Porch Group, Inc. Q1 FY2025 Earnings Call

Good afternoon, everyone, and thank you for participating in Porch Group's First Quarter 2025 Conference Call. Today, we issued our earnings release and filed our related Form 8-K with the SEC. The press release can be found on our Investor Relations website at ir.porchgroup.com. I would like to take a moment to review the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995, which provides important cautions regarding forward-looking statements. Today's discussion, including responses to your questions, reflects management's views as of today, May 6, 2025. We do not undertake any obligation to update or revise this information. Additionally, we will make forward-looking statements about our expected future financial or business performance or conditions, business strategy and plans. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from these forward-looking statements. Please refer to the information on this slide and in our SEC filings for important disclaimers. We will reference both GAAP and non-GAAP financial measures on today's call. Please refer to today's press release for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call, which are available on our website. As a reminder, this webcast will be available for replay along with the presentation shortly after this call on the company's website at ir.porchgroup.com. Joining me here today are Matt Ehrlichman, Porch Group's CEO, Chairman and Founder; Shawn Tabak, Porch Group's CFO; and Matthew Neagle, Porch Group’s COO. Thank you. I'll now turn the call over to Matt for key updates.

Good afternoon, everyone. Thanks for joining us. I've never been more excited to report on quarterly earnings as I am here for Q1 2025. After launching the member-owned Porch Reciprocal Exchange on January 1 and the corresponding sale of our Homeowners of America insurance carrier into the Reciprocal, this is the first quarter in which our business is, in our view, optimally structured. We've fully transformed to a simpler, commission and fee-based, higher-margin model that is more predictable for shareholders. And I'm pleased to report that the results are strong. Because of the standout Q1 results and the trends we're seeing, we are again increasing 2025 guidance. As I look ahead to the next several years, my expectation is very clear that we will grow profitability and cash flow faster than previously anticipated. Shawn will take you through the results, the increase in our guidance and the increase in our long-term model and margins shortly. So, this quarter marks a special time for the company. It's the moment Porch shareholders are no longer in the catastrophic weather claims business, while still participating in the attractive growth of the homeowners insurance industry, and with durable competitive advantages. This quarter demonstrates how effectively our business is now structured to scale. Overall, we delivered results for Porch shareholders that are exciting. Revenue of $85 million generated predominantly from $97 million of premium written at the carrier, which will label reciprocal written premium. Both of these numbers exceeded expectations. Now, as the manager of the Reciprocal rather than the carrier itself, revenue isn't apples-to-apples when comparing year-over-year given our transformation. However, gross profit and adjusted EBITDA certainly are good to look at to assess year-over-year growth and performance. And so we're having to report that in Q1, we realized 82% gross margins, which we expect will continue forward, demonstrating what we've been saying about the high-margin nature of our go-forward business. This produced Q1 gross profit of $69 million, which was a $32 million or 86% increase compared to gross profit in Q1 2024. Our business is now highly profitable. Net income attributable to Porch was positive at $8 million. We produced our highest ever Q1 adjusted EBITDA of $17 million, which is a 20% margin and above expectations. This was a $34 million increase over the prior year. Resulting from this, I'm excited to share that we not only generated positive cash for Porch shareholders, but significantly so at $27 million of positive cash flow from operations for Porch shareholders in the quarter, which includes $7 million collected related to the past Vesttoo pursuits. Operationally, we performed strongly. New business premium at our insurance business is performing well, our software and consumer service operations are progressing nicely, and we are investing more aggressively across these businesses to drive faster growth in 2026 and beyond. Finally, the Reciprocal remains healthy. The Reciprocal's April 1 reinsurance renewals were strong, lowered its catastrophic weather risk and provides Porch shareholders certainty and clarity as we move forward. This Reciprocal's cost of reinsurance decreased year-over-year given our strong underwriting results in 2024 and Porch's unique Home Factors property data. Meanwhile, the Reciprocal is healthy with $198 million of surplus combined with non-admitted assets at the end of Q1. Similar to a strong comparison we shared about 2023 performance, I'm pleased to share the A.M. Best report comparing results across carriers for 2024, the final year in which we owned Homeowners of America. As you can see on the slide, the carrier was number one in direct combined ratio performance in Texas out of carriers with more than $50 million in homeowners insurance premiums in the state. Across a US-wide comparison of carriers with more than $350 million of premium, our carrier was number three. This outperformance versus the market demonstrates the ability for the reciprocal to pay attractive management fees to Porch Group ongoing, while continuing to build surplus and it reinforces our differentiated capabilities that will sustain advantages for the long-term. We believe Porch is an excellent company to own during a turbulent time in the markets. First, we do not believe tariffs will have a significant impact on our business. We expect a mid-single-digit adjusted EBITDA impact at most, which has been built in and assumed in the increased guidance Shawn will share shortly. Second, if there is a recession, we believe our business is well protected and may even benefit. The majority of our business and income is generated from homeowners insurance premiums at the Reciprocal. As you can see in the chart on this slide, historically, homeowner insurance premiums just continued to grow in all economic cycles. It's an attractive industry to be playing in, especially in a commission and fee model without absorbing the weather volatility. If interest rates come down amidst the slowing economy, it could spark a housing market pickup, which will be attractive for our software, consumer service and insurance businesses. Third, if inflation picks up, we expect homeowners insurance price increases will accelerate, directly increasing our high-margin management fees. And finally, if weather worsens, it can now help our business; Porch doesn't absorb nor pay for the catastrophic weather claims under this reciprocal structure. More weather-related claims mean premiums will increase over time, growing fees produced for Porch and for our shareholders. The nice thing is generally, homeowners need homeowners insurance. So we don't see risk to this industry as a whole doing anything but continuing to grow. And our competitive advantages help us to consistently stand out. I'll now turn it over to Shawn to cover our strong financial results and raised guidance.

