Q4 2023 Porch Group Inc Earnings Call

Participants

Lois Perkins; Head of Investor Relations; Porch Group Inc

Matt Ehrlichman; Chief Executive Officer, Co-Founder; Porch Group Inc

Shawn Tabak; Chief Financial Officer; Porch Group Inc

Matthew Neagle; Chief Operating Officer; Porch Group Inc

Jim Weld; General Manager, Rynoh; Porch Group Inc

Dan Kurnos; Analyst; The Benchmark Company LLC

John Campbell; Analyst; Stephens Inc.

Josh Siegler; Analyst; Cantor Fitzgerald & Co.

Danny Pfeiffer; Analyst; J.P. Morgan Securities LLC

Ryan Tomasello; Analyst; Keefe, Bruyette & Woods, Inc

Jason Kreyer; Analyst; Craig-Hallum Capital Group LLC

Presentation

Lois Perkins

Good afternoon, everyone, and thank you for participating and 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.corporate.com.
Joining me today are Matt Ehrlichman, Porch's CEO, Chairman and Founder; Shawn Tabak, Porch Group CFO, Matthew Neagle, Porch Group COO, and Jim Weld, GM of Rynoh Coach, Porch's title software company.
Before we do that, 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, while discussion, including responses to your questions reflect management's views as of today, March seventh, 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 facing session planned for trading applications benefit from 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 the 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 this slide for additional information concerning 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 financial information, but it's a preliminary, unaudited 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.corporate.com.
I'll 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 contraction in the real estate market and historically challenging weather events. The team stuck together stay focused and performed.
We implemented our insurance profitability actions, which I hear throughout today's presentation. This includes enhancing underwriting activities, increasing premium per policy and non-renewing higher risk policies. We launched parts, 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've 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 two years ago with second half adjusted EBITDA of $21 million. Next, we had no material weaknesses. Huge, thanks to Sean and the team, 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 well done team.
Next, our business continues to make meaningful progress across many areas. In Q4 alone, we launched a new line of product for title companies. We landed a new utilities partnership, released a new HVAC. micro warranty and a CRM product for smaller inspectors are moving business is executing a local full service offering, expanding our leadership position and providing moving labor to consumers. This product increases the size of our market opportunity. It provides a higher margin offering.
Next, we released our first ESG report, which is available on our IR website, and we look forward to sharing more on this in the future. And finally, we were admitted like 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 have accomplished 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 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 increase.
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 for non-renewals and new business restrictions and higher risk code. This is partially offset by an increase in premium per pulse.
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, a growth of 179% over the prior year, driven by a 34% increase in premium per policy and lower reinsurance ceded. Approximately one-third of the growth was from increases in premium per policy and two thirds from the lower ceding, 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 and 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 planning 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 ports held $87 million. In addition, ports group held $39 million of restricted cash, primarily for our captive and warranty businesses, as well as a $49 million surplus note from HOA. HUa surplus at December 31st. It 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 release them from any vessel to related claims, although we'll continue to pursue other non A. on our. We received approximately $25 million upfront cash in January 2024 and expect to receive approximately $5 million over the next four 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 costs associated with running the agency. Therefore, we sold the age for $12 million cash in January of this year.
Pag 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'll continue to prioritize selling our own insurance products like A2A and eventually Porch insurance through relevant homebuyers. When we do connect consumers to agency partners and they sell a third party carrier products, we'll 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 margin. 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 three 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 two 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.
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 and 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 for both. 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 forecast. Today, we are providing our full year 2024 guidance. For 2024, we expect revenue of $450 million to $490 million, growth of 5% to 14% driven by the insurance segment with relatively flat revenue in the software segment. We expect 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 segment.
We've assumed a 63% gross loss ratio for the full year in line with our five year weighted. Overall, we expect adjusted EBITDA profit of $1 million to $10 million. Year-on-year improvement is predominantly driven by continued execution against our insurance profitability actions we discussed today. Price increases in our sales 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. as 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 of higher risk policies exiting the state of Georgia, where we're 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. 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 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 and 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 deductibles 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 what. 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 store 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 of 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 KPI.s and other business updates.

