Porch Group, Inc. (PRCH) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for participating in today's conference call to discuss the PropTech Acquisition Corp. and Porch business combination. Joining us today are PropTech Acquisition Corp.'s Chairman, Co-CEO and President, Tom Hennessy; PropTech's Co-CEO and CFO, Joe Beck; Porch Founder and CEO, Matt Ehrlichman; Marty Heimbigner, Porch's CFO; and Matt Glover, Senior Managing Director with Gateway Investor Relations. On today's webcast, PropTech has made available a slide presentation that will follow along with the presenters' commentary. The presentation as well as the Form 8-K contained in the merger agreement can be found at the website of the U.S. Secretaries and Exchange Commission (sic) [ Securities and Exchange Commission ] at www.sec.gov. The presentation is also available for download on PropTech's website at www.proptechacquisition.com. Today's call has been prerecorded and will not include a Q&A session. Before we go further, I would like to turn the call over to Mr. Glover as he reads the company's safe harbor agreement statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Matt, please go ahead.

Thanks, operator. I would like to begin by reminding everyone that the discussion today may contain forward-looking statements, including, but not limited to, with regards to PropTech's and Porch's expectations or predictions of future financial business performance or conditions. Forward-looking statements are inherently subject to risks, uncertainties, assumptions, and they are not guarantees of performance. You should not put undue reliance on these statements. You should understand that such forward-looking statements involve risks and uncertainties, including the items discussed under the risk factors in PropTech's final IPO prospectus, as such factors may be updated from time to time in PropTech's filings with the SEC, which are available on the SEC website, may cause actual results or performance to differ materially from those indicated by such statements. PropTech and Porch are under no obligation and expressly disclaims any obligation to update, alter or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. In today's remarks, we will also refer to certain non-GAAP financial measures. Definitions of these non-GAAP financial measures are available in the appendix to the investor presentation. We refer to the disclaimers found on Slides 2 and 3 of the investor presentation, which are also included as an exhibit to the Form 8-K from additional information. I would like to remind everyone that this call will be made available for replay through August 7, 2020, starting at 12 noon Eastern Time this afternoon. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at proptechacquisition.com. Now I would like to turn the call over to the Chairman of PropTech Acquisition Corp., Tom Hennessy. Tom?

Thank you, Matt, and good morning, everyone. It's great to be here with you today. We are pleased to present the proposed business combination of PropTech Acquisition Corporation and Porch. Today, I'm joined by my partner and Co-CEO, Joe Beck; and from Porch, Matt Ehrlichman, Founder and CEO; and Marty Heimbigner, CFO. Before I turn it over to Matt and Marty, I'd like to take a few minutes to share the history of our proposed partnership with Porch. Our stack, PropTech, IPO-ed in November 2019. And at that time, we promised our investors that we'd bring them an exciting company that is innovating in real estate technology, either commercial or residential. We are delivering on that promise, and we have found that company in Porch. We were first introduced to Matt in late December 2019. Over the past 6-plus months, as we got to know Matt and Porch, we also filtered through over 300 PropTech companies based on a number of criteria, and that sourcing process concluded with Porch. As Slide 5 shows, Porch checks all of our boxes. Porch is absolutely innovating in real estate technology. Porch is a leading vertical software platform for the home inspection and home service industries. You'll find that Porch has innovated around the pricing of its software, which leads to a really unique flywheel of providing software to businesses who then, in turn, provide Porch with access to U.S. homebuyers where Porch monetizes those homebuyer relationships. Turning back to the funnel. We are also looking for an established company with considerable scale. We were searching for a highly capable and experienced management team that aspires to be public, such as Matt and Marty and their great team. And finally, we tested for IPO readiness. Porch has passed our IPO readiness test with robust financial systems and controls. On Slide 6, I'll provide a transaction overview. The transaction is expected to close in early Q4 2020. And post-closing -- on valuation, the transaction implies a pro forma enterprise value of $523 million, which equates to a 4.4x multiple on projected 2021 revenues. Existing Porch shareholders will receive approximately 53% of the pro forma equity and up to $30 million in cash consideration. This is important because Matt, the founder, the management team and existing shareholders are rolling 92% of their equity as part of this transaction, which we view as a tremendously positive signal to the public market and provides strong long-term alignment going forward. On capital structure, we're positioning Porch on a very well-capitalized