Thank you, Matt, and good afternoon, everyone. As mentioned earlier, we updated our segments as of January 1, 2025, to align with our new business model following the launch of insurance services in the Porch Reciprocal Exchange. Today, I will concentrate on the Porch shareholders component of our Q1 2025 financials. As a reminder, there are three segments contributing cash for Porch shareholders: insurance services, software and data, and consumer services, which is offset by corporate expenses. This is known as Porch shareholder interest. Since our primary objective is to generate cash for Porch shareholders and this is how we measure our success, our commentary during this earnings call will focus on this aspect and ongoing updates. Under GAAP, we are temporarily consolidating the Porch Reciprocal Exchange due to the surplus note relationship. We provide a reconciliation in our 10-Q and press release, illustrating the difference between Porch shareholder interest and GAAP consolidated financials, with the Reciprocal segment being the distinction. Where applicable, we will present previous year financials in a comparable format, so everyone can better grasp the trends in our business. The comparison for software and data and consumer services will be straightforward, but since the reciprocal model was not in place in 2024, the figures for insurance services and Porch shareholder interest will not be directly comparable. Now, let's review our strong Q1 results, which surpassed expectations. In Q1 2025, Porch shareholder interest revenue reached $84.5 million, with 59% from Insurance Services, 26% from Software and Data, and the rest from Consumer Services. The associated gross profit was $69.1 million, translating to a gross margin of 82%. The gross margin for Insurance Services was 85%, Software and Data was at 75%, and Consumer Services was 83%. Overall, gross profit grew by 86% year-over-year. For Q1 2025, Porch shareholder interest adjusted EBITDA amounted to $16.9 million, marking a $33.6 million increase compared to the prior year, largely owing to the Insurance Services business model. As Matt highlighted, the year-over-year improvements in gross profit and adjusted EBITDA are the clearest indicators of our progress. We are starting strong in fulfilling our commitments as the operator of the Reciprocal with higher margins and predictable outcomes. Now, let’s examine the segment results, beginning with Insurance Services. Porch's Insurance Services business generates revenue in several ways: management fees paid by the Reciprocal based on its written premium, policy fees from policyholders, non-catastrophic quota share reinsurance from Porch's captive reinsurer, which enhances capital efficiency for the Reciprocal, and third-party agency fees for homebuyer leads. Additionally, there is a roughly 15% return on a $106 million surplus note held with the Reciprocal. From $97 million of the Reciprocal’s written premium, Porch Insurance Services generated around 50%, or $49.8 million, which is high-margin and predictable. The associated gross profit was $42.3 million, achieving a gross margin of 85%. Adjusted EBITDA for this segment was $25.8 million, reflecting a 52% margin. Moving to Software and Data, revenue stood at $22 million, a 4% increase from the previous year, propelled by product launches and accompanying price hikes across several software businesses, slightly offset by a one-time revenue transaction. We anticipate growth in this sector to pick up in Q2 with high single-digit increases as we adjust for the Q1 nonrecurring items. Gross profit was $16.5 million, with a 75% gross margin. Adjusted EBITDA came in at $4.6 million, a $2 million increase from the previous year. It's worth noting that during Q1 2025, existing home sales in the housing market were down 2% from the previous year, with continued slow turnover. However, as interest rates decline in the future, we expect to see positive effects from pent-up demand. For now, we remain cautious and are forecasting a flat housing market for the year. Now, turning to Consumer Services, revenue was $14.7 million, down 9% year-over-year, largely due to the closure of lower-margin moving products like corporate relocation in the third quarter of 2024. The gross profit was $12.2 million, achieving an 83% gross margin. There was an adjusted EBITDA loss of $700,000, a decrease of $2.2 million from the previous year, driven by investments aimed at growth in 2026 and beyond. Over the past couple of years, we have significantly reduced corporate expenses as we transitioned to lower-cost locations and streamlined G&A back-office costs, which is evident in our cost control measures. Corporate expenses decreased by $2.2 million to $12.8 million in Q1 2025 compared to $15 million the previous year. Concerning the balance sheet, we see numerous benefits from shifting toward a commission and fee-based insurance services business model, which is simpler, higher margin, and asset-light. Our primary aim is to generate cash for Porch shareholders, closely aligning with adjusted EBITDA. In Q1, we also included additional information on cash flow from operations associated with Porch shareholder interest. As of March 31, 2025, Porch's cash plus investments stood at $114 million. Cash flow from operations for Porch shareholder interest reached $27 million, supported by adjusted EBITDA of $17 million and $7 million from the Vesttoo bankruptcy process, with potential for more in the future. Additionally, our ongoing litigation with other parties is still in progress, and we will keep you updated as developments occur. Now, let's discuss our revised guidance for 2025 concerning Porch shareholder interest. Following our first full quarter post-Reciprocal launch and our transition to a high-margin operator, we've observed encouraging results. The good news is that the model is outperforming our initial expectations. In light of macroeconomic challenges and tariffs, which have been accounted for, we are raising our 2025 guidance across the board. We are increasing our revenue guidance by $10 million to a range of $400 million to $420 million. Our gross profit guidance is also being raised by $10 million, now between $320 million and $335 million, maintaining a gross margin of around 80%. We're increasing our adjusted EBITDA guidance by $5 million, now projected to be between $60 million and $70 million. This change reflects three factors: first, Q1 2025 adjusted EBITDA surpassed our internal expectations by about $5 million. Second, we are pleased with the performance of our Insurance Services segment following the Reciprocal transition, prompting a $5 million guidance increase for the year, even considering the mid-single-digit millions in tariff-related impacts mentioned by Matt. Lastly, these increases are partially offset by about $5 million allocated for additional investments in 2025 to accelerate growth into 2026 and beyond. Starting on April 1, when we renewed our reinsurance contracts, we improved the terms of the non-catastrophic quota share contract for the Reciprocal to build a more substantial surplus cushion and scale insurance premiums. Consequently, for Q2, adjusted EBITDA for Porch is expected to be approximately $5 million to $7 million lower than Q1 but is anticipated to see considerable growth in Q3 and Q4. Given that this is our first quarter with actual results reflecting our ongoing structure, we wanted to provide the updates shared at our Investor Day in December. Just a quick note, we will not be updating the long-term model on a quarterly basis. Since it is our inaugural quarter of results, we felt it was essential to share this information. As seen in the Q1 results, we now project the Reciprocal's written premium to convert to Porch Insurance Services revenue at around 50%, up from the previous 40%. If we apply this improved conversion rate to our long-term target of $3 billion in premium, we anticipate a long-term Porch shareholder revenue target of $2.3 billion. Consistent with our Q1 results, we expect to maintain gross margins of 80% and a 30% adjusted EBITDA margin, leading to an expected adjusted EBITDA of $660 million at the $3 billion premium mark.

