Porch Group PRCH Q4 2025 Earnings Call Transcript

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DATE

Wednesday, February 11, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Matt Ehrlichman
• Chief Financial Officer — Shawn Tabak
• Chief Operating Officer — Matthew Neagle

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TAKEAWAYS

• Adjusted EBITDA -- $76.6 million for the year, representing an 11-fold increase over 2024 and exceeding initial guidance of $50 million.
• Cash Flow from Operations -- $65.4 million for the year, demonstrating 85% conversion from adjusted EBITDA and underscoring high-quality profitability.
• Statutory Surplus -- $155 million at year-end, up $49.4 million or 47% versus the prior year, supporting the capacity to underwrite up to $780 million in written premium without further growth.
• Reciprocal Written Premium (RWP) -- $125.7 million in the quarter, with a muted Q4 seasonal decline due to accelerated new customer additions and pricing actions.
• Total Revenue -- $112.3 million for the quarter; full-year revenue reached $418.9 million, with 64% from insurance services, 22% from software and data, and the remainder from consumer services.
• Gross Profit and Margin -- Quarterly gross profit was $91.4 million at an 81% margin; insurance services gross margin was 86%.
• Insurance Services Segment EBITDA -- $29 million adjusted EBITDA in the quarter, a 38% margin and 23% of segment RWP, up 465 basis points sequentially.
• Software and Data Segment -- Q4 revenue was $22.3 million, up 3%; gross margin declined 580 basis points year over year to 65% due to $2.1 million in one-time software costs; adjusted EBITDA reached $3.7 million.
• Consumer Services Segment -- Q4 revenue was $16.6 million, up 2%; gross profit of $14.2 million, with an 85% margin; adjusted EBITDA was $1 million.
• Policy Metrics -- Nearly 49,000 insurance policies written in the quarter, with RWP per policy of $2,569.
• Agency and Quote Growth -- Active agencies more than doubled year over year and rose 30% sequentially, leading to nearly 3x higher quote volume than the prior year and a 9% sequential increase.
• Premium Growth Drivers -- November new business premiums increased 61% versus the January–October 2025 average; December rose 104% above the same baseline.
• Homeowners Loss Ratios -- Full-year gross loss ratio of 27% and attritional loss ratio of 17%, reflecting strict underwriting and risk selection.
• 2026 Guidance -- Projected $600 million organic RWP (25% premium growth), $475 million–$490 million revenue (13%–17% growth), $98 million–$105 million adjusted EBITDA (margin ~21%), and gross margin of 81%–82%.
• Share Repurchase Authorization -- Board approved a $2.5 million share buyback program, the maximum permissible under the current indenture.
• Porch Insurance Rollout -- Launched a new homeowners insurance product in Texas in January 2026, with agents able to offer enhanced coverage and compensation.

SUMMARY

The company replaced its legacy carrier model with a reciprocal structure, posting high-quality cash profits and strong GAAP gross profit growth versus the prior year.

Management expects insurance services revenue growth above 20% in 2026, while software and consumer services segments are projected to grow modestly in a continued weak U.S. housing market. Porch Insurance, a differentiated proprietary product launched in Texas, is positioned as a key strategic asset to accelerate agent engagement and policy conversion. Statutory surplus is not highly sensitive to swings in the company's equity price, ensuring stability in underwriting capacity for the target growth rate. Management articulated that price reductions for select low-risk customers contributed to accelerated new business, rather than broad premium increases.

• Q4 adjusted EBITDA margin declined year over year due to seasonality from the legacy carrier model and favored prior Q4 periods.
• The company intends to sunset certain legacy software products for small contractors to improve profitability, reducing segment revenue and company-count KPIs while increasing revenue per company.
• Initial 2026 guidance expects sequential improvement in adjusted EBITDA performance after Q1, as top-line growth accelerates and comparisons to captive reinsurance terms normalize.
• Management stated, "we are not seeing any changes in competition that impacts our quote volumes or conversion rates," confirming a positive outlook on continued premium expansion.
• The company reported a 580 basis-point annual decline in software gross margin, attributed to incremental, nonrecurring costs not expected to recur in future periods.
• Excess surplus may enable future book rolls or renewal rights transactions, in addition to organic premium growth.

INDUSTRY GLOSSARY

• Reciprocal Written Premium (RWP): Total insurance premium generated and written by the reciprocal exchange structure, excluding any ceded or reinsured amounts.
• Statutory Surplus: Excess of admitted assets over liabilities for insurance entities, determining regulatory capacity to underwrite additional premiums.
• Attritional Loss Ratio: Ratio of non-catastrophic losses to premium earned, excluding large or weather-related events.
• Book Roll: Transfer of a portfolio of insurance policies from one carrier to another, frequently used to acquire premium without incremental capital outlay.

Full Conference Call Transcript

Matt Ehrlichman: 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 and 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 in 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 3 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 the decline in the Porch stock price in the quarter.

For the year, step 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 in 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.

As 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 balance. 2025 proved this point. The reciprocal saw full year gross loss ratios of 27%, an 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 the 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 reciprocals statutory surplus combined with nonadmitted 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 Ports 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 at. 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 Sean to cover our financial results.

Shawn Tabak: 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 in agency incentives to accelerate premium. These actions increased the new customer conversion rate.