setting with approximately $205 million cash on the balance sheet to fund highly accretive and actionable M&A opportunities that Matt and Marty will address shortly. Moving to Slide 7. You will find that Porch provides investors with a combination of value and growth. First, starting at the top left, Porch is attacking a massive TAM, which is the U.S. Home. Second, and moving to the right, Porch has created many moats with its proven vertical software platform and go-to-market strategy via home service companies, such as inspection and moving. Third, Porch has unique and long-term access to nearly 2/3 of all U.S. homebuyers and access to those homebuyers 6 weeks before everyone else. On the bottom half of the slide are a few financial considerations. First, Porch's B2B2C business model generates consistent and proven transaction revenue; second, exceptionally strong unit economics, a 30x lifetime value to customer acquisition cost speaks for itself; and finally, Porch's top line is growing quickly at a CAGR of approximately 50% over the past 2 years, and is expected to continue to grow at this rate in 2021. And Porch has a very attractive margin profile, both gross margin and long-term stabilized EBITDA margin. As you can hear, we're thrilled to partner with Porch. And with that, I'll turn it over to Matt and Marty to share more about their great company.

Thank you, Tom, and good morning, everyone. Porch has been on a 7-year journey to become a leading vertical software platform within the home services market. Prior to Porch, I've been a technology entrepreneur, building a couple of SaaS businesses, selling one and helping to take it to the public. I had the desire to build one more company and to build something truly great. I was in the process of building a home with my young family, and it was clear that the home was the industry I wanted to help fix. The home is the largest asset in my life, and most of our lives, and yet it is consistently painful. The move, for example, is the third most stressful time in life behind only death and divorce. Owning a home is much more difficult than renting. We fundamentally believe that we can help make the home easy. And so in 2013, we launched Porch as a home service marketplace to help get home projects done. Through that experience, we learned 2 things that have really driven our strategy today, namely, that the high lifetime value home services are purchased during the move; and the companies that interact with homeowners during this process, for example, home inspectors and moving companies can provide access to consumers in a much more efficient way and effective way than classic direct-to-consumer channels. As a result, Porch began to focus our business on providing home services companies with ERP and CRM software and services to help manage their business and provide a better experience to their customers. By offering software to these companies, Porch could develop long-term relationships, get introduced to homeowners early in the process of their move and assist these homeowners with critical and high-value services such as insurance, moving, TV/Internet and more. Today, we are the vertical software platform for the home. Our business model is more fully outlined here on Slide 10. We provide software to companies. Those companies, in turn, provide us access to their customers, and we monetize those relationships by delivering home services. That is set in each of these core pillars of our strategy to make sure it's clear. Moving on to Slide 11, you'll see that we utilize our software and services platform to develop long-term, sustainable relationships with moving, inspection and other home services companies. If you go to porch.com, you wouldn't even realize we are by far the largest provider of software to home inspectors. We currently have 11,000 companies utilizing our software across multiple brands, including ISN in the inspection industry and HireAHelper in the moving industry. The platform is a business-to-business-to-consumer or B2B2C model, meaning that while we do give companies the ability to pay us for the software with traditional SaaS fees, our primary monetization engine is derived from businesses paying for the software by providing us access and introductions to their customers. And then by delivering critical home services, such as insurance, moving, TV/Internet, security and contractor services. Our companies love working with us because we provide: one, leading ERP and CRM software that can be made available for free; two, improved overall customer experience and Net Promoter Scores by helping make the move easier for their customers; and three, new customer demand and increased revenue. Because of our unique value proposition for companies, we have built significant and unique scale. Here on the next slide, you can see that 26% of all U.S. home inspections are managed through our software. Across all the industries we work in, we see 65% of all U.S. homebuyers, and our company relationships connect us to homebuyers as they're moving concierge with call and marketing rights to 27% of all U.S. homebuyers. Companies want to provide Porch as the moving concierge for their customers because it's free. It's a high satisfaction service that helps consumers compare prices and provision services for them at the best rates for all the key move-related services. Importantly, we typically get access to these consumers