Porch Group Inc

NASDAQ:PRCH

Earnings Call Analysis

Porch Group's Transitioning Insurance Model Promises Enhanced Profitability

In Q3 2024, Porch Group reported a net income of $14 million, with adjusted EBITDA of $17 million, signaling strong profitability despite challenges from Hurricane Beryl. They expect to close the acquisition of HOA under the new Porch Insurance Reciprocal Exchange (PIRE) structure by January 2025, aiming for higher margins and stability. Revenue guidance for 2024 is set at $440-$455 million, indicating 2%-6% growth, with significant planned increases in premiums per policy, projected at a 25% rise year-over-year. The firm anticipates reaching $100 million in surplus by year-end 2024, enhancing their financial health.

The Journey Towards Insurance Innovation

In the latest earnings call, Porch Group marked a significant milestone in its evolution by announcing the approval received from the Texas Department of Insurance (TDI) for the formation of the Porch Insurance Reciprocal Exchange (PIRE). This pivotal step will allow Porch to enhance its insurance operations, catering to policyholders while mitigating direct exposure to claims and weather events. As of January 2025, the HOA insurance carrier will transition under PIRE, ensuring better financial predictability and stronger margins, which is crucial for investors watching the potential growth of the company's insurance vertical.

Financial Performance Highlights

For Q3 2024, Porch Group reported a revenue of $111 million, down 14% from the previous year. This decline was largely attributed to the fallout from the Vesttoo situation. However, the insurance segment saw a silver lining with a remarkable 25% increase in premium per policy year-over-year. Notably, adjusted EBITDA stood at $16.9 million, showcasing an $8.1 million gain compared to the prior year, driven by stringent cost control measures and a robust insurance segment. Positive operating cash flow hit $12 million, underscoring the company's financial resilience amidst challenges.

Enhanced Profitability and Future Guidance

Looking toward future performance, Porch has provided revised guidance for the full year 2024. Expected revenues are projected between $440 and $455 million, indicating a modest growth of 2% to 6%. More importantly, adjusted EBITDA is on track to shift from a projected loss of $7.5 million to a profit of $2.5 million, marking a transformative $12.5 million improvement from previous estimates. This reflects a newfound robustness in the business model and increased focus on profitable growth strategies.

Strategic Measures to Manage Risk and Enhance Competitiveness

Porch has taken actionable steps to refine its risk selection and premium pricing, which is evident in the impressive 21% attritional loss ratio achieved in Q3. Implementing rate hikes and revising policy terms, notably in Texas where premiums have grown at a 42% compound annual growth rate since 2021, has significantly shaped Porch's risk exposure and premium collection strategy. These strategic decisions have paved the way for the company to navigate the challenges posed by catastrophic weather events, enhancing investor confidence in their underwriting capabilities.

Leveraging Technology for Competitive Edge

The call highlighted Porch's commitment to technological innovation, particularly through the deployment of AI models into its Home Factors data solutions. As 90% of U.S. homes are now encompassed within Porch’s unique property data, this capability presents a competitive edge in underwriting and pricing insurance. Third-party carriers testing these data products have expressed positive feedback, indicating that Porch can provide insights that significantly impact bottom-line performance. This enhancement in operational efficiency is expected to drive further profitability in the future.

Capital Allocation and Debt Management

In terms of capital allocation, Porch is demonstrating a proactive approach, evidenced by the $20 million cash used to repurchase $43 million of its unsecured debt. This strategic move, achieved at an average of 47% of par value, underlines the company's commitment to reducing its debt burden and optimizing capital structure. With cash reserves standing at $405 million as of Q3, Porch appears well-positioned for future investments and operational scalability.

Expansion Plans Through the Reciprocal Model

As Porch ventures into the reciprocal exchange model, plans to expand insurance offerings geographically beyond Texas are underway. The introductory launch of Porch Insurance in Texas will help solidify the company's market presence, but the aim is to extend these services across its 21-state operating footprint in the coming years. This strategy not only aims at increasing the policyholders' base but also at enhancing the value proposition for customers through added service features such as moving concierge services tailored for homebuyers.