Thank you, Shawn. I'd like to start by providing an update on our four strategic focus areas to drive revenue growth for the business. First is to scale insurance premiums. In Q1 2025, new business growth accelerated, driven by strong execution across geographies, pricing and distribution. Most ZIP codes across our largest states are reopened at this time. Texas, our largest state, implemented a 16% rate increase, reinforcing our commitment to pricing discipline. We remain careful in risk evaluation on both new and renewal policies to ensure profit targets are hit, therefore, keeping the Reciprocal healthy and growing surplus. During this time, most premium growth comes from price increases, generating more Reciprocal written premium and thus management fees for Porch without increasing risk. Key hires have strengthened our insurance leadership team. And we successfully placed its new reinsurance program with over 40 investment-grade partners, reducing the Reciprocal's risk. Importantly, Porch shareholders are no longer in the catastrophic weather claims business. The second area of revenue growth is software innovation, where we have made meaningful progress against our roadmap. In Q1, Rynoh implemented a 20% price increase, in line with our strategic pricing goals. Our inspection business launched an expanded partnership with one of the largest inspection franchises in the country. Floify, our mortgage SaaS business, launched a new product, Floify Quick Apply, which autofills up to 80% of a mortgage application, streamlining borrower onboarding and driving adoption. Next is the growth of our data business. We continue to expand Home Factors, our unique property insights product, adding further value for the Reciprocal and third-party carriers. Lastly, accessing more homebuyers. We made strategic progress in reaching and monetizing high-value homebuyers and launched new offerings such as packaging services to make their move easier. Before we delve into our key performance indicators for Insurance Services, I want to provide a few important reminders regarding our segment reporting and prior year comparisons. Early in the first quarter of last year, we divested our EIG business. Additionally, our prior insurance segment included our warranty business, which has now been strategically aligned within our new Consumer Services segment. This realignment allows for greater focus on the distinct growth and profitability drivers of each business. These changes in our business structure make direct year-over-year comparisons to previously disclosed KPIs less relevant as they are based on a different basis. Furthermore, in support of our profitability objectives, we executed material non-renewals that extended through the first half of last year. This will naturally impact our year-over-year comparisons for the current period. With these factors in mind, let's now turn to our new key performance indicators. As Shawn noted, our Insurance Services generate economics primarily through Reciprocal written premium, or RWP, which represents premium written by the Reciprocal before any policyholder cancellations. We earn a management fee based on a percentage of this RWP. In the first quarter, Reciprocal written premium reached $97 million, reflecting an approximate 10% increase compared to the prior year. Looking ahead, we anticipate continued growth in RWP throughout the remainder of the year. This expectation is driven by the historic seasonality of renewal policies where the first quarter typically sees lower volumes compared to the second, third, and fourth quarters due to the typical patterns of homebuyer activity in new construction during the spring, summer, and fall months. Moreover, our ongoing efforts to expand our distribution channels and implement strategic price increases are expected to further contribute to RWP growth. Reciprocal policies written reflects the total number of new and renewal insurance policies written by the Reciprocal during the period. We generate policy fee revenue directly from these policyholders. Reciprocal written policies were 36,000 in Q1. Given Q1 has historically the fewest renewal policies written, looking ahead to the second quarter, we expect reciprocal policies written to be north of 50,000 policies in that quarter. This anticipated increase is driven by the historical seasonality and the improving momentum in our new business growth engine. RWP per policy written is calculated by dividing the Reciprocal written premium by the total number of Reciprocal policies written. In the first quarter, RWP per policy written stood at $2,683. As mentioned before, we are encouraged by the momentum we are building in our new business initiatives. In the first quarter of 2025, we saw Reciprocal new business premium double on an apples-to-apples comparison to the prior year, demonstrating the effectiveness of our efforts to expand our reach and attract new policyholders. While we continue to see some residual impact on our renewal rates from our prior profitability initiatives, growing renewal premium represents a significant opportunity for growth. We are actively focused on enhancing our renewal strategies and expect to see improvement in these rates as we progress through the year. Finally, as Matt mentioned, the Porch Reciprocal Exchange maintains a strong financial position with a healthy surplus combined with non-admitted assets totaling $198 million. For software and data, we have a number of companies in the annualized revenue per company. In Q1, we served 24,000 companies with an annualized revenue per company of $3,644. Reminder, this only includes companies related to our software and data segment and no longer includes moving companies or insurance agencies. On that basis, the number of companies has been relatively flat and we expect that to continue until the housing market picks up. As we discussed previously, strategic price increases are driving increases in revenue per company, and we expect that to continue. For Consumer Services, we have the monetized services and annualized revenue per monetized service. In Q1, we had 71,000 monetized services with annualized revenue per monetized service of $207. Reminder, this only includes monetized services relating to our Consumer Services segment and does not include insurance policies nor transactions in the software segment. I'll pass it back to Matt now to wrap us up.

