Exzeo Group (XZO) Q4 2025 earnings call transcript

Good afternoon and welcome to XEO's groups for quarter 2025 earnings call. My name is Mark and I will be your conference operator. At this time all participants will be in listen only mode. Before we begin today's call, I would like to remind everyone that this conference all is being broadcast live by a webcast and it's available for webcast. We play approximately four hours after the culture of February 25, 20, 27 on the investor relations section of XEO's groups website at www. xEO.

com I would now like to turn the call over to Bill Brumall, Vice President of International Relations. Bill, please proceed.

Thank you and good afternoon. Welcome to XEO groups fourth quarter 2025 earnings call. To access today's webcast, please visit the information investor information section of our corporate website at www. xEO. 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 reformat 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 guaranteed the future results and conditions, but rather subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial condition, and results of operation.

XEO group disclaims all the obligations to update any forward-looking statements.

Now, with that, I would like to turn the call over to Swayla Volco, XEO's Chief Financial Officer. Thank you, Bill. Good evening, everyone, and thank you for joining us for XEO's fourth quarter earnings call. XEO delivered another strong financial performance for the fourth quarter. Pre-text income in the quarter was approximately $29 million and diluted earnings per share were $0.25.

For the full year, pre-text income was over $110 million and diluted earnings per share were $0.99. For the fourth quarter, revenue increased to $63 million and for the full year increased to $217 million.

We booked the first known ACI revenue during the quarter, and while the contribution from our two new clients was modest, they are growing, and are expected to have managed premium in our platform of approximately $100 million by the end of the first quarter.

Our adjusted EBITDA margins increased to over 54% in the fourth quarter and for the full year. There continues to be significant leverage in our operating model because we can add managed premium with very little incremental expense. I want to highlight a few other KPI metrics.

Managed premium at the end of the fourth quarter were approximately $1.39 billion ahead of our expectations and up significantly from about $580 million last year.

The other KPI metric that I wanted to highlight was our annual recurring revenue, which was $216 million in the fourth quarter, an increase from about $139 million in the prior year quarter.

For the full year 2025, we generated strong free cash flow of about $97 million. With net income of about $83 million, that represents a free cash flow conversion rate of 117%.

Moving to the balance sheet, we ended the year with $305 million cash and cash equivalent, and we continue to have no debt.

Stockholders' equity increased 16-fold to $254 million. Before turning the call over to Kevin, we would like to provide a quick update on guidance and what we're currently expecting for the first quarter and the full year 2026.

Starting with free cash income, we expect free cash income to be between $23 and $26 million for the first quarter.

For the full year 2026, we continue to expect free cash income to be between $115 million and $125 million.

Next, managed premium. We expect managed premium to be over $1.4 billion by the end of the first quarter. Based on current momentum, we are raising our output for $26, and we now expect managed premium to reach $1.55 billion by year end.

In closing, Exeo delivered another strong order highlighted by continued growth in managed premium, expanding margins, and a solid debt-free balance sheet supported by a strong cash position. And with that, I will hand it over to Kevin, President of Exeom.

Thank you, Swela. As we previously communicated, we laid out goals for 2026. Let me give you a progress update. First, we wanted to add non-HCI clients to our platform and grow them to a meaningful size. As Swela highlighted, the two startups added to the platform in the fourth quarter should be approximately $100 million of premium by the end of the first quarter.

Second, we issued a press release this evening announcing that Exeo has added a new client and a new product to its platform. The new product is flood, and the new client is Tokyo Marine Highland, a wholly owned subsidiary of Tokyo Marine Kilm, and a member of Tokyo Marine Group. They've selected the Exeo platform to offer their flood insurance product, and we've already added our first policy.

Third, we are taking an important step to widen our sales funnel with prospective clients. This includes the recent hiring of a seasoned industry executive with a tremendous amount of experience in software sales. Overall, Exeo is heading in a positive direction.

