All right, we're gonna go ahead and get started here. Welcome to day three of the Stephens Conference. We're coming to you live from Nashville. I'm John Campbell, the Real Estate Services Analyst here at Stephens Inc. On the stage with me is Porch, and representing Porch is the CFO, Shawn Tabak, or Tabak, excuse me. And then we got Lois Perkins here in the audience as well. She's at IR. So appreciate you guys taking the time today. It's been, I know, a long day and long week for a lot of you. We appreciate you guys being here in person, for sure. And I think we're also being webcast, so welcome to those in the audience virtually.
But with that, Porch is, I think, one of the most interesting models I have run across in my coverage for quite a while. You know, there's obviously, there's been challenges with the macro, and we're gonna go through that here in a little bit. And there's some puzzle pieces these guys still need to put together. There's lots of interesting angles to their insurance model with proprietary data. They're still in the process of kind of instilling that into you know, the underwriting algorithms and kind of putting that in place, getting approvals on a state-by-state basis. But lots of interesting things with the model.
I'm gonna let Shawn kind of explain Porch at a high level, and we'll set a kind of foundation of the company, and then kind of run through parts of the business. And then certainly wanna make this as collaborative as possible, and open up to you guys in the audience. We can have lots of kind of open Q&A. But with that, Shawn, welcome. Maybe for those who are not familiar with the story, talk to us about Porch, the main problem you guys are trying to solve, what makes you unique, and how you add value in the channel.
Sounds good, and thanks for having us, by the way. It's great to be here.
Sure.
So, you know, our mission at Porch is to simplify homeownership, with insurance at the center of that. The way that we do that, and the advantages that we have, we have two parts, two segments in our business. We have a software business, and so I'll start with that. And so in that business, we provide software to 30,000+ home services companies, and these could be companies like home inspectors, title insurance companies, mortgage companies. And in addition to selling software and running those software businesses, we also get to meet those home services companies' customers. We get to meet the homeowners through that process, very early on in a customer's homeownership journey. And there's two distinct advantages we get from that. First is, you know, we know weeks in advance of when anyone else knows, you know, that the customer is about to move.
That gives us an opportunity, obviously, to market to those customers, our B2C services that we have at the business, and those are insurance, moving, and home warranty. And so, yeah, so the first advantage is we get to meet the customer. The second advantage is, if you think about our insurance business in particular, we have a 40+ page inspection report on the home. So we know a great deal about the condition of the home, the roof condition, the services, the critical services, and infrastructure in the home. And that gives our underwriters an opportunity to price the homeowner's insurance policy, you know, better than others in the industry.
And so what you see as a result, our insurance business has continued to do a really great job improving their gross loss ratios, and therefore increasing their, their margins in that business. And as a good example, I'm sure we'll go on to talk about Q3, but, you know, in Q3 here, we had a 39% gross loss ratio, which drove $19 million of Adjusted EBITDA in our insurance segment. And so that is, you know, really leading the company toward profitability, which we've talked about, and are well on our way to delivering Adjusted EBITDA profitability here in the second half of this year, and then also on an ongoing basis.
Yeah. So let's talk about kind of the competitive or your entry into the value chain, kind of where you sit. You know, as I think of, you think about moving, it's a highly considered decision, right? There's lots of people who touch that process. There's agents, title insurance, inspectors, you know, home remodeling. There's all sorts of stuff that happen. You also have to disconnect all your utilities and go back and reconnect, right? You have to get new insurance. So these are events where there's a switching cost, and there's a switching event. So maybe talk about the inspection channel in particular for you guys-
Mm.
... and how that gives you the lead ahead of everybody else. 'Cause I think most of us who have owned a home or moved houses, when you move in, that, you know, within a week or two, all of a sudden your mailbox is flooded with-
Yeah.
... direct mail.
Yeah.
It's Home Depot, it's Maytag, right?
Yeah.
Everybody trying to hit you, and it's also Ford, right? And auto, you know, automakers, right? So talk to us about how you get that advantage, how you get there way before everybody else, and you can start to help connect the person into their new home, right?
Yeah. Yeah, so there's a couple things that are distinct benefits there. One is, you know, we get to meet the customer through the home inspection, which, as you said, is very early on in the cycle, but is also a strong indicator of a homeowner, you know, making a purchase and making that move. One that, as you rightfully note, is extremely important and also quite stressful for many people as they make that shift. And so I think it gives us an opportunity, you know, six weeks or so in advance of that flood of direct mail that ends up in people's mailboxes, to, you know, reach out to the customer and, you know...