Earnings Call Transcript 2024-Q3

[Lois Perkins, executive]

Good afternoon, everyone, and thank you for participating in Porch Group's Third Quarter 2024 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.porchggroup.com. Joining me here today are Matt Ehrlichman, Porch Group's CEO, Chairman and Founder; Shawn Tabak, Porch Group's CFO; Matt Neagle, Porch Group COO; and Nicole Pelley, EVP and GM of the Porch platform.

SP580584591 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, November 7, 2024. We do not undertake any obligation to update or revise this information. Additionally, we will make forward-looking statements that our expected future financial or business performance or conditions, business strategy and plans, including the expected benefits and timing of the launch of the recent 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 disclaim any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law.

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 and 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 a preliminary unaudited and subject to revision upon completion of the closing and audit [indiscernible]. 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. Thank you. I'll now turn the call over to you now.

[Matt Ehrlichman, executive]

Thanks, Lois, and good afternoon, everybody. Thanks for joining us. We are excited, certainly about today's update, so let's get started. In October, we announced that the Texas Department of Insurance approved our application to form and license Porch Insurance Reciprocal Exchange or PIRE with the core structural and economic terms aligned with what was proposed in our application. In the coming weeks, we expect to complete customary administrative procedures and form and fund the reciprocal file appropriate rates for PIRE and complete the acquisition of HOA at the start of January 2025 when Porch Insurance will officially be available to policyholders. We then expect our insurance business to be conducted under this new model with Porch Group acting as the operator of the reciprocal, mitigating direct exposure to insurance claims and weather events for Porch Group shareholders.

This announcement is a long time coming, a key milestone for Porch and the result of tremendous work by our team. I extend my thanks to our partners at the TDI as well. We believe a reciprocal is the optimal structure and expected to result in higher margins and more predictable financial results for Porch and believe it will allow us to scale our insurance operations more profitably over time. While we've constrained premium growth to approximately flat until we receive this approval, just this past week, we announced Porch Insurance in Texas reactivated many channel partners and launched our premium growth plan with an eye toward a strong 2025.

Shawn and Nicole will share next steps for PIRE and the value creation opportunities ahead shortly. All right. Here, I'll hit on some Q3 accomplishments. First, we are profitable. We delivered record quarterly results with adjusted EBITDA at positive $17 million and achieved positive operating cash flow of $12 million, both exceeding expectations. Net income in Q3 was positive at $14 million. This is all despite Hurricane Beryl, a severe weather event occurring in early Q3, which we had mentioned last quarter. Importantly, we expect to be adjusted EBITDA profitable ongoing marking today is a significant milestone for the business. Our insurance profitability actions are compounding and making a substantial impact. pricing, deductibles, the use of home factors, our unique property data all contributing. We implemented further insurance premium per policy increases and total premium per policy increased 25% year-over-year. Our gross loss ratio in Q3 was 57%. And without catastrophic weather, our attritional loss ratio was 21%, again, outperforming expectations. The insurance carrier is healthy and expected to approach $100 million of surplus at the end of the year, which would be by far its highest in its history and is expected to post strong positive net income for the full year 2024.

Next, we have fully implemented AI models into our data platform and Home factor data products. We launched 3 new home factors in the quarter and are seeing incredible results in better predicting losses and risk of a home. Multiple third-party carriers are currently testing our Home Factors data products against their historical claims and the results are resounding. We can help unlock meaningful underwriting and pricing advantages given our unique insights into approximately 90% of homes in the U.S. In the Vertical Software segment, we continue to roll out new products and features as we increase pricing I'm very pleased with how high our customer retention rates remain. And finally, during the third quarter, we used $20 million of cash to repurchase $43 million of our September 2026 unsecured debt. bringing us to a total of $51 million par value repurchased this year. Now over to you, Shawn, to cover the financials.