Next, I want to take a few minutes to give our view on the approaching inflection point of AI in the insurance industry and why we think it will be positive for Exeo. Much of the insurance industry still relies on human underwriters to manually review and touch nearly every policy. In an AI-driven world, that is going to change.

Friction will come out of the system. We saw years ago that the industry would eventually be moving towards a fully automated insurance platform, where policies are bound in minutes and administered with little to no human intervention, which is what Exeo currently does today.

What is clear is that the technology bar is being raised. We believe the rise of AI will drive a new upgrade super cycle that will be difficult to avoid.

The end result will be a modernized platform that reduces human touch for policy, lowers operating costs, and delivers better underwriting performance.

The debates of how to navigate these upgrades will be a major topic. It will cause a rethink of how insurance is done and what tools or platforms to use.

The Exeo platform was built to deliver the solution. It is a modern, fully automated insurance platform that scales efficiently with our client's growth.

We offer our clients shorter implementation cycles as demonstrated by the speed at which new clients are already operational on the platform, a consumption-based fee model eliminating large upfront costs and directly aligning Exeo's economics with our client's growth, and reduced execution risk, providing a streamlined on-ramp to the future. In short, this industry and flexion point has the potential to serve as a meaningful catalyst accelerating our ability to achieve and potentially exceed the strategic objectives we outlined during our IPO process.

Now I'll turn the call over to Parrish, Exeo's chief executive officer.

Thanks Kevin. Now that we're a few months to move from our IPO, several things are evident. As Swaylor highlighted, Exeo is delivering strong operating margins, growing earnings, and generating meaningful positive cash flow.

On the operational side, as Kevin discussed, we are growing managed premium, broadening our product offerings, signing new third-party clients, and investing in the team needed to capture additional market shares in the years ahead.

With all that said, what excites me the most is with AI, the future operating model of the insurance industry will be different, and Exeo is designed specifically for that future.

And our focus now is on execution, including adding more clients, products, and premium to the platform. And with that, I'll turn it over to the call over for questions.

Thank you. And our first question will come from Terry Tillman with securities. Terry, please go ahead.

Terry, the biggest thing about this is that we have a previous relationship with them, and the speed to which how quickly this deal came together, and we were originally our first policy.

And having said that, we've got here so fast. We haven't really had a time to think about what the future may bring and how many places we can go with this thing. What we do know is Tokyo Marine is licensed to sell the product in 42 states, right? So this instantly expands the scope and reach of what we can do with the exit platform, right?

Hey, Terry, this is Kevin. What excites us with Tokyo Marine is they have long history in flood. Very established. They know the business quite well. And being able to partner with someone that has that type of credibility, we think is a true positive. And as Parrish mentioned, the speed at which our technology can partner with them is pretty impressive. They were excited how quickly we could get to market.

Yeah, absolutely. The funnel is developing very well. And some relationships take a little bit longer to onboard and others happen very quickly. Tokyo Marine obviously was a very quick one. But others may take a little bit longer because various other things get in the way. But what we see is that opportunity is sort of growing. And why I say that is some of the calm prepared comments that we made about, instead of having to try to win customer the convince them that Exeo was the way to go.

With the advent of AI, I think more people are looking to see what's the future and how quickly can we get there. And now, think about what we just did in the last four months. We were onboarded three new customers.

They already have premium on the platform, right? Imagine how fast that world is moving compared to an industry where typical software implementations are 12 to 14 months. And that's for only part of the stuff, right? So what we sort of set out to do is now happening in real time. And I already enough more people are looking for it. So lots of conversations going on. We're also trying to be respectful of how we do this so that we don't really take credit for any conversations.

So it actually turns into premium on the platform.

Yeah. We expect the free cash flow conversion to continue to be over 100%. And that's primarily driven by the growth that we expect. And I know I've mentioned this before, but we have a positive working capital cycle where we actually get paid cash upfront. From my customer, then it takes us over 12 months, recognize revenue. And since we're growing in 2026, we also continue. We expect the free cash flow conversion to continue to be over 100%.