Thanks, Matthew. I'll quickly wrap just by reinforcing the most important messages from today, and then we'll dive into Q&A. First, delivering quarterly adjusted EBITDA of $17 million in Q1 2025. Again, a $34 million increase year-over-year. Number two, this translated to $27 million of positive Porch shareholder interest cash flow from operations. Again, we think that's a really important stat. Number three, we increased our 2025 adjusted EBITDA guidance by $5 million to $65 million at the midpoint. We demonstrated what we said: we are now a high-margin business and produced 82% gross margins. Again, we're proud of our $69 million of Q1 gross profit being an 86% year-over-year increase. We completed the reinsurance renewals at Reciprocal as we said, reducing its exposure to catastrophic weather claims and lowering reinsurance costs. Porch shareholders not being in the catastrophic weather claims business is great, and I do want to express appreciation to the great partnerships with more than 40 A-rated high-quality reinsurers. Our premium growth plan is on track, and we are seeing strong signs related to new business growth. Lastly, there are no significant impacts from tariffs. The majority of our business is homeowners insurance, which is stable in a recession. So, folks, we're off to a strong start, and we look forward to a fun and exciting year and years ahead. Thank you to our shareholders for your continued support. With that, Lisa, please open the call for questions.

And we'll take the first question from Daniel Kurnos, Benchmark.

Thanks, Matt. Not much to add here. It's been a fantastic quarter, particularly on the insurance side. Can I get some clarity from Shawn on why the take rate was so high this quarter? I understand there's some built-in with the TDI, but is it tied to the surplus or what specifically contributed to that? Also, considering your strong start to the year, what's your willingness to lean in more? You provided an initial GWP guidance, and Q1 was excellent. It seems you're increasingly engaging with agents and writing new policies. Are you open to accelerating from here, especially given how strong your start has been? Thanks.

Thanks, Dan. Shawn, why don't you take the first one? And Matthew, maybe you can take the second one, premium growth.

Yeah, sure. Happy to. Yeah, the Reciprocal written premium converted to revenue at about 50%. We do expect that to be close to the ongoing rate there. A couple of things on that. First of all, Porch Insurance Services segment does receive policy fees directly from the policyholder. So that's included there as well. And then second, there are management fees that are paid by the Reciprocal as well as the captive arrangement, the captive reinsurance arrangement that insurance services has with the Reciprocal. The thing to remember about the captive is the Porch also pays commission and sales and marketing and a portion of the attritional losses back to the Reciprocal. So you can see that all flowing through the Porch Insurance Services P&L that we broke out. The main thing I think we think about with respect to the Reciprocal is it's in a really healthy spot from a surplus perspective. We ended the quarter with almost $200 million of surplus combined with non-admitted assets. That's the highest that metric has ever been for the Reciprocal. We do expect it to move around from quarter to quarter, especially as there's weather claims at the Reciprocal, but all in all, a very healthy spot for the Reciprocal to be in there. We do expect that to be highest at Q4.

I can discuss our plans regarding premium growth. Just to reiterate some of the prepared comments, we've seen RWP grow 10% year-over-year on a comparable basis. The area we focused on, particularly in Q4, was our agency distribution, where appointing and reactivating new agents has resulted in over 100% new business premium growth in Q1. We have several options to continue growing RWP over time. As Shawn mentioned, we've begun making more investments, and I'll outline some of those opportunities, which include both short-term and medium-term initiatives. We will keep investing in our growth team to engage agents and ensure that our commissions and incentives remain competitive and appealing. Additionally, we are exploring new geographies and states where we can introduce our products. We're in the early stages of our Porch insurance product, which presents a different value proposition for consumers and agents, and we will focus on developing that further. We have options regarding our products that can enhance our attractiveness in the market, and while we will make some near-term adjustments, we are also investing significantly in data utilization and enhancing our pricing sophistication, which will allow us to pursue growth and pricing more aggressively with confidence in our profitability. Finally, there is still potential for price increases, albeit at a slower pace than in the past. The market is massive, and we have ample opportunities ahead of us as we begin mid-term investments in acquiring additional senior talent and establishing systems to scale in pursuit of $3 billion in premium over the next 7 to 10 years. There is a lot to look forward to.

Matt, can I just follow up on one thing super quickly? Like, if replacement value were to go up as a result of tariffs or just in the general market and given that you guys have a lot more of a dynamic model with your data advantage would, a, you'd be confident in being able to pass through premium increases? And b, do you think it would make you more advantageous relative to others given that you have a lot more visibility into the actual products themselves?

