Ethos Technologies Inc. (LIFE) Q3 2026 Earnings Call Transcript

Operator: Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Ethos Technologies Inc. Q3 2026 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Aaron Turner. You may begin.

Aaron Turner: Good afternoon, and welcome, everyone, to Ethos Technologies Third Quarter of Fiscal Year 2026 Earnings Call. We will be discussing the results announced in our press release issued after the market closed today. With me today are Ethos' CEO, Peter Colis; and our CFO, Chris Capozzi. Today's call is being webcast and will also be available for replay on our Investor Relations website at investors.ethos.com. A slide presentation accompanies this call and can be viewed in the Events section of our Investor Relations website. During this call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding potential share repurchases, our financial outlook for the fourth quarter and fiscal year 2026, our expectations regarding financial and business trends, impacts from go-to-market initiatives, growth strategy and business aspirations and product initiatives, including future product releases and white label platform arrangements and the expected benefit of such initiatives. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends. These forward-looking statements are subject to a number of risks and other factors. For a discussion of these risks and other factors, please see the information under forward-looking statements in our financial results press release issued today and our presentation materials as well as the more detailed discussion in our SEC filings available on our Investor Relations website and on the SEC website at www.sec.gov. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results may differ materially. All forward-looking statements made during this call are based on information available to us as of today, and we do not assume any obligation to update these statements as a result of new information or future events, except as required by law. In addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that accompanies this call, which can be found on our Investor Relations website. Now let me turn the call over to Peter.

Peter Colis: Good afternoon, and welcome to our third quarter 2026 earnings call. Q3 was a record quarter for Ethos. We delivered $235 million in revenue, representing 151% year-over-year growth, our third consecutive quarter of triple-digit year-over-year growth. We generated adjusted EBITDA of $35 million, and we achieved a Rule of 40 score of 166. As reflected in our updated 2026 guidance, we now expect to grow revenue over 100% for the full fiscal year on top of 3 consecutive years of 50% growth. We protected over 140,000 new families in Q3, bringing our cumulative total to over 850,000 activated policies to date. Through the first 3 quarters of 2026, we've grown revenue by over 120% versus the first 3 quarters of 2025 in an industry that grows 3% annually. Our growth is a clear signal that we are making meaningful share gains, but we believe share gains are only part of the story. By making it possible to apply and get covered in minutes entirely online and with no medical exams, we have removed the friction that has historically kept people from buying life insurance while growing in a risk-conscious manner. We believe a meaningful portion of our growth is coming from people who would not otherwise have purchased a policy, which means we're not just winning share, but we're expanding the addressable market itself. Our goal at Ethos is to become the largest provider of life insurance in the world. We built a vertically integrated platform that owns the full consumer journey from marketing and application through underwriting, policy issuance, policy administration and long-term servicing. We believe that control enables us to deliver a level of speed, accessibility and approval rates that simply do not exist in the legacy life insurance industry. Turning to the business highlights that drove this quarter's performance. In our direct channel, revenue grew 112% to $119 million. Our growth is fueled by the Ethos tech platform's speed and efficiency, coupled with regular recurring annual demand for life insurance. Every year, 10 million people in the U.S. buy life insurance, and the automated Ethos platform is the most efficient way for them to get protected. Our virtuous data cycle fuels products and marketing gains, driving consistently improving efficiency and scalable unit economics. With 3 consecutive quarters of 100% plus growth this year, we view these structural conversion rate gains as resetting the baseline of our scale and efficiency while they support durable growth over the foreseeable future. Once again, we've increased marketing spend on the back of these gains, strengthening our reputation and solidifying our path to become the leading life insurance brand, capturing the hearts and minds of U.S. consumers. This leads to more families protected, more scale of data, more learnings and increased revenues. Revenue in the third-party channel reached $116 million in Q3, representing 209% year-over-year growth. This makes 3 sequential quarters of material acceleration. The new agencies we added in 2025 and 2026 are ramping rapidly and provided a meaningful contribution to our Q3 results. We are also seeing rapid growth from our more tenured agencies as they continue to scale agent productivity and recruit more agents to our platform at negligible incremental cost to Ethos. Our new agents are selling more policies and they're selling them faster than ever. The strategic value of our vertically integrated platform was on full display this quarter. When one of our carrier partners experienced an internal systems outage in July, our end-to-end infrastructure spanning application, underwriting and policy administration allowed us to deliver record levels of production and servicing without material interruption. This operational resiliency is a core reason why carriers choose to partner with us, and we are proud that we were able to navigate this seamlessly and collectively to deliver a record quarter. On the AI front, the introduction of news and other AI agents this quarter has been exciting, and we continue to view the potential future shift towards agentic commerce as a tailwind. While we're not seeing any material agent usage or LLM origination today, we are continually adding features to make our experience more agent-friendly while ensuring the appropriate identity and risk verification mechanisms are in place to ensure agents are truthfully representing the consumer. If one day agentic shopping apps evolve into a meaningful channel, they take share away from search, we expect to be at the forefront to take advantage of this secular shift. We believe that our vertically integrated fully digital technology stack makes us uniquely positioned to benefit from any future AI-driven demand. On the heels of our third consecutive quarter of triple-digit year-over-year growth, 2026 is shaping up to be the best year in Ethos' history. The momentum is a function of our virtuous data cycle, which continues to accelerate and further demonstrates that Ethos gets better as it gets bigger. As we look at 2027 and beyond, we are confident in the structural improvements that we've made to our vertically integrated platform and the potential for these gains to fuel durable profitable growth in Q4 and beyond. I'll now turn the call over to Chris to walk you through our Q3 results and the details of our updated guidance.