[Shawn Tabak, executive]

Thanks, Matt, and good afternoon, everyone. Let's turn to our third quarter financial results. First, a quick reminder that Q3 is a difficult comparison against the prior year. Last year in Q3, we discovered that 1 of our legacy reinsurance partners best do, had committed a global fraud and therefore, we terminated that reinsurance contract and looked for replacement reinsurance. During that period of time, we had a period of lower reinsurance seating, which resulted in additional revenue of $30 million in the third quarter of 2023 and additional revenue less cost of revenue of $10 million and adjusted EBITDA of $2 million.

With that as a backdrop, third quarter 2024 revenue was $111 million, in line with our expectations. This was a 14% decrease from the prior year, driven by the Vesttoo matter. And it was offset by a 25% increase in premium per policy in our insurance segment. Revenue less cost of revenue was $64.1 million, a margin of 58% and ahead of our expectations. Adjusted EBITDA was $16.9 million, an $8.1 million improvement from the prior year and ahead of our expectations, driven by the insurance segment and strong cost control.

Gross written premium decreased 10% from the prior year, driven by the divestiture of our legacy insurance agency, EIG, in the first quarter of this year. We have managed HOA gross written premiums to be roughly flat year-over-year. With the recent approval of the reciprocal, we will now begin to execute our premium growth plan. Taking a closer look at revenue. The insurance segment was 72% of total revenue in the third quarter, relatively consistent with the prior year. Revenue from our Insurance segment was $79.9 million, a 16% decrease from the prior year, driven by the Vesttoo. Vertical Software segment revenue was $31.3 million, a decrease of 9% from the prior year. Within this segment, software and service subscriptions revenue increased 7% from the prior year, a 300 basis point acceleration over the growth rate in the second quarter of 2024 and driven by price increases in Rynoh and Inspection software. This was offset by a revenue decline in the moving business, which exited the unprofitable corporate relocations offering, redirecting focus to higher-margin services.

Now let's dig into the Insurance segment, cost of revenue. Cost of revenue related to attritional claims was $16 million, better than our expectations by $13 million. Cost of revenue related to catastrophic weather claims was $26 million. In the quarter, there were 2 hurricanes that drove approximately $37 million in cost of revenue net of reinsurance. Hurricane Beryl was a 1 in 10-year event that occurred in early July and Hurricane Helene was a smaller event for us that developed later in the quarter and impacted the Carolinas. This was partially offset by $13 million of favorable prior period development. With our underwriting changes, previous weather events were smaller than we had previously estimated.

Recently, Hurricane Milton occurred in early October. And as a reminder, we do not have exposure in Florida and therefore, no exposure to this event. Moving to adjusted EBITDA. Overall, adjusted EBITDA was $16.9 million in the third quarter of 2024, a positive improvement from the prior year. The Insurance segment adjusted EBITDA was $24.8 million, a $5.7 million increase from the prior year, driven by the insurance profitability actions that Matt mentioned. The vertical software adjusted EBITDA was $5.1 million, a $1.9 million improvement from the prior year, driven by price increases in our software and services subscription businesses and strong cost control.

The Vertical Software adjusted EBITDA margin increased to 16% in the quarter. Corporate expenses were $13 million or 12% of total revenue, broadly flat from the prior year. Operating cash flow was positive at $12 million in the third quarter of 2024. As of September 30, 2024, we had $405 million in cash, cash equivalents and investments, excluding the $317 million at HOA [indiscernible] $88 million. This was $29 million lower than the prior quarter, predominantly due to the repurchase of $43 million in par value of the 2026 unsecured notes for $20 million of cash. The repurchases were done at an average of 47% of par value.

Taking a step back, I wanted to provide some context on capital allocation. First, we have maintained an appropriate minimum level of operating cash to run the business; second, we allocate capital toward investment opportunities that we expect to generate the highest risk-adjusted return and in excess of our internal hurdle rate, which is well above our weighted average cost of capital.

Given the performance in our insurance business in Q3, we had excess cash available and were presented with an opportunity to deploy it against the unsecured doses at appropriate rates despite the low coupon. In Q4, we expect to have 2 primary uses of cash, $10 million for an interest payment on the secured notes and $10 million for the seed funding of the reciprocal exchange entity, which we will cover in more detail shortly. As we shift to the reciprocal model and launch [indiscernible], we will continue to focus on the health of the insurance carrier and its surplus and on satisfying related regulatory capital and other requirements.