I view these as two main areas. First, we consistently assess and update the replacement value, which tends to increase prices as we enhance coverage. Regarding your second point, we firmly believe that as we integrate more data into our pricing, which we are continuously doing, we will have opportunities to invest in improving our pricing sophistication. We are confident that the combination of our unique data and this increased sophistication will enable us to target lower-risk segments where we can command competitive pricing. This is definitely the strategy we are pursuing, and we will continue to make progress on this both now and in the future.

Awesome. Thanks for sticking with me and appreciate all the color. Two for two, Mr. Ehrlichman. Well done.

Thanks, Dan. Appreciate it.

John Campbell from Stephens Inc. has the next question.

Good afternoon, everyone. I agree, it's a great start to the year. It looks like you're building momentum, and we’re beginning to see what life will be like under the new Reciprocal, so well done all around. I wanted to gather some insights regarding your experiences so far with Reciprocal. Perhaps this sheds light on the increased take rate, but in Texas, what percentage of consumers are choosing HOA compared to Porch Insurance? How does that align with your expectations?

Yeah. I'd say, we don't provide a specific metric on that, although Matthew did obviously provide just kind of overall new business growth metric, which we're clearly excited about. I will say, John, though, that we have positioned our products for certain segments where we really are focused, homebuyers, like Matthew mentioned, we want to be known as being the best homeowner insurance company for homebuyers. Those consumers, which represent almost 40% of all the homeowner insurance purchases that happen each year are by homebuyers generally, and so we actually convert really well for those customers. New construction is another segment we convert really well for. Obviously, because of our data, homes that are better maintained or lower risk, we're naturally going to play better. So I will say the answer to your question would vary depending on the different kind of sub-segments within Texas. But clearly, overall, we feel like we're in a good spot, given how new business premium is growing.

Okay. That's helpful. And then on the HOA surplus, you guys had mentioned the $198 million. And then I think you had targeted $100 million by end of year. I don't know if those are apples-to-apples. Maybe if you could just shed some light on that? And then just broadly, how much surplus kind of typically draws down throughout the year?

As of December 31 last year, the surplus combined with non-admitted assets was $157 million. It increased to nearly $200 million, specifically $198 million, in Q1. This is a very strong position and the highest this metric has been for the Reciprocal. We focus on this to maintain the health of the Reciprocal. Historically, our earnings pattern shows that in the first half of the year, we typically experience losses due to catastrophic weather, while in the second half, we usually generate income. Despite this, the Reciprocal had a strong Q1, with a net loss improvement of about $10 million year-over-year. This reflects the underlying benefits we've discussed, including Home Factors and other aspects. We anticipate that surplus combined with non-admitted assets will fluctuate each quarter based on the carrier’s business, but we are starting the year in very good shape.

Okay. That's helpful. And then one more to add. Just relative to the Porch shares within HOA for the surplus. You guys have been pretty clear about the flywheel effect, which is super enticing. I'm just trying to get a sense for how that's calculated at the regulatory level, if you're able to capture all of that appreciation? Or is it capped to some extent?

There is some capitalization included in the surplus number that gets reported. One aspect we consider is the surplus combined with the total value of the Porch shares included. I view this as essentially the net assets of the Reciprocal business, which we believe offers a good indication of its overall value. The technical surplus reported will be around $105 million, which is a strong figure, and there's definitely potential for more if you factor in the total net assets.

To add to your point, John, we believe that the surplus combined with the non-admitted asset figure of $198 million is the most accurate representation. The Reciprocal could sell some of those shares if needed, but that's not our plan. We anticipate that the stock will reflect the company's true value as we continue to develop it. Thus, we believe this is the number we should focus on. Regarding the flywheel, we are excited about its performance. With the current structure, as Porch's stock price increases, the net asset number will rise, allowing for greater premium growth. We expect to see premium growth accelerate, and investors can already observe how this premium translates into cash flow for Porch shareholders, which we believe will help accurately reflect the company's value going forward. It's a thrilling moment to report a successful quarter and show that what we've stated is occurring is indeed happening and will continue.

Absolutely. Makes a lot of sense. Thanks, guys.

Thanks, John. Appreciate it.

The next question is from Jason Kreyer, Craig-Hallum.

Great. Thank you, guys. Impressive work here. So I wanted to just ask about the reinsurance process. If you can give some more details there. If I'm understanding that right, you're now going to carry less risk, but also paying less for reinsurance. And I'm curious as you went through the process, just if you can share some dialogue about the reinsurer's appetite to work with Porch and how that's changed.

