Porch Group, Inc. (NASDAQ:PRCH) Q4 2023 Earnings Call Transcript

Porch Group, Inc. (NASDAQ:PRCH) Q4 2023 Earnings Call Transcript March 8, 2024

Porch Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Lois Perkins: Good afternoon, everyone and thank you for participating in Porch Group’s Fourth Quarter 2023 Conference Call. Today, we issued our fourth quarter earnings release and related Form 8-K to the SEC. The press release can be found on our Investor Relations website at ir.porchgroup.com. Joining me here today are Matt Ehrlichman, Porch Group’s CEO, Chairman and Founder; Shawn Tabak, Porch Group’s CFO; Matthew Neagle, Porch Group’s COO; and Jim Weld, GM of Rynoh, Porch’s title software company. Before we go further, I would like to take a moment to review the company’s Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995, which provides important cautions regarding forward-looking statements.

Today’s discussion, including responses to your questions, reflects management’s views as of today, March 7, 2024. 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 including the application for the reciprocal exchange based on current expectations and assumptions. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from these forward-looking statements. We encourage you to consider the risk factors and other risks and uncertainties described in our SEC filings, as well as the risk factor information in these slides for additional information, including factors that could cause our results to differ materially from current expectations.

We will reference both GAAP and non-GAAP financial measures on today’s call. Please refer to today’s press release for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call, which are available on our website. The financial information provided today is preliminary, unedited and subject to revision upon completion of the closing and audit processes. 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. I will now turn the call over to Matt Ehrlichman, CEO, Chairman and Founder of Porch Group. Over to you, Matt.

Matt Ehrlichman: Thanks, Lois. Good afternoon, everybody. Thanks very much for joining. I couldn’t be more proud of the achievements and execution of the Porch team over the last year. Despite a sharp increase in interest rates over the last couple of years, higher cost of reinsurance and claims, and traction in the real estate market and historically challenging weather events, the team stuck together, stayed focused and performed. We implemented our insurance profitability actions, which you’ll hear throughout today’s presentation. This includes enhancing underwriting activities, increasing premium per policy and non-renewing higher risk policies. We launched Porch warranty and new products for our software customers, increasing pricing while maintaining our high customer retention.

And we reduced costs across our business while continuing investment across key growth initiatives. And as a result of the work we have done, financial results were strong and exceeded expectations. Revenue in the fourth quarter grew 79% to $115 million, $15 million above our prior guidance. Revenue less cost of revenue grew 82% to $80 million, $20 million above guidance. And Q4 adjusted EBITDA profit was $12 million, an increase of $25 million compared to the fourth quarter 2022 and $8 million above guidance. In every measure here, it was a great quarter. A few other key updates for the fourth quarter before we dive into the presentation, one, we handily beat the second half 2023 profitability target we set 2 years ago with second half adjusted EBITDA of $21 million.

Next, we had no material weaknesses, huge thanks to Shawn and the team for the expertise and leadership. This was a top priority for us as we completed system implementations and improved our control environment, a truly great achievement and well-done team. Next, our business continues to make meaningful progress across many areas. In Q4 alone, we launched a new Rynoh product for title companies. We landed a new utilities partnership, released a new HVAC micro-warranty, and a CRM product for smaller inspectors. Our moving business is executing a local full-service offering expanding on our leadership position and providing moving labor to consumers. This product increases the size of our market opportunity and provides a higher margin offering.

Next, we released our first ESG report, which is available on our IR website. We look forward to sharing more on this in the future. And finally, we were admitted into Deloitte Technology’s Fast 500 for 2023. Now over to you, Shawn on the financials.

