Earnings Call Transcript - PRCH Q3 2025

Operator, Operator

Good afternoon, everyone, and thank you for participating in Porch Group's Third 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, reflects management's views as of today, November 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, business strategy and plans. These statements are subject to risks and uncertainties, which could cause 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 ir.porchgroup.com. With that, joining us today here are Matt Ehrlichman, Porch's CEO, Chairman and Founder; Shawn Tabak, Porch's CFO; and Matthew Neagle, Porch's COO. With that, I'll now turn the call over to Matt for his key updates.

Matt Ehrlichman, CEO

Good afternoon, everyone. Thank you for joining us. We are proud to report another excellent quarter where we once again exceeded expectations. Before diving into Q3 results, I would like to take a moment to reflect on the progress we've made this year. In December 2024, we held an Investor Day and told you all that we would deliver $50 million of adjusted EBITDA in 2025. I remember getting follow-up questions from investors asking why we were being that aggressive, and I understood where it came from. The year prior, we had posted a $45 million adjusted EBITDA loss and 2024 was tracking close to breakeven. I responded that we were confident in the go-forward model of the fundamental differentiation and margin advantage that our unique data provides to our insurance business and our ability to execute to get our desired results. Despite the low level of improvement it represented, we had ambitions to deliver more than the $50 million in adjusted EBITDA, and we thought that $70 million would be a fantastic outcome for the year. Here we are three quarters through 2025, and I am pleased to announce another strong quarter in which we delivered $21 million in adjusted EBITDA and $29 million in cash flow from operations for Porch shareholders. This means that in the first nine months of 2025, we've already generated $53.1 million in adjusted EBITDA, surpassing that initial $50 million target. We're proud of the execution this year and the control we're demonstrating over the business as we now expect to deliver full year performance at that $70 million, which represents a 10x increase versus the prior year. Our shift to a simpler commission and fee-based model was designed to deliver straightforward, predictable and high-margin results for Porch shareholders. It has been a resounding success. As an example, year-to-date gross profit rose 119% versus the prior year, and year-to-date adjusted EBITDA improved $88 million versus the prior year. Let me highlight a few key metrics for our Q3 for shareholder interest. Reciprocal written premium, or RWP, was $138 million. Revenue was $115 million. Q3 gross profit was $94 million, resulting in an 82% gross margin. Q3 adjusted EBITDA was $21 million, an 18% margin. And we continue to see a high rate of cash conversion with Q3 cash flow from operations for Porch shareholders of $29 million. Operationally, we are pleased with the progress, in particular with our insurance business. The conversion rate of reciprocal written premium to Porch Insurance Services adjusted EBITDA improved again in Q3 now to 18%. This exceeded our expectations and led to the strong profit results. Our data teams continued their progress this last quarter, launching more new home factors, bringing us to 89 unique property characteristics we know and aren't widely available in the market. Our unique property data and capabilities such as home warranty and moving services create sustainable advantages, industry-leading loss ratios and fundamentally more margin in the system. We see this as a structural advantage as it supports Porch shareholder interest profitability and the reciprocal surplus expansion. So outside of hitting our profitability goals, the second most important priority for us this year was to position ourselves to scale premium into the future in order to achieve our future profitability goals. The two main components of doing so are: one, generating as much surplus as possible at the reciprocal; and two, to grow agent and quote volume such that we can lower price for new low-risk customers when the time is right. We've been able to deliver on this year's adjusted EBITDA guidance without needing to lower prices to scale premium faster. This is a fantastic scenario for us as it results in surplus expanding much more than anticipated. I'm excited to share that at the end of Q3, the reciprocal surplus combined with non-admitted assets increased more than $100 million quarter-over-quarter to now $412 million. With this capital in place, we have a clear path to scaling premiums, which we believe will drive exceptional profit growth at Porch Group. We continue to grow our insurance staff, including welcoming a new Chief Actuary, Head of Data Science and ramping up our agency recruiter and engagement teams. Tied to these investments, we're seeing strong levels of agency appointments and quote volumes that Matthew will cover off later in the call. The strength at the top of the funnel and the reciprocals healthy capital position set us up for an exciting time ahead. Okay, let's go into this in a little more detail by revisiting this slide here from last quarter, where we've updated for capital generated now in Q3. On the left-hand side, as you can see, in the surplus combined with non-admitted assets chart, you'll see the reciprocal ended Q3 with $412 million. Again, this is $113 million improvement from last quarter and a $214 million improvement in just 6 months, overall, just exceptional results. As a reminder, we talked about managing to a 5:1 premium to surplus ratio as a general rule of thumb, though it can be better over time. As you'll see in the middle chart that this level of capital could support approximately $2 billion of premium as we look ahead. Moving to the right-hand side, in Q2, the conversion rate of RWP to Insurance Services adjusted EBITDA was 16%. This conversion rate improved to 18% in the third quarter. So you can see why we prioritize surplus generation to drive future value creation. In just the third quarter, we added more than $100 million of capital, which based on our rule of thumb supports additional adjusted EBITDA of more than $100 million annually. Overall, with this capital already in place and without further surplus expansion, we can show the path to support more than $350 million in annual insurance services adjusted EBITDA, and we're just getting started. This is exactly the set we've been working toward, and I couldn't be more energized for the opportunity in front of us. I'll now turn it over to Shawn to cover our financial results.

