UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39142

Porch Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	83-2587663
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

~~2200~~411 1^st Avenue SS.., Suite ~~300~~501, Seattle, WA ~~98134~~98104

(Address of Principal Executive Offices) (Zip Code)

(855) 767-2400

(Registrant’s telephone number, including area code)

~~N/A~~2200 1^st Avenue S., Suite 300,Seattle, WA98134

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading symbol	Name of Exchange on which registered
Common Stock, par value $0.0001 per share	PRCH	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant

was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐☒	Accelerated filer	☐

Non-accelerated filer	☒☐	Smaller reporting company	☒☐	Emerging growth company	☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of outstanding shares of the ~~Registrant’s Common Stock~~registrant’s common stock as of ~~November 8, 2021~~May 6, 2022 was ~~98,064,108.~~99,136,900.

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

PORCH GROUP, INC.

Condensed Consolidated Balance Sheets

(all numbers in thousands, except share amounts)


	September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Assets	(unaudited)
Current assets
Cash and cash equivalents	$	410,217	$	196,046	$	292,373	$	315,741
Accounts receivable, net		33,641		4,268		29,996		28,767
Short-term investments		10,142		—		8,462		9,251
Reinsurance balance due		246,170		—		239,739		228,416
Prepaid expenses and other current assets		8,636		4,080		21,087		14,338
Restricted cash		4,614		11,407		10,162		8,551
Total current assets		713,420		215,801		601,819		605,064
Property, equipment, and software, net		7,656		4,593		8,340		6,666
Operating lease right-of-use assets						3,922		4,504
Goodwill		170,427		28,289		226,576		225,654
Long-term investments		58,646		—		56,865		58,324
Intangible assets, net		91,650		15,961		124,306		129,830
Restricted cash, non-current		1,000		—		500		500
Long-term insurance commissions receivable		7,159		3,365		9,061		7,521
Other assets		368		378		5,373		684
Total assets	$	1,050,326	$	268,387	$	1,036,762	$	1,038,747

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	5,525	$	9,203	$	8,016	$	6,965
Accrued expenses and other current liabilities		57,274		9,905		35,029		37,675
Deferred revenue		190,137		5,208		198,857		201,085
Refundable customer deposit		1,509		2,664		16,686		15,274
Current portion of long-term debt		107		4,746		150		150
Losses and loss adjustment expense reserves		87,737		—		79,608		61,949
Other insurance liabilities, current		34,819		—		43,049		40,024
Total current liabilities		377,108		31,726		381,395		363,122
Long-term debt		417,976		43,237		415,002		414,585
Refundable customer deposit, non-current		—		529
Operating lease liabilities, non-current						2,267		2,694
Earnout liability, at fair value		39,811		50,238		2,687		13,866
Private warrant liability, at fair value		17,706		31,534		5,004		15,193
Other liabilities (includes $2,849 and $3,549 at fair value, respectively)		5,449		3,798
Other liabilities (includes $12,822 and $9,617 at fair value, respectively)						15,528		12,242
Total liabilities		858,050		161,062		821,883		821,702
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)
Stockholders’ equity
Common stock, $0.0001 par value:		10		8		10		10
Authorized shares – 400,000,000 and 400,000,000, respectively
Issued and outstanding shares – 97,332,998 and 81,669,151, respectively
Issued and outstanding shares – 98,297,186 and 97,961,597, respectively
Additional paid-in capital		596,156		424,823		647,551		641,406
Accumulated other comprehensive income		113		—
Accumulated other comprehensive loss						(2,774)		(259)
Accumulated deficit		(404,003)		(317,506)		(429,908)		(424,112)
Total stockholders’ equity		192,276		107,325		214,879		217,045
Total liabilities and stockholders’ equity	$	1,050,326	$	268,387	$	1,036,762	$	1,038,747

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

PORCH GROUP, INC.

Condensed Consolidated Statements of Operations

(all numbers in thousands, except share amounts, unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2021		2020		2021		2020		2022		2021
Revenue	$	62,769	$	21,507	$	140,852	$	53,703	$	62,561	$	26,742
Operating expenses⁽¹⁾:
Cost of revenue		19,158		5,361		44,587		13,252		21,189		5,930
Selling and marketing		22,874		8,803		60,636		30,443		25,743		14,638
Product and technology		11,317		5,701		34,158		18,124		14,231		11,789
General and administrative		22,034		5,490		66,463		15,539		26,699		24,016
Gain on divestiture of businesses		—		—		—		(1,442)
Total operating expenses		75,383		25,355		205,844		75,916		87,862		56,373
Operating loss		(12,614)		(3,848)		(64,992)		(22,213)		(25,301)		(29,631)
Other income (expense):
Interest expense		(1,857)		(3,952)		(4,296)		(10,329)		(2,293)		(1,223)
Change in fair value of earnout liability		7,413		—		(15,388)		—		11,179		(18,770)
Change in fair value of private warrant liability		2,692		—		(17,521)		—		10,189		(15,910)
Gain (loss) on extinguishment of debt		(3,133)		(2,532)		5,110		1,077
Investment income and realized gains, net of investment expenses		248		—		448		—		197		—
Other income (expense), net		316		1,418		225		(2,050)
Other income, net										56		83
Total other income (expense)		5,679		(5,066)		(31,422)		(11,302)		19,328		(35,820)
Loss before income taxes		(6,935)		(8,914)		(96,414)		(33,515)		(5,973)		(65,451)
Income tax benefit (expense)		1,836		(9)		9,917		(33)
Income tax benefit										177		350
Net loss	$	(5,099)	$	(8,923)	$	(86,497)	$	(33,548)	$	(5,796)	$	(65,101)

Loss per share - basic	$	(0.05)	$	(0.25)	$	(0.93)	$	(0.95)
Loss per share - diluted (Note 13)	$	(0.08)	$	(0.25)	$	(0.93)	$	(0.95)
Loss per share - basic and diluted (Note 14)									$	(0.06)	$	(0.76)

Shares used in computing basic loss per share		96,839,292		35,809,973		92,544,137		35,294,839
Shares used in computing diluted loss per share		97,545,942		35,809,973		92,544,137		35,294,839
Shares used in computing basic and diluted loss per share										96,074,527		85,331,575

(1)	Amounts include stock-based compensation expense, as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2021		2020		2021		2020		2022		2021
Cost of revenue	$	—	$	1	$	1	$	1	$	—	$	1
Selling and marketing		1,382		88		4,888		186		632		2,082
Product and technology		1,367		115		5,522		619		1,137		2,317
General and administrative		3,135		303		18,950		735		4,085		12,435
	$	5,884	$	507	$	29,361	$	1,541	$	5,854	$	16,835

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

PORCH GROUP, INC.

Condensed Consolidated Statements of Comprehensive Loss

(all numbers in thousands, unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2021		2020		2021		2020		2022		2021
Net loss	$	(5,099)	$	(8,923)	$	(86,497)	$	(33,548)	$	(5,796)	$	(65,101)
Other comprehensive income (loss):
Current period change in net unrealized gain (loss), net of tax		(154)		—		113		—
Other comprehensive loss:
Current period change in net unrealized loss, net of tax										(2,515)		—
Comprehensive loss	$	(5,253)	$	(8,923)	$	(86,384)	$	(33,548)	$	(8,311)	$	(65,101)

Table of Contents

PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~

(all numbers in thousands, except share amounts, unaudited)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

Amount

Capital

Deficit

Income

Equity (Deficit)
Balances as of December 31, 2020

81,669,151

$
8

$
424,823

$
(317,506)

$
—

$
107,325
Net loss

—

—

—

(65,101)

—

(65,101)
Other comprehensive income

—

—

—

—

—
Stock-based compensation

—

—

4,462

—

—

4,462
Stock-based compensation - earnout

—

—

12,373

—

—

12,373
Issuance of common stock for acquisitions

90,000

—

1,169

—

—

1,169
Reclassification of earnout liability upon vesting

—

—

25,815

—

—

25,815
Vesting of restricted stock units

2,078,102

—

—

—

—

—
Exercise of stock warrants

8,087,623

1

93,007

—

—

93,008
Exercise of stock options

593,106

—

355

—

—

355
Income tax withholdings

(1,062,250)

—

(16,997)

—

—

(16,997)
Transaction costs

—

—

(402)

—

—

(402)
Balances as of March 31, 2021

91,455,732

$
9

$
544,605

$
(382,607)

$
—

$
162,007
Net loss

—

—

—

(16,297)

—

(16,297)
Other comprehensive income

—

—

—

—

267

267
Stock-based compensation

—

—

2,466

—

—

2,466
Stock-based compensation - earnout

—

—

4,176

—

—

4,176
Issuance of common stock for acquisitions

1,292,441

—

21,687

—

—

21,687
Contingent consideration for acquisitions

—

—

6,685

—

—

6,685
Reclassification of private warrant liability upon exercise

—

—

16,843

—

—

16,843
Vesting of restricted stock units

33,182

—

—

—

—

—
Exercise of stock warrants

2,862,312

1

33,761

—

—

33,762
Exercise of stock options

946,392

—

2,227

—

—

2,227
Income tax withholdings

(296,643)

—

(5,194)

—

—

(5,194)
Transaction costs

—

—

140

—

—

140
Balances as of June 30, 2021

96,293,416

$
10

$
627,396

$
(398,904)

$
267

$
228,769
Net loss

—

—

—

(5,099)

—

(5,099)
Other comprehensive income

—

—

—

—

(154)

(154)
Stock-based compensation

—

—

1,641

—

—

1,641
Stock-based compensation - earnout

—

—

4,243

—

—

4,243
Issuance of common stock for acquisitions

102,636

—

1,937

—

—

1,937
Reclassification of private warrant liability upon exercise

—

—

14,505

—

—

14,505
Vesting of restricted stock units

271,432

—

—

—

—

—
Exercise of stock warrants

557,816

—

—

—

—

—
Exercise of stock options

339,150

—

934

—

—

934
Income tax withholdings

(231,452)

—

(1,587)

—

—

(1,587)
Capped call transactions

—

—

(52,913)

—

—

(52,913)
Balances as of September 30, 2021

97,332,998

$
10

$
596,156

$
(404,003)

$
113

$
192,276


								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Loss		Equity
Balances as of December 31, 2021	97,961,597	$	10	$	641,406	$	(424,112)	$	(259)	$	217,045
Net loss	—		—		—		(5,796)		—		(5,796)
Other comprehensive income	—		—		—		—		(2,515)		(2,515)
Stock-based compensation	—		—		5,854		—		—		5,854
Contingent consideration for acquisitions	—		—		530		—		—		530
Vesting of restricted stock awards	245,855		—		—		—		—		—
Exercise of stock options	185,685		—		473		—		—		473
Income tax withholdings	(95,951)		—		(712)		—		—		(712)
Balances as of March 31, 2022	98,297,186	$	10	$	647,551	$	(429,908)	$	(2,774)	$	214,879

Table of Contents

PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~ - Continued

(all numbers in thousands, except share amounts, unaudited)


								Accumulated
				Additional				Other		Total					Additional				Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’		Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Amount		Capital		Deficit		Income		Equity (Deficit)		Shares	Amount		Capital		Deficit		Equity
Balances as of December 31, 2019⁽¹⁾	34,197,822	$	3	$	203,492	$	(263,474)	$	—	$	(59,979)
Net loss	—		—		—		(18,367)		—		(18,367)
Other comprehensive income	—		—		—		—		3,856		3,856
Stock-based compensation	—		—		672		—		—		672
Issuance of Series C redeemable convertible preferred stock⁽¹⁾	671,836		—		4,714		—		—		4,714
Conversion of convertible notes to Series C redeemable convertible preferred stock⁽¹⁾	198,750		—		1,436		—		—		1,436
Vesting of restricted stock awards issued for acquisitions	472,141		—		—		—		—		—
Issuance of common stock warrants	—		—		44		—		—		44
Exercise of stock options	8,409		—		1		—		—		1
Balances as of March 31, 2020	35,548,958	$	3	$	210,359	$	(281,841)	$	3,856	$	(67,623)
Net loss	—		—		—		(6,258)		—		(6,258)
Other comprehensive income	—		—		—		—		(3,856)		(3,856)
Stock-based compensation	—		—		362		—		—		362
Issuance of common stock for acquisitions	11,744		—		39		—		—		39
Exercise of stock options	1,174		—		—		—		—		—
Balances as of June 30, 2020	35,561,876	$	3	$	210,760	$	(288,099)	$	—	$	(77,336)
Balances as of December 31, 2020												81,669,151	$	8	$	424,823	$	(317,506)	$	107,325
Net loss	—		—		—		(8,923)				(8,923)	—		—		—		(65,101)		(65,101)
Stock-based compensation	—		—		507		—		—		507	—		—		4,462		—		4,462
Issuance of Series C redeemable convertible preferred stock⁽¹⁾	10,703		—		122		—		—		122
Repurchase of redeemable convertible stock⁽¹⁾	(75,162)		—		(480)		—		—		(480)
Stock-based compensation - earnout												—		—		12,373		—		12,373
Issuance of common stock for acquisitions	396,713		—		1,790		—		—		1,790	90,000		—		1,169		—		1,169
Shareholder contribution	—		—		300		—		—		300
Reclassification of earnout liability upon vesting												—		—		25,815		—		25,815
Vesting of restricted stock awards												2,078,102		—		—		—		—
Exercise of stock warrants												8,087,623		1		93,007		—		93,008
Exercise of stock options	79,021		—		—		138		—		138	593,106		—		355		—		355
Balances as of September 30, 2020	35,973,151	$	3	$	212,999	$	(296,884)	$	—	$	(83,882)
Income tax withholdings												(1,062,250)		—		(16,997)		—		(16,997)
Transaction costs												—		—		(402)		—		(402)
Balances as of March 31, 2021												91,455,732	$	9	$	544,605	$	(382,607)	$	162,007

⁽¹⁾~~Issuance of redeemable convertible preferred stock and convertible preferred stock warrants have been retroactively restated to give effect to the recapitalization transaction.~~

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

PORCH GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(all numbers in thousands, unaudited)


	Nine Months Ended September 30,				Three Months Ended March 31,
	2021		2020		2022		2021
Cash flows from operating activities:
Net loss	$	(86,497)	$	(33,548)	$	(5,796)	$	(65,101)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		10,787		5,021		6,483		2,463
Amortization of operating lease right-of-use assets						582		345
Loss on sale and impairment of long-lived assets		202		807		70		68
Gain on extinguishment of debt		(5,110)		(1,077)
Loss on remeasurement of debt		—		924
Gain on divestiture of businesses		—		(1,442)
Loss on remeasurement of warrants		17,521		1,214
Loss (gain) on remeasurement of private warrant liability						(10,189)		15,910
Loss (gain) on remeasurement of contingent consideration		(380)		1,500		3,205		(355)
Loss on remeasurement of earnout liability		15,388		—
Loss (gain) on remeasurement of earnout liability						(11,179)		18,770
Stock-based compensation		29,361		1,541		5,854		16,835
Amortization of premium/accretion of discount, net		941		—
Amortization of investment premium/accretion of discount, net						566		—
Net realized losses on investments		45		—		68		—
Interest expense (non-cash)		67		4,899		1,046		311
Other		(1,379)		106		64		(225)
Change in operating assets and liabilities, net of acquisitions and divestitures
Accounts receivable		(5,424)		(1,056)		(1,296)		(846)
Reinsurance balance due		(33,097)		—		(11,323)		—
Prepaid expenses and other current assets		90		208		(6,749)		441
Long-term insurance commissions receivable		(3,794)		(1,947)
Accounts payable		(23,284)		3,723		1,051		(8,090)
Accrued expenses and other current liabilities		3,031		1,575		(3,145)		2,625
Losses and loss adjustment expense reserves		1,892		—		17,659		—
Other insurance liabilities, current		5,085		—		3,025		—
Deferred revenue		42,948		3,109		(2,228)		(1,362)
Refundable customer deposits		(2,441)		(2,641)		1,412		(837)
Deferred income tax benefit		(8,153)		—
Contingent consideration - business combination						—		(1,663)
Long-term insurance commissions receivable						(1,540)		(1,383)
Operating lease liabilities, non-current						(235)		(354)
Other		484		69		(696)		(487)
Net cash used in operating activities		(41,717)		(17,015)		(13,291)		(22,935)
Cash flows from investing activities:
Purchases of property and equipment		(588)		(121)		(1,167)		(34)
Capitalized internal use software development costs		(2,629)		(2,113)		(1,574)		(798)
Purchases of short-term and long-term investments		(19,126)		—		(8,835)		—
Maturities, sales of short-term and long-term investments		16,367		—		8,449		—
Non-refundable deposit for acquisition						(4,950)		—
Acquisitions, net of cash acquired		(178,681)		(1,618)		—		(22,882)
Net cash used in investing activities		(184,657)		(3,852)		(8,077)		(23,714)
Cash flows from financing activities:
Proceeds from debt issuance, net of fees		413,537		61,190
Repayments of principal and related fees		(42,965)		(42,858)		(150)		(150)
Proceeds from issuance of redeemable convertible preferred stock, net of fees		—		4,714
Capped call transactions		(42,330)		—
Proceeds from exercises of warrants		126,772		—		—		89,771
Proceeds from exercises of stock options		3,516		76		473		355
Income tax withholdings paid upon vesting of restricted stock units		(23,778)		—		(712)		(16,997)
Deferred offering costs		—		(1,255)
Repurchase of stock		—		(42)
Net cash provided by financing activities		434,752		21,825
Settlement of contingent consideration related to a business acquisition						—		(400)
Net cash (used) provided by financing activities						(389)		72,579
Net change in cash, cash equivalents, and restricted cash	$	208,378	$	958	$	(21,757)	$	25,930
Cash, cash equivalents, and restricted cash, beginning of period	$	207,453	$	7,179	$	324,792	$	207,453
Cash, cash equivalents, and restricted cash end of period	$	415,831	$	8,137	$	303,035	$	233,383

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PORCH GROUP, INC.

Condensed Consolidated Statements of Cash Flows - Continued

(all numbers in thousands, unaudited)


	Nine Months Ended September 30,				Three Months Ended March 31,
	2021		2020		2022		2021
Supplemental disclosures
Cash paid for interest	$	2,675	$	4,344	$	1,587	$	903
Reduction of earnout liability due to a vesting event	$	25,815	$	—
Non-cash consideration for acquisitions	$	42,229	$	1,829	$	—	$	2,906
Payable for capped call transactions	$	10,583	$	—
Debt discount for warrants issued (non-cash)	$	—	$	1,215
Cancelation of a convertible promissory note on divestiture of a business	$	—	$	2,724
Conversion of debt to redeemable convertible preferred stock (non-cash)	$	—	$	1,436
Capital contribution from a shareholder	$	—	$	300
Earnout liability					$	—	$	25,815
Proceeds receivable from exercises of warrants					$	—	$	3,237

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PORCH GROUP, INC.

Notes to Condensed Consolidated ~~Financial~~ Statements ~~(unaudited)~~

(all numbers in thousands, except share amounts and unless otherwise ~~stated)~~stated, unaudited)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Porch Group, Inc. (“Porch ~~Group”,~~Group,” “Porch” or the “Company”) is a vertical software platform for the home, providing software and services to over 25,500 home services companies. The Vertical Software Segment provides software and services to home services companies, such as home inspectors, ~~insurance carriers,~~mortgage companies and loan officers, title companies, moving companies, real estate agencies, utility companies, and others, and the Insurance Segment operates both as an insurance carrier underwriting home insurance policies, and as an agent selling home and auto insurance for over 20 major and regional insurance companies. The Insurance Segment also includes Porch’s warranty ~~companies, title companies, and others.~~ service offering.

Porch helps ~~these~~home service providers grow their business and improve their customer experience. In addition, through these relationships Porch gains access to homebuyers and is able to offer services to make the moving process easier, helping consumers save time and make better decisions about critical services, including insurance, warranty, moving, security, TV/~~internet,~~Internet, home repair and ~~improvement, and more.~~improvement.

~~Beginning in the quarter ending September 30, 2021, we have 2 reportable segments that are also our~~ ~~operating~~ segments, which have been identified based on how our chief operating decision-maker (“CODM”) manages our business, makes operating decisions and evaluates operating and financial performance. The chief executive officer acts as the CODM and reviews financial and operational information for the Vertical Software and Insurance segments.

Our Vertical Software segment primarily consists of a vertical software platform for the home, providing software and services to home services companies, such as home inspectors, moving companies, utility companies, title companies, and others, and includes software fee revenues from companies, and non-insurance revenue. The Vertical Software segment also includes per-lead and per-quote based revenue from insurance companies.

Our Insurance segment offers various forms of homeowner insurance policies through its own insurance carrier and certain homeowner and auto insurance policies through its licensed insurance agency. The Insurance segment also includes home warranty revenue.

~~The Merger~~

On July 30, 2020, Porch.com, Inc. (“Legacy Porch”) entered into a definitive agreement (as amended, the “Merger Agreement”) with PropTech Acquisition Corporation (“PTAC”), a special purpose acquisition company, whereby the parties agreed to merge, resulting in the parent of Porch.com, Inc. becoming a publicly-listed company under the name Porch Group, Inc. (“Porch”). This merger (the “Merger”) closed on December 23, 2020, and was accounted for as a reverse recapitalization, equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation accompanied by a recapitalization (“Recapitalization”). The accounting is similar to that of a reverse acquisition, except that no goodwill or other intangible assets should be recorded. Therefore, the net assets of PTAC as of December 23, 2020, were stated at historical cost, and no goodwill or other intangible assets were recorded.

~~COVID-19 Update~~

The novel coronavirus disease 2019 (“COVID-19”) and the measures adopted by government entities in response to it have adversely affected Porch’s business operations since March of 2020. The impact of the COVID-19 pandemic and related mitigation on Porch’s ability to conduct ordinary course business activities has been and may continue to be impaired for an indefinite period. The extent of the continuing impact of the COVID-19 pandemic on Porch’s operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on the Company’s customers, suppliers, and employees, all of which remain uncertain at this time. Porch expects the COVID-19 pandemic to continue to have an uncertain impact on future revenues and results of operations, but is unable to predict the size and duration of such impact.

~~Table of Contents~~

Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements include the accounts of Porch Group, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these unaudited condensed consolidated financial statements and notes should be read in conjunction with the Annual Report on Form ~~10-K/A~~10-K for the fiscal year ended December 31, ~~2020,~~2021, filed with the SEC on ~~May 19, 2021.~~March 16, 2022. The information as of December 31, ~~2020~~2021 included in the unaudited condensed consolidated balance sheets was derived from the Company’s audited consolidated financial statements. ~~Certain reclassifications to 2020 balances were made to conform to the current period presentation in the condensed consolidated financial statements.~~

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, comprehensive loss, stockholders’ equity, ~~(deficit),~~ and cash flows for the periods and dates presented. The results of operations for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021~~2022 or any other interim period or future year.

Comprehensive ~~Income (Loss)~~Loss

Comprehensive ~~income (loss)~~loss consists of adjustments related to ~~(1)~~ unrealized gains and losses on available-for-sale ~~securities, and (2) the effect of the Company’s own credit components on the fair value of certain convertible notes at fair value in accordance with the fair value option (“FVO Notes”).~~

Each reporting period, the fair value of the FVO Notes is determined and resulting gains and losses from the change in fair value of the FVO Notes associated with the Company’s own credit component is recognized in accumulated other comprehensive income (“AOCI”), while the resulting gains and losses associated with non-credit components are included in the unaudited condensed consolidated statements of operations. The FVO Notes were extinguished during the quarter ended June 30, 2020, resulting in a reversal of the previously recognized gain from the change in fair value of the FVO associated with the Company’s own credit component in AOCI.securities.

Reclassifications

Certain reclassifications to previously reported 2021 balances were made to conform to the current period presentation in the unaudited condensed consolidated statements of ~~operations.~~cash flows.

Use of Estimates

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

estimated variable consideration for services performed, estimated lifetime value of the ~~allowance~~commissions, current estimate for ~~doubtful accounts,~~credit losses, depreciable lives for property and equipment, the valuation of and useful lives for acquired intangible assets, goodwill, the valuation allowance on deferred tax assets, assumptions used in stock-based compensation expense, unpaid losses for insurance claims and loss adjustment expenses, contingent consideration, earnout liabilities and private warrant liabilities, are evaluated by management. Actual results could differ materially from those estimates, judgments, and assumptions.

~~Table of Contents~~

Concentration of Credit Risk

Financial instruments which potentially subject the Company to credit risk consist principally of cash, money market accounts on deposit with financial institutions, money market funds, certificates of deposit and ~~fixed- maturity~~fixed-maturity securities, as well as receivable balance in the course of collection.

The Company’s insurance carrier subsidiary has exposure and remains liable in the event of an insolvency of one of its primary reinsurers. Management and its reinsurance intermediary regularly assess the credit quality and ratings of its reinsurer ~~base companies.~~counterparties. NaN ~~reinsurer~~reinsurers represented ~~11%~~more than 10% individually, and 38% in aggregate, of the Company’s insurance subsidiary’s total reinsurance receivables as of ~~September 30, 2021.~~March 31, 2022.

Substantially all of the Company’s insurance-related revenues in the Insurance segment are derived from customers in Texas (which ~~represented a significant majority~~represent approximately 57% of such revenues in the three ~~and nine~~ months ended ~~September 30, 2021)~~March 31, 2022), ~~Arizona, Georgia,~~South Carolina, North Carolina, ~~South Carolina, Illinois, Nevada,~~Georgia, Virginia and ~~Virginia~~Arizona, which could be adversely affected by economic conditions, an increase in competition, or environmental impacts and changes.

No individual customer represented more than 10% of the Company’s total revenue for the three months ended March 31, 2022, or 2021. As of March 31, 2022 and December 31, 2021, no individual customer accounted for 10% or more of the Company’s total accounts receivable.

As of March 31, 2022, the Company held approximately $233.4 million of cash with one U.S. commercial bank.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. The Company maintains cash balances that may exceed the insured limits by the Federal Deposit Insurance Corporation.

Restricted cash equivalents as of ~~September 30,~~March 31, 2022 includes $0.3 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $7.1 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in twenty five states, $0.3 million of customer deposits, $0.4 million in escrow with an insurance regulator, and $2.6 million related to acquisition indemnifications, of which $0.5 million is recorded in non-current assets. Restricted cash equivalents as of December 31, 2021, includes $0.3 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, ~~$2.8~~$5.9 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in ~~sixteen~~twenty five states, ~~$0.5~~$0.3 million of customer deposits, and ~~$2.0~~$2.6 million related to acquisition ~~indemnification hold backs and~~indemnifications in escrow accounts, of which ~~$1.0~~$0.5 million is recorded in non-current assets. ~~Restricted cash as~~

Table of ~~December 31, 2020 includes $8.4 million related~~Contents

PORCH GROUP, INC.