Shawn Tabak: Thanks, Matt and good afternoon everyone. As Matt mentioned, we are extremely pleased to accomplish our second half 2023 adjusted EBITDA target, despite market headwinds. I wanted to thank our teams for their contribution and hard work to achieve this critical milestone. Moving to Slide 9 here to get into the financials, revenue was $114.6 million in the fourth quarter of 2023, growth of 79% over the prior year, driven by our insurance segment, which grew 179% partially offset by the Vertical Software segment. Revenue less cost of revenue was $79.9 million, resulting in a margin of 70% of revenue, which is a 120 basis point increase over the prior year, driven by the insurance profitability actions and software price increases.

Adjusted EBITDA was $11.7 million, a 10% margin and a $25 million increase over the prior year driven by the insurance segment and strong cost control. Gross written premium was $112 million, a decrease compared to prior year as we focus on profitability and reducing risk through non-renewals and new business restrictions and higher risk ZIP codes. This is partially offset by an increase in premium per policy. The insurance segment was 76% of total revenue in the fourth quarter, an increase from 49% in the prior year. Revenue from our insurance segment was $86.9 million, growth of 179% over the prior year, driven by a 34% increase in premium per policy and lower reinsurance seating. Approximately one-third of the growth was from increases in premium per policy and two-thirds from the lower seating partially offset by attrition with the non-renewals.

Vertical Software revenue was $27.7 million, a decline compared to the prior year, driven by the housing market headwinds, which particularly impacts moving services along with lower demand in corporate relocations. SaaS revenue remained resilient. Moving to adjusted EBITDA by segment, insurance segment adjusted EBITDA was $31.6 million in the fourth quarter of 2023, a 36% margin driven by insurance profitability actions, which drove a lower gross loss ratio compared to the prior year. Vertical Software adjusted EBITDA loss was $300,000 with continued market pressure in moving services. Corporate expenses were $19.7 million or 17% of total revenue, a 600 basis point improvement compared to the prior year. Moving now to the balance sheet. We ended the – we are proud to have issued – have generated $34 million of operating cash flow in fiscal year 2023.

We generated $43 million of operating cash flow in the second half of the year. You can see here that we ended the year with $398 million of cash, cash equivalents and investments. And excluding the $310 million at HOA, Porch held $87 million. In addition, Porch Group held $39 million of restricted cash primarily for our captive and warranty businesses, as well as a $49 million surplus note from HOA. HOA surplus at December 31 was a healthy $52 million. In the first quarter of 2024, there have been four items that I would like to bring to your attention. First of all, we signed a strategic business agreement with Aon, who will support us in securing reinsurance and other services in 2024 and the next several years. We released them from any Vesttoo related claims, although we’ll continue to pursue other non-Aon parties.

We received approximately $25 million upfront cash in January 2024 and expect to receive approximately $5 million over the next 4 years. Second, as previously discussed, we tested connecting homebuyers with third-party insurance agencies to compare conversion and profitability versus EIG, our in-house agency. Our unit economics and profitability improved substantially in these tests given the cost associated with running the agency. Therefore, we sold EIG for $12 million cash in January of this year. EIG was a small business for us with annual commissions from third-party carriers of approximately $5 million and an adjusted EBITDA loss of approximately $3 million in 2023. While we will continue to prioritize selling our own insurance products like HOA and eventually Porch insurance to relevant homebuyers, when we do connect consumers to agency partners and they sell a third-party carrier product will receive back high margin revenue.

Overall, this divestiture increases profitability in 2024 and ongoing and improves our balance sheet. And importantly, as part of the strategy around forming a reciprocal exchange, we want as much premium as possible sold into our own insurance products and for Porch Group to be the operator of the reciprocal with lower volatility and higher margins. Tighter alignment with third-party agencies can incent them to drive more of their customers to our carrier. Third, in February, we repurchased $8 million par value of our unsecured notes for $3 million cash at 37.5% of par, reducing our 2026 debt maturity to $217 million. And finally, we expect to file a Form S-3 shelf registration statement with the SEC soon around the timing of our 10-K, which gives us the flexibility to raise various forms of capital over the next 3 years.