about 6 weeks before their move, which is very early and positions us to help the consumer with key and valuable services they will need during their move. Assisting these services generates revenue for Porch with service providers paying Porch for new customers. Porch generates a majority of its revenues via this B2B2C transaction model, assisting consumers with moving, insurance, security, TV/Internet, and then when they are in their home, contractor services. Porch is particularly focused on services purchased during that home buying and moving experience, given they are the highest value, but maintains the relationship with the consumer to assist with maintenance and improvement projects ongoing. We go deep in select services where we want to fully control the user experience and capture more of the revenue opportunity. For example, we are a nationwide insurance agency, operating under the Elite Insurance Group brand, where we help consumers with home, auto, umbrella and flood insurance. We offer a full set of moving services for consumers from labor-only to full-service moving. Purchase service providers like working with Porch because we bring them high-intent and high-value customers, early access to homebuyers during their move and superior close rates within their target customer acquisition cost or CAC. On Slide 14, you can see a quick snapshot of our business. We expect to generate more than $70 million in high-margin revenue this year with over 50% growth anticipated for 2021. The high-value nature of our platform can be seen in the nearly 80% gross margins we expect in 2020. I will touch on some of these metrics during the presentation, but certainly, our unique software platform for companies and early access to homebuyers is producing strong results. Let me spend some time walking through each component of our platform, starting with our software offering for companies. On the next slide, we highlight the types of home services companies we provide software and services to, like home inspectors and moving companies as well as utilities, warranty and real estate companies. We provide full ERP and CRM software in the inspection and moving industries and certain parts of our solutions across the others. Slide 16 highlights what we offer the home inspection industry, where we have the largest penetration. 5,500 inspector companies use our software, including most of the large inspection companies across the country. Not only do we provide a robust set of software tools to these companies to help manage schedules, customers, online booking, dispatch and most aspects of their business, we have an innovative pricing model. Customers can either pay recurring SaaS fees or with a customer access fee and get the software for no out-of-pocket cost. Together with the other modules like payment processing, we see a greater than 30x LTV-to-CAC ratio, highlighting both the value of our service and the efficiency we achieve acquiring customers. Slide 17 highlights the case study of an inspection company who has seen tremendous growth working with Porch. Our 73 Net Promoter Score and 134% annual net revenue retention shows our customer satisfaction. The greater than 100% revenue retention means not only are we keeping our customers, but we are demonstrating strong revenue growth from our customers as we help their businesses grow, shift more companies to pay us with customer access and generate more revenue per consumer ongoing. When companies pay with customer access, they help introduce Porch to their consumers as the moving concierge that can help make the move easier. Because we deliver a high satisfaction experience for the consumer, companies see an increase in their NPS by providing this. Immediately after the home inspection, we would get introduced to the consumer and send an e-mail introducing ourselves as their moving concierge. We provide a link to a self-service dashboard a homeowner can use and a homebuyer can use to compare prices and to manage their moving checklist. Utilizing our software companies to gain early access to homebuyers is certainly unique. These products are provided by companies to consumers across the number of industries. On Slide 19, you can see that 65% of all U.S. homebuyers are processed through Porch by companies who use our software and services. We introduced the ability for companies to pay with customer access a few years ago and a subset of our companies pay with this method today, giving us access to 27% of all U.S. homebuyers each month where we have call and marketing rights. Slide 20 shows the timing in which we get this access, and timing as it relates to the move, is certainly key. And perhaps you remember when you last moved, you likely changed your address with the USPS soon after moving in and you would have gotten flooded with direct mail. That is when service providers and brands learn of movers today. Porch gives access to these consumers approximately 6 weeks earlier, and that early access is a critical component of our competitive advantage. The majority of the major move-related purchase decisions are made before their move date and the highest value services, such as insurance, TV/Internet, security and moving is almost always purchased before the move. So not only are we getting in front of the consumer early, but also when they are the most valuable. Because we get access to consumers in their pre-move phase of the journey