Notes to ~~the Paycheck Protection Program Loans held~~Condensed Consolidated Statements - Continued

(all numbers in ~~escrow with a commercial bank (see Note 7)~~thousands, except share amounts and ~~a $3.0 million minimum cash balance required by the Company’s senior secured lender.~~unless otherwise stated, unaudited)

The reconciliation of cash and cash equivalents to amounts presented in the unaudited condensed consolidated statements of cash flows are as follows:

September 30, 2021

December 31, 2020
Cash and cash equivalents

$
410,217

$
196,046
Restricted cash and restricted cash equivalents - current

4,614

11,407
Restricted cash and restricted cash equivalents - non-current

1,000

—
Cash, cash equivalents and restricted cash

$
415,831

$
207,453

~~Investments~~

The Company’s investments are primarily comprised of short-term certificates of deposit, U.S. Treasury notes, and mortgage-backed securities and are classified as available-for-sale and reported at fair value with unrealized gains and losses included in AOCI. Investments are classified as current or non-current based upon the remaining maturity of the investment. Amortization of premium and accretion of discount are computed using the effective interest method. The amortization of discounts and premiums on mortgage-backed securities takes into consideration actual and future estimated principal prepayments. The Company utilizes estimated prepayment speed information obtained from published sources. The effects of the yield of a security from changes in principal prepayments are recognized prospectively. The degree to which a security is susceptible to yield adjustments is influenced by the difference between its carrying value and par, the relative sensitivity of the underlying mortgages backing the assets to prepayment in a changing interest rate environment, and the repayment priority for structured securities.

~~Table of Contents~~

The Company evaluates whether declines in the fair value of its investments below amortized cost are other-than-temporary. This evaluation includes the Company's ability and intent to hold the security until an expected recovery occurs, the severity and duration of the unrealized loss, as well as all available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable forecasts, when developing estimates of cash flows expected to be collected.

~~Realized gains and losses on sales of investments are determined using the specific-identification method.~~


	March 31, 2022		December 31, 2021

Cash and cash equivalents	$	292,373	$	315,741
Restricted cash and restricted cash equivalents - current		10,162		8,551
Restricted cash and restricted cash equivalents - non-current		500		500
Cash, cash equivalents and restricted cash	$	303,035	$	324,792

Accounts Receivable and Long-term Insurance Commissions Receivable

Accounts receivable ~~represent~~consist principally of amounts due from enterprise customers and other corporate partnerships, as well as due and deferred insurance premiums. Due and deferred premiums, which are included in accounts receivable, consist of uncollateralized premiums and agents’ balances which are in the process of collection as well as premiums earned but not yet due from customers. Long-term insurance commissions receivable balance consists of the estimated commissions from policy renewals expected to be collected.credit card receivables. The Company estimates allowances for uncollectible receivables based on the ~~credit worthiness~~creditworthiness of its customers, historical trend analysis and general economic conditions. Consequently, an adverse change in those factors could affect the Company’s estimate of allowance for doubtful accounts. The allowance for uncollectible receivables ~~as of September 30, 2021~~at March 31, 2022 and December 31, ~~2020,~~2021, was ~~$367 thousand~~$0.5 million and ~~$249 thousand,~~$0.4 million, respectively.

Long-term insurance commissions receivable balance consists of the estimated commissions from policy renewals expected to be collected. The Company records the amount of renewal insurance commissions expected to be collected in the next twelve months as current accounts receivable.

Deferred Policy Acquisition Costs

The Company capitalizes deferred policy acquisitions costs (“DAC”) which consist primarily of commissions, premium taxes and policy underwriting and production expenses that are directly related to the successful acquisition by the Company’s insurance subsidiary of new or renewal insurance contracts. DAC are amortized to expense on a straight-line basis over the terms of the policies to which they ~~relate.~~relate, which is generally one year. The amortization of DAC is included in sales and marketing expense in the unaudited condensed consolidated statements of operations and comprehensive loss. DAC is also reduced by ceding commissions paid by reinsurance companies which represent recoveries of acquisition costs. DAC is periodically reviewed for recoverability and adjusted if necessary. Future investment income is considered in determining the recoverability of DAC. As of ~~September 30,~~March 31, 2022 and December 31, 2021, DAC of ~~$3.7~~$7.7 million and $4.0 million is included in prepaid expenses and other current assets.

Changes in DAC for the three months ended March 31, 2022 are as follows:


	2022
Deferred policy acquisition costs at December 31, 2021 (gross)	$	33,014
Ceded deferred policy acquisition costs		(29,026)
Deferred policy acquisition costs at December 31, 2021 (net)		3,988
Capitalized costs		16,753
Amortized costs		(13,001)
Deferred policy acquisition costs at March 31, 2022 (net)	$	7,740

Fair Value of Financial Instruments

Fair value, as defined by the accounting standards, represents the amount at which an asset or liability would be transferred in a current orderly transaction between willing market participants. Emphasis is placed on observable inputs being used to assess fair value. To reflect this approach the standards require a three-tiered fair value hierarchy be

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

applied based on the nature of the inputs used when measuring fair value. The three hierarchical levels of inputs are as follows:

Level 1

Observable inputs, such as quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date;

Level 2

Observable inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. This may include active markets for similar assets and liabilities, quoted prices in markets that are not highly active, or other inputs that are observable or can be corroborated by observable market data; and

Level 3

Unobservable inputs that are arrived at by means other than current observable market activity.

The level of the least observable significant input used in assessing the fair value determines the placement of the entire fair value measurement in the hierarchy. Management’s assessment of the significance of a particular input to the fair value measurement requires the use of judgment specific to the asset or liability.

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~~Losses and Loss Adjustment Expenses Reserves~~

The liability for losses and loss adjustment expenses (“LAE”) is an estimate of the amounts required to cover known incurred losses and LAE, and is developed through the review and assessment of loss reports, along with the analysis of known claims. These reserves include management’s estimate of the amounts for losses incurred but not reported (“IBNR”), based on evaluation of overall loss reporting patterns as well as the loss development cycles of individual claim cases. Although management believes that the balance of these reserves is adequate, as such liabilities are necessarily dependent on estimates, the ultimate expense may be more or less than the amounts presented. The approach and methods for developing these estimates and for recording the resulting liability are continually reviewed. Any adjustments to this reserve are recognized in the statement of operations. Losses and LAE, less related reinsurance are charged to expense as incurred.

~~The following table provides the rollforward of the beginning and ending reserve balances for losses and LAE, gross of reinsurance for September 30, 2021:~~

2021
Losses and LAE reserve at April 5

$
84,366
Reinsurance recoverables on losses and LAE

(82,898)
Losses and LAE reserve, net of reinsurance recoverables at April 5

1,468
Net incurred losses and LAE during the current year

15,744
Net claim and LAE payments during the current year

(10,106)
Reserve for losses and LAE, net of reinsurance recoverables, at end of year

7,106
Reinsurance recoverables on losses and LAE

80,631
Losses and LAE reserve at September 30

$
87,737

~~Reinsurance~~

In the normal course of business, the Company continually monitors its risk exposure and seeks to reduce the overall exposure to losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk with other insurance enterprises or reinsurers. The Company only engages quality, financially rated reinsurers and continually monitors the financial ratings of these companies through its brokers. The amount and type of reinsurance employed is based on management’s analysis of liquidity as well as its estimates of probable maximum loss and evaluation of the conditions within the reinsurance market. Reinsurance premiums, expense reimbursements, and reserves related to reinsured business are accounted for on a basis consistent with those used for the original policies issued and the terms of the reinsurance contracts. Premiums paid for reinsurance are recognized as reductions of revenue.

~~The effects of reinsurance on premiums written and earned were as follows, for the period since the acquisition date of April 5, 2021 to September 30, 2021:~~

September 30, 2021

Written

Earned
Direct premiums

$
177,333

$
134,712
Ceded premiums

(158,793)

(126,743)
Net premiums

$
18,540

$
7,969

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Other Insurance Liabilities, Current

The following table details the components of other insurance liabilities, current on the condensed consolidated balance sheets:


	September 30, 2021		March 31, 2022		December 31, 2021
Ceded reinsurance premiums payable	$	18,922	$	21,439	$	22,523
Funds held under reinsurance treaty		2,600		2,092		2,206
Commissions payable, reinsurers and agents		9,453		9,259		10,697
General and accrued expenses payable		537		579		321
Advance premiums		3,307		9,680		4,277
Other insurance liabilities, current	$	34,819	$	43,049	$	40,024

~~Earnout Shares~~

Upon the Merger, 6,000,000 restricted common shares, subject to vesting and cancellation provisions, were issued to holders of pre-Merger Porch common stock (the “earnout shares”). The earnout shares were issued in 3 equal tranches with separate market vesting conditions. ~~One-~~third of the earnout shares met the market vesting condition when the Company’s common stock had a closing price of greater than or equal to $18.00 over 20 trading days within a 30-consecutive trading day period (see Note 9). An additional third will vest when the Company’s common stock has a closing price of greater than or equal to $20.00 over the same measurement criteria. The final third will vest when the Company’s common stock has a closing price of greater than or equal to $22.00 over the same measurement criteria. Additional earnout shares may also be issued to earnout stockholders, on a pro rata basis, depending on forfeitures of employee earnout shares that are subject to a continued service vesting condition (see Note 9).

The earnout shares are accounted for as a derivative financial instrument, which is classified as a liability and periodically measured at fair value, with changes in fair value recognized in the statement of operations. Note 4 denotes the beginning and ending balances of the earnout share liability, and activity recognized during the period.

~~Revenue Recognition~~

The Company generates its Core Services Revenue from (1) fees received for connecting homeowners to individual contractors, small business service providers and large enterprise service providers, (2) commissions from third-party insurance and warranty carriers, and (3) insurance and warranty premiums, policy fees and other insurance-related fees generated through its own insurance carrier. The Company’s Managed Services Revenue is generated from fees received for providing select and limited services directly to homeowners. The Company’s Software and Service Subscription Revenue is generated from fees received for providing subscription access to the Company’s software platforms and subscription services across various industries.

~~Core Services Revenue~~

Core Services Revenue is generated by the Company connecting third-party service providers (“Service Providers”) with homeowners that meet pre-defined criteria and who may be looking for relevant services. Service Providers represent a broad variety of offerings across the construction and repair, utilities, and other connected services spaces, which includes movers, TV/Internet, warranty, security monitoring providers, plumbers, electricians, roofers, et al. The Company also connects homeowners with home and auto insurance policies from third-party insurance carriers, and starting in April 2021, began providing various forms of homeowners insurance through its own insurance carrier and managing general agency. In September 2021, the Company became a provider of home warranty service contracts as well.

Revenue generated from Service Providers is recognized at a point in time upon the connection of a homeowner to the Service Provider, at which point the Company’s performance obligation has been satisfied. The transaction price is generally either a fixed price per qualifying lead or activated service, or a percentage of the revenue the Service Provider ultimately generates through the homeowner connection. When the revenue to which the Company is entitled is based on

~~Table of Contents~~

the amount of revenue the Service Provider generates from the homeowner, the transaction price is considered variable, and an estimate of the constrained transaction price is recorded by the Company upon delivery of the lead or upon the activation of the service.

Amounts received in advance of delivery of leads to the Service Provider is recorded as deferred revenue. Certain Service Providers have the right to return leads in limited instances. An estimate of returns is included as a reduction of revenue based on historical experience or specific identification depending on the contractual terms of the arrangement. Estimated returns are not material in any period presented.

In January 2020, the Company, through its wholly-owned subsidiary and licensed insurance agency, Elite Insurance Group (“EIG”), began selling homeowner and auto insurance policies for third-party insurance carriers. The transaction price for these arrangements is the estimated lifetime value (“LTV”) of the commissions to be paid by the third-party carrier for the policies sold. The LTV represents fixed first-year commission upon sale of the policy as well as the estimated variable future renewal commissions expected. The Company constrains the transaction price based on its best estimate of the amount which will not result in a significant reversal of revenue in a future period. After a policy is sold for an insurance carrier, the Company has no additional or ongoing contractual obligation to the policyholder or insurance carrier.

The Company estimates LTV by evaluating various factors, including commission rates for specific carriers and estimated average plan duration based on insurance carrier and market data related to policy renewals for similar insurance policies. On a quarterly basis, management reviews and monitors changes in the data used to estimate LTV as well as the cash received for each policy type compared to original estimates. The Company analyzes these fluctuations and, to the extent it identifies changes in estimates of the cash commission collections that it believes are indicative of an increase or decrease to prior period LTVs, the Company will adjust LTV for the affected policies at the time such determination is made. Changes in LTV may result in an increase or a decrease to revenue. Changes to the estimated variable consideration were not material for the periods presented.

Starting in April 2021, through the newly-acquired Homeowners of America Holding Corporation (“HAHC”) and its subsidiaries (collectively, “ HOA”), the Company is authorized to write various forms of homeowners insurance. Insurance-related revenues included in Core Services Revenue primarily relate to premiums, policy fees, excess ceding commissions and reinsurance profit share, and loss adjustment income. Premiums are recognized as revenue on a daily pro rata basis of the policy term. The portion of premiums related to the unexpired term of policies in force as of the end of the measurement period and to be earned over the remaining term of these policies, is deferred and reported as deferred revenue.

Policy fees are collected by Homeowners of America Managing General Agent (“HAMGA”), and include application fees, which are intended to offset the costs incurred in establishing the insurance policy. Policy fees on policies where premium is traditionally paid in full upon inception of the policy are recognized when written.

Excess ceding commissions represent the commissions from reinsurers in excess of the portion which represents the reimbursement of acquisition costs associated with insurance risk ceded to reinsurers and is earned on a pro-rata basis over the life of the insurance policy. Reinsurance profit share is additional ceding commissions payable to the Company based on attaining specified loss ratios within individual treaty years. Reinsurance profit share income is recognized when earned, which includes adjustments to earned reinsurance profit share based on changes in incurred losses.

~~Loss adjustment fee income is recognized when the claim file is opened, and other fee income is recognized when the related service is performed.~~

Starting in September 2021, through the newly-acquired American Home Protect (“AHP”), the Company is a provider of whole home warranty policies across the United States. AHP’s warranty contracts are typically ~~three~~-year contracts. Revenue for these contracts is recognized over the warranty coverage period. AHP currently provides home warranty policies in 45 states and is in the process of obtaining licenses in an additional 4 states.

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~~Managed Services Revenue~~

Managed services revenue includes fees earned from providing a variety of services directly to the homeowner, including handyman and moving services. The Company generally invoices for managed services projects on a fixed fee or time and materials basis. The transaction price represents the contractually agreed upon price with the end customer for providing the respective service. Revenue is recognized as services are performed based on an output measure of progress, which is generally over a short duration (e.g., same day). Fees earned for providing managed services projects are non-refundable and there is generally no right of return.

The Company acts as the principal in managed services revenue as it is primarily responsible to the end customer for providing the service, has a level of discretion in establishing pricing, and controls the service prior to providing it to the end customer. This control is evidenced by the ability to identify, select, and direct the service provider that provides the ultimate service to end customers.

~~Software and Service Subscription Revenue~~

Software and Service Subscription Revenue is primarily generated from the vertical software sold to home inspectors and other home services companies. The Company does not provide the customer with the right to take possession of any part of the software supporting the cloud-based application services. The Company also provides certain data analytics, transaction monitoring and marketing services under subscription contracts. The Company’s typical subscription contracts are monthly contracts in which pricing is based on a specified volume of activity completed through the software. Fees earned for providing access to the subscription software and services are non-refundable and there is no right of return. Revenue is recognized based on the amount which the Company is entitled to for providing access to the subscription software and services during the contract term.

Income Taxes

Provisions for income taxes for the three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ were ~~$1.8~~a $0.2 million benefit and ~~$9 thousand expense,~~a $0.4 million benefit, respectively, and the effective tax rates for these periods were ~~26.5%~~2.96% and ~~(0.1%)~~0.53%, respectively. ~~Provisions for income taxes for~~The difference between the ~~nine months ended September 30, 2021 and 2020 were $9.9 million benefit and $33 thousand expense, respectively, and the~~Company’s effective tax rates for ~~these periods were $10.3%~~the 2022 period and ~~(0.1%), respectively.~~the U.S. statutory rate of 21% was primarily due to a full valuation allowance related to the Company’s net deferred assets. The difference between the Company’s effective tax rates for the 2021 period and the U.S. statutory rate of 21% was primarily due to a full valuation allowance related to the Company’s net deferred assets and the impact of acquisitions on the Company’s valuation allowance. The difference between the Company’s effective tax rates for the 2020 period and the U.S. statutory rate of 21% was primarily due to a full valuation allowance related to the Company’s net deferred tax assets.

~~Other income (expense), net~~

~~The following table details the components of other income (expense), net on the condensed consolidated statements of operations:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020
Gain (loss) on remeasurement of debt

$
—

$
488

$
—

$
(924)
Gain (loss) on remeasurement of legacy preferred stock warrant liability

—

785

—

(1,214)
Other, net

316

145

225

88

$
316

$
1,418

$
225

$
(2,050)

~~Emerging Growth Company Status~~

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). In accordance with the JOBS Act, the Company previously elected to delay adopting new or

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revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. As of June 30, 2021, the last business day of the second fiscal quarter, the Company met certain thresholds for qualification as a “large accelerated filer” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. Therefore, the Company expects to lose EGC status as of December 31, 2021. The impact of this change in filing status includes being subject to the requirements of large accelerated filers, which includes shortened filing timelines, no delayed adoption of certain accounting standards, presentation of two comparative periods, and attestation of the Company’s internal control over financial reporting by its independent auditor.

Recently Adopted Accounting Standards

~~In August 2020, the FASB issued ASU No. 2020-06,~~ ~~Debt—Debt with Conversion and Other Options (Subtopic 470-20)~~ ~~and~~ ~~Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity~~, which amends the accounting standards for convertible debt instruments that may be settled entirely or partially in cash upon conversion. ASU No. 2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability to use the treasury stock method for calculating diluted earnings per share for convertible instruments whose principal amount may be settled using shares. Instead, ASU No. 2020-06 requires (i) the entire amount of the security to be presented as a liability on the balance sheet and (ii) application of the “if-converted” method for calculating diluted earnings per share. The required use of the “if-converted” method will not impact the Company’s diluted net loss per share as long as the Company is in a net loss position.

The guidance in ASU No. 2020-06 is required for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2021, for public business entities. Early adoption is permitted, but no earlier than annual reporting periods beginning after December 15, 2020, including interim periods within those annual reporting periods. The Company early adopted this guidance for the fiscal year beginning January 1, 2021, and did so on a modified retrospective basis, without requiring any adjustments.

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~~~. Additionally, the FASB issued ASU No. 2019-04,~~ ~~Codification Improvements to Topic 326~~ ~~in April 2019 and ASU 2019-05,~~ ~~Financial Instruments — Credit Losses (Topic 326) — Targeted Transition Relief~~ in May 2019. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. In November 2019, the FASB issued ASU No. 2019-10, which defers the effective date of ASU No. 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since as of December 31, 2021 the Company will no longer qualify as an emerging growth company, it will no longer qualify for the deferral of the effective date available for emerging growth companies. As such the Company will be adopting the standard retrospectively at January 1, 2021 and reflecting the impact in its financial statements for the year ending December 31, 2021. The Company is currently evaluating the impact of the adoption on the consolidated balance sheets, statement of operations, and statement of cash flows.

~~In February 2016, the FASB issued ASU 2016 02,~~ ~~Leases (Topic 842)~~. The new standard is effective for non-public companies for reporting periods beginning after December 15, 2021 and early adoption is permitted. The comprehensive new standard will amend and supersede existing lease accounting guidance and is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Since as of December 31, 2021 the Company will no longer qualify as an emerging growth company, it will no longer qualify for the deferral of the effective date available for emerging growth companies. As such the Company will be adopting the standard retrospectively at January 1, 2021 and reflecting the impact in its financial statements for the year ending December 31, 2021. The Company is currently evaluating the impact that adoption will have on the consolidated balance

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sheets, statements of operations, and statements of cash flows and expects that the adoption of the ASU will increase assets and liabilities related to the Company’s operating leases on the consolidated balance sheets. The Company estimates that as of September 30, 2021, the adoption of Topic 842 would increase the Company’s total assets reflecting right of use asset of approximately $4.0 million and total liabilities reflecting the lease obligation payable of approximately $4.0 million.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. The amendments of this ASU do not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with Topic 606. The amendments of this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods in those fiscal years. The ASU clarifies that early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company ~~plans to~~ early ~~adopt~~adopted this ASU atas of January 1, 2022 and ~~reflect~~will apply the ~~impact in its financial statements~~guidance prospectively for ~~the year ending December 31, 2022. The Company is currently evaluating the impact of~~business combinations that occur after the adoption ondate. Therefore, the adoption will have no impact to the existing consolidated balance sheets, ~~statement~~statements of operations, and ~~statement~~statements of cash flows.

2. Revenue

Disaggregation of Revenue

The Company generates revenue in its Vertical Software segment from (1) software and service subscription fees received for continued access to and transactions processed using owned software platforms by individual contractors, small business service providers and large enterprise service providers, (2) move-related transactions for a variety of services when end customers are connected with service providers primarily related to moving or settling into a new home, and (3) post-move transactions for the delivery of leads to service providers who primarily support the continued maintenance of the home.

The revenue generated by the Company’s Insurance segment is primarily from the sale of its own written insurance and warranty policies or third-party policies via its agency. This revenue includes insurance and warranty premiums earned over the life of the policy, reinsurance profit share, policy fees, commissions earned at the time it is put in force or ceded.

Total revenues consisted of the following:


	Three Months Ended March 31,
	2022		2021
Vertical Software segment
Software and service subscriptions	$	17,965	$	10,879
Move-related transactions (excluding insurance)		12,193		8,960
Post-move transactions		4,530		5,098
Total Vertical Software segment revenue		34,688		24,937

Insurance segment
Insurance and warranty premiums, commissions and policy fees⁽¹⁾		27,873		1,805
Total Insurance segment revenue		27,873		1,805

Total revenue	$	62,561	$	26,742

⁽¹⁾Revenue recognized during the three months ended March 31, 2022 includes revenue from regulated property and casualty insurance entity in the form of insurance premiums, policy fees, ceding commissions, and reinsurance profit sharing of $20.0 million which is accounted for separately from the revenue from contracts with customers.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

~~2. Revenue~~

~~Disaggregation of Revenue~~

~~Total revenues consisted of the following:~~

Three Months Ended September 30,

Nine Months Ended September 30,


2021

2020

2021

2020

Core services revenue

$
32,955

$
17,265

$
72,664

$
38,102

Managed services revenue

14,248

1,911

28,561

9,744

Software and service subscription revenue

15,566

2,331

39,627

5,857

Total revenue

$
62,769

$
21,507

$
140,852

$
53,703

~~Revenue from Divested Businesses~~

There were 0 divestitures during the three and nine months ended September 30, 2021, or the three months ended September 30, 2020. Total revenue reported includes revenue from divested businesses of $4.3 million for the nine months ended September 30, 2020, respectively.

Contracts with Customers

Contract Assets - Insurance Commissions Receivable

A summary of the activity impacting the contract assets during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022, is presented below:


	Contract Assets		Contract Assets
Balance at December 31, 2020	$	3,529
Balance at December 31, 2021			$	9,384
Estimated lifetime value of insurance policies sold by carriers		5,488		2,422
Cash receipts		(1,580)		(753)
Balance at September 30, 2021	$	7,437
Balance at March 31, 2022			$	11,053

As of ~~September 30, 2021, $278~~March 31, 2022, $2.0 million of contract assets are expected to be collected within the next 12 months and therefore are included in current accounts receivable on the condensed consolidated balance sheets. The remaining ~~$7,159~~$9.1 million of contract assets are expected to be collected in the following periods and are included in long-term insurance commissions receivable on the condensed consolidated balance sheets.

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Contract Liabilities — Refundable Customer Deposits

In September 2019, the Company entered into a Lead Buyer Agreement with a customer (“Buyer”) that provides residential security systems. Under the Lead Buyer Agreement, the Buyer pays the Company a referral fee for leads resulting in completed installations of certain residential security systems. At inception of this agreement, the Buyer made a prepayment of $7,000, which is to be credited over the term from October 2019 to September 2022, from earned referral fees for leads provided by the Company. This prepayment represents a contract liability since it is an advanced deposit for services the Company has yet to provide.

A summary of the activity impacting the contract liabilities during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 is presented below:


	Contract		Contract
	Liabilities		Liabilities
Balance at December 31, 2020	$	3,193
Balance at December 31, 2021				15,274
Additions to contract liabilities		517		7,891
Additions to contract liabilities – significant financing component interest		150
Contract liabilities transferred to revenue		(2,351)		(6,479)
Balance at September 30, 2021	$	1,509
Balance at March 31, 2022			$	16,686

As of ~~September 30, 2021, $1,509 of~~March 31, 2022, $16.7 million in contract liabilities ~~are expected~~related to ~~be transferred to revenue within the next 12 months and therefore~~refundable customer deposits received in advance of warranty services provided, are included in current refundable customer deposits on the ~~unaudited condensed~~ consolidated balance ~~sheets.~~sheets because the policyholder may cancel the policy at any time and receive a pro-rated refund. If the policies are not canceled, the balance is expected to be transferred to revenue over the term of the policies, which is, on average, 19 months.

Deferred Revenue

Timing may differ between the satisfaction of performance obligations and the collection of amounts from customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. To the extent the amounts relate to services or coverage performed by the Company over time, these liabilities are classified as deferred revenue. If the amounts collected are related to a point in time obligation which has yet to be performed, these liabilities are classified as refundable customer deposits.

A summary of the activity impacting deferred revenue balances during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 is presented below:


	Deferred		Vertical Software		Insurance		Total
	Revenue		Deferred Revenue		Deferred Revenue		Deferred Revenue
Balance at December 31, 2020	$	5,208
Balance at December 31, 2021				3,814	$	197,271	$	201,085
Revenue recognized(1)		(38,406)		(5,279)		(91,994)		(97,273)
Additional amounts deferred		80,910
Impact of acquisitions		142,425
Balance at September 30, 2021	$	190,137

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PORCH GROUP, INC.

~~Deferred revenue presented on the Company’s condensed consolidated balance sheet includes deferred revenue related~~Notes to ~~the Company’s insurance operations of $172.7 million~~Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and ~~$13.6 million of unearned premiums and unearned ceding commissions, respectively. Deferred revenue of $3.8 million is related to the Company’s Vertical Software segment operations.~~unless otherwise stated, unaudited)

Additional amounts deferred			5,722			89,323			95,045
Balance at March 31, 2022		$	4,257		$	194,600		$	198,857

(1)

In the table above, revenue recognized on earned premiums related to the insurance segment is presented as the gross amount from policy holders excluding the impact of ceded premiums. On the unaudited condensed statements of operations earned premiums are presented net of ceded premiums of $71.7 million.