Shawn Tabak, CFO

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. Under GAAP, we are consolidating the reciprocal exchange financials, which you can find throughout the press release and our 10-Q. Q3 performance was strong, driven by insurance services. Q3 2025 Porch shareholder interest revenue was $115.1 million, with an 82% gross margin, producing $94.2 million in gross profit. Adjusted EBITDA of $20.6 million was ahead of expectations, driven by insurance services. Cash flow from operations for Porch shareholders was $28.8 million. The Porch shareholder interest revenue of $115.1 million was comprised of insurance services at 64%, followed by software and data at 21% and the remainder from consumer services. Q3 Porch shareholder interest gross profit was $94.2 million with an 82% gross margin, led by our Insurance Services segment, which had an 84% gross margin. We are pleased with the high margin profile we are seeing across all of our businesses. Q3 adjusted EBITDA was $20.6 million with an 18% adjusted EBITDA margin overall. This was driven by our Insurance Services segment posting a 34% adjusted EBITDA margin and good profitability overall across our other two core segments despite a continued challenging housing market. Now let's move a little deeper into the segment results, starting with Insurance Services. Overall, we are pleased with the conversion rate of reciprocal written premium, or RWP, to Insurance Services adjusted EBITDA. In Q3, the rate accelerated to 18%, 200 basis points higher than Q2. We are seeing good operating leverage here and are focused on driving efficiency. In the quarter, RWP was $137.5 million, and insurance services revenue was $73.8 million, which is a premium to revenue conversion rate of 54%. As a reminder, there are five economic drivers for this segment: management fees, policy fees, quota share reinsurance, lead fees to agencies and surplus note interest. Segment gross profit was $62.3 million with a gross margin of 84%. Segment adjusted EBITDA was $25.3 million, a margin of 34%. As a quick reminder on seasonality for the reciprocal, RWP is typically highest in Q2 and Q3 when consumers are buying their homes and therefore, buying or renewing their homeowners' insurance. Therefore, we expect the reciprocal to experience its typical seasonal decrease in RWP from Q3 to Q4 as there are fewer renewals. Shifting now to software and data. As a backdrop, most of our software businesses charge per transaction, and we continue to see a trough U.S. housing market. With that, segment revenue was $24.6 million, a 7% increase over the prior year, driven by product innovation and corresponding price increases. Gross profit was $18.2 million, a 74% gross margin. Adjusted EBITDA was $5.1 million, relatively flat with the prior year. We continue to invest in product innovation in our software business, including incorporating AI into our product suite and the go-to-market and sales organization in our data business. We believe these businesses are set up to grow nicely as the housing market recovers. Okay, shifting now to Consumer Services, which is also impacted by the trough housing market. Revenue was $19.4 million, a 9% increase over the prior year. Gross profit was $16.6 million, an 86% gross margin and adjusted EBITDA for this segment was $2.5 million. Over the last few years, we've reduced corporate expenses as we move to lower-cost locations and reduced G&A back office costs. While most of the heavy lifting has been done, we continue to pursue operational efficiencies. In the third quarter, corporate expenses of $12.3 million decreased $700,000 from the prior year. Now moving on to the balance sheet, we continue to be pleased with the cash flow profile of the Insurance Services operating model. Year-to-date, Porch shareholder cash flow from operations was $71 million, driven by $53 million in adjusted EBITDA and favorable working capital. For Q3, we ended the quarter with Porch cash plus investments of $132 million. Porch shareholder interest cash flow from operations was $28.8 million in the quarter, driven by $20.6 million in adjusted EBITDA. Throughout the year, we've made notable progress on our capital structure. In Q3, we repurchased an additional $12.8 million of our 2026 convertible notes, which resulted in a gain of approximately $400,000 and which leaves a remaining balance of $7.8 million. The Board has authorized management to repurchase these remaining notes with cash from the balance sheet. And lastly, shifting to our updated 2025 guidance for Porch shareholder interest. As we've discussed, our primary goal is to generate cash flow for Porch shareholders and adjusted EBITDA is the key proxy for that metric. As Matt said, we thought that $70 million of adjusted EBITDA would be an excellent outcome for this year, and we're proud that we are right on track to deliver this result. And we are updating our guidance accordingly. This is a $63 million or a 10x increase versus the prior year and a result that will put us amongst the top-performing companies in the S&P Small Cap Index. It is also $20 million better than the guidance at the beginning of the year. Given where we are against our adjusted EBITDA target, in Q4, we'll continue to prioritize surplus generation at the reciprocal over the scaling of premium, which we believe will create the most long-term value. As Matt discussed, we've delivered a step function change in the reciprocals capital position year-to-date, and we expect continued progress here in Q4. This foundation gives us the ability to scale RWP faster as we enter 2026. With that background, we are also raising our gross profit midpoint by $2.5 million with a new range of $335 million to $340 million. Our revenue midpoint remains the same with a tightened range of $410 million to $420 million.