Matthew Neagle

Thank you, Shawn, and 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 happening.
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 in decline in corporate relocation. 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 warrant.
I want to take a moment to highlight our SaaS revenue within the vertical software saying. Industry home sales declined 18% in 2020 to 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, KPI.s, which includes HOA, our insurance carrier for our warranty business. And as of December 31st, it also included Yanki. 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 nonrenewals of higher risk policies being partially offset by increased premium per policy. Annualized revenue per policy increase to $1,120, driven by premium per policy increases and lower CDs.
Focusing 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 nonrenewals we discussed. Our gross loss ratio was 36% in the fourth quarter, and I'll provide more insight on that on the next slide.
Yes, we welcome comparisons of our gross loss and combined ratios to all other property centered care. 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 two years, including the split between catastrophic weather and non-cat perils. You can see seasonality in the cash gross loss ratio with the first and second quarters being the worst weather quarters as well as the 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 and proves our ability to underwrite policies effectively. As we focus on profit, we provide discounts to lower risk policies and surcharges to higher miss one 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 a competitive advantage across 22 states we write in and across different factors in Paris.
And we are not done yet with key underwriting changes. In 2024, we have already filed an 18% increase in taxes. 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 space is highly attractive, given how significantly we expect the TAM to grow for many years.
Now onto a deep dive. Malcolm Conner, our warranty business, Jim 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 warranty revenues to continue to grow as we expand distribution with a 2024 revenue target of approximately $46 million. The business improved its profitability substantially. It 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 Rhino and I have 15 years of title industry leader experience prior to leading Rhino. I spent more than three years as President of Zillow's title and escrow business. I've been a client of Rhino and got to experience firsthand how important and impactful this software is Rhino was built over many years around a single product called Rhino live that is very popular in the title industry after the 2021 acquisition by Porch Rhino successfully transitioned from a one-hit wonder to a platform.
Rhino is a leading provider of SaaS solutions for our clients who are title and escrow agents who collect and disperse funds during real estate closing, Rhino's clients operate in a highly complex and regulated environment. Therefore, Rhino is critical to their control environment.
Since inception, Rhino has protected 24 million closings, having disbursements of about $8 trillion. Back in 2021, more than 30% of all US residential purchases and home refinances were protected by Rhino 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.
Right alive is a module that automates bank transactions daily and alerts. If payments fail to clear or do not reconcile to the accounting system. Rhino sheet was launched last year, which identifies funds that remain in escrow after closing and streamlines processes to either return or sheet funds to maintain regulatory compliance while OpEx 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 Rhino Verifi, 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 10.6 times all metrics. We are very proud of and highlight or opportunity ahead, Ryno 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 Rhino'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 Rhino 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 Rhino verify 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. Rhino 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 on $11 million in revenue and almost $6 million of adjusted EBITDA a 52% adjusted EBITDA margin. G
iven the new product launch and impact on pricing, we expect Rhino to deliver $14 million of revenue and a 60% adjusted EBITDA margin for $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 Rhino and warranty businesses 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 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 six times over the last four years. We've increased revenue and 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 in 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 2020 for a 44% for your CAGR.
And finally, as we've said before, our adjusted EBITDA guidance for the full year is $6 million at midpoint, a key milestone for the Company to be profitable on a full year basis and a $21 million in the second half 2023 adjusted EBITDA, which was a $45 million improvement from the same six 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 starting Finally, after looking back the last four 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 powers software platforms, which a large portion of the home inspectors title agents and loan officers use to run their businesses, which provides us valuable introductions to consumers and insights into properties creating long-term competitive moat. We believe we can build a large mortgage insurance company structured optimally to have lower volatility and higher margins. We'll update on reciprocal exchange later this year, but today, we'll share our three differentiators. You can see here in yellow.
First is advantaged underwriting. So about two 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 loans. 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 game-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 full home protection. This means offering homeowners insurance, home warranty for everyday breakdowns and a Home app to provide appliance recall, check Monogram. 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 assets. It's 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 up with prepared remarks and pass the call to the operator. Please go ahead and open up the call for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Dan Kurnos, Benchmark Company.