Sure. So, first things first, which is we are proud and appreciative of the relationships we have with these great reinsurance companies. There's been long-standing relationships. We look forward to working with these partners for years and years and years to come. Yes, we are pleased with how the reinsurance renewal went because to your point, we've now set the retention limit for the reciprocal at $25 million, which we think is a really healthy spot for it to be. And so if there are large weather events, we have support from third-party partners who would then be able to step in and really mitigate the risk around catastrophic weather for the Reciprocal itself. We shared today the AM Best results in terms of how well the carrier has performed versus others. And so clearly, we share that data with third-party reinsurers. And so when it came down to pricing, the reality is that our business does stand out versus other carriers. And so through that, we were able to get benefit in just pricing overall and just the participation in that book. So net, yes, we're pleased with how that process went overall.

Thank you. Appreciate that. Staying with the Reciprocal written premium topic, I know we've talked about that a little bit. But can you give any transparency on what we should expect on how that breaks out between rate increases versus policy acquisition over the course of the year?

We don't break that out. We've shared that Texas has a 16% price increase. I shared we'll continue to look for opportunities for price increases. It's an ongoing thing we look at very closely, but we do expect them to slow down. And then I shared we're very focused on rebuilding our growth engine, and we're seeing great momentum with our new business premium. And we have the opportunity over time to grow renewal premium. And then I also share just for clarity, we do expect reciprocal written premium to increase in Q2 over $50 million, and that's due to the combination of historical seasonality of when we typically acquire policies and the momentum that we're seeing in our new business premium.

We'll take the next question from Ryan Tomasello, KBW.

Hi, everyone. Thanks for taking the questions. In terms of the growth levers for the Reciprocal, can you say what percent of your prior active footprint was essentially turned off when you guys pulled back? And how much of those ZIP codes you've reopened again? And then as a follow-up, on the agent channel, if you can just maybe contextualize how large that is today, maybe in terms of, I guess, the number of agents that you're working with and how that compares to where the prior peak was? Just help us understand how much low-hanging fruit there is here as you turn that back on.

Yeah. Maybe I'll take the first, and Matthew, why don't you take the second around agencies. We didn't disclose, Ryan, specifically like how many geographies or ZIP codes we had closed previously. But we were very clear that we were constraining growth and managing premiums to flat as we were taking price increases. And so you'll recall both the non-renewals, but then closing ZIP codes. So there were certainly wide sets of areas that we were not taking business in. I would say, for the most part at this point, those ZIP codes have been fully reopened. So we've started to do that in November. Once we had approval around the Reciprocal, we've been executing against that. Only last comment on geographies, and I'll turn it over to Matthew is there is a lot of additional geographic expansion with new states. And so we do expect to continue to open up new geographies in new states, and that will just be an ongoing process. So more to announce as we go there.

Yeah. So we don't today disclose the number of active agents or the number of quoting agents. It is growing nicely due to the efforts that we really kicked off just in Q4. The additional commentary I want you guys to keep in mind is we just started in Q4. So as an example, the growth team, I think, just this week reached the initial size that we intended for this year. I would also share that the historical numbers are kind of interesting, but what's more interesting is just the sheer number of agents that are out there. And I would say we're still very early at engaging the full prospect list of potential agents. And that prospect list will grow as we expand into new states, and there is energy and excitement around Porch Insurance. And so as we further grow and develop our Porch Insurance product set, we see opportunity to get more engagement from agencies. And then on top of that, once we get agents involved with Porch, there's a whole other lever, which is how do we become a top carrier within their book of business. And I would say that one, we are very early days. A lot of these agents that we’re reengaging or that were we've appointed, we are not yet a significant part of their business. And so we have this big clear path through the agency channel to go grow materially that is through time, effort, blocking and tackling and continuing to provide good incentives, good products and a good claims experience and make it easy to do business with us, and that's what we're going to be focused on. But there's a lot of room still, I think, is the primary message.

And then just wanted to clarify the numbers on the surplus that you talked about earlier. Shawn, so you mentioned, I think $105 million is the statutory amount and then the $198 million is statutory plus non-admitted assets. Does the $105 million include a haircut amount of the share value? Because by my math, the share value at March 31 was like $133 million. So, I'm just trying to get to that plug of like what's in the $105 million and then what's in $198 million, if that makes sense.