Matthew Neagle, COO

Thank you, Shawn. I'll start by giving a brief business update and then dig into our KPIs. 2025 has been an important year where we generated substantial profitability and cash flow for shareholders and also positioned ourselves to scale premium sustainably in the years ahead. Reciprocal written premium is driven by quote volume and conversion rates. We are seeing strong level of top-of-funnel activity such as agent appointments and quote volumes. The conversion rate of RWP to adjusted EBITDA has exceeded our expectations, which has allowed us to deliver on our profit objectives while being patient in adjusting price. This has helped produce exceptional surplus generation results at the reciprocal year-to-date with more expected in Q4. Let's dive into the insurance KPIs. Reciprocal written premium in Q3 was $138 million, up 14% versus last quarter. 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. In the quarter, we wrote nearly 48,000 policies. RWP per policy written is calculated by dividing the reciprocal written premium by the total number of reciprocal policies written and represents the amount the customer is expected to pay. For the third quarter, we posted RWP per policy written of $2,884. As Matt highlighted earlier, one of the key reasons why we're well positioned to scale RWP is our top-of-funnel activity. These two charts provide some context. First, the chart on the left shows total agency appointments since 2024. As we have grown our agent recruiting and account management team significantly, we have seen the expected increase in the number of appointed agencies. While this is great progress, we continue to have a fraction of the agencies in Texas and across the country. We are just getting started here, but excited about the momentum. With more agents, we see more quote volume, as you can see on the right. More quotes allow us to see more opportunities of homeowners and homebuyers looking for a new homeowners insurance company. We can then continue to be selective with our pricing actions to win good risks and continue to avoid properties that have higher risk than the rest of the market realizes. The key message here is that we have the capital that could support our targeted growth levels, a healthy and growing top of funnel that we can tap into, and it simply comes down to the conversion rates we manage to. Given the conversion rate elasticity in our industry and our margin advantages, we are in a strong position to control the pace of growth by adjusting pricing with the right new low-risk customers and providing the right targeted incentives to our distribution partners. Moving to software and data. We continue to execute price increases supported by continued software innovation, ongoing market share expansion and growth of our data business. Our collection of vertical SaaS businesses rolled out over 20 product releases and enhancements in the quarter. Our data business and its Home Factors product continues to show strong promise through the ROI metrics from tests with other carriers and expanding pipeline and continued product innovation. Our data engineering teams continue to move us forward with 89 total Home Factors now in the market after recently launching eight new Home Factors, including Electrical Panel Location, Roof Life Stage and Plumbing Material Insights. In terms of the software and data KPIs in Q3, we served approximately 24,000 companies with annualized revenue per company of $4,140, which rose 14% versus Q2, driven by seasonality. In our Consumer Services segment, where the housing headwinds are greatest felt, we see bright spots with home warranty claims frequency, and we continue to see positive outcomes with our partnership efforts. Like software and data, the combination of strategic investments and a leaner cost structure positions us for outsized benefits when the housing cycle turns. As for the consumer services KPIs in Q3, we had 94,000 monetized services with annualized revenue per monetized service of $206. I'll now pass it back to Matt to wrap us up.