Number three, Reciprocal surplus finished the year in a strong position with $289 million of Circa Plus 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 the scale RWP effectively. And finally, number four, Looking ahead to 2026, we are accelerating toward our RWP target of $600 million. This was 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 and 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 in execution of stronger-than-expected customer additions, Matt mentioned previously.

Insurance Services revenue was $75.7 million or 60% of RWP. Revenue comes from 4 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%. And 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 and 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 and 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 $0.5 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 600 -- sorry, 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 and 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 in 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 read.

Matthew Neagle: 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 Ballan Group and prepared for a Q1 launch with SmartChoice, 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 were 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 quotes 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 rate premium was $126 million, ahead of expectations. As you can see on 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 generated policy fee revenue directly from these policyholders.

In the quarter, we wrote nearly 49,000 policies. RWP, per policy ring is calculated by dividing the reciprocal rate 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 and 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 flagged potential defects for validation and 1 click report and chip 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 factors 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 and 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 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 in preparing the organization to support Porch Insurance. Like software and data, we feel our targeted investments in 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 on warranty, Four 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 and 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 home buyers in growing insurance services revenue faster. I'll now pass it back to Matt to wrap this up.

Matt Ehrlichman: 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's 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 differentiate.

I've 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.

John Campbell: Thank you. [Operator Instructions]Our first question comes from the line of Ryan Tomasello with KBW.

Ryan Tomasello: Nice to see the top of funnel, a 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?

Matt Ehrlichman: 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? And 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 a 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.

Ryan Tomasello: And then in terms of the RWP EBITDA conversion, that came in at 23% in the quarter, which was 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 WPD EBITDA conversion for the outlook in 2026?

Daniel Kurnos: 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. It 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 $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, an 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 it's a very high conversion rate.

And I think it just shows the quality of the adjusted EBITDA that we're generating for shareholders.

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

Jason Helfstein: 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 call like a chub 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, is with Goose that plays into that? And then secondly, just talk about like why you alluded to, 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.

Matt Ehrlichman: Maybe I'll take the first. Matthew later 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 you 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. Just on we're they get additional coverage, full home warranty. We want Porch insurance to be definitively known as the best insurance product for a home buyer because they get full moving service as well.

So we've 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 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 a 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, a 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. John, do you want to take Q4 results and versus kind of expectations?

John Campbell: 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 Matt, 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.

Operator: Our next question comes from the line of Dan Kurnos with Stone. .

Daniel Kurnos: Great. Matt, let me 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 here's 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.

Matt Ehrlichman: You got good questions. I'll take them. The first I mean candidly, and also, I don't know how 1 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 the natural kind of characteristics of the market where you buy our product, and you usually have it for a long time, exists. 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 at the reciprocal dramatically this last year. Can we grow top of funnel? And clearly, we've dramatically grown the number of agencies, the number of quotes and so then it really is just what the conversion rate is. And when we talk about 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 on 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, our team meetings fired up about what is ahead for these next 30 years. And when we talk about that midterm goal of 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? 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. It was a lot for answer number one. Number two, the -- 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 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, 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 optionality for ourselves

Daniel Kurnos: Very comprehensive, Matt. .

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

Jason Kreyer: 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 a 25% growth target for RWP, how are you balancing that between premium growth and policy growth?

Matthew Neagle: 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.

Jason Kreyer: I wanted to also just ask on surplus a little bit because we've talked 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 of the change in equity impact that versus how much surplus gain came from operational?

Unknown Executive: Yes. I'm glad you asked that question. I think that's an important 1 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 18,300 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 and in Q4 was around $9. So with that drop in the stock price, there is 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, the other things I'd mention the reciprocals generated a lot of income. So it basin taxes. So that offset some of the underwriting profit. And then all of those 2 things were offset by a really strong underwriting performance with the loss ratios, which just generates operating income after reciprocal. So those are the components. And I guess, what I would just reiterate what I said that from a statutory surplus perspective, I think we're really well positioned for 2026 and our growth goals ahead.

Jason Kreyer: 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?

Shawn Tabak: Yes. The impact from the stock price movement was just over 10%. It was a little bit more than 10%, but it was around 10 Yes. .

Operator: Our next question comes from the line of Timothy Austin from B. Riley Securities.

Timothy D'Agostino: 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, per 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 for our agencies on at the end of the quarter?

Matthew Neagle: 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 into growth in 2026.

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

Timothy Greaves: 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 our focus from more in-house agents to independent agents from an optician. So that is the query, there would be great.

Matt Ehrlichman: I mean there is just this slow but broad shift 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 owners insurance policies were purchased through agents. It's a complex product. We think that they're really an 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.

Timothy Greaves: Okay. I guess my next question would be around the affordability and shopability conversations. What are your thoughts around the affordability conversation and its potential impact to Porch, especially what you guys operate 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 competitive wins versus more like, I guess, greenfield typical win?

Matthew Neagle: Yes. I mean, certainly, affordability is currently a national conversation. As I had mentioned earlier, we are 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, prices are 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.

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

Matt Ehrlichman: Thanks very much. Appreciate it. As always, we appreciate the questions. I appreciate the engagement. 2025 was obviously, it's 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.

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