Exzeo Group (XZO) Q1 2026 earnings call transcript

Good afternoon and welcome to ESO Group's first quarter, 2026 earnings call. My name is Angela and I will be your conference operator. At this time, all participants will be in those in only mode. Before we begin today's call, I would like to remind everyone that this conference is also being broadcast live via webcast and it's available for webcast replay approximately four hours after the call through May 6, 2027 on the investor relations section of exeo groups website at www. exeo. com.

I would now like to turn the call over to Bill Brumall, Vice President of Investor Relations. Bill, please go ahead.

Thank you and good afternoon. Welcome to Exeo Group's first quarter, 2026 earnings call. To access today's webcast, please visit the investor information section of our corporate website at www. exeo. com. Before we begin, I would like to take the opportunity to remind our listeners that today's presentation and responses to questions may contain forward-looking statements within the meaning of the private securities litigation reform act of 1995.

Words such as anticipate, estimate, expect, intend, plan and project and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risk and uncertainties. Some of these risk and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risk or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial condition and results of operation.

Exeo Group disclaims all the obligations to update any forward-looking statements.

Now with that, I'd like to turn the call over to Suela Volcu, Exeo's chief financial officer. Thank you, Bill. Good evening, everyone, and thank you for joining us for Exeo's first quarter earnings call. Exeo continues to deliver on its core objectives. Managed premium on the platform experienced another quarter of growth to $1.43 billion and exceeded our expectations.

We delivered continued bottom line growth, including strong cash flows and a 49% adjusted dividend margin in the quarter. Pre-text income in the quarter was over $27 million, an increase from $24 million in the prior year quarter and above our previous guidance range.

Diluted earnings were $0.22 per share. For the first quarter, revenue increased to $56 million from $52 million in the prior year quarter, driven by the increase of managed premium on the platform.

The growth in managed premium reflects continued diversification across the business with managed premium from non-ACI clients reaching approximately $105 million of positive steps forward.

Our adjusted dividend margin was over 49% in the quarter, and we believe our margins are repeatable in the future. This quarter reflected continued investment in growth initiatives and personnel, and as our model continues to expand, we expect to make additional investments going forward. Kevin will go into more detail in his remarks.

A few additional highlights for the quarter. Our annual recurring revenue was $216 million in the first quarter, an increase from about $119 million in the prior quarter.

Free cash flow generation remains strong. For the first quarter, we generated free cash flow of about $25 million. With net income of about $20 million, that represents a free cash flow conversion rate of 123%.

Turning to the balance sheet, we ended the year with $330 million of invested assets, which includes cash, cash equivalents, and fixed income securities, and we remain debt-free. Shareholder's equity increased $275 million, an increase from $254 million at the end of the year.

Our shareholder equity is now eight times higher than it was a year ago. Excluding the IPO impact, it has more than tripled over the same period, reflecting strong underlying growth in the business.

Before turning the call over to Kevin, I want to quickly touch on our guidance expectations. For the second quarter, we expect pre-tax income to be between $27 and $30 million. For the full year of 2026, we are leaving our guidance unchanged at between $115 million and $125 million.

With respect to managed premium, we expect managed premium to remain stable in the second quarter at approximately $1.4 billion, consistent with the anticipated timing of growth across our existing client base.

We continue to expect managed premium of $1.55 billion at year end, 2026. In closing, we are very pleased with our strong start at 26, as Exio delivered another quarter marked by continued execution across premium expansion, revenue growth, solid profitability, and solid balance sheets. And with that, I will hand it over to Kevin, President of Exium.

Thank you, Swela. Exio has made meaningful progress towards its strategy in early 2026. To remind those new to the Exio story, the composition of managed premium continues to evolve as Exio expands beyond its historical client base. At the end of the third quarter of 2025, all $1.2 billion of managed premium on the Exio platform was generated from HCI-sponsored carriers.

That has grown to approximately $1.3 billion as of the first quarter of 2026. Additionally, over the past six months, we've added three new carriers to the platform, and these carriers added $105 million of managed premium as of the first quarter.

These new carriers account for over 7% of managed premium, marking an important milestone in diversifying revenue sources and validating the platform's ability to attract and support external partners.

And because of the validation we are seeing in the market, we are investing in our business and infrastructure to ensure we have everything in place to pursue our future growth ambitions.

This includes investing in talent and platform capabilities. Through April of this year, the company added about 20 new full-time employees. These new team members will focus on supporting, scaling of operations, onboarding new clients, and expanding product capabilities.

This build out reflects both the increasing demand for the Exio platform and management's confidence in the company's growth trajectory. In closing, we continue to build momentum. The existing carriers on our platform are growing. The new carriers added to the platform are having success scaling and now contribute to the total managed premium on our platform. And we are investing in infrastructure to put us in a position to take advantage of the next phase of growth.