Matt Ehrlichman, CEO

Thanks, Matthew. I'll wrap up by reinforcing the most important messages from today, stuff I'm most excited about. Again, once again, a strong quarter where we delivered Q3 adjusted EBITDA of $21 million and $29 million in Porch shareholder cash flow from operations. We're proud to report that year-to-date, we've already surpassed our initial 2025 adjusted EBITDA guidance, and we're tracking towards $70 million for the full year. Second, as we talked about, we're excited about the surplus health of the reciprocal. Our unique property data allows us to assess and price risk better than the industry, which creates more margin in the system. The gains we produced this year at the reciprocal not only create resiliency in the system, but we believe it set us up for years and years of strong profit growth ahead. With the surplus in place, we can scale RWP at the appropriate pace to achieve our desired outcomes for the next many years ahead. As Matthew mentioned, the top of the funnel metrics in insurance are growing nicely, setting us up well there also. The work we did over the last decade got our business positioned for success with sustainable advantages. The work we've done in 2025 demonstrates the power of the system we're building and how profitable it can be. The next few years are going to be a lot of fun. So thank you all for your time today. To my fellow shareholders, we appreciate your support, and we look forward to continuing to share this journey with you. With that, John, please go ahead and open up the call for questions.

Operator, Operator

Our first question comes from the line of Dan Kurnos with Benchmark Company.

Dan Kurnos, Analyst

Matt, I want to clarify a multipart question regarding reciprocal written premium. As we approach Q4, Shawn mentioned seasonality, but many of us expected your growth to continue despite seasonal effects, especially given your early stage in the process. I understand you have specific targets for where RWP should end up. The first component is about volume—are there any competitive factors or other reasons explaining why there isn't a faster ramp-up in the near term as you bring agencies back on board? Additionally, regarding the pricing side, I'm curious about what you're forecasting for premium increases; your prepared remarks hinted at potential pricing declines, which relates back to my competitive inquiry. I’d like your insights on how the pricing aspect looks as you work towards 2026. I realize this is a lot to address, but any thoughts would be appreciated.

Matt Ehrlichman, CEO

It's the right place to start, and I appreciate that. You can get a good sense of our priorities this year and how we view the future. I've mentioned this before, but if we wanted to grow premium rapidly this year, we could do that quite easily. Similarly, if we aimed to increase profit significantly this year, we could also achieve that. However, my main focus, and our main focus, is to maximize long-term shareholder value. We consider what we want to deliver in terms of EBITDA and cash flow for our shareholders this year, as well as the growth we aim to generate in the coming years. We want to demonstrate consistent and, ideally, accelerating growth rather than having initial rapid growth followed by a slowdown. While it's possible to enhance value today, the real question is what will drive the most value in the long run. I believe that accelerating growth alongside expanding adjusted EBITDA margins each year will create the most value overall. With this perspective, we evaluate the adjusted EBITDA target we aim to achieve this year, and I think we've made excellent progress towards that. Given this target, we also consider how to maximize surplus generation effectively. Over the past six months, we have made significant progress. Matthew briefly touched on the steep elasticity curve in the insurance market, enabling us to lower prices for low-risk customers and improve our conversion rate for faster growth. This presents a balance for us. You can likely sense our confidence in our ability to grow this business while managing premium growth at the right pace, which we're very excited about because we expect these to be exciting years ahead.