Christopher Capozzi: Thanks, Peter, and good afternoon, everyone. I'll begin with a review of our third quarter results, then walk through our outlook for the fourth quarter and the full year 2026 before opening it up for questions. As Peter noted, Q3 was another strong quarter. Our revenue growth further accelerated on the back of triple-digit growth in both of our channels. We also maintained strong profitability and are raising full year guidance. Before reviewing the details, I'd like to remind everyone that some of the financial measures and metrics I'll discuss today are presented on a non-GAAP basis, which we believe provides additional insight into our performance. And with that in mind, let me walk you through the details behind our results. Third quarter total revenue was $235 million, representing 151% year-over-year growth and exceeding the midpoint of the guidance we issued on August 3 by 45%. Adjusted EBITDA was $35 million, exceeding the midpoint of our guidance by 45%. This outperformance was broad-based across our direct and third-party channels, reflecting continued strength in consumer demand, third-party agency growth and agent productivity. In our direct channel, third quarter revenue grew 112% year-over-year. This performance reflects the virtuous data cycle at the core of our model. Higher user volumes let us run more product and marketing experiments. This experimentation improves conversion and each conversion rate gain compounds on the last. Unlike a traditional lead generation model, our platform is fully vertically integrated across marketing, sales, underwriting, premium collections and policy administration. This end-to-end control gives us a massive surface area to optimize unit economics across the entire purchase journey. Because we can refine every single touch point from the initial marketing impression all the way through to the final checkout experience, we're driving structural improvements that we believe will support durable growth over time. In our third-party channel, revenue grew 209% year-over-year. As Peter noted, agencies we've onboarded in 2025 and 2026 continue to ramp towards maturity and each of these cohorts individually represented a double-digit share of third-party revenue in the third quarter. At the same time, our most established agency relationships also delivered continued growth in the quarter. We see this combination of new agencies scaling alongside sustained strength from our longest tenured partners as evidence of the breadth and durability of our third-party ecosystem. Moving to our nonfinancial metrics. We activated 142,111 policies in the third quarter. And the average revenue per policy was $1,655. The sequential decline in ARPU was the result of a product mix that skewed more heavily towards our whole life products, which make up a growing portion of the policies activated in our third-party channel. Our third quarter contribution profit grew 81% year-over-year to $66 million, representing a 28% contribution margin. There were 2 key dynamics that shaped our blended margin rate this quarter. First, channel mix. The third-party channel represented approximately 10 additional points of our revenue mix compared to the second quarter. Because margin rates naturally vary by channel, this heavier third-party mix shifts our blended margin rate. Second, we increased our investment in top-of-funnel brand building in our direct channel to take advantage of the significant momentum that we've built over the past year. While this resulted in a modest reduction in our year-over-year return on ad spend, we held our overall unit economics framework. The policies activated in Q3 were profitable and variable cash flow positive within 60 days of activation. Both of these dynamics are fully incorporated into our Q4 guidance. Our third quarter adjusted EBITDA was $35 million, representing year-over-year growth of 87% and a margin of 15%. Combined with our 151% revenue growth, this quarter's Rule of 40 score was 166. As of September 30, 2026, our cash, cash equivalents and investments totaled $290 million, up from $253 million at the end of the second quarter. We ended the quarter with an accounts and commissions receivable balance of $433 million, up 13% from the prior quarter and up 53% from the prior year, representing estimated future cash flows already earned but not yet received. This balance continues to reflect the scale and quality of our activated policy base, and we view it as an important indicator of the embedded cash generation potential of our platform. Our third quarter cash flow from operating activities was $41 million, driving our cash conversion above 100% for the quarter. To understand this outperformance, it's helpful to view our cash generation through the same lens as our profitability. Just as channel mix impacts our margins, it also drives a distinct cash conversion mix shift. While our direct channel operates at a higher margin rate, our third-party channel has a higher cash conversion profile. With third-party revenue growing over 200% year-over-year, we are benefiting from a favorable working capital dynamic as the channel scales. Turning to capital allocation. We did not repurchase shares under our $100 million program during the third quarter. As we noted last quarter, we intend to be opportunistic in how we deploy this authorization. We're purchasing shares only when we believe the market price reflects a significant dislocation from the underlying value of the business. Combined with our continued growth in cash and investments and the strength of our commissions receivable balance, we believe our balance sheet gives us meaningful flexibility to invest in growth while returning capital to shareholders when the opportunity is right. Turning to our financial outlook. Our raised guidance fully incorporates the strategic investments and the channel dynamics I just outlined, while reflecting our sustained top line momentum. For the fourth quarter of 2026, we expect total revenue in the range of $220 million to $224 million. At the midpoint, this represents 102% year-over-year growth. We also expect adjusted EBITDA in the range of $30 million to $32 million. For the full year 2026, we are raising our total revenue guidance and now expect revenue in the range of $838 million to $842 million. At the midpoint, this represents 117% year-over-year growth and reinforces the durability of our top line momentum. We're also raising adjusted EBITDA to a range of $134 million to $136 million. To wrap up, Q3 was a record quarter, driven by triple-digit growth across both channels. Behind these results is an end-to-end platform that gets fundamentally stronger as it scales. We're deliberately investing in our brand to extend this structural lead and reach the millions of Americans who still lack coverage. Our engine for compounding growth has never been more structurally durable, and we have absolute confidence in our path to becoming the largest life insurance provider in the world. With that, I'll turn the call over to the operator to begin the Q&A session. Operator?

