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, 2022~~March 31, 2023

☐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)

411 1^st Avenue S., Suite 501, Seattle, WA 98104

(Address of Principal Executive Offices) (Zip Code)

(855) 767-2400

(Registrant’s telephone number, including area code)

N/A

(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	☒	~~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 as of ~~November 7, 2022~~May 8, 2023 was ~~100,554,543.~~97,816,355.

Table of Contents

Table of Contents

		Page

Part I.	Financial Information	3

Item 1.	Financial Statements	3

	Unaudited Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	3

	Unaudited Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	4

	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	5

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	6

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	8

	Notes to Unaudited Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3834

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5949

Item 4.	Controls and Procedures	6050

Part II.	Other Information	6252

Item 1.	Legal Proceedings	6252

Item 1A.	Risk Factors	6252

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6253

Item 3.	Defaults Upon Senior Securities	6253

Item 4.	Mine Safety Disclosures	6253

Item 5.	Other Information	6253

Item 6.	Exhibits	6354

Exhibit Index		6354

Signatures		6457

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, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	260,198	$	315,741	$	179,357	$	215,060
Accounts receivable, net		37,032		28,767		23,600		26,438
Short-term investments		7,212		9,251		34,441		36,523
Reinsurance balance due		303,987		228,416		292,775		299,060
Prepaid expenses and other current assets		21,160		14,338		30,834		20,009
Restricted cash		16,296		8,551		14,796		13,545
Total current assets		645,885		605,064		575,803		610,635
Property, equipment, and software, net		11,236		6,666		13,727		12,240
Operating lease right-of-use assets		4,697		4,504		4,151		4,201
Goodwill		228,091		225,654		247,118		244,697
Long-term investments		55,357		58,324		58,678		55,118
Intangible assets, net		111,728		129,830		101,753		108,255
Restricted cash, non-current		500		500
Long-term insurance commissions receivable		11,930		7,521		13,140		12,265
Other assets		3,057		684		2,346		1,646
Total assets	$	1,072,481	$	1,038,747	$	1,016,716	$	1,049,057

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	6,717	$	6,965	$	6,200	$	6,268
Accrued expenses and other current liabilities		36,847		37,675		38,856		39,742
Deferred revenue		277,616		201,085		246,502		270,690
Refundable customer deposit		19,867		15,274
Current portion of long-term debt		6,275		150
Refundable customer deposits						20,984		20,142
Current debt						10,392		16,455
Losses and loss adjustment expense reserves		100,298		61,949		115,527		100,632
Other insurance liabilities, current		55,945		40,024		78,422		61,710
Total current liabilities		503,565		363,122		516,883		515,639
Long-term debt		425,012		414,585		425,383		425,310
Operating lease liabilities, non-current		2,968		2,694		2,585		2,536
Earnout liability, at fair value		57		13,866		44		44
Private warrant liability, at fair value		802		15,193		362		707
Other liabilities (includes $23,228 and $9,617 at fair value, respectively)		24,952		12,242
Other liabilities (includes $24,198 and $24,546 at fair value, respectively)						26,183		25,468
Total liabilities		957,356		821,702		971,440		969,704
Commitments and contingencies (Note 12)
Stockholders’ equity
Common stock, $0.0001 par value:		10		10		10		10
Authorized shares – 400,000,000 and 400,000,000, respectively
Issued and outstanding shares – 100,410,325 and 97,961,597, respectively
Issued and outstanding shares – 97,018,032 and 98,455,838, respectively
Additional paid-in capital		664,362		641,406		677,426		670,537
Accumulated other comprehensive loss		(6,571)		(259)		(5,296)		(6,171)
Accumulated deficit		(542,676)		(424,112)		(626,864)		(585,023)
Total stockholders’ equity		115,125		217,045		45,276		79,353
Total liabilities and stockholders’ equity	$	1,072,481	$	1,038,747	$	1,016,716	$	1,049,057

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,
	2022		2021		2022		2021		2023		2022
Revenue	$	75,366	$	62,769	$	208,696	$	140,852	$	87,369	$	63,567
Operating expenses⁽¹⁾:
Cost of revenue		33,269		19,158		83,016		44,587		51,275		25,216
Selling and marketing		30,245		22,874		84,815		60,636		32,585		26,077
Product and technology		14,438		11,317		44,446		34,158		13,950		14,231
General and administrative		25,257		22,034		80,360		66,463		26,066		26,699
Impairment loss on intangible assets and goodwill		57,057		—		57,057		—		2,021		—
Total operating expenses		160,266		75,383		349,694		205,844		125,897		92,223
Operating loss		(84,900)		(12,614)		(140,998)		(64,992)		(38,528)		(28,656)
Other income (expense):
Interest expense		(2,085)		(1,857)		(6,236)		(4,296)		(2,188)		(2,427)
Change in fair value of earnout liability		43		7,413		13,809		(15,388)		—		11,179
Change in fair value of private warrant liability		124		2,692		14,391		(17,521)		345		10,189
Gain (loss) on extinguishment of debt		—		(3,133)		—		5,110
Investment income and realized gains, net of investment expenses		335		248		775		448		758		197
Other expense, net		69		316		(37)		225
Other income, net										762		56
Total other income (expense)		(1,514)		5,679		22,702		(31,422)		(323)		19,194
Loss before income taxes		(86,414)		(6,935)		(118,296)		(96,414)		(38,851)		(9,462)
Income tax benefit (expense)		23		1,836		(268)		9,917
Income tax benefit										111		177
Net loss	$	(86,391)	$	(5,099)	$	(118,564)	$	(86,497)	$	(38,740)	$	(9,285)

Loss per share - basic (Note 15)	$	(0.88)	$	(0.05)	$	(1.22)	$	(0.93)
Loss per share - diluted (Note 15)	$	(0.88)	$	(0.08)	$	(1.22)	$	(0.93)
Loss per share - basic and diluted (Note 15)									$	(0.41)	$	(0.10)

Shares used in computing basic loss per share		97,792,485		96,839,292		97,009,351		92,544,137
Shares used in computing diluted loss per share		97,792,485		97,545,942		97,009,351		92,544,137
Shares used in computing basic and diluted loss per share										95,209,819		96,074,527

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Cost of revenue	$	—	$	—	$	—	$	1	$	—	$	—
Selling and marketing		1,689		1,382		3,592		4,888		1,045		632
Product and technology		911		1,367		3,888		5,522		1,449		1,137
General and administrative		2,489		3,135		13,165		18,950		4,400		4,085
	$	5,089	$	5,884	$	20,645	$	29,361	$	6,894	$	5,854

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,
	2022		2021		2022		2021		2023		2022
Net loss	$	(86,391)	$	(5,099)	$	(118,564)	$	(86,497)	$	(38,740)	$	(9,285)
Other comprehensive income (loss):
Current period change in net unrealized loss, net of tax		(2,012)		(154)		(6,312)		113		875		(2,515)
Comprehensive loss	$	(88,403)	$	(5,253)	$	(124,876)	$	(86,384)	$	(37,865)	$	(11,800)

Table of Contents

PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity

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


								Accumulated											Accumulated
				Additional				Other		Total					Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’		Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Loss		Equity		Shares	Amount		Capital		Deficit		Loss		Equity
Balances as of December 31, 2021	97,961,597	$	10	$	641,406	$	(424,112)	$	(259)	$	217,045
Balances as of December 31, 2022												98,206,323	$	10	$	670,537	$	(585,023)	$	(6,171)	$	79,353
Net loss	—		—		—		(5,796)		—		(5,796)	—		—		—		(38,740)		—		(38,740)
Other comprehensive loss	—		—		—		—		(2,515)		(2,515)
Other comprehensive income, net of tax												—		—		—		—		875		875
Stock-based compensation	—		—		5,854		—		—		5,854	—		—		6,894		—		—		6,894
Contingent consideration for acquisitions	—		—		530		—		—		530	—		—		—		—		—		—
Vesting of restricted stock awards	245,855		—		—		—		—		—	295,414		—		—		—		—		—
Exercise of stock options	185,685		—		473		—		—		473	4,519		—		8		—		—		8
Income tax withholdings	(95,951)		—		(712)		—		—		(712)	(92,066)		—		(204)		—		—		(204)
Balances as of March 31, 2022	98,297,186	$	10	$	647,551	$	(429,908)	$	(2,774)	$	214,879
Net loss	—		—		—		(26,377)		—		(26,377)
Other comprehensive loss	—		—		—		—		(1,785)		(1,785)
Stock-based compensation	—		—		9,702		—		—		9,702
Issuance of common stock for acquisitions	628,660		—		3,552		—		—		3,552
Vesting of restricted stock units	563,406		—		—		—		—		—
Exercise of stock options	88,772		—		219		—		—		219
Income tax withholdings	(137,496)		—		(1,210)		—		—		(1,210)
Balances as of June 30, 2022	99,440,528	$	10	$	659,814	$	(456,285)	$	(4,559)	$	198,980
Net loss	—		—		—		(86,391)		—		(86,391)
Other comprehensive loss	—		—		—		—		(2,012)		(2,012)
Stock-based compensation	—		—		5,089		—		—		5,089
Vesting of restricted stock units	1,062,323		—		—		—		—		—
Exercise of stock options	197,758		—		416		—		—		416
Income tax withholdings	(290,284)		—		(957)		—		—		(957)
Balances as of September 30, 2022	100,410,325	$	10	$	664,362	$	(542,676)	$	(6,571)	$	115,125
Repurchases of common stock												(1,396,158)		—		—		(3,101)		—		(3,101)
Proceeds from sale of common stock												—		—		191		—		—		191
Balances as of March 31, 2023												97,018,032	$	10	$	677,426	$	(626,864)	$	(5,296)	$	45,276

Table of Contents

PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity - Continued

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

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Equity
Balances as of December 31, 2020

81,669,151

$
8

$
424,823

$
(317,506)

$
—

$
107,325
Net loss

—

—

—

(65,101)

—

(65,101)
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 awards

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

—

28,372

—

—

28,372
Reclassification of private warranty liability upon exercise

—

—

16,843

—

—

16,843
Vesting of restricted stock awards

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 warranty liability upon exercise

—

—

14,505

—

—

14,505
Vesting of restricted stock awards

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	—		—		—		(9,285)		—		(9,285)
Other comprehensive loss, net of tax	—		—		—		—		(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	$	(433,397)	$	(2,774)	$	211,390

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,


2022

2021
Cash flows from operating activities:




Net loss

$
(118,564)

$
(86,497)
Adjustments to reconcile net loss to net cash used in operating activities


Depreciation and amortization

21,574

10,787
Amortization of operating lease right-of-use assets

1,621

1,298
Impairment loss on intangible assets and goodwill

57,057

—
Loss on sale and impairment of property, equipment, and software

200

202
Gain on extinguishment of debt

—

(5,110)
Loss (gain) on remeasurement of private warrant liability

(14,391)

17,521
Loss (gain) on remeasurement of contingent consideration

5,251

(380)
Loss (gain) on remeasurement of earnout liability

(13,809)

15,388
Stock-based compensation

20,645

29,361
Amortization of investment premium/accretion of discount, net

1,702

941
Net realized losses on investments

187

45
Interest expense (non-cash)

2,287

67
Other

480

(1,379)
Change in operating assets and liabilities, net of acquisitions and divestitures


Accounts receivable

(8,639)

(5,424)
Reinsurance balance due

(75,571)

(33,097)
Prepaid expenses and other current assets

(6,297)

90
Accounts payable

(248)

(23,284)
Accrued expenses and other current liabilities

(8,001)

3,031
Losses and loss adjustment expense reserves

38,349

1,892
Other insurance liabilities, current

15,921

5,085
Deferred revenue

71,600

42,948
Refundable customer deposits

4,593

(2,441)
Deferred income tax benefit

—

(8,153)
Long-term insurance commissions receivable

(4,409)

(3,794)
Operating lease liabilities, non-current

(1,936)

(1,469)
Other

(2,410)

655
Net cash used in operating activities

(12,808)

(41,717)
Cash flows from investing activities:




Purchases of property and equipment

(1,986)

(588)
Capitalized internal use software development costs

(5,803)

(2,629)
Purchases of short-term and long-term investments

(19,446)

(19,126)
Maturities, sales of short-term and long-term investments

17,794

16,367
Acquisitions, net of cash acquired

(37,003)

(178,681)
Net cash used in investing activities

(46,444)

(184,657)
Cash flows from financing activities:




Proceeds from debt issuance, net of fees

15,000

413,537
Repayments of principal and related fees

(150)

(42,965)
Capped call transactions

—

(42,330)
Proceeds from exercises of warrants

—

126,772
Proceeds from exercises of stock options

1,108

3,516
Income tax withholdings paid upon vesting of restricted stock units

(2,879)

(23,778)
Payments of acquisition-related contingent consideration

(1,625)

—
Net cash provided by financing activities

11,454

434,752
Net change in cash, cash equivalents, and restricted cash

$
(47,798)

$
208,378
Cash, cash equivalents, and restricted cash, beginning of period

$
324,792

$
207,453
Cash, cash equivalents, and restricted cash end of period

$
276,994

$
415,831


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(38,740)	$	(9,285)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		6,015		6,483
Amortization of operating lease right-of-use assets		475		582
Impairment loss on intangible assets and goodwill		2,021		—
Loss on sale and impairment of property, equipment, and software		4		70
Gain on remeasurement of private warrant liability		(345)		(10,189)
Loss (gain) on remeasurement of contingent consideration		(154)		3,205
Gain on remeasurement of earnout liability		—		(11,179)
Stock-based compensation		6,894		5,854
Amortization of investment premium/accretion of discount, net		(280)		566
Net realized losses on investments		67		68
Interest expense (non-cash)		1,534		1,046
Other		242		64
Change in operating assets and liabilities, net of acquisitions and divestitures
Accounts receivable		2,619		1,312
Reinsurance balance due		6,286		(7,920)
Prepaid expenses and other current assets		(10,826)		(6,415)
Accounts payable		(69)		1,051
Accrued expenses and other current liabilities		1,390		(4,033)
Losses and loss adjustment expense reserves		14,895		17,659
Other insurance liabilities, current		16,712		3,025
Deferred revenue		(24,100)		(1,945)
Refundable customer deposits		(4,607)		(2,949)
Long-term insurance commissions receivable		(875)		(1,540)
Operating lease liabilities, non-current		(489)		(235)
Other		(700)		(696)
Net cash used in operating activities		(22,031)		(15,401)
Cash flows from investing activities:
Purchases of property and equipment		(356)		(1,167)
Capitalized internal use software development costs		(2,427)		(1,574)
Purchases of short-term and long-term investments		(5,410)		(8,835)
Maturities, sales of short-term and long-term investments		5,020		8,449
Acquisitions, net of cash acquired		(1,974)		(4,950)
Net cash used in investing activities		(5,147)		(8,077)
Cash flows from financing activities:
Proceeds from advance funding		313		5,143
Repayments of advance funding		(1,281)		(3,033)
Repayments of principal and related fees		(499)		(150)
Proceeds from exercises of stock options		8		473
Income tax withholdings paid upon vesting of restricted stock units		(204)		(712)
Payments of acquisition-related contingent consideration		(194)		—
Repurchase of stock		(5,608)		—
Proceeds from sale of common stock		191		—
Net cash provided by financing activities		(7,274)		1,721
Net change in cash, cash equivalents, and restricted cash	$	(34,452)	$	(21,757)
Cash, cash equivalents, and restricted cash, beginning of period	$	228,605	$	324,792
Cash, cash equivalents, and restricted cash end of period	$	194,153	$	303,035

