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

Good afternoon, everyone. We're really excited, for our next presenter, to have Matt Ehrlichman, CEO and Co-founder of Porch, with us, and he's going to spend the next 20 or so minutes to walk you through the great company they're building. Matt, over to you.

Thanks, Cody. It's great to be here today and to talk about what we're building here at Porch. Appreciate the time and attention. We're excited about this next chapter in our journey as we've become a public company through a merger with Property Tech Acquisition Corp. (sic) [ PropTech Acquisition Corporation ], a SPAC, that we announced a little more than a month ago. I'll take just a moment to introduce myself and some of the background of the company, and then we'll dive right into the unique model that we're building here at Porch. My background is as a technology entrepreneur. I'm located up here in Seattle. Founded Porch about 8 years ago and we launched the company about 7 years ago. Prior to Porch, I have built a couple of companies, had bootstrapped a Software-as-a-Services company out of Stanford back in 2001. And having good run, built it up and sold it for a little more than $60 million and then helped build a second company up through its IPO about 9 years ago. And coming out of that, I knew I wanted to go build one more company. I promised my wife this is my last company. And really, the objective was to go build something truly great, a legacy company. I was in the process of building a home with my family, and it was very clear as I went through that process that the home is something that needed to be fixed. Despite it being the largest asset in most people's lives, it is pervasively painful, and it will be different, as we look forward. There's just too much money in too large of a market for it to not improve. Porch was born 7 years ago when we launched the company as a home services marketplace, helping people to get projects done. And while we built the company up over the first couple of years, there were 2 key realizations that we had about 5 years ago that really led to a key pivot and positioned the company where we are today as a very unique asset in the home services industry. One of those insights was that even when we would help and delight the consumer, that consumer didn't come back to do the next project, the next projects frequently enough for them to become a really high-LTV customer. The reality is people just don't do that many projects in their home. And as we started thinking about what are the really high LTV, the highest LTV services in the home, like insurance, like TV and Internet, like security, like moving and when are those services purchased and they happen to be purchased at the very beginning of the move. The second realization was, at that point, we were quite reliant on classic direct-to-consumer channels like Google. And you can just see the future, certainly, it's come to be true, where more of Google's organic shelf space becomes paid and they are -- the whole model is designed to capture all the value from those paid channels. And so we knew we wanted to build something that was defensible, that was unique and that was going to be able to scale for a long period of time. And so we made the change to where we are today, which is a vertical software company for the home. Porch provides ERP and CRM software to a wide variety of home services companies. Those companies can pay us with typical software fees or we really encourage those companies to pay us by providing us access to their consumer, to their homebuyers, where we then generate B2B2C transactional revenues as we help those consumers with key services for their home. Here's what our flywheel looks like to understand how our model works. Again, we provide and we lead with providing software and services to companies. That is our core. That's what we do in terms of our go-to-market. Those companies, in turn, provide us access and introductions to consumers and, in particular, to homebuyers when they're most valuable at very, very large scale. We help those homebuyers with key services, whether that's insurance, whether it's moving, TV, Internet, et cetera, and we're driving demand back to these companies. There's no model like this or no company like this in the home services space. It's very similar to a flywheel that an OpenTable would have, as an example, where they would provide software to restaurants, get access to consumers, monetize with transactions and drive demand back to restaurants. We're just in a very attractive position because the TAM for the home space is just massive, vastly larger. Our transactions are extremely valuable transactions we can help consumers with. And so this model has really scaled. People go to Porch.com, and they aren't aware that we're the largest provider of software in the home inspection industry as an example. We operate a number of different brands. So ISN, for example, is our brand in the inspection software space, where we're by far the largest provider of software in that industry. We have 26% of all home inspections that happen in the U.S. are managed through our software platform. HireAHelper is our brand in the moving space. We provide software to moving companies as well as drive demand back to those moving companies. So in total, we have more than 11,000 companies that we provide software and services to today. These companies then provide us access to demand and to data at very large scale. So right now, 65% of all U.S. homebuyers every single month are flowing through our software systems. A subset of the companies pay us for the software by providing us -- paying us SaaS fees and a subset pays us for the software by giving us access to their consumer. That represents 27% of all U.S. homebuyers, where we are, today, the moving concierge, where we have call and marketing rights to help those consumers through what is typically a very stressful time in life. The move is typically the third-most stressful time only behind death and divorce. When we get access to those consumers, again, we then help them with key services. So as an example, Elite Insurance Group is our brand where we are a nationwide licensed insurance agency. So insurance, being the highest