We do not currently have any imminent plans to raise capital. However, this is a good corporate practice and provides several options to reduce our 2026 notes over the next 2 years. Shifting now to our full year 2023, revenue was $430 million, a 56% growth over the prior year, driven by 152% growth in our insurance segment. Revenue less cost of revenue was $210 million, a 25% increase over the prior year. There was a change to margins year-over-year due to mix shift between insurance and vertical software segments and a change in our reinsurance programs within reinsurance – within insurance. The adjusted EBITDA loss was $44.5 million, a $5 million improvement over the prior year. Driven by improvements in insurance profitability actions, we discussed an offset by higher reinsurance costs in 2023 and historically challenging hail events in Texas in the second quarter.

Gross written premiums were $525 million relatively flat compared to the prior year, with non-renewal of higher risk policies offset by increases in premiums per policy. These changes drove notable improvement in profitability, building momentum in the second half of the year. And with that backdrop, now let’s take a look at our 2024 guidance. Today, we are providing our full year 2024 guidance. For 2024, we expect revenue of $450 million to $490 million, growth of 5%, 14% driven by the insurance segment with relatively flat revenue in the software sector. We expect revenue, revenue less cost of revenue of $225 million to $240 million. We expect overall margins to be relatively flat with 2023 as increases in vertical software margins are offset by mix shift toward higher growth but lower margin insurance segments.

We have assumed a 63% gross loss ratio for the full year in line with our 5-year weighted average. Overall, we expect adjusted EBITDA profit of $1 million to $10 million. The year-on-year improvement is predominantly driven by continued execution against our insurance profitability actions we discussed today, price increase in our SaaS businesses and ongoing cost management efforts. We expect operating expenses to decrease more than 10% compared to 2023. We expect gross written premiums of $460 million to $480 million. For reference, EIG’s written premium from third-party carriers was approximately $45 million in 2023. So, our guidance implies managing to roughly flat on an apples-to-apples basis as third-party carrier written premium will be excluded under the new agency model.

This includes executing further non-renewals and higher risk policies exiting the state of Georgia where we are unable to get the rate needed to achieve our profit targets and being selective around bringing in attractive new business. Overall, at approximately flat premium, we are reducing our projected risk exposure by approximately 22% in 2024, which follows the approximately 26% reduction between 2022 and 2023. This drives lower expected reinsurance and loss costs. We believe our insurance profitability actions in 2022, 2023 and 2024 set us up well for sustainable, profitable growth in 2025 and beyond. It’s going to be an exciting time for the company. Now to adjusted EBITDA seasonality, we have historically experienced higher insurance claims in the first and second quarters.

Therefore, as this illustrative chart shows, in 2024, we expect adjusted EBITDA to be negative in Q1, more negative in Q2, followed by profitability in Q3 and Q4. Overall, the midpoint of our 2024 adjusted EBITDA guidance is a $50 million increase compared to 2023. In 2024, we expect adjusted EBITDA to improve approximately $10 million to $15 million in each quarter compared to the same quarters in the prior year. We are continuing to roll out additional price and deductible increases over the first half of 2024, which benefits the second half. And finally, given our progress and strong results, we secured an additional kind of reinsurance product to protect the balance sheet and reduce our exposure to web. Earlier in 2024, we purchased $30 million of aggregate severe convective storm coverage, which includes hail protection.

This means if we see a series of smaller storm or hail-related losses similar to what we saw in Q1 and Q2 of 2023, we would have coverage adding to what we already have for larger events. Generally, if hail events were to drive worse than expected claims volumes in 2024, we are now much better protected, increasing our confidence in the upcoming year and our typical reinsurance renewals will occur on April 1. Thank you all for your time today, and I’ll now hand over to Matthew to cover our KPIs and other business updates.