Remaining Performance Obligations

Contracts with customers include ~~$3.8~~$4.3 million to performance obligations that will be satisfied at a later date. These amounts primarily include performance obligations that are recorded in the condensed consolidated balance sheets as deferred revenue.

The amount of the transaction price allocated to performance obligations to be satisfied at a later date,

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which is not recorded in the condensed consolidated balance sheets, is immaterial as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

The Company has applied the practical expedients provided for in the accounting standards, and does not present unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which ~~we have~~it has the right to invoice for services performed. Additionally, the Company excludes amounts related to performance obligations that are billed and recognized as they are delivered.

3. Investments

The following table provides the Company’s investment income, and realized gains on ~~investments for fiscal 2021:~~investments:


			Three Months Ended March 31,
			2022
Investment income, net of investment expenses	$	493	$	265
Realized gains on investments	$	46		2
Realized losses on investments	$	(91)		(70)
Investment income and realized gains, net of investment expenses			$	197

The ~~following table provides~~Company did not have significant investment income during the ~~amortized cost, fair value and unrealized gains and (losses) of the Company’s investment securities:~~

September 30, 2021

Gross Unrealized


Amortized Cost

Gains

Losses

Fair Value
U.S. government obligations

$
10,983

$
29

$
(27)

$
10,985
Obligations of states, municipalities and political subdivisions

4,378

5

(12)

4,371
Corporate bonds

32,208

183

(48)

32,343
Residential and commercial mortgage-backed securities

15,380

63

(55)

15,388
Other loan-backed and structured securities

5,703

11

(13)

5,701
Total debt securities

$
68,652

$
291

$
(155)

$
68,788

The amortized cost and fair value of securities at September 30, 2021, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2021
Remaining Time to Maturity

Amortized Cost

Fair Value
Due in one year or less

$
8,741

$
8,731
Due after one year through five years

20,828

20,841
Due after five years through ten years

15,696

15,808
Due after ten years

2,304

2,319
Residential and commercial mortgage-backed securities

15,380

15,388
Other loan-backed and structured securities

5,703

5,701
Total

$
68,652

$
68,788

~~Other-than-temporary Impairment~~

The Company regularly reviews its individual investment securities for other-than-temporarily impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including:three months ended March 31, 2021.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

The following table provides the amortized cost, fair value and unrealized gains and (losses) of the Company’s investment securities:


	March 31, 2022
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
U.S. Treasuries	$	3,653	$	1	$	(135)	$	3,519
Obligations of states, municipalities and political subdivisions		9,997		—		(584)		9,413
Corporate bonds		30,283		3		(1,234)		29,052
Residential and commercial mortgage-backed securities		15,237		27		(617)		14,647
Other loan-backed and structured securities		8,931		2		(237)		8,696
Total debt securities	$	68,101	$	33	$	(2,807)	$	65,327


	December 31, 2021
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
U.S. Treasuries	$	5,452	$	1	$	(36)	$	5,417
Obligations of states, municipalities and political subdivisions		8,913		21		(84)		8,850
Corporate bonds		31,491		89		(155)		31,425
Residential and commercial mortgage-backed securities		14,387		34		(139)		14,282
Other loan-backed and structured securities		7,637		5		(41)		7,601
Total debt securities	$	67,880	$	150	$	(455)	$	67,575

The amortized cost and fair value of securities at March 31, 2022, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	March 31, 2022
Remaining Time to Maturity	Amortized Cost		Fair Value
Due in one year or less	$	6,425	$	6,388
Due after one year through five years		20,771		19,914
Due after five years through ten years		13,700		12,820
Due after ten years		3,037		2,862
Residential and commercial mortgage-backed securities		15,237		14,647
Other loan-backed and structured securities		8,931		8,696
Total	$	68,101	$	65,327

Other-than-temporary Impairment

the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;

the length of time and the extent to which the market value of the security has been below its cost or amortized cost;

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

general market conditions and industry or ~~sector specific~~sector-specific factors;

nonpayment by the issuer of its contractually obligated interest and principal payments; and

the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

Securities with gross unrealized loss position, ~~at September 30, 2021,~~ aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:


	Less Than Twelve Months				Twelve Months or Greater				Total				Less Than Twelve Months				Twelve Months or Greater				Total
	Gross				Gross				Gross				Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
At September 30, 2021	Loss		Value		Loss		Value		Loss		Value
U.S. government obligations	$	(27)	$	6,073	$	—	$	—	$	(27)	$	6,073
At March 31, 2022													Loss		Value		Loss		Value		Loss		Value
U.S. Treasuries													$	(135)	$	3,204	$	—	$	—	$	(135)	$	3,204
Obligations of states, municipalities and political subdivisions		(12)		1,274		—		—		(12)		1,274		(584)		9,361		—		—		(584)		9,361
Industrial and miscellaneous		(48)		11,978		—		—		(48)		11,978
Corporate bonds														(1,234)		21,104		—		—		(1,234)		21,104
Residential and commercial mortgage-backed securities		(55)		9,108		—		—		(55)		9,108		(617)		13,816		—		—		(617)		13,816
Other loan-backed and structured securities		(13)		3,450		—		—		(13)		3,450		(237)		8,035		—		—		(237)		8,035
Total securities	$	(155)	$	31,883	$	—	$	—	$	(155)	$	31,883	$	(2,807)	$	55,520	$	—	$	—	$	(2,807)	$	55,520


	Less Than Twelve Months				Twelve Months or Greater				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
At December 31, 2021	Loss		Value		Loss		Value		Loss		Value
U.S. Treasuries	$	(36)	$	5,007	$	—	$	—	$	(36)	$	5,007
Obligations of states, municipalities and political subdivisions		(84)		4,292		—		—		(84)		4,292
Corporate bonds		(155)		15,446		—		—		(155)		15,446
Residential and commercial mortgage-backed securities		(139)		9,687		—		—		(139)		9,687
Other loan-backed and structured securities		(41)		6,818		—		—		(41)		6,818
Total securities	$	(455)	$	41,250	$	—	$	—	$	(455)	$	41,250

At ~~September 30,~~March 31, 2022, and December 31, 2021, there were ~~260~~448 and 358 securities, respectively, in an unrealized loss position. Of these securities, ~~there were 0ne that~~NaN had been in an unrealized loss position for 12 months or longer.

The Company believes there were no fundamental issues such as credit losses or other factors with respect to any of its available-for-sale securities. The unrealized losses on investments in fixed-maturity securities were caused primarily by interest rate changes. It is expected that the securities would not be settled at a price less than par value of the investments. Because the declines in fair value are attributable to changes in interest rates or market conditions and not credit quality, and because the Company has the ability and intent to hold its available-for-sale investments until a market price recovery or maturity, the Company does not consider any of its investments to be other-than-temporarily impaired at ~~September 30, 2021.~~March 31, 2022.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

4. Fair Value

The following table details the fair value measurements of assets and liabilities that are measured at fair value on a recurring basis:


	Fair Value Measurement at September 30, 2021								Fair Value Measurement at March 31, 2022
							Total								Total
	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
Assets
Money market mutual funds	$	10,080	$	—	$	—	$	10,080	$	5,041	$	—	$	—	$	5,041
Debt securities:
U.S. government obligations		10,985		—		—		10,985
U.S. Treasuries										3,519		—		—		3,519
Obligations of states and municipalities		—		4,371		—		4,371		—		9,413		—		9,413
Industrial and miscellaneous		—		32,343		—		32,343
Corporate bonds										—		29,052		—		29,052
Residential and commercial mortgage-backed securities		—		15,388		—		15,388		—		14,647		—		14,647
Other loan-backed and structured securities		—		5,701		—		5,701		—		8,696		—		8,696
	$	21,065	$	57,803	$	—	$	78,868	$	8,560	$	61,808	$	—	$	70,368
Liabilities
Contingent consideration - business combinations	$	—	$	—	$	2,849	$	2,849	$	—	$	—	$	12,822	$	12,822
Contingent consideration - earnout		—		—		39,811		39,811		—		—		2,687		2,687
Private warrant liability		—		—		17,706		17,706		—		—		5,004		5,004
	$	—	$	—	$	60,366	$	60,366	$	—	$	—	$	20,513	$	20,513


	Fair Value Measurement at December 31, 2020								Fair Value Measurement at December 31, 2021
							Total								Total
	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
Assets
Money market mutual funds										17,318	$	—	$	—	$	17,318
Debt securities:
U.S. Treasuries										5,417		—		—		5,417
Obligations of states and municipalities										—		8,850		—		8,850
Corporate bonds										—		31,425		—		31,425
Residential and commercial mortgage-backed securities										—		14,282		—		14,282
Other loan-backed and structured securities										—		7,601		—		7,601
									$	22,735	$	62,158	$	—	$	84,893


Liabilities
Contingent consideration - business combinations	$	—	$	—	$	3,549	$	3,549	$	—	$	—	$	9,617	$	9,617
Contingent consideration - earnout		—		—		50,238		50,238		—		—		13,866		13,866
Private warrant liability		—		—		31,534		31,534		—		—		15,193		15,193
	$	—	$	—	$	85,321	$	85,321	$	—	$	—	$	38,676	$	38,676

Financial Assets

Money market mutual funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above. The fair values for available-for-sale fixed-maturity securities are based upon prices provided by an independent pricing service. The Company has reviewed these prices for reasonableness and has not adjusted any prices received from the independent provider. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices,

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

quotes from less active markets or quoted prices of securities with similar characteristics. There were 0 no transfers between Level 1 and Level 2.

Contingent Consideration – Business Combinations

The Company estimated the fair value of the business combination contingent consideration ~~that is~~ triggered by EBITDA or revenue milestones, ~~which~~ related to certain 2021 acquisitions using the Monte Carlo simulation method. The fair value of $0.1 million and $0.3 million as of March 31, 2022 and December 31, 2021, respectively, is based on the simulated revenue and net income (loss) of the Company over the maturity date of the contingent consideration. As of September 30, 2021, the key inputs used in the determination of the combined fair value of $624 included volatility of 34.3% to 65%, discount rate of 26.0% and weighted-average cost of capital of 26.0% to 29.5%.

The Company estimated the fair value of the business combination contingent consideration that is triggered by stock price milestones, ~~which~~ related to a certain ~~2020 acquisitions,~~2021 acquisition, using the Monte Carlo simulation method. The fair value is based on the simulated stock price of the Company over the maturity date of the contingent consideration. As of

~~Table~~ March 31, 2022, the key inputs used to determine the fair value of ~~Contents~~

~~September 30,~~$12.7 million, were the stock price of $6.95, strike price of $36.00, discount rate of 8.2% and volatility of 75%. As of December 31, 2021, the key inputs used in the determination of the fair value of ~~$1,143~~$9.3 million included ~~stock~~the volume weighted average price of ~~$17.68,~~$16.37, strike price of ~~$20.00,~~$36.00, discount rate of ~~5.2% and volatility of 65%. As of December 31, 2020, the key inputs used in the determination of the fair value of $1,749 included price of $14.27, strike price of $20.00, discount rate of 9%~~7% and volatility of 60%.

The Company estimated the fair value of the 2018 business combination contingent consideration using a variation of the income approach known as the real options method. The fair value is based on the present value of the contingent payments to be made using a weighted probability of possible payments. In January 2021, the 2018 business combination contingent consideration was settled in full for a cash payment of $2,062. As of December 31, 2020, the key inputs used in the determination of fair value of $1,800 include projected revenues and expenses, discount rate of 9.96% to 9.98%, revenue volatility of 18.0% and weighted-average cost of capital of 21.5%.

Contingent Consideration - Earnout

The Company estimated the fair value of the earnout contingent consideration using the Monte Carlo simulation method. The fair value of $2.7 million is based on the simulated price of the Company over the maturity date of the contingent consideration and increased by ~~the~~ certain employee forfeitures. As of ~~September 30,~~March 31, 2022, the key inputs used to determine the fair value included exercise price of $22.00, volatility of 70%, forfeiture rate of 15% and stock price of $6.95. As of December 31, 2021, the key inputs used in the determination of the fair value included exercise price of ~~$20.00 and~~ $22.00, volatility of 65%, forfeiture rate of 15% and stock price of $17.68. As of December 31, 2020, the key inputs used in the determination of the fair value included exercise price of $18.00, $20.00 and $22.00, volatility of 60%, forfeiture rate of 16% and stock price of $14.27.$15.59.

Private Warrants

The Company estimated the fair value of the private warrants of $5.0 million using the Black-Scholes-Merton option pricing model. As of ~~September 30, 2021,~~March 31, 2022, the key inputs used ~~in the determination of~~to determine the fair value included exercise price of $11.50, expected volatility of ~~53%~~71%, remaining contractual term of ~~4.23~~3.73 years, and stock price of ~~$17.68.~~$6.95. As of December 31, ~~2020,~~2021, the key inputs used ~~in the determination of~~to determine the fair value included exercise price of $11.50, expected volatility of ~~35%~~60%, remaining contractual term of ~~4.98~~3.98 years, and stock price of ~~$14.27.~~$15.59.

Level 3 Rollforward

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value.

~~The changes for Level 3 items measured at fair value on a recurring basis using significant unobservable inputs are as follows:~~

Contingent

Contingent

Consideration -

Private

Consideration -

Business

Warrant

Earnout

Combinations

Liability
Fair value as of January 1, 2021
$
50,238

$
3,549

$
31,534
Additions

—

1,742

—
Settlements

(25,815)

(2,062)

—
Change in fair value, loss (gain) included in net loss⁽¹⁾

18,770

(275)

15,910
Fair value as of March 31, 2021
$
43,193

$
2,954

$
47,444
Additions

—

—

—
Settlements

—

—

(16,843)
Change in fair value, loss (gain) included in net loss⁽¹⁾

4,031

(300)

4,302
Fair value as of June 30, 2021
$
47,224

$
2,654

$
34,903
Additions

—

—

—
Settlements

—

—

(14,505)
Change in fair value, loss (gain) included in net loss⁽¹⁾

(7,413)

195

(2,692)
Fair value as of September 30, 2021
$
39,811

$
2,849

$
17,706

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

Redeemable

Contingent

Convertible

Consideration -

Preferred Stock

Business

Warrants

FVO Notes

Combinations
Fair value as of January 1, 2020

$
6,684

$
11,659

$
100
Additions

—

—

—
Settlements

—

—

—
Change in fair value, loss (gain) included in net loss⁽¹⁾

1,214

454

(80)
Change in fair value, (gain) included in other comprehensive income

—

(3,856)

—
Fair value as of March 31, 2020

$
7,898

$
8,257

$
20
Additions

—

—

—
Settlements

—

(2,724)

—
Change in fair value, loss (gain) included in net loss⁽¹⁾

785

(2,898)

1,480
Change in fair value, (gain) included in other comprehensive income

—

3,856

—
Fair value as of June 30, 2020

$
8,683

$
6,491

$
1,500
Additions

1,762

—

—
Settlements

—

—

—
Change in fair value, loss (gain) included in net loss⁽¹⁾

(785)

(488)

100
Fair value as of September 30, 2020

$
9,660

$
6,003

$
1,600

The changes for Level 3 items measured at fair value on a recurring basis using significant unobservable inputs are as follows:


			Contingent
	Contingent		Consideration -		Private
	Consideration -		Business		Warrant
	Earnout		Combinations		Liability
Fair value as of January 1, 2022	$	13,866	$	9,617	$	15,193
Additions		—		—		—
Settlements		—		—		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		(11,179)		3,205		(10,189)
Fair value as of March 31, 2022	$	2,687	$	12,822	$	5,004


			Contingent
	Contingent		Consideration -		Private
	Consideration -		Business		Warrant
	Earnout		Combinations		Liability
Fair value as of January 1, 2021	$	50,238	$	3,549	$	31,534
Additions		—		1,737		—
Settlements		(25,815)		(2,062)		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		18,770		(355)		15,910
Fair value as of March 31, 2021	$	43,193	$	2,869	$	47,444

(1)

Changes ~~in fair value of the redeemable convertible stock warrants and FVO Notes are included in other income (expense), net, and changes~~ in fair value of contingent consideration related to business combinations are included in general and administrative expenses in the unaudited condensed consolidated statements of operations. Ch~~anges~~Changes in fair value of the earnout contingent consideration and private warrant liability are disclosed separately in the unaudited condensed consolidated statements of operations.

Fair Value Disclosure

~~The~~As of March 31, 2022 and December 31, 2021, the fair value of the convertible senior notes ~~(the “2026 Notes”)~~is $286.9 million and $400.4 million, respectively. The decrease of $113.5 million is primarily due to the decline in the stock price at March 31, 2022 as compared to December 31, 2021. The fair value of other debt approximates the unpaid principal balance and is considered a Level 23 measurement. See Note 7.

5. Property, Equipment, and Software

Property, equipment, and software net, consists of the following:


	September 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Software and computer equipment	$	1,740	$	1,381	$	8,257	$	7,287
Furniture, office equipment, and other		1,908		567		2,126		2,006
Internally developed software		18,718		10,741		14,221		13,102
Leasehold improvements		1,112		1,112		2,208		2,191
		23,478		13,801		26,812		24,586
Less: Accumulated depreciation and amortization		(15,822)		(9,208)		(18,472)		(17,920)
Property, equipment, and software, net	$	7,656	$	4,593	$	8,340	$	6,666

Depreciation and amortization expense related to property, equipment, and software was ~~$1,448~~$1.0 million and ~~$963~~$1.1 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $3,744 and $2,880 for the nine months ended September 30, 2021 and 2020,~~ respectively.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

6. Intangible Assets and Goodwill

Intangible Assets

Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization, and consist of the following, as of ~~September 30, 2021:~~March 31, 2022:

Weighted




Average

Intangible

Intangible

Useful Life

Assets,

Accumulated

Assets,


(in years)

gross

Amortization

Net
Customer relationships

9.0

$
48,590

$
(5,006)

$
43,584
Acquired technology

6.0

19,565

(8,008)

11,557
Trademarks and tradenames

9.0

23,873

(2,009)

21,864
Non-compete agreements

2.0

410

(179)

231
Value of business acquired

1.0

400

(194)

206
Renewal rights

8.0

9,734

(486)

9,248
Insurance licenses

Indefinite

4,960

—

4,960
Total intangible assets

$
107,532

$
(15,882)

$
91,650

~~Intangible assets consist of the following, as of December 31, 2020:~~


	Weighted							Weighted
	Average	Intangible				Intangible		Average	Intangible				Intangible
	Useful Life	Assets,		Accumulated		Assets,		Useful Life	Assets,		Accumulated		Assets,
	(in years)	gross		Amortization		Net		(in years)	gross		Amortization		Net
Customer relationships	7.0	$	8,440	$	(2,173)	$	6,267	9.0	$	56,810	$	(8,658)	$	48,152
Acquired technology	6.0		12,170		(5,481)		6,689	5.0		48,135		(12,619)		35,516
Trademarks and tradenames	9.0		3,688		(893)		2,795	12.0		25,389		(3,194)		22,195
Non-compete agreements	2.0		225		(15)		210	2.0		450		(320)		130
Value of business acquired								1.0		400	��	(394)		6
Renewal rights								6.0		9,734		(1,137)		8,597
Trademarks and tradenames								Indefinite		4,750		—		4,750
Insurance licenses								Indefinite		4,960		—		4,960
Total intangible assets		$	24,523	$	(8,562)	$	15,961		$	150,628	$	(26,322)	$	124,306

The aggregate amortization expense related to intangibles was ~~$2,983~~$5.5 million and ~~$672~~$1.3 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $7,043 and $2,141 for the nine months ended September 30, 2021 and 2020,~~ respectively.

Goodwill

The following tables summarize the changes in the carrying amount of goodwill for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:


	Goodwill		Goodwill
Balance as of December 31, 2020	$	28,289
Acquisitions		142,750
Balance as of December 31, 2021				225,654
Purchase price adjustments		(612)		922
Balance as of September 30, 2021	$	170,427
Balance as of March 31, 2022			$	226,576

~~Table of Contents~~

7. Debt

At ~~September 30, 2021,~~March 31, 2022, debt comprised of the following:


					Debt								Debt
			Unaccreted		Issuance		Carrying				Unaccreted		Issuance		Carrying
	Principal		Discount		Costs		Value		Principal		Discount		Costs		Value
Convertible senior notes, due 2026	$	425,000	$	—	$	(11,371)	$	413,629	$	425,000	$	—	$	(10,228)	$	414,772
Line of credit, due 2022		4,000		—		(54)		3,946
Other notes		600		(92)		—		508		450		(70)		—		380
	$	429,600	$	(92)	$	(11,425)	$	418,083	$	425,450	$	(70)	$	(10,228)	$	415,152

Convertible Senior Notes

In September 2021, Porch completed a private Rule 144A offering of $425 million aggregate principal amount of its 0.75% Convertible Senior Notes due in September 2026 (the “2026 Notes”) at an issue price of 100%, which includes $40 million aggregate principal amount of 2026 Notes issued and sold pursuant to the exercise of the initial purchasers’ option to purchase additional 2026 Notes. The 2026 Notes were offered only to qualified institutional buyers (as defined in the Securities Act of 1933, as amended (the “Securities Act”)), pursuant to Rule 144A under the Securities Act. The net proceeds from the sale of the 2026 Notes were approximately $413.5 million after deducting the initial purchasers’ fees and other estimated expenses.

~~The 2026 Notes are not redeemable at the Company’s option prior to September 20, 2024. The Company may redeem for cash all or any~~ ~~portion~~ of the 2026 Notes, at the Company’s option, on or after September 20, 2024, if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption, at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2026 Notes.

~~The 2026 Notes are convertible at an initial conversion rate of~~ ~~39.9956~~ shares of common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $25.0027 per share of common stock (the “Conversion Rate”). The Conversion Rate is subject to customary adjustments for certain events as described in the indenture governing the 2026 Notes. The Company may settle the conversion option obligation with cash, shares of the Company’s common stock, or any combination of cash and shares of the Company’s common stock. Holders of the 2026 Notes may convert the 2026 Notes at their option (in whole or in part) at any time prior to the close of business on the business day immediately preceding June 15, 2026 only under the following circumstances:

●

during any fiscal quarter commencing after the calendar quarter ending on December 31, 2021, if the Company’s common stock price exceeds 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days at the end of the prior calendar quarter;

●

during the 5 business days after any 5 consecutive trading days in which the trading price per $1,000 Notes was less than 98% of the product of the closing sale price of the Company’s common stock and the then current conversion rate;

●

~~upon the occurrence of certain corporate actions;~~

●

~~upon the occurrence of a fundamental change, a make-whole fundamental change or any share exchange event; or~~

●

~~prior to the related redemption date if the Company elects to exercise the company call option.~~

~~Table of Contents~~

Upon the occurrence of a make-whole fundamental change or the exercise of the Company’s redemption option, the Company will, under certain circumstances, increase the applicable conversion rate for a holder that elects to convert its 2026 Notes in connection with such make-whole fundamental change or exercise of redemption (not to exceed ~~52.9941~~ ~~shares of common stock per $1,000 principal amount of the 2026 Notes).~~ ~~As of September 30, 2021, none of the conditions of the 2026 Notes to early convert have been met.~~

As discussed in Note 1, the Company early adopted ASU No. 2020-06 as of January 1, 2021 and concluded that the 2026 Notes will be accounted for as debt, with no bifurcation of the embedded conversion feature. Debt issuance costs were recorded as a direct deduction from the related liability in the condensed consolidated balance sheet and are amortized to interest expense over the term of the 2026 Notes. The effective interest rate for the 2026 Notes is 1.3%.

Interest expense recognized related to the 0.75% Convertible Senior Notes due 2026 ~~Notes~~(the “2026 Notes”) was approximately ~~$0.2~~$1.4 million for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, and comprised of contractual interest expense and amortization of debt issuance costs.

~~Capped Call Transactions~~

In connection with the offering of the 2026 Notes, the Company purchased capped calls from certain financial institutions with respect to its common stock. The capped calls each have an initial strike price of $25.0027 per share of the Company’s common stock, which corresponds to the initial conversion price of the 2026 Notes. The capped calls each have an initial cap price of $37.7400 per share and expire in incremental components on each trading date beginning on September 13, 2021 and ending on September 15, 2026. The capped calls are intended to offset potential dilution to the Company’s common stock or offset any cash payments the Company is required to make in excess of the principal amount, as the case may be, with such reduction or offset subject to a cap. The capped calls are subject to adjustments for certain corporate events and standard antidilution provisions.

The Company paid an aggregate amount of $52.9 million for the capped calls, of which $42.3 million was paid on the transaction date and $10.6 million was paid in October 2021. The maximum number of shares of Company’s common stock that can be purchased by the Company under the capped call (assuming no adjustment event) is 5,736,869. The capped call transactions do not meet the criteria for accounting as a derivative as they are indexed to the Company’s stock. As such, the cost of the capped calls is recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

~~Senior Secured Term Loans~~

~~In January 2021, the Company entered into an amendment (the~~ “~~Runway Amendment~~”~~) to the Loan and Security Agreement, dated as of July 22, 2020 (as amended, the~~ “~~Runway Loan Agreement~~”~~), with Runway Growth Credit Fund, Inc., as agent for a syndicate of lenders, with a maturity date of December 15, 2024.~~

~~In conjunction with the issuance of 2026 Notes described above,~~ all outstanding obligations under the Runway Loan Agreement were repaid. These included the outstanding principal of $40.0 million, $2.3 million of final prepayment fees, and $0.5 million of interest and legal fees. A loss on extinguishment of $3.1 million was recorded.

~~Paycheck Protection Program Loans~~

In April 2020, the Company entered into a loan agreement with Western Alliance Bank pursuant to the Paycheck Protection Program established under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The Company received loan proceeds of $8.1 million (the “Porch PPP Loan”). The term of the Porch PPP Loan was two years with a maturity date of April 18, 2022 and bore interest at a fixed rate of 1.00%. Payments of principal and interest on the Porch PPP Loan were deferred for the first nine months of the term of the Porch PPP Loan. Principal and interest were payable monthly, less the amount of any potential forgiveness. In June 2021 the loan was forgiven in whole. As a result, the outstanding principal balance of $8.1

2822

Table of Contents

~~million and unpaid interest of $91 were written off and the Company recorded a $8.2 million gain on extinguishment in the condensed consolidated statements of operations.~~PORCH GROUP, INC.

In connection with an acquisition of DataMentors Holdings, LLC d/b/a V12 Data (“V12 Data”) on January 12, 2021 (see Note 10), the Company assumed a loan agreement with Western Alliance Bank pursuant to the Paycheck Protection Program for the amount of $2.0 million (the “V12 Data PPP Loan”). The loan had a maturity date of April 19, 2022 and a fixed interest rate of 1%. All other terms were the same as those of the Porch PPP Loan. In June 2021 the loan was forgiven in whole. In accordance with the terms of the purchase agreement, the restricted cash held in escrow was provided to the seller as consideration for the transaction and no gain or loss was recorded in the condensed consolidated statements of operations for this extinguishment. The balance of this payable was released from escrow during the quarter ended September 30, 2021.

