Porch Group, Inc. Q2 FY2025 Earnings Call

Good afternoon, everyone, and thank you for participating in Porch Group's Second Quarter 2025 Conference Call. Today, we issued our earnings release and filed our related Form 8-K with the SEC. The press release can be found on our Investor Relations website at ir.porchgroup.com. I'd like to take a moment to review the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995, which provides important cautions regarding forward-looking statements. Today's discussion, including responses to your questions, reflect management's views as of today, August 5, 2025. We do not undertake any obligations to update or revise this information. Additionally, we will make forward-looking statements about our expected future financial or business performance or conditions, our 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 the earnings call, which are also available on our website. As a reminder, this webcast will be available for replay along with the presentation shortly after this call on the company's website at again, ir.porchgroup.com. So 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. With that, I'm going to turn the call over to Matt for his key updates.

John, we're happy to have you reading it on the other side. Good afternoon, everyone. Thanks for joining us. It continues to be an exceptionally exciting time here at Porch, and I'm thrilled to provide an update on strong results, which exceeded expectations across the board, increased guidance and what's ahead. At the start of 2025, we launched the member-owned Porch Reciprocal Exchange, which is a key milestone for both our company and our shareholders. This transformed Porch into a simpler commission and fee-based model. It's designed to deliver predictable and high-margin financial results for Porch Group shareholders. Our go-forward structure is playing out better than expected and positions Porch to benefit from the massive now over $170 billion U.S. homeowners insurance market, which is attractive customer retention and is expected to grow high single digits annually over the next 10 years. So similar to last quarter, our Q2 financial results were ahead of expectations, straightforward and reflective of a business that we believe is in the early innings of long-term sustainable and high-margin growth. To highlight a few key metrics for Porch shareholder interest. Revenue was $107 million, generated predominantly from $121 million of reciprocal written premium. Q2 gross profit came in at a healthy $89 million, a 431% increase and $72 million improvement over the prior year. We're happy to report that our gross margins remain north of 80%. Q2 adjusted EBITDA of $16 million was led again by the strength in insurance services and was an improvement of $50 million versus the prior year and resulted in a 15% margin. As we've said, adjusted EBITDA is largely expected to translate to cash flow. And in Q2, we realized $15 million of cash flow from operations for Porch shareholders. This caps off a strong first half of 2025, where we generated $42 million of operating cash flow for Porch shareholders and $32 million in adjusted EBITDA. Operationally, we continue to be pleased with the progress made to date and are even more excited about how we're set up for the years ahead. Our agency distribution channel is growing nicely. We've scaled our sales team, are ahead of plan and insurance agencies added and have made good progress with new and existing nationwide partners. Our Home factors data business continues to progress. We're ahead of schedule here with a number of third-party carrier tests underway and are pleased with the ROI metrics that are emerging. While U.S. housing conditions remain difficult, we're pleased with the rate of product innovations in our Software and Consumer Services segments