Matthew Neagle: Thank you, Shawn. Hello, everyone. I will start with our KPIs. The average number of companies was 30,000 in the fourth quarter, broadly similar to last quarter and prior year with continued housing market headwinds. Average revenue per company per month increased 84% to $1,277 versus $693 in Q4 2022 as we continue to monetize the insurance opportunity more effectively. We had 220,000 monetized services in the quarter, an increase of 3% despite the headwinds in the housing market and decline in corporate relocations. Finally, average revenue per monetized service was $448, up 105% versus prior year due to the growth in our higher value services such as insurance and warranty. I want to take a moment to highlight our SaaS revenue within the vertical software segment.

Industry home sales declined 18% in 2022, an additional 19% in 2023. Despite this, our software and subscription revenue have remained broadly consistent over that period. While we are not assuming any improvement in the housing market in 2024, when the housing market recovers, it will be a tailwind for our businesses. Looking now at the Insurance segment, KPIs, which includes HOA, our insurance carrier, our warranty business and as of December 31, it also included EIG. Gross written premium was $112 million from 310,000 policies in force in the fourth quarter. Policies in force declined 20% compared to prior year, while GWP decreased 14%. This is due to non-renewals of higher risk policies being partially offset by increased premium per policy.

Annualized revenue per policy increased to $1,120 driven by premium per policy increases and lower seating. Posting now on HOA, our insurance carrier, annualized premium per policy increased 34% to $1,861. Premium retention was 96%, approximately 10 percentage points lower than prior year, driven by the non-renewals we discussed. Our gross loss ratio was 36% in the fourth quarter, and I’ll provide more insight on that on the next slide. We welcome comparisons of our gross loss and combined ratios to all other property-centric carriers. As I said, the gross loss ratio for Q4 was 36% and for the full year 2023, it was 69%. And that’s even with a tough weather environment. Our combined ratio in the fourth quarter was 49%. And for the full year 2023, it was 88%.

Here on Slide 21, you can see the detail from the last 2 years, including the split between catastrophic weather and non-cat payrolls. You can see seasonality in the cat gross loss ratio with the first and second quarters being the worst weather quarters as well as a non-cat gross loss ratio improving throughout the 2023 year to 30% in the fourth quarter. This clearly demonstrates our ability to identify and price risk. You can see the year-over-year improvement of our gross combined ratio from 77% in Q4 2022 to 49% in Q4 2023. The point to highlight here is our unique data improves our ability to underwrite policies effectively as we focus on profit. We provide discounts to lower risk policies and surcharges to higher risk ones. Over time, the mix shift of our book will lean towards lower-risk customers as we incentivize those customers to come to us and as we avoid loss-making customers.

We continue to make great progress in leveraging this competitive advantage across the 22 states we write in and across different factors in payrolls. And we are not done yet with key underwriting changes. In 2024, we have already filed an 18% increase in Texas. We will implement additional increases in states where appropriate and are further increasing our deductibles. Overall, the rate changes we have made that you can see on the left hand side of this slide, have delivered a 30% CAGR in premium per policy between 2021 and 2023, you can see on the right. And given the 2024 rate increases, we expect premium per policy to continue to grow. As we have said before, we believe the homeowners insurance base is highly attractive, given how significantly we expect the TAM to grow for many years at.

Now, on to Deep Dives, Malcolm Conner, our Warranty business GM, shared insights into how we are well positioned to become a leader at our last earnings in Q2. We have lower cost of customer acquisition offer a variety of products which are distributed through unique partners and have unique advantages that the Porch platform provides. Our warranty strategy is producing strong results. We entered into the warranty space, the acquisition of American Home Protect in 2021 when it had $12 million of revenue. We achieved our 2023 revenue target delivering $37 million in revenue and $7 million adjusted EBITDA. Noting 2023 adjusted EBITDA would have been even better but included certain remaining acquisition costs. We expect wanting revenues to continue to grow as we expand distribution with a 2024 revenue target of approximately $46 million.