And then also, if you think about things like to reach out to the customer and market them the other consumer services I talked about, like insurance, right? Most people entering into a new home, you know, because there's a mortgage, and mortgage requires homeowners insurance, have to buy homeowners insurance as part of that process. And so, by, you know, being introduced to that customer very early on, knowing that they're making that move, we can reach out to them, market to them directly, and, you know, sell them insurance. Same thing with moving services and home warranty, and other things that we can also reach out to them.
So, you know, one of the things we've done, especially with our app over time, is the ability to connect with the consumer in a very simple, easy way, and have them actually look at their inspection report on the app. And so from there, that just leads into all the other services, that it's right there, and making it simple and seamless for folks.
Yeah. And I think that's kinda one of the hallmarks of the story, is that, you know, to be a small-cap internet player of some sort, right, or a technology player of some sort, and not have to work with Google to acquire customers is, is a good starting point, right?
Yeah.
I think the cost of the inspection software, right, is kinda your cost of customer acquisition. So you guys do have... You look at the LTV : CAC, like, it's tremendous, right? Lots of opportunity for you guys. So talk to us, you know, when you start thinking about just the model, right? Talk to us, and for those who are newer, kind of build out the building blocks, like insurance versus the other parts of the business. Kinda help frame up what your P&L looks like.
Yeah, sure. So, we have two segments, as I talked about. One is the insurance segment. That's the one that delivered $19 million of Adjusted EBITDA in Q3. I think that business grew about 200% year-over-year. In Q3 as well, it was 75% of the total revenue, and the main component within there is our homeowners insurance business. We also have a really strong, fast-growing, very profitable home warranty business in there as well. So those are kind of our insurance products, if you will. And then the other segment that we have is our vertical software segment, and the way to think about that, about half of the... And that's about 25% of revenue, the balance.
About half of that segment is traditional SaaS and subscription-type products, so it could be, you know, software to home inspectors or title insurance companies, mortgage companies, as I mentioned. And those, those businesses are, especially in the housing market that we're in, doing very well. They've continually done much better than the market. I think the market went down year-over-year, like 17%, and our businesses were those businesses were relatively flat. And it just, I think, shows the value that we deliver to the customers, that we've kept really high retention, and then as we've delivered additional modules, we've also been able to increase price and take price in those businesses.
As a result of the strong retention and the pricing and the work the team has done, you know, we are able to keep those relatively flat. And then, the last component, the other kind of half of that vertical software segment, is our moving services business, and that one is more directly impacted, right? If there's less people buying homes, there's less people moving. So we do see, you know, a closer correlation with the market on that business.
And obviously, you know, we're prudent capital managers, and, you know, have made the tough decisions there to, you know, make sure that the fixed cost base there is consistent with the overall opportunity we have, for now in that market. I think as that market recovers, and we get some tailwinds, hopefully, that's a nice complement to our strategy, that business in particular. But, you know, for now... Anyway, so, you know, we ended up with $9 million of Adjusted EBITDA in Q3. An important target for our company, as I mentioned, is profitability on an Adjusted EBITDA basis in the second half of the year.
We guided to $4 million of Adjusted EBITDA in Q4. So, we're well on our way to achieving that target, and I think it'll be a tremendous catalyst and, and an important milestone for the company. And then also, as I mentioned, you know, on an ongoing basis, we also expect to be Adjusted EBITDA for full year 2024.
Yeah.
I have a question.
Yeah.
I'm not that familiar with the story. What's the competitive advantage of getting this home inspection report six weeks [audio distortion].
Yeah. I think it's-
Yeah, the question-
Yeah.
... from the audience is: What's the competitive advantage of getting a home inspection report six weeks prior?
Yeah.
[audio distortion]
How you get it versus competitors?
Yeah, so, by virtue of the fact that we're providing the software to the inspector, and then the inspector goes in and does their inspection, puts all the data back in our software, and uses our software to generate the report and also do their CRM activities with that consumer, we get effectively introduced to the customer through those arrangements. And so, you know, the inspection is obviously pre-purchase close, and so, other folks need to wait till there's other cues later on in the life cycle of the home purchase. And so we're six weeks early, essentially, in knowing of this, like, highly probable close. And so it's a very highly qualified lead, if you will, as opposed to having to go to, you know, Google and do SEM or, you know, other type of marketing tactics. It's just, you know, we're delivered through the relationship.