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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,
	2022		2021		2023		2022
Supplemental disclosures
Cash paid for interest	$	3,181	$	2,675	$	1,796	$	1,587
Non-cash consideration for acquisitions	$	14,952	$	42,229
Reduction of earnout liability due to a vesting event	$	—	$	25,815
Payable for capped call transaction	$	—	$	10,583
Income tax refunds received					$	2,380	$	—

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 Statements

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

1. Description of Business and Summary of ~~Significant~~Significant Accounting Policies

Description of Business

Porch Group, Inc. (“Porch Group,” “Porch” or the “Company”) is a vertical software platform for the home, providing software and services to ~~over 30,900 home services companies. The Vertical Software segment provides software and services to home services companies, such as home inspectors, mortgage~~approximately 30,600 companies and ~~loan officers, title companies, moving companies, real estate agencies, utility companies, and others. Porch’s~~small businesses. Porch is a values-driven company whose mission is to simplify the home with insurance at the center. The Company’s Insurance segment, with ~~over 390,000~~approximately 376,000 insurance and warranty policies in force, 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~~Segment also includes Porch’s warranty service ~~offering.~~

~~Porch helps home service providers grow their business~~offerings, and ~~improve their customer experience. In addition, through these relationships Porch gains access to homebuyers~~includes a captive reinsurance provider. The Vertical Software segment provides software and ~~is able to offer~~ services to ~~make the~~home services companies, such as home inspectors, mortgage companies and loan officers, title companies, moving ~~process easier, helping consumers save time~~companies, real estate agencies, utility companies, and ~~make better decisions about critical services, including insurance, warranty, moving, security, TV/Internet, home repair and improvement.~~individuals.

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 for the fiscal year ended December 31, ~~2021,~~2022, filed with the SEC on March 16, ~~2022.~~2023. The information as of December 31, ~~2021,~~2022, included in the unaudited condensed consolidated balance sheets was derived from the Company’s audited 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, and cash flows for the periods and dates presented. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022,~~2023, or any other interim period or future year.

Comprehensive Loss

Comprehensive loss consists of adjustments related to unrealized gains and losses on available-for-sale 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 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)~~

to, impairment losses on intangible assets and goodwill, estimated variable consideration for services performed, estimated lifetime value of insurance agency commission revenue, current estimate for credit losses, depreciable lives for property and equipment, the valuation of and useful lives for acquired intangible assets, 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.

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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)

Concentrations

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 securities, as well as receivable ~~balance~~balances in the course of collection.

The Company’s insurance carrier subsidiary has exposure and remains liable in the event of insolvency of its ~~primary~~ reinsurers. Management and its reinsurance intermediary regularly assess the credit quality and ratings of its reinsurer counterparties. ~~Two reinsurers~~One reinsurer represented more than 10% ~~individually, and 44% in aggregate,~~ of the Company’s insurance subsidiary’s total reinsurance balance due as of ~~September 30, 2022.~~March 31, 2023.

Substantially all of the Company’s insurance-related revenues in the Insurance segment are derived from customers in Texas (which represent approximately ~~53%~~60% of such revenues in the ~~nine~~three months ended ~~September 30, 2022)~~March 31, 2023), South Carolina, North Carolina, Georgia, Virginia and 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 ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, or ~~2021.~~2022. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, no individual customer accounted for 10% or more of the Company’s total accounts receivable.

As of ~~September 30, 2022,~~March 31, 2023, the Company held approximately ~~$138.5~~$136.1 million of cash with ~~two~~three U.S. commercial banks.

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, 2022~~March 31, 2023 includes ~~$5.1~~$5.2 million held by the Company’s captive ~~insurance~~reinsurance company as a collateral for the benefit of Homeowners of America (“HOA”), ~~$0.5~~$1.3 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, ~~$8.3~~$6.0 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in ~~twenty five~~seventeen states, and ~~$2.9~~$2.4 million related to acquisition ~~indemnifications, of which $0.5 million is recorded in non-current assets.~~indemnifications. Restricted cash equivalents as of December 31, ~~2021,~~2022, includes ~~$0.3~~$5.1 million held ~~in certificates~~by the Company’s captive reinsurance company as collateral for the benefit of ~~deposits and~~HOA, $1.0 million held in 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, ~~$5.9~~$5.0 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in ~~twenty five~~nineteen states, ~~$0.3 million of customer deposits,~~ and ~~$2.6~~$2.4 million related to acquisition ~~indemnifications in escrow accounts, of which $0.5 million is recorded in non-current assets.~~indemnifications.

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


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022

Cash and cash equivalents	$	260,198	$	315,741	$	179,357	$	215,060
Restricted cash and restricted cash equivalents - current		16,296		8,551		14,796		13,545
Restricted cash and restricted cash equivalents - non-current		500		500
Cash, cash equivalents and restricted cash	$	276,994	$	324,792	$	194,153	$	228,605

Accounts Receivable and Long-term Insurance Commissions Receivable

Accounts receivable consist principally of amounts due from enterprise customers and other corporate partnerships, ~~as well as credit card receivables.~~and individual policyholders. The Company estimates allowances for uncollectible receivables based on the creditworthiness of its customers, historical trend analysis and ~~general economic~~macro-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 at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, was $0.6 million and ~~$0.4~~$0.5 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.

Goodwill

The Company tests goodwill for impairment for each reporting unit on an annual basis, or more frequently when events or changes in circumstances indicate the fair value of a reporting unit is below its carrying value. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform a quantitative impairment test. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, the

Company performs a quantitative assessment. If a quantitative goodwill impairment assessment is performed, the Company utilizes a combination of market and income valuation approaches. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that fair value of the reporting unit is less than its carrying value. The Company has selected October 1 as the date to perform its annual impairment test.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit was estimated using a combination of income and market valuation approaches using publicly traded company multiples in similar businesses. Such fair value measurements are based predominately on Level 3 inputs. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 14% to 20%.

During the first quarter of 2023, management identified various qualitative factors that collectively, indicated that the Company had triggering events, including a sustained decrease in stock price, increased costs due to inflationary pressures, and a deterioration of the macroeconomic environment in the housing and real estate and insurance industries. The Company performed a valuation of both the Vertical Software and Insurance reporting units using a combination of market and income approaches based on peer performance and discounted cash flow or dividend discount model methodologies. The results of the quantitative impairment assessment indicated that the estimated fair values of the

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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)

reporting units exceeded their carrying values. As such, the Company determined that the goodwill allocated to its reporting units was not impaired as of March 31, 2023.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, including property, equipment, software and amortizing intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Events that trigger a test for recoverability include a significant decrease in the market price for a long-lived asset, significant negative industry or economic trends, an accumulation of costs significantly in excess of the amount originally expected for the acquisition, a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or a sustained decrease in share price. When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the test for recoverability identifies a possible impairment, the asset group’s fair value is measured relying primarily on an income approach. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value. Management identifies the asset group which includes the potentially impaired long-lived asset, at the lowest level at which there are separate, identifiable cash flows.

During the first quarter of 2023, management identified various qualitative factors that collectively indicated that the Company had trigger events including a sustained decrease in stock price, increased costs due to inflationary pressures, and a deterioration of the macroeconomic environment in the housing and real estate industry. The Company used an income approach to determine that the estimated fair value of a certain asset group was less than its carrying value, which resulted in impairment charges of $2.0 million, primarily related to acquired technology, trademarks and tradenames, and customer relationships for certain businesses within its Vertical Software segment. Impairment charges are included in impairment loss on intangible assets and goodwill in the consolidated statements of operations.

We estimate the fair value of an asset group using the income approach. Such fair value measurements are based predominately on Level 3 inputs. Inherent in our development of cash flow projections are assumptions and estimates derived from a review of our operating results, business plan forecasts, expected growth rates, and cost of capital, similar to those a market participant would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of these factors used in assessing fair value are outside the control of management and these assumptions and estimates may change in future periods.

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, 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, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, DAC of ~~$9.2~~$17.7 million and ~~$4.0~~$8.7 million is included in prepaid expenses and other current assets.

~~Changes~~ Amortized deferred acquisition costs included in ~~DAC~~sales and marketing expense, amounted to $9.3 million and $3.0 million, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~are~~respectively.

Fair Value of Financial Instruments

Fair value principles require disclosures regarding the manner in which fair value is determined for assets and liabilities and establishes a three-tiered fair value hierarchy into which these assets and liabilities must be grouped, based upon significant levels of inputs as follows:

2022
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
Capitalized costs

23,617
Amortized costs

(23,584)
Deferred policy acquisition costs at June 30, 2022 (net)

7,773
Capitalized costs

27,956
Amortized costs

(26,491)
Deferred policy acquisition costs at September 30, 2022 (net)

$
9,238

1213

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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)

~~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 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.

Other Insurance Liabilities, Current

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


	As of September 30, 2022		As of December 31, 2021		As of March 31, 2023		As of December 31, 2022
Ceded reinsurance premiums payable	$	26,727	$	22,523	$	39,162	$	29,204
Commissions payable, reinsurers and agents		13,633		10,697		20,703		21,045
Advance premiums		12,794		4,277		15,537		8,668
Funds held under reinsurance treaty		1,886		2,206		1,875		1,851
General and accrued expenses payable		905		321		1,145		942
Other insurance liabilities, current	$	55,945	$	40,024	$	78,422	$	61,710

Income Taxes

Provisions for income taxes for the three months ended ~~September 30,~~March 31, 2023, and 2022 ~~and 2021~~ were a ~~$23 thousand~~$0.1 million benefit and a ~~$1.8~~$0.2 million benefit, respectively, and the effective tax rates for these periods were ~~0.0%~~0.3% benefit and 26.5% benefit, respectively. Provisions for income taxes for the nine months ended September 30, 2022, and 2021, were a $0.3 million expense and a $9.9 million benefit, respectively, and the effective rates for these periods were 0.2% expense and 10.3%1.9% benefit, respectively. The difference between the Company’s effective tax rates for the 2023 and 2022 ~~period~~periods and 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 the release of a portion of the valuation allowance due to deferred tax liabilities created by certain acquisitions.~~

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Notes to Condensed Consolidated Statements - Continued~~

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

~~Recently Adopted Accounting Standards~~

~~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 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 early adopted this ASU as of January 1, 2022, and will apply the guidance prospectively for business combinations that occur after the adoption date. Therefore, the adoption will have no impact to the existing consolidated balance sheets, statements of operations, and 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.assets.

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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,

2022

2021

2022

2021
Vertical Software segment

Software and service subscriptions

$
17,529

$
15,238

$
55,165

$
38,716
Move-related transactions (excluding insurance)

21,569

21,576

51,155

46,742
Post-move transactions

5,365

5,473

15,644

16,171
Total Vertical Software segment revenue

44,463

42,287

121,964

101,629

Insurance segment

Insurance and warranty premiums, commissions and policy fees⁽¹⁾

30,903

20,482

86,732

39,223
Total Insurance segment revenue

30,903

20,482

86,732

39,223

Total revenue

$
75,366

$
62,769

$
208,696

$
140,852


	Three Months Ended March 31,
	2023		2022
Vertical Software segment
Software and service subscriptions	$	16,809	$	17,681
Move-related transactions		7,769		12,193
Post-move transactions		4,049		4,530
Total Vertical Software segment revenue		28,627		34,404

Insurance segment
Insurance and warranty premiums, commissions and policy fees		58,742		29,163
Total Insurance segment revenue		58,742		29,163

Total revenue⁽¹⁾	$	87,369	$	63,567

⁽¹⁾ Revenue recognized during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, includes revenue of ~~$19.1~~$51.0 million and $56.4 million, respectively, which is accounted for separately from the revenue from contracts with customers. Revenue recognized during the three and nine months ended September 30, 2021, includes revenue of $11.2 million and $19.9$20.8 million, respectively, which is accounted for separately from the revenue from contracts with customers.

Disclosures Related to Contracts with Customers

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to contracts with customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. To the extent a contract exists, as defined by ASC 606, these liabilities are classified as deferred revenue. To the extent that a contract does not exist, as defined by ASC 606, these liabilities are classified as refundable customer deposits. Refundable customer deposits related to contracts with customers were not material at March 31, 2023 and December 31, 2022.

Contract Assets - Insurance Commissions Receivable

A summary of the activity impacting the contract assets during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, is presented below:


	Contract Assets		Contract Assets
Balance at December 31, 2021	$	9,384
Balance at December 31, 2022			$	15,521
Estimated lifetime value of commissions on insurance policies sold by carriers		7,580		2,018
Cash receipts		(2,748)		(1,062)
Balance at September 30, 2022	$	14,216
Balance at March 31, 2023			$	16,477

As of ~~September 30, 2022, $2.3~~March 31, 2023, $3.3 million of contract assets are expected to be collected within the next 12 months and therefore are included in current accounts receivable on the unaudited condensed consolidated balance sheets. The remaining ~~$11.9~~$13.1 million of contract assets are expected to be collected in the following periods and are included in long-term insurance commissions receivable on the unaudited condensed consolidated balance sheets.