with their home, we have focused on the moving phase and on the highest value services. You can see on Slide 21, this includes insurance, moving, security and TV/Internet, and we've not yet introduced services such as electricity setup, solar or warranty, but we would expect to in the future. As to the move, we continue to stay in touch with the consumer to help with home maintenance and improvement projects. And given our large unique access to homeowners, we will continue to expand these relationships into the future. We break out the services on Slide 22 that generate the majority of revenue for Porch. Porch, for example, is a nationwide insurance agency, which means we and our in-house licensed insurance agents help consumers compare quotes across a large number of the major carriers and help them purchase the right at home, auto, flood and umbrella policy. We get paid an annual commission from the carriers. We help consumers with all types of moving service, from coordinating a small moving company to load or unload their truck, to a full-service move where we have integrations with the major truck and storage companies. Here, we get paid a take rate on the completed move. In both security and TV and Internet, we work with the major nationwide service providers who pay us well for a new customer, given that our customers are consistently high-credit customers and are retained for a long period of time given they are homebuyers just moving in. After homeowners are in their home, we'll help the homeowner get connected with the right home service professional for their project, both via professionals we have direct relationships with as well as with the major networks of professionals that we partner with. Now I'd like to turn the call over to our CFO, Marty Heimbigner, to walk you through the financial slides. Marty?

Thanks, Matt, and hello, everyone. It's great to be here. I will kick off my presentation on Slide 24, which provides an overview of key financial results and projections. Porch is a high-growth, high-margin opportunity, and we are thrilled to bring it to the public market. As the slide shows, we expect 2020 revenues to be $73 million, generating a 78% gross margin. Our 3-year compound annual growth rate is around 50%, and we anticipate $121 million in revenue in 2021. In 2020, you can see the impact from COVID, which impaired both moves and home projects between March and May. But as you will see in a moment, we are excited how our business and the industry has rapidly recovered during this pandemic and look strongly positioned going forward. On a contribution margin basis, which takes gross profit less all variable expenses, including marketing and sales, we expect to generate $26 million in 2020. We have seen strong leverage here as we have been able to lower our variable sales and call center expenses as we have scaled revenue. A year ago, the business targeted getting to EBITDA positive in the back half of this year, and we kicked over this threshold in June, setting us up well for our 2021 goals. Turning to Slide 25. You'll see the breakdown of expected 2021 revenues, of which 2020 represents a similar distribution. 11% of revenues come from companies paying us traditional SaaS fees for the software. Ideally, in the future, we continue to see this percentage decrease as we work to shift companies from paying SaaS fees to paying with customer access, given the 6x increase in value we realize when they do so. Roughly 2/3 of our revenue comes from B2B2C transaction revenues relating to moving services when companies provide access to the consumer on a consistent, predictable and recurring basis each month for whom we then provision services and get paid by the service provider. Approximately 23% comes from helping these consumers and others with services after they have moved into their home. You can see not only our diverse revenue streams, but how they are predictable and recurring in nature. As such, you can see our long-term financial targets at the bottom of this slide. We are largely at our long-term gross margin target already and approaching our long-term contribution margin targets. The biggest expense between contribution margin and adjusted EBITDA is the level of R&D spend, and we anticipate reaching 25% long-term adjusted EBITDA margins while continuing to invest in the long-term growth and positioning of the business. Given our adjusted EBITDA improvements we have seen in 2020 already, we expect to be adjusted EBITDA positive in 2021. On Slide 26, I would like to address the impact of COVID. We were not immune to the initial shock of the pandemic in March, April and May. Based on our internal estimates, we believe that the pandemic impacted our 2020 revenue estimate by approximately $12 million. As you can see, trends in our business bottomed out in March and April. And as the chart show, have rapidly rebounded since. The volume of home inspections processed through our platform largely recovered by the start of June and are showing growth over the same period in 2019. The volume of home service project requests processed through our platform fully recovered just 8 weeks after the bottom in March 2020. You can see the yellow line since then strongly outperforming 2019 trends as more time at home has caused the consumer to spend more money on their homes, which is benefiting Porch. Now I will hand the call back to Matt to address our growth opportunities.