After the $10 million injection to start higher, we do not anticipate the insurance entities will need additional cash nor equity from Porch. Case in point, we expect HOA will end this year at record high surplus at approximately $100 million compared to $50 million at the end of the prior year. AA surplus on September 30 was approximately $70 million.

Shifting now to guidance. We are updating our full year guidance day, reflecting our strong Q3 performance. We expect 2024 revenue of $440 million to $455 million with 2% to 6% growth. One thing I'll note is the prior year revenue was higher due to the Vesttoo fallout in Q3 2023 and the divestiture of EIG in January of this year. Revenue less cost of revenue guidance is updated with a $10 million improvement, now $200 million to $210 million.

Overall, we expect adjusted EBITDA loss of $7.5 million to a profit of $2.5 million, a $12.5 million improvement compared to previous guidance. The midpoint of this range results in $32 million of adjusted EBITDA in the fourth quarter, which is a $20 million improvement over the fourth quarter of 2023. For the full year, the midpoint would be a $40 million improvement over full year 2023, highlighting the profitability improvements of the business. We expect gross written premiums of $460 million to $470 million. We'll now focus on our reciprocal exchange die for this quarter. I'm pleased to have Nicole here to discuss this section with me.

[Nicole Pelley, executive]

Hi, everyone. I'm excited to be here again, updating you on our progress and next steps. We've been working on this for a while, and we appreciate your support. First, Sean will review the new structure of our insurance business once the reciprocal is launched. And then I will talk you through the next steps as well as the value proposition for our insurance customers.

[Shawn Tabak, executive]

Now that we have TDI approval, we will form a new entity called Fortune Insurance Reciprocal Exchange or [ PIRE ]. We will provide an initial $10 million of funding in exchange for a surplus note. On or around January 1, 2025, we expect to complete the sale of HOA our existing insurance carrier to [ PIRE ] and receive an additional surplus note in exchange. The amount of this surplus note will be equal to the difference between HOA's statutory surplus on the date of the sale minus our existing $49 million surplus note, which will continue forward. Given HOA's performance, its surplus has been growing. And at this time, we expect HOA surplus at the end of the year to be approximately $100 million. This means that in total, our expectation is for Porch Group to hold approximately $110 million of surplus notes.

All expected to bear a coupon of 9.75% plus over. After the acquisition of HOA, Pier will hold all policies premiums and pay certain expenses, including claims, agent commissions and reinsurance expenses. As with all reciprocal exchanges, the entity will be owned by its policyholders who will make surplus contributions in addition to their premiums, which is expected to result in faster surplus growth over the long term. At Porch Group, within our new Insurance Services segment, we will operate 2 business units: first, Porch Risk Management Services, or PRMS, which will be the operator and attorney in fact of PIRE and HOA.

PRMS will operate with mostly fixed costs and will receive high-margin commissions and fees that build up to a take rate of approximately 20% of gross written premium. The second business unit will be Porch Insurance Capital Solutions, or PICS, which will hold the surplus note. Stepping back and looking at the new Insurance Services segment holistically we expect revenue to decrease under this new model with higher adjusted EBITDA dollars and margins. Incremental margins are expected to be particularly strong given most of PRMS expenses are fixed. Cash flow dynamics are attractive as well as fees are paid to PRMS upfront. And we expect for our Insurance Services segment to move away from weather-related volatility, making it more predictable. We are excited to walk through the go-forward financial model in detail at an upcoming Investor Day in December. And Nicole will now take us through the launch plan.

[Nicole Pelley, executive]

Thanks, Shawn. First, as mentioned, we received prior approval from both the TDI and the Porch board. This was a key milestone for us that provides us certainty and clarity on the path forward. We now move to prepare for the launch, including system programming and operational readiness and finalizing the port insurance value proposition and independent agent onboarding and training.