The business improved its profitability substantially and anticipates approximately $16 million in adjusted EBITDA at 35% adjusted EBITDA margin. Looking ahead, we target 2028 revenue of approximately $100 million, which equates to a 22% CAGR with a 40% adjusted EBITDA margin as we invest in growth with attractive unit economics. Thank you, everyone. I’ll now hand over to Jim.

Jim Weld: Thanks, Matthew, and hello, everyone. I’m Jim Weld, General Manager of Rynoh, and I have 15 years of title industry leader experience. Prior to leading Rynoh, I spent more than 3 years as President of Zillow’s title and Escrow business. I’ve been a client of Rynoh and got to experience firsthand how important and impactful this software is. Rynoh was built over many years around a single product called RynohLive that is very popular in the title industry. After the 2021 acquisition by Porch, Rynoh successfully transitioned from a one-hit wonder to a platform. Rynoh is a leading provider of SaaS solutions for our clients who are title and Escrow agents who collect and disperse funds during a real estate closing.

Rynoh’s clients operate in a highly complex and regulated environment. Therefore, Rynoh is critical to their control environment. Since inception, Rynoh has projected 24 million closings having disbursements of about $8 trillion. Back in 2021, more than 30% of all U.S. residential purchases and home refinances were protected by Rynoh software. Today, that number is approaching 40%. Our priorities are to build products that add value, save time, drive cost savings and efficiencies and reduce the potential for errors. Our four core modules on this one platform support this streamlined workflow and are outlined here on slide 27. RynohLive is a module that automates bank transactions daily and alerts if payments fail to clear or do not reconcile to the accounting system.

RynohEscheat was launched last year, which identifies funds that remain in Escrow after closing and streamlines processes to either return or a Escheat funds to maintain regulatory compliance. RynohOpX integrates with many accounting systems and platforms and performs daily account reconciliation and alerts for a more expansive group of clients. And we recently released a major new product called RynohVerifi, which helps protect clients from fraudulent payment schemes. The real estate industry experienced almost $400 million in losses from various forms of fraud in 2022, and we can help reduce this risk. In 2023, our client retention was 93% with a Net Promoter Score of 85 and an LTV to CAC of 10.6x, all metrics we are very proud of and highlights our opportunity ahead.

Rynoh charges a transaction fee for every home and refinance closing that our clients perform. Overall industry transaction volumes declined 62% since 2021, with refinance volumes reducing more than 85% and home purchase volumes declining around 30%. Being primarily transaction driven, you might think Rynoh’s revenues would have similarly decreased 62%. But during these last 2.5 years, we have grown revenue and profits with a very bright future. You can see the overall declines in transaction volume through the Rynoh platform over the last few years from 4.3 million transactions in 2021 to 2.2 million transactions in 2023, a decline of 50% even as our percentage of industry volumes has improved. As we roll out new products, we increased prices commensurate with the improved value we are providing, for example, the 2024 price increase of almost 30% was implemented with the launch of RynohVerifi in January this year.

As you can see on the graph, as we delivered more value, prices have increased by 97% between 2021 and 2023, more than offsetting transaction volume declines. Back in 2021, Rynoh was acquired for $36 million, and we had announced and noted an expectation of it being a breakeven business after investments in product and marketing. We were able to greatly exceed that expectation even as the market transactions were cut in half. In 2023, we delivered $11 million in revenue and almost $6 million of adjusted EBITDA, a 52% adjusted EBITDA margin. Given the new product launch and impact on pricing, we expect Rynoh to deliver $14 million of revenue and a 60% adjusted EBITDA margin or $8 million in 2024. And this assumes 2024 has flat home sales and refinance volumes compared to 2023.

We target medium-term revenue of approximately $60 million and approximately $35 million in adjusted EBITDA, which assumes industry transactions should broadly double while we double pricing through the continued execution against our product road map. So thanks, everyone. I’ll hand it back over to Matt to wrap up.