$198 million refers to surplus combined with non-admitted assets. Some of the Porch shares are not included, and their value is not part of the filed surplus amount. As Matt mentioned, there might be potential to liquidate some of those shares in the future, though that's not anticipated. Within the surplus figure of approximately $105 million, some share value is included as well. If you take the highest figure of $198 million and subtract the value of 18.3 million shares at the $7.20 stock price from the end of the quarter, you would arrive at the surplus excluding any shares. Those are the various components involved. I hope that clarifies things.

Got it. Thanks for the clarifications.

Thanks, Ryan. Appreciate it.

We'll take the next question from Jason Helfstein, Oppenheimer.

Hey, Shawn, so I want to start out, in your prepared remarks, you said something about for the time being, you're consolidating the Reciprocal. So can you go through the steps of what would need to happen for you to have a kind of GAAP reported without Reciprocal included? And then secondly, when we look at Software and Data, and Consumer Services, Software and Data revenue is basically flat year-over-year. Consumer Services down, kind of how do you see kind of those businesses potentially improving as housing market gets unlocked, presumably at some point in the back half of this year. And I guess I'll say we've seen pretty good momentum in the more affluent homes and kind of underperformance in the less affluent homes within housing transactions. So I don't know how all that ties together. Thank you.

Let's do the second one first and then Shawn go to the first one just briefly. I'll start and then Matthew layer on. Maybe you can talk about some of the investments and growth opportunities. But just quickly, it doesn't matter to us really that much, Jason, if there's sales for more affluent homes or less; it's not based on the total dollar amount, it's really around the number of total transactions that are running through the system. Our software products charge on a per transaction basis. Based on the number of existing home sales and also in some of our software businesses on the number of refinance transactions. And so obviously, that also is just very, very low right now. And so as the transaction volume picks up, then we benefit, and we will be able to feel those tailwinds. Maybe, Matthew, just take one more minute on that question in terms of some of the investments, then Shawn, to you on the first one.

Yeah. So, as Matt mentioned, as transaction volume goes up, we'll benefit. In addition, for Software & Data, there are investments being made into Home Factors, both the product itself and the go-to-market and our core strategy with the software businesses, while the housing market has been flat, has been to invest in innovation to be able to drive price increases so that as transaction volume comes back, we are well positioned. We have been doing that, and we've pulled the trigger to invest more into that innovation to support price increases, which will benefit us as the market comes back. On Consumer Services, we certainly have some impact related to housing volumes; our moving business in some of our core channels around warranty are tied to new homebuyers. And we have also decided there's opportunity to invest there, in particular, in trying to get access to more consumers through our app, through a website called MovingPlace, which will be a destination site for all types of moving services. We just launched packing there in Q1. And also looking at how can we better partner with real estate agents in order to get us access to home buyers, which is a great segment for us because we can sell them a variety of services, especially insurance. Thanks.

We are consolidating the Reciprocal due to the surplus note, which is a key factor in this decision. We are very satisfied with the structure, especially since the surplus note has an attractive 15% coupon. There is no urgency to make changes at this time, and we may consider selling the surplus in the future. Currently, we are pleased with the overall business performance, the transition of the Reciprocal, and the surplus note we hold.

Okay. thanks.

Thank you.

We'll go next to Tim Greaves, Loop Capital. Tim, your line is open. Please check your mute button.

Hello, can you hear me?

Yes.

Yeah. We hear you now.

Thank you for taking the question. I would like to ask about Home Factors. I want to understand the strength of the pipeline in Home Factors and how that might impact revenue in the future.

Sure. I can speak to those. I think about the pipeline in two ways. One is the conversations we're having with carriers, and what excites us is that we are engaging with carriers who are actively working through their testing processes using their claims data to demonstrate that the Home Factors help them better predict risk. This creates numerous opportunities for us. The second way I think about the pipeline is that we are still developing new Home Factors. As we build out more Home Factors, there are more opportunities for us to assist carriers in improving their pricing and underwriting, which also creates opportunities for us. Regarding revenue impact, we've communicated in the past that there won't be much for 2025, but we expect to start seeing it build in 2026.

Thank you for the question.

And everyone, at this time, there are no further questions. I'd like to hand the conference back to Mr. Matt Ehrlichman for any additional or closing remarks.

I'll just say thank you to all for joining us today. Thanks for those questions, and to our shareholders. Thanks for the continued support. As you can tell, we are excited about how this year and years ahead are shaping up. With that, we will end the call. Have a great rest of the day. Take care.

And once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.