Operator: [Operator Instructions] Your first question comes from the line of Eric Sheridan from Goldman Sachs.

Eric Sheridan: I wanted to dig in a little bit in the third-party acceleration you saw and just understand a little bit of the durability of some of the factors there as you look out beyond just Q4, but also think about what that channel might look like over a longer period of time? And the follow-up would be how many -- what the factors are that are derived from some of the industry partnerships such as Liberty Mutual as well and how to think about that contributing to the incremental growth?

Peter Colis: Eric, thanks for the question. I think generally, we believe that our value proposition for agents is unmatched. Our simple instant transactional process uniquely allows agents to just significantly increase their sales volume, building more successful agent careers, which leads to the agencies more successfully recruiting and retaining agents. And we keep improving this agent platform every quarter, and we view those improvements as structural unlocks, which contribute to durable growth over time. It's important to remember the agency business model is highly reoccurring where we benefit not only from new agencies joining the platform, but also the tenured agencies when we onboard a new partner, they roll us out to all their agents. Those agents sell repeat policies and that agency is constantly recruiting more agents onto the platform and then improvements to the operating system allow the agents' productivity to increase so they can sell more policies than they otherwise would without Ethos. And so we've seen, as Chris mentioned in the remarks, great growth, not only from our more tenured agency partners, but also from the newer agencies joining us in 2025 and 2026. We have a robust pipeline of more agencies in the onboarding funnel as well. We have a fairly organic process of agency-to-agency referrals, but it's important to remember our fully loaded agent acquisition costs are a low-single-digit percentage of our third-party revenue. On Liberty Mutual, it's early days, but it's contributing nicely. Both of us are excited to keep growing together. I think thematically, we simplify the life insurance buying process so much that it allows nonexperts to sell life insurance, right, delivering a great experience with higher approval rates that can serve the vast majority of their customers. So we like the concept of partnering with other well-known insurance companies or others to help us reach more customers, leveraging their brand awareness and building trust. So we would like to do more in there.

Operator: Your next question comes from the line of Colin Sebastian from Baird.