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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)

~~Contract Liabilities — Refundable Customer Deposits~~

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

Contract

Liabilities
Balance at December 31, 2021

$
15,274
Additions to contract liabilities

25,952
Contract liabilities transferred to revenue

(21,359)
Balance at September 30, 2022

$
19,867

As of September 30, 2022, $19.9 million in contract liabilities related to refundable customer deposits received in advance of warranty services provided, are included in current refundable customer deposits on the consolidated balance 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 three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, is presented below:

Vertical Software

Insurance

Total

Deferred Revenue

Deferred Revenue

Deferred Revenue
Balance at December 31, 2021

$
3,814

$
197,271

$
201,085
Revenue recognized⁽¹⁾

(5,279)

(91,994)

(97,273)
Additional amounts deferred

5,722

89,323

95,045
Balance at March 31, 2022

4,257

194,600

198,857
Revenue recognized⁽¹⁾

(6,027)

(97,654)

(103,681)
Additional amounts deferred

5,815

136,728

142,543
Impact of acquisitions

196

5,510

5,706
Balance at June 30, 2022

4,241

239,184

243,425
Revenue recognized⁽¹⁾

(5,674)

(112,911)

(118,585)
Additional amounts deferred

5,733

147,043

152,776
Balance at September 30, 2022

$
4,300

$
273,316

$
277,616

~~(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 for the three and nine months ended September 30, 2022, earned premiums are presented net of ceded premiums of $94.0 million and $248.8 million, respectively.

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~~PORCH GROUP, INC.~~


	Vertical Software
	Deferred Revenue
Balance at December 31, 2022	$	3,874
Revenue recognized		(4,237)
Additional amounts deferred		4,693
Balance at March 31, 2023	$	4,330

~~Notes~~Deferred revenue on our unaudited condensed consolidated balance sheet as of March 31, 2023 and December 31, 2022, include $242.2 million and $266.8 million, respectively, of deferred revenue related to ~~Condensed Consolidated Statements - Continued~~our Insurance segment.

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

Remaining Performance Obligations

Contracts with customers include $4.3 million related 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, which is not recorded in the unaudited condensed consolidated balance sheets, is immaterial as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022.

The Company has applied the practical expedients provided for in the accounting standards, and does not present revenue related to 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 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.

Warranty Revenue and Related Balance Sheet Disclosures

Payments received in advance of warranty services provided are included in refundable customer deposits or deferred revenue based upon the cancellation and refund provisions within the respective agreement. At March 31, 2023, we had $20.8 million, $3.8 million and $2.5 million of refundable customer deposits, deferred revenue and non-current deferred revenue, respectively. At December 31, 2022, we had $20.0 million, $4.4 million and $1.9 million of refundable customer deposits, deferred revenue and non-current deferred revenue, respectively.

For the three months ended March 31, 2023 and 2022, we incurred $1.2 million and $0.3 million, respectively, in expenses related to warranty claims.

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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)

3. Investments

The following table provides the Company’s investment income, and realized gains and losses on investments during the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Investment income, net of investment expenses	$	384	$	261	$	962	$	493	$	825	$	265
Realized gains on investments		10		26		16		46		4		2
Realized losses on investments		(59)		(39)		(203)		(91)		(71)		(70)
Investment income and realized gains, net of investment expenses	$	335	$	248	$	775	$	448
Investment income and realized gains (losses), net of investment expenses									$	758	$	197

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


	As of September 30, 2022								As of March 31, 2023
			Gross Unrealized								Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
U.S. Treasuries	$	5,487	$	1	$	(304)	$	5,184	$	34,637	$	12	$	(226)	$	34,423
Obligations of states, municipalities and political subdivisions		10,757		3		(1,363)		9,397		11,304		13		(1,054)		10,263
Corporate bonds		31,227		—		(3,072)		28,155		34,549		96		(2,610)		32,035
Residential and commercial mortgage-backed securities		14,645		1		(1,374)		13,272		11,527		11		(1,162)		10,376
Other loan-backed and structured securities		7,024		—		(463)		6,561		6,398		14		(390)		6,022
Total debt securities	$	69,140	$	5	$	(6,576)	$	62,569
Total investment securities									$	98,415	$	146	$	(5,442)	$	93,119

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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)

As of 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


	As of December 31, 2022
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
U.S. Treasuries	$	35,637	$	5	$	(320)	$	35,322
Obligations of states, municipalities and political subdivisions		11,549		2		(1,326)		10,225
Corporate bonds		31,032		32		(2,837)		28,227
Residential and commercial mortgage-backed securities		12,790		11		(1,268)		11,533
Other loan-backed and structured securities		6,804		6		(476)		6,334
Total investment securities	$	97,812	$	56	$	(6,227)	$	91,641

The amortized cost and fair value of securities at ~~September 30, 2022,~~March 31, 2023, 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.


	As of September 30, 2022				As of March 31, 2023
Remaining Time to Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	5,081	$	5,012	$	33,719	$	33,640
Due after one year through five years		21,261		19,485		18,734		17,303
Due after five years through ten years		17,577		15,152		21,836		20,099
Due after ten years		3,552		3,087		6,201		5,679
Residential and commercial mortgage-backed securities		14,645		13,272		11,527		10,376
Other loan-backed and structured securities		7,024		6,561		6,398		6,022
Total	$	69,140	$	62,569	$	98,415	$	93,119

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for ~~other-than-temporarily~~other-than-temporary impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including:

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

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

general market conditions and industry or 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.

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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)

Securities with gross unrealized loss position, 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, 2022	Loss		Value		Loss		Value		Loss		Value
At March 31, 2023													Loss		Value		Loss		Value		Loss		Value
U.S. Treasuries	$	(103)	$	2,611	$	(201)	$	2,256	$	(304)	$	4,867	$	(66)	$	16,320	$	(160)	$	2,251	$	(226)	$	18,571
Obligations of states, municipalities and political subdivisions		(902)		6,161		(461)		3,200		(1,363)		9,361		(48)		1,936		(1,006)		7,852		(1,054)		9,788
Corporate bonds		(2,461)		18,067		(611)		4,389		(3,072)		22,456		(617)		12,375		(1,993)		15,615		(2,610)		27,990
Residential and commercial mortgage-backed securities		(1,229)		11,074		(145)		2,135		(1,374)		13,209		(260)		3,190		(902)		7,149		(1,162)		10,339
Other loan-backed and structured securities		(442)		6,118		(21)		443		(463)		6,561		(149)		1,712		(241)		3,696		(390)		5,408
Total securities	$	(5,137)	$	44,031	$	(1,439)	$	12,423	$	(6,576)	$	56,454	$	(1,140)	$	35,533	$	(4,302)	$	36,563	$	(5,442)	$	72,096


	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 December 31, 2021	Loss		Value		Loss		Value		Loss		Value
At December 31, 2022													Loss		Value		Loss		Value		Loss		Value
U.S. Treasuries	$	(36)	$	5,007	$	—	$	—	$	(36)	$	5,007	$	(127)	$	10,748	$	(193)	$	9,824	$	(320)	$	20,572
Obligations of states, municipalities and political subdivisions		(84)		4,292		—		—		(84)		4,292		(929)		6,258		(397)		3,504		(1,326)		9,762
Corporate bonds		(155)		15,446		—		—		(155)		15,446		(1,623)		16,531		(1,214)		10,328		(2,837)		26,859
Residential and commercial mortgage-backed securities		(139)		9,687		—		—		(139)		9,687		(687)		6,565		(581)		4,952		(1,268)		11,517
Other loan-backed and structured securities		(41)		6,818		—		—		(41)		6,818		(359)		4,633		(117)		1,094		(476)		5,727
Total securities	$	(455)	$	41,250	$	—	$	—	$	(455)	$	41,250	$	(3,725)	$	44,735	$	(2,502)	$	29,702	$	(6,227)	$	74,437

At ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, there were ~~443~~452 and ~~358~~483 securities, respectively, in an unrealized loss position. Of these securities, ~~129~~363 had been in an unrealized loss position for 12 months or longer as of ~~September 30, 2022.~~March 31, 2023.

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, 2022.~~March 31, 2023.

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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 as of September 30, 2022								Fair Value Measurement as of March 31, 2023
							Total								Total
	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
Assets
Money market mutual funds	$	10,373	$	—	$	—	$	10,373	$	33,443	$	—	$	—	$	33,443
Debt securities:
U.S. Treasuries		5,184		—		—		5,184		34,423		—		—		34,423
Obligations of states and municipalities		—		9,397		—		9,397		—		10,263		—		10,263
Corporate bonds		—		28,155		—		28,155		—		32,035		—		32,035
Residential and commercial mortgage-backed securities		—		13,272		—		13,272		—		10,376		—		10,376
Other loan-backed and structured securities		—		6,561		—		6,561		—		6,022		—		6,022
	$	15,557	$	57,385	$	—	$	72,942	$	67,866	$	58,696	$	—	$	126,562
Liabilities
Contingent consideration - business combinations	$	—	$	—	$	23,228	$	23,228	$	—	$	—	$	24,198	$	24,198
Contingent consideration - earnout		—		—		57		57		—		—		44		44
Private warrant liability		—		—		802		802		—		—		362		362
	$	—	$	—	$	24,087	$	24,087	$	—	$	—	$	24,604	$	24,604


	Fair Value Measurement as of December 31, 2021								Fair Value Measurement as of December 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	$	17,318	$	—	$	—	$	17,318	$	6,619	$	—	$	—	$	6,619
Debt securities:
U.S. Treasuries		5,417		—		—		5,417		35,322		—		—		35,322
Obligations of states and municipalities		—		8,850		—		8,850		—		10,225		—		10,225
Corporate bonds		—		31,425		—		31,425		—		28,227		—		28,227
Residential and commercial mortgage-backed securities		—		14,282		—		14,282		—		11,533		—		11,533
Other loan-backed and structured securities		—		7,601		—		7,601		—		6,334		—		6,334
	$	22,735	$	62,158	$	—	$	84,893	$	41,941	$	56,319	$	—	$	98,260


Liabilities
Contingent consideration - business combinations	$	—	$	—	$	9,617	$	9,617	$	—	$	—	$	24,546	$	24,546
Contingent consideration - earnout		—		—		13,866		13,866		—		—		44		44
Private warrant liability		—		—		15,193		15,193		—		—		707		707
	$	—	$	—	$	38,676	$	38,676	$	—	$	—	$	25,297	$	25,297

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 no transfers between Level 1 and Level 2.

Contingent Consideration – Business Combinations

The Company estimated the fair value of the business combination contingent consideration triggered by EBITDA or revenue milestones, related to certain 2021 acquisitions using the Monte Carlo simulation method. The fair value of $0.1 million and $0.3 million as of September 30, 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.

~~The Company estimated the fair value of the business combination contingent consideration triggered by~~ stock price milestones, related to the Floify acquisition in October 2021, 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 ~~September 30, 2022,~~March 31, 2023, the key inputs used to determine the fair value of ~~$14.2~~$15.1 million ~~were~~included the stock price of ~~$2.25,~~$1.43, strike price of $36.00, discount rate of ~~12.7%~~14.4% and volatility of ~~85%~~100%. As of December 31, ~~2021,~~2022, the key inputs used in the determination of the fair value of ~~$9.3~~$15.5 million included the ~~volume weighted average~~stock price of ~~$16.37,~~$1.88, strike price of $36.00, discount rate of 7%10.3% and volatility of ~~60%~~95%.

The Company estimated the fair value of the business combination contingent consideration based on specific metrics related to the acquisition of Residential Warranty Services (“RWS”) in April 2022, using the discounted ~~cashflows~~cash flow method. The fair value is based on a percentage of revenue over the maturity date of the contingent consideration. As of ~~September 30,~~March 31, 2023, the key inputs used to determine the fair value of $9.0 million were management’s cash flow estimates and the discount rate of 16%. As of December 31, 2022, the key inputs used to determine the fair value of ~~$9.5~~$9.0 million were management’s cash flow estimates and the discount rate of ~~15%~~17%.

Contingent Consideration - Earnout

The Company estimated the fair value of the earnout contingent consideration using the Monte Carlo simulation method. The fair value of $0.1 million is based on the simulated price of the Company over the maturity date of the contingent consideration and increased by certain employee forfeitures. As of ~~September 30, 2022,~~March 31, 2023, the key inputs used to determine the fair value included exercise price of $22.00, volatility of ~~90%~~100%, forfeiture rate of 15% and stock price of ~~$2.25.~~$1.43. As of December 31, ~~2021,~~2022, the key inputs used in the determination of the fair value included exercise price of $22.00, volatility of ~~65%~~100%, forfeiture rate of 15% and stock price of ~~$15.59.~~$1.88.

Private Warrants

The Company estimated the fair value of the private warrants ~~of $0.8 million~~ using the Black-Scholes-Merton option pricing model. As of ~~September 30,~~March 31, 2023, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 90%, remaining contractual term of 2.73 years, and stock price of $1.43. As of December 31, 2022, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of ~~80%~~90%, remaining contractual term of ~~3.23~~2.98 years, and stock price of $2.25. As of December 31, 2021, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 60%, remaining contractual term of 3.98 years, and stock price of $15.59.$1.88.

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.

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


			Contingent						Contingent
	Contingent		Consideration -		Private		Contingent		Consideration -		Private
	Consideration -		Business		Warrant		Consideration -		Business		Warrant
	Earnout		Combinations		Liability		Earnout		Combinations		Liability
Fair value as of January 1, 2022	$	13,866	$	9,617	$	15,193
Fair value as of December 31, 2022							$	44	$	24,546	$	707
Additions		—		—		—		—		—		—
Settlements		—		—		—		—		(194)		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		(11,179)		3,205		(10,189)		—		(154)		(345)
Fair value as of March 31, 2022		2,687		12,822		5,004
Additions		—		15,555		—
Settlements		—		—		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		(2,587)		1,481		(4,078)
Fair value as of June 30, 2022		100		29,858		926
Additions⁽¹⁾		—		(6,655)		—
Settlements		—		(540)		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		(43)		565		(124)
Fair value as of September 30, 2022	$	57	$	23,228	$	802
Fair value as of March 31, 2023							$	44	$	24,198	$	362

⁽¹⁾~~Additions during the three months ended September 30, 2022, consist of the adjustment to the preliminary estimated fair value of RWS contingent consideration.~~


			Contingent						Contingent
	Contingent		Consideration -		Private		Contingent		Consideration -		Private
	Consideration -		Business		Warrant		Consideration -		Business		Warrant
	Earnout		Combinations		Liability		Earnout		Combinations		Liability
Fair value as of January 1, 2021	$	50,238	$	3,549	$	31,534
Fair value as of December 31, 2021							$	13,866	$	9,617	$	15,193
Additions		—		1,737		—		—		—		—
Settlements		(25,815)		(2,062)		—		—		—		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		18,770		(355)		15,910		(11,179)		3,205		(10,189)
Fair value as of March 31, 2021	$	43,193	$	2,869	$	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	$	2,569	$	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	$	2,764	$	17,706
Fair value as of March 31, 2022							$	2,687	$	12,822	$	5,004

(1)

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. Changes in fair value of the earnout contingent consideration and private warrant liability are disclosed separately in the unaudited condensed consolidated statements of operations.