Dan Kurnos

Great banks, obviously really strong into the year, so congrats on the quarter guys. Now 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 the audit done on that front.

Matt Ehrlichman

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

Shawn Tabak

And with respect to I think your question's about the financials for the insurance entity, which is kind of part of that, that's on track and we're on top of it, and we'll do that in due course here in the month of March, which is how we typically do it.

Dan Kurnos

Got it. Thanks on. So Matt, just kind of Michigan gave some really good numbers about 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 ex the IG gross written premium this year. But you know, I would kind of your thought process now that you've derisked the model so much on maybe getting understanding, you know, 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 now and our long-term investors know the certainly the the focus for the for second half of last year. Focus for 2024 is profitability. We wanted to be able to make sure that we really demonstrated a profit, obviously for 2024. We want to make sure that we're clearly seeing 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 here on the insurance underwriting result and that you know that we are positioned to be able to grow still with we believe very strong ongoing profitability. And 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 has been and we noted this in the prepared remarks. So we do expect to start unlocking some of those some of those restrictions over the course of 2024, really to set up 2025 to be to be growing at a nice clip again. So that is in front of us.
And then down 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've been managing a roughly flat premium year over year is kind of what we've been targeting. And we've 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 risks. You'll hear in 2024 versus 23% and 27%.
Yes. So that's a big shift in total risk. And that doesn't include the aggregate purchase that we made of additional reinsurance around around severe convective storms and hail that new $30 million purchase. And so our business just becomes much more much more predictable and much better protected, much lower risk. Even as we have these, these we think are going to clear and strong goals in front of us.

Dan Kurnos

Got it. Shawn, just maybe one quick one for you. At 23 was a bit noisy from an event standpoint. I'm just trying to get a handle on how we should be thinking about either operating or free cash in 2024.

Shawn Tabak

Yes. So we were we were pleased to deliver for the full year of $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 A. to A., our carrier head $52 million of surplus to Matt's point. That's a great basis for and for that for that business to be yes, with future profitability and the strong momentum we mentioned in the second half of the year.
And with respect to cash flow in 2024, the way to think about that is it first, of course, 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 and 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've ceded less. And so that drives better working capital when you cede less and we're able to cede less obviously because the book is that much more profitable and so that that provides a lot of that working capital benefit because we're hanging on to the cash from the policyholders instead of giving it to the reinsurance partner. So I think we're we're starting 2024 in a really strong position.

Dan Kurnos

Got it. Here. We see that Springboard, I guess, is what I'm getting at here. So. All right. Thanks, guys. I appreciate it. I'll step off.

Matt Ehrlichman

Thank you. Appreciate it.

Operator

John Campbell, Stephens.

John Campbell

Hey, guys. Good afternoon. Congrats on a great quarter.

Matt Ehrlichman

Thanks, John.

John Campbell

So on the extra, yes, for sure. On the extra disclosures around warranty and Ryan, that was great. Those are solid businesses if you guys hit the 2024 targets for warranty and Ryno, and then obviously, you just sold EIG. So that's going to add back another $3 million of losses, that's $27 million in EBITDA.
Obviously, you've got the corporate segment. If you take that out, I mean you're going to basically need about $40 million outside of warranty and Rhino. So if you got questions here, first on and just bigger picture, are you largely done with the cost actions within corporate and how you how we should maybe think about that this year? And then secondly, if you can help us unpack that remaining $40 million, is that mostly just a delay and improve gross loss ratio versus last year?

Shawn Tabak

Yes, I can take that one, some good questions in there. And first, I'll say on the corporate cost actions and those have already those are done, but you know, the benefit to the P&L will show in 2024 as those as it annualizes as opposed to 2023 was partial year. But the actions themselves are our done. And with respect to insurance profitability.
One of the things I think Matt mentioned in his prepared remarks is in the second half of the year, which is really when the insurance profitability actions we talked about really kicked in. We were $45 million better this year, EBITDA than we were in the second half of 2022. And there's no more more of that that have already been to come in 2024. So that just kind of maybe sets the tone a little bit.
And then the other, the other some other drivers of profitability in our software businesses. We continue to roll out products and increased prices as we create more value for our customers there. And that'll that will benefit profitability and a lot of those have already been launched. As the other thing, it's just now we need to see it kind of roll through.
The second thing I'll mention is we are also continuing to increases premium per policy. I think we mentioned today, U.S. and Texas, the filings that we have done there. So those those are those are the main drivers that get us to the profitability improvement year-over-year.