Sure. And our next question will come from Dylan Becker with William Blair.

Sure. Hey, hey, Dylan, this Kevin. On the first part, when you talk about data sets, I think you're well versed in this. We've been on a journey here at XEO. This started back in 2012 and early days when we started building the platform, there were data sets to purchase. So we built our own and that gave us a distinct competitive advantage in the market. So we knew how to source it, curate it, and make sure that it was accurate so we could make these key underwriting decisions for our clients.

So I think that has been really key. When you look at some of our clients' performance over the last few years or out performance, we think a major element of that is the tech and the curated data sets that are being used. That XEO is able to provide. And then on customers and where they live and what they expect, everyone is in a position these days where they're very used to kind of instant and making things simple and easy and reducing friction.

I think one of the big things that Parrish has talked about in the past is we set up XEO so it's automated. All steps of the process, whether it's quote to bind to the underwriting, to the customer service, even to the claims elements, it's critically important that you automate all those steps. There's not a kink in the hose, so to speak.

And if you can do all those key pieces, you're going to drive incredible efficiency for your insurance care, your client. It's a better customer experience. The agents love you. And it really allows our clients to level up and compete in regardless of whatever market they might find themselves in.

Thank you. Yeah, that very good question. So Dylan. The timing of the ramp that we expect for 2026 with Barry, but I think of the ramp being a little bit more back and loaded.

So the timing will obviously matter and as managed premium will be able to the platform. It will increase the annual recurring revenue based on the contractual fees or the take rate. And then from a revenue recognition standpoint, just a reminder that a portion of our revenue gets recognized up front is about a quarter of our revenue is recognized up front. And the remainder earned over the 12th month premium period. So I would just say that it all depends on the timing of the ramp and the timing when the managed premium joins up that form.

Yeah. I think part of the whole thing about the prediction of this is that you could appreciate soil as trying to simulate the inputs from from at this point, seven different carriers and whatever their growth plans and expansion plans are. And trying to use that to predict where eggs here will be. Right. So that's why the answer is a little bit less defined than you would normally expect because, and that's going to be more of the case. Actually, we're in that in a weird situation. If you have seven people, it's difficult to predict things. If you had one, it's easy. If you have seven, it's difficult. If you have 70, you could take an average and you'll get there.

We're in that in between transition where the ramping and stuff is very difficult, so it's kind of lumpy. Yeah.

Thank you. I appreciate it. At this time, if you would like to ask a question, just press star followed by the number one on your telephone keypad.

I just have a couple of numbers, one probably for Swela. Can you help me with the 1.39 billion managed premiums for the year? Just kind of what I know is a small number, but what had the starting point for third party? I heard your guidance on Q1 where expect Q1 to end, but just I know there was some put on the platform in Q4. Can you help us with where that was at your end?

I can just say that was pretty modest. And as we both Kevin, I mentioned, we expect that to be material by the end of the first quarter.

So percentage wise will be increasing. Yeah, Matt, I think the biggest thing we would like to hope ever to note is third party revenue on the platform was zero at the end of Q3. It was nominal at the end of Q4, and it's going to be 100 million approximately into Q1.

And I just want to say I hate to ask you to repeat yourself when I was in transit, get through security. I think when you said it, the pre-tax net income died just for Q1. I got the year. Was it 23 to 25 or the material?

23 to 26.

At this time, this includes our question and answer session.

I would now like to turn the call back over to Parrish Patel who has a few closing remarks. I want to thank everyone who joined the call today, and I want to thank the Exo team for all their hard work. And before we wrap up, I want to quickly mention that the rule 10B51 pre-arrange purchase plan that I highlighted last quarter for myself will be effective next month.

And I want to thank everyone for their time today. Thank you.

This is Liz today's call. You may now disconnect.