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Notes to Condensed Consolidated Statements - Continued~~

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

Fair Value Disclosure

As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the fair value of the convertible senior notes is ~~$243.0~~$234.0 million and ~~$400.4~~$238.6 million, respectively. The decrease of ~~$157.4~~$4.6 million is primarily due to the decline in the stock price at ~~September 30,~~ ~~2022,~~March 31, 2023, as compared to December 31, ~~2021.~~2022. The fair value of the line of credit, advance funding arrangement and other notes approximates the unpaid principal balance. ~~Debt~~All debt, other than the 2026 Notes which is Level 2, is considered a Level 3 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,
	2022		2021		2023		2022
Software and computer equipment	$	8,397	$	7,287	$	8,680	$	8,326
Furniture, office equipment, and other		2,305		2,006		2,115		2,118
Internally developed software		15,555		13,102		19,400		17,128
Leasehold improvements		1,162		2,191		1,178		1,178
		27,419		24,586		31,373		28,750
Less: Accumulated depreciation and amortization		(16,183)		(17,920)		(17,646)		(16,510)
Property, equipment, and software, net	$	11,236	$	6,666	$	13,727	$	12,240

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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)

Depreciation and amortization expense related to property, equipment, and software was ~~$1.0~~$1.2 million and ~~$1.4~~$1.0 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $3.0 million and $3.7 million for the nine months ended September 30, 2022, and 2021,~~ respectively.

6. Intangible Assets and Goodwill

Intangible Assets

Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization and impairment, and consist of the following, as of ~~September 30, 2022:~~March 31, 2023:


	Weighted			Accumulated
	Average	Intangible		Amortization		Intangible
	Useful Life	Assets,		And		Assets,
	(in years)	gross		Impairment		Net
Customer relationships	9.0	$	69,505	$	(17,164)	$	52,341
Acquired technology	5.0		36,041		(17,486)		18,555
Trademarks and tradenames	10.0		23,443		(5,038)		18,405
Non-compete agreements	3.0		616		(419)		197
Value of business acquired	1.0		400		(400)		—
Renewal rights	6.0		9,734		(2,439)		7,295
Insurance licenses	Indefinite		4,960		—		4,960
Total intangible assets		$	144,699	$	(42,946)	$	101,753

Weighted


Accumulated

Average

Intangible

Amortization

Intangible

Useful Life

Assets,

And

Assets,


(in years)

gross

Impairment

Net
Customer relationships

8.0

$
67,789

$
(13,073)

$
54,716
Acquired technology

5.0

37,932

(14,657)

23,275
Trademarks and tradenames

12.0

25,171

(4,652)

20,519
Non-compete agreements

3.0

619

(388)

231
Value of business acquired

1.0

400

(400)

—
Renewal rights

6.0

9,824

(1,797)

8,027
Insurance licenses

Indefinite

4,960

—

4,960
Total intangible assets

$
146,695

$
(34,967)

$
111,728

Intangible assets consist of the following as of December 31, 2022:


	Weighted
	Average	Intangible				Intangible
	Useful Life	Assets,		Accumulated		Assets,
	(in years)	gross		Amortization		Net
Customer relationships	9.0	$	69,730	$	(15,079)	$	54,651
Acquired technology	5.0		37,932		(16,468)		21,464
Trademarks and tradenames	10.0		25,071		(5,724)		19,347
Non-compete agreements	3.0		619		(407)		212
Value of business acquired	1.0		400		(400)		—
Renewal rights	6.0		9,734		(2,113)		7,621
Insurance licenses	Indefinite		4,960		—		4,960
Total intangible assets		$	148,446	$	(40,191)	$	108,255

The aggregate amortization expense related to intangibles was $4.9 million and $5.5 million for the three months ended March 31, 2023 and 2022, respectively.

During the first quarter of 2023, the Company recorded impairment charges of $2.0 million, primarily related to acquired technology, trademarks and tradenames, and customer relationships for an asset group within its Vertical Software segment. Impairment charges are included in impairment loss on intangible assets and goodwill in the consolidated statements of operations and comprehensive loss.

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

Goodwill

The following tables summarize the changes in the carrying amount of goodwill for the three months ended March 31, 2023:


	Goodwill
Balance as of December 31, 2022	$	244,697
Acquisitions		2,421
Balance as of March 31, 2023	$	247,118

~~Intangible assets consist~~7. Debt

At March 31, 2023, debt comprised of the ~~following as of December 31, 2021:~~following:

Weighted






Average

Intangible

Intangible

Useful Life

Assets,

Accumulated

Assets,


(in years)

gross

Amortization

Net
Customer relationships

9.0

$
56,810

$
(6,760)

$
50,050
Acquired technology

5.0

48,135

(10,095)

38,040
Trademarks and tradenames

12.0

25,389

(2,587)

22,802
Non-compete agreements

2.0

450

(251)

199
Value of business acquired

1.0

400

(294)

106
Renewal rights

6.0

9,734

(811)

8,923
Trademarks and tradenames

Indefinite

4,750

—

4,750
Insurance licenses

Indefinite

4,960

—

4,960
Total intangible assets

$
150,628

$
(20,798)

$
129,830


					Debt
			Unaccreted		Issuance		Carrying
	Principal		Discount		Costs		Value
Convertible senior notes, due 2026	$	425,000	$	—	$	(7,947)	$	417,053
Advance funding arrangement		9,255		(408)		—		8,847
Term loan facility, due 2029		9,651		—		—		9,651
Other notes		300		(76)		—		224
	$	444,206	$	(484)	$	(7,947)	$	435,775

~~The aggregate amortization~~Convertible Senior Notes

Interest expense recognized related to ~~intangibles~~the 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”) was ~~$7.6~~approximately $1.4 million for each of the three months ended March 31, 2023 and 2022, and comprised of contractual interest expense and amortization of debt issuance costs.

Advance Funding Arrangement

For certain home warranty contracts, the Company participates in a financing arrangement with third-party financers that provide the Company with contract premium upfront, less a financing fee. Third-party financers collect installment payments from the warranty contract customer which satisfy the Company’s repayment obligation over a portion of the contract term. We remain obligated to repay the third-party financer if a customer cancels its warranty contract prior to full repayment of the advance funding amount received by the Company. As part of the arrangement, the Company pays financing fees, which are collected by the third-party financers upfront, and are initially recognized as a debt discount. Financing fees are amortized as interest expense under the effective interest method. The implied interest rate varies per contract and is generally approximately 14% of total funding received. Interest expense recognized related to advance funding arrangement was $0.5 million and ~~$3.0~~$1.0 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $18.5 million and $7.0 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

~~Impairment of Long-Lived Assets~~

We test our long-lived asset groups when changes in circumstances indicate their carrying value may not be recoverable. Events that trigger a test for recoverability include a significant decrease in the market price for a long-lived asset, significant negative industry or economic trends, an accumulation of costs significantly in excess of the amount originally expected for the acquisition, a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or a sustained decrease in share price. When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the test for recoverability identifies a possible impairment, the asset group’s fair value is measured relying primarily on a discounted cash flow method. An impairment charge is recognized for the amount by which the carrying value of the asset group excess its estimated fair value.

During the three months ended September 30, 2022, management identified various qualitative factors that collectively indicated that the Company had trigger events including a sustained decrease in stock price, increased costs due to inflationary pressures, and a deterioration of the macroeconomic environment in the housing and real estate industry. The Company used a discounted cash flows method to determine that the estimated fair value of certain asset groups was less than their carrying values, which resulted in impairment charges of $17.7 million, primarily related to acquired technology, trademarks and tradenames, and customer relationships for certain businesses within its Vertical Software segment. Impairment charges are included in impairment loss on intangible assets and goodwill in the unaudited condensed consolidated statements of operations and comprehensive loss. There were no impairments during the three and nine months ended September 30, 2021.

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

~~Goodwill~~

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

Goodwill
Balance as of December 31, 2021

$
225,654
Purchase price adjustments

922
Balance as of March 31, 2022

226,576
Acquisitions

47,445
Purchase price adjustments

(190)
Balance as of June 30, 2022

273,831
Impairment loss

(39,430)
Purchase price adjustments

(6,310)
Balance as of September 30, 2022

$
228,091

~~Impairment of Goodwill~~

We test goodwill for impairment annually or whenever events or changes in circumstances indicate that an impairment may exist. We assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Factors that indicate the fair value of a reporting unit may be less than its carrying amount include industry and market considerations such as a deterioration in the economic environment or a decline in market-dependent multiples or metrics, overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings, increased cost factors that have a negative effect on earnings and cash flows, or a sustained decrease in share price. The process for evaluating potential impairment of goodwill is highly subjective and requires significant judgment. If factors indicate that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative assessment and the fair value of the reporting unit is estimated by using a combination of market approaches based on peer performance and discounted cash flow methodologies. If the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the excess is recorded.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit was estimated using a combination of a discounted cash flow methodology and the market valuation approach using publicly traded company multiples in similar businesses. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 17% to 20%.

During the three months ended September 30, 2022, management identified various qualitative factors that collectively, indicated that the Company had triggering events, including a sustained decrease in stock price, increased costs due to inflationary pressures, and a deterioration of the macroeconomic environment in the housing and real estate industry. The Company performed a valuation of both the Vertical Software and Insurance reporting units using a combination of market approaches based on peer performance and discounted cash flow or dividend discount model methodologies. Given the results of the quantitative assessment, the Company determined that the Insurance reporting unit’s goodwill was impaired.

~~During the three months ended September 30, 2022, the Company recorded impairment charges of $39.4 million, related to its Insurance segment.~~

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Notes to Condensed Consolidated Statements - Continued~~

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

~~7. Debt~~

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

Debt


Unaccreted

Issuance

Carrying

Principal

Discount

Costs

Value
Convertible senior notes, due 2026

$
425,000

$
—

$
(9,067)

$
415,933
Line of credit, due 2022

5,000

—

—

5,000
Term loan facility, due 2029

10,000

—

—

10,000
Other notes

450

(96)

—

354

$
440,450

$
(96)

$
(9,067)

$
431,287

~~Convertible Senior Notes~~

Interest expense recognized related to the 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”) was approximately $1.4 and $4.1 million for the three and nine months ended September 30, 2022, respectively, and comprised of contractual interest expense and amortization of debt issuance costs. Interest expense related to the 2026 Notes was $0.2 million in the three and nine months ended September 30, 2021.

~~Line of Credit~~

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. Outstanding balances under the RLOC bear interest at the Wall Street Journal Prime + 0% and mature on November 16, 2022. The Company intends to extend the terms of RLOC. In addition, the Company pays 0.25% per annum of the daily-unused portion of the RLOC. Outstanding borrowings on the RLOC at September 30, 2022, were $5.0 million.

Collateral for the RLOC includes all assets and stock of Homeowners of America Holding Corporation (“HAHC”), HOA’s insurance holding company, and its subsidiaries. The credit agreement is subject to standard financial covenants and reporting requirements. At September 30, 2022, the Company was in compliance with all required covenants.

Term Loan Facility

~~In connection with the acquisition of HOA on April 5, 2021, the Company assumed a nine-year, $10.0 million term loan facility with a local bank.~~ As of ~~September 30, 2022,~~March 31, 2023, the Company has borrowed ~~$10.0~~$9.7 million on the HOA term loan facility. ~~Outstanding balances under~~In April 2023, the term loan facility ~~bear interest at~~was repaid in full by using a portion of the Wall Street Journal Prime + 0% and mature on December 17, 2029. Principal payments are required beginning on January 15, 2023 in equal quarterly installments of $375 thousand through the maturity date.

~~Table of Contents~~

~~PORCH GROUP, INC.~~2028 Notes offering proceeds. See Note 16 for additional information.

~~Notes to Condensed Consolidated Statements - Continued~~

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

8. Equity and Warrants

Common Shares Outstanding and Common Stock Equivalents

The following table summarizes the Company’s fully diluted capital structure:

September 30,

December 31,

2022

2021
Issued and outstanding common shares

98,360,325

95,911,597
Earnout common shares

2,050,000

2,050,000
Total common shares issued and outstanding

100,410,325

97,961,597
Common shares reserved for future issuance:

Private warrants

1,795,700

1,795,700
Common stock options outstanding (Note 9)

4,149,394

4,822,992
Restricted stock units and awards (Note 9)

7,018,896

2,717,154
2020 Equity Plan pool reserved for future issuance

10,946,053

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

141,318,498

132,421,836


		March 31,
		2023
Issued and outstanding common shares		94,968,032
Earnout shares		2,050,000
Total common shares issued and outstanding		97,018,032
Common shares reserved for future issuance:
Private warrants		1,795,700
Stock options (Note 9)		3,735,134
Restricted and performance stock units and awards (Note 9)		6,216,509
2020 Equity Plan pool reserved for future issuance (Note 9)		11,325,306
Convertible senior notes, due 2026⁽¹⁾		16,998,130
Contingently issuable shares in connection with acquisitions⁽²⁾		13,957,569
Total shares of common stock outstanding and reserved for future issuance		151,046,380

(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.

(2)

In connection with the acquisitions of Floify and HOA, the Company provided an obligation to issue certain amount of common stock to the extent specified market conditions are met in the future. Contingently issuable shares are calculated in accordance with the purchase agreement, assuming they would be issuable if the end of the reporting periods were the end of the contingency period.

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.

Repurchases of Common Shares

In October 2022, the Company’s board of directors approved a share repurchase program authorizing management to repurchase up to $15 million in the Company’s common stock and/or convertible notes. Repurchases under this program may be made from time to time on the open market between November 10, 2022 and June 30, 2023, at prevailing market prices, in privately negotiated transactions, in block trades, and/or through other permissible means.

During the first quarter of 2023, the Company repurchased and canceled 1,396,158 shares with the total cost of $3.1 million (including commissions). The cost paid to repurchase shares in excess of the par value is charged to accumulated deficit in the unaudited condensed consolidated balance sheet as of March 31, 2023.

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

The Company’s repurchase of $200 million of the 2026 Notes as described in Note 7 was done under separate authorization and not part of $15 million share repurchase program.

Warrants

There was no activity related to public and private warrants during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.