Dan Kurnos, Analyst

Do you have a view on what renewals around premium look like into '26?

Matt Ehrlichman, CEO

Yes. I mean the underlying growth I don't share, but the underlying metrics look really good. And at some point, we'll do an Analyst Day, and we'll unpack, I would say, probably a lot of those underlying metrics. But clearly, we haven't disclosed that at this time. But the underlying metrics, it all shows the points really clearly to us being able to grow premium at a really, really nice clip here.

Operator, Operator

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

Jason Helfstein, Analyst

I want to elaborate on the fourth quarter guidance and consider its performance compared to the third quarter. You mentioned housing might be a challenge in the fourth quarter. Was housing ever a positive factor? We've seen solid numbers from the real estate companies we follow in the third quarter. It surprises me that the momentum hasn't carried through the entire year. Were your third quarter results better than anticipated, and is the fourth quarter returning to a more standard situation on the insurance side? Please explain that further.

Shawn Tabak, CFO

I'm happy to address that. Regarding Q3 and the outperformance, one key aspect is the strong conversion rate of RWP to adjusted EBITDA, which was 18%, reflecting solid operating leverage in the business. We are pleased with this efficiency, as it means that each dollar of RWP contributes more to adjusted EBITDA for the Insurance Services segment, driving our outperformance. As for the housing market, we haven't observed significant changes, with low levels of housing activity continuing. Our software and data, along with consumer services, operate on a per transaction basis. We look forward to the eventual recovery of the housing market, which would enhance our growth and margins, but we do not expect that to happen in the short term.

Matt Ehrlichman, CEO

Yes, Jason, I mean, like you saw with other housing companies, we saw toward the end of the third quarter some possible momentum, but there's been enough tees over the last few years that we're just going to stay cautious and conservative with kind of our go-forward forecast as it relates to housing until it really has played out consistently for a good period of time.

Jason Helfstein, Analyst

That makes sense. I guess, I mean, is there a reason to think that you're just taking your foot off the gas a little bit on growth in the fourth quarter?

Matt Ehrlichman, CEO

I believe that overall we are positioned well in our insurance business given our current loss ratios, which allows us to pursue considerable surplus growth. This creates a significant advantage as we can utilize that capital effectively to generate value in the future. It’s important for us to be patient, especially considering the EBITDA we're generating this year and our objectives. We need to be strategic about when to take actions that will ultimately lead to favorable outcomes for us.

Operator, Operator

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

Cal Bartyzal, Analyst

This is Cal Bartyzal on for Jason. Just first on Home Factors, you kind of alluded on the call to some AI across the software offering. But just given how much data you're ingesting there, is there any learnings in applying AI to the platform and Home Factors becoming kind of a leading AI-enabled platform for insurance carriers?

Matthew Neagle, COO

I can take that. We see a lot of opportunity with our Home Factors product. We continue to develop additional Home Factors. One area where AI is assisting us is in accelerating our ability to derive insights from the data. There are various data sets, including visual data, that were previously challenging for us to analyze, but AI is making this feasible. Additionally, the structure of the Home Factors product will allow partners to easily integrate the data into their operations and workflows, enabling them to create AI-driven underwriting using our data. I definitely see potential here, particularly in how we are speeding up the extraction of insights from the data.

Cal Bartyzal, Analyst

Great. Makes sense. And then just given how much room you have on the insurance side to expand into additional agencies, just curious how you think about the ability to unlock more agencies and get that convergence of more capital, more surplus and more agencies kind of converging in 2026.