Colin Sebastian: A couple for me as well. I guess, first, Peter, with policy volumes growing at this pace, how are maybe the carrier relationships evolving around capacity and opportunities to fund further growth and expand the product portfolio? And then, Chris, as the revenue base scales, can you just talk about how you're thinking around the acquisition investments you mentioned brand, but across the funnel and maybe operating leverage that's available elsewhere across the business?

Peter Colis: So on carrier -- on our carrier panel, there's much more demand and capacity for Ethos premiums than there is supply of Ethos premiums today. We have 6 carriers and 13 products with multiple term, multiple whole life and multiple indexed universal life products. So there's a fair amount of redundancy built into our portfolio. We are actively working on more products to come in the future. But it's important to remember, we don't want 30 off-the-shelf carrier products or relationships. We intentionally build a focused panel of carriers where we co-develop proprietary products with deep technical and operational integrations from the carriers into our unified platform. And we really work with partners who can scale and grow and are on the long-term journey with us because we always prioritize the carrier partners' long-term profitability before our own.

Christopher Capozzi: And then, Colin, with regards to the continuing top line scale of the business, I think as you were alluding to, yes, we are seeing and have continued to see very strong operating leverage on our G&A and R&D spend. If you look at the quarter here, that OpEx represented about 13% of revenue. If you look at a year ago, it was 19% of revenue. And that's been a consistent trend over the last number of quarters. I think it's something that we continue to expect to see into the future as we continue to scale. And I think there are other longer-term margin expansion opportunities, as we've alluded to in the past, specific to continuing to build out the brand that we expect over time will unlock operating leverage on the ad spend in our direct-to-consumer channel and then new product introductions. To the extent that we can successfully launch and scale a number of NPIs that we've talked about in the past, we expect those new product introductions to also be accretive to margins in the long term.

Operator: Your next question comes from the line of Kunal Madhukar from Deutsche Bank.

Kunal Madhukar: Given that the third-party segment has been growing at a fairly rapid clip, one, what is the economics? How should we think about the economics from this -- from the third-party segment? And the second is, you've mentioned a number of times about durable growth. So as we look to 2027 and 2028, how should we think of durable growth? I mean without this being a formal guidance or anything of that kind, how should we kind of visualize durable growth for the next 2 years?

Peter Colis: Kunal, to the first part of your question, we have not been changing our expected profitability profile of the third-party business in order to grow in this way. As I mentioned before, our go-to-market motion is a fairly organic and repeatable process of agency-to-agency or agent-to-agent referrals. And so we are -- we just believe we have strong product market fit in that segment.

Christopher Capozzi: And then in terms of longer-term guidance, Kunal, we'll give you guys a preview of 2027 when we release Q4 earnings in February. If you look at the formula that's delivered the top line growth and profitability throughout 2026, it's largely been a formula of more of the same. So very much that virtuous data cycle continuing to power and scale our direct-to-consumer business. And then as Peter noted earlier, those 3 elements of growth that underlie and fuel the growth of our third-party business, that being acquiring new agency relationships, acquiring incremental agents within that agency as the agency naturally recruits and scales agents. And then thirdly, unlocking agent productivity. And so it's very much been a consistent formula that's driven 2026. And I think that's what you're going to see underlie our growth profile in '27 and '28.

Peter Colis: And I'll add one more thing, which is today, we're a single-digit percent of the market. And so there's a lot more to go, but we're also in the very early innings of the transformation of direct-to-consumer life insurance. And while we're the leader in that market, we think that over time, that should become a much bigger part of the market than it is today.

Operator: Your next question comes from the line of Ross Sandler from Barclays.

Ross Sandler: So one of your partners had like the cyber outage in the quarter, early in the quarter. And it sounded like you guys were able to kind of help them kind of manage through and keep the policies and the payments flowing during that period. So could you just walk through like kind of what happened? And then do you think this may have helped like a little bit of a halo effect with regard to you partnering with folks in the industry as these types of things might happen again in the future? And then second question is, Chris, you mentioned opportunity for some marketing leverage as kind of brand gets to a pretty big threshold that you can kind of flatten that out a bit. Like what are just some of the puts and takes on margin expansion from here, given it sounds like third party is going to be growing a little bit faster than DTC. And then within DTC, you kind of have this faster growth of marketing. Just puts and takes on margins like from here going forward would be helpful.