	~~Number of~~
	~~Common~~
	~~Shares Issued~~	~~Cash Received~~
~~Balances as of January 1, 2022~~	~~1,795,700~~	$	—
~~Exercised~~	—		—
~~Canceled~~	—		—
~~Balances as of September 30, 2022~~	~~1,795,700~~	$	—


		Number of
	Number of	Common
	Warrants	Shares Issued
Balances as of December 31, 2022	1,795,700	11,521,412
Exercised	—	—
Canceled	—	—
Balances as of March 31, 2023	1,795,700	11,521,412

9. Stock-Based Compensation

Under the Company’s 2020 Stock Incentive Plan, which replaced the Company’s 2012 Equity Incentive Plan 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”), restricted stock units (“RSU”), performance awards (“PRSU”), and other stock awards, collectively referred to as “Awards”.

Stock-based compensation expense for the three months ended March 31, 2023 and 2022 is $6.9 and $5.9 million, respectively.

Detail related to stock option, RSU and PRSU activity for the three months ended March 31, 2023, is as follows:


			Number of
		Number of	Performance
	Number of	Restricted	Restricted
	Options	Stock Units	Stock Awards
Balances as of December 31, 2022	3,862,918	5,309,241	920,924
Granted	—	123,292	301,598
Vested	—	(295,414)	—
Exercised	(4,519)	—	—
Forfeited, canceled or expired	(123,265)	(143,132)	—
Balances as of March 31, 2023	3,735,134	4,993,987	1,222,522

10. Reinsurance

2023 Program:

The Company’s third-party quota share reinsurance program is split into three separate placements to maximize coverage and cost efficiency. The 2023 Coastal Program covers the Company’s business in certain Texas coastal regions and the Houston metropolitan area and is placed at 42.05% of subject property and casualty losses (“P&C losses”), as well as all business in South Carolina which is placed at 7.3% of P&C losses. The 2023 Core Program, which covers the portion of the Company’s business not in the Coastal Program, is placed at 49.5% of P&C losses of the Company’s remaining business in Texas and 48.0% of P&C losses of the Company’s business in other states. In addition, the Combined Program covers all the Company’s business and is placed at 5% of P&C losses. All programs are effective for

2726

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

~~Stock-based compensation consists~~the period January 1, 2023 through December 31, 2023 or March 31, 2024, and are subject to certain limits and exclusions, which vary by participating reinsurer.

Property catastrophe excess of ~~expense related~~loss treaties which were in effect through March 31, 2023, developed over five layers and limited the Company’s net retention to ~~equity awards in~~$4 million per occurrence and provided coverage up to a net loss of $440 million. The Company also places reinstatement premium protection to cover any reinstatement premiums due on the ~~normal course, earnout restricted stock~~first three layers.

The effects of reinsurance on premiums written and ~~a secondary market transaction~~earned for the three months ended March 31, 2023, and 2022 were as ~~described below:~~follows:


	Three months ended				Nine months ended				Three Months Ended March 31,
	September 30,				September 30,				2023				2022
	2022		2021		2022		2021		Written		Earned		Written		Earned
Secondary market transaction	$	—	$	—	$	—	$	1,933
Employee earnout restricted stock		—		4,243		—		20,792
Employee awards		5,089		1,641		20,645		6,636
Total operating expenses	$	5,089	$	5,884	$	20,645	$	29,361
Direct premiums									$	96,873	$	114,824	$	87,123	$	84,318
Ceded premiums										2,266		(74,674)		(60,636)		(71,727)
Net premiums									$	99,139	$	40,150	$	26,487	$	12,591

~~Detail related~~The Company’s 2023 third-party quota share program was placed at a reduced ceding percentage as compared to ~~stock option, RSU~~the 2022 program, which resulted in a portfolio transfer and ~~RSA activity~~less ceded written premiums in the three months ended March 31, 2023.

The effects of reinsurance on incurred losses and loss adjustment expense (“LAE”) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and 2022 were as follows:


	Three Months Ended March 31,
	2023		2022
Direct losses and LAE	$	90,015	$	68,221
Ceded losses and LAE		(47,156)		(54,946)
Net losses and LAE	$	42,859	$	13,275

The detail of reinsurance balances due is as follows:

Number of

Number of

Number of

Restricted

Restricted

Options

Stock Units

Stock Awards
Balances as of December 31, 2021

4,822,992

2,712,762

4,392
Granted - RSUs

—

1,001,986

—
Granted - PRSUs

—

883,739

—
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

—
Granted - RSUs

9,396

2,903,594

—
Granted - PRSUs

—

904,795

—
Vested

—

(563,406)

—
Exercised

(88,772)

—

—
Forfeited, canceled or expired

(60,941)

(313,577)

—
Balances as of June 30, 2022

4,429,426

7,157,392

—
Granted - RSUs

—

1,196,526

—
Vested

—

(1,062,323)

—
Exercised

(197,758)

—

—
Forfeited, canceled or expired

(82,274)

(272,699)

—
Balances as of September 30, 2022

4,149,394

7,018,896

—


	March 31, 2023		December 31, 2022
Ceded unearned premium	$	169,360	$	203,157
Losses and LAE reserve		74,043		76,999
Reinsurance recoverable		49,281		18,765
Other		91		139
Reinsurance balance due	$	292,775	$	299,060

2827

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

~~10. Reinsurance~~

~~The effects of reinsurance on premiums written and earned for the three and nine months ended September 30, 2022, and 2021 were as follows:~~

Three Months Ended September 30,

2022

2021

Written

Earned

Written

Earned
Direct premiums

$
137,047

$
105,245

$
96,201

$
72,360
Ceded premiums

(119,131)

(93,982)

(87,949)

(67,666)
Net premiums

$
17,916

$
11,263

$
8,252

$
4,694

Nine Months Ended September 30,

2022

2021

Written

Earned

Written

Earned
Direct premiums

$
349,084

$
282,645

$
177,333

$
134,712
Ceded premiums

(297,693)

(248,804)

(158,793)

(126,743)
Net premiums

$
51,391

$
33,841

$
18,540

$
7,969

~~The effects of reinsurance on incurred losses and loss adjustment expense (“LAE”) for the three and nine months ended September 30, 2022, and 2021 were as follows:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021
Direct losses and LAE

$
77,471

$
29,948

$
220,309

$
155,243
Ceded losses and LAE

(60,900)

(26,408)

(180,006)

(140,978)
Net losses and LAE

$
16,571

$
3,540

$
40,303

$
14,265

~~The detail of reinsurance balances due is as follows:~~

September 30, 2022

December 31, 2021
Ceded unearned premium

$
202,598

$
153,710
Losses and LAE reserve

81,971

56,752
Reinsurance recoverable

18,917

17,780
Other

501

174
Reinsurance balance due

$
303,987

$
228,416

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Notes to Condensed Consolidated Statements - Continued~~

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

11. Unpaid Losses and Loss Adjustment Reserve

The following table provides the ~~rollforward~~roll forward of the beginning and ending reserve balances for unpaid losses and LAE, gross of reinsurance for the three ~~and nine~~ months ended ~~September 30, 2022:~~March 31, 2023:


	2022		2023
Reserve for unpaid losses and LAE, at December 31, 2021	$	61,949
Reserve for unpaid losses and LAE, at December 31, 2022			$	100,632
Reinsurance recoverables on losses and LAE		(56,752)		(76,999)
Reserve for unpaid losses and LAE reserve, net of reinsurance recoverables at December 31, 2021		5,197
Reserve for unpaid losses and LAE reserve, net of reinsurance recoverables at December 31, 2022				23,633
Add provisions (reductions) for losses and LAE occurring in:
Current year		9,868		43,464
Prior years		(620)		(605)
Net incurred losses and LAE during the current year		9,248		42,859
Deduct payments for losses and LAE occurring in:
Current year		(4,431)		(14,015)
Prior years		(1,602)		(10,993)
Net claim and LAE payments during the current year		(6,033)		(25,008)
Reserve for unpaid losses and LAE, net of reinsurance recoverables, at end of period		8,412
Reserve for losses and LAE, net of reinsurance recoverables, at end of period				41,484
Reinsurance recoverables on losses and LAE		71,196		74,043
Reserve for unpaid losses and LAE at March 31, 2022		79,608
Add provisions (reductions) for losses and LAE occurring in:
Current year		13,506
Prior years		979
Net incurred losses and LAE during the current year		14,485
Deduct payments for losses and LAE occurring in:
Current year		(9,118)
Prior years		(615)
Net claim and LAE payments during the current year		(9,733)
Reserve for unpaid losses and LAE, net of reinsurance recoverables, at end of period		13,164
Reinsurance recoverables on losses and LAE		75,730
Reserve for unpaid losses and LAE at June 30, 2022		88,894
Add provisions (reductions) for losses and LAE occurring in:
Current year		13,963
Prior years		2,608
Net incurred losses and LAE during the current year		16,571
Deduct payments for losses and LAE occurring in:
Current year		(8,322)
Prior years		(3,085)
Net claim and LAE payments during the current year		(11,407)
Reserve for unpaid losses and LAE, net of reinsurance recoverables, at end of period		18,327
Reinsurance recoverables on losses and LAE		81,971
Reserve for unpaid losses and LAE at September 30, 2022	$	100,298
Reserve for unpaid losses and LAE at March 31, 2023				115,527

~~Lower than expected recoveries~~As a result of additional information on ~~reinsurance relating to~~ claims occurring in prior years ~~resulted~~becoming available to management, changes in ~~an increase~~estimates of provisions of losses and loss adjustment expenses were made resulting in ~~incurred losses~~a decrease of ~~$2.6 million and $3.0~~$0.6 million for the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023.

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Notes to Condensed Consolidated Statements - Continued~~

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

12. Commitments and Contingencies

~~Acquisition Commitments~~

On September 2, 2021, Porch.com, Inc. (“Buyer”), a subsidiary of the Company, entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Covéa Coopérations S.A., a French société anonyme (“Seller”), to acquire all of the shares of GMF Financial Services Corporation (“GMFF”), 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, a California-based personal lines insurer focused on property and auto, (collectively, “CSE”), for a purchase price of $48.6 million in cash, subject to customary conditions, including, among others, the absence of a material adverse effect on GMFF and the receipt of specified governmental consents and approvals (the “Transaction”).~~The Purchase Agreement was terminated on August 8, 2022.~~

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. Some of these actions allege related state law claims. The proceedings were commenced as mass tort ~~action~~actions 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~~was appealed to the Ninth Circuit Court of Appeals. On October 12, 2022, in a split decision, the Ninth Circuit Court of Appeals reversed. ~~On October 26, 2022, Defendants petitioned for rehearing/en banc review.~~ The ~~matter is still on appeal. The remainder have been~~remaining cases were consolidated in the United States District Court for the Western District of Washington, where Porch resides. ~~That~~Plaintiffs filed a motion for leave to file a second amended complaint, which is currently pending. Once this motion is resolved, the court is expected to set a brief schedule on Defendants’ forthcoming motion to dismiss. The case is otherwise stayed pending ~~the outcome~~resolution of ~~the appeal.~~Defendants’

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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)

motion. Plaintiffs seek actual, statutory, and/or treble damages, injunctive relief, and reasonable attorneys’ fees and costs.

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 sought to recover compensatory damages based on an asset purchase agreement entered into with Porch and related employment agreements. Claimants also sought punitive damages, attorney’s fees and costs. Certain claimants settled their claims, and this settlement is within the range of the estimated accrual. Arbitration of the remaining claims occurred in March

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Notes to Condensed Consolidated Statements - Continued~~

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

2022. In July 2022, the Arbitrator issued his Final Award finding no merit to any of the claims asserted by claimant Kandela, LLC and determined Porch to be the prevailing party on all counts. The Arbitrator also awarded Porch and its insurers legal fees and costs in the amount of $1.4 million as the prevailing party and, if recovered in full, a significant portion of which would be expected to be allocable to its corporate insurance providers. On October 12, 2022, the Los Angeles Superior Court confirmed the Arbitration Award and entered Judgment in Porch’s favor. Kandela has failed to pay the judgment in Porch’s favor. Kandela filed a Notice of Appeal as to the Judgment on December 9, 2022. On January 18, 2023, Porch filed a Fraudulent Conveyance Action against Kandela and its members for wrongfully distributing assets that could have satisfied the judgement. On March 1, 2023, Kandela filed for protection under Chapter 7 of the Bankruptcy Code. As a result, Kandela’s appellate action was automatically stayed. At this time, Porch’s Fraudulent Conveyance Action has also been stayed as to all defendants. Porch intends to take all necessary steps so that the Fraudulent Conveyance Action can proceed against the Kandela members who Porch believes received the fraudulently transferred assets that could be used to satisfy the Judgment.

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 Porch (prior to the December 23, 2020 merger) and Porch’s other affiliated companies in the State of California during the relevant time period. Plaintiffs ~~seek~~sought damages for unpaid wages, liquidated damages, penalties, attorneys’ fees and ~~costs for which, Porch has recorded an estimated accrual for a contingent loss based on information currently known.~~ costs. The parties recently attended mediation, ~~in an effort to resolve~~ ~~the matter. The mediation~~which was successful, and a deal was reached. The parties have executed the long form settlement agreement and obtained final approval of the settlement from the court on August 11, 2022. Porch paid the individual settlement in September 2022, and Plaintiff’s individual claims were dismissed and released. Porch also funded the class action settlement in September 2022 and the settlement payments to the class were distributed in October 2022. The settlement is ~~now~~ final, and the ~~class action release runs through April 25, 2022. The~~ settlement checks ~~expire~~expired in ~~180 days, at which point~~March 2023. The final step in the ~~case~~process will be ~~closed~~.distribution of the funds from the uncashed settlement checks and Court approval of same.

Other

In addition, in the ordinary course of business, Porch Group 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,

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

neither Porch Group nor any of its subsidiaries is currently a party to any legal proceedings the outcome of which, the Company believes, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the business, financial condition or results of operations.

13. Business Combinations

~~During~~March 17, 2023 Acquisitions of the ~~nine months ended September 30,~~Florida and California Operations of Residential Warranty Services (“RWS”)

The acquisitions of the Florida and California operations were closed on March 17, 2023. The Company paid approximately $2.1 million in cash to acquire $0.2 million of cash and current assets, and $0.2 million of customer relationships with an estimated useful life of 3 years. The estimated value of the customer relationships intangible asset was calculated using the income approach.

The aggregate transaction costs of ~~$1.1~~$0.1 million primarily comprised of legal and ~~due-diligence~~due diligence fees, and 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 consolidated financial statements from the date of acquisition onwards.

14. Segment Information

The Company has two reportable segments that are also our operating segments: Vertical Software and Insurance. Our reportable segments 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 our two 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.

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 subscription and service fees from companies, and non-insurance revenue.

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 service revenue.