and our ability to align price with value. Bringing us quickly back to our December Investor Day, we talked about the flywheel we designed at Porch. As the reciprocal expands surplus, we're able to grow its premiums faster. As we do so, Porch Group's fees, profits and cash flow growth, and we'd expect the Porch stock price would as well. By structuring the reciprocal such that it holds 18.3 million Porch shares, as the Porch share price increases, so does surplus and capital at the reciprocal and the flywheel continues. This strategy is working. We aren't going to go deep into the reciprocal every quarter, but periodically, we do think it's important to highlight the progress we're seeing and its health. After continued positive underwriting results and strong Q2 net income, the reciprocal ended the second quarter with $299 million of surplus combined with non-admitted assets. The growth here is exceptional. This is an increase of $102 million versus just last quarter and an increase of $259 million better versus Q2 2024. The second quarter is historically the seasonally toughest from an insurance claims and loss standpoint. So to have this level of growth with a more attractive Q3 and in particular, Q4 still ahead is exciting. Let's look deeper at the progress at the reciprocal between the close of Q1 to Q2 and see the amount of potential future value created just in this single quarter by growing surplus to the extent we did. So we ended Q1 with roughly $200 million in surplus combined with non-admitted assets. As a reminder, during our December Investor Day, we outlined the 5:1 premium to surplus ratio as a general rule of thumb. This ratio has, in fact, improved further in our new operating model, but we'll stick with the 5:1 for now. Thus, at the end of Q1, the reciprocal had capital that could support approximately $1 billion in premium. Shawn will present Q2 financials shortly, but you'll see in the second quarter, reciprocal written premium translated to Insurance Services adjusted EBITDA at a 16% conversion. Assuming that framework at $1 billion in premium, the reciprocal had the capital to produce $160 million in insurance services adjusted EBITDA. Now, look at Q2. The reciprocal closed this quarter at approximately now $300 million in surplus combined with non-admitted assets. This lift in capital translates to being able to support another $500 million in reciprocal written premium, making $1.5 billion potential overall at this point. This means that the performance by the reciprocal in this quarter alone is exceptionally value-creating, providing the capital to support reciprocal written premium that can generate an additional $80 million of adjusted EBITDA or $240 million overall. We'll continue to be measured in how fast we scale the reciprocals premiums to ensure significant buffer, and we'll manage how fast we expand Porch Group's margins to optimize for long-term shareholder value creation. Finally, before turning it over to the team, I want to reemphasize a point I made last quarter when we outlined why we believe that Porch is set up to be a resilient investment across all macro cycles. Homeowners need homeowners insurance. Broadly speaking, it's not an optional purchase. And historically, homeowners insurance premiums have grown throughout economic cycles. We continue to expect that tariffs will not impact our business in any meaningful way. We believe our business is well protected and may even benefit should a recession take hold. And if interest rates come down amidst a slowing economy, it could spark a housing market pickup, which would be attractive for nearly all our businesses, including insurance, given our focus on homebuyers. On the other hand, if inflation picks up, homeowners insurance prices should increase, translating to higher premiums and Porch’s revenue.