Next up will be the launch targeted for the start of January 2025. At that point, the HOA sale will be completed and the existing carrier, including its entire book of policies, not just Texas policies, will transfer to be a subsidiary of Tire. At that same time, we will launch Porch Insurance, a new homeowners insurance product with an enhanced value proposition. Here, consumers pay a surplus contribution in addition to their premium, helping to build surplus more quickly. We will offer both porch insurance and HOA products to new and renewing Texas [indiscernible].

We will initially launch the port insurance product in Texas, our largest state. In 2025 and ongoing, we will look to roll out the Port insurance product to other states for [indiscernible] policies. But again, to make it clear, Higher rolling out into more states doesn't impact Porch Group's financial results. As of the time, HOA is sold to PIRE in January 2025. All premium will be at [indiscernible] and Porch Group's Insurance Services segment revenue will be generated through our approximately 20% commission and fee take rate on total gross written premium. State expansion is just about offering another product in the market to consumers and to enable the surplus contribution the reciprocal offers to aid in growing surplus faster. I mentioned the extra value we'll offer to consumers through the Porch Insurance product.

So let's take a moment to talk through this. Porch insurance customers are more than policyholders, their owners and members of the recipe. First, we offer more protection. Our insurance protects the home structure from every day in catastrophic risks. While our warranty product preserves inside of the house such as the appliances, New Porch Insurance members get a 90-day warranty, some new coverages such as service lines for gas, water and sewer lines, refrigerated property protection and other features to protect the home such as appliance recall check monitoring.

Second, Porch Insurance is designed for homebuyers and homeowners who maintain their home. Home buyers save approximately 16% on homeowners insurance and can use our app or moving concierge to schedule movers, coordinated TV Internet setup and manage their home and moving tasks. Third, we reward our members. We want to make it easy to care for their homes and to be rewarded as a community as they do so. [Audio Gap] A panel in need of repair in a home presents various risks such as overloading circuits causing electrical fires, power outages from an unreliable power supply, damaging sensitive electronics or the inability to support upgrades for new appliances, such as installing electric car chargers or modern HVAC systems.

Comparing this insight against historical claims data indicates a 41% higher claims frequency at a comparable severity level. Therefore, it's valuable in evaluating risk in underwriting and pricing policies appropriately offer an 18% discount to homes with panels that do not require repair and a 13% surcharge to those that do. These are just a few of the new examples. We are submitting multiple new filings by the end of 2024 that include Home factors data such as the presence of skylights and additional roof factors. As a reminder, last quarter, we announced we are in the market selling home factors to third parties with strong early results. Thank you all for your time today. And I'll now hand it over to Matthew to cover our KPIs.

[Matthew Neagle, executive]

Thanks, Nicole. Hello, everyone. As Shawn mentioned, once we enter into 2025, we will make small adjustments to our reporting segments in light of the reciprocal formation and at that time, update our KPIs for our go-forward operating model. We'll share more at the upcoming Investor Day. Until then, I'll quickly cover the current KPIs we have been using. First, the average of companies was $28,000 in Q3. Average revenue per company per month decreased 8% to $1,318 from the prior year, driven by the Vesttoo impact Shawn mentioned. We had 245,000 monetized services in the core, a 9% increase over the prior year. The average revenue per monetized service was $377, 26% lower than prior year, similarly driven by Vesttoo.

Looking now at our insurance segment KPIs. As a reminder, included the EIG Insurance Agency that was divested in January 2024, and thus year-over-year comparisons are not apples-to-apples. In the third quarter 2024, gross written premium was $139 million from $219,000 policies in force. As we've discussed, we have constrained premium growth focus on profitability and are nearing the time when we begin to grow premium once again. Annualized revenue per policy was $1,460, an increase of 28% for the prior year driven by premium per policy increases.

Focusing on HOA. The annualized premium per policy increased 25% to $2,200. Premium retention was 100%. The nonrenewals are now complete, and we expect to see the benefit of continued price increases as we look ahead. Our gross loss ratio was 57% in the third quarter, a strong result given the 2 hurricane events.