Now I'll turn the call over to Parrish, Exio's Chief Executive Officer. Thanks Kevin. As Swilla highlighted in her remarks, we are successfully scaling our platform with tremendous efficiency. Out of every dollar we are adding to the platform, 50 cents is dropping to pre-tax income.

And because of these attractive economics, Kevin is working to add more managed premium to the platform. And I think we have a fabulous team to execute that strategy.

But in addition to that, we have an additional strategy that is now developing. It requires a deep understanding of the broader industry and market trends. Let me elaborate. First, we know that the insurance industry, our potential clients, generally are behind adapting the latest technology.

Most of them have IT teams who can implement and maintain software tools and systems. But what they cannot do is develop new tools.

Second, the Exio platform was developed entirely in-house from the ground up. We have developers and insurance experts under the same roof.

And it shows that we know how to develop, deploy, maintain systems at scale. This is a key differentiator. Third item is insurance insurers are facing shortage of skilled talent. And that talent gap continues to widen across the industry.

And finally, there is AI. The industry recognizes that AI has the potential to significantly improve operational efficiency. And while there has been considerable discussion about how carriers can leverage AI, most companies are just adding AI to that toolset as an additional expense.

Exio is doing something different. Exio is using AI to build solutions. Let me give you a concrete example. Starting April 1, insurance regulators in Florida implemented new and mitigation requirements.

These updated regulations, which include additional documentation requirements, creates a meaningful operational burden for all carriers. Insurance must also find the talent and expertise needed to manage these new requirements.

These challenges not only place additional strains and operations, but also introduces incremental costs. While many in the industry view these changes as a challenge, Exio saw them as an opportunity.

The Exio team was able to combine its deep expertise in building solutions with internal developed AI tools to design and deploy a solution in less than a month. It is called WinForm Pro.

By eliminating manual workflows, WinForm Pro's streamlines the process and significantly reduces the operational and frictionless burden on carriers. In fact, multiple carriers outside the Exio platform are already testing WinForm Pro, and one carrier has already signed up to use it.

What this demonstrates is that by combining AI capabilities with our in-house talent, we can quickly identify challenges and design and deploy solutions in a highly cost-effective manner. We believe we are only beginning to tap into the broader opportunities that this approach can create.

In summary, we already have a profitable platform that is a strong generative cash flow and continues to scale. At the same time, we are identifying and solving new industry challenges that can lead to additional revenue streams in the future.

With that, I'll try it out for questions.

Thank you. We will now begin the question and answer session.

Sure, Matt. This is Kevin. From a new client standpoint or ones that we've recently onboarded, it's going as planned. As I think Swill and I both mentioned, from a standing start in December over around 105 million of premium on the platform, I think that's a strong uptake when you consider that those two clients, one was signed in September of last year and the other one was October. So all was on solid footing there. As far as new clients and pipeline continues to build, as we mentioned last quarter, we have team members that are focused on each day each week, building on that pipeline. We feel confident that we'll continue to execute and bring on new clients in standard fashion.

Yeah, Matt. So answering the questions in different ways. The product, because of the need that industry had was built in very quick fashion, and obviously it solves a problem, a current problem that everybody's facing. So as such, and the way we've deployed it, it's very, very, very cheap, like about 10% of what it would cost you to do manually. What it's doing is it's opening doors for new carriers to appreciate what exists capable of. So from that sense, it's a very good deal to further spread the exit brand. In terms of revenue, I don't think this center itself, especially because of the prices we're charging, that it's going to be meaningful in terms of revenue.

I don't think Swela's adjusting her financial models because of it. So that part, but the really big thing is how this was developed, the speed at which it was developed, how it's being deployed, right? This is basically monetizing AI capabilities in a manner that is both reduces our expenses to develop by orders of magnitude and enhances value to potential clients.

And it's a real thing that we weren't even thinking of when we had the last earnings called two months ago. I mean, to be fair, our developers have been managing and been monitoring developments in the AI space shoot for almost three years at this point, pretty much as the week chat GPT came out. But it's waiting for it to be one of the moment is right, one is ready for prime time. And in Winform Pro, we are demonstrating how AI can be used and utilized and turned into a product and turned into revenue, all in, you know, two months. That's right, Tyler.

Thank you very much.

So are you seeing any kind of incremental tailwinds from just, hey, to say, I think it's the real deal and we need to get going yesterday and then add a couple of follow-ups? Yeah. Terry, what I would tell you about that is, yes, all of those possibilities, you know, in underwriting, you know, quoting claims management, et cetera, there's always been that conversation of AI could do things, right? But the issue has always been how do you do it? And a lot of insurance carriers probably want to package solution as opposed to his, you know, cloud code, develop your own solution. That was my point about this, right? Is that one of my early in my prepared remarks?