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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 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, 2022:

Weighted Average Useful Life (in years)

RWS

Other

Total
Purchase consideration:

Cash

$
25,572

$
13,763

$
39,335
Issuance of common stock

3,552

—

3,552
Holdback liabilities and amounts in escrow

1,000

1,500

2,500
Contingent consideration - liability-classified

8,900

—

8,900
Total purchase consideration:

$
39,024

$
15,263

$
54,287
Assets:

Cash, cash equivalents and restricted cash

$
2,030

$
256

$
2,286
Current assets

525

7

532
Property and equipment

497

—

497
Operating lease right-of-use assets

871

—

871
Intangible assets:

Customer relationships
7.0

11,920

2,750

14,670
Acquired technology
4.5

500

1,480

1,980
Trademarks and tradenames
9.3

500

200

700
Non-competition agreements
6.6

180

20

200
Renewal rights
5.0

90

—

90
Goodwill

30,071

10,719

40,790
Total assets acquired

47,184

15,432

62,616
Current liabilities

(4,884)

(169)

(5,053)
Operating lease liabilities, non-current

(871)

—

(871)
Long term liabilities

(2,405)

—

(2,405)
Net assets acquired

$
39,024

$
15,263

$
54,287

~~April 1, 2022 Acquisition of~~ ~~Residential Warranty Services~~ ~~(“RWS”)~~

On April 1, 2022, the Company entered into a stock and membership interest purchase agreement with Residential Warranty Services (“RWS”) to acquire its home warranty and inspection software and services businesses. On this date, the Company completed the acquisition of substantially all of RWS’ operations except for those in Florida and California. The aggregate consideration, subject to certain closing adjustments, for the completed acquisitions was $39.0 million, including $20.6 million in cash of which $5.0 million was paid in March 2022, $6.0 million in future cash payable of which $1.0 million will be held in escrow for 24 months to satisfy potential indemnifications, $3.6 million of Porch common stock and additional contingent consideration tied to the performance of a recently launched business line, and $8.9 million in contingent consideration based on specific metrics. The Company recorded the fair value of the assets acquired and liabilities assumed on the acquisition date.

The acquisitions of the Florida and California operations are subject to certain regulatory and other approvals and are expected to close in the second half of 2022 or as soon as practicable thereafter. The Company expects to pay approximately $2.4 million, subject to certain closing adjustments, to close these acquisitions.

The purpose of the acquisitions is to expand the scope and nature of Porch’s service offerings, add additional team members with important skillsets, and realize synergies. Goodwill is expected to be deductible for tax purposes and is subject to further adjustment pending the closing of the acquisition of the remaining RWS operations in Florida and California. The Company will assign the goodwill to reporting units, which will be determined pending completion of the remaining acquisitions.

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Notes to Condensed Consolidated Statements - Continued~~

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

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

Estimated

Fair

Useful Life

Value

(in years)
Intangible assets:




Customer relationships

$
11,920

5.4
Acquired technology

500

3.0
Trademarks and tradenames

500

9.0
Non-competition agreements

180

7.0
Renewal rights

90

5.0

$
13,190

~~The weighted-average amortization period for the acquired intangible assets is 5.5 years.~~

The estimated fair value of the customer related intangible assets, including renewal rights, was calculated through the income approach using the multi-period excess earnings methodology. The estimated fair value of the trademarks and tradenames were calculated through the income approach using the relief from royalty methodology. The estimated fair value of the acquired internally developed and used technology was derived using the cost approach considering the estimated costs to replicate existing software. The estimated fair value of the non-competition agreement was calculated through the income approach using the with and without method over the contractual term of the agreement.

~~Other acquisitions~~

In the nine months ended September 30, 2022, the Company completed one or more acquisitions which were not material to the condensed consolidated financial statements. The purpose of any such acquisition, may include without limitation, to expand the scope and nature of the Company’s services offerings, add additional team members with important skillsets, and/or realize synergies. Goodwill of $10.7 million is expected to be deductible for tax purposes.

~~14. Segment Information~~

Beginning in 2021, the Company has two reportable segments that are also operating segments: Vertical Software and Insurance. These reportable segments have been identified based on how our chief operating decision-maker (“CODM”) manages the business, makes operating decisions and evaluates operating and financial performance. The Chief Executive Officer is the CODM and reviews financial and operational information for the two 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 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.

The 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 service revenue.

~~Table of Contents~~

~~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 Company’s revenue by segment:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
	2022		2021		2022		��	2021		2023		2022
Segment revenues:
Vertical Software	$	44,463	$	42,287	$	121,964		$	101,629	$	28,627	$	34,404
Insurance		30,903		20,482		86,732			39,223		58,742		29,163
Total segment revenue	$	75,366	$	62,769	$	208,696		$	140,852	$	87,369	$	63,567

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

Currently, the Company does not allocate any shared expenses to the reportable segments. 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 (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.

The following tables provide financial information for the two 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,
	2022		2021		2022		2021		2023		2022
Segment adjusted EBITDA (loss):
Vertical Software	$	4,956	$	7,712	$	13,978	$	19,041	$	(396)	$	2,884
Insurance		(2,317)		5,473		(4,099)		3,067		(7,185)		216
Corporate and Other		(15,611)		(12,312)		(44,190)		(40,754)		(14,301)		(13,527)
Total segment adjusted EBITDA (loss)		(12,972)		873		(34,311)		(18,646)		(21,882)		(10,427)
Reconciling items:
Depreciation and amortization		(8,676)		(4,431)		(21,574)		(10,787)		(6,015)		(6,483)
Non-cash stock-based compensation expense		(5,089)		(6,579)		(20,645)		(30,627)		(6,894)		(5,854)
Acquisition and related expense		(175)		(1,958)		(1,284)		(4,648)
Acquisition and other transaction costs										(1,112)		(895)
Impairment loss on intangible assets and goodwill		(57,057)		—		(57,057)		—		(2,021)		—
Non-cash losses and impairment of property, equipment and software		(31)		(76)		(101)		(216)		—		(69)
Revaluation of contingent consideration		(565)		(195)		(5,251)		380		154		(3,205)
Investment income and realized gains		(335)		(248)		(775)		(448)		(758)		(197)
Non-cash bonus expense										—		(1,526)
Operating loss	$	(84,900)	$	(12,614)	$	(140,998)	$	(64,992)	$	(38,528)	$	(28,656)

The CODM does not review assets on a segment basis.

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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)

All of the Company’s revenue is generated in the United ~~States.~~States, except for an immaterial amount. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the Company did not have material assets located outside of the United States.

15. 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.

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, PRSUs, RSAs, convertible notes, earnout shares and warrants. As the Company has reported losses for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

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, 2022~~March 31, 2023 and ~~2021:~~2022:

Three Months Ended September 30,

Nine Months Ended September 30,


2022

2021

2022

2021
Numerator:








Net loss used to compute net loss per share:

Basic

$
(86,391)

$
(5,099)

$
(118,564)

$
(86,497)
Adjustment for change in fair value of warrant liability

—

(2,692)

—

—
Diluted

$
(86,391)

$
(7,791)

$
(118,564)

$
(86,497)

Denominator:








Weighted average shares outstanding used to compute loss per share:

Basic

97,792,485

96,839,292

97,009,351

92,544,137
Dilutive effect of warrants

—

706,650

—

—
Diluted

97,792,485

97,545,942

97,009,351

92,544,137

Loss per share - basic

$
(0.88)

$
(0.05)

$
(1.22)

$
(0.93)
Loss per share - diluted

$
(0.88)

$
(0.08)

$
(1.22)

$
(0.93)


	Three Months Ended March 31,
	2023		2022
Numerator:
Net loss used to compute net loss per share - basic and diluted:	$	(38,740)	$	(9,285)

Denominator:
Weighted average shares outstanding used to compute loss per share - basic and diluted:		95,209,819		96,074,527

Loss per share - basic and diluted	$	(0.41)	$	(0.10)

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Notes to Condensed Consolidated Statements - Continued~~

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

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 September 30,		Nine Months Ended September 30,		Three Months Ended March 31,
	2022	2021	2022	2021	2023	2022
Stock options	4,149,394	5,131,615	4,149,394	5,131,615	3,735,134	4,569,743
Restricted stock units and awards	5,193,177	984,135	5,193,177	984,135	4,993,987	4,188,802
Performance restricted stock units	1,825,719	—	1,825,719	—	1,222,522	37,184
Public and private warrants	1,795,700	—	1,795,700	—	1,795,700	1,795,700
Earnout shares	2,050,000	4,099,999	2,050,000	4,099,999	2,050,000	2,050,000
Convertible debt⁽¹⁾	16,998,130	16,998,130	16,998,130	16,998,130	16,998,130	16,998,130
Contingently issuable shares in connection with acquisitions⁽²⁾					13,957,569	2,792,457

⁽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, 2022.~~March 31, 2023.

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

⁽²⁾In connection with the acquisitions of Floify and HOA, the Company provided an obligation to issue a certain amount of common stock to the extent specified market conditions are met in the future. Contingently issuable shares are calculated in accordance with the purchase agreement, assuming they would be issuable if the end of the reporting periods were the end of the contingency period.

16. Subsequent Events

On ~~November 8, 2022,~~April 20, 2023, the Company issued $333 million aggregate principal amount of 6.75% Senior Secured Convertible Notes due 2028 (the “2028 Notes”) in a private placement transaction. Porch ~~Group announced that its Board~~used a portion of ~~Directors approved a new repurchase program authorizing~~ the ~~deployment of up to $15 million~~net proceeds from the 2028 Notes offering to repurchase $200 million of its 2026 Notes and to fund the ~~Company’s~~repayment of $9.7 million outstanding ~~common stock or~~under HOA’s term loan facility, in each case plus accrued and unpaid interest thereon and related fees and expenses.

The 2028 Notes are convertible notes. Repurchases under the newly authorized program may be made from time to time between November 10, 2022 and June 30, 2023 on the open market at prevailing market prices, in privately negotiated transactions, in block trades, and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations (including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act).Certain executive officers and directors of Porch Group may also purchaseinto cash, shares ~~of Company common stock in accordance with the Company’s insider trading policy and federal securities laws. The timing and the amount~~ of common stock of the Company, or a combination of cash and shares of common stock at Porch’s election at an initial conversion rate of 39.9956 shares of common stock per $1,000 principal amount of the 2028 Notes, which is equivalent to an initial conversion price of approximately $25.00 per share.

The 2028 Notes are senior secured obligations of the Company, accrue interest at a rate of 6.75%, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2023, and were initially issued at 95% of par value. The 2028 Notes will mature on October 1, 2028, unless earlier repurchased, redeemed or converted. Prior to the close of business on the business day immediately preceding July 1, 2028, the 2028 Notes will be convertible ~~notes repurchased will depend on various factors, including price, corporate and regulatory requirements, market~~at the option of the holders only upon the satisfaction of certain conditions and ~~other corporate liquidity requirements and priorities. The repurchase program does not obligate~~during certain periods. Thereafter, until the ~~Company to acquire a specific dollar amount or number~~close of ~~shares and may~~business on the second scheduled trading day immediately preceding the maturity date, the 2028 Notes will be ~~modified, suspended, or discontinued~~convertible at the option of the holders at any ~~time.~~time regardless of these conditions.

Currently, an estimate of the impact of this transaction on the consolidated balance sheets and statements of operations cannot be made.

3733

Table of Contents

PART II —OTHER INFORMATION

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

This 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~~These 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 Quarterly Report do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinationsbased upon estimates and assumptions 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:

●

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

●

~~costs related to 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 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~~while considered reasonable by the ~~forward-looking statements in this Quarterly Report~~Company and its management at the time they are more fully described in Part II, Item 1A of this Quarterly Report, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 16, 2022 and in any of the Company’s subsequent SEC filings. The risks described in these filingsmade, 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 factorsinherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: (1) our expansion plans and opportunities, and managing our growth, to build a consumer brand; (2) the incidence, frequency and severity of weather events, extensive wildfires, and other catastrophe; (3) economic conditions, especially those affecting the housing and financial markets; (4) our expectations regarding our revenue, cost of revenue, operating expenses, and our ability to achieve and maintain future profitability; (5) existing and developing federal and state laws and regulations, including with respect to insurance, warranty, privacy, information security, data protection and taxation, and our interpretation of and compliance with such laws and regulations; (6) our reinsurance program, which includes the use of a captive reinsurer, the success of which is dependent on a number of factors outside our control, along with our reliance on reinsurance to protect us against loss; (7) uncertainties related to regulatory approval of insurance rates, policy forms, insurance products, license applications, acquisitions of businesses or strategic initiatives, including the reciprocal restructuring, and other matters within the purview of insurance regulators; (8) our reliance on strategic, proprietary relationships to provide us with access to personal data and product information, and our ability to use such data and information to increase our transaction volume and attract and retain customers; (9) our ability to develop new, or enhance existing, products, services, and features and bring them to market in a timely manner; (10) changes in capital requirements, and our ability to access capital when needed to provide statutory surplus; (11) the increased costs and initiatives required to address new legal and regulatory requirements arising from developments related to cybersecurity, privacy and data governance and the increased costs and initiatives to protect against data breaches, cyber-attacks, virus or malware attacks, or other infiltrations or incidents affecting system integrity, availability and performance; (12) retaining and attracting skilled and experienced employees; (13) costs related to being a public company; and (14) other risks and uncertainties discussed in our Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2022, Part I, Item 1A, “Risk Factors,” as well as those discussed elsewhere in this report.

The information included in this management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in ~~any forward-looking statements. All forward-looking~~our Annual Report for the year ended December 31, 2022.

Additionally, the unaudited condensed consolidated interim financial statements ~~attributable~~for the three months ended March 31, 2022 have been revised to correct prior period errors as discussed in Note 20 “Quarterly Financial Data (Unaudited) Restatement of Previously Issued Financial Statements” to the ~~Company or persons acting on its behalf are expressly qualified~~consolidated financial statements included in ~~their entirety by~~Part II, Item 8 of Annual Report for the ~~foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result~~year ended December 31, 2022. Accordingly, this Management’s Discussion and Analysis of ~~new information, future events or otherwise, except as required by law.~~Financial Condition and Results of Operations reflects the effects of the revisions.