Slide 23 presents the gross loss ratio and splits out attritional lawsuits. Our non-cat loss performance was exceptional, delivering a gross attritional loss ratio of 21% and an 11% improvement from the prior year. I'll touch more on this shortly. As Shawn said, seasonal catastrophic weather performed well outside the 2 hurricane events. The catastrophe gross loss ratio was 36% in the third quarter, which was primarily driven by barrel. Our gross combined ratio in Q3 was 89%. The I'd like to now provide some insight and data into how our attritional losses have significantly formed in the last 2 quarters.

First, product. Our risk selection benefits from home factors. With our unique data helping us better assess and price risk and apply discounts and surcharges where appropriate. We are also revising deductibles and policy terms, therefore, reducing our risk exposure. Second, portfolio. We've completed our risk selection review during which we nonrenewed higher risk policies that our data and modeling showed were unlikely to be profitable. We have exited Georgia and pulled back from coast on Texas and South Carolina. Third, price. We continue to increase pricing across states where appropriate. We are not alone here in our price increase actions.

With historic losses, inflation and increased reinsurance costs and expenses, premiums have had to increase significantly across the homeowners insurance industry. Let's focus on Texas, our largest state, to highlight how premium per policy increases have improved our attritional loss ratios. In response to market shifts, we've implemented rate hikes, deductible changes and water coverage surcharges.

Since 2021, our premium per policy in Texas has grown at a 42% CAGR, now reaching $2,500. The chart shows how these actions particularly around water and fire perils, have improved loss ratios over the past 4 years. While inflation and rising reinsurance costs drove ratios higher in '21 to '22 and they have since improved in '23 to '24, reflecting the success of our strategic measures. Thanks, everyone. I will hand it to Matt to wrap this up.

[Matt Ehrlichman, executive]

Thanks, Matthew. Thank you, team. We couldn't be more excited about what's ahead. To recap, one, the Porch Insurance reciprocal exchange is approved and the acquisition of HOA by PIRE is expected to be complete at the start of January; second, we lowered the amount of outstanding unsecured debt; three, our insurance business is demonstrating industry-leading attritional loss ratios. We continue to roll out new Home Factors and are getting a strong positive response in the market; and five, for the full year, we are still focused target of achieving full year profitability in 2024. And delivering positive adjusted EBITDA quarter [indiscernible] ongoing and delivering predictable cash flow results for Porch Group shareholders in 2025 and beyond.

We look forward to our Investor Day next month, where we'll share more detail about the economic model for Porch Group post reciprocal, the financial health of the insurance carrier, financial targets with long-term growth and margins, and details into a variety of our business units. [indiscernible] updated segments and reporting KPIs will begin Q1 2025. With what we expect in terms of 2025 and 2026 results, it's going to be a fun run here coming up. With that, we will wrap the prepared remarks and pass the call to the operator. Christina, please go ahead and open up the call for Q&A. .

[Operator]

[Operator Instructions]

Your first question comes from the line of John Campbell from Stephens.

[John Campbell, analyst]

Great work on the profitability. I know you guys had to contend with some pretty well weather in the quarter. That's great. On the reciprocal exchange and new value proposition for consumers, you guys did touch on kind of overlaying the moving concierge service. So my main question is, how does it differ from what you've done in the past? And maybe if you could also thought how you've been able to -- how well have you been able to tie the moving services to the past insurance policies and why you feel like this could drive better synergies across the 2 segments?

[Matthew Neagle, executive]

Sure. I can take that. Nicole, feel free to layer in. We have built up a lot of capability around helping people to move over the past x years that we've been focused on that business. We're also very interested in targeting home buyers, so people who are going through a home purchase and moving and being able to provide additional services to them. things like a 90-day warranty, a moving concierge as a way to help differentiate us as the best current for homebuyers. We operate the concierge all over the country in all states we operate in Texas. Thus far, HOA hasn't leaned into the ports capability. And that's been intentional because we want to make it part of the Porch, the PIRE -- the Porch value [indiscernible] for insurance. And so we're [indiscernible]

[John Campbell, analyst]

I had one more. And I apologize, guys. I [indiscernible] the call a little bit late here, so apologies if I missed this explanation, but could you maybe talk to the decision to exit the corporate relocation business and kind of help about the impact within Vertical Software?