value service in the home, is something we're going deeper and deeper into. So we're meeting these consumers extremely early in their move when they have to buy insurance as well as get these other services taken care of. We help them here with comparing all the different insurance options. We help them with a variety of services as the consumer goes through the move and certainly ongoing with getting projects done when they're in their home. So we've been able to build significant scale over the last 7 years through these 11,000 companies that we work with today. And I'll hit on some of the other metrics here as we go. But the company is doing more than $73 million in revenue this year. 50% CAGR is ballpark what we've been running at, 80% gross margins. And just in June, we've crossed the threshold and are now EBITDA-positive. And so there's very few companies growing at the rate that we're growing with the 80% kind of best-in-class gross margins and are already profitable. I'll go through some of the other metrics here as we go, just in the underlying metrics, like our 134% annual net revenue retention. We provide software and services today to a number of industries, inspection, moving, work with other categories as well utilities and warranty. Inspection is our largest industry today, followed by moving. And so when we go and we work with a home inspection company, we provide them their full tool set that they use to run every aspect of their business. That could be the configurable dashboard where they can compare year-over-year performance, all of the calendaring and CRM tools, online booking and payment processing. So it's the tool set that they use for every element of their business and really help modernize their business and help them scale. Again, we give them a choice on how they pay. So while they can pay us with SaaS fees, we really encourage these companies to pay us with access to their consumer. Because as they do so, these companies are just dramatically more valuable. They're 6x more valuable overnight when they choose to pay us with access to their consumer. And at the same time, the company really benefits because they get the software free, they get to provide a moving concierge service to all of their consumers for free, which gives them a lift in NPS, typically a 20-point bump in NPS. And you can see what this produces for us. There's very compelling value proposition that we offer, which is very unique and hard for others to compete with, produces great results. In this example of this inspector case study, they would typically use whiteboards or Excel, maybe a little pen and paper to help organize their business before working with Porch. I love the quote where our CRM turned them from a technician into a business owner. It's exactly what we're trying to do. In a couple-of-year period of time, we've helped to double this business. And you can see over on the right side of the screen the output across the board. Right now, we see a 73 NPS and 134% annual net revenue retention. And the reason that it sits so high and so strong is that -- is this whole value proposition in our model, where we can get all of the benefits of a traditionally priced SaaS model, where we can go have more salespeople, sell more companies, upsell modules to these companies. We have -- it's very sticky. We have very, very low churn since it's the ERP system that's deeply embedded in their business. But in addition to that, because these companies pay us with access to the consumer, we have other levers as well so we can introduce new services to the consumer. We can be able to increase the conversion rate. We can be able to make more money per service. And so as we do that, all of that value just accrues back to these companies, they become more and more and more valuable to us over time. So it's like we get to do a price increase every single month, but the companies don't feel that, which is why you see the 73 NPS and the very low attrition rates that we have. When companies, like inspection companies, provide their customers a moving concierge and provide us access to those customers, we really have provided a great, very warm experience for those consumers. We give them tools, they can manage their move on their own with self-service dashboards. We are introduced to them via these companies as the moving concierge, where we can help them with questions they have about their inspection and then everything they need through their move. And it's not like we sell this consumer out as a lead to inspection companies or to moving companies or TV and Internet companies. No, we've actually done the work to integrate with all of these major service providers so that we can help consumers compare their options and provision services directly for them. So through us, they don't have to go wait on the phone with Comcast or they don't have to go call every single insurance carrier. We'll provide them all of their choices and help provision that directly to make the move easy for those consumers. And that value prop, because these inspection companies and moving companies actually get a lift in NPS by paying with customer access because it's a great experience for their consumers, has unlocked very unique access that nobody else has. First, at the scale that we have access to, again, 65% of all U.S. homebuyers going through our software and right now, 41% of the companies are paying with access to the customer, which unlocks that 27% of all U.S. homebuyers today. But in addition to that, the timing is really important. Well you may have moved in the past or recently, and you might remember changing your address with USPS, and you would just get flooded with direct mail. Well that's what brands try to market to these movers today because they're so valuable. They spend huge amounts of dollars there. Porch has awareness and gets access to these consumers 6-plus weeks earlier than that. And fortunately, for us, that's very unique to Porch. And in that window is when most of the major move purchase decisions are made. And so for us, because we access consumers in this pre-move, we've really focused on this greenfield opportunity during that move and on the highest-value services in the home, like insurance and moving and security and TV and