Thank you, Matt, and good afternoon, everyone. Similar to Matt's overview, my comments will address performance of the Porch shareholder interest since generating cash for Porch shareholders is our ultimate goal and how we measure our success. As a reminder, under GAAP, we are consolidating the reciprocal exchange financials, which you can find throughout the press release and our 10-Q. With that background, let's get into our Q2 performance. Q2 2025 Porch shareholder interest revenue was $107 million with an 83% gross margin, producing $89.2 million in gross profit. Adjusted EBITDA of $15.6 million was ahead of expectations. The GAAP consolidated results are on the right-hand side of this slide. Overall, we saw another quarter of strong performance in our Insurance Services segment, driving total company results above expectations. And while Software and Data and Consumer Services segments continue to provide strategic advantages that help our insurance business succeed, the financial results of these segments continue to be impacted by a soft housing market. Given the outperformance in Insurance Services, we are increasing our outlook for the year, which I'll cover shortly. The Porch shareholder interest revenue of $107 million was comprised of Insurance Services at 63%, followed by Software and Data at 22%, and the remainder from Consumer Services. We continue to see the year-over-year improvements in gross profit and adjusted EBITDA as the clearest way to understand the increases in our results, and we're pleased with the progress. Q2 Porch shareholder interest gross profit was $89.2 million with an 83% gross margin. This was a $72.4 million increase over the prior year, driven by insurance services. Q2 adjusted EBITDA was $15.6 million, a $50.4 million increase over the prior year, driven by the transition to the high-margin insurance services reciprocal operator business model. Now let's move a little deeper into the segment results, starting with Insurance Services. First, as a reminder, there are a number of ways that Porch's Insurance Services business generates economics. management fees paid by the reciprocal based on a percentage of reciprocal written premium, policy fees paid by the policyholders, non-catastrophic weather quota share reinsurance provided by Porch's captive reinsurer, which is used to improve capital efficiency for the reciprocal, fees paid by third-party agencies when we deliver leads of homebuyers interested in purchasing insurance; and finally, an approximately 15% coupon on a $106 million surplus note Porch Group holds from the reciprocal. From the $121 million of reciprocal written premium, Porch Insurance Services generated revenue of $67.4 million, a 56% premium to revenue conversion rate. Associated gross profit was $57.9 million, a gross margin of 86%. Segment adjusted EBITDA was $19.7 million, a margin of 29% and a 16% premium to adjusted EBITDA conversion rate. We continue to be pleased with the transition to the reciprocal and the insurance services business model and how we are performing here. Shifting now to Software and Data. Revenue was $24 million, a 4% increase over the prior year, driven by product innovation and corresponding price increases. We continue to see a sluggish underlying housing market and small businesses in our related markets are also seeing softness. Gross profit was $18.2 million, a 76% gross margin. Adjusted EBITDA was $5.5 million, a $1.5 million increase over the prior year, driven by the revenue increase and effective cost control. Shifting now to Consumer Services. Revenue was $17.7 million, a 6% decrease over the prior year, driven by the closure of our lower-margin corporate relocation moving products in the third quarter of 2024. Gross profit was $15.2 million and 86% gross margin. This was a 640 basis point margin improvement over the prior year, driven by the shift toward higher-margin services. Adjusted EBITDA was $2 million, an $800,000 increase over the prior year, driven by cost discipline. Over the last few years, we have reduced corporate expenses as we move to lower-cost locations and reduced G&A back-office costs. In the second quarter, corporate expenses of $11.5 million decreased $700,000 from the prior year. Moving on to the balance sheet. There are several benefits from the shift towards the commission and fee-based insurance services business model. It's simpler, higher margin and asset-light. And as a reminder, our focus is on generating cash for Porch shareholders, which aligns closely with Porch shareholder interest adjusted EBITDA. Porch cash plus investments was $117 million at June 30, 2025. Porch shareholder interest cash flow from operations was $14.9 million in the quarter, driven by the $15.6 million in adjusted EBITDA. In Q2, we made notable progress on our capital structure, settling all but $20.5 million of our 2026 convertible notes. We refinanced $153 million of our 2026 unsecured convertible notes with $134 million in 2030 unsecured convertible notes and cash. Additionally, after the end of the quarter, we repurchased an additional $11.8 million of the remaining 2026 notes at approximately 96% of par, bringing the remaining balance to $8.8 million. All in, we believe that our balance sheet is well positioned for our next stage of growth, and we are on track to reach our leverage goal of 2x to 3x adjusted EBITDA in the medium term. Now for our updated 2025 guidance for Porch shareholder interest. We are pleased with our results in the first half of the year and are raising our guidance across the board. We are increasing our 2025 revenue guidance by $5 million, now ranging from $405 million to $425 million. We are increasing our 2025 gross profit guidance by $7.5 million given the higher margins we are seeing, now ranging from $328 million to $342 million. For adjusted EBITDA, we are raising the midpoint by $2.5 million, now at a tightened range of $65 million to $70 million.