[Matthew Neagle, executive]

Yes. I can speak to that, too. There were a couple of trends working against us. There's more work that's happening there's less corporate relocation happening. And we provided a certain type of service to meet that segment that just as the scale went down, it really didn't make sense for us to focus on it. So you will see the impact in the move-related revenue in the quarter. The one thing that I will say is there's still opportunity for us in moving. We are a leader in labor-only services, and we still do the certain partners in the corporate relocation space as well as other leading brands, but it was a key driver for why the move-related revenues down this quarter.

[Operator]

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

[Jason Helfstein, analyst]

Just want to ask, when you're done with the [indiscernible] or the transaction is done. How do you think about that impacting overall corporate revenue or corporate expenses? And then secondly, [indiscernible] is done and you think about bringing in outside capital to fund it, is what's the process with which then you're able to extract your capital back out of the reciprocal?

[Matt Ehrlichman, executive]

I could cover the expense refi. I think if I just take a step back for a second, the reciprocal, one of the reasons we are excited about the shift to that model. is that our expenses for our insurance segment, the entities I talked about today, PRMS will be relatively fixed, mostly employee type expenses. And we'll provide a lot more detail on that as well as other expenses around the business at the Investor Day. But for now, as I think we have announced today the take rate at 20% gross written premium combined with that, expense profile and a relatively fixed expense profile that scales quite nicely. We're excited about the opportunity ahead and what that presents for us. And I think your second question was on surplus now. Was that...

[Unknown Executive]

Yes, that's right. I can take that. So we've mentioned before, Jason, that once the reciprocal is launched, it could make sense at some point to go out and raise third-party capital, third-party surplus, no investors for the insurance entities. We'll see when the right time is to do that. Yes, when we go and look to pursue that, we have 2 choices. One is to keep additional capital inside the insurance entities to be able to build surplus and grow premium that much faster or to be able to pay down some of Porch Group's existing and expanded now surplus note. Obviously, in the interim, that sure note is paying a coupon that 9.75% plus SOFR coupon. But we will, like Sean had mentioned, you have, give or take, we expect approximately $110 million of surplus notes here once the transaction goes through.

[Operator]

[Operator Instructions] Your next question comes from the line of Jason Kreyer from Craig-Hallum.

[Jason Kreyer, analyst]

So now that you've got kind of a deadline set for triggering the [indiscernible] as we get into next year, I think the focus probably starts on growing policies in force. Just curious what that looks like from a go-to-market perspective as far as finding new policies, whether that be geographically and then how you tap into some of that like Home Factors type of data to find those homeowners that have the most attractive risk profiles.

[Matthew Neagle, executive]

Sure. I can take that. We are excited now that reciprocal has been approved to move into growing premium, focuses on growing premium next year. I would highlight a couple of things. The first is we still have a lot of opportunity in Texas, and we have opportunity in the 21 other states that we operate in. And so we'll take advantage of that open space. The second is our primary go-to-market is through agents, and there's a lot of room for us to add more appointed agents. And so we are now starting to make investments into the growth teams that will help us to recruit more agents, activate and support those agents. We've also started to make changes to the commission that we provide to agents to really incent 2 things. One is growth and then the other is profitability. And so those changes make us very competitive in the market. And if we're successful at driving growth profitably, there's opportunities for those agents to even potentially get above the market. And so we're excited to work with our agent team and our agents to be able to go do that. And then most certainly, Home Factors is a key part of how we want to grow profitably. It helps us to defy homeowners that are lower risk or to be able to price risk more appropriately. It's also particularly helpful in one of our key target segments of home buyers because the data that we have is fresh when somebody has recently done in inspection. And so I think we're excited about starting to grow premium next year.

[Jason Kreyer, analyst]

And then I just want to ask about that in the commission fee how sticky is that? Like does that move around over time? Does that move around kind of annual or over several years? Or should we expect that 20% to be a pretty stable figure as we look forward? .