~~Table of Contents~~

Business Overview

Porch Group, ~~is a~~Inc. (“Porch Group”, “Porch” or the “Company”), the vertical software platform, ~~for~~is a values-driven company whose mission is to simplify the home ~~providing~~with insurance at the center. Porch Group provides software and

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services to ~~over 30,900~~approximately 30,600 home ~~services companies, such as~~service providers including home inspectors, mortgage brokers, title companies and ~~loan officers, title companies,~~ moving ~~companies,~~companies. Porch Group simplifies the home closing process and the move, by providing high-value services including homeowners insurance and warranty, and ongoing support with our app which saves consumers time and helps them make better decisions.To achieve this, Porch Group hires and retains great people, invests in the right opportunities, and leverages our unique capabilities such as early and privileged access to homebuyers and deep insight into properties.

Porch Group makes the moving process easier for homebuyers by helping them save time and make better decisions about critical services, including insurance, warranty, moving, security, TV/Internet, home repair and improvement. The Company provides home and personal property insurance policies through its own underwriting operations in 22 states and across the U.S. with its wholly-owned insurance agency.

Our multi-faceted value proposition resonates with a broad customer demographic, regardless of home price, income level, geographic location or age. We acquire our customers through a variety of channels, including at the time of a real estate ~~agencies, utility companies, roofers~~transaction through third parties, direct-to-consumer (“DTC”), and ~~others, helping these service providers grow their business~~leads from other Porch Group businesses.

Porch Group has two reportable segments: the Vertical Software segment and ~~improve their customer experience. The Company~~the Insurance segment.

Porch Group’s Vertical Software segment provides software and services to home services ~~companies and, through~~companies. Through these relationships, Porch earns fees, and gains a competitive advantage through unique and early access to homebuyers and ~~homeowners, assists~~homeowners. This early access allows Porch to assist homebuyers and homeowners with critical ~~services such as insurance and~~ moving ~~and, in~~services. In turn, ~~the Company’s~~Porch’s platform drives demand for other ~~services from such companies as part of the value proposition. Porch~~services. The Vertical Software segment 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 to help them make their businesses run more efficiently and ~~who pay recurring SaaS fees and increasingly provide introductions to homebuyers and homeowners;~~grow; (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, and home repair and improvement; and (3) service providers, such as ~~insurance carriers,~~ moving companies, security companies, title companies, mortgage companies and TV/Internet providers, who pay Porch for new customer sign-ups.

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

~~The Company’s~~Porch Group’s Insurance segment offers various ~~forms of homeowner~~property-related insurance policies through ~~its~~our risk-bearing carrier, independent agency, and risk-bearing home warranty companies. We earn insurance policy premiums collected from insured homeowners for our insurance products, policy fees when policies are sold and renewed, and commissions when we cede premiums to reinsurance companies. Additionally, when we sell a homeowner an insurance policy through a carrier other than our own, these third-party insurance ~~carrier~~companies pay new business and ~~certain homeowner and auto insurance policies through its licensed~~renewal commissions to Porch’s insurance agency. The Insurance segment also includes home warranty, ~~service revenue.~~

~~For consumers,~~from which Porch largely relies on our unique and proprietary relationships with over 30,900 companies using the Company’s software to provide the company with end customer access and introductions. 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. The Company has invested in limited direct-to-consumer marketing capabilities, but expects to become more advanced over time with capabilities such as digital and social retargeting.receives premiums paid by homeowners for Porch’s home warranty products.

Key Performance Measures and Operating Metrics

In the management of these businesses, the Company identifies, measures and evaluates various operating metrics. The key performance measures and operating metrics used in managing the businesses are set forth below. These key performance measures and operating metrics are not prepared in accordance with 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 businesses in 2020.~~

●

Average 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. The Company’s customers include home services companies, for whom the Company provides software and services and who provide introductions to homebuyers and homeowners and tracks the average number of home services companies from which it generates revenue each quarter in order to measure the ability to attract, retain and grow 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 across all of the Company’s home services verticals that (i) generate recurring revenue and (ii) generated

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revenue in the quarter. For new acquisitions, the number of companies is determined in the initial quarter based on the percentage of the quarter the acquired business is a part of the Company.

~~Table of Contents~~

●

Average Revenue per Account per Month in Quarter — Management views 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 Month in Quarter is defined as the average revenue per month generated across all home services company customer accounts in a quarterly period. Average Revenue per Account per Month in Quarter is derived from all customers and total ~~revenue, not only customers and revenues associated with the Company~~’~~s referral network.~~revenue.

The following table summarizes Average Companies in Quarter and Average Revenue per Account per Month in Quarter for each of the quarterly periods indicated:

2022

2022

2022

2022


Q1

Q2

Q3

Q4

Average Companies in Quarter

25,545
⁽²⁾

28,773
⁽²⁾

30,951

—

Average Revenue per Account per Month in Quarter

$
816
⁽¹⁾⁽²⁾
$
820
⁽¹⁾⁽²⁾
$
812

$
—

2021

2021

2021

2021

Q1

Q2

Q3

Q4

Average Companies in Quarter

13,995

17,082
⁽²⁾

20,419
⁽²⁾

24,601
⁽²⁾
Average Revenue per Account per Month in Quarter (adjusted)⁽¹⁾

$
637

$
935
⁽¹⁾⁽²⁾
$
987
⁽¹⁾⁽²⁾
$
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

$
935

$
987

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

$
637

$
1,000

$
1,022

$
699


	2022		2022		2022		2022		2023
	Q1		Q2		Q3		Q4		Q1
Average Companies in Quarter		25,545		28,773		30,951		30,860		30,618
Average Revenue per Account per Month in Quarter	$	829	$	822	$	833	$	693	$	951

~~(2)~~

During the quarter ended September 30, 2022, the Company corrected an immaterial error that impacted the number of Average Companies in Quarter. Average Companies in Quarter and Average Revenue per Account per Month in Quarter metrics for the reporting periods starting June 30, 2021 and ending June 30, 2022 were recalculated for the affected quarters to show the impact of the adjustments.

2022

2022

2022

2022

Q1

Q2

Q3

Q4
Average Companies in Quarter (as previously reported)

25,512

28,730

—

—
Adjustment

33

43

—

—
Average Companies in Quarter (as adjusted)

25,545

28,773

—

—

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

$
817

$
821

$
—

$
—
Adjustment

$
(1)

$
(1)

$
—

$
—
Average Revenue per Account per Month in Quarter (as adjusted)

$
816

$
820

$
—

$
—

2021

2021

2021

2021

Q1

Q2

Q3

Q4
Average Companies in Quarter (as previously reported)

13,995

17,120

20,472

24,603
Adjustment

—

(38)

(53)

(2)
Average Companies in Quarter (as adjusted)

13,995

17,082

20,419

24,601

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

$
637

$
933

$
985

$
776
Adjustment

$
—

$
2

$
2

$
—
Average Revenue per Account per Month in Quarter (as adjusted)

$
637

$
935

$
987

$
776

In 2022, the Company completed the acquisition of RWS. 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.

~~Table of Contents~~

●

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)~~(1) compare and buy home insurance policies (along with auto, flood and umbrella policies) and warranties with competitive rates and coverage; ~~(ii)~~(2) 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)~~(3) discover and install home automation and security systems; ~~(iv)~~(4) compare ~~Internet~~internet and television options for their new home; ~~(v)~~(5) book small handyman jobs at fixed, upfront prices with guaranteed quality; and ~~(vi)~~(6) compare bids from home improvement professionals who can complete bigger jobs. 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 market penetration with homebuyers and homeowners and the Company’s ability to deliver high-revenue services within those groups. Monetized Services in Quarter is defined as the total number of unique services from which the Company generated revenue, including, but not limited to, new and renewing insurance and warranty customers, completed moving jobs, security installations, TV/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~~an important component of Porch’s growth strategy. 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 ~~quarter,~~Quarter, average revenue is defined as total quarterly service transaction revenues generated from monetized services.

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

2022

2022

2022

2022


Q1

Q2

Q3

Q4

Monetized Services in Quarter

263,163

333,596

318,452

—

Average Revenue per Monetized Service in Quarter

$
170
⁽¹⁾
$
157
⁽¹⁾
$
181

$
—

2021

2021

2021

2021

Q1

Q2

Q3

Q4

Monetized Services in Quarter

190,733
⁽²⁾

316,674
⁽²⁾

338,157
⁽²⁾

267,683
⁽²⁾
Average Revenue per Monetized Service in Quarter (adjusted)⁽¹⁾

$
88
⁽¹⁾⁽²⁾
$
113
⁽¹⁾⁽²⁾
$
133
⁽¹⁾⁽²⁾
$
150
⁽¹⁾⁽²⁾

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)

$
45,098

$
39,102

$
47,398

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

—

(3,400)

(2,300)

5,700
Service Revenue (as adjusted)

$
45,098

$
35,702

$
45,098

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

$
92

$
113

$
133

$
150
Average Revenue per Monetized Service in Quarter (as previously reported)

$
92

$
129

$
144

$
132


	2022		2022		2022		2022		2023
	Q1		Q2		Q3		Q4		Q1
Monetized Services in Quarter		263,183		333,596		318,452		212,992		214,097
Average Revenue per Monetized Service in Quarter	$	175	$	158	$	185	$	219	$	328

In the second quarter of 2022, the Company completed the acquisition of RWS.

Recent Developments

Share Repurchases

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~~(2)~~

During the quarter ended September 30, 2022, the Company corrected an immaterial error that impacted the number of Monetized Services in Quarter. Monetized Services in Quarter and Average Revenue per Monetized Service in Quarter metrics for the reporting periods starting March 30, 2021 and ending June 30, 2022 were recalculated for the affected quarters to show the impact of the adjustments.

2022

2022

2022

2022

Q1

Q2

Q3

Q4
Monetized Services in Quarter (as previously reported)

254,249

331,889

—

—
Adjustment

8,914

1,707

—

—
Monetized Services in Quarter (as adjusted)

263,163

333,596

—

—

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

$
176

$
158

$
—

$
—
Adjustment

$
(6)

$
(1)

$
—

$
—
Average Revenue per Monetized Service in Quarter (as adjusted)

$
170

$
157

$
—

$
—

2021

2021

2021

2021

Q1

Q2

Q3

Q4
Monetized Services in Quarter (as previously reported)

182,779

302,462

329,359

260,352
Adjustment

7,954

14,212

8,798

7,331
Monetized Services in Quarter (as adjusted)

190,733

316,674

338,157

267,683

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

$
92

$
118

$
137

$
154
Adjustment

$
(4)

$
(5)

$
(4)

$
(4)
Average Revenue per Monetized Service in Quarter (as adjusted)

$
88

$
113

$
133

$
150

In October 2022, the ~~Company completed~~Company’s Board of Directors approved a share repurchase program authorizing management to repurchase up to $15 million in the ~~acquisition~~Company’s common stock and/or convertible notes. Repurchases under this program may be made from time to time on the open market between November 10, 2022 and June 30, 2023, at prevailing market prices. During the first quarter of ~~RWS. In 2021,~~2023, the Company ~~completed acquisitions~~repurchased 1,396,158 shares with the total cost of ~~V12 Data in Q1, HOA~~$3.1 million (including commissions).

Reciprocal Exchange

On March 20, 2023, Homeowners of America filed an application to form and ~~Rynoh in Q2, AHP in Q3~~license a Texas reciprocal exchange (the “Reciprocal”) with the Texas Department of Insurance (“TDI”). If approved by the TDI, the insurance underwriting business of Porch will be conducted through the Reciprocal. A Porch subsidiary would serve as the operator (or “attorney-in-fact”) for the Reciprocal. In that role it would perform underwriting, claims and ~~Floify in Q4, which impacted~~management services for the ~~number~~Reciprocal and receive a management fee calculated as a percentage of ~~monetized services in~~its premiums. EIG and HOA’s managing general agent would act as general agents for the ~~quarter.~~

~~Recent Developments~~

~~Adoption of New Accounting Standards~~

~~The Company early adopted Accounting Standards Update No. 2021-08,~~ ~~Business Combinations (Topic 805): Accounting for Contract Assets~~Reciprocal and ~~Contract Liabilities from Contracts with Customers~~HOAIC and receive fees and commissions. There can be no assurance that the Reciprocal will receive regulatory approval, and if obtained, that the approval would be based on ~~January 1, 2022 and will apply the guidance prospectively for business combinations~~terms as proposed or subject to additional requirements that ~~occur after the adoption date. The adoption has no impact~~may not be acceptable to the ~~existing unaudited condensed consolidated balance sheets, statements of operations, and statements of cash flows~~.Company.

Key Factors Affecting Operating Results

The Company has been implementing its strategy as a vertical software platform for the home, by providing software and services to ~~over 30,900~~approximately 30,600 pre-and-post move home ~~services companies, such as home~~service providers including inspectors, ~~moving companies, utility companies, warranty companies, etc.~~real estate, title and mortgage companies. The Company’s Insurance segment continues to grow in scale, through both policy count, and geographic expansion. The following are key factors affecting the Company’s operating results in the three ~~and nine~~ months ended ~~September 30, 2022:~~March 31, 2023:

●

The ~~U.S~~U.S. housing market continues to see impacts from higher interest rates, existing home inventory tightening, and affordability challenges, impacting the Vertical Software segment. For the quarter ended ~~September 30, 2022,~~March31,2023, existing home sales have declined over ~~22% on~~26% year over year.

●

In March 2023, the Company completed the acquisitions of the Florida and California operations of Residential Warranty Services (“RWS”).

●

In March 2023, Porch filed an application for a Reciprocal Exchange with the Texas Department of Insurance.

●

The Company continued its insurance strategic initiatives by moving to 50% reinsurance ceding and not renewing certain higher risk policies.

●

In February 2023, the Company successfully launched Porch Warranty offering, with 80% of our new home warranty contracts now written under our own brand.

●

The Company continues to develop its software for customers including, the expansion of its suite of solutions for customers and partners at Floify, rolled out a new module version within Rynoh, and launched a new version of report writer for inspectors as part of our home inspection solution.

●

Our moving business launched a ‘Fixed Price’~~s Insurance division paid out a higher volume of claims from volatile weather events, including Hurricane Ian, during~~ product which makes the ~~quarter. Claims costs~~moving journey simpler for ~~these events were driven higher due in part to inflation-related pressures.~~moving companies and consumers.

●

The Company has rolled out its app to all eligible ISN companies, with the recall check monitoring being popular with consumers.

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●

~~During the third quarter of 2022, management identified various qualitative factors and macroeconomic trends that collectively indicated that the Company had trigger eventsresulting in a $39.4 million goodwill impairment at the Company~~’~~s Insurance segment, and a $17.7 million impairment of intangible assets for certain intangible assets within the Vertical Software segment.~~

●

~~In April 2022, the Company completed the acquisition of Residential Warranty Services (~~“~~RWS~~”~~) with an aggregate purchase price of $39.0 million.~~

●

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 January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021) and Floify (acquired in October 2021). For a complete discussion of 2021 acquisitions, refer to Item 8 in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed on March 16, 2022 (the “Annual Report on Form 10-K”).