Thank you, Shawn. I'll start by giving a brief business update and an overview of the KPIs across shareholder interest, and three operating segments. We are back on offense in insurance and focused on growing premiums while also growing surplus at the reciprocal. Q2 reciprocal written premium grew 25% over Q1 with tremendous capacity for ongoing growth. We believe we are on track to exceed our 2025 target of $500 million. Agencies serve as our main distribution channel. So extending and deepening our partner base is a key focus for us. Since the launch of the reciprocal, we've grown our sales account management headcount from just 2 to 26 employees. The investment has led to an ahead of schedule pace for the number of independent insurance agencies we're working with. In the quarter, we announced a handful of notable wins, including a renewed partnership with Goosehead as well as new relationships with Romely, Evertree and MastDrive, among other confidential nationwide partners. In addition, we are expanding geographies again, nearing the launch of a new state in Michigan. And as I touched on last call, most of the ZIP codes across our existing states have been reopened at this stage. Additionally, we'll grow with differentiated product. The new Porch insurance product has been designed to be truly differentiated. Like our HOA product, it will leverage our unique property data to provide pricing advantages. But in addition, we are including other important benefits for homebuyers, in particular, such as a full home warranty and 4 hours of moving service. Moving to the insurance KPIs. Reciprocal written premium in Q2 was $191 million. Reciprocal policies written reflects a total number of new and renewal insurance policies driven by the reciprocal during the period. We generated policy fee revenue directly from these policyholders. In the quarter, we wrote nearly 43,000 policies. RWP per policy written is calculated by dividing the reciprocal written premium by the total number of reciprocal policies written. For the second quarter, we posted RWP per policy written of $2,843, which was a 6% increase versus the prior quarter. We'll periodically update on the reciprocals health, which is clearly strong, given its all-time high of $299 million of surplus combined with non-admitted assets. We ensure the reciprocal is healthy in several ways and that there's adequate surplus in capital to support the scaling of premium for many years ahead. To put a finer point on this, the reciprocal has the statutory surplus to support our premium goals through 2026 even if fixed share price was approximately $2 and no shares were sold. This is as of the end of Q2 and as a reminder, on the historic seasonality of the reciprocals business, Q3 and in particular, Q4 are the most profitable quarters. Second, continued exceptional underwriting. In Q2, the reciprocal's underwriting strength was driven by the combination of our data advantage, effective pricing efforts, strong underwriting and more normal weather. Third, downside protection with reinsurance. As we discussed last earnings call, we finalized our reinsurance renewal on April 1st with a great outcome, continuing partnerships with the panel of more than 40 A-rated reinsurance partners. This renewal improved the retention per weather event to $23 million, which reduces the reciprocal's exposure. As a reminder, if Q2 had included major weather events, Porch Group's adjusted EBITDA still would have been the same $15.6 million as the weather claims are paid by the reciprocal. The reciprocal surplus would absorb the associated weather claims losses up to the retention level. Therefore, if a major weather event occurred in Q2, the reciprocal still would have had approximately $275 million of surplus combined with non-admitted assets and the ability to support approximately $1.375 billion in premium. So you can see how the reciprocal's capacity to write premium remains strong and is protected from large weather amendments. Moving to software and data. Our strategic focus area for this segment is price increases tied to software innovation, continued market expansion and growth of our data business. On the software front, we continue to innovate with urgency, and I'm pleased with the team's efforts in positioning us well for when the market normalizes. One highlight I wanted to share, in particular, was Rynoh securing 2 impactful wins, including the nation's largest title insurance company with Fidelity National Financial's Escrow Trax as well as another top 5 title insurance company. This continues to demonstrate the scalability of Rynoh's enterprise-grade fraud detection and reconciliation tools. Relative to our data business, we have been highly encouraged but not at all surprised by early stage metrics and proof points we were seeing out of a broad group of insurance carriers testing home factors. As it stands today, we are ahead of plan related to the number of carriers testing Home factors and are pleased with the results today. Companies and other industries are testing as well. And in mid-July, we announced that a regional home improvement brand utilized home factors for a marketing campaign and the results were impressive. In terms of the software and data KPIs in Q2, we served approximately 24,000 companies with an annualized revenue per company of $3,974 which rose 9% versus Q1. We continue to believe that the number of companies served likely remains as flat until better housing conditions bring more companies back into the market. The biggest update in Consumer Services is a recent TDI approval to include warranty in 4 hours of moving services. It is a member benefit for Porch insurance customers. Our moving business continues to make progress in a variety of ways, including providing additional products and services that can be utilized by customers. Packing services is one of these new offerings, which has been received well. As for the Consumer Services KPIs in Q2, we had 87,000 monetized services with annualized revenue per monetized service of $202.