[audio distortion]
Yeah, yeah, so the question was around how many folks do we work with, and what's our penetration? So, I'll answer the first question, which is, we work with 30,000+ home services companies. A good portion of those are inspectors. In the inspection software market, we are the clear leader. So we have three businesses in that market, ISN, Home Inspector Pro, and Palmtech. I think of it as very simply a good, better, best strategy, depending on the size of the home inspection company. And, you know, we you know, I think the next player is quite a bit smaller than us, and so in that market, we have significant share.
Thanks. Yeah. Good question. Yeah, so the reason I kinda wanted you to unpack the model is you've got one side of the coin that's gonna have housing exposure. You got another side of the coin that's certainly insurance exposure, and you can say insurance, both P&C and what's happening with carriers, as well as reinsurance, right? And that, that plays a part. Both sides of that coin are facing a macro that is like, I'm not gonna say once in a lifetime, but very awkward channels, right? It feels like the housing side was, like, artificially broken. 3%-8% rates in record time is gonna break the system every time, right?
Yeah.
And that's what they wanted from an inflation standpoint. But then you also have the insurance side, where because of inflation, you had higher replacement costs, and that got all out of whack, right? You can go look at the profitability, the ROEs of all the major carriers out there, including Progressive, is, like, historical low, right? It's been awful. And then that's trickled into the reinsurance market, where things have gotten bad from, I don't know if it's global warming or not, but we've got major events happening from a weather impact standpoint. You know, carriers have to get rate state-by-state basis and stuff like that, so, like, you've had both sides of the coin face historic shifts in the market, right? You know, you guys came out of your IPO or came out of the SPAC process-
Yeah.
... which was also something that people pointed to, you know, the kind of baby in the bathwater with the SPACs, right? They pointed to you guys as being, like, one of those bad SPACs. Not the case, but from the macro pressures, you guys came out of the gates really hot, and then these markets turned over in a hurry. So you guys, I think, around that SPAC process, were talking about kind of 30% organic growth. You guys are delivering that, doing really well. Things have turned against you. How should investors think about it once these cycles kind of turn? Once things kind of normalize, what should we think about, you know, organic growth for you guys, the potential over time?
Yeah.
That was a very long-winded question.
It's a great question. Thank you for... I think the context is, you know, there are, you know... I guess overall, I'd say, you know, our approach has been focused on the things that we can control, and execute, and execute against our strategy. So, and I think that's, you know, been a good ethos for the company. And so from a growth perspective, I think the growth opportunity is tremendous. I mean, the TAM in the insurance industry is extremely large, obviously. You know, our home insurance business is, you know, a $200 million business in a, you know, $10s of billions market. I think we also see that TAM in the homeowners insurance for homeowners insurance continuing to increase in the years ahead.
Mm-hmm.
You know, the way we think about it, insurance companies will make money. What's happened in this short amount of time is that, you know, reinsurance rates have increased quite sharply, and that can happen overnight. But, you know, we're, we have to go through a process to increase the rates, which we're allowed to do, and we are doing, quite significantly. We go through a process to increase those, the rates with the underlying consumer. Also, we've had, pretty bad weather over the last year, and it's impacted us, but I think you see us kind of catching up to that now. Because, you know, our opportunity there, again, when the weather's bad, that just means we have an opportunity to, and we should, go back and increase the rates.
Mm.
... to make sure we can continue to be profitable. And so, you know, when you put all that together, we do expect the TAM of that industry, the home insurance industry, to continue to grow. And I think our advantages on the inspection, in particular, really provide us with unique data that give our underwriters an opportunity to, you know, price the policy better than the next guy. Because we know the condition of the roof, we know the condition of the foundation, we know where the water heater is located, we know the type of piping. You know, all these parameters, you can plug it into your algorithm, our underwriters plug it into their algorithm, and just understand the potential risk of taking on the policy, you know, much better.