John Campbell

Okay. That's very helpful. And then kind of staying on that line of questioning, you mentioned the 63% gross loss ratio or loss ratio for this year. That's going to be based on the past five years. I think you said weighted average, I'm guessing 2020 was lower than normal, but the last two years have been pretty tough. It seems like by October, Norm. And then you've also got the new storm coverage. But the question here is how does that 63% gross loss ratio compare to the historical average beyond past five year level?

Matt Ehrlichman

Look, so the couple of a couple of things that on the gross loss ratio, one is that we are we think that up quite well, actually with that, given what we've done with reinsurance. So for example, last year, John was a tough weather year in terms of hail, particularly due to some weather in Q1. That same year happened again this year. Again, what the with this new flow reinsurance provides us is an aggregate covers of all. We typically and continue to get reinsurance for large of that protection.
We now have protection against a series of small events. We actually would have I've gotten to $30 million backup of additional cover last year would it were to happen again. And so that certainly just lowers our risk for the similar type of weather.
As we look further back in time, weather more than five years ago. And the gross loss ratio was was consistently around this type of a level. But I would note that things have changed quite a bit. So when we put in place higher deductibles until last year. There was a 2% wind and hail deductible that's been raised to 3% when I held electrical that and that's important in terms of what impact it makes on a gross loss ratio and perhaps underappreciated. And so that certainly is a driver that helps us helps us this year.

Shawn Tabak

Yes, I think the other thing that we're (multiple speakers)

John Campbell

Okay, very helpful.

Shawn Tabak

I was just going to add to that. Yes, the other thing that we're seeing in the book years and improvements in underwriting rate and risk selection and so I think as the deal five years ago, obviously, A2A wasn't using ports data at that point in time. And so and then as well as some of the other things that Matt mentioned there. So And so really, the combination of the things we talked about, increases in premiums, underwriting actions, deductible, various exclusions, non-renewing certain policies. I think it set us up really well for this year on that front.

John Campbell

Okay. Thank you guys.

Operator

Josh Ziegler, Cantor Fitzgerald.

Josh Siegler

Yes, hi, guys. Good afternoon. Thanks for taking my question and congrats on a really strong quarter here. First, I just wanted to dive into Ichnos with near-term profitability on the horizon? Are you really thinking about capital allocation? And would M&A really be on the table as we progress through '24 and 25?

Matt Ehrlichman

Well, I'll take the M&A first, I would not expect any M&A or material amount of M&A here in the 2024 year, or we have one more year in front of us and just really being heads down, focused on making sure we do execute flawlessly and produce a really solid clean year. And so that's where we're at now.
Does M&A open up backup breadth ahead. We do think that's a capability that we have as a company, and we're looking forward to the right time that will turn that engine back on.

Shawn Tabak

Yes. With respect to capital allocation. And I think the good news is I think we have a lot of great places to deploy capital and earn a very attractive risk-adjusted return. First and foremost, Neil the yes, the growth of the business in and of itself, I think is it is driving very strong returns. And then we also have the unsecured debt, which is due in a couple of years. I think we have a number of options, but that one in particular and plenty of time to take care of it. But then you your other other opportunities as well.
I will go into further today. But from a capital allocation perspective, I think we do have a number of very attractive investments that we are are looking through.

Josh Siegler

Got it. I appreciate the color there. And then I also wanted to dive a little bit deeper into the cross-sell opportunity between the software side and the insurance side and kind of how you're thinking about that evolving, especially at the macro starts to ease a bit?

