Porch Group, Inc. Common Stock 2026 Q3 Earnings Call

Good afternoon, and thank you for participating in Porch Group's third quarter 2026 conference call. Earlier today, we issued our earnings 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 discussions, including responses to your questions, reflect management's views as of today, October 28, 2026. We undertake no obligation to update or revise these remarks. We will make forward-looking statements that involve risk 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 also be available after this call 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.

Thanks, John. Good afternoon, everyone. Q3 was another strong quarter for Porch, and we are proud of the team's execution. Reciprocal policies written grew 42% year-over-year. Adjusted EBITDA, excluding the Reciprocal, more than doubled. Insurance Services delivered its sixth consecutive Rule of 80 quarter, combining 39% revenue growth and 49% Adjusted EBITDA margin. These results drove another healthy raise to our full-year outlook. In my view, the key takeaway is that our organic growth system is working well. We have significant capacity at the Reciprocal, an expanding distribution funnel, rapid new customer growth, and disciplined underwriting. As that volume moves through our largely fixed Porch cost structure, it generates higher earnings, strong cash flow, and an improving financial profile. Our performance allows us to complement organic growth selectively through M&A.

We recently announced the pending acquisition of Allied Trust, a high-quality regional insurance company, which is expected to add scale, products, geographies, talent, and more than a decade of claims data. I'll turn to Allied shortly, but first, let's review our strong third quarter results. A few highlights. Reciprocal written premium, or RWP, was $161 million, up 17% year-over-year. Reciprocal policies written of 68,000 grew 42% year-over-year, which accelerated from Q2's 38% growth rate. As a reminder, we generate some of our Insurance Services revenue based on premium and some based on the number of policies. RWP flowed through to Insurance Services Adjusted EBITDA at a 31% conversion rate, reflecting continued operating leverage in Insurance Services. At the company-wide level, Adjusted EBITDA, excluding the Reciprocal, was 28% of RWP.

The strengthening earnings power is clear to see in the year-over-year comparison with Adjusted EBITDA, excluding the Reciprocal, of $44 million, more than doubling from the prior year period. Taken together, the quarter provides another clear proof point that the model is working. The framework for scaling Insurance Services remains straightforward. The Reciprocal statutory surplus provides capacity. Agencies and quote volume creates opportunities. Conversion turns those opportunities into policies and premium. Our proprietary data and underwriting discipline help determine which risks we want to win and at what price, producing leading loss ratios and more margin in the system. Let's look at total policy growth and then each component that builds to that result. You can see here in Q3, total Reciprocal policies written across new and renewal grew 42% year over year to 68,000.

The rate of growth accelerated from Q2, and we expect policy growth to remain strong in Q4. The expansion of the customer base is the purest indicator of our growth and momentum. Supporting continued growth begins with maintaining a strong capital position at the Reciprocal, which we measure primarily through statutory surplus as well as non-admitted assets. Since the launch of the Reciprocal, statutory surplus has increased by almost $75 million and in Q3 at $174 million. This is up $22 million from the prior year period and higher sequentially for the sixth consecutive quarter. The expanding surplus demonstrates the strength of the underlying underwriting results and provides substantial capacity to support disciplined premium growth. Exiting this quarter, the Reciprocal statutory surplus supports what is approaching $1 billion of premium.

The Reciprocal also holds non-admitted assets, primarily Porch shares, which we can turn into statutory surplus at our discretion or use in M&A to create substantial value. Including non-admitted assets, the Reciprocal has the ability to support over $2 billion of premium. With that capacity in place, the next component of the growth engine is expanding the distribution funnel. Our land and expand strategy continues to add new producing agencies and deepen production within existing relationships. In Q3, producing agency branch locations increased 114% year over year, while quote volume grew 79% and increased sequentially for the eighth consecutive quarter. We see a considerable runway to add producing agencies, increase production within existing relationships, and expand into additional geographies. Next, conversion rate, which was approximately flat versus Q2 and up 53% year over year.