You know, last year, our gross loss ratio—our combined ratio, excuse me—for our insurance business, HOA, was third best. And we were also the third fastest growing homeowners insurance carrier in the entire market. There's a report from AM Best, and the data is directly from there, so we're starting to see this all benefit. You know, on the software side, you know, as I mentioned, it's been pretty wonderful to see the team's performance and focus on what we can control in this really tough housing market. I think as we get some tailwinds there instead of headwinds, I think that'll be, you know, fun to see those businesses come out of that cycle and really grow-
Yeah.
... profitably.
Yeah, I mean, I, I think that's something people tend to overlook with your story, particularly, is over half of the business is insurance now. And you can see from some of these P&C guys, some of the public guys in the market, like, yeah, losses are terrible, but, like, that generally means that good times are ahead for revenue, right? Because you do go get the rates, and that's direct increase in premium, is a direct increase of insurance revenue for you, right? People tend to overlook that, that you guys will have natural-... do you call it cycle-driven headwinds or whatever, you're gonna have that in place. Housing doesn't have to be great, it just is lapping such easy comps. I think we're at 28 straight months of year-over-year declines. We're finally getting to, like, down 1%-2%. Feels like we're kinda making that turn, so.
Yeah.
Like, the top line feels like you've just got it set to grow next year, right? To what extent, we'll see the trajectory, but like, talk to us about the margin profile, the profitability. You know, you guys have talked about Adjusted EBITDA. Looks like you're well on your way of hitting that target.
Yep.
You talked about positive adjusted EBITDA next year. The story, what it feels like it really needs right now is, like, that clear inflection to cash flow growth, right? 'Cause we do have debt we gotta deal with and whatnot. So, talk about that kind of profile, what we look like kinda coming into a cash flow positive, and what the margin maybe potential could be over time, maybe?
Yep, yep. So the software businesses have, you know, very high, incremental, contribution margin businesses. Relatively, fixed cost base there with high gross margins. And so, you know, as those businesses grow, you, you'll see what, you'd expect to see from, software businesses with a very good operating leverage, and, and a lot of, you know, incremental growth hitting the bottom line. I think for the insurance business, we've really had a focus on profitability as well. We've increased our premiums year-over-year, in Q3 as an example, almost 40%. And, you know, we've looked at the, underwriting conditions, throughout the book and have adjusted those to gear towards profitability. We've non-renewed policies.
We do very detailed analysis by policy, and if there are specific geos where we're not able to get the rate that we need, we're gonna non-renew those. We just announced that we're exiting the state of Georgia, as an example, because we're not able to get the rate that we need, and you know, we wanna be prudent capital managers, so we're exiting that market. And then just leaning into the data advantages that we have, you know, from those 40-odd page inspection reports on the home and continuing... You know, that will be an evolution over time. You know, I think we're still in the very early innings there, but are starting to see definitely the impact of that really flow through.
So all of that drives, you know, Adjusted EBITDA, and profitability of the business. For us, the difference between EBITDA and free cash flow is mainly the, the coupon that we have on our secured note. So we have a secured note, $333 million with 6.75%, that we have in place. And you know, just above $20 million of interest that we have on that, and that's really the bridge. We don't pay a lot of taxes. We don't have any structural working capital items. We don't have a lot of CapEx or other things like that. So, you know, you know, as we continue to grow, you'll, you'll see a lot of leverage, coming into the model.
I think the other thing worth noting also, in this environment, we have $450 million of cash and investments sitting on the books. You know, a lot of that is earning mid-single-digit, you know, interest, just, sitting in high-yield savings, cash accounts, as well as some investments that we have. So, you know, that also offsets part of the coupon that we have, on that secured. So those are the, those are the factors there, and, we're focused on generating free cash flow.
Yeah.
... in the short term, Adjusted EBITDA as the best proxy for that.
Yeah. It's a pretty important moment for your stock, hitting that kind of inflection. You know, like, looking at your stock valuation, I don't think you can even make sense of it, right? I mean, you could value anyone, you could sell any one of your handful of your businesses and be at your stock price now, right? From a sum of the parts standpoint, it's just, it's silly at this stage. So I don't want to, don't want you to really comment on the valuation. I mean, your stock has doubled over the last three or four sessions. Got a long way to go, obviously. But talk to us a little bit about, how you guys kind of view the debt at this stage. How you think about...
I mean, you know, not raising capital, I'm not asking that at all. But, like, how you think about handling the debt over time? Obviously, getting a free cash flow positive is important at some stage. Getting a higher equity value is gonna be important at some stage. But, like, talk to us about how you guys think about that internally.