Matt Ehrlichman: Thanks, Jim. Appreciate it. We do hope that today’s one-off targets and disclosures on our Rynoh and warranty business units are helpful. I just note that these are just two of our many successful businesses at Porch that leverage our platform to differentiate and grow and then contribute back to expanding Porch Group’s advantages. Before wrapping, I want to take a step back and share our financial progress since we became a public company in December of 2020. Our business has grown more than 6x over the last 4 years. We’ve increased revenue at a 60% CAGR and guidance is approaching $500 million in revenue in 2024. This is driven by our Insurance segment, which has grown from virtually nothing to over $300 million of revenue in 2023 and what was then a central part of our vision has certainly become a reality.

Similarly, revenue less cost of revenue is expected to grow to $233 million in 2024, a 44% for your CAGR. And finally, as we’ve said before, our adjusted EBITDA guidance for the full year is $6 million at the midpoint, a key milestone for the company to be profitable on a full year basis. And the $21 million in the second half of 2023 adjusted EBITDA, which was a $45 million improvement from the same 6 months in the prior year, shows that we are well positioned for significant profit growth potential ahead. And I’ll remind you, this amount of progress has been made during a time when the housing market contracted significantly. So just to the team sincerely well done. And as you know, we are just getting started. Finally, after looking back at the last 4 years, I want to take a moment here to look ahead and provide an update on our strategy and why we’re so bullish about the opportunity to build a truly great and enduring company.

As you know, Porch power software platforms, which are a large portion of the home inspectors, vital agents and loan officers use to run their businesses, which provides us valuable introductions to consumers and insights into properties, creating long-term competitive moats. We believe we can build a large homeowners insurance company structured optimally to have lower volatility and higher margins. We’ll update on the reciprocal exchange later this year, but today, we’ll share our three differentiators, you can see here in yellow. First, is advantaged underwriting. So it was about 2 years ago, our insurance business HOA started using our unique property data to create a pricing advantage for well-maintained homes and increased prices for higher risk homes.

We’ve made steady progress unlocking data and rolling out price increases across states to create value and improve our risk accuracy. We’ve seen measurable results with much opportunity ahead. Second, we want to be the best insurance partner for homebuyers. We offer insurance customers and homebuyers more than just insurance. Consumers can use our app or moving concierge service to make their move easy, including coordinating movers, utility setup, security, home warranty and TV and Internet with the ability to compare reviews and prices. It all adds up into a gain and changing experience for a consumer to make what’s typically a stressful time easier. We want to become known as the clear and best choice for homebuyers needing insurance.

And third, we provide consumers with whole home protection. This means offering homeowners insurance, home warranty for everyday breakdowns and a home app to provide appliance recall check monitoring. We can be there for the whole home journey from move-in to move-out with a variety of products designed to make sure our consumers’ largest asset is protected. We’re excited about the fantastic second half of 2023. We expect 2024 to be a very successful and fun year. We have a clear and differentiated strategy, the right team, a strong culture and a proven ability to execute consistently. With that, we’ll wrap the prepared remarks and pass the call to the operator. Please go ahead and open up the call for Q&A.

See also 30 Least Educated Countries in the World and Bill Gates’ 16 Dividend Stocks To Buy.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Daniel Kurnos from Benchmark Company. Your line is open.

Daniel Kurnos: Great, thanks. Obviously, really strong into the year. So congrats on the quarter, guys. Matt, I know you’re not going to talk about the reciprocal or update us later, but can you at least just give us a sense on if you’ve gotten the filings done or the audit done on that front?

Matt Ehrlichman: Shawn, you can update on some of the filings and on, but just let me quickly on reciprocal. I’m happy to talk about it actually, Dan, is just we don’t yet have timing. As we talked about previously, we will update here as we go through the year. But we continue to have a close working relationship with our friends at the TDI or just continue to do a really nice job, and we’re excited about it. We continue to be very confident that, that’s the right structure for the business and that will happen here in due course.