It's just because it's available doesn't mean everybody can actually assemble it and turn it into a solution that they can use over and over and over again. But it turns out that the Exo technology team can, right? And they do it in a controlled manner. And back to that whole thing, being able to design, deploy and maintain things at scale is quite a need that still is there. So we are starting to sort of see a unique niche that we can fill. In theory, any, you know, anybody can fill that niche is what people will tell you. But in theory, anybody could have built a copy of Google search. Heck, Microsoft even tried with all of their resources, but Bing doesn't quite cut it, right?

You get the idea. We are seeing that having the idea and being able to actually put it into production are two separate different things. Yeah. Yep.

Yeah, Terry, this is Kevin. Yeah, we continue to build the team. Hence the 20 folks since January 1st.

So we continue to build the team around them to drive growth and drive ever-increasing pipeline activity. Terry, and if I could put a different context into all of this stuff, I'm sure you've been on lots of earning calls and the recurring theme has always been we are adding AI as in licensing stuff and running up, you know, making it a new tool and running up an expense. And two, we are cutting headcount, right? That seems to be the recurring theme.

We're doing the opposite. We're using AI as a revenue generator and a lead generator in lots of ways. So we're actually already monetizing it. And secondly, Kevin is adding people. And to be fair, it's not a fair comparison because we started from such a lean, efficient operation that the people Kevin's adding should have a material impact on our rate of accelerating our growth going forward, right? So that's why I'm kind of excited that he's adding people, yeah?

Yeah, thank you for the question, Terry. So yeah, as I mentioned before, the timing when the managed premium gets added to our platform obviously matters. And what we saw in Q1 is that the new additional premium, especially from the new client, joined the platform mid to late quarter. But also keep in mind that recognize upfront about 25 to 30% of the revenue and the remaining is recognized over time. That said, new premium is still not large enough. Well, you know, large enough share of our total managed premium that currently have enough platform to materially distort quarterly revenue on its own. So on a normalized basis, you can think of the ARR conversion into revenue to being generally flat, fairly flat, consistent over the quarters.

I just, just a reminder though, that we do have some personality on the margin based on the renewal cycle of the policy and the product, product mix, and then how we recognize revenue along with expenses. So historically, you will see higher margin in your center be in the middle of the year, which drive the Q2 peak that we have seen historically.

Thank you.

Yeah, great question, right? And I think that's why we sort of in our prepared remarks, try to talk about plans and growth for the existing platform and adding managed premium in that fashion, while at the same time exploring these new capabilities and basically door opening projects that we're doing that also have, they won't have impact immediately, but they will create long-term opportunity and create a differentiation for Exio over other solutions in the marketplace. So we kind of have short-term things we're trying to do, medium-term things we're trying to do, and long-term things we're trying to do. And personally, from my perspective, it's the long-term things that we're doing that I think are the most exciting as to what it could mean down the road, right?

Because we inform pro, if you think of it as just a universal way of filling out this OR requirement, right? It's a very specific thing. But the same architecture method that we developed that, we could use it to create a digital agent for, you know, reviewing claims or a digital agent for compliance, which is a big thing with insurance carriers, or a digital agent for generating a rate filing, those kinds of things. And we can see that at this point. And we know how to use AI to develop those tools and capabilities. And that's the beauty of AI. It doesn't mean that it will only do it on the Exio platform. One of the agents could also work on any other software platform that a carrier might have implemented.

Think about what that opens up as a door, right? Again, very early days, but we didn't want to talk, you know, if you notice in all through all of this stuff, we've never really mentioned AI in any material way. We didn't, because whether we want aware of it, we want doing anything. We want to do it when we actually had something. And when from pro actually shows you when we have something, but it was only, it was the sample of what is more to come, yes?

Thank you, Parrish.

Yeah, that's a very good question. Yeah, as I mentioned, yeah, we expect management to remain stable, which is consistent with the growth pattern of our client base. We are primarily, our clients are primarily based in Florida, which usually the growth is more back-ended.

So you see the growth in the management premium or in the fourth quarter. Yeah, I mean, yeah, you get it right in the sense of it's not set by us, it's set by clients, where we're just trying to explain what clients typically do, you know, and what their cadence normally is.

Again, if you would like to ask a question, please press 4-1 and your telephone keypad to raise your hand and join the queue. At this time, this concludes our question-and-answer session.

I would now like to turn the call back over to Parrish Pathem, who has a few closing remarks. Thank you. I want to thank everyone who joined the call today, and I also want to thank the ex-year team for their continued hard work. Before we wrap up, I should just provide a quick update on the Rule 10B51 purchase plan that is underway for me to have bought about 72,000 shares since the plan went into effect a couple of months ago, and it still continues on, and I look forward to it being filled out hopefully sometime in the current quarter. And with that, we'll end the call. Thank you.

At this time, this concludes today's call. Thank you all for joining. You may now disconnect.