Matthew Neagle

Sure. I can. I can take that. We and we're excited about the access that the software businesses give us to help homebuyers. We're also excited about the focus of our insurance strategy around helping homebuyers. We're also excited about the apps and the way the app can bring together, really nice experience. And so that that's all core to what we're doing.
We continue to see year-over-year improvements in kind of the things that we measure around that strategy and then as was mentioned here, the market has declined and that does impact our ability to cross sell because there's fewer people who are who are buying homes as of now we're not anticipating growth this next year, but we do expect growth to come, and that's going to be tailwind for our business.

Josh Siegler

Okay. Thanks, guys, and congrats again on the results Thank you.

Operator

Jason Helfstein, Oppenheimer.

Hey, this is Steve on for Jason. So we just have two questions. One can you give us anything on and January in terms of improving house trends and how much that would have software business? Maybe does that data point you can give?
And then secondly, on rate increases. I know you talked about them with Texas, for example. Is there any metric you can give on how many users gross written premium or geographies are you've increased on on prices this year are thus far? Thank you.

Matthew Neagle

Sure. The sorry, the first, can we repeat the first question?

Matt Ehrlichman

Yes, I'll take or I got it. Yes, it's good. And so on January specifically, no, obviously. And again, there's more housing sales are going to help our business. But again, just to reiterate, what we are expecting and what our guidance represents as we expect flat year over year, we think that it will bounce around a little bit from month to month. The market's still kind of settling.
And we're not obviously seeing deterioration at a market level of a year over year at this point. But but certainly it helps whenever we have months that where home sales picks up. I would note just one of their January macro question. I'm sure people are curious about just your more recently just around the Texas weather wildfires and tied to your Texas, your question on Texas, but obviously our hearts go out to the people in Texas and Oklahoma by the recent wildfires.
I want to note that we have not I've seen any claims actually zero claims to date, and I would not expect that will be a meaningful event for us. I think it continues to demonstrate our ability to select risks effectively?
As we think about Texas, broadly, Texas is our largest state. So when we have an 18% rate increase, we've mentioned before that it's actually meaningfully our largest state that does that does show up in the overall results.

Operator

Danny Pfeiffer, JP Morgan.

Danny Pfeiffer

Hey, guys. Thanks for the questions on the first on the sale of EIG., do you maybe see any further opportunity pruning other non-core assets within the porch portfolio and and or maybe was this more of a one-off transaction? And then I have a follow-up. Thank you.

Matt Ehrlichman

Think about it as more of a more of a one-off transaction. We'll always be pragmatic and thoughtful in our strategy both on on acquisitions or divestitures, I suppose I don't expect to see, you know, see many divestitures because we really like our businesses and are excited about where they're at where they're at, yes, G. was a special case where we could we could sell a business and it being very aligned with our with our strategy. So in terms of investors. That's how I would see that.

Danny Pfeiffer

And then on the second committee -- sorry about that.

Matt Ehrlichman

Please go ahead.

Danny Pfeiffer

So for the second, can you maybe unpack the seasonal first half '24 adjusted EBITDA loss guidance. Maybe how much is the Aon reinsurance agreement and the severe storm covered you purchased?

Shawn Tabak

Yes, I can cover that to in the presentation today in the prepared remarks, I think I showed a slide which shows the typical seasonality of our adjusted EBITDA, and that's mainly driven by historically higher claims in the second quarter, we talked about some of the things we did this year to further protect that with the repeal of the different types of reinsurance reinsurance cover that would have protected the in particular, the hail storms we saw in 2023.
And then I think as I also mentioned in prepared remarks, on a year over year basis, if you just compare, for example, Q1 last year to what we're expecting for Q1 this year. Same thing for Q2 and the each of the quarters, we're expecting between a $10 million to $15 million improvement year over year.
And most of that is driven by the other things we talked about today, which are the profitability actions in insurance, which is driving really strong run rate profitability in that insurance business. Again, that's the $45 million year over year that we saw in the second half of 2023 as well as the price increases and deal more of the cost management items rolling through in 2024. And so those are the main drivers of those as opposed to like they on or other things like that. They are just as it will be over a period of time because that's a long-term agreement we have with our partners at Aon.

Danny Pfeiffer

Got you. Thanks.

Matt Ehrlichman

Thank you.

Operator

Ryan Tomasello, KBW.