Internet. Over time, we'll layer in more services, like electricity or solar or warranty. After the consumer is in their home, certainly, we help them on an ongoing basis, and there's so much we can do on an ongoing -- to make the ongoing maintenance and improvement easy for every one of these customers. But as we break down the revenue, again, a majority of our revenue comes from accessing consumers from these companies and then monetizing with B2B2C transactions. And so you can see a breakdown of the types of service providers that we work with who pay us when we deliver new customers to them. So as an insurance, again, we are a licensed insurance agency, where we sell insurance to these homebuyers that have to get new insurance for their home across these major carriers and brands, making that very easy for consumers to compare and to be able to get insurance during -- for their new home during this very stressful time. For a week or 2 after that, we'll help with all the moving options. If you just need somebody to carry all the heavy stuff and load a truck, fantastic. If you want us to be able to book and reserve a truck, we'll give you a discount for that, or a major storage unit, perfect. We can handle that. We have all those integrations in place. Security and TV and Internet companies pay us very well upfront where we can be able to deliver new customers to them and activate service. Once consumers are in their home, again, we'll help them with projects on an ongoing basis by helping them get connected to the right contractors. Professionals can create profiles on Porch. We work with the large nationwide contractors. We also partner with the large home service marketplaces that are out there. So whether that's HomeAdvisor or YP or Dex or many others, we bring their pros into our platform to give the consumers all kinds of choice. Again, at the end of the day, we are a software company providing ERP and CRM software to these businesses. Getting access to this unique and early demand at large scale, that's very, very valuable. And then we'll just continue to unlock more and more value with those consumers over time. If we flip here to the financials, I'll take you through a few slides just to give you a quick snapshot on where Porch is. Overall, we've been running at about a 50% 3-year CAGR. In 2020, our business has been impacted by COVID, particularly between mid-March and mid-June when there are fewer home inspections that were happening, some of the small companies paused their business and people were spending less on projects. And so what we spent -- we expected 49% growth right on our CAGR heading into the year, and we're actually above that in Q1. We'll end up doing -- we'll grow well, we'll end up doing about 28% growth in the 2020 year. Fortunately for us, and you'll see in a moment here at the graphs on COVID, the volume just spiked back up. And so right now, we're back at normal rates. So as we look forward to 2021, we're back on track with where we would have expected, which is a normalized 41% growth rate. Our business is running right around an 80% gross margin. And again, as I mentioned, about a year ago in a preparation to get our company ready to be public, we wanted to go run EBITDA-positive in the back half of this year. We crossed over that a little bit early. So we were profitable in June and July. And so we are at EBITDA profitability from a run rate perspective at this point. As we break down the revenues, you can see what drives the revenues today for the company. So the blue slice of this pie chart are the fees that companies are paying us directly for software fees. Again, we would love, if possible, for this to go to 0 or close to 0 because that means that we're getting access to more and more homebuyers from these companies, which drives then the green and the yellow slices. So the green is our B2B2C transaction revenues tied to moving services. So this reoccurring base of consumers that has very consistent monetization generates this green. So again -- and here is insurance, moving, which are the largest 2, then security, then TV and Internet. Once consumers are in their homes, they'll need help with projects on an ongoing basis or repairs for inspection reports. That generates that yellow slice in revenues. On the bottom of the slide, you can see where we are from a long-term economics. Porch targets 25% long-term EBITDA margin targets, and we're progressing really well toward that. We're already nearly at or at our gross profit long-term targets. We've seen significant leverage creation, both on the contribution margin and on the EBITDA margin, where we're starting to approach our long-term contribution margin targets. Below that is really largely R&D and G&A. And we've spent historically very aggressively in R&D, and we'll continue to, to build a long-term, great winning company. We'll just make sure we don't grow R&D as quickly as we grow revenue. So there will be consistent margin expansion now that we've crossed over and are profitable. From a COVID perspective, you can see the charts here. But again, it fell off a cliff mid-March, bottomed out middle of April and came rocketing back. And so again, by the end of June, things were back on track and normal. People, at this point, are moving more, are spending more money on their homes. We're all stuck in our homes, like I am here. And so certainly, we have wind in our backs. I'll take a few minutes to hit on key slides here as we look forward. And first, just not to miss it, I'm so, so excited about the team that we've compiled. Just absolute rock stars with tremendous experience, underlaid with these really strong values and DNA of the company, no jerks, no egos, for example, the first thing when you walk into the room. As we look forward, we have this massive TAM. There are very few markets that are larger. Over a $220 billion TAM today. And for us, that produces a really exciting opportunity as we look ahead. First, in terms of the basic blocking and tackling of the business, we expect to be able to grow this business at a consistent 30%- to 35%-type clip. Two levers for us are just very clear. One is when companies are paying us with software fees, they pay us a monthly fee that's worth about $4 per customer. When they flip and they