Thank you, Matthew. I'll wrap up by reinforcing the most important messages from today. So first, certainly, we delivered quarterly adjusted EBITDA of $16 million in Q2 2025, a $50 million increase year-over-year. Again, this translates to $15 million in Porch shareholder interest cash flow from operations in the quarter and $42 million in the first half of the year. Second, we increased our 2025 adjusted EBITDA guidance midpoint to $67.5 million for the year; third, gross margins, which remained north of 80% with $89 million gross profit, up $72 million year-over-year. Next, we are very pleased with the continued increasing health of the reciprocal, as we discussed. From a capacity standpoint, we are at a record level of surplus and have tremendous room to grow premium and Porch profits. Our flywheel is working and is just getting started. And lastly, we've shifted back to offense as we add agencies, and we're excited about what the future holds for our differentiated Porch insurance offering. All right. Thanks for your time today. We're in the early stages of building a truly great company, and we're glad to have you along for the ride.

The first question comes from the line of Daniel Kurnos with The Benchmark Company.

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

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

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

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

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

So we'll share more metrics as we go, obviously. But just strategically, it's a big deal for us because we want to not only have fundamental advantages with the data, the differentiated data that lets us price the insurance products more accurately than the market, we not only want to have advantages with the structure and the margins that we're able to create, and we're demonstrating that to your earlier question that we're able to simply generate a lot of value out of our insurance business for our shareholders. But we also want to differentiate with the fundamental product that's in the market. And so now having product, just look ahead, where you can have products in the market that it's not only about just providing insurance, but we can provide full protection for your home that includes warranty coverage for all of the Porch insurance customers, but we can also provide moving service for homebuyers. And we really do want Porch insurance to end up being known as the best insurance product for homebuyers. And so that's a big deal for us just strategically to be able to help just extend the long-term advantages that we're going to have there.

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

Can you elaborate on your approach to balancing growth and margin expansion? You've demonstrated impressive financial performance this year. While I'm not seeking guidance for 2026, I'm curious about your philosophy regarding growth versus margin. Additionally, although revenue isn't the most accurate measure, you exceeded Tech Motor revenue forecasts by $11 million, yet you're only increasing your full-year forecast by $5 million. Is there anything in the third quarter that's causing you to be cautious? Finally, could you provide insights on the weather impacts in the second quarter, particularly if they had a positive effect?

Perhaps I'll take the first one. Shawn, why don't you take the second and Matthew perhaps take the third. So real quick, just in terms of philosophy. With the model that we have and the business we have now, Jason, we are set up and very optimistic about our ability to be able to consistently grow at a really nice clip. We talked back in the Investor Day, grow north of 20% annually for an extended period of time. We expect to be able to go and do that as we look ahead while also showing margin expansion each year. You can see our gross margins are more than 80%, but you look at the adjusted EBITDA margins, in our view, there's a lot of room to continue to grow our adjusted EBITDA margins over time. But we do want to manage it. We don't need to max out growth this year or max out adjusted EBITDA margin this year. We want to show nice, consistent sequential improvement for both of those metrics for a long time.

Yes, the second question was about Q2 revenue and the guidance for the second half of the year. The key takeaway is that both are strong. Q2 exceeded our expectations and was significantly above what the market anticipated. We have also raised our guidance for the remainder of the year, which puts us in a good position as we head into the second half. Much of what Matthew discussed regarding growth and scaling premiums at the reciprocal is a major factor. Additionally, we are seeing a strong conversion of premiums to revenue and adjusted EBITDA in Porch Insurance Services. Lastly, while the focus was on revenue, I want to mention that we are raising our adjusted EBITDA midpoint by 2.5% even as we continue to invest in growth through our operating expenses for 2026 and beyond. Overall, the team is quite pleased with our performance and we're happy to raise guidance across the board today.