Ryan Tomasello

Hi, everyone. Thanks for taking the questions. Just following up on the capital structure, Sean, and maybe if you could just discuss some of the path you have to efficiently addressing the 2026 convert maturity. Obviously, you bought back a little bit here at a discount, and that's something that you'll continue to opportunity opportunistically chip away at.
And also just remind us from a corporate structure perspective, if you would have any access two sizable chunk of liquidity at each way to help with those maturities, depending on how the reciprocal evolves, just trying to understand all the moving pieces here for the capital structure. Thanks.

Shawn Tabak

Yes. Thanks for the question. And so I would say first of all, as I mentioned, we ended the year in a strong position with about $400 million of cash, cash equivalents and investments and within that, there is also a roughly $50 million, a surplus note between HOA and Porch Group that provides a coupon payment and inter-company payable back to Porch Group.
The other thing. Obviously, we just talked about on a on an EIG. Those deals collectively contributed an additional $35 million of cash in January of 2024 that you will see on the Q1 24 balance sheet. So I think. And then finally, I guess the last point there is that A2A is in a really healthy position with $52 million of surplus at the end of 2023. And then we talk about generating adjusted EBITDA and profitability actions in 2024. So that's also driving it north going forward.
With respect to taking care of the day, I'm not going to get into any specifics. I think what I would just say is I'll leave it at we have a number of options in how to take care of than we sitting here today. We have over two years to do that. So plenty of time on our side there as well.

Ryan Tomasello

Okay, great. Thanks for that color. And then some into in terms of the 24 guide, just given all the noise this year, the past year from that to and lower seating on revenue in the back half, you have the retail, the insurance, the sale of the insurance agency this year. Just trying to understand like what level of organic revenue growth for 2024 guidance implies as we kind of normalize for those differences. Curious if that makes sense.

Shawn Tabak

And yes, I mean, I it's all I would label, it is all organic. I mean, I think and with what we're doing with our insurance book, where we're ceding less quota share, in particular quota share is the element of reinsurance that we've cut back on and we're able to do that because we have significantly increased the profitability of that book.
So I mentioned the risks, which is still the probable maximum loss of the insurance or for it will it increase that we'll have done better by 50% collectively almost between 2022 and 2024. And that along with the profitability actions go hand-in-hand. And that's what it puts us in a position where we could have less quota share reinsurance in the book.
And that will continue to some extent in 2024 as well as the price increases that we mentioned, the premium per policy increases. So that's how I would think about it. I think it's all all the levers kind of come together when we're thinking about the insurance business and the profitability in what that means in terms of reinsurance as well.

Ryan Tomasello

Got it. Thanks for taking the call.

Matt Ehrlichman

Thank you.

Operator

Jason Kreyer, Craig-Hallum.

Jason Kreyer

Great. Thank you, guys. I wanted to ask on property data. I know you've been using that for last two years now. Just wondering if you can give an overview of where you've seen that data provide more of a pricing edge or any numbers around how frequently that data is being used in quoting? And then if you can give any indications of where you plan to use that more going forward?

Matthew Neagle

Sure. I can take that and we're excited about the advantages that the data can provide. And we're already seeing measurable results in our own underwriting. It's going to be a key ongoing opportunity for us there's a variety actually of ways that we can use the data. We have actually done a number of filings in multiple states using the data and when if things that you would expect if you were to start to imagine what would you want to know, right?
So it's things tied to the age and condition of the roof. It's tied to the type of plumbing. It's tied to where is the water heater located. So that in the event something happen, what type of damage is going to take place, we think we're early in our ability to take advantage of this data. There's still a lot of data points that we think we can get about the interior of the home, and we're excited about that.

Operator

And we have run out of time for our question-and-answer period, and I will now pass the call over to Matt closing remarks.

Matt Ehrlichman

Well, first, thanks, everybody, for the for the questions and the time. And thanks, everybody, for being here. Mostly. I just want to thank the Porch team for their efforts and for the truly significant progress that's been delivered also on to our long-term investors who do see the vision and where we are and all that's ahead for us. We look forward to speaking you all with you all again in our Q1 earnings in May. Until then.