Conversion rate is one of the levers we use to manage the policy and premium growth needed to achieve our internal revenue and profit objectives. In certain hard market cycles, there will be more premium and less policies, and in soft markets, the inverse. Given the strength of our top of funnel, we are in a fantastic position. We can manage conversion, maintain exceptional loss ratios to maximize overall margin in the system, and achieve our goals. Conversion rates strengthened throughout October, supporting accelerating premium policy growth in Q4 while maintaining the underwriting discipline and attractive earnings flow-through that are producing this year's substantial outperformance. Together, quotes and conversion produce RWP from new customers, which almost tripled year over year, increasing 178%. We are doing this while producing exceptional underwriting results.

For the quarter, the Reciprocal's overall gross loss ratio was 24%, and attritional losses, which exclude catastrophic weather events, was 18%. This excess margin in the system generates substantial cash flow, which can be used to supplement our organic growth with M&A. Speaking of which, a few weeks ago, we announced the proposed acquisition of Allied Trust, an established regional insurance company with meaningful operations in Texas and Louisiana and additional presence in the Carolinas. It is a strong strategic fit. Following closing, we expect to leverage Porch's proprietary property data to identify and reduce exposures that do not meet our internal targeted returns, improve pricing across the retained book, and focus future growth on the most attractive risks. We have constructed this deal to be efficient and accretive for Porch shareholders.

The approximately $200 million of aggregate consideration or $140 million net of Allied statutory surplus is separated between the Reciprocal and Porch Group. The Reciprocal is spending $105 million to acquire the insurance carrier, which is expected to have approximately $60 million of statutory surplus at closing, which immediately comes back. Net of that acquired surplus, the Reciprocal's effective purchase consideration is expected to be approximately $45 million, funded with a small amount of its non-admitted Porch shares. Overall, the deal is expected to be approximately statutory surplus neutral for the Reciprocal. Porch expects to spend $95 million to acquire Allied's managing general agency and captive reinsurance entities, $75 million in cash and $20 million in stock. For Porch, this represents an acquisition multiple of less than four times EBITDA, given the approximately $25 million of adjusted EBITDA expected to accrue to Porch in the first full year following closing.

Allied, similar to other homeowners' insurance companies, generates lower premium-to-earnings conversion than what Porch sees today. Following closing, we expect to improve those economics by applying our data and unique capabilities as we did with HOA previously. We expect those benefits to develop progressively over the 12 to 24 months following closing. With this, we expect the cash earnings generated by Allied to repay Porch's investment within three years. While we are not providing 2027 guidance until next quarter per our standard rhythm, we wanted to provide some initial visibility into what the baseline looks like next year, assuming a full year of Allied contributions. Our internal combined company 2027 target includes more than $900 million of RWP, more than 360,000 Reciprocal policies written, and more than $180 million of adjusted EBITDA, excluding Reciprocal.

Overall, we are making substantial progress toward the medium-term financial targets we established at our 2024 Investor Day of $3 billion of premium and $660 million of adjusted EBITDA. With that, I will turn the call over to Shawn to review our financial results and updated 2026 outlook.

Thank you, Matt. It is an exciting time at Porch. Strong results, confidence in our growth outlook, and M&A execution underway. The Allied transaction also expands our premium and EBITDA scale, improves our 2027 cash flow profile, and creates more attractive refinancing options, generating additional shareholder value. Okay, let us dig into Q3 financials, starting with a high-level summary. Our Insurance Services segment is the growth and cash flow engine for Porch and was the principal driver of our financial performance again in Q3. As Matt discussed, Reciprocal policies written grew 42%, expanding the current customer base and the future renewal opportunity. RWP of $161 million and policies written of 68,000 drove adjusted EBITDA, excluding the Reciprocal of $44 million, growth of 116% year-over-year. As it does, cash and investments for Porch shareholders increased in line with adjusted EBITDA. We also delivered a significant improvement in GAAP profitability.

Net income attributable to Porch was $12 million, up $23 million over the prior year. These results demonstrate the operating leverage in the model. As policies and RWP scale, a meaningful portion of incremental Insurance Services revenue can flow through to adjusted EBITDA and cash for Porch shareholders. Okay, let us walk through the revenue and segment results supporting that profitability. First, with revenue, total consolidated GAAP revenue was $144 million, up 13% year-over-year. Revenue for the Porch-owned segments, excluding the Reciprocal, was $141 million, up 22% year-over-year. Insurance Services was again the primary growth driver, with segment revenue up 39% year-over-year to $103 million. The Insurance Services growth and cash flow engine are the key drivers of our performance. So let us take a closer look at that segment.