~~Line of Credit~~Notes to Condensed Consolidated Statements - Continued

In connection with the acquisition of HOA on April 5, 2021, the Company assumed a $5.0 million revolving line of credit (“RLOC”) with Legacy Texas Bank that had an outstanding balance of $3.9 million. Outstanding balances under the RLOC bear interest at the Wall Street Journal Prime + 0%(all numbers in thousands, except share amounts and ~~mature on November 16, 2022. In addition, the Company pays 0.25% per annum of the daily-unused portion of the RLOC.~~

Collateral for the RLOC includes all assets and stock of HAHC and its subsidiaries. The credit agreement is subject to standard financial covenants and reporting requirements. At September 30, 2021, the Company was in compliance with all required covenants. Outstanding borrowings on the RLOC at September 30, 2021 were $4.0 million.

~~The Company repaid the outstanding $4.0 million of HAHC borrowings on the RLOC in November 2021. See Note 13.~~

~~Term Loan Facility~~

In connection with HOA acquisition on April 5, 2021, the Company assumed a nine-year, $10.0 million term loan facility with a local bank. As of September 30, 2021 the Company has made 0 borrowings on the term loan facility.

~~Other Promissory Notes~~

In connection with an acquisition on November 2, 2020, the Company issued a promissory note payable to the founder of the acquired entity. The promissory note has an initial principal balance of $750 thousand and aunless otherwise stated, ~~interest rate of 0.38% per annum. The promissory note shall be paid in 5 equal annual installments of $150 thousand each, plus accrued interest commencing on January 21, 2021.~~unaudited)

~~8. Equity and Warrants~~

~~Shares Authorized~~

As of September 30, 2021, the Company had authorized a total of 410,000,000 shares of stock for issuance, with 400,000,000 shares designated as common stock, and 10,000,000 shares designated as preferred stock.

~~Table of Contents~~

8. Equity and Warrants

Common Shares Outstanding and Common Stock Equivalents

The following table summarizes ~~our~~the Company’s fully diluted capital ~~structure at September 30, 2021:~~structure:


~~Issued and outstanding common shares~~		~~93,232,999~~
~~Earnout common shares (Note 1 and Note 9)~~		~~4,099,999~~
~~Total common shares issued and outstanding~~		~~97,332,998~~
~~Common shares reserved for future issuance:~~
~~Public warrants~~		—
~~Private warrants~~		~~1,821,951~~
~~Common stock options outstanding - 2012 Equity Plan~~		~~5,131,615~~
~~Restricted stock units (Note 9)~~		~~984,135~~
~~2020 Equity Plan pool reserved for future issuance (Note 9)~~		~~10,015,157~~
~~Convertible senior notes, due 2026~~⁽¹⁾		~~16,998,130~~
~~Total shares of common stock outstanding and reserved for future issuance~~		~~132,283,986~~


	March 31,	December 31,
	2022	2021
Issued and outstanding common shares	96,247,186	95,911,597
Earnout common shares	2,050,000	2,050,000
Total common shares issued and outstanding	98,297,186	97,961,597
Common shares reserved for future issuance:
Private warrants	1,795,700	1,795,700
Common stock options outstanding (Note 9)	4,569,743	4,822,992
Restricted stock units and awards (Note 9)	4,225,986	2,717,154
2020 Equity Plan pool reserved for future issuance	6,390,137	8,126,263
Convertible senior notes, due 2026⁽¹⁾	16,998,130	16,998,130
Total shares of common stock outstanding and reserved for future issuance	132,276,882	132,421,836

(1)

In connection with the September 16, 2021 issuance of the 2026 Notes, the Company used a portion of the proceeds to pay for the capped call transactions, which are expected to generally reduce the potential dilution to the Company’s common stock. The capped call transactions impact the number of shares that may be issued by effectively increasing the conversion price for the Company from $25 per share to approximately $37.74 per share, which would result in 11,261,261 potentially dilutive shares instead of the shares reported in this table.

The table above excludes common stock contingently issuable in connection with prior acquisitions. Such common stock is issuable to the extent specified operational milestones are achieved or market conditions are met in the future.

Warrants

~~Upon completion of the Merger with PTAC on December 23, 2020, the Company assumed 8,625,000 public warrants and 5,700,000 private~~ ~~warrants~~There was no activity related to purchase an aggregate 14,325,000 shares of common stock, which were outstanding as of December 31, 2020. Each warrant entitles the registered holder to purchase 1 share of common stock at a price of $11.50 per share, subject to adjustment, commencing 30 days after the completion of the Merger, and expiring on December 23, 2025 which is five-years after the Merger.

~~The Company may call the public warrants for redemption (excluding the private warrants), in whole, at a price of $0.01 per warrant:~~

●~~at any time while the public warrants are exercisable,~~

●~~upon not less than 30 days’ prior written notice of redemption to each public warrant holder,~~

●

if, and only if, the last sale price common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable and ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders and,

●

if and only if, there is a current registration statement in effect with respect to the issuance of the common stock underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption.

The private warrants are identical to the public warrants, except that the private warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees, as defined in the warrant agreements. If the placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants. 1,821,951 and 5,700,000 ~~private warrants were held as of September 30, 2021 and December 31, 2020, respectively, by the initial purchases or their permitted transferees.~~

~~Table of Contents~~

~~The~~ public and private warrants are classified separately on our condensed consolidated balance sheets due to differences in each instrument’s contractual terms. The public warrants are classified in equity classified financial instruments and are not remeasured periodically. The private warrants are liability classified financial instruments measured at fair value, with periodic changes in fair value recognized through earnings. See Note 4.

Onduring the three months ended March 23, 2021, the Company announced that it would redeem all outstanding public warrants on April 16, 2021 pursuant to a provision of the warrant agreement under which the public warrants were issued. During March 2021, certain holders of public warrants exercised their warrants to acquire 8,087,623 shares of common stock at a price of $11.50 per share, resulting in cash proceeds of $89.8 million in March and $3.2 million in April.

During April 2021, certain warrant holders exercised their warrants to acquire 2,935,753 shares of common stock at a price of $11.50 per share, resulting in cash proceeds of $33.8 million. During April 2021, the Company also redeemed all of the public warrants that remained outstanding as of April 16, 2021 for a redemption price of $0.01 per public warrant. In connection with the redemption, the public warrants stopped trading on the Nasdaq Capital Market and were delisted, with the trading halt announced after close of market on April 16, 2021.

During the third quarter of 2021, certain warrant holders exercised their warrants to acquire 557,816 shares of common stock at a price of $11.50 per share. These exercises were net share settlements and resulted in 0 cash proceeds to the Company.31, 2022.


	Number of
	Common
	Shares Issued	Cash Received
Balances as of January 1, 2022	1,795,700	$	—
Exercised	—		—
Canceled	—		—
Balances as of March 31, 2022	1,795,700	$	—

9. Stock-Based Compensation

Under the Company’s 2020 Stock Incentive Plan (the “2020 Plan”), which replaced the Company’s 2012 Equity Incentive Plan upon the closing of the Merger in December 2020, the employees, directors and consultants of the Company are eligible for grants of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards (“RSA”) ~~and~~, restricted stock units (“RSU”), performance awards, and other stock awards, collectively referred to as “Awards”.

~~Stock-based compensation consists of expense related to (1) equity awards in the normal course and (2) a secondary market transaction as described below:~~

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020

Secondary market transaction

$
—

$
—

$
1,933

$
—

Employee earnout restricted stock

4,243

—

20,792

—

Employee awards

1,641

507

6,636

1,541

Total operating expenses

$
5,884

$
507

$
29,361

$
1,541

~~2019 Secondary Stock Transactions~~

In 2019 and 2020, the Company’s CEO and certain executives of the Company entered into a series of secondary market transactions related to legacy Porch.com redeemable convertible preferred stock. Refer to Item 8 in the 2020 Annual Report on Form 10-K/A for the description of 2019 Secondary Stock Transactions. In December 2020, compensation expense of $1.6 million was recorded related to these awards. The remaining stock-based compensation expense of $1.9 million related to the award was recognized in March 2021.

~~2020 Equity Incentive Plan~~

The aggregate number of shares of common stock reserved for future issuance under the 2020 Plan is 10,015,157. The number of shares of common stock available under the 2020 Plan will increase annually on the first day of each calendar year, beginning with the calendar year ending December 31, 2022, and continuing until (and including) the calendar year ending December 31, 2030, with such annual increase equal to the lesser of (i) 5% of the number of shares

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~~of common stock issued and outstanding on December 31st of the immediately preceding fiscal year and (ii) an amount determined by the Board.~~

~~Stock-Based Compensation~~

Awards granted under the 2020 Plan to employees typically vest 25% of the shares one year after the options’ vesting commencement date and the remainder ratably on a monthly basis over the following three years. Other vesting terms are permitted as determined by the Board. Options have a term of no more than ten years from the date of grant and vested options are generally canceled three months after termination of employment.

~~During the nine months ended September 30, 2021, the Company granted 957,993 RSUs and 284,271 stock options to various levels of key employees and members of the Board.~~

~~Payroll Reduction Program~~

In March 2020, in response to the adverse impact of COVID-19 on the Company’s operations and financial performance, the Company carried out a variety of measures to reduce cash operating expenses, including the implementation of a partial employee furlough and payroll reduction in exchange for RSUs. During the year ended December 31, 2020, the Company reduced cash payroll costs by $4.0 million in exchange for a commitment by the Company to provide up to 2,356,045 RSUs subject to (a) a performance (liquidity) vesting condition and (b) and ongoing employment until March 31, 2021 (or June 30, 2021, for certain awards) in order to be fully vested. The grant of these RSUs was approved by the Board of Directors in June, July, and August 2020 and 2,356,045 were issued during the year ended December 31, 2020. The performance vesting conditions, which were previously considered not probable of achievement were met in December 2020 as a result of the Merger. As a result, a cumulative catch up of $6.5 million of stock-based compensation expense was recorded in the fourth quarter of 2020.

~~Stock-based compensation expense of $1,605 was recorded and all awards vested during the nine months ended September 30, 2021.~~

~~Employee Earnout Restricted Stock~~

Upon the Merger, 1,003,317 restricted common shares, subject to vesting and forfeiture conditions, were issued to employees and service providers pursuant to their holdings of pre-Merger options, RSUs or restricted shares (the “employee earnout shares”). The employee earnout shares were issued in 3 equal tranches with separate market vesting conditions. ~~One-~~third of the employee earnout shares will meet the market vesting condition when the closing price of the Company’s common stock is greater than or equal to $18.00 over any 20 trading days within any 30- consecutive trading day period within 36 months of the closing date of the Merger. An additional third will vest when the Company’s common stock is greater than or equal to $20.00 over the same measurement period. The final third will vest when the Company’s common stock is greater than or equal to $22.00 over the same measurement period. The employee earnout shares are forfeited upon termination of an employee’s employment. Upon forfeiture, the forfeited shares will be redistributed to all earnout stockholders. Upon redistribution of earnout shares, the awards will be recorded as new awards. The fair value of the award on the grant date is a weighted average of $12.08 per share and will be recognized as stock-based compensation expense on a graded vesting basis over the derived service period of 1 year or shorter if the awards vest.

During the nine months ended September 30, 2021, 24,278 shares were forfeited due to employee terminations. This resulted in the grant of 4,773 additional shares to employee holders at a weighted-average grant date fair value of $16.78.

During March 2021, 329,132 restricted employee earnout shares were fully vested, as the market condition for vesting was fully satisfied as a result of the Company’s stock price and trading activity. The Company recorded $10.3 million in stock-based compensation expense related to the employee earnout shares in the nine months ended September 30, 2021, and $1.3 million is expected to be recorded over the remaining estimated service period in 2021.

~~Table of Contents~~

~~CEO Earnout Restricted Stock~~

Prior to the closing of the Merger, the Company’s CEO and Founder, Matt Ehrlichman was granted a restricted stock award under the 2012 Plan which was converted into an award of 1,000,000 restricted shares of common stock upon the closing of the Merger. The award will vest in ~~one-third installments if certain stock price triggers are achieved within~~ ~~36-months~~ ~~following the closing of the Merger.~~ ~~One~~-third of the restricted shares will meet the market vesting condition when the Company’s common stock is greater than or equal to $18.00 over any 20 trading days within any 30 consecutive trading day period within 36 months of the closing date of the Merger. An additional third will vest when the Company’s common stock is greater than or equal to $20.00 over the same measurement period. The final third will vest when the Company’s common stock is greater than or equal to $22.00 over the same measurement period. If Mr. Ehrlichman’s employment with the Company is terminated prior to the award being fully vested, then the award will be terminated and canceled, provided that if Mr. Ehrlichman’s employment is terminated by the Company without cause or Mr. Ehrlichman resigns due to good reason (in each case, as defined in the award agreement), the award will remain outstanding and will vest to the extent the stock price triggers are achieved during the ~~36-month~~ period. The fair value of the award on the grant date is an average of $12.08 per share and will be recognized as stock-based compensation expense on a graded vesting basis over the derived service period of 1 year or shorter if the awards vest.

During March 2021, 333,333 CEO restricted earnout shares were fully vested, as the first market condition for vesting was fully satisfied as a result of the Company’s stock price and trading activity. The Company recorded $10.5 million in stock-based compensation expense related to the restricted stock award in the nine months ended September 30, 2021, and $1.2 million is expected to be recorded over the remaining estimated service period in 2021.PORCH GROUP, INC.

~~10. Business Combinations~~Notes to Condensed Consolidated Statements - Continued

During the nine months ended September 30, 2021, the Company completed several transactions which have been accounted for as business combinations. The purpose of each of the acquisitions is to expand the scope(all numbers in thousands, except share amounts and nature of the Company’s product and service offerings, obtain new customer acquisition channels, add additional team members with important skillsets, and realize synergies. Acquisition-related costs of $5.4 million primarily comprised of legal and due-diligence related fees, are included in general and administrative expenses on the condensed consolidated statements of operations. The results of operations for each acquisition are included in the Company’s condensed consolidated financial statements from the date of acquisition onwards.

~~Table of Contents~~unless otherwise stated, unaudited)

Stock-based compensation consists of expense related to equity awards in the normal course, earnout restricted stock and a secondary market transaction as described below:


	Three months ended
	March 31,
	2022		2021
Secondary market transaction	$	—	$	1,933
Employee earnout restricted stock		—		12,373
Employee awards		5,854		2,529
Total operating expenses	$	5,854	$	16,835

Detail related to stock option, RSU and RSA activity for the three months ended March 31, 2022, is as follows:


		Number of	Number of
	Number of	Restricted	Restricted
	Options	Stock Units	Stock Awards
Balances as of January 1, 2021	4,822,992	2,712,762	4,392
Granted	—	1,885,725	—
Vested	—	(241,463)	(4,392)
Exercised	(185,685)	—	—
Forfeited, canceled or expired	(67,564)	(131,038)	—
Balances as of March 31, 2022	4,569,743	4,225,986	—

The following table summarizes the total consideration and the preliminary estimated fair value of the assets acquired and liabilities assumed for business combinations made by the Company during the nine months ended September 30, 2021:10. Reinsurance

Weighted Average Useful Life (in years)

V12 Data

HOA

Rynoh

AHP

Other Acquisitions

Total
Purchase consideration:

Cash

$
20,346

$
82,355

$
32,302

$
43,750

$
25,321

$
204,074
Issuance of common stock

—

21,687

—

—

3,106

24,793
Payable

—

3,014

3,500

2,500

—

9,014
Contingent consideration - equity-classified

—

6,685

—

—

—

6,685
Contingent consideration - liability-classified

1,410

—

—

—

327

1,737
Total purchase consideration:

$
21,756

$
113,741

$
35,802

$
46,250

$
28,754

$
246,303
Assets:

Cash, cash equivalents and restricted cash

$
1,035

$
17,766

$
408

$
5,078

$
1,106

$
25,393
Current assets

4,939

235,669

932

9,761

1,579

252,880
Property and equipment

996

2,267

334

17

80

3,694
Intangible assets:

Customer relationships
10.0

1,650

16,700

12,700

—

8,900

39,950
Acquired technology
5.0

3,525

—

2,900

—

970

7,395
Trademarks and tradenames
11.0

1,225

12,200

900

700

5,160

20,185
Non-competition agreements
2.0

40

—

90

—

55

185
Value of business acquired
1.0

—

400

—

—

—

400
Renewal rights
8.0

—

7,692

—

2,042

—

9,734
Insurance licenses
Indefinite

—

4,960

—

—

—

4,960
Goodwill

16,760

47,361

21,952

43,095

13,582

142,750
Other non-current assets

—

55,165

—

25

1,000

56,190
Total assets acquired

30,170

400,180

40,216

60,718

32,432

563,716
Current liabilities

(6,388)

(273,759)

(409)

(14,389)

(2,252)

(297,197)
Long term liabilities

(2,026)

(8,913)

—

(79)

(1,000)

(12,018)
Deferred tax liabilities, net

—

(3,767)

(4,005)

—

(426)

(8,198)
Net assets acquired

$
21,756

$
113,741

$
35,802

$
46,250

$
28,754

$
246,303

The ~~estimated fair values assigned to tangible~~effects of reinsurance on premiums written and intangible assets acquired and liabilities assumed are preliminary in nature and may be subject to change as additional information is received. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

~~January 12, 2021 Acquisition (“V12 Data”)~~

On January 12, 2021, Porch acquired V12 Data, an omnichannel marketing platform. The purpose of the acquisition is to expand the scope and nature of Porch’s service offerings, add additional team members with important skillsets, and realize synergies. Porch acquired V12 Data for $20.3 million cash with an additional $1.4 million as contingent consideration. The contingent consideration is based on the achievement of certain Revenue and EBITDA milestones over the ~~two~~ succeeding years and is paid in cash or common stock at Porch’s discretion. The consideration was paid to the sellers in exchange for net assets of $21.8 million. Goodwill is expected to be deductible for tax purposes. Acquisition-related costs of $274 thousand are included in general and administrative expenses on the condensed consolidated statements of operationsearned for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022 were as follows:


	2022
	Written		Earned
Direct premiums	$	87,123	$	84,318
Ceded premiums		(60,636)		(71,727)
Net premiums	$	26,487	$	12,591

The effects of reinsurance on incurred losses and LAE for the three months ended March 31, 2022 were as follows:


	2022
Direct losses and LAE	$	68,221
Ceded losses and LAE		(58,973)
Net losses and LAE	$	9,248

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

The detail of reinsurance balances due is as follows:


	March 31, 2022		December 31, 2021
Unearned premium	$	142,619	$	153,710
Losses and LAE Reserve		71,196		56,752
Reinsurance recoverable		25,746		17,780
Other		178		174
Reinsurance balance due	$	239,739	$	228,416

~~The following table summarizes the fair value of the intangible assets of V12 Data as of the date of the acquisition:~~

Estimated

Fair

Useful Life

Value

(in years)
Intangible assets:




Customer relationships

$
1,650

10
Acquired technology

3,525

4
Trademarks and tradenames

1,225

15
Non-competition agreements

40

2

$
6,440

~~The weighted-average amortization period for the acquired intangible assets is 7.6 years.~~

The estimated fair value of the customer relationships intangible asset was calculated through the income approach using the multi-period excess earnings methodology. The estimated fair value of the trademarks11. Unpaid Losses and tradenames as well as acquired technology intangible assets were calculated through the income approach using the relief from royalty methodology. The estimated fair value of the non-competition agreement is derived using the with and without method over the contractual term of the agreement. The estimated fair value of deferred revenue is derived using the cost-plus-profit method, which presumes that an acquirer of deferred revenue would not pay more than the costs and expenses to fulfill the obligation plus a profit for the effort employed.

~~April 5, 2021 Acquisition (“HOA”)~~

On April 5, 2021, Porch acquired HOA. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and gain licenses to operate as an insurance carrier and managing general agent in 31 states. Total consideration related to this transaction included $113.7 million, consisting of $82 million in cash paid at closing, $21.7 million in Porch common stock, and acquisition hold backs and contingent consideration of $9.7 million. An additional $0.3 million related to the final working capital adjustment was paid to the sellers in the third quarter of 2021. Goodwill is not expected to be deductible for tax purposes. Acquisition-related costs of $2.9 million were primarily for legal and due-diligence related fees and are included in general and administrative expenses for the nine months ended September ~~30, 2021.~~Loss Adjustment Reserve

The following table ~~summarizes~~provides the ~~fair value~~rollforward of the ~~intangible assets~~beginning and ending reserve balances for losses and LAE, gross of ~~HOA as of~~reinsurance for the ~~date of the acquisition:~~three months ended March 31, 2022:

Estimated

Fair

Useful Life

Value

(in years)
Intangible assets:




Customer relationships

$
16,700

10
Trademarks and tradenames

12,200

10
Business acquired

400

1
Renewal rights

7,692

8
Insurance licenses

4,960

Indefinite

$
41,952


	2022
Reserve for losses and LAE, at December 31, 2021	$	61,949
Reinsurance recoverables on losses and LAE		(56,752)
Losses and LAE reserve, net of reinsurance recoverables at December 31, 2021		5,197
Add provisions for losses and LAE occurring in:
Current year		9,868
Prior years		(620)
Net incurred losses and LAE during the current year		9,248
Deduct payments for losses and LAE occurring in:
Current year		(4,431)
Prior years		(1,602)
Net claim and LAE payments during the current year		(6,033)
Reserve for losses and LAE, net of reinsurance recoverables, at end of year		8,412
Reinsurance recoverables on losses and LAE		71,196
Losses and LAE reserve at March 31, 2022	$	79,608

~~The weighted-average amortization period~~

As a result of additional information on claims occurring in prior years becoming available to management, changes in estimates of provisions of losses and loss adjustment expenses were made, resulting in a decrease of $0.6 million for the ~~acquired intangible assets is 9.5 years.~~three months ended March 31, 2022.

~~The fair value of customer relationships was estimated through~~

12. Commitments and Contingencies

Acquisition Commitments

On September 2, 2021, the ~~income approach using~~Company entered into a Stock Purchase Agreement with Covéa Coopérations S.A., to acquire CSE - a California-based personal lines insurer focused on property and auto. Subject to the ~~multi-period excess earnings methodology. The fair value of trade name~~terms and ~~trademarks was estimated through~~conditions set forth in the ~~income approach using~~Agreement, at the ~~relief from royalty methodology. The business acquired was valued using the income approach based on estimates of expected future losses and expenses associated with the policies that were in-force as~~closing of the ~~closing date~~transactions contemplated by the Agreement, Buyer will pay $48.6 million in cash for all of the ~~transaction compared~~shares of GMF Financial Services Corporation, which owns all of the issued and outstanding stock of Civil Service Employees Insurance Company, CSE Safeguard Insurance Company, CSE Insurance Services, Inc. and CSE Group Services Company, subject to certain adjustments, as further described in the ~~future premium remaining~~Agreement. The closing is subject to ~~be earned. Renewal rights asset was estimated through~~customary conditions, including, among others, the ~~income approach based~~absence of a material adverse effect on ~~premium forecast~~GMFF and ~~cash flows from~~ the ~~renewal policies modeled over the life~~receipt of ~~the~~specified governmental consents and approvals.

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~~renewals. The insurance licenses were valued using the market approach based on arms-length transactions in which certificate authority companies with licenses were purchased.~~

~~May 20, 2021 Acquisition (“Rynoh”)~~

On May 20, 2021, Porch acquired Segin Systems, Inc. (“Rynoh”), a software and data analytics company that supports financial management and fraud prevention primarily for the title and real estate industries. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and realize synergies. Total consideration related to this transaction includes $35.8 million, consisting of $32.3 million in cash paid at closing, and acquisition hold backs of $3.5 million. Goodwill is not expected to be deductible for tax purposes. Acquisition-related costs of $1.6 million were primarily for legal and due-diligence related fees and are included in general and administrative expenses for the nine months ended September 30, 2021.

~~The following table summarizes the fair value of the intangible assets of Rynoh as of the date of the acquisition:~~

Estimated

Fair

Useful Life

Value

(in years)
Intangible assets:




Customer relationships

$
12,700

10
Acquired technology

2,900

7
Trademarks and tradenames

900

20
Non-competition agreements

90

1

$
16,590

~~The weighted-average amortization period for the acquired intangible assets is~~ ~~10.0~~ ~~years.~~

The fair value of customer relationships was estimated through the income approach using the multi-period excess earnings methodology. The fair value of trade name and trademarks, as well as acquired technology was estimated through the income approach using the relief from royalty methodology. The fair value of the non-competition agreement is derived using the with and without method over the contractual term of the agreement.

~~September 9, 2021 Acquisition (“AHP”)~~

On September 9, 2021, Porch acquired AHP, a company providing home warranty policies. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and realize synergies. Total consideration related to this transaction includes $46.3 million, consisting of $43.8 million in cash paid at closing, and acquisition hold backs of $2.5 million. Acquisition-related costs of $0.3 million are included in general and administrative expenses on the condensed consolidated statements of operations for the nine months ended September 30, 2021.

~~The following table summarizes the fair value of the intangible assets of AHP as of the date of the acquisition:~~

Estimated

Fair

Useful Life

Value

(in years)
Intangible assets:




Renewal rights

$
2,042

6
Trademarks and tradenames

700

10

$
2,742

~~The weighted-average amortization period for the acquired intangible assets is 7.0 years.~~

~~Table of Contents~~

Renewal rights asset was estimated through the income approach based on forecast and cash flows from the renewal policies modeled over the life of the renewals. The fair value of trade name and trademarks was estimated through the income approach using the relief from royalty methodology.

Revenue from these 4 acquisitions included in the Company’s condensed consolidated statements of operations through September 30, 2021 is $55.3 million. Net income included in the Company’s condensed consolidated statements of operations from these acquisitions through September 30, 2021 is $1.2 million.

~~Unaudited Pro Forma Consolidated Financial Information~~

~~The following table summarizes the estimated unaudited pro forma consolidated financial information of the Company as if the V12 Data, HOA and Rynoh acquisitions had occurred on January 1, 2020:~~

Three months ended

Nine months ended

September 30,

September 30,

2021

2020

2021

2020
Revenue

$
62,769

$
40,762

$
160,379

$
109,599
Net loss

$
(5,099)

$
(41,820)

$
(84,516)

$
(69,428)

~~Other Acquisitions~~

In the first nine months of 2021, the Company completed other acquisitions which were not individually material to the condensed consolidated financial statements. The purpose of the acquisitions was to expand the scope and nature of the Company’s service offerings, add additional team members with important skillsets, and realize synergies. The transaction costs associated with these acquisitions were $0.3 million and are included in general and administrative expenses on the condensed consolidated statements of operations for the nine months ended September 30, 2021. Goodwill of $3.6 million is not expected to be deductible for tax purposes, while goodwill of $10.0 million is expected to be deductible for tax purposes.PORCH GROUP, INC.