Sure. I'll take the third one. I think I heard comments on Q2 weather. The first thing I'll say is overall, the weather felt normalized as we compare to 2024 Q2, but what's also important to just emphasize so that everybody who's on the call is clear, is Porch Group shareholders would not have been directly impacted by the weather in Q2 had it been not more normal weather. And then I'd also reiterate comments from the prepared remarks, which is we've done a lot of work with our reinsurance partners to lower our retention, which is the max amount we would pay if there were a large event, and we've lowered that to $23 million. So even if there would have been a significant event in Q2, it wouldn't have impacted Porch Group directly. And to the extent it would have impacted the reciprocal, we would have had a really strong reinsurance protection. The last thing I would say is we have done a lot of work to get the right risk into our portfolio, leveraging our data. And so that has also contributed to the overall performance in Q2 where we felt like we had a really strong underwriting performance quarter.

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

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

Great. This is Cal on for Jason. So maybe to start, good to hear the update on Home factors, but I'm just kind of curious if you can speak to applications of this data outside of just licensing for underwriting. Just curious the opportunity you're seeing in other industries like media campaigns and there's any difference in the sales cycle with these other industries relative to the more elongated sales cycles when you're working with carriers?

Sure. We see a lot of interesting use cases for the data. We are using it for our own underwriting. We've talked about home factors within the insurance space to help drive underwriting and pricing. When we look beyond that, there is certainly potential when it comes to reaching homeowners who are going through a real estate transaction and if there are homes that have certain conditions that may indicate certain types of work is likely to be needed such as roofing. And so we are working with potential partners and partners around those use cases. I would say the sales cycle is shorter than in insurance because generally there's a shorter testing period. There's still some sales cycle there, but it's something we are excited about. The last thing that I would say is over time, there's also opportunities for us to use that data to power the consumer experience tied to our Porch app and the Porch insurance value because we can bring in that data and help to educate and engage and empower homeowners with more information about their home.

I'm just going to tack on because I think it's an interesting one. I think Matthew hit all the key points, and there's lots of use cases outside of insurance. But with carriers, we are finding more and more opportunities for ways to be able to use the data and create value, obviously for underwriting, obviously for pricing upstream to be able to have more accurate pricing. We mentioned during our reinsurance renewal, how we're bringing in the data into our reinsurance submission, was able to lower cost materially. So there's opportunities with reinsurance. Carriers that are out there that are marketing to consumers, if we know which consumers are buying homes and which consumers have low-risk homes, clearly that's valuable. And then lastly, insurance carriers out there spend a lot of money doing their own kind of reviews of homes post-underwriting. And if we have that data and they can be able to speed up that process and be more accurate, obviously, that creates a lot of value. So it's been fun as we have more and more tests going on because it's opening up lots of use cases. And again, like we mentioned in the prepared remarks, the results and the ROI so far have been very, very strong.

Great. I appreciate all the color there. And then maybe lastly for me, you announced some new insurance agency partnerships. Just curious if you can update us on the go-to-market agent reception, any additional distribution strategies you might be pursuing?

Sure. We are focused on the agency channel. There's massive untapped opportunity for us in terms of how much we've penetrated and how much is out there. We are investing in growth through the agency channel. We've built out a team I mentioned we grew from 2 to just as of now, we're up to 26. We're ahead of pace in the number of agencies. And we're excited about the differentiated value product or value that we can bring with our Porch insurance product. Matt mentioned, we now have a set of member benefits that include a full warranty moving services that's on top of our moving concierge. We're in a position given our economics to pay competitive commissions. And so agents are excited to work with us and grow with us. And I would say we're very early stages, both in our outreach to grow the number of agents and to build those relationships with them so that we're a bigger and bigger part of their business. So excited, early, lots of growth ahead for us.

Your next question comes from the line of Randy Binner with B. Riley.