Matthew Neagle, COO

Yes, I can address that. We are expanding our growth teams, which collaborate with agents. The numbers reflect this, as we've experienced steady growth over the past six months. There is significant potential for this team to continue increasing new agent appointments. We have discussed how we have built up our surplus, which positions us well for future growth. Additionally, we have not slowed down in pursuing agent appointments; we are focused on enhancing our team to achieve the widest distribution possible. However, there is still a considerable amount of work ahead to fully optimize our distribution. As Matt mentioned, we have various strategies available, including providing incentives to agents and adjusting our pricing to attract low-risk opportunities. I believe we still have the ability to implement these strategies effectively.

Operator, Operator

Your next question comes from the line of Adam Hotchkiss with Goldman Sachs.

Adam Hotchkiss, Analyst

I want to follow up on the insurance services business and the reciprocal written premium. Considering the approximately $500 million in premium mentioned at Investor Day last year, it seems that based on the seasonality comments, you might fall short of that target. Could you highlight any changes and the potential impact on 2026? Additionally, what drives the approach of increasing or accelerating premiums, especially given the attritional loss ratios in this business, which could potentially harm surplus? I'm trying to understand why raising premiums at this attritional loss ratio wouldn't actually benefit surplus, considering the current loss ratios.

Matt Ehrlichman, CEO

Thank you, Adam. I appreciate it. I'll address the second question first, and Shawn can add to the first if needed. The loss ratios in our insurance business remain very strong, with a 22% gross loss ratio and a 17% attritional loss ratio in the third quarter. To reiterate from previous quarters, these figures are industry-leading. Our unique data allows us to price and underwrite more effectively, providing a margin advantage. The evidence is reflected in our numbers. You can choose to maintain that margin or slightly increase the loss ratios. We're discussing managing pricing for low-risk customers to achieve slightly higher loss ratios while growing premiums more quickly. The good news is that due to our margin advantage, we can make those decisions effectively. Regarding your first question, Adam, we have decided, given our current adjusted EBITDA, not to take certain actions we might have considered three or six months ago, such as lowering prices. Instead, we aim to maximize surplus generation and capitalize on our favorable results to build our capital base, which is crucial for us moving forward. Shawn, do you have anything else to add?

Shawn Tabak, CFO

Yes, I would say that where we truly exceeded our expectations was in the efficiency of the insurance services business operation. We experienced a 200 basis points of leverage on RWP to adjusted EBITDA, which contributed to the additional earnings. As Matt mentioned, it becomes a strategic decision on when to make adjustments. As we've discussed over several quarters, we will continue to be focused and disciplined in our growth to maximize shareholder value over the long term.

Matt Ehrlichman, CEO

Yes. Two quick things to wrap up. I want to make sure my previous point wasn't overlooked. I mentioned how adding $100 million of surplus, along with non-admitted assets, can significantly enhance our capacity to support additional premium, which translates to an incremental $100 million of adjusted EBITDA annually. The long-term value impact of adding that much surplus in a single quarter is remarkable for future value creation. What we're observing is that we can continue to progress and generate substantial resources that will benefit us for an extended period. It's quite powerful. Additionally, regarding 2026, to clarify, we're not making any comments about that year, but I want to express that we feel optimistic about 2026. We are not signaling any changes for that year, and we'll provide guidance in the next quarter.

Adam Hotchkiss, Analyst

Okay. That was really comprehensive and helpful. And then on the software and data business, maybe just give us an update where you are on sort of the data licensing opportunity in states you don't operate in.

Matthew Neagle, COO

The data licensing kind of our Home Factors?

Adam Hotchkiss, Analyst

Exactly.

Matthew Neagle, COO

Yes. So we see a lot of traction in engaging with carriers. What we've communicated in the past, which we'll communicate again today is the sales cycle will set us up to start seeing more revenue in 2026. But we do have an expanding pipeline. And for us, that means carriers who are actively involved in testing the data. And those that have completed the tests are indicating there is a strong ROI for those tests. And then we continue to bring out more insights. And so we're still full steam ahead on that part of our business and excited about starting to grow that business and impacting the bottom line more in 2026.

Operator, Operator

Your next question comes from the line of Ryan Tomasello with KBW.

Ryan Tomasello, Analyst

In terms of capital allocation, can you talk about the current appetite for M&A, especially with respect to the insurance business in terms of expanding both the product offering and geographic footprint? And given the excess capital position that the reciprocal has, if there's any unique way to leverage that for inorganic growth?