~~11. Commitments~~Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and ~~Contingencies~~unless otherwise stated, unaudited)

Litigation

From time to time the Company is or may become subject to various legal proceedings arising in the ordinary course of business, including proceedings initiated by users, other entities, or regulatory bodies. Estimated liabilities are recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In many instances, the Company is unable to determine whether a loss is probable or to reasonably estimate the amount of such a loss and, therefore, the potential future losses arising from a matter may differ from the amount of estimated liabilities the Company has recorded in the financial statements covering these matters. The Company reviews its estimates periodically and makes adjustments to reflect negotiations, estimated settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter.

Cases under Telephone Consumer Protection Act

Porch and/or an acquired entity, GoSmith.com, are party to twelve legal proceedings alleging violations of the automated calling and/or Do Not Call restrictions of the Telephone Consumer Protection Act of ~~1991 (“TCPA”).~~1991. Some of these actions allege related state law claims. The proceedings were commenced as mass tort ~~actions~~action by a single plaintiffs’ law firm in December 2019 and April/May 2020 in federal district courts throughout the United States. One of the actions was dismissed with prejudice and is on appeal before the Ninth Circuit Court of Appeals. The remainder have been consolidated in the United States District Court for the Western District of Washington, where Porch resides. That case is stayed pending the outcome of the appeal. Plaintiffs seek actual, statutory, and/or treble damages, injunctive relief, and reasonable attorneys’ fees and costs.

~~Table of Contents~~

These actions are at an early stage in the litigation process. It is not possible to determine the likelihood of an unfavorable outcome of these disputes, although it is reasonably possible that the outcome of these actions may be unfavorable. Further, it is not possible to estimate the range or amount of potential loss (if the outcome should be unfavorable). Porch intends to contest these cases vigorously.

Kandela, LLC v Porch.com, Inc.

In May 2020, the former owners of Kandela, LLC filed complaints against Porch in the Superior Court of the State of California, alleging a breach of contract related to the terms and achievement of an earnout agreement related to the acquisition of the Kandela business and related fraudulent inducement claims. Claimants seek to recover compensatory damages based on an asset purchase agreement entered into with Porch and related employment agreements. Claimants also seek punitive damages, attorney’s fees and costs. This matter is ~~at an early stage~~still in the arbitration process and Porch is unable to determine the likelihood of an unfavorable outcome, although it is reasonably possible that the outcome may be unfavorable. Certain claimants have settled their claims, and this settlement is within the range of the estimated accrual. Arbitration of the remaining claims ~~is currently scheduled for~~occurred in March ~~2022.~~2022, but a final decision has yet to be issued by the Arbitrator. Porch is unable to provide an estimate of the range or amount of potential loss across the remaining claims (if the outcome should be unfavorable); however, Porch has recorded an estimated accrual related to the claims underlying the aforementioned settlement. Porch intends to contest the remaining claims vigorously.

Putative Wage and Hours Class Action Proceeding

A former employee of HireAHelper™ filed a complaint in San Diego County Superior Court in November 2020, asserting putative class action claims for failure to pay overtime, failure to pay compensation at the time of separation and unfair business practices in violation of California law. HireAHelper™ was served with the complaint in December 2020 and on January 28, 2021 Defendants removed the case to the United States District Court for the Southern District of California. The plaintiff seeks to represent all current and former non-exempt employees of HireAHelper™ and Legacy Porch and Porch’s other affiliated companies in the State of California during the relevant time period. Plaintiffs seek damages for unpaid wages, liquidated damages, penalties, attorneys’ fees and ~~costs. While this action is still at an early stage in the litigation process,~~costs for which, Porch has recorded an estimated accrual for a contingent loss based on information currently known. The parties recently attended a mediation

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

in an effort to resolve the matter. The mediation was successful, and a ~~tentative~~ deal was ~~reached pending execution of~~reached. The parties have executed the long form settlement agreement and obtained preliminary approval byfrom the ~~court.~~court on April 25, 2022. Notices will go out to the putative class, and after the notice period, the parties will seek final approval of the settlement from the court on August 11, 2022. If final approval is granted, and the settlement will be funded, and the case will be complete.

Other

In addition, in the ordinary course of business, Porch and its subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims, as well as stockholder derivative actions, class action lawsuits and other matters. The amounts that may be recovered in such matters may be subject to insurance coverage. Although the results of legal proceedings and claims cannot be predicted with certainty, neither Porch nor any of its subsidiaries is currently a party to any legal proceedings the outcome of which, we believe, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition or results of ~~operations~~

~~Regulatory Requirements and Restrictions~~

HAIC is subject to the laws and regulations of the State of Texas and the regulations of any other states in which HAIC conducts business. State regulations cover all aspects of HAIC’s business and are generally designed to protect the interests of insurance policyholders, as opposed to the interests of stockholders. The Texas Insurance Code requires all property and casualty insurers to have a minimum of $2.5 million in capital stock and $2.5 million in surplus. HAIC has capital and surplus in excess of this requirement.

As of September 30, 2021 HAIC had restricted cash and investments totaling $314 thousand and pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors. See Note 1.

~~Table of Contents~~

The Texas Insurance Code limits dividends from insurance companies to their stockholders to net income accumulated in the Company’s surplus account, or “earned surplus”. The maximum dividend that may be paid without approval of the Insurance Commissioner is limited to the greater of 10% of the statutory surplus at the end of the preceding calendar year or the statutory net income of the preceding calendar year. NaN dividends were paid by HAIC in the first nine months of 2021.operations.

~~12.~~13. Segment Information

Beginning in ~~the quarter ending September 30,~~ 2021, the Company has 2 reportable segments that are also our operating ~~segments -~~segments: Vertical Software and Insurance. Our reportable segments have been identified based on how our CODM manages our business, makes operating decisions and evaluates operating and financial performance. The chief executive officer acts as the CODM and reviews financial and operational information for our 2 reportable segments. Operating segments are components of an enterprise for which separate discrete financial information is available and operational results are regularly evaluated by the CODM for the purposes of making decisions regarding resource allocation and assessing performance. ~~The change from our previous 1 reportable segment reflects changes in how the CODM manages the business, allocates resources, makes decisions and evaluates operating and financial performance.~~

Our Vertical Software segment primarily consists of a vertical software platform for the home, providing software and services to home services companies, such as home inspectors, moving companies, utility companies, title companies and others, and includes software fee revenues from companies, and non-insurance revenue. The Vertical Software segment also includes per-lead and ~~per-quote based~~per-quote-based revenue from insurance companies.

~~Our Vertical Software segment~~The following table provides the Company’s revenue was $42,287 and $101,629 for the three and nine months ended September 30, 2021, respectively. Revenue for our Insurance segment was $20,482 and $39,223 for the three and nine months ended September 30, 2021, respectively.by segment:

During 2020, we operated as a single reportable segment. At that time, our insurance revenue was generated solely from third-party insurance carriers though EIG, which began its operations in early 2020. Revenue for our comparable Vertical Software segment revenue was $20,226 and $46,975 for the three and nine months ended September 30, 2020, respectively. Revenue for the comparable Insurance segment was $1,281 and $2,602 for the three and nine months ended September 30, 2020, respectively. Also, during the nine months ended September 30, 2020, we recognized $4,196 of revenue related to divested businesses.


	Three Months Ended March 31,
	2022		2021
Segment revenues:
Vertical Software	$	34,688	$	24,937
Insurance		27,873		1,805
Total segment revenue	$	62,561	$	26,742

Our segment operating and financial performance measure is segment ~~adjusted~~Adjusted EBITDA (loss). Segment ~~adjusted~~Adjusted EBITDA (loss) is defined as revenue less the following expenses associated with our segments: cost of revenue, sales and marketing, product and technology, and general and administrative expenses. Segment ~~adjusted~~Adjusted EBITDA (loss) also excludes non-cash items or items that management does not consider are reflective our ongoing core operations.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

Currently, we do not allocate any shared expenses to ~~our~~the reportable segments. ~~We include these~~These expenses are included in Corporate and Other. Corporate and Other includes shared expenses such as sales and marketing, certain product and technology, accounting, human resources, legal and general and administrative, and other income, expenses, gains and losses that are not allocated in assessing segment performance due to their function. Such transactions are excluded from the reportable segments results but included in reported consolidated results.

The reconciliation of segment Adjusted EBITDA ~~income~~ (loss) to consolidated loss from operations below includes the effects of corporate and other items that the CODM does not consider in assessing segment performance.

~~Table of Contents~~

The following tables provide financial information for ~~our~~the 2 reportable segments and reconciliations to consolidated financial information for the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2021		2020		2021		2020		2022		2021
Segment adjusted EBITDA (loss):
Vertical Software	$	7,712	$	7,673	$	19,041	$	15,875	$	2,984	$	3,151
Insurance		5,473		313		3,067		(62)		3,286		508
Corporate and Other		(12,312)		(9,421)		(40,754)		(30,272)		(13,342)		(13,261)
Divested Businesses		—		—		—		160
Total segment adjusted EBITDA (loss)		873		(1,435)		(18,646)		(14,299)		(7,072)		(9,602)
Reconciling items:
Depreciation and amortization		(4,431)		(3,104)		(10,787)		(5,021)		(6,483)		(2,463)
Non-cash stock-based compensation		(5,884)		(507)		(29,249)		(1,239)
Non-cash bonus expense		(695)		—		(1,378)		—
Acquisition and related (income) expense⁽¹⁾		(1,958)		1,537		(4,648)		386
Non-cash stock-based compensation expense										(5,854)		(16,835)
Acquisition and related expense										(895)		(728)
Non-cash long-lived asset impairment charge		(76)		(239)		(216)		(540)		(69)		(68)
Revaluation of contingent consideration		(195)		(100)		380		(1,500)		(3,205)		355
Investment income and realized gains		(248)		—		(448)		—		(197)		—
Non-cash bonus expense										(1,526)		(290)
Operating loss	$	(12,614)	$	(3,848)	$	(64,992)	$	(22,213)	$	(25,301)	$	(29,631)

⁽¹⁾~~Acquisition and related (income) expense in the nine months ended September 2021 and 2020, includes $112 thousand and $302 thousand of non-cash stock based compensation related to legacy acquisitions.~~

The CODM does not review assets on a segment basis.

All of the Company’s revenue is generated in the United States. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company did not have assets located outside of the United States.

~~13.~~14. Basic and Diluted Net Loss Per Share

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. It has been retrospectively adjusted for all periods prior to the reverse capitalization. The retroactive adjustment is based on the same number of weighted-average shares outstanding in each historical period.

Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of stock options, RSUs, RSAs, convertible notes, ~~warrants~~earnout shares and ~~earnout shares. During the three months ending September 30, 2021,~~warrants. As the Company ~~recorded fair value gains on the remeasurement of the private warrant liability. To calculate~~has reported losses for all periods presented, all potentially dilutive ~~EPS, the fair value gains have been added back to the numerator to adjust~~securities are antidilutive and accordingly, basic net loss ~~as though the warrants had been classified as an equity instrument. The denominator is adjusted by calculating the incremental dilutive shares using the treasury stock method.~~per share equals diluted net loss per share.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

(all numbers in thousands, except share amounts and unless otherwise stated, unaudited)

The following table sets forth the computation of the Company’s basic and diluted net loss attributable per share to common stockholders for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:

Three Months Ended

Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020

Numerator:









Net loss used to compute net loss per share:

Basic

$
(5,099)

$
(8,923)

$
(86,497)

$
(33,548)

Adjustments for change in fair value of warrant liability

(2,692)

—

—

—

Diluted

$
(7,791)

$
(8,923)

$
(86,497)

$
(33,548)

Denominator:









Weighted average shares outstanding used to compute loss per share:

Basic

96,839,292

35,809,973

92,544,137

35,294,839

Dilutive effect of warrants

706,650

—

—

—

Diluted

97,545,942

35,809,973

92,544,137

35,294,839

Loss per share - basic

$
(0.05)

$
(0.25)

$
(0.93)

$
(0.95)

Loss per share - diluted

$
(0.08)

$
(0.25)

$
(0.93)

$
(0.95)


	Three Months Ended March 31,
	2022		2021
Numerator:
Net loss used to compute net loss per share - basic and diluted	$	(5,796)	$	(65,101)

Denominator:
Weighted average shares outstanding used to compute loss per share - basic and diluted		96,074,527		85,331,575

Loss per share - basic and diluted	$	(0.06)	$	(0.76)

The following table discloses securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because to do so would have been antidilutive for all periods presented:


	Three Months Ended		Nine Months Ended		2022	2021
	2021	2020	2021	2020
Stock options	5,131,615	7,916,924	5,131,615	7,916,924	4,569,743	6,199,325
Restricted stock units and awards	984,135	2,144,819	984,135	2,144,819	4,225,986	1,282,327
Legacy Porch warrants	—	3,343,451	—	3,343,451
Public and private warrants	—	—	1,821,951	—	1,795,700	6,237,377
Earnout shares	4,099,999	—	4,099,999	—	2,050,000	4,099,999
Convertible debt⁽¹⁾	16,998,130	1,856,353	16,998,130	1,856,353	16,998,130	—

⁽¹⁾ In connection with the September 16, 2021 issuance of the 2026 Notes, the Company used a portion of the proceeds to pay for the capped call transactions, which are expected to generally reduce the potential dilution to the Company’s common stock. The capped call transactions impact the number of shares that may be issued by effectively increasing the conversion price for the Company from $25 per share to approximately $37.74 per share, which would result in 11,261,261 potentially dilutive shares instead of the shares reported in this table as of ~~September 30, 2021.~~March 31, 2022.

~~See Note 8 for additional information regarding the terms of the warrants. See Note 9 for additional information regarding stock options, RSUs and RSAs.~~

~~14.~~15. Subsequent Events

~~In October 2021,~~On April 1, 2022, the Company ~~completed an acquisition of Floify, a company providing digital mortgage automation~~acquired the home warranty and ~~point-of-sale~~inspection software ~~for mortgage companies~~ and ~~loan officers. The total purchase price was $86.5~~services businesses from Residential Warranty Services (“RWS”). Total consideration in the transaction is $33 million, ~~comprised of $76.5~~including $29 million of cash, of which $5 million was paid ~~at closing~~in March 2022, and ~~$10 million of Porch common stock. Porch is guaranteeing the Sellers that the $10~~$4 million of Porch common stock ~~will double in value by the end of 2024 with respect to any such Porch shares~~ ~~retained by the Sellers throughout that period. The guarantee requires Porch to provide~~and additional ~~shares of common stock or cash~~contingent consideration tied to the ~~seller if the stock does not double in value.~~

~~On September 10, 2021, the Company~~’~~s Board~~performance of ~~Directors (the~~ “~~Board~~”~~) approved an equity award pool of $25.1 million (based on grant value) under the 2020 Plan. Approximately 1.2 million RSUs with the average grant date fair~~

~~Table of Contents~~

~~value of $18.72 per share were issued in October and November 2021 pursuant to the equity award pool related to~~ a ~~special equity award program for all Company employees on the payroll as of August 1, 2021, referred to as the~~ “~~Together We Win Program.~~” The Together We Win equity awards consists of time-based restricted stock units, vesting quarterly over three years from the grant date. An additional 0.1 million of Together We Win RSUs are expected to be granted by the end of 2021.

~~On November 5, 2021, the Company repaid the outstanding $4.0 million of HAHC’s borrowings on the RLOC. See Note 7.~~recently launched business line.

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PART II —OTHER INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This ~~report~~Quarterly Report and the documents incorporated herein by reference contain forward- looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions.

Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. Unless specifically indicated otherwise, the forward-looking statements in this ~~report~~Quarterly Report do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that have not been completed as of the date of this filing. You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company’s forward-looking statements:

●

the ability to recognize the anticipated benefits of the Company’s business combination consummated on December 23, 2020 (the “Merger”) pursuant to that certain Agreement and Plan of Merger, dated July 30, 2020 (as amended by the First Amendment to the Agreement and Plan of Merger, dated as of October 12, 2020, the “Merger Agreement”), by and among PropTech Acquisition Corporation (“PTAC”), PTAC Merger Sub Corporation, a Delaware corporation and wholly-owned subsidiary of PTAC (“Merger Sub”), Porch.com, Inc. a Delaware corporation, and Joe Hanauer, in his capacity as the stockholder representative, which may be affected by, among other things, competition and the ability of the combined business to grow and manage growth profitably, maintain key commercial relationships and retain its management and key people;

●

expansion plans and opportunities, including recently completed acquisitions as well as future acquisitions or additional business ~~combinations;~~combinations;

●

●costs related to ~~the Merger and~~ being a public company;

●litigation, complaints, and/or adverse publicity;

●

the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, demographic trends and employee availability;

●

further expansion into the insurance industry, and the related federal and state regulatory requirements;

●privacy and data protection laws, privacy or data breaches, or the loss of data; and

●~~the impact of the COVID-19~~
●
the duration and scope of the COVID pandemic, and its continued effect on the business and financial conditions of the Company.

These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this ~~report~~Quarterly Report are more fully described in Part II, Item 1A of this ~~report,~~Quarterly Report, Item 1A of the Company’s Annual Report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2020~~2021 filed with the SEC on ~~May 19,2021~~March 16,2022 and in any of the Company’s subsequent SEC filings. The risks described in these filings are not exhaustive. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward- looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary

~~Table of Contents~~

statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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Business Overview

Porch is a vertical software platform for the home, providing software and services to ~~approximately 20,000~~over 25,500 home services companies, such as home inspectors, mortgage companies and loan officers, title companies, moving companies, real estate agencies, utility companies, ~~warranty companies,~~roofers and ~~others. Porch helps~~others, helping these service providers grow their business and improve their customer experience.

~~As of September 30, 2021, Porch has two reportable segments: the Vertical Software segment and the Insurance segment.~~

~~Porch’s Vertical Software segment~~ The Company provides software and services to home services companies and, through these relationships, gains unique and early access to homebuyers and homeowners, assists homebuyers and homeowners with critical services such as insurance and moving, and, in turn, ~~Porch’s~~the Company’s platform drives demand for other services from such companies as part of ~~our~~the value proposition. ~~Vertical Software segment~~Porch has three types of customers: (1) home services companies, such as home inspectors, mortgage companies, and loan officers and title companies, for whom Porch provides software and services and who pay recurring SaaS fees and increasingly provide introductions to homebuyers and homeowners; (2) consumers, such as homebuyers and homeowners, whom Porch assists with the comparison and provision of various critical home services, such as insurance, moving, security, TV/~~internet,~~Internet, and home repair and improvement; and (3) service providers, such as insurance carriers, moving companies, security companies, title companies, ~~security~~mortgage companies and TV/~~internet~~Internet providers, who pay ~~Porch~~ for new customer sign-ups.

~~Our Insurance segment offers various property-related insurance policies through its own managing general agency, carrier and agency.~~ The ~~Insurance segment also includes home warranty revenue.~~

Throughout the last eight years, Porch has established and expanded operations across a number of home-related industries. Porch has also selectively acquired companies which can be efficiently integrated into Porch’s platform. In 2017, we significantly expanded our position in the home inspection industry by acquiring ISN™, a developer of ERP and CRM software for home inspectors. In November 2018, we acquired HireAHelper™, a provider of software and demand for moving companies.In 2019, we acquired a business that connects new homebuyers to utility companies. In 2020, we acquired a moving services technology company, iRoofing, LLC a roofing software company, and two individually immaterial acquisitions. In the first half of 2021, we acquired a home inspection integrated customer service and call handling solution company, V12 Data, an omnichannel marketing platform, HOA, an insurance managing general agency, as well as Rynoh, a financial management and fraud prevention software service for the title and real estate industries. In September 2021, we acquired American Home Protect (“AHP”), a provider of whole home warranty policies across the United States. We will continue to make additional acquisitions that are consistent with our focus on insurance and home services related verticals.

~~We sell our~~Company sells software and services to companies using a variety of sales and marketing ~~tactics. We have~~tactics, including teams of inside sales representatives organized by vertical market who engage directly with ~~companies. We have~~companies, and enterprise sales teams ~~which~~that target the large named accounts in each of ~~our~~the vertical markets. These teams are supported by ~~a variety of~~various typical software marketing tactics, including digital, in-person (such as trade shows and other events) and content marketing.

For consumers, Porch largely relies on our unique and proprietary relationships with ~~the approximately 20,000~~over 25,500 companies using ~~Porch’s~~the Company’s software to provide the company with end customer access and introductions. ~~Porch~~The Company then utilizes technology, lifecycle marketing and teams in lower cost locations to operate as a Moving Concierge to assist these consumers with services. ~~Porch~~The Company has invested in limited direct-to-consumer ~~(“D2C”)~~ marketing capabilities, but expects to become more advanced over time with capabilities such as digital and social retargeting.

Key Performance Measures and Operating Metrics

In the management of ~~our~~these businesses, ~~we identify, measure~~the Company identifies, measures and ~~evaluate a variety of~~evaluates various operating metrics. The key performance measures and operating metrics ~~we use~~used in managing ~~our~~the businesses are set forth below. These key

~~Table of Contents~~

performance measures and operating metrics are not prepared in accordance with ~~GAAP,~~generally accepted accounting principles in the United States (“GAAP”), and may not be comparable to or calculated in the same way as other similarly titled measures and metrics used by other companies. The key performance measures presented have been adjusted for divested ~~Porch~~ businesses in ~~2018 through~~ 2020.

●

Average ~~Number of~~ Companies in Quarter — Porch provides software and services to home services companies and, through these relationships, gains unique and early access to homebuyers and homeowners, assists homebuyers and homeowners with critical services such as insurance, warranty and moving. ~~Porch~~The Company’s customers include home services companies, ~~such as home inspectors,~~ for whom ~~Porch~~the Company provides software and services and who provide introductions to homebuyers and ~~homeowners. Porch~~homeowners and tracks the average number of home services companies from which it generates revenue each quarter in order to measure ~~our~~the ability to attract, retain and grow ~~our~~ relationships with home services companies. Porch management defines the average number of companies in a quarter as the straight-line average of the number of companies as of the end of period compared with the beginning of period ~~number~~across all of ~~companies, inclusive of all companies across Porch’s~~the Company’s home services verticals that (i) generate recurring revenue and (ii) generated revenue in the quarter. For new acquisitions, ~~we determine~~ the number of ~~customers~~companies is determined in ~~their~~the initial quarter based on the percentage of the quarter ~~they were~~the acquired business is a part of ~~Porch.~~the Company.

● Average Revenue per Account per Month in Quarter— Management views ~~Porch~~the Company’s ability to increase revenue generated from existing customers as a key component of Porch’s growth strategy. Average Revenue per Account per~~Average revenue per account per month~~Month in ~~quarter~~Quarter is defined as the average revenue permonth generated across all our home services company customer accounts in a quarterly period. Average Revenue per Account perMonth

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in Quarter is derived from all customers and total revenue, ~~from~~not only customers and revenues associated with the ~~quarter divided by the average number of companies in the period divided by 3 (to provide monthly revenue).~~Company’s referral network.

The following table summarizes ~~our average companies~~Average Companies in ~~quarter~~Quarter and ~~average revenue~~Average Revenue per ~~account~~Account per ~~month~~Month in Quarter for each of the quarterly periods indicated:


	2018		2019		2019		2019		2019		2020		2020		2020		2020		2021		2021		2021		2022		2022			2022			2022
	Q4		Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q1		Q2			Q3			Q4
Average Companies in Quarter		9,627		10,199		10,470		10,699		10,972		10,903		10,523		10,792		11,157		13,995		17,120		20,472		25,512		—			—			—
Average Revenue per Account per Month in Quarter	$	325	$	305	$	468	$	552	$	450	$	484	$	556	$	664	$	556	$	637	$	1,000	$	1,022	$	817	$	—		$	—		$	—

																									2021		2021			2021			2021
																									Q1		Q2			Q3			Q4
Average Companies in Quarter																										13,995		17,120			20,472			24,603
Average Revenue per Account per Month in Quarter (adjusted)⁽¹⁾																									$	637	$	933	⁽¹⁾	$	985	⁽¹⁾	$	776	⁽¹⁾

																									2020		2020			2020			2020
																									Q1		Q2			Q3			Q4
Average Companies in Quarter																										10,903		10,523			10,792			11,157
Average Revenue per Account per Month in Quarter																									$	484	$	556		$	664		$	556

(1)

During the quarter ended December 31, 2021, the Company corrected an immaterial error that impacted revenue and cost of revenue for the three months ended June 30, 2021 and September 30, 2021. Average Revenue per Account per Month in Quarter metrics were recalculated for the affected quarters to show the impact of the adjustments.

The following tables shows the impact of this error on Average Revenue per Account per Month in Quarter:

2021

2021

2021

2021

Q1

Q2

Q3

Q4
Total Revenue (as previously reported)

26,742

$
51,340

$
62,769

$
51,582
Quarterly Impact of Revenue Adjustment Recorded in Q4

—

(3,400)

(2,300)

5,700
Total Revenue (as adjusted)

$
26,742

$
47,940

$
60,469

$
57,282
Average Revenue per Account per Month in Quarter (as adjusted)

$
637

$
933

$
985

$
776
Average Revenue per Account per Month in Quarter (as previously reported)

$
637

$
1,000

$
1,022

$
699

In 2021, the Company completed acquisitions of V12 Data in Q1, Homeowners of America (“HOA”) and Rynoh in Q2, American Home Protect (“AHP”) in Q3 and Floify in Q4, that impacted the average number of companies in the quarter.
Due to COVID-19, some small companies put their business with the Company on hold, which is reflected in a lower number of total companies in 2020 and higher average revenue per account.
● ~~Number of~~ Monetized Services in Quarter — Porch connects consumers with home services companies nationwide and offers a full range of products and services where homeowners can, among other things: (i) compare and buy home insurance policies (along with auto, flood and umbrella policies) and warranties with competitive rates and coverage; (ii) arrange for a variety of services in connection with their move, from labor to load or unload a truck to full-service, long-distance moving services; (iii) discover and install home automation and security systems; (iv) compare ~~internet~~Internet and television options for their new home; (v) book small handyman jobs at fixed, upfront prices with guaranteed quality; and (vi) compare bids from home improvement professionals who can complete bigger jobs. ~~Porch~~The Company tracks the number of monetized services performed through its platform each quarter and the revenue generated per service performed in order to measure ~~to measure~~ market penetration with homebuyers and homeowners and ~~Porch~~the Company’s ability to deliver high-revenue services within those groups. Monetized services per quarter is defined as the total number of unique services from which wethe Company generated revenue, including, but not limited to, new and renewing insurance and warranty customers, completed moving jobs, security installations, TV/~~internet~~Internet installations or other home projects, measured over a quarterly period.
● Average Revenue per Monetized Service in Quarter — Management believes that shifting the mix of services delivered to homebuyers and homeowners toward higher revenue services is a key component of Porch’s growth strategy. Average revenue per monetized services in quarter is the average revenue generated

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per monetized service performed in a quarterly period. When calculating Average Revenue per Monetized Service in quarter, average revenue is defined as total quarterly service transaction revenues generated from monetized services.