Yeah, yeah, sure. So we have two tranches. We have the secured that I mentioned, that's due in 2028. And then we have unsecured that's due in 2026. The coupon on the unsecured is fairly low. I think on the 26's, we have, you know, a number of opportunities and options to deal with those. And, you know, obviously, we will. And, you know, obviously, we'll give updates as we do.
Yeah. And what is your debt trading at?
I think.
$0.50 on the-
For the secureds, I think it's something like that. The unsecureds are lower than that.
Yeah.
Yeah.
Interesting. All right, so, in the audience, guys, seriously, raise your hand, and you can jump in at any point. I don't wanna dominate the whole conversation, but, I'll keep going, and I'll keep my eyes out. On insurance, I just wanna get a little bit deeper there. I mean, when you think about the insurance market, it is commoditized, right? You know, it's gonna be heavily regulated on a state-by-state basis. The way to win is kind of grow share, right? And try your best to underwrite better than the next guy, right? I feel like your potential to reach customers early on, when you've got Flo and Mayhem, and Super Bowl commercials, right? These guys are spending exorbitant amounts of marketing dollars to reach consumers.
Yeah.
You guys can get in front of consumers early, often, and at a very low cost.
Yeah.
Structural advantage there. I feel like the underwriting data, you've got inspection reports that they do not have, right?
Yeah.
So I feel like you could have an underwriting edge on the underwriting side of things. So maybe talk to us about how you think about those two competitive advantages. You know, also one of the things that kind of limits you is you, to be a fast-growing insurance company, you do have to have capital, right? So how you can, you know, use those two advantages and how you can grow over time, how do you kind of think about those three things in concert?
Yep. Yep. So, so just as a little bit of background for folks. So in 2021, we acquired a home insurance carrier, called HOA, Homeowners of America. And one of the things we really liked about their, that business is they had 15 years of historical claims data, and a really healthy financial position that we were able to, you know, leverage and then, you know, introduce the data that we have from the inspection report. And so, as a quick example, one that we often use is, you know, water heater location is an indication of the expected claims that you're gonna pay out on an insurance policy, which should then feed into how much- how you should price that policy.
So as an example, you know, if your water heater is located in the attic and the thing busts, then, you know, it's gonna be a $10,000 claim. Obviously, it depends, but, you know, that's just an example. If it's in the garage, it's gonna be, you know, $200 to clean it up. And so by knowing that one parameter, our underwriters are able to feed that into their historical claims data and use their algorithm to properly price that policy. Now, other folks aren't gonna have the extent of data that we have, obviously, 'cause they don't have this 40-page inspection report, which, you know, in detail, lists out where's the hot water heater? What's the piping? Which matters when you have freeze events, what type of piping you have.
What's the what type of flooring do you have? What's the condition of the roof? And so we can you know insert all that data into our underwriting models. And the basic idea is that, you know, we price the policies, we win, we win the customers that are better customers because there's less risk for those folks, 'cause we know all these conditions. And you know we will price higher the other policies, and so we may not win those customers, but then they go to one of our competitors, and that's okay. So I think that that's the opportunity there.
I think from a, you know, being introduced to the customer, you know, we've talked about the opportunity to, you know, not have to pay exorbitant marketing costs, and also have the fluctuations that come with marketing online or, you know, via television commercials. 'Cause those markets can also, you know, move up and down, pretty quickly as well. So, it's both a CAC advantage, and, what I think of simply as a product advantage. The product being, you know, the actual insurance policy and underwriting it, itself.
Yeah, makes sense. So-
One other thing, sorry, that you mentioned was the opportunity for capital. So one of the things that we've been focused on in the business is shifting toward a reciprocal structure, which is a structure where we would effectively, you know, sell the homeowners' insurance business to a reciprocal entity that would be owned by the policyholders. And then we would simply provide, you know, management services to the home insurance carrier and that Reciprocal Exchange. And so our P&L shifts from what we have today, where we have actual claims hitting our cost of revenue and, you know, paying commissions when we have to, you know, acquire a policy.
It shifts to a fairly stable model of, you know, having service revenue as a percentage. It's a take rate, as a percentage of the premiums that the insurance carrier writes. And our expenses are simply, you know, paying our employees. So from our perspective, there's a number of benefits to that model. One of them is, you know, the ability to more efficiently raise capital into the insurance business, where we could raise what's called a surplus note. And that helps fund the insurance business and the growth in the insurance business. And we mitigate our volatility because the weather is, you know, and the claims that we have are being absorbed by that entity. We're simply getting a fee for managing it.