start paying us with access to the consumer, all of their customers, on average, are worth $25 per customer, whether or not we talk to them, whether or not they actually buy a service, just $25 on average. So that means that overnight, a company, when they pay us with access and they get the software for free, is worth 6x more to us. Right now, 59% of companies are still paying with SaaS fees, [ given we turned customer access pricing on about 3 years ago and are just consistently migrating companies over to that model ]. Case in point, when new companies come on board, north of 75% of new companies leave training paying with customer access. On the right side of the slide, you see the opportunity. So while $25 is great, and obviously we make a lot of revenue here from those companies, we're just scratching the surface on the opportunity. So if we were to build what I envision us building over time, where it feels to the consumer like it does for a CEO or an executive where you get a corporate relocation and everything is handled for you, if we help the consumer with what they are going to purchase anyway, it's a $2,300 revenue opportunity per homebuyer, not including all of the additional work in their home after they're moved into their home. So today, we're capturing 1% of that value, and we'll continue to increase that as we offer self-service tools for more service, offer an app eventually for the consumer to help them through that journey, increase conversion rates as our sales and concierge teams just continue to improve. And we will go deeper in key select services, like insurance, where we will be able to make more revenue per consumer as we go deeper into that value chain. And that's really represented here on this slide, where, as you can see, we expect to build meaningful scale in the not-too-distant future as a business. In addition to the core blocking and tackling growth, we expect to be able to go and offer mover marketing to big brands to shift their spend earlier. We will go deeper in insurance and acquire an MGA, managed general agency, to be able to capture more than twice the take rates from each of these consumers that we interact with. And then three, we want to expand our platform into other vertical markets, and we'll do that through M&A, which is an important part of our growth strategy. M&A is something I have a lot of experience with, as does our CFO. We have 150 companies in our pipeline, 7 of which are deep in that process. They represent $180 million in revenue, less than 2x revenue multiples. And in addition to being immediately accretive, Porch has proven through a couple of acquisitions that we've done that we can create a lot of value by layering these companies into our platform. So ISN, as an example, we acquired 3 years ago to go deeper into the inspection software space. The business was fairly small, $3 million or $4 million in revenue, and basically flat growth. In 3 years, we've more than 5x-ed that business by layering it into our platform. HireAHelper in the moving space, similar story. It was flat from 2017 to 2018. And in 18 months, we've 2x-ed that business. So exciting opportunities as we do this across more industries. I'll wrap with the last few slides. So as we go public here through this SPAC, we will be very well-capitalized to be able to pursue that M&A strategy. So we'll end this transaction debt-free with $205 million of capital on our balance sheet. When we went out to do our pipe raise, we started at $50 million pipe. It was upsized in the second day to $100 million and then upsized again to $150 million, and we are still 2x oversubscribed for that pipe. And so that will give us a lot of ammo to be able to go and pursue our strategy. We're excited about that because we have this platform, which is unique. All of the benefits of SaaS, where it's predictable, sticky, reoccurring, but because we allow for pricing with customer access, that unlocks this massive TAM, where we have a $220 billion addressable market. And so you can see in the middle, where our business has these really unique characteristics, 30x LTV to CAC, unit economics, high margins, high growth. Again, we've crossed over from a profitability standpoint. And so as our investors have looked at that, I'll end with this slide here, which is you can just tell on this chart, Porch is currently valued in terms of our $523 million enterprise value at 4.4x revenue. Everyone knows this is going to shift to the right and some investors believe that it's going to shift far to the right because we have all the levers that a software company would and -- as we do, plus more with that consumer monetization model. So with that, thank you very much for your time and attention. I appreciate it, and turn it back over to Cody.

Great. Thanks, Matt. We don't have a whole lot of time left, and we've got several questions. I want to ask this one really quickly and if you could give the answer pretty quickly. So if I heard that right, 80% gross margins, profitable, massive TAM, why go public via SPAC?

So I'll wrap briefly with -- and I know we're running out of time here, but with why we're going public through this path. For us, it's really about time line. We were planning on going public through a traditional, let's say, IPO. And early last year, we met the Property Tech (sic) [ PropTech ] team. And the reality is that we can go public a full year earlier. And for us, given -- really given our M&A pipeline is really the driver and the reason there is that by getting public earlier, being well-capitalized and being able to be -- play offense really, at the end of the day, we know is going to create a lot of value for our shareholders. And so that for us is exciting. Again, at the end of the day, what I'm trying to do here is to build something really large, and being able to be aggressive a year earlier is something that I'm certainly, certainly excited about. So with that, we will wrap. Again, thanks, everybody, for your time and for your attention today. I very much appreciate it. Right now, the stock trades at PTAC and come year -- later this year, we'll trade under the PRCH ticker symbol once that transaction is complete. Thank you.

Thank you so much, Matt. Really appreciate it, and we'll talk to everybody soon. Thanks.