~~Table of Contents~~

The following table summarizes our monetized services and average revenue per monetized service for each of the quarterly periods indicated:


	2018		2019		2019		2019		2019		2020		2020		2020		2020		2021		2021		2021		2022		2022			2022			2022
	Q4		Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q1		Q2			Q3			Q4
Monetized Services in Quarter		184,645		185,378		205,887		211,190		172,862		152,165		181,520		198,165		169,949		182,779		302,462		329,359		254,249		—			—			—
Revenue per Monetized Service in Quarter	$	44	$	43	$	63	$	76	$	78	$	93	$	86	$	97	$	98	$	92	$	129	$	144
Average Revenue per Monetized Service in Quarter																									$	176	$	—		$	—		$	—

																									2021		2021			2021			2021
																									Q1		Q2			Q3			Q4
Monetized Services in Quarter																										182,779		302,462			329,359			260,352
Average Revenue per Monetized Service in Quarter (adjusted)⁽¹⁾																									$	92	$	118	⁽¹⁾	$	137	⁽¹⁾	$	154	⁽¹⁾

																									2020		2020			2020			2020
																									Q1		Q2			Q3			Q4
Monetized Services in Quarter																										152,165		181,520			198,165			169,949
Average Revenue per Monetized Service in Quarter																									$	93	$	86		$	97		$	98

(1)

During the quarter ended December 31, 2021, the Company corrected an immaterial error that impacted revenue and cost of revenue for the three months ended June 30, 2021 and September 30, 2021. Average Revenue per Monetized Service in Quarter metrics were recalculated for the affected quarters to show the impact of the adjustments.

The following tables shows the impact of this error on Average Revenue per Monetized Service in Quarter:

2021

2021

2021

2021

Q1

Q2

Q3

Q4
Service Revenue (as previously reported)

$
16,812

$
39,102

$
47,398

$
34,351
Quarterly Impact of Revenue Adjustment Recorded in Q4

—

(3,400)

(2,300)

5,700
Service Revenue (as adjusted)

$
16,812

$
35,702

$
45,098

$
40,051
Average Revenue per Monetized Service in Quarter (adjusted)

$
92

$
118

$
137

$
154
Average Revenue per Monetized Service in Quarter (as previously reported)

$
92

$
129

$
144

$
132

In 2021, the Company completed acquisitions of V12 in Q1, HOA and Rynoh in Q2, AHP in Q3 and Floify in Q4, which impacted the number of monetized services in the quarter.
In 2020, the Company shifted insurance monetization from getting paid per quote to earning multiyear insurance commissions, resulting in fewer monetized transactions with higher average revenue.
In March 2020, COVID-19 impacted the service volumes during the period from March until June. The impact on service volumes, largely recovered by June 30, 2020, and after adjusting for insurance monetization remains above prior year volumes.
Recent Developments
~~COVID-19 Impact~~Adoption of New Accounting Standards
~~In March 2020,~~We early adopted Accounting Standards Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers on January 1, 2022 and will apply the ~~World Health Organization declared a pandemic related~~guidance prospectively for business combinations that occur after the adoption date. The adoption has no impact to the global novel coronavirus disease 2019 (“COVID-19”) outbreak. The COVID-19 pandemic and the measures adopted by government entities in response to it have adversely affected Porch’s business operations, which impacted revenue primarily in the first half of 2020. The impact of the COVID-19 pandemic and related mitigation measures, Porch’s ability to conduct ordinary course business activities has been and may continue to be impaired for an indefinite period. The extent of the continuing impact of the COVID-19 pandemic on Porch’s operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on the Company’s customers, suppliers, and employees, all of which is uncertain at this time. Porch expects the COVID-19 pandemic to continue to have an uncertain impact on future revenue and results of operations, but Porch is unable to predict at this time the size and duration of such impact.
~~Comparability of Financial Information~~
~~Porch’s future results~~existing unaudited condensed consolidated balance sheets, statements of operations, and ~~financial position may not be comparable to historical results as a result~~statements of ~~the Merger.~~cash flows.
Key Factors Affecting Operating Results
The Company has been implementing its strategy as a vertical software platform for the home, providing software and services to ~~approximately 20,000~~over 25,500 home services companies, such as home inspectors, moving companies, utility companies,

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warranty companies, ~~and others.~~etc. The following are key factors affecting our operating results in ~~2020 and~~ the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

●

~~Continued investment~~In 2021, the Company completed several acquisitions with an aggregate purchase price of $346.3 million to acquire companies to expand the scope and nature of the Company's services offerings, add additional team members with important skillsets, and realize synergies. These acquisitions included V12 Data (acquired in ~~growing~~January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021) and ~~expanding~~Floify (acquired in October 2021). For a complete discussion of our ~~position~~2021 acquisitions, refer to Item 8 in the ~~home inspection industry as a result of the 2017 acquisition of ISN~~™~~, a developer of ERP and CRM software for home inspectors.~~2021 Annual Report on Form 10-K.

●

Continued investment in growing and expanding the Company’s position in the home inspection industry including through our core ERP and CRM software offered by ISN.

●

Continued investment in growing and expanding the Company’s position in providing moving services to consumers as a result of the 2018 acquisition of HireAHelper™, a provider of software and demand for moving companies.

●

Intentionally building operating leverage in the business by focusing on growing operating expenses at a slower rate than the growth in revenue. ~~We are specifically~~Specifically by increasing economies of scale related to ~~our variable~~fixed selling costs, Moving Concierge call center operations and product and technology costs.

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●

In the first nine months of 2021 the Company invested $178.7 million in cash, net of acquired, and $24.8 million in common stock to acquire companies to expand the scope and nature of the Company’s service offerings, add additional team members with important skillsets, and realize synergies.

●

In January 2021, Porch acquired V12 Data, an omnichannel marketing platform. The purpose of the acquisition is to expand the scope and nature of Porch’s service offerings, add additional team members with important skillsets, and realize synergies.

●

In April 2021, Porch acquired HOA, an insurance managing general agency. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and gain licenses to operate as an insurance carrier and managing general agent in 31 states.

●

~~In May, 2021, Porch acquired Rynoh, a software and data analytics company that supports financial management and fraud prevention primarily for the title and real estate industries.~~

●

In September 2021, Porch acquired AHP, a company providing home warranty policies. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and realize synergies.

●

~~In March and April of 2021, a number of holders of public warrants exercised their warrants to acquire approximately 10.9 million shares of common stock, resulting in cash proceeds of $126.8 million.~~

●

~~In September 2021, the Company raised $413.5 million in net proceeds from a private offering of its~~ ~~0.75% Convertible Senior Notes due 2026 (the “2026 Notes”)~~. See Note 7. The proceeds from this offering, after paying down the Senior Secured Term Loan and purchasing the capped call transactions, increased the Company’s unrestricted cash balance to $410.2 million. This level of cash is expected to provide sufficient financial resources for the Company’s ongoing plans for future acquisitions and other investments, such as operating leverage and organic growth.

●

Ongoing expansion in other software verticals related to the home and related services such as title, warranty and mortgage software.

●

Investments in consumer experience to drive higher conversion rates, including investments in apps.

●

Investments in establishing and maintaining controls required by the Sarbanes-Oxley Act of 2002 (“SOX”) and other internal controls across IT and accounting organizations.

●

Investments in data platforms and leveraging that data in pricing optimization within insurance.

●

Growth across the insurance business, including geographic expansion.

Basis of Presentation

The unaudited condensed consolidated financial statements and accompanying notes of ~~Porch~~the Company include the accounts of the Company and its consolidated subsidiaries and were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All significant intercompany accounts and transactions are eliminated in consolidation.

The Company operates in two operating segments: Vertical Software and Insurance. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the CODM in making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer is the CODM.

Components of Results of Operations

Total Revenue

The Company generates ~~its Core Services Revenue~~revenue from (1) ~~fees received for connecting homeowners to individual contractors, small business~~software and service providers and large enterprise service providers, (2) commissions from third-party insurance and warranty carriers, and (3) insurance and warranty premiums, policy fees and other insurance-related fees generated through its own insurance carrier. The Company’s Managed Services Revenue is generated from fees received for providing select and limited services directly to homeowners. The Company’s Software and Service Subscription

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~~Revenue is~~subscription revenue generated from fees received for providing subscription access to the Company’s software platforms and subscription services across various ~~industries.~~

Inindustries; (2) insurance revenue in the ~~Core Services Revenue stream, the Company connects Service Providers with~~form of commissions from third-party insurance carriers where Porch acts as an independent agent and commissions from reinsurers, insurance and warranty premiums, policy fees and other insurance-

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related fees generated through its own insurance carrier; (3) move-related service revenue through feesreceived for connecting homeowners ~~that meet pre-defined criteria and may be looking for relevant services. Service Providers include a variety of~~to service providers ~~throughout~~during time of a ~~homeowner’s lifecycle,~~move including movers, TV/Internet, warranty, and security monitoring providers ~~plumbers, electricians, roofers, title companies, et al. The Company also sells home insurance~~ and ~~home warranty policies through the Company’s own insurance carrier, as well as~~ for ~~third-party insurance carriers.~~

~~Managed Services Revenue includes fees earned from homeowners~~certain move related services for providing select services directly to the ~~homeowner,~~homeowner; (4) post-move related revenue in the form of fees earned from introducing homeowners to home service professionals including ~~handyman~~handymen, plumbers, electricians, roofers etc., and ~~moving services. The Company generally invoices~~ for ~~managed services~~certain projects ~~on a fixed fee or time and materials basis. The transaction price represents the contractually agreed upon price with the end customer~~ for providing select services directly to the respective service. Revenue is recognized as services are performed based on an output measure or progress, which is generally over a short duration (e.g., same day). Fees earned for providing managed services projects are non-refundable and there is generally no right of return.homeowner.

Software and ~~Service Subscription Revenue~~service subscription revenue primarily relates to subscriptions to the Company’s ~~home inspector~~ software offerings across its verticals as well as marketing software and ~~services, and other vertical software.~~services. The Company’s subscription arrangements for this revenue stream do not provide the customer with the right to take possession of the software supporting the cloud-based application services. The Company’s standard subscription contracts are monthly contracts in which pricing is based on a specified price per inspection completed through the software. Marketing software and services are primarily contractual monthly recurring billings. Fees earned for providing access to the subscription software are non-refundable and there is no right of return. Revenue is recognized based on the amount which the Company is entitled to for providing access to the subscription software during the monthly contract term.

The Insurance segment offers various property-related insurance policies through its own risk-bearing carrier and independent agency as well as a risk-bearing home warranty company. Third-party insurance companies pay Porch Company’s agency upfront and renewal commissions for selling their policies, reinsurers pay the Company ceding commissions when premiums are ceded from owned insurance products, and revenues are earned in the form of policy premiums collected from insureds from owned insurance products. The Insurance segment also includes home warranty revenue which mainly consists of premiums paid by warranty customers for the Company’s home warranty products.

Move-related transactions revenue arises when the Company connects service providers with homeowners that meet pre-defined criteria and may be looking for relevant services. Service providers include movers, TV/Internet, warranty, and security monitoring providers. The Company earns revenue when consumers purchase services from third-party providers. For moving products where the Company manages the process of selecting the service provider and setting the price, the Company generally invoices for projects on a fixed fee or time and materials basis.

Post-move-related transaction revenue includes fees earned from introducing consumers to home service providers as well as directly to the homeowner when the Company manages the service. Revenue generated from service providers is recognized at a point in time upon the connection of a homeowner to the service provider. The Company generally invoices for managed services projects on a fixed fee or time and materials basis.

Total Costs and Expenses

Operating expenses

Operating expenses are categorized into four categories:

●

Cost of revenue;

��●

Selling and marketing;

●

Product and technology; and

●

General and administrative.

The categories of operating expenses include both cash expenses and non-cash charges, such as stock-based compensation, depreciation and amortization. Depreciation and amortization are recorded in all operating expense categories, and consist of depreciation from property, equipment and software and intangible assets.

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Cost of revenue primarily ~~consist~~consists of ~~professional fees and materials under the Managed Services model,~~insurance claims losses and loss adjustment expenses, warranty claims, third-party providers for executing moving labor and handyman services when the Company is managing the job, data costs related to marketing campaigns, certain call center costs, credit card processing and merchant ~~fees.~~fees and operational cost of SaaS businesses.

Selling and marketing expenses primarily consist of ~~third-party data leads, affiliate and partner leads, paid search and search engine optimization (“SEO”) costs, policy acquisition and other underwriting expenses,~~ payroll, employee benefits and stock-based compensation expense, and other headcount related costs associated with sales efforts directed toward companies and ~~consumers.~~consumers, and deferred policy acquisition costs (“DAC”) of new and renewal insurance contracts. Also included are any direct costs to acquire customers, such as search engine optimization (“SEO”), marketing (“SEM”) costs and affiliate and partner leads.

The Company capitalizes DAC, which consists primarily of commissions, premium taxes, policy underwriting, and production expenses directly related to the successful acquisition by the Company’s insurance subsidiary of new or renewal insurance contracts. DAC are amortized to expense on a straight-line basis over the terms of the policies to which they relate, which is generally one year. DAC is also reduced by ceding commissions paid by reinsurance companies which represent recoveries of acquisition costs. DAC is periodically reviewed for recoverability and adjusted if necessary.

Product and technology development costs primarily consist of payroll, employee benefits, stock-based compensation expense, other ~~headcount related~~headcount-related costs associated with product development, net of costs capitalized as

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internally developed ~~software,~~software. Also included are cloud computing, hosting and other technology costs, software subscriptions, professional services and amortization of ~~internally-development~~internally developed software.

General and administrative expenses primarily consist of expenses associated with functional departments for finance, legal, human resources and executive ~~management expenses.~~management. The primary categories of expenses include payroll, employee benefits, stock-based compensation expense and other headcount related costs, rent for office space, legal and professional fees, taxes, licenses and regulatory fees, merger and acquisition transaction costs, and other administrative costs.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported and disclosed in the unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis these estimates, which include, but are not limited to, estimated variable consideration for services performed, estimated lifetime value of the ~~allowance~~insurance agency commissions, current estimate for ~~doubtful accounts,~~credit losses, depreciable lives for property and equipment, the valuation of and useful lives for acquired intangible assets, goodwill, the valuation allowance on deferred tax assets, assumptions used in stock-based compensation expense, unpaid losses for insurance claims and loss adjustment expenses, contingent consideration, earnout liabilities and private warrant liabilities, all of which are evaluated by management. Actual results could differ materially from those estimates, judgments, and assumptions.

At least quarterly, ~~we evaluate our~~the Company evaluates estimates and assumptions and ~~make~~makes changes accordingly. For information on our significant accounting policies, see Note 1 to the accompanying Porch unaudited condensed consolidated financial statements.

During the three months ended ~~September 30, 2021,~~March 31, 2022, there were no changes to the critical accounting policies discussed in our Annual Report on Form ~~10-K/A~~10-K for the fiscal year ended December 31, ~~2020,~~2021, as filed on ~~May 19, 2021.~~March 16, 2022. For a complete discussion of our critical accounting policies, refer to Item 87 in the ~~2020~~2021 Annual Report on Form ~~10-K/A.~~10-K.

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Results of Operations

Comparison of Three Months Ended March 31, 2022 and 2021

The following table sets forth our historical operating results for the periods indicated:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,					$	%
	2021		2020		% Change		2021		2020		% Change		2022		2021		Change		Change

	(dollar amounts in thousands)												(dollar amounts in thousands)
Revenue	$	62,769	$	21,507	192	%	$	140,852	$	53,703	162	%	$	62,561	$	26,742	$	35,819	134	%
Operating expenses:
Cost of revenue		19,158		5,361	257	%		44,587		13,252	236	%		21,189		5,930		15,259	257	%
Selling and marketing		22,874		8,803	160	%		60,636		30,443	99	%		25,743		14,638		11,105	76	%
Product and technology		11,317		5,701	99	%		34,158		18,124	88	%		14,231		11,789		2,442	21	%
General and administrative		22,034		5,490	301	%		66,463		15,539	328	%		26,699		24,016		2,683	11	%
Gain on divestiture of business		—		—	NM			—		(1,442)	(100)	%
Total operating expenses		75,383		25,355	197	%		205,844		75,916	171	%		87,862		56,373		31,489	56	%
Operating loss		(12,614)		(3,848)	228	%		(64,992)		(22,213)	193	%		(25,301)		(29,631)		4,330	(15)	%
Other income (expense):
Interest expense		(1,857)		(3,952)	(53)	%		(4,296)		(10,329)	(58)	%		(2,293)		(1,223)		(1,070)	87	%
Change in fair value of earnout liability		7,413		—	NM			(15,388)		—	NM			11,179		(18,770)		29,949	NM
Change in fair value of private warrant liability		2,692		—	NM			(17,521)		—	NM			10,189		(15,910)		26,099	NM
Gain (loss) on extinguishment of debt		(3,133)		(2,532)	24	%		5,110		1,077	374	%
Investment income and realized gains, net of investment expenses		248		—	NM			448		—	NM			197		—		197	NM
Other income (expense), net		316		1,418	(78)	%		225		(2,050)	(111)	%
Other income, net														56		83		(27)	(33)	%
Total other income (expense)		5,679		(5,066)	NM			(31,422)		(11,302)	178	%		19,328		(35,820)		55,148	(154)	%
Loss before income taxes		(6,935)		(8,914)	(22)	%		(96,414)		(33,515)	188	%		(5,973)		(65,451)		59,478	(91)	%
Income tax benefit (expense)		1,836		(9)	NM			9,917		(33)	NM
Income tax benefit														177		350		(173)	(49)	%
Net loss	$	(5,099)	$	(8,923)	(43)	%	$	(86,497)	$	(33,548)	158	%	$	(5,796)	$	(65,101)	$	59,305	(91)	%

NM = Not Meaningful

~~Comparison of Three and Nine Months Ended September 30, 2021 and 2020~~

Revenue

~~Three months ended September 30, 2021 compared to three months ended September 30, 2020:~~

Total revenue increased by ~~$41.3~~$35.8 million, or ~~192%~~134%, from ~~$21.5~~$26.7 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$62.8~~$62.6 million in the three months ended March 31, 2022. During 2021, the Company acquired a number of businesses with an aggregate purchase price of $346.3 million as disclosed in the Company’s Annual Report on Form 10-K. These acquisitions included V12 Data (acquired in January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021) and Floify (acquired in October 2021). Other than V12 Data, these businesses were not owned by the Company during the three months ended March 31, 2021, therefore no revenue was recognized from these businesses during that period. Thus, the increase in revenue in 2022 is primarily driven by the 2021 acquisitions, by accelerated growth after acquisition and by organic growth.

During the quarter ended December 31, 2021, the Company corrected an immaterial error related to revenue from claims fees and contra claims expense, which was corrected in the fourth quarter of 2021. This error impacted revenue and cost of revenue for the three months ended June 30, 2021 and September 30, 2021. The ~~increase~~correction did not impact operating loss or net loss in ~~revenue in 2021 is driven by acquisitions~~these periods, and ~~organic growth in our moving services, inspection and insurance businesses. As Porch has grown~~did not have any impact on the ~~number of companies that use our software and services, we have been able to grow our B2B2C (“Business to Business to Consumer”) and move related services revenues.~~

~~Nine~~three months ended ~~September 30, 2021 compared to nine months ended September 30, 2020:~~

~~Total revenue increased by $87.1 million, or 162% from $53.7 million in the nine months ended September 30, 2020 to $140.9 million in the nine months ended September 30,~~March 31, 2021. ~~The increase in revenue in 2021 is driven by~~

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~~acquisitions and organic growth in our moving services, inspection and insurance businesses, which contributed an aggregate of $75.7 million~~The following table summarizes the impact of the ~~revenue, offset~~correction by ~~the revenue related to divestitures of $4.3 million.~~quarter (in thousands):

Quarter ended


March 31, 2021

June 30, 2021

September 30, 2021

December 31, 2021

Total
Revenue increase (decrease)

$
—

$
(3,400)

$
(2,300)

$
5,700

$
—
Cost of revenue increase (decrease)

—

3,400

2,300

(5,700)

—
Net loss impact

$
—

$
—

$
—

$
—

$
—

Cost of Revenue
~~Three months ended September 30, 2021 compared to three months ended September 30, 2020:~~
Cost of revenue increased by ~~$13.8~~$15.3 million, or 257%, from ~~$5.4~~$5.9 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$19.2~~$21.2 million in the three months ended ~~September 30, 2021.~~March 31, 2022. The increase in the cost of revenue was ~~mostly~~primarily attributable to the ~~growth~~2021 acquisitions of V12 Data (acquired in January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021), and Floify (acquired in October 2021). Other than V12 Data, these businesses were not owned by the Company in the ~~moving business and~~three months ended March 31, 2021, therefore no cost of revenue ~~for our acquired businesses.~~was recognized from these businesses during that period. Thus, the increase in cost of revenue in 2022 is primarily driven by the 2021 acquisitions, by accelerated growth after acquisition and by organic growth. As a percentage of revenue, cost of revenue represented ~~31%~~34% of revenue in the three months ended ~~September 30, 2021~~March 31, 2022 compared with ~~25%~~22% in the same period in ~~2020.~~
~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:~~
2021. Cost of revenue ~~increased by $31.3 million, or 236% from $13.3 million in the nine months ended September 30, 2020 to $44.6 million in the nine months ended September 30, 2021. The increase in the cost~~as a percentage of revenue ~~was mostly attributable~~is higher due to the ~~growth~~mix shift in business with insurance as the ~~moving business~~claims and ~~cost of revenue for our acquired businesses. The increase is also due to the~~ loss and loss adjustment expense ~~related to our insurance carrier business. As a percentage of revenue,~~is recorded in cost of ~~revenue represented 32% of revenue in the nine months ended September 30, 2021 compared with 25% in the same period in 2020.~~revenue.
Selling and marketing
~~Three months ended September 30, 2021 compared to three months ended September 30, 2020:~~
Selling and marketing expenses increased by ~~$14.1~~$11.1 million, or ~~160%~~76%, from ~~$8.8~~$14.6 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$22.9~~$25.7 million in the three months ended ~~September 30, 2021.~~March 31, 2022. The increase is due to ~~$12.8~~$8.3 million related to ~~higher selling and marketing costs associated with the growth in our moving, inspection and insurance businesses, as well as~~ the selling and marketing costs of ~~our~~the acquired ~~businesses. Additionally, there~~businesses comprised of the underwriting and policy acquisition costs for HOA and additional selling and marketing expenses for V12, AHP, Floify and Rynoh. The increase was analso due to a $1.5 million increase in amortization expense related to acquired intangibles. This was partially offset by a decrease of ~~$1.3~~$1.5 million in stock-based compensation expenses. As a percentage of revenue, selling and marketing expenses represented ~~36%~~41% of revenue in the three months ended ~~September 30, 2021~~March 31, 2022 compared with ~~41%~~55% in the same period in ~~2020.~~
~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:~~
~~Selling~~2021.The improvement in selling and marketing expenses increased by $30.2 million, or 99% from $30.4 million in the nine months ended September 30, 2020 to $60.6 million in the nine months ended September 30, 2021. The increase is due to $27.3 million related to higher selling and marketing costs associated with the growth in our moving, inspection and insurance businesses, as well as the selling and marketing costs of our acquired businesses. Additionally, there was an increase of $4.7 million in stock-based compensation expenses. This is offset by our divested businesses’ selling and marketing costs of $1.8 million. As a percentage of revenue ~~selling~~is due to the growing economies of scale across the Company’s vertical software and ~~marketing expenses represented 43% of revenue in the nine months ended September 30, 2021 compared with 57% in the same period in 2020.~~insurance segments.
Product and technology
~~Three months ended September 30, 2021 compared to three months ended September 30, 2020:~~
Product and technology expenses increased by ~~$5.6~~$2.4 million, or ~~99%~~21%, from ~~$5.7~~$11.8 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$11.3~~$14.2 million in the three months ended ~~September 30, 2021.~~March 31, 2022. The increase is mainly due to ~~investments~~a $2.0 million increase in ~~our moving, insurance~~amortization expense related to acquired intangibles and ~~inspection groups, due to the growth~~a $1.8 million increase in ~~these businesses,~~ product and technology costs ~~from our~~of the acquired businesses, ~~and $1.3~~most notably HOA. This was offset by $1.2 million ~~higher~~lower stock-based compensation expense. As a percentage of revenue, product and technology expenses represented ~~18%~~23% of revenue in the three months ended ~~September 30, 2021~~March 31, 2022 compared with ~~27%~~44% in the same period in ~~2020.~~2021. The improvement in product and technology expenses as a percentage of revenue is due to the growing economies of scale in the overall business.
General and administrative
General and administrative expenses increased by $2.7 million, or 11%, from $24.0 million in the three months ended March 31, 2021 to $26.7 million in the three months ended March 31, 2022, primarily due to costs related to increased hiring of corporate resources, audit and accounting fees, as well as consulting fees related to the ongoing SOX requirements. In the three months ended March 31, 2022, general and administrative expenses included $11.7 million related to the HOA, AHP, Floify and Rynoh, which were acquired in 2021, and $3.8 million attributable to increased corporate resources, investments in corporate systems and SOX implementation. In addition, during the three months ended March 31, 2022, there was a loss on revaluation of contingent consideration of $3.2 million, while during the three

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~~Nine~~ months ended ~~September 30,~~March 31, 2021, ~~compared to nine~~there was a gain of $0.4 million. This was offset by stock-based compensation expense for the three months ended ~~September 30, 2020:~~

~~Product and technology expenses increased by $16.0~~March 31, 2022, which was $8.4 million or 88% from $18.1 million in the nine months ended September 30, 2020 to $34.2 million in the nine months ended September 30, 2021. The increase is due to investments in moving, insurance, and inspection groups due to the growth in these businesses, product and technology costs from our acquired businesses and $4.9 million higher stock-based compensation expense. As a percentage of revenue, product and technology expenses represented 24% of revenue in the nine months ended September 30, 2021 compared with 34%lower than in the same period in ~~2020.~~2021.