Peter Colis: Ross, so as I mentioned in our earlier remarks, when one of our carriers experienced an internal outage in July, which, by the way, our systems were not affected by, really, our end-to-end infrastructure was on full display. That infrastructure spans applications, underwriting, policy administration, and it really allowed us to continue delivering record levels of production and servicing without material interruption as kind of like an end-to-end self-contained system. That operational resiliency is a core reason why carriers like to partner with us. And we were proud that we were able to navigate this on behalf of policyholders, agents and carrier partners without material interruption. Any impact from that is already in our financials or our guidance.

Christopher Capozzi: And then Ross, in terms of your question on margin rate profile, you should expect that the contribution to EBITDA margins are naturally going to fluctuate depending on our channel and product mix. Obviously, you've seen that throughout 2026, very apparent here in Q3, where you saw the revenue mix shift 10 points because of the dramatic acceleration that we saw in the growth of the third-party channel. So hard to say what that dynamic looks longer term. And I think that really just maps back to what Peter mentioned earlier in terms of how early we are in this journey and the massive market opportunity that we have in front of us. In terms of near-term margin dynamics aside from mix, I think the big one to continue to watch, obviously, is the operating leverage that we alluded to earlier in response to Colin's question. And then longer term, I think the new product introductions will come into play a couple of years out to the extent we can be successful there. And then longer term, continuing to establish and build the brand, we think that's going to provide a longer-term halo effect and incremental operating leverage as the brand becomes more and more established.

Operator: Your next question comes from the line of Michael McGovern from Bank of America.

Michael McGovern: When you think about the modest reduction of year-over-year return on ad spend, how much of that was driven by external market dynamics versus more self-determined variables such as policy mix shift or possibly more expensive ad formats?

Christopher Capozzi: Mike, I think I would characterize it as all self-determined. If you look at the way the ad spend has evolved over the course of the year, it was pretty much consistent in first and second quarter. Then as you get through the third quarter here where you have some soft seasonality given the summer holidays, you've got that seasonal dynamic. But aside from that, we've continued to invest in the brand. We continue to see very strong response to our top of funnel investments, and we continue to expect to scale that in Q4 and into 2027.

Operator: Your next question comes from the line of Ronald Josey from Citi.

Ronald Josey: Maybe as a follow-up to Mike's question just now here. Just talk to us more about -- you talked about strong response to the top of funnel. Would love to hear more on the channels that are benefiting from that. And I think you said in your opening remarks, when there's a shift from search, we'll be ready. So talk to us just a little bit more about your current marketing mix. I think social has always been an important driver as is search. Any outstanding channels to call out? And then longer term, as we extend beyond search, sort of your thoughts there?

Peter Colis: So the majority of our spend is in top-of-funnel brand-building channels like TV, radio, social media, et cetera. So we are not overly kind of exposed to fluctuations in search. If you take a step back, we're very happy about this dynamic because we're really building the first great consumer brand within the whole life insurance category, which is defined by a transformative client experience. And we believe that defining and owning this category in consumers' hearts and minds will provide immense value for decades to come. We are -- as I mentioned in the prepared remarks, we are very attentive to how LLM and agent usage is evolving. And while we're not seeing any material agent usage or LLM origination today, we're continually adding features to make our experience more agent-friendly, and we have a sophisticated geo optimization effort just to ensure that we can fully capitalize on any major changes for intent-based -- high intent-based clients who are looking for life insurance that we can be top of mind.

Ronald Josey: That's helpful. Peter, as a quick follow-up, you talked about mostly top of funnel. Can you help us a little bit more on just brand awareness and maybe how that's expanded over the past, call it, a year or so?

Peter Colis: I don't have any statistics to share. But in general, like if we have the option to spend $1 in a channel like television or radio versus in search, at the same level of efficiency, we prefer the top-of-funnel channel because it's a more brand-building experience. And so we're happy about our top-of-funnel mix today and the fact that we're able to basically get in front of people that are not actively looking for life insurance and then convince them that they should buy a policy and that they should buy it with Ethos sometimes in 10 minutes from when they see the ad. And so that's a great dynamic that's just never been introduced to the life insurance industry before. And so we're excited to be there. It's all made possible because of the amazing vertically integrated technology company that stands behind that marketing and the incredible 10-minute purchase journey.

Operator: There are no further questions. I'd like to turn the call back to Aaron Turner for closing remarks.

Aaron Turner: Great. Well, thank you so much for joining us, everybody, and we will speak with you again next quarter.

Operator: This concludes today's meeting. You may now disconnect.