Exzeo Group, Inc. (XZO) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights a significant 90% YoY revenue increase and improved EBITDA margins, indicating strong financial performance. The CEO's planned stock purchase shows confidence, and the Q&A session reveals a growing client pipeline and solid cash flow expectations. Despite some strategic risks and modest initial revenue from new clients, the overall sentiment is positive due to high growth metrics and optimistic future outlook.

Key Financial Performance

Pretax income (Q3 2025) $28 million, with diluted earnings per share of $0.25. Year-to-date pretax income was $81 million, with diluted earnings per share of $0.73.

Revenue (Q3 2025) $55 million, a 90% year-over-year increase. The growth was driven by an increase in managed premium and the completion of onboarding all HCI-related insurance carriers to the platform.

Adjusted EBITDA margin (Q3 2025) 55%, up from 32% in the prior year quarter. This improvement was due to the efficiency of the business model, which allows for adding managed premium with minimal incremental expense.

Managed premium (Q3 2025) $1.2 billion, up from $500 million in the prior year quarter. The increase was primarily due to the completion of onboarding all HCI-related insurance carriers to the platform.

Annual recurring revenue (Q3 2025) $192 million, up from $118 million in the prior year quarter. This reflects the visibility and durability of the business model.

Cash and cash equivalents (Q3 2025) $140 million, an increase of over $86 million, all generated organically through operations. The company remains debt-free.

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Operating Highlights

New Clients: Exzeo signed up a new client in Q3 and another in Q4, bringing the total carriers on the platform to six. These clients are expected to start contributing revenue in Q4 2025.

Managed Premium Growth: Managed premium increased to $1.2 billion in Q3 2025 from $500 million in the prior year. Expected to reach $1.32 billion by end of 2025 and $1.5 billion by end of 2026.

Revenue Growth: Revenue increased 90% YoY to $55 million in Q3 2025, driven by growth in managed premium and onboarding of HCI-related carriers.

Margin Expansion: Adjusted EBITDA margin rose to 55% in Q3 2025 from 32% in the prior year, due to efficient scaling of managed premium.

Cash Position: Cash and cash equivalents increased to $140 million, with no debt, supported by $155 million IPO proceeds.

IPO Completion: Exzeo successfully completed its IPO, raising $155 million to strengthen its financial position.

Leadership Investment: CEO plans to purchase $2 million worth of Exzeo stock in 2026, reflecting confidence in the company's growth potential.

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Risk or Challenges

Market Conditions: The company acknowledges that forward-looking statements are subject to various risks and uncertainties, which could have a material adverse effect on the company's business, financial condition, and results of operation.

Client Growth and Revenue Contribution: The revenue contribution from new clients will be modest initially, which could impact short-term financial performance.

Seasonality in Managed Premium: The company experiences quarterly seasonality in managed premium, which could lead to fluctuations in financial performance.

Strategic Execution Risks: The company emphasizes the importance of executing growth initiatives and expanding the reach of its platform, which could pose challenges if not effectively managed.

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Guidance & Outlook

Managed Premium: Exzeo expects managed premium to be at least $1.32 billion at the end of 2025 and $1.5 billion by the end of 2026.

Pretax Income: Exzeo projects pretax income to be between $22 million and $25 million for Q4 2025 and between $115 million and $125 million for the full year 2026.

Margin Expansion: Exzeo anticipates further improvement in margins as additional managed premium is added to the platform.

Seasonality in Managed Premium: The company expects the fourth quarter to deliver the largest increase in managed premium, followed by sequential decreases in the first, second, and third quarters.

Client Growth: Exzeo has added two new clients in Q3 and Q4 2025, bringing the total to six, with revenue contributions expected to grow as these clients expand their premium base.

CEO Stock Purchase Plan: The CEO plans to purchase an additional $2 million worth of Exzeo stock in 2026 under a Rule 10b5-1 prearranged purchase plan.

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Shareholder Return Plan

Rule 10b5-1 prearranged purchase plan: CEO Pareshbhai Patel announced his intention to increase his ownership stake in Exzeo by initiating a Rule 10b5-1 prearranged purchase plan. Under this plan, he expects to buy an additional $2 million worth of Exzeo stock in calendar year 2026. The shares will be purchased in the open market in accordance with the SEC's rules relating to such plans.

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Key Q&A

Q:What was the commonality among the two new customers added in Q3 and Q4, and how do they contribute to the model for 2026?

A:The commonality among the two new customers was their technology needs and the efficiency and improved risk selection provided by the Exzeo platform. Their addition reflects the growing pipeline, which has tripled since the IPO in just five weeks, indicating a positive outlook for 2026.

Q:How is the company building its go-to-market strategy and sales team?

A:The company is receiving referrals from reinsurance brokers, consultants, advisers, and direct outreach. They are adding brokers and advisers to the sales channel and focusing on finding culturally fit sales team members with a solid understanding of the insurance industry and technology. Onboarding is expected after the end of the year.

Q:What are the cash flow dynamics for Q4 and the next year, and how does seasonality affect free cash flow?

A:The additional managed premium joining the platform in Q4 will convert to revenue in 2026. Free cash flow is expected to remain strong, with a margin of over 50% and a net income conversion rate of 140%, as seen in Q3. Seasonality will not significantly impact free cash flow.

Q:How should the premium ramp for non-HCI-oriented customers be viewed, and how does the pipeline strength relate to Citizens policy renewals?

A:For new clients, premium ramp depends on whether they are start-ups or established businesses. Established customers move to the platform at renewal. The pipeline strength is bolstered by current clients accelerating growth in Q4 due to opportunities in Florida, even without opting for Citizens policy renewals.

Q:How does the company balance investment in growth with maintaining high margins?

A:The company expects new managed premium to come in at higher incremental margins than existing business. Revenue growth will involve minimal incremental expenses, allowing margins to grow even with additional investments in go-to-market strategies.

Q:What is the current pipeline's composition and diversification?

A:The pipeline has grown substantially since the IPO, with prospects coming from multiple channels such as reinsurance brokers, investment bankers, and direct contacts. There is also diversification in geography, with prospects both within and outside Florida.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the exact composition of the pipeline, such as the number of prospects or their specific profiles. Additionally, while they mentioned strong free cash flow and high margins, they did not provide detailed numerical projections for future quarters.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

XZO Transcript

Exzeo Group, Inc. (XZO) Q3 2025 Earnings Call Transcript

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