Matt Ehrlichman, CEO

Well, Ryan, I won’t provide too much detail on that question, but I appreciate it nonetheless. You actually touched on a key point, which is that having more capital offers a range of options for utilizing that advantageous capital. As we make these decisions and prioritize the growth of our capital, it positions us to have many impactful choices. I mentioned previously that we would be restarting the M&A process and exploring potential companies that would align well with us. There’s no news to share right now, but it’s certainly on our minds.

Shawn Tabak, CFO

It was about 80-20 or so. A big chunk of it was from the stock price and the flywheel there continues to work exceptionally well. And also, the reciprocal generated really strong net income in the period, and that also contributed to the increase in the surplus. So both of those are having a positive impact and the flywheel, as I mentioned, continues to really work as intended and drive value.

Matt Ehrlichman, CEO

Easiest rule of thumb for anybody out there that wants to just track that ongoing. There's 18.3 million shares that the reciprocal owns. And so at any point in time, you can be able to peg what the value is of the Porch stock that the reciprocals own.

Operator, Operator

The next question comes from the line of Timothy D'Agostino from B. Riley Securities.

Timothy D'Agostino, Analyst

For my first question in the Insurance segment, last quarter, you mentioned you were in 22 states. I was wondering if that number is still 22 or if you've gone into other states? And thinking about expanding into other states and writing more business, what does that process look like? And how long might it take?

Matthew Neagle, COO

Yes, we are still operating in 22 states, but we see opportunities to expand into additional states in 2026. The specific process varies by state, but much of our existing infrastructure enables us to enter a new state relatively quickly, typically in months rather than years. It does take time to establish a presence in that state. However, we are currently collaborating with larger national agencies, which means those agencies could begin writing policies with us as soon as we open in a new state.

Timothy D'Agostino, Analyst

Okay. Great. Awesome. And then just a quick follow-up. I know Texas is majority of the reciprocals book. I was wondering if you could quantify maybe the percentage of how much reciprocal written premiums is coming from Texas.

Shawn Tabak, CFO

It's around 60%, I believe. It will be in the Q filing when that comes out.

Operator, Operator

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

Timothy Greaves, Analyst

I guess my first question is on like Home Factors. You had a goal of 100 by the end of the year, I believe. How is that pacing? And are you still on pace to reach that goal?

Matthew Neagle, COO

We continue to add Home Factors. We've launched eight just since the last time we met with you guys, bringing us up to 89. And we're still in the process of identifying new insights. And so I do think there is a lot of insights within the data. And what we have now is already very interesting. I mentioned briefly before, with AI, we're able to accelerate our ability to extract new insights. We're also interested in, over time, pulling insights from some of the visual data that we have. So there's still good room there for Home Factors in terms of product innovation. As a sign of two, we're also finding that there's additional use cases for the data. Again, I just think it's still early in that business with a lot of potential still.

Timothy Greaves, Analyst

Okay. Great. I guess my second question will be around the new policies. From the new policies, I think you mentioned that you will receive a percentage if the business originates from the lead generation you provide. What percentage of new business comes from the leads you generate compared to those from third parties?

Matt Ehrlichman, CEO

Yes. We don't provide a specific breakdown. However, the homebuyer leads we receive from third-party agencies are part of our insurance services revenue and align with our strategy. We connect with many homebuyers through various channels, including referrals from inspectors and other companies. We assist them throughout their move, and insurance is one of their primary needs. Additionally, we offer other services such as security, TV, internet, and moving assistance. Insurance is a key focus for us due to our strategy. While we haven't disclosed the exact percentage, it remains an important element of our approach.

Operator, Operator

At this time, we have no further questions. I will now turn the call back over to Matt Ehrlichman for closing remarks.

Matt Ehrlichman, CEO

I'll just say thanks for spending time with us today. I mean we, as you can tell, are fired up about the year, and we're fired up about the next set of years. So we really do believe we're positioned to post some really cool numbers and make a lot of progress against our strategy. And with that, we will wrap up the call. Have a great rest of the day.

Operator, Operator

Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.