I'm picking up on the insurance side of the last question. I'm curious about your go-to-market strategy related to adding agents and sales distribution, which is important. Are there specific states or broader areas where you're experiencing more success? I believe homeowners rates are significantly increasing nationwide. Are agents seeing the reciprocal as a new market with better pricing? Are there regions where you're entering and larger carriers are withdrawing? I would like to know how the reciprocal is being perceived and where it's finding success.

Sure, there are a few points to address. Thank you for the question. First, I want to clarify that we are actively offering our homeowners insurance product in the market. Additionally, Porch Insurance will be another product with a unique value proposition that we plan to introduce. We aim to expand our presence in more states; currently, we operate in 22 states, but there are several attractive insurance markets that we aren't yet in, and we intend to roll out both the Homeowners of America and Porch insurance products across the country over time. In our existing states, particularly in Texas, we have noticed that other carriers are either leaving the market or reducing new business opportunities, which benefits us. Our underwriting results remain very strong, and having detailed knowledge about properties when pricing policies enhances these results. This situation creates a favorable market dynamic since both consumers and agents require our product. Overall, we believe the homeowners insurance sector is an excellent area to be involved in. It’s growing rapidly, and we can operate in this market without facing monthly or quarterly weather volatility, allowing our business to grow with strong margins and to capitalize on future opportunities within the category.

All right. And then related to that, I apologize if I missed this, but did you discuss the loss ratio for the reciprocal in the quarter? I know it doesn't affect Porch shareholders, so I'm curious if you can share how the losses were in a normal or even favorable cat quarter for Texas.

They performed exceptionally well. The gross loss ratio for the quarter was 34%, a significant decrease from 117% last year. It's important to note that Q2 typically experiences most of the losses due to weather conditions, so this is an impressive outcome. Additionally, net income for the reciprocal in this quarter was just under $6 million, a remarkable improvement compared to a loss of around $30 million last year. Overall, it was an outstanding quarter. As Matt mentioned during the call, this strong underwriting performance is what is driving the increase in surplus alongside non-admitted assets.

Yes. I'll just layer on it. The attritional loss ratio, as well, something we look at, was again just exceptional. And it just goes to show that we really have fundamental advantages with our ability to price and underwrite, but attritional loss ratio was in the second quarter down to 8%, which is a 1,300 basis point improvement versus the same quarter prior year. So again, just very, very strong results for the reciprocal.

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

I guess I want to ask more about the home factors and the conversion there. I know you said that there's a lot more people testing the product. But what is the timeline on, I guess, adoption? And what is the conversion rate you're seeing in like people testing to adopting the product?

Sure. What we're excited about is the interest and engagement from a diverse range of carriers. The feedback we receive from them is very positive. Regarding the selling cycle, we see what we anticipated. These carriers want to test the product and have specific steps to follow before incorporating it into their pricing and underwriting. They all remain very engaged. Financially, we don't require any revenue from home factors to achieve our 2025 targets, and I would say our progress is going well. We don't disclose our conversion rate and we have shared some insights about our work with Bamboo. We don't plan to announce every single new customer we bring on board. However, I want to emphasize that there is genuine interest and excitement. The team is motivated, the atmosphere is positive, and we are working very hard.

Yes. I would just layer on. I do think that carriers, as they've gone to the test, really you feel like we're hitting the bull's-eye with the product that we have for them. So I concur. I think that it's set up well as we look ahead.

Your next question comes from the line of Graham Bundy with KBW.

I’m on for Ryan Tomasello today. First, you've had success taking price across many of your software brands over the last year or so. Going forward, will the approach be more consistent with annual price taking on renewals? Or should we expect your pricing to continue to be lumpy with a more multiyear approach?

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

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

We haven't provided guidance for 2026, but I can share our expectations. We anticipate achieving significant margin expansion while also investing in the business to support our desired growth rates. We do not expect the improvement to be inconsistent. We believe we can manage the business effectively to create substantial value for shareholders. As mentioned earlier, we foresee a strong combination of growth and margin expansion each year over an extended period.

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

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

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