Shawn Tabak: Yes. With respect to Dan, I think your question is about the financials for the insurance entity, which is kind of part of that. That’s on track. We’re on top of it, and we’ll do that in due course here in the month of March, which is all we typically do it.

Daniel Kurnos: Got it. Thanks. So Matt, just kind of [indiscernible] some really good numbers about risk reduction. And now that you’ve got the additional convective storm coverage and incremental what looks like data expansion, I know you’ve guided to, let’s call it, flat x CIG Gross written premium this year, but what’s kind of your thought process now that you’ve derisked the model so much on maybe getting understanding, you’re waiting for the reciprocal, but just thinking about getting a little bit more aggressive on adding policy, especially with the rate you’re getting right now?

Matt Ehrlichman: Yes. I mean, it’s an exciting time, as you know, as folks that have followed us know and our long-term investors now, certainly, the focus for second half of last year, focus for 2024 is profitability, right? We wanted to be able to make sure that we’ve really demonstrated profits. Obviously, for 2024, we want to make sure that we’re – it’s clearly seen that we are profitable as a company on a full year basis. And so we’ve made the moves that we need to make. Now clearly, you can see on the insurance underwriting results that we are positioned to be able to grow with, we believe, very strong ongoing profitability. We think we’ve made the moves. And so while we’ve been in this period where we’ve been very specifically restricting growth in certain geographies, certainly as – and we noted this in the prepared remarks, we do expect to start unlocking some of those restrictions over the course of 2024, really to set up 2025 to be growing at a nice clip, again.

So that is in front of us. And then down on the first part of your question on the risk reduction just to make sure I emphasize a couple of points, it is an important part of this because we have been able to. Even while maintaining, we have been managing the roughly flat premium year-over-year is kind of what we have been targeting. We have been able to significantly reduce the pool of risks that we have and just overall the total amount of risks. And so, 23% is actually, I think the final and precise number on what we reduce risk. Here in 2024 versus ‘23 and 27%, so that’s a big shift in total risk and that doesn’t include the aggregate purchase that we have made of additional reinsurance around severe convective storms and hail, that new $30 million purchase.

And so our business just becomes much more predictable, much better protected, much lower risk even as we have these we think are clear and strong goals in front of us.

Daniel Kurnos: Got it. Shawn, just maybe one quick one for you, ‘23 was a bit noisy from an event standpoint, I am just trying to get a handle on how we should be thinking about the operating or free cash in 2024?

Shawn Tabak: Yes. So, we were pleased to deliver for the full year $34 million of operating cash flow in 2023. We ended the year with around $400 million of cash, cash equivalents and investments, which is a very strong position, HOA, our carrier had $52 million of surplus. The maths point, that’s a great basis for that business to be at with future profitability in the strong momentum we mentioned in the second half of the year. With respect to cash flow in 2024, the way to think about that is first and foremost, most importantly, we guided to positive adjusted EBITDA for the full year around $6 million at the midpoint. From there, the other bits to think about, for us, we don’t have a lot of CapEx. Historically, it’s been less than $10 million.

Taxes are very little for us and we do have around just over $20 million of interest expense on the coupon. So, those are the other factors that kind of play into it. We have seen a big driver of that cash flow in 2023, is we have seen it less. And so that drives better working capital, when you see less and we are able to see less, obviously because the book is that much more profitable. And so that that provides a lot of that working capital benefit because we are hanging on to the cash from the policyholders instead of giving it to the reinsurance partner. So, I think we are starting 2024 in a really strong position.

Daniel Kurnos: Got it. Here we see the springboard. I guess is what I am getting at here, so alright. Thanks guys. I appreciate it. I will step off.

Shawn Tabak: Thank you, Dan. Appreciate it.

Operator: Your next question comes from the line of John Campbell from Stephens. Your line is open.

John Campbell: Hi guys. Good afternoon. Congrats on a great quarter.

Shawn Tabak: Thanks John.