Yeah, um-
[audio distortion]
Yep. The question was, what's the timeline on the reciprocal or the reciprocal interest?
[audio distortion]
Yeah. So the question, so the timeline for the reciprocal, at this point, we've said, in 2024, is what we are focused on in targeting.
Yeah, and so getting into that reciprocal, to me, that feels like also an important moment for the stock. 'Cause, like, part of the issue over the last year or so has been you're having to move around the percent of premiums that you're retaining as risk, right? And so when you retain more risk and there's a loss event, it blows up gross margins, right? And so, like, if you feel like it's a software technology company with an insurance angle or vice versa, if gross margins get evaporated, people don't like that, obviously, right? And it creates, to your point, a lot of volatility in the P&L.
And so just to clear it up, with the Reciprocal Exchange, that isn't... You're taking that off of your P&L, right? So your gross margins should go up, recurring revenues come on, you're just taking on employee expenses, it sounds like. There still is a risk there, though, right? Like, and you have to have that adequately funded.
Yep.
So just to be clear, that's kind of the way the reciprocal works?
... That's right, yeah. So the reciprocal, you know, still, it, it has to run a healthy underwriting operation, which would, you know, based on our gross loss ratios, you know, we, we feel confident that it can do. You know, has to have a healthy surplus, and, you know, has to have a healthy gross and net combined ratio, you know, just like it does today. And so, you know, we'll continue to be involved there and manage it to a healthy level. And, you know, and over time, bring in a surplus note partner, to help fund the growth opportunity, as well. One of the other ways that we mitigate risk is, by buying reinsurance or, you know, selling off, portions of our policy.
There's two types of reinsurance that we use. The first is excess of loss, catastrophic-type event reinsurance. We will always have that sort of reinsurance, 'cause obviously we wanna protect ourselves from, you know, any big, large, catastrophic events. Think about hurricanes and events such as that. The other type of insurance, reinsurance that we currently use is called the quota share reinsurance, and that's more, you know, per risk. We, you know, share in the risks. We sell off, you know, a proportionate share of the premiums to somebody else. And if there's risks, they absorb them proportionately, or if there's losses, they absorb them proportionately. That's the piece of the reinsurance market that's gotten really expensive, in particular, over the last year.
And so shifting to the Reciprocal Exchange allows us to basically sell, use that quota share reinsurance less, and instead use a Surplus Note, which ends up being a much more efficient capital structure, for the business. But one thing that, you know, should be clear is that we use quite a bit of reinsurance today to protect ourselves in the business, and we will continue to use reinsurance, in the future to continue to protect the carrier business.
The last one on the Reciprocal Exchange. You know, assuming you guys get that put in place, how do investors keep up, keep tabs on it, right, on this, the health of the reciprocal? Is it something you report in your filings, or is it something that you'd have to go to the state insurance department website and get information on?
Yeah.
How do you keep tabs on it?
Yeah, yeah, yeah. Yeah, I mean, it's something we expect to, you know, be able to provide to folks. For example, in Q3, I think I shared that the surplus at HOA, the insurance carrier, was $53 million. So a very healthy surplus level, and that drives, you know, a good ratio. I think another way is that, all insurance carriers are rated, and so, HOA, our insurance carrier, is rated one of the top ratings possible. It's an A rating, and that's also publicly available information.
Mm-hmm.
And so those are a couple of ways that folks can just keep tabs that, you know, the business is... the carrier itself is healthy.
Yeah.
Um, so-
And I think-
Which it is, at this point.
I think Erie Insurance is maybe the public pure play. Is that right?
Yeah.
The Reciprocal Exchange?
Yep. There's-
I think if you put the multiple on their insurance business alone, it's like multiple times the value of your whole entire stock at this point, which, again, doesn't really make sense to me. But, okay, so let's talk about one last thing on insurance. You know, some of the questions we've gotten, or maybe the pushback, has been, "Oh, if the inspection data is that impactful, if it's that great, why do P&C, why do traditional carriers not utilize it?" What's your response to that?