~~General and administrative~~Interest expense, net

~~Three months ended September 30, 2021 compared to three months ended September 30, 2020:~~

~~General and administrative expenses~~Interest expense increased by ~~$16.5~~$1.1 million, or ~~301%~~87%, from ~~$5.5~~$1.2 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$22.0~~$2.3 million in the three months ended ~~September 30, 2021, primarily due to costs related to operating as a public company and increased hiring of corporate resources. Additionally,~~ ~~from~~ March ~~2020 through August 2020, the Company reduced pay for certain employees and partially or fully furloughed certain employees therefore reducing compensation expense during the period.~~ ~~Also, stock-based compensation expense for three months ended September 30, 2021 was $2.8 million higher than in the same period in 2020.~~

~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:~~

General and administrative expenses increased by $50.9 million, or 328% from $15.5 million in the nine months ended September 30, 2020 to $66.5 million in the nine months ended September 30, 2021.The increase is primarily due to increase in stock-based compensation of $18.2 million and costs operating as a public company and increased hiring of corporate resources. Additionally, from March 2020 through August 2020, the Company reduced pay for certain employees and partially or fully furloughed certain employees therefore reducing compensation expense in the nine months ended ~~September~~ ~~30, 2020.~~

Stock-based compensation consists of expense related to (1) equity awards granted as compensation in the normal course of business operations, (2) employee earnout restricted stock (see Note 9) and (3) a secondary market transaction (dollar amounts in thousands).

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020
Secondary market transaction

$
—

$
—

$
1,933

$
—
Employee earnout restricted stock

4,243

—

20,792

—
Employee awards

1,641

507

6,636

1,541
Total stock-based compensation expenses

$
5,884

$
507

$
29,361

$
1,541

~~Interest expense, net~~
~~Three months ended September 30, 2021 compared to three months ended September 30, 2020:~~
~~Interest expense decreased by $2.1 million, or 53% from $4.0 million in the three months ended September 30, 2020 to $1.9 million in the three months ended September 30, 2021. The decrease~~31, 2022. This was primarily due to ~~decreased interest rates paid during the three months ended September 30, 2021 compared with the three months ended September 30, 2020, as a result~~issuance of ~~the January 2021 amendment to the Company’s senior secured term loans, which reduced the interest payable from 11.05% to 8.55% and subsequent repayment~~$425 million of ~~these loans~~Convertible Senior Notes in September 2021, ~~(see Note 7).~~that in part was used to pay off the $42.1 million of Senior Secured Term Loans that were outstanding at March 31, 2021. The ~~effective interest rate~~total level of interest-bearing debt balance was $425.6 million at January 1, 2022 and $50.8 million at January 1, 2021 and this higher outstanding debt balance was the primary reason for the ~~new 2026 Notes issued in September 2021 was 1.3%, which further reduced the Company’s~~increased interest expense.

~~Table of Contents~~

~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:~~

Interest expense decreased by $6.0 million, or 58% from $10.3 million in the nine months ended September 30, 2020 to $4.3 million in the nine months ended September 30, 2021. The decrease was primarily due to a decreased interest rates paid during the nine months ended September 30, 2021 compared with the nine months ended September 30, 2020, as a result of the January 2021 amendment to the Company’s senior secured term loans, their subsequent repayment and the fact that the new 2026 Notes issued in September 2021 have substantially lower interest rate.

Change in fair value of earnout liability

Changes in fair value of earnout liability were ~~$7.4~~$11.2 million ~~gain~~(gain) and ~~$15.4~~$18.8 million (loss) in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, respectively. The decrease in fair value was primarily due to the decline in the stock price at March 31, 2022 as compared to March 31, 2021. During the ~~nine~~three months ended ~~September 30,~~March 31, 2021, $25.8 million of the earnout liability was reclassified to additional paid in capital as a result of a vesting event in March 2021.

Change in fair value of private warrant liability

Changes in fair value of private warrant liability were ~~$2.7~~$10.2 million ~~gain~~(gain) and ~~$17.5~~$15.9 million (loss) in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, respectively. ~~During~~The decrease in fair value was primarily due to the ~~three months and nine months ended September 30, 2021, $14.5 million and $31.3 million, respectively, was reclassified to additional paid~~decline in ~~capital~~the stock price at March 31, 2022 as ~~a result of warrant exercises.~~

~~Gain (loss) on extinguishment of debt~~

~~Three months ended September 30, 2021~~ compared to ~~three months ended September 30, 2020:~~

Loss on extinguishment of debt was $3.1 million and $2.5 million in the three months ended September 30, 2021 and 2020, respectively. The $3.1 million loss in the three months ended September 30, 2021 relates to the repayment of all outstanding obligations under the Runway Loan Agreement. See Note 7. The $2.5 million loss in the three months ended September 30, 2020 relates to an amendment of a legacy 2019 promissory note, which was subsequently repaid.

~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:~~

Gain on extinguishment of debt was $5.1 million and $1.1 million in the nine months ended September 30, 2021 and 2020, respectively. The $5.1 million gain in the nine months ended September 30, 2021 consists of the $8.2 million gain on extinguishment of the Porch PPP Loan, offset by the $3.1 million loss on repayment of all outstanding obligations under the Runway Loan Agreement. The $1.1 million gain in the nine months ended September 30, 2020 relates to the net impact of extinguishments of several Company’s legacy promissory notes.March 31, 2021.

Investment income and realized gains, net of investment expenses

Investment income and realized gains, net of investment expenses was $0.2 million ~~and $0.4 million~~ in the three months ended March 31, 2022. In April 2021, the Company acquired HOA that maintains a short-term and long-term investment portfolio that generated investment income for nine months ~~ended September 30, 2021, respectively.~~

~~Other income (expense)~~

~~Three months ended September 30, 2021 compared to three months ended September 30, 2020:~~

~~Other income, net was trivial and~~in 2021. The Company did not ~~change significantly in both periods.~~

~~Nine months ended September 30, 2021 compared~~have any material investments prior to ~~nine months ended September 30, 2020:~~

Other expense, net was $0.2 million income in the nine months ended September 30, 2021 and $2.1 million expense in the nine months ended September 30, 2020. The $2.3 million change was primarily due to $1.2 million loss on

~~Table of Contents~~

~~remeasurement of legacy preferred stock warrant liability and $0.9 million loss on remeasurement of debt in the nine months ended September 30, 2020.~~April 2021.

Income tax ~~expense (benefit)~~benefit

~~Three months ended September 30, 2021 compared to three months ended September 30, 2020:~~

Income tax benefit of ~~$1.8~~$0.2 million and $0.4 million was recognized for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~primarily due to the impact of acquisitions on the Company’s valuation allowance. Income tax expense was not material for the three months ended September 30, 2020.~~respectively. The Company’s effective tax ~~rate~~rates in both periods differs substantially from the U.S. federal statutory tax rate of 21% primarily due to a full valuation allowance related to the Company’s net deferred tax assets.

~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:~~

Income tax benefit of $9.9 million was recognized for the nine months ended September 30, 2021 primarily due to the impact of acquisitions on the Company’s valuation allowance. Income tax expense was not material for the nine months ended September 30, 2020. The Company’s effective tax rate in both periods differs substantially from the statutory tax rate primarily due to a full valuation allowance related to the Company’s net deferred tax assets.

Segment Results of Operations

We operate our business as two reportable segments that are also our operating segments: Vertical Software and Insurance. For additional information about our segments, see Note 1213 in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly ~~Report on Form 10-Q.~~Report.

Table of Contents

Segment Revenue


	Three Months Ended		Nine Months Ended		Three Months Ended March 31, 2022
	September 30, 2021				Vertical Software Segment		Insurance Segment			Total
Revenue:
Vertical software	$	42,287	$	101,629
Software and service subscriptions					$	17,965	$	—	$	17,965
Move-related transactions (excluding insurance)						12,193		—		12,193
Post-move transactions						4,530		—		4,530
Insurance		20,482		39,223		—		27,873		27,873
Total revenue	$	62,769	$	140,852	$	34,688	$	27,873	$	62,561

Three Months Ended March 31, 2021

Vertical Software Segment

Insurance Segment

Total
Revenue:

Software and service subscriptions

$
10,880

$
—

$
10,880
Move-related transactions (excluding insurance)

8,961

—

8,961
Post-move transactions

5,096

—

5,096
Insurance

—

1,805

1,805
Total revenue

$
24,937

$
1,805

$
26,742

For the three months ended ~~September 30, 2021, the~~March 31, 2022, Vertical Software segment revenues were ~~$42.3~~$34.7 million or ~~67%~~55.5% of total revenue. ~~The~~ Software and service subscriptions revenue increased from $10.9 million to $18.0 million as the Company acquired a V12 Data in January 2021, Rynoh in May 2021 and Floify in October 2021. Other than V12 Data, these businesses were not owned by the Company during the quarter ended March 31, 2021, and therefore no revenue was recognized from these businesses in the same period. Thus, the increase in revenue in 2022 is primarily driven by the 2021 acquisitions, by accelerated growth after acquisition and by organic growth.
Insurance segment revenues were ~~$20.5~~$27.9 million or ~~33%~~44.6% of total revenue during the same period.
For the nine months ended September 30, 2021 the Vertical Software segment revenues were $101.6 million or 72% of total revenue. The Insurance segment revenues were $39.2 million or 28% of total revenue during the same period.
The increase ~~in the proportion of the Insurance segment revenue~~from $1.8 million in the three months ended ~~September 30,~~March 31, 2021 to $27.9 million in the three months ended March 31, 2022 is mainly due to the acquisitions of HOA (acquired in April 2021) and ~~AHP.~~AHP (acquired in September 2021), and the accelerated growth of these businesses after acquisition, as well as the organic growth of the Company’s existing insurance operation.
Segment Adjusted EBITDA (Loss)
Segment Adjusted EBITDA (loss) is defined as revenue less operating expenses associated with our segments. Segment Adjusted EBITDA (loss) also excludes non-cash items, certain transactions that are not indicative of ongoing segment operating and financial performance and are not reflective of the Company’s core operations. See Note 1213 in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.

Three Months Ended March 31,

2022

2021
Segment adjusted EBITDA (loss):

Vertical Software

$
2,984

$
3,151
Insurance

3,286

508
Corporate and Other⁽¹⁾

(13,342)

(13,261)
Total segment adjusted EBITDA (loss)⁽²⁾

$
(7,072)

$
(9,602)
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Three Months Ended

Nine Months Ended

September 30, 2021
Segment adjusted EBITDA (loss):

Vertical Software

$
7,712

$
19,041
Insurance

5,473

3,067
Corporate and Other⁽¹⁾

(12,312)

(40,754)
Total segment adjusted EBITDA (loss)⁽²⁾

$
873

$
(18,646)

⁽¹⁾Includes costs that are not directly attributable to our reportable segments, as well as certain shared costs.
⁽²⁾See reconciliation of adjusted EBITDA (loss) to net loss below.
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Table of Contents

Non-GAAP Financial Measures
This ~~report~~Quarterly Report includes non-GAAP financial measures, such as Adjusted EBITDA (loss), Adjusted EBITDA (loss) as a percent of revenue, and average revenue per monetized service.

~~Porch~~The Company defines Adjusted EBITDA (loss) as net income (loss) adjusted for interest expense, net, income taxes, other expenses, net, depreciation and amortization, certain non-cash long-lived asset impairment charges, stock-based compensation expense and acquisition-related impacts, ~~including compensation to the sellers that requires future service,~~ amortization of intangible assets, gains (losses) recognized on changes in the value of contingent consideration arrangements, if any, gain or loss on divestures and certain transaction costs. Adjusted EBITDA (loss) as a percent of revenue is defined as Adjusted EBITDA (loss) divided by GAAP total revenue. Average revenue per monetized services in quarter is the average revenue generated per monetized service performed in a quarterly period. When calculating average revenue per monetized service in a quarter, average revenue is defined as total quarterly service transaction revenues generated from monetized services.
~~Porch’s~~Company management ~~and Board of Directors use~~uses these non-GAAP financial measures as supplemental measures of ~~Porch’s~~the Company’s operating and financial performance, ~~for historical and forward-looking periods,~~ for internal budgeting and forecasting purposes, to evaluate financial and strategic planning matters, and ~~for certain measures,~~ to establish certain performance goals for incentive programs. ~~Porch~~The Company believes that the use of these non-GAAP financial measures provides investors with useful information to evaluate ~~projected~~the Company’s operating ~~results~~and financial performance and trends and in comparing Porch’s financial ~~measures~~results with competitors, other similar companies and companies across different industries, many of which present similar non-GAAP financial measures to investors. However, ~~Porch's~~the Company’s definitions and methodology in calculating these non-GAAP measures may not be comparable to those used by other companies. In addition, ~~Porch~~the Company may modify the presentation of these non-GAAP financial measures in the future, and any such modification may be material.
You should not consider these non-GAAP financial measures in isolation, as a substitute to or superior to financial performance measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude specified income and expenses, some of which may be significant or material, that are required by GAAP to be recorded in ~~Porch’s~~the Company’s consolidated financial statements. ~~Porch~~The Company may also incur future income or expenses similar to those excluded from these non-GAAP financial measures, and ~~Porch’s~~the presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or non-recurring items. In addition, these non-GAAP financial measures reflect the exercise of management judgment about which income and expense are included or excluded in determining these non-GAAP financial measures.
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~~Table of Contents~~
See the reconciliation tables below for more details regarding these non-GAAP financial measures, including the reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial ~~measures.The~~measures.
41
Table of Contents
Revenue Less Cost of Revenue
The following table reconciles revenue less cost of revenue to operating loss for the three months ended March 31, 2022 and 2021, respectively (dollar amounts in thousands):


Three Months Ended March 31,


2022

2021

Revenue

$
62,561

$
26,742

Less: Cost of revenue

(21,189)

(5,930)

Revenue less cost of revenue

41,372

20,812

Less: Selling and marketing costs

25,743

14,638

Less: Product and technology costs

14,231

11,789

Less: General and administrative costs

26,699

24,016

Total operating expenses

$
87,862

$
56,373

Operating loss

$
(25,301)

$
(29,631)

Revenue less cost of revenue increased by $20.6 million, or 98.8% from $20.8 million in the three months ended March 31, 2021 to $41.4 million in the three months ended March 31, 2022. During 2021, the Company acquired a number of businesses with an aggregate purchase price of $346.3 million as disclosed in the Company’s Annual Report on Form 10-K. These acquisitions included V12 Data (acquired in January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021) and Floify (acquired in October 2021). Other than V12 Data, these businesses were not owned by the Company in the three months ended March 31, 2021, therefore no revenue less cost of revenue was recognized from these businesses during that period. Thus, the increase revenue less cost of revenue in 2022 is primarily driven by the 2021 acquisitions, by accelerated growth after acquisition and by organic growth.

Adjusted EBITDA (loss)
The following table reconciles net loss to Adjusted EBITDA (loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and the three and nine months ended September 30, 2020~~respectively (dollar amounts in thousands):


Three Months Ended September 30,

Nine Months Ended September 30,


2021

2020

2021

2020

Net loss

$
(5,099)

$
(8,923)

$
(86,497)

$
(33,548)

Interest expense

1,857

3,952

4,296

10,329

Income tax (benefit) expense

(1,836)

9

(9,917)

33

Depreciation and amortization

4,431

1,635

10,787

5,021

Loss (gain) on extinguishment of debt

3,133

2,532

(5,110)

(1,077)

Other expense (income), net⁽¹⁾

(316)

(1,418)

(225)

2,050

Non-cash long-lived asset impairment charge

76

239

216

540

Non-cash stock-based compensation expense

5,884

507

29,249

1,239

Non-cash bonus expense

695

—

1,378

—

Revaluation of contingent consideration

195

100

(380)

1,500

Revaluation of earnout liability

(7,413)

—

15,388

—

Revaluation of private warrant liability

(2,692)

—

17,521

—

Acquisition and related expense⁽²⁾

1,958

(68)

4,648

(386)

Adjusted EBITDA (loss)

$
873

$
(1,435)

$
(18,646)

$
(14,299)

Adjusted EBITDA (loss) as a percentage of revenue

1
%

(7)
%

(13)
%

(27)
%

~~(1)~~ ~~Other expense, net includes:~~


Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020
Loss (gain) on remeasurement of debt

—

(488)

—

924
Loss (gain) on remeasurement of legacy preferred stock warrant liability

—

(785)

—

1,214
Other, net

(316)

(145)

(225)

(88)

$
(316)

$
(1,418)

$
(225)

$
2,050

~~(2)~~ ~~Acquisition and related expense includes:~~

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

2021

2020

2021

2020

2022

2021

Acquisition compensation – stock-based compensation expense

$
—

$
—

$
112

$
302
Gain on divestiture of businesses

—

—

—

(1,442)
Professional fees

1,956

(91)

4,526

609
Transaction expenses and other

2

23

10

145

$
1,958

$
(68)

$
4,648

$
(386)
Net loss

$
(5,796)

$
(65,101)

Interest expense

2,293

1,223

Income tax benefit

(177)

(350)

Depreciation and amortization

6,483

2,463

Other expense (income), net

(56)

(83)

Non-cash long-lived asset impairment charge

69

68

Non-cash stock-based compensation expense

5,854

16,835

Revaluation of contingent consideration

3,205

(355)

Revaluation of earnout liability

(11,179)

18,770

Revaluation of private warrant liability

(10,189)

15,910

Acquisition and related expense

895

728

Non-cash bonus expense

1,526

290

Adjusted EBITDA (loss)

$
(7,072)

$
(9,602)

Adjusted EBITDA (loss) as a percentage of revenue

(11)
%

(36)
%

Adjusted EBITDA (loss) for the three months ended ~~September 30, 2021~~March 31, 2022 was ~~$0.9~~$7.1 million, a ~~$2.3~~$2.5 million improvement from Adjusted EBITDA (loss) of ~~$1.4~~$9.6 million for the same period in ~~2020. The improvement~~2021. During 2021, the Company acquired a number of businesses with an aggregate purchase price of $346.3 million as disclosed in the ~~three months ended September 30, 2021 is primarily due to the increase~~Company’s Annual Report on Form 10-K. These acquisitions included V12 Data (acquired in ~~revenue driven by acquisitions and organic growth~~January 2021), HOA (acquired in ~~our moving services, inspection and insurance businesses.~~
Adjusted EBITDA (loss) for the nine months ended September 30, 2021 was $18.6 million, a $4.3 million decline from Adjusted EBITDA (loss) of $14.3 million for the same period in 2020. The decline in Adjusted EBITDA (loss) is due to the weather-related loss impact of the HOA insurance business, legal costs attributable to general legal matters, increase in general and administrative costs related to public companies and increased hiring for corporate resources. Additionally during the nine months ended September 30, 2020 there was a compensation reduction which did not recurApril 2021), Rynoh
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Table of Contents
~~during~~(acquired in May 2021), AHP (acquired in September 2021) and Floify (acquired in October 2021). Other than V12 Data, these businesses were not owned by the ~~comparable period~~Company in the ~~current year. This~~three months ended March 31, 2021, therefore no revenue and Adjusted EBITDA (loss) was ~~partially~~recognized from these businesses during that period. Thus, the improvement in Adjusted EBITDA (loss) in 2022 is primarily driven by the 2021 acquisitions, offset by ~~revenue growth~~investments in ~~the moving, insurance~~sales and ~~inspection groups, as well as no negative impact of the divested businesses~~marketing and product and technology related to consumer experience, app build out, data platforms and investments in ~~2020.~~establishing and maintaining SOX and other internal controls across IT and accounting organizations.
Liquidity and Capital Resources
Since inception, as a private company, we have financed our operations primarily from the sales of redeemable convertible preferred stock and convertible promissory notes, and proceeds from the senior secured term loans. On December 23, 2020, the Company received approximately $269.5 million of aggregate cash proceeds from recapitalization, net of ~~transactions costs.~~ transaction costs, as it began trading publicly.
During 2021, the Company completed a private offering of $425 million aggregate principal amounts of convertible debt maturing in 2026, and raised $126.7 million and $4.3 million from exercise of public warrants and stock options, respectively.
As of ~~September 30, 2021,~~March 31, 2022, the Company had cash and cash equivalents of ~~$410.2~~$292.4 million and ~~$5.6~~$10.7 million of restricted ~~cash.~~cash, respectively. Restricted cash consists of funds held for the payment of possible warranty claims as required in 25 states; funds held in certificates of deposits and money market mutual funds pledged to, or held in escrow with, certain state insurance regulators in connection with our insurance operations; customer deposits; and acquisition indemnifications.
The Company has incurred net losses since its inception, and has an accumulated deficit at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 totaling ~~$404.0~~$429.9 million and ~~$317.5~~$424.1 million, respectively.
As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had ~~$429.6~~$425.5 million and ~~$50.8~~$425.6 million aggregate principal amount outstanding in convertible notes ~~term loans~~ and promissory notes, respectively. During 2020 and the first half of 2021, the Company refinanced the existing $40.0 million term loans and received additional loan proceeds of $7.0 million from new senior secured term loans and $10.3 million from the U.S. government pursuant to the Paycheck Protection Program under the CARES Act.
~~In September 2021, the Company completed a private offering of $425 million aggregate principal amounts of its 2026 Notes. T~~he Company used a portion of the net proceeds from the 2026 Notes offering to repay all outstanding obligations under a Loan and Security Agreement, dated as of July 22, 2020 (as subsequently amended, the “Runway Loan Agreement”), among the Company’s wholly-owned subsidiary Porch.com, Inc., as borrower representative, a syndicate of lenders party thereto, the other borrowers party thereto, the guarantors party thereto and Runway Growth Finance Corp (f/k/a Runway Growth Credit Fund Inc.), as administrative agent and collateral agent (the “Agent”), pursuant to which there was a $40.4 million senior secured term loan outstanding (the “Senior Secured Term Loan”). The total repayment amount of $42.8 million consisted of outstanding principal, accrued interest, prepayment fees and related expenses. Concurrent with such repayment in full of all outstanding obligations under the Senior Secured Term Loan on September 16, 2021, the Runway Loan Agreement (and all commitments and liens thereunder) was terminated. ~~A loss on extinguishment of $3.1 million was recorded.~~
Based on the Company’s current operating and growth plan, management believes cash and cash equivalents at ~~September~~ ~~30, 2021,~~March 31, 2022, are sufficient to finance the Company’s operations, planned capital expenditures, working capital requirements and debt service obligations for at least the next 12 months. As the Company’s operations evolve and ~~continues~~continue its growth strategy, including through acquisitions, the Company may elect or need to obtain alternative sources of capital, and it may finance additional liquidity needs in the future through one or more equity or debt financings. The Company may not be able to obtain equity or additional debt financing in the future when needed or, if available, the terms may not be satisfactory to the Company or could be dilutive to its stockholders.
~~Additionally, in~~Porch Group, Inc. is a holding company that transacts a majority of its business through operating subsidiaries, including insurance subsidiaries. Consequently, the ~~nine months ended September 30, 2021,~~Company’s ability to pay dividends and expenses is largely dependent on dividends or other distributions from its subsidiaries. The Company’s insurance company subsidiaries are highly regulated and are restricted by statute as to the ~~Company raised approximately $130.3~~amount of dividends they may pay without the prior approval of their respective regulatory authorities. As of March 31, 2022, cash and cash equivalents of $35.5 million ~~from the exercises of public warrants~~ and ~~stock options.~~
~~The Company has used the proceeds from debt and equity principally to fund general operations and acquisitions.~~
~~In the nine months ended September 30, 2021, the Company spent $178.7 million in cash, net of cash acquired, plus stock of $24.8 million to acquire several~~investments held by these companies ~~in transactions accounted for as business combinations.~~was $65.3 million.
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Table of Contents

The following table provides a summary of cash flow data for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:


Nine Months Ended September 30,

$

%


Three Months Ended March 31,

$

%

2021

2020

Change

Change

2022

2021

Change

Change

(dollar amounts in thousands)

(dollar amounts in thousands)

Net cash used in operating activities

$
(41,717)

$
(17,015)

$
(24,702)

145
%

$
(13,291)

$
(22,935)

$
9,644

42
%
Net cash used in investing activities

(184,657)

(3,852)

(180,805)

NM

(8,077)

(23,714)

15,637

66
%
Net cash provided by financing activities

434,752

21,825

412,927

NM

Net cash (used) provided by financing activities

(389)

72,579

(72,968)

NM

Change in cash, cash equivalents and restricted cash

$
208,378

$
958

$
207,420

NM

$
(21,757)

$
25,930

$
(47,687)

NM

Operating Cash Flows
~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:~~
Net cash used in operating activities was ~~$41.7~~$13.3 million for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Net cash used in operating activities consists of net loss of ~~$86.5~~$5.8 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of ~~$29.4~~$5.9 million, depreciation and amortization of ~~$10.8 million, gain on extinguishment of debt of $5.1~~$6.5 million, and fair value adjustments to earnout liability and private warrant liability of ~~$15.4~~$11.2 million (gain) and ~~$17.5~~$10.2 million (gain), respectively. Net changes in working capital were a use of cash of ~~$22.7~~$4.1 million, primarily due to increases in current liabilities and reinsurance balance ~~due.~~due, offset by losses and loss adjustment expense reserves.
Net cash used in operating activities was ~~$17.0~~$22.9 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Net cash used in operating activities consists of net loss of ~~$33.5~~$65.1 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of ~~$1.5~~$16.8 million, depreciation and amortization of ~~$5.0~~$2.5 million, non-cash accrued and payment-in-kind interest of ~~$4.9 million, gain on extinguishment of debt of $1.1~~$0.3 million, fair value adjustments to ~~debt, contingent consideration~~earnout liability and ~~warrants with combined losses~~private warrant liability of ~~$3.6~~$18.8 million ~~gain on divestiture of businesses of $1.4~~(loss) and $15.9 million ~~and loss on sale and impairment of long-lived assets of $0.8 million.~~(loss), respectively. Net changes in working capital ~~provided~~were a use of cash of ~~$3.0~~$11.6 million, primarily due to increases in current liabilities.
Investing Cash Flows
~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:~~
Net cash used in investing activities was ~~$184.7~~$8.1 million for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Net cash used in investing activities is primarily related to purchases of investments of ~~$19.1~~$8.8 million, investments ~~to develop internal use~~in developing internal-use software of ~~$2.6~~$1.6 million, purchases of property and equipment of $1.2 million, and ~~acquisitions, net of cash acquired of $178.7 million.~~a $5.0 million non-refundable deposit for an acquisition. This was offset by the cash inflows related to maturities and sales of investments of ~~$16.4~~$8.4 million.
Net cash used in investing activities was ~~$3.9~~$23.7 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Net cash used in investing activities is primarily related to investments to develop ~~internal use~~internal-use software of ~~$2.1~~$0.8 million and acquisitions, net of ~~$1.6 million.~~cash acquired of $22.9 million, including V12 Data.
Financing Cash Flows
~~Nine~~Net cash used in financing activities was $0.4 million for the three months ended ~~September 30, 2021 compared~~March 31, 2022. Net cash used in financing activities is primarily related to ~~nine months ended September 30, 2020:~~shares repurchased to pay income tax withholdings upon vesting of RSUs of $0.7 million and debt repayments of $0.2 million, partially offset by proceeds from exercises of stock options of $0.5 million.
Net cash provided by financing activities was ~~$434.8~~$72.6 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021. Net cash provided by financing activities is primarily related to ~~the issuance of the 2026 Notes of $413.5 million, financing of the capped call transactions of $42.9 million, and~~ exercises of warrants and stock options of ~~$130.3~~$89.9 million, ~~partially~~ offset by shares repurchased to pay income tax withholdings upon vesting of RSUs of ~~$23.8~~$14.6 million and debt repayments of ~~$43.0~~$0.2 million.
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Net cash provided by financing activities was $21.8 million for the nine months ended September 30, 2020. Net cash provided by financing activities is primarily related to debt financing of $61.2 million, net of loan repayments of $42.9 million, and proceeds from issuance of redeemable convertible preferred stock of $4.7 million, partially offset by deferred offering costs of $1.3 million.
Off-Balance Sheet Arrangements
Since the date of ~~our~~ incorporation, ~~we have~~the Company has not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
~~Emerging Growth Company Status~~
The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). In accordance with the JOBS Act, the Company previously elected to delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. As of June 30, 2021, the last business day of the second fiscal quarter, the Company met certain thresholds for qualification as a “large accelerated filer” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. Therefore, the Company expects to lose EGC status as of December 31, 2021. The impact of this change in filing status includes being subject to the requirements of large accelerated filers, which includes shortened filing timelines, no delayed adoption of certain accounting standards, presentation of two comparative periods, and attestation of the Company’s internal control over financial reporting by its independent auditor.
Recent Accounting Pronouncements
See Note 1 to our unaudited condensed consolidated financial statements as of and for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
~~We are~~The Company is exposed to a variety of market and other risks, including the effects of changes in interest rates, and inflation, as well as risks to the availability of funding sources, hazard events, and specific asset risks.
Interest Rate Risk
The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates. As of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020, we have~~2021, the Company has interest-bearing debt of ~~$429.6~~$425.5 million and ~~$50.8 million.~~$425.6 million, respectively. Our 0.75% Convertible Senior Notes due 2026 ~~Notes~~(the “2026 Notes”) have a principal balance of $425 million as of ~~September 30, 2021,~~March 31, 2022, have a fixed coupon rate of 75 basis points, and ~~the~~ effective interest rate isof 1.3%. As such, interest expense on the 2026 Notes will not change if market interest rates increase. ~~The other~~Other debt as of ~~September 30, 2021~~March 31, 2022 totaled ~~$4.6~~$0.5 million and is variable-rate.
A one percent increase in interest rates in our variable rate indebtedness would result in a nominal change in annual interest expense.
As of ~~September 30, 2021,~~March 31, 2022, the Company’s insurance subsidiary has a ~~$68.8~~$65.3 million portfolio of fixed income securities and an unrealized ~~gain~~loss of ~~approximately $0.1~~$2.8 million, as described in Note 3. In a rising interest rate environment, the portfolio would result in unrealized losses.
At ~~September 30, 2021,~~March 31, 2022, accounts receivable and reinsurance balances due were ~~$33.6~~$30.0 million and ~~$246.2~~$239.7 million, respectively, were not ~~interest bearing~~interest-bearing assets and are generally collected in less than 180 days. As such, the Company does not consider these assets to have material interest rate risk.
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Inflation Risk
~~Porch does not believe~~Due to significant increases in the consumer price index in the past twelve months, supply chain disruptions, war in Ukraine and other geo-political events, the Company believes that inflation ~~has had, or currently has,~~may have a material ~~effect~~impact on its ~~business.~~business in the future.
Foreign Currency Risk
There was no material foreign currency risk for three ~~and nine~~ months ended ~~September 30, 2021 and the year ended December~~March 31, ~~2020. Porch’s~~2022. The Company’s activities to date have been conducted in the United States.