[Matt Ehrlichman, executive]

Yes. I was just going to say, I think it's a great rate for us to start out at -- and there are opportunities potentially in the future for that to go up. And that could be part of the growth plan for Porch Group as we move forward. We'll cover these sorts of things, obviously, in more detail at the Analyst Day. But I think, as I said before, I think the 20% is a good take rate for us and will drive a good amount of profitability.

[Operator]

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

[Ryan Tomasello, analyst]

Maybe just zooming in on another part of the business [indiscernible] just was hoping you can provide an update on how that business is performing in terms of the sales environment and whether or not attrition, I know, has been a headwind for a lot of players like Floify if you feel like that's bottomed out. And then also related to Floify, the embedded insurance marketplace opportunity is something that was a big part of that story. Just was wondering if there's any update there on how that fits into the whole insurance strategy overall.

[Matthew Neagle, executive]

Yes. I can speak to Floify. Across all of our vertical software businesses, we are focused on continuing to innovate, continuing to take price for the value that we can create and it has certainly been a headwind market. Floify in addition to the transaction volume falling down, you also see a lot of loan officers exiting the market. And a lot of the way we monetize their business is through those loan officers. We are excited about some of the things we are working on. There -- we see opportunities for us to provide services and monetize going forward on a more transactional basis, which will give us an opportunity as transaction volumes return to participate in that growth in addition to the growth of loan officers, which we would expect to come back but probably more slowly in transactions. There's also been some interesting sort of movements in the market with competitive players that have opened up some avenues for us to grow share and focus on certain parts of the market. And so we've seen -- if you look at our Vertical Software segment, we've seen margin expansion. So the team has done an excellent job in these headwinds of staying focused on driving new innovation while really keeping a close eye on profitability, which just positions us really well as the growth comes back over the next 1, 2, 3 years in the real estate market.

[Matt Ehrlichman, executive]

In terms of the embedded insurance question -- let me finish out the question for you. And I will say, overall, just to echo what Matthew said, team center has done a really good job. I would say each of our software business leaders and teams have done a really nice job in this market. But give [indiscernible] real credit, things like metrics you're asking about there, Ryan, attrition have really stabilized and actually done quite well. In terms of the embedded insurance opportunity, we focused, I would say, more of our energy and some of our other software products, like some of the things in the inspection industry, just given the market turmoil in the mortgage industry, we've prioritized on building features for those businesses that they really need to be able to stabilize and run their businesses. So it hasn't been a high priority for us here recently. .

[Operator]

And there are currently no further questions on this end. Lois, do you have any preceded questions?

[Lois Perkins, executive]

Yes, I've got one here. I think this is for you, Nicole. Can you talk about the home factors opportunity? And would it be material or port in the future?

[Nicole Pelley, executive]

Yes. So I would say, first and foremost, I'm just hugely excited about the opportunity here with Home factors. There is a tremendous amount of money that is spent on data industry-wide. We'll spend more time on that as we go through Investor Day, but the opportunity here is very large. I truly believe that this can be one of the largest piece of our business given the uniqueness of the data and the results that we've seen within our own insurance company. But only that, we're just getting started, but the feedback we've heard from third parties that are testing is just really positive. And then the last thing I'd sort of highlight is we continue to find new use cases for how we use the data. So clearly, there's an opportunity within underwriting to be more effective pricing, but there's also opportunities to accelerate underwriting, just to move with more speed to close more business, reducing on-site inspections and optimizing reinsurance. And so as I think about it, the opportunity is really big. The results are really strong. And then there are many ways the data adds value. So while we're early here, I believe, over the next set of years, there's a really large opportunity here for us to be a major pillar of value for the company.

[Operator]

Thank you. And with that, I'd like to turn the floor back over to Matt for closing remarks.

[Matt Ehrlichman, executive]

Thank you, everybody. Hey, I really do appreciate the time and just the continued support. We're at a -- like I said, a really fun moment in our company's history, where we can see what's ahead, and we're excited. We look forward to speaking to you more shortly here yesterday in early December, providing more details about that future. Details for the event will follow and be available on our Investor Relations website here soon. And with that, enjoy the rest of your day. Thank you, everybody.