Yeah. I think they just don't have access to the data. I mean, you know, a customer, a homeowner, is buying an inspection report. You know, that's a fairly expensive, you know, endeavor. And then, you know, we get access to it through our software, and so I think that's, you know, really the great part about our strategy and why I think the strategy is very compelling, you know, it can't be replicated. Because you'd have to somehow get an inspection report-
Yeah.
... from customers, and, I don't know where mine is from when I bought my house, but ...
I think the other side of it, too, I mean, is, you know, if your average policy is, I don't know, $1,500, $2,000, whatever it is now, are you gonna spend $500 upfront?
Right.
And you've already chewed into, you know, a fourth of your economics before you even think about returns, you know?
Yeah.
It seems like, to me, that doesn't make a lot of sense. It's not economical, right?
Yep. Yep.
Cost efficient, to do. And then also, to digitize that data, you've gotta-
Yeah.
... even if you were to buy it, okay, that's great. You just spent a lot of money and chewed into your returns. And then now you have to monetize that data, right? Figure out not only how to pull it out of the report at a cost-efficient manner, but also how to build it into your underwriting, right?
Yep.
Which you gotta test, which you guys are doing right now. So it seems like it is a true advantage. The other pushback we've gotten is, you know, like, even if it's great, even if it is an impactful thing to your model in underwriting, how do you even ensure that you can even use it, right? And so you guys, I think, have helped validate that as each state, you know, state by state, you're starting to get approval. So maybe talk about how many states you're approved in now or kind of what that looks like overall.
Yeah. So we're in 22 states. We're approved in 12 states to use the inspection data. And you know, I still think we're really early innings there, leveraging all of it. But what we have been able to has shown that it really helps improve the loss ratios of the business and the performance of the underwriting. One of the data points that we provided earlier this year is that our models, the efficacy of our models since we've acquired HOA, have improved, like, 20%. You know, leveraging, in part leveraging the data that we have from those inspection reports. If you ask any insurance actuary, underwriting person, a single-digit improvement is, like, phenomenal. So 20% is, you know, just hasn't really been seen in the market. And so I think we're showing the proof points that the data is quite compelling to the underwriting business.
Yeah. I think this last earnings call is the first time you guys really talked to the underwriting data as being a driver, right? That's maybe the first time you guys have really talked to it. Seems like it has a lot of opportunity, but it's still very, very early, right? One last question from me, and then I'm gonna leave time for you guys in the audience to any last questions. You do have a home warranty business, right?
I think, I mean, if you're gonna make the argument about data being helpful, inspection data being helpful to underwriting the home, there's weather events, stuff like that, you can't predict. I feel like with the home warranty, that inspection data has gotta be massively impactful. So maybe talk about the impact there, why that's a structural advantage, and how that's helpful in the home warranty side.
Yeah, definitely. Just for folks, we have a home warranty business. I think in our last earnings, not this last one, the one before, we talked about that business, you know, being about $35 million in revenue this year with 25% EBITDA margins. That is a very profitable business for us. We are actively allocating capital to that business as much as we can. The unit economics are very solid. And so there's a couple of opportunities that we have there, both with the data as well as leveraging the channel that we have. 'Cause, again, we have you know, a lot of relationships with home services companies that are in that real estate channel, in that inspection channel.
So, you know, with inspectors, with contractors, we're able to leverage those relationships, also for our home warranty business, as an opportunity to drive growth. Then, you know, also, if you also think about bundling handyman services, with your home warranty product, which is another, you know, business that we have at the company, you know, it just, it creates a differentiation for the product in selling to the consumer. So we see a tremendous amount of opportunities. That business has been growing very well, both using the inspection data as well as some of these channel benefits and bundling product benefits, to differentiate that product from the rest of the market. Yeah, so we're excited about that business, and that team is executing very well. So-
Yeah. Great rundown. That's all I've got on my end. Anybody in the audience have any last questions? I know we're standing in between you and lunch, so these hateful eyes are gonna start peering this way. But, any last questions for you guys?
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Yeah, so the question was, what we've announced publicly about how we're gonna address the debt. So there's a 2026 unsecured coming, unsecured that's coming due in 2026. And I think what we've said is, we have a lot of options on ways to deal with it. It's something that, you know, we will take care of in advance, obviously, of 2026. It's something we discuss with our board, obviously. And, you know, we'll manage that as we go along here.
I think that's a wrap. Thanks for the time, audience, and thanks, Shawn. Appreciate it.
Yeah. Thanks for having us.