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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~September 30, 2021,~~March 31, 2022, which is the end of the period covered by this Quarterly Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures to ensure that information required to be disclosed by the Company in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the United States Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures were not effective as of ~~September 30, 2021~~March 31, 2022 due to the material weaknesses in internal control over financial reporting described in Part II, Item 9A of the Annual Report on Form ~~10-K/A~~10-K for the fiscal year ended December 31, ~~2020~~2021 filed with the SEC on ~~May 19, 2021.~~March 16, 2022.
Remediation Plan
Our remediation efforts for these material weaknesses have included the following:
● ~~we hired a new Chief Financial Officer in June 2020 and~~consolidation of relevant financial systems across our ~~new Controller joined in April 2021; both are experienced finance and accounting professionals for public companies;~~internal control framework;
● ~~we recruited additional personnel, in addition~~investments to ~~utilizing third-party consultants and specialists,~~upgrade or replace existing systems which do not have the appropriate infrastructure to ~~supplement~~meet the requirements of our internal ~~resources;~~control framework;
● ~~we have been and continue~~expanding the available resources at the Company with experience designing and implementing ~~additional automation~~control activities, including information technology general controls and ~~integration in our financially significant systems;~~automated controls, through hiring and use of third-party consultants and specialists;
● ~~we will continue~~recruiting and hiring additional personnel with the appropriate skills and experience to ~~expand~~operate the internal controls required by the nature, pace, and ~~improve~~complexity of our ~~review process of complex securities, significant transactions, and related accounting standards;~~business, and
● ~~we are implementing additional~~perform ongoing training ~~of our personnel~~with control performers to improve ~~our understanding and~~ documentation that supports effective control ~~operation,~~activities, including evidence of the completeness and ~~have engaged a national CPA firm with whom to consult regarding complex accounting literature as necessary.~~
● ~~The Company is attempting to have effective disclosure controls and procedures and internal control over financial reporting as~~accuracy of ~~December 31, 2021, although such effectiveness cannot be assured.~~information produced by the entity.
These remediation measures may be time consuming and costly. In addition, there is no assurance that we will be successful in remediating the material weakness. We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify.
Changes in Internal Control over Financial Reporting
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Except for actions taken under the Remediation Plan described above in this Part I, Item 4, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
~~Management initiated~~During 2022, the ~~process of implementing remediation steps~~Company continued to ~~address the material weakness and~~take actions on initiatives to improve ~~our~~the internal control ~~over financial reporting.~~environment, which started in 2021. Specifically, we ~~are continuing~~formed an internal working group to ~~expand~~detail and ~~improve our review process~~implement specific remediation plans for ~~complex securities, transactions,~~these control deficiencies, engaged with outside consultants to provide advice and ~~related accounting standards, including the determination of the appropriate accounting classification of our financial instruments. We plan to further improve this process by implementing~~assistance, and hired additional ~~training of~~ personnel to ~~improve our understanding~~perform and ~~documentation that supports effective~~monitor internal control ~~operation and will identify third-party professionals with whom to consult regarding the application~~activity.
46
Table of complex accounting literature as necessary. These remediation measures may be time consuming and costly. In addition, there is no assurance that we will be successful in remediating the material weakness.Contents
Limitations on Effectiveness of Controls and Procedures
~~Our~~As specified above, the Company disclosure controls and procedures are designed to provide reasonable assurance of achieving their ~~objectives, as specified above. Our~~objectives. Company management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
See Note 1112 (“Commitments and Contingencies”) to Part I, Item 1 of this Quarterly Report, which is incorporated by reference into this Part II, Item 1, for a description of certain litigation and legal proceedings.
In addition, in the ordinary course of business, Porch and its subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims, ~~as well as~~ stockholder derivative actions, class action lawsuits and other matters. The amounts that may be recovered in such matters may be subject to insurance coverage. Although the results of legal proceedings and claims cannot be predicted with certainty, neither Porch nor any of its subsidiaries is currently a party to any legal proceedings the outcome of which, we believe, if determined adversely to ~~us,~~the Company, would individually or in the aggregate have a material adverse effect on ~~our~~the business, financial condition or results of operations.

Item 1A. Risk Factors
~~Except as set forth (i) below, (ii) in~~ ~~Part II, Item 1A~~As of ~~our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 filed with the SEC on August 16, 2021, and (iii) in~~ ~~Item 8.01 under “Risk Factors Update” in our Current Report on Form 8-K filed with the SEC on September 13, 2021~~,May 10, 2022, the Company’s risk factors ~~as of November 15, 2021,~~ have not materially changed from those described in Part 1, Item 1A of ~~our~~the Annual Report on Form ~~10-K/A~~10-K for the fiscal year ended December 31, ~~2020~~2021 filed with the SEC on ~~May 19, 2021.~~March 16, 2022.
~~Risks Relating to the Company’s Business and Industry~~
Certain of our business customers (namely, including loan officers, mortgage companies, financial institutions and other companies’ business customers that may be involved in the home purchase, mortgage and settlement process) (“Specified Customers”) are or may be, and in some cases we are or may be, subject to, and/or we facilitate compliance with, a variety of federal, state, and local laws, including those related to consumer protection and financial services.
Many of our customers and prospective customers are highly regulated and, of that group, may be required to comply with stringent regulations in connection with performing business functions that our products and services address. In some cases, we facilitate (directly or indirectly) compliance with these regulatory requirements. While we currently operate our business in an effort to ensure our business itself is not subject to extensive regulation, there is a risk that certain regulations could become applicable to us, including as we expand the functionality of and services offered through our platforms. In addition, we and our partners, vendors, and other service providers must comply with laws and regulatory regimes that apply to us directly and our partners, vendors, and other service providers indirectly, such as through certain of our products and/or our contractual relationships with our customers.
~~In particular, certain laws, regulations, and rules our customers are subject to, and with which may or do facilitate compliance, directly or indirectly, include:~~

● the Truth in Lending Act, or TILA, and Regulation Z promulgated thereunder, and similar state laws, which require certain disclosures to borrowers regarding the terms and conditions of their loans and credit transactions, and require creditors to comply with certain lending practice restrictions as well as the TILA-RESPA Integrated Disclosure rule, or TRID, which imposes specific requirements around the collection of information, charging of fees, and disclosure of specific loan terms and costs upon receipt of an application for credit;
● the Real Estate Settlement Procedures Act, or RESPA, and Regulation X, which, among other matters, prohibits giving or accepting any fee, kickback or a thing of value for the referral of real estate settlement services or accepting a portion or split of a settlement fee other than for services actually provided; for affiliated business
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~~relationships, prohibits receiving anything other than a legitimate return on ownership, requiring use of an affiliate, and failing to provide a disclosure of the affiliate relationship;~~
● the Equal Credit Opportunity Act, or ECOA, and Regulation B promulgated thereunder, and similar state fair lending laws, which prohibit creditors from discouraging or discriminating against credit applicants on the basis of race, color, sex, age, religion, national origin, marital status, the fact that all or part of the applicant’s income derives from any public assistance program or the fact that the applicant has in good faith exercised any right under the federal Consumer Credit Protection Act;
● the Fair Credit Reporting Act, or FCRA, and Regulation V promulgated thereunder, impose certain obligations on consumer reporting agencies, users of consumer reports and those that furnish information to consumer reporting agencies, including obligations relating to obtaining consumer reports, marketing using consumer reports, taking adverse action on the basis of information from consumer reports and protecting the privacy and security of consumer reports and consumer report information;
● Section 5 of the Federal Trade Commission Act, or the FTC Act, which prohibits unfair and deceptive acts or practices in or affecting commerce, and Section 1031 of the Dodd-Frank Act, which prohibits unfair, deceptive or abusive acts or practices in connection with any consumer financial product or service, and analogous state laws prohibiting unfair, deceptive or abusive acts or practices;
● the Gramm-Leach-Bliley Act, or GLBA, and Regulation P promulgated thereunder, which include limitations on financial services firms’ disclosure of nonpublic personal information about a consumer to nonaffiliated third parties, in certain circumstances requires financial services firms to limit the use and further disclosure of nonpublic personal information by nonaffiliated third parties to whom they disclose such information, and requires financial services firms to disclose certain privacy notices and practices with respect to information sharing with affiliated and unaffiliated entities as well as to safeguard personal borrower information, and other privacy laws and regulations;
● ~~the Home Mortgage Disclosure Act, or HMDA, and Regulation C, which require reporting of loan origination data, including the number of loan applications taken, approved, denied and withdrawn;~~
● ~~the Fair Housing Act, or FHA, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics;~~
● ~~the Secure and Fair Enforcement for Mortgage Licensing, or the SAFE Act, which imposes state licensing requirements on mortgage loan originators;~~
● the Electronic Signatures in Global and National Commerce Act, or ESIGN Act, and similar state laws, particularly the Uniform Electronic Transactions Act, or UETA, which authorize the creation of legally binding and enforceable agreements utilizing electronic records and signatures and which require financial services firms to obtain a consumer’s consent to electronically receive disclosures required under federal and state laws and regulations;
● the Americans with Disabilities Act, or ADA, which has been interpreted to include websites as “places of public accommodations” that must meet certain federal requirements related to access and use;
● ~~the Bank Secrecy Act, or BSA, and the USA PATRIOT Act, which relate to compliance with anti-money laundering, borrower due diligence and record-keeping policies and procedures;~~
● the regulations promulgated by the Office of Foreign Assets Control, or OFAC, under the U.S. Treasury Department related to the administration and enforcement of sanctions against foreign jurisdictions and persons that threaten U.S. foreign policy and national security goals, primarily to prevent targeted jurisdictions and persons from accessing the U.S. financial system; and
● ~~other federal, state-specific and local laws and regulations.~~

In addition to the laws, regulations, and rules that apply to our customers and others, and that we facilitate compliance with, we may be deemed to be subject to certain laws, regulations, and rules through our relationships with our customers or others including RESPA, FCRA, FTC Act, GLBA, FHA, TSR, ESIGN Act, ADA, OFAC, and other federal and state-specific laws and regulations, including those that impose requirements related to unfair or deceptive business practices and consumer protection, as well as other state laws relating to privacy, information security, and conduct in connection with data breaches. We may also be examined on a periodic basis by various regulatory agencies and may be required to review certain of our partners, vendors, or other service providers. These potential examinations may lead to increased regulatory compliance efforts that are time-consuming and expensive operationally. Matters subject to review and examination by federal and state regulatory agencies and external auditors include our internal information technology controls in connection with our performance of services, the agreements giving rise to these
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activities, and the design of our products and services. Any inability to satisfy these examinations and maintain compliance with applicable regulations could adversely affect our ability to conduct our business, including attracting and maintaining customers.
Furthermore, federal and state officials are discussing various potential changes to laws and regulations that could impact us, including additional data privacy regulations, among others. Changes in these areas, generally in the regulatory environment in which we operate and our customers operate, could adversely impact our competitive position and results of operations.
While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that our compliance policies and procedures will be effective. Compliance with these requirements is also costly, time-consuming and limits our operational flexibility. Additionally, Congress, the states and regulatory agencies, as well as local municipalities, could further regulate the relevant industries in ways that make it more difficult or costly for us to offer our products and related services. These laws also are often subject to changes that could severely limit the operations of our business model. Further, changes in the regulatory application or judicial interpretation of the laws and regulations applicable to our businesses also could impact the manner in which we conduct our business. If we or our partners, vendors or other service providers are found to not comply with applicable laws, we could become subject to greater scrutiny by federal and state regulatory agencies, or face other sanctions, which may have an adverse effect on our ability to continue to provide our services or make our products and related services available in particular states, or utilize the services of third-party providers, which may harm our business. In addition, non-compliance could subject us to damages, class action lawsuits, administrative enforcement actions, rescission rights held by investors in securities offerings and civil and criminal liability, all of which would adversely affect our business, financial condition, and results of operations.
~~Risks Related to our 2026 Notes~~

~~The conditional conversion feature of the 2026 Notes, if triggered, may adversely affect our financial condition and operating results.~~

We completed an offering of the 2026 Notes in September 2021. In the event the conditional conversion feature of the notes is triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

C~~onversion of our 2026 Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stock.~~

The conversion of some or all of our 2026 Notes may dilute the ownership interests of our stockholders. Upon conversion of the notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to settle our conversion obligation in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. However, in connection with the pricing of the 2026 Notes, we entered into capped call transactions with the option counterparties. The capped call transactions are expected generally to reduce (but not eliminate) potential dilution to our common stock upon conversion of any notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap. Finally, the existence of the 2026 Notes may encourage short selling by market participants that engage in hedging or arbitrage activity, and anticipated conversion of the notes into shares of our common stock could depress the price of our common stock.
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~~Certain provisions in the indenture governing the 2026 Notes may delay or prevent an otherwise beneficial takeover attempt of us.~~

Certain provisions in the indenture governing the 2026 Notes may make it more difficult or expensive for a third party to acquire us. For example, the indenture governing the notes requires us to repurchase the notes for cash upon the occurrence of a fundamental change (as defined in the indenture governing the notes) of us and, in certain circumstances, to increase the conversion rate for a holder that converts their notes in connection with a make-whole fundamental change (as defined in the indenture governing the notes). A takeover of us may trigger the requirement that we repurchase the notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to investors.

~~Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to make such payments.~~

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness now or in the future (including the 2026 Notes), depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. In addition, our ability to repurchase the 2026 Notes or to pay cash upon conversions of the notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our business may not continue to generate cash flow from operations in the future sufficient to service our indebtedness and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance indebtedness (including the 2026 Notes) will depend on the capital markets and our financial condition at such time. Our failure to repurchase notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or make cash payments upon conversions thereof. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default the notes.

~~The accounting method for the 2026 Notes could adversely affect our reported financial condition and results.~~

The accounting method for reflecting the 2026 Notes on our balance sheet, accruing interest expense for the notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition. We expect that the notes will be reflected as a liability on our balance sheets, with the initial carrying amount equal to the principal amount of the notes, net of issuance costs. The issuance costs attributable to the notes will be treated as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the notes. As a result of this amortization, the interest expense that we expect to recognize for the notes for accounting purposes will be greater than the cash interest payments we will pay on the notes, which will result in lower reported income. In addition, we expect that the shares underlying the notes will be reflected in our diluted earnings per share using the “if converted” method. However, if reflecting the notes in diluted earnings per share is anti-dilutive, then the shares underlying the notes will not be reflected in our diluted earnings per share. Accounting standards may change in the future in a manner that may adversely affect our diluted earnings per share. Furthermore, if any of the conditions to the convertibility of the notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the notes as current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their notes and could materially reduce our reported working capital.

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~~The capped call transactions may affect the value of the 2026 Notes and our common stock.~~

In connection with the pricing of the 2026 Notes, we entered into capped call transactions with the option counterparties. The capped call transactions are expected generally to reduce potential dilution to our common stock upon conversion of any notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap. In connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates purchased shares of our common stock and/or entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the notes. In addition, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so during any observation period related to a conversion of notes). This activity could cause or avoid an increase or a decrease in the market price of our common stock or the notes, which could affect your ability to convert the notes and, to the extent the activity occurs following conversion or during any observation period related to a conversion of notes, it could affect the number of shares and value of the consideration that you will receive upon conversion of such notes. Finally, if any such capped call transactions fail to become effective, the option counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock, which could adversely affect the value of our common stock and the value of the notes.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
None.

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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

Exhibit
No.
Description
~~2.1+~~
Stock Purchase Agreement, dated September 2, 2021, by and between Porch.com, Inc. and Covéa Coopérations S.A. (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on September 9, 2021).
~~4.1~~
Indenture, dated as of September 16, 2021, by and between Porch Group, Inc. and U.S. Bank National Association, as trustee. (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on September 17, 2021).
~~4.2~~
Form of 0.75% Convertible Senior Notes due 2026 (included as Exhibit A in Exhibit 4.1). (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on September 17, 2021).
~~10.1~~
Form of Capped Call Confirmation between Porch Group, Inc. and each of the option counterparties. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on September 17, 2021).
~~31.1†~~31.1*
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~31.2†~~31.2*
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~32.1†~~32.1**
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~32.2†~~32.2**
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101.INS†~~101.INS*
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

~~101.SCH†~~101.SCH*
XBRL Taxonomy Extension Schema Document

~~101.CAL†~~101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF†~~101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB†~~101.LAB*
XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE†~~101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document

~~104†~~104*

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

~~+   Certain schedules~~ *   Filed herewith.
** ThesecertificationsarefurnishedtotheSECpursuanttoSection906oftheSarbanes-OxleyActof2002and ~~exhibits to this agreement have been omitted pursuant to Item 601(a)(5)~~ aredeemednotfiledforpurposesof ~~Regulation S-K. A copy~~ Section18oftheSecuritiesExchangeActof1934,asamended,norshalltheybedeemedincorporatedbyreferenceinany ~~omitted schedule and/or exhibit will be furnished to~~ filingunderthe ~~SEC upon request.~~ SecuritiesActof1933,exceptasshallbeexpresslysetforthbyspecificreferenceinsuchfiling.

~~†   Filed herewith Except Exhibits 32.1 and 32.2, which are furnished not filed.~~

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~Registrant~~registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
Date: ~~November 15, 2021~~May 10, 2022

PORCH GROUP, INC.

By:
/s/ Martin L. Heimbigner

Name:
Martin L. Heimbigner

Title:
Chief Financial Officer

(Principal Financial Officer)

��

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Part I.	Financial Information	3

Item 1.	Financial Statements	3

	Unaudited Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	3

	Unaudited Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	4

	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	5

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	6

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	8

	Notes to Unaudited Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4330

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5945

Item 4.	Controls and Procedures	6046

Part II.	Other Information	6248

Item 1.	Legal Proceedings	6248

Item 1A.	Risk Factors	6248

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6648

Item 3.	Defaults Upon Senior Securities	6648

Item 4.	Mine Safety Disclosures	6648

Item 5.	Other Information	6648

Item 6.	Exhibits	6749

Exhibit Index		6749

Signatures		6850


	2021
Losses and LAE reserve at April 5	$	84,366
Reinsurance recoverables on losses and LAE		(82,898)
Losses and LAE reserve, net of reinsurance recoverables at April 5		1,468
Net incurred losses and LAE during the current year		15,744
Net claim and LAE payments during the current year		(10,106)
Reserve for losses and LAE, net of reinsurance recoverables, at end of year		7,106
Reinsurance recoverables on losses and LAE		80,631
Losses and LAE reserve at September 30	$	87,737


	Redeemable				Contingent
	Convertible				Consideration -
	Preferred Stock				Business
	Warrants		FVO Notes		Combinations
Fair value as of January 1, 2020	$	6,684	$	11,659	$	100
Additions		—		—		—
Settlements		—		—		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		1,214		454		(80)
Change in fair value, (gain) included in other comprehensive income		—		(3,856)		—
Fair value as of March 31, 2020	$	7,898	$	8,257	$	20
Additions		—		—		—
Settlements		—		(2,724)		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		785		(2,898)		1,480
Change in fair value, (gain) included in other comprehensive income		—		3,856		—
Fair value as of June 30, 2020	$	8,683	$	6,491	$	1,500
Additions		1,762		—		—
Settlements		—		—		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		(785)		(488)		100
Fair value as of September 30, 2020	$	9,660	$	6,003	$	1,600


	Weighted Average Useful Life (in years)	V12 Data		HOA		Rynoh		AHP		Other Acquisitions		Total
Purchase consideration:
Cash		$	20,346	$	82,355	$	32,302	$	43,750	$	25,321	$	204,074
Issuance of common stock			—		21,687		—		—		3,106		24,793
Payable			—		3,014		3,500		2,500		—		9,014
Contingent consideration - equity-classified			—		6,685		—		—		—		6,685
Contingent consideration - liability-classified			1,410		—		—		—		327		1,737
Total purchase consideration:		$	21,756	$	113,741	$	35,802	$	46,250	$	28,754	$	246,303
Assets:
Cash, cash equivalents and restricted cash		$	1,035	$	17,766	$	408	$	5,078	$	1,106	$	25,393
Current assets			4,939		235,669		932		9,761		1,579		252,880
Property and equipment			996		2,267		334		17		80		3,694
Intangible assets:
Customer relationships	10.0		1,650		16,700		12,700		—		8,900		39,950
Acquired technology	5.0		3,525		—		2,900		—		970		7,395
Trademarks and tradenames	11.0		1,225		12,200		900		700		5,160		20,185
Non-competition agreements	2.0		40		—		90		—		55		185
Value of business acquired	1.0		—		400		—		—		—		400
Renewal rights	8.0		—		7,692		—		2,042		—		9,734
Insurance licenses	Indefinite		—		4,960		—		—		—		4,960
Goodwill			16,760		47,361		21,952		43,095		13,582		142,750
Other non-current assets			—		55,165		—		25		1,000		56,190
Total assets acquired			30,170		400,180		40,216		60,718		32,432		563,716
Current liabilities			(6,388)		(273,759)		(409)		(14,389)		(2,252)		(297,197)
Long term liabilities			(2,026)		(8,913)		—		(79)		(1,000)		(12,018)
Deferred tax liabilities, net			—		(3,767)		(4,005)		—		(426)		(8,198)
Net assets acquired		$	21,756	$	113,741	$	35,802	$	46,250	$	28,754	$	246,303


			Estimated
	Fair		Useful Life
	Value		(in years)
Intangible assets:
Customer relationships	$	1,650	10
Acquired technology		3,525	4
Trademarks and tradenames		1,225	15
Non-competition agreements		40	2
	$	6,440


	Quarter ended
	March 31, 2021		June 30, 2021		September 30, 2021		December 31, 2021		Total
Revenue increase (decrease)	$	—	$	(3,400)	$	(2,300)	$	5,700	$	—
Cost of revenue increase (decrease)		—		3,400		2,300		(5,700)		—
Net loss impact	$	—	$	—	$	—	$	—	$	—


	Three Months Ended March 31, 2021
	Vertical Software Segment		Insurance Segment			Total
Revenue:
Software and service subscriptions	$	10,880	$	—	$	10,880
Move-related transactions (excluding insurance)		8,961		—		8,961
Post-move transactions		5,096		—		5,096
Insurance		—		1,805		1,805
Total revenue	$	24,937	$	1,805	$	26,742


Exhibit No.		Description

~~2.1+~~		Stock Purchase Agreement, dated September 2, 2021, by and between Porch.com, Inc. and Covéa Coopérations S.A. (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on September 9, 2021).
~~4.1~~		Indenture, dated as of September 16, 2021, by and between Porch Group, Inc. and U.S. Bank National Association, as trustee. (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on September 17, 2021).
~~4.2~~		Form of 0.75% Convertible Senior Notes due 2026 (included as Exhibit A in Exhibit 4.1). (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on September 17, 2021).
~~10.1~~		Form of Capped Call Confirmation between Porch Group, Inc. and each of the option counterparties. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on September 17, 2021).
~~31.1†~~31.1*		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~31.2†~~31.2*		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~32.1†~~32.1**		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~32.2†~~32.2**		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101.INS†~~101.INS*		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

~~101.SCH†~~101.SCH*		XBRL Taxonomy Extension Schema Document

~~101.CAL†~~101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF†~~101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB†~~101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE†~~101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document
~~104†~~104*	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)


	PORCH GROUP, INC.

	By:	/s/ Martin L. Heimbigner
	Name:	Martin L. Heimbigner
	Title:	Chief Financial Officer
		(Principal Financial Officer)