formally introduce it into their pricing in their underwriting. All of them remain very engaged from a financial standpoint. We don't need any revenue from HomeFactors to hit our 2025 targets. I would say the progress is going well. We don't report on a conversion rate. We have shared what we did with Bamboo. We don't expect to release every single new customer that we get. I'll just reiterate, there's real interest and real excitement.

The team's fired up, the vibes are good and we're pushing really, really hard.

Speaker 0

I do think that carriers, as they've gone through the tests, really do feel like we're hitting the bullseye with the product that we have for them. I think that it's set up well as we look ahead.

Speaker 1

Okay, thanks for the caller. Your next question comes from the line of Graham Bundy with KBW. Please go ahead. Hello everyone, I am on for Ryan Tomasello today and I appreciate you taking my questions. First, you've had success taking price across many of your software brands over the last year or so. Going forward, will the approach be more consistent with annual price taking on renewals or should we expect your price taking to continue to be lumpy with a more multi-year approach?

Speaker 2

Our strategy is to continue to price the value. Our strategy is to continue to invest in innovation, continue to bring new features and products to market. I don't want to say exactly when we'll do price increases, but it's certainly our expectation that we'll be able to have ongoing price increases across our businesses. The upside to that is a lot of those businesses are driven by transaction volume in the real estate market and transaction volume is low both for new home sales and for refinancings. As the interest rates come down, our expectation is that that market will get healthier, will get closer to normal. All the good work we've done around innovating on products and raising price will be a nice upside that will essentially drop to the bottom line on those businesses. That's the strategy we're focused on.

Speaker 1

Okay, awesome. I appreciate the color there. My follow up, which you all have already touched on slightly, is just in terms of EBITDA margins. You've obviously already told us how you're thinking about the longer term potential, but over the near term, should we expect the pace of the margin expansion to be relatively consistent or do we also need to consider the potential for some opportunistic reinvestment that makes annual margin expansion a bit lumpier?

Speaker 0

Obviously we haven't provided 2026 guidance as we look ahead, but I'll just give you generally what we've talked about, which is we do expect to be able to show nice margin expansion while also investing in the business to be able to ensure that we're growing at the clips we want to grow. We don't expect it's going to need to be, the improvement is going to need to be lumpy. We think that we are going to be able to manage the business to be able to create a lot of value for shareholders. We think again, like I said before, the combination of really nice growth with margin expansion each year for an extended period of time, you know, we'll produce that.

Speaker 1

Awesome. Thank you for the caller.

Speaker 0

Thanks for the questions.

Speaker 1

It seems that we have no further questions for today. I would now like to turn the call back over to Matt Ehrlichman for closing remarks.

Speaker 0

I just appreciate folks tuning in and being with us on this journey. I think you can probably hear it come through hopefully. The team is fired up. We are in a good spot. The vibes across the company are, I would say, excellent. We're in the early days of building a really big, exciting business. We'll keep you up to speed as we continue to progress. I appreciate everybody's time. Have a great rest of the day.

Speaker 1

This concludes today's conference call. You may now disconnect.