●

~~Continued investment in growing and expanding the Company~~’~~s position in the home inspection industry including through core enterprise resource planning and customer relationship management software offered by Inspection Support Network LLC.~~

●

~~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. Specifically, by increasing economies of scale related to fixed selling costs, Moving Concierge call center operations and product and technology costs.

●

~~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 the Company include the accounts of the Company and its consolidated subsidiaries and were prepared in accordance with 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 chief operating decision-maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer is the CODM.

~~Table of Contents~~

Components of Results of Operations

Total Revenue

The Company generates revenue ~~from (1) software~~in the following ways:

●

Insurance revenue in the form of insurance and warranty premiums, policy fees, commissions from reinsurers and other insurance-related fees generated through its owned insurance carrier, as well as commissions from third-party insurance carriers where Porch acts as an independent agent;

●

Software and service subscription revenue generated from fees paid by companies for access to Porch’s software and provision of services;

●

Move and post-moved related transaction revenue – Move-related revenue through fees received for connecting homeowners to service providers during time of a move including movers, TV/Internet, warranty, and security monitoring providers; and post-move related revenue in the form of fees earned from introducing homeowners to home service professionals including handymen, plumbers, electricians, roofers, etc.

The Insurance segment includes revenue generated from various property-related insurance policies through its own risk-bearing carrier and independent agency as well as risk-bearing home warranty companies. We collect policy fees ~~received for providing subscription access to~~from policyholders of our own underwritten homeowners insurance products, reinsurers pay the ~~Company’s software platforms and subscription services across various industries; (2)~~Company ceding commissions when premiums are ceded from owned insurance ~~revenue~~products, revenues are earned in the form of ~~commissions~~policy premiums collected from insureds from owned insurance products, and third-party insurance ~~carriers where Porch acts as an independent agent~~companies pay our agency upfront and renewal commissions for selling their policies. The Insurance segment also includes home warranty revenue which mainly consists of premiums paid by warranty customers for the Company’s home warranty products.

The Vertical Software segment includes revenue from ~~reinsurers, insurance~~software and ~~warranty premiums, policy fees~~services subscription revenue, move-related transactions revenue and ~~other insurance-related fees generated through its own insurance carrier; (3) move-related service revenue through fees~~received for connecting homeowners to service providers during time of a move including movers, TV/Internet, warranty, and security monitoring providers and for certain move related services for providing select services directly to the homeowner; (4) post-move related revenue in the form of fees earned from introducing homeowners to home service professionals including handymen, plumbers, electricians, roofers etc., and for certain projects for providing select services directly to the homeowner.

post-move-related transaction revenue. Software and service subscription revenue primarily relates to subscriptions to the Company’s software offerings across ~~its verticals as well as marketing software and services.~~a number of verticals. 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 price per user or seat, or a specified price per inspection completed through the software. The Company also sells marketing software and services to companies who want to advertise to movers. Marketing software and ~~services~~service fees 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 our 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~~is generated when the Company connects consumers with service providers ~~with homeowners that meet pre-defined criteria and may be looking for relevant services. Service providers include~~including movers, TV/Internet, ~~warranty,~~ and security monitoring ~~providers.~~companies. The Company earns revenue when consumers purchase services from these third-party providers. For select moving ~~products where~~jobs, the Company ~~manages~~will select the ~~process of selecting the service provider and setting~~mover, set the price, and manage the job end-to-end; here, the Company ~~generally invoices for projects~~generates revenue based on ~~a fixed fee or time and materials basis.~~

the full job value.

Post-move-related transaction revenue includes monthly fees paid by home service contractors as well as fees earned from introducing consumers to home service providers, ~~as well as directly to the homeowner when the Company manages the service.~~ either on a per lead, per appointment, or per job basis.

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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 five categories:

●

Cost of revenue;

●

Selling and marketing;

●

Product and technology;

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●

General and administrative; and

●

Impairment loss on intangible assets and goodwill.

The categories of operating expenses except impairment loss on intangible assets and goodwill, 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.

Cost of revenue primarily consists of insurance ~~claims~~ losses and loss adjustment expenses, claims personnel costs, 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 and operational cost of SaaS businesses.~~fees.

Selling and marketing expenses primarily consist of payroll, employee benefits and stock-based compensation expense, and other headcount related costs associated with sales efforts directed toward companies and consumers, and amortization of 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, marketing costs and affiliate and partner leads.

~~The Company capitalizes~~Selling and marketing costs are classified as either fixed or variable. Fixed selling and marketing costs primarily consist of compensation of sales management, professional fees and software costs that do not vary with sales volumes. Variable selling and marketing costs consist of 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~~third-party leads, affiliates and partner leads, paid search engine optimization and marketing, advertising costs and compensation for ~~recoverability~~individuals in certain sales and ~~adjusted if necessary.~~marketing departments that vary with sales volumes.

Product and technology development costs primarily consist of payroll, employee benefits, stock-based compensation expense, other headcount-related costs associated with product development, net of costs capitalized as internally developed software. Also included are cloud computing, hosting and other technology costs, software subscriptions, professional services and amortization of internally developed software.

General and administrative expenses primarily consist of expenses associated with functional departments for finance, legal, human resources and executive 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.

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Impairment loss on intangible assets and goodwill results from circumstances when the fair value of a reporting unit or asset group is less than its carrying amount. Goodwill and indefinite-lived intangible assets are subject to annual impairment assessments. All intangible assets and goodwill are also subject to impairment assessments whenever facts and circumstances indicate that these assets may be impaired. See Impairment of Long-Lived Assets ~~and Impairment of Goodwill sections~~section of Critical Accounting Policies and Estimates for the description of methods used to determine these impairment losses.

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, impairment losses on intangible assets and goodwill, estimated variable consideration for services performed, estimated lifetime value of the insurance agency commissions, current estimate for credit losses, depreciable lives for property and equipment, the valuation of and useful lives for acquired intangible assets, 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.

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At least quarterly, the Company evaluates estimates and assumptions and makes changes accordingly. For information on the Company’s significant accounting policies, see Note 1 (Description of Business and Summary of Significant Accounting Policies) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

During the three months ended ~~September 30, 2022, we identified additional critical accounting estimates related to the impairment of long-lived assets and impairment of goodwill. During the fiscal year,~~March 31, 2023, we identified various qualitative factors with respect to long-lived assets and goodwill in the Company’s reporting units that collectively indicated that the Company had triggering events including a sustained decrease in stock price, increased costs due to inflationary pressures, and a deterioration of the macroeconomic environment in the housing and real estate and insurance industries.

Impairment of Long-Lived Assets

Impairment of ~~Long-Lived Assets~~Goodwill

~~We test our long-lived asset groups when changes in circumstances indicate their carrying value may not be recoverable. Events~~During the first quarter of 2023, management identified various qualitative factors that ~~trigger a test for recoverability include a significant decrease in~~collectively, indicated that the market price for a long-lived asset, significant negative industry or economic trends, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-live asset, a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset orCompany had triggering events, including a sustained decrease in ~~share price. When~~stock price, increased costs due to inflationary pressures, and a ~~triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value~~deterioration of the ~~asset group. If~~macroeconomic environment in the ~~test for recoverability identifies~~housing and real estate and insurance industries. The Company performed a ~~possible impairment,~~valuation of both the asset group’s fair value is measured relying primarily on a discounted cash flow method. An impairment charge is recognized for the amount by which the carrying value of the asset group excess its estimated fair value. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amounts for those assets are depreciated over their remaining useful life.

We evaluate long-lived assets at the lowest level at which independent cash flows can be identified, which is dependent on the strategy and expected future use of our long-lived assets. We evaluate corporate assets or other long-lived assets that are not asset group-specific at the consolidated level.

We estimate the fair value of an asset group using the income approach. The income approach uses cash flow projections. Inherent in our development of cash flow projections are assumptions and estimates derived from a review of our operating results, business plan forecasts, expected growth rates, and cost of capital, similar to those a market participant would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of these factors used in assessing fair value are outside the control of management and these assumptions and estimates may change in future periods.

~~During the three months ended September 30, 2022, the Company recorded impairment charges of $17.7 million, related to its~~ Vertical Software ~~segment.~~

~~Impairment of Goodwill~~

We test goodwill for impairment annually or whenever events or changes in circumstances indicate that an impairment may exist. We assess qualitative factors to determine whether it is more likely than not that the fair value of aand Insurance reporting unit is less than its carrying amount. Factors that indicate the fair value of a reporting unit may be less than its carrying amount include industry and market considerations such as a deterioration in the economic environment or a decline in market-dependent multiples or metrics, overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings, increased cost factors that have a negative effect on earnings and cash flows, or a sustained decrease in share price. The process for evaluating potential impairment of goodwill is highly subjective and requires significant judgment. If factors indicate that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative assessment and the fair value of the reporting unit is estimated byunits using a combination of market and income approaches based on peer performance and discounted cash flow or dividend discount model methodologies. IfThe results of the ~~carrying value~~quantitative impairment assessment indicated that the estimated fair values of the reporting ~~unit exceeds~~units exceeded their carrying values. As such, the Company determined that the goodwill allocated to its ~~fair value, an impairment loss equal to the excess is recorded.~~reporting units was not impaired as of March 31, 2023.

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of each reporting unit was estimated using a combination of ~~a discounted cash flow methodology~~income and ~~the~~ market valuation ~~approach~~approaches using publicly traded company multiples in similar businesses. Such fair value measurements are based predominately on Level 3 inputs. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on

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internally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from ~~17%~~14% to 20%.

~~During~~As of March 31, 2023, the ~~three months ended September 30, 2022, management identified various qualitative factors that collectively, indicated~~fair value of our Vertical Software reporting unit exceeded its carrying value by less than 5%, and the fair value of our Insurance reporting unit exceeded its carrying value by less than 10%. As a result, the Company’s goodwill balance is at risk of future impairment. The Company monitors its reporting units at risk of impairment for interim impairment indicators, and believes that the estimates and assumptions used in the calculations are reasonable as of March 31, 2023. The Company ~~had triggering events,~~also reconciles the fair value of its reporting units to the Company’s market capitalization. Should the fair value of any of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines including ~~a sustained decrease in stock price, increased costs due to inflationary pressures, and~~ a deterioration of the macroeconomic environment in the housing and real estate ~~industry. The Company performed a valuation of both~~or insurance industries, changes in the ~~Vertical Software and Insurance reporting units using a combination of market approaches based on peer performance and discounted cash flow~~discount rate, or ~~dividend discount model methodologies. Given the results of the quantitative assessment, the Company determined that the Insurance reporting unit’s~~other adverse conditions, goodwill ~~was impaired.~~

~~During the three months ended September 30, 2022, the Company recorded~~ impairment charges ~~of $39.4 million, related to its Insurance segment.~~may be necessary in future periods.

There were no other changes to the critical accounting policies and estimates discussed in the Company’s Annual Report on Form 10-K. ~~For a complete discussion of the Company’s Annual Report.~~

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Results of Operations

The following table sets forth the Company’s historical operating results for the periods indicated:


	Three Months Ended September 30,							Nine Months Ended September 30,								Three Months Ended March 31,				$		%
	2022		2021		$ Change	% Change		2022		2021		$ Change		% Change		2023		2022		Change		Change

	(dollar amounts in thousands)															(dollar amounts in thousands)
Revenue	$	75,366	$	62,769	12,597	20	%	$	208,696	$	140,852	$	67,844	48	%	$	87,369	$	63,567	$	23,802	37	%
Operating expenses:
Cost of revenue		33,269		19,158	14,111	74	%		83,016		44,587		38,429	86	%		51,275		25,216		26,059	103	%
Selling and marketing		30,245		22,874	7,371	32	%		84,815		60,636		24,179	40	%		32,585		26,077		6,508	25	%
Product and technology		14,438		11,317	3,121	28	%		44,446		34,158		10,288	30	%		13,950		14,231		(281)	(2)	%
General and administrative		25,257		22,034	3,223	15	%		80,360		66,463		13,897	21	%		26,066		26,699		(633)	(2)	%
Impairment loss on intangible assets and goodwill		57,057		—	57,057	NM			57,057		—		57,057	NM			2,021		—		2,021	NM
Total operating expenses		160,266		75,383	84,883	113	%		349,694		205,844		143,850	70	%		125,897		92,223		33,674	37	%
Operating loss		(84,900)		(12,614)	(72,286)	573	%		(140,998)		(64,992)		(76,006)	117	%		(38,528)		(28,656)		(9,872)	34	%
Other income (expense):
Interest expense		(2,085)		(1,857)	(228)	12	%		(6,236)		(4,296)		(1,940)	45	%		(2,188)		(2,427)		239	(10)	%
Change in fair value of earnout liability		43		7,413	(7,370)	NM			13,809		(15,388)		29,197	NM			—		11,179		(11,179)	NM
Change in fair value of private warrant liability		124		2,692	(2,568)	NM			14,391		(17,521)		31,912	NM			345		10,189		(9,844)	NM
Gain (loss) on extinguishment of debt		—		(3,133)	3,133	NM			—		5,110		(5,110)	NM
Investment income and realized gains, net of investment expenses		335		248	87	35	%		775		448		327	73	%		758		197		561	285	%
Other income, net		69		316	(247)	(78)	%		(37)		225		(262)	(116)	%
Other income (expense), net																	762		56		706	1,261	%
Total other income (expense)		(1,514)		5,679	(7,193)	NM			22,702		(31,422)		54,124	NM			(323)		19,194		(19,517)	NM
Loss before income taxes		(86,414)		(6,935)	(79,479)	1,146	%		(118,296)		(96,414)		(21,882)	23	%		(38,851)		(9,462)		(29,389)	311	%
Income tax benefit (expense)		23		1,836	(1,813)	NM			(268)		9,917		(10,185)	NM
Income tax benefit																	111		177		(66)	NM
Net loss	$	(86,391)	$	(5,099)	(81,292)	1,594	%	$	(118,564)	$	(86,497)	$	(32,067)	37	%	$	(38,740)	$	(9,285)	$	(29,455)	317	%

NM = Not Meaningful

Revenue

Three months ended ~~September 30, 2022~~March 31, 2023 compared to three months ended ~~September 30, 2021:~~March 31, 2022:

Total revenue increased by ~~$12.6~~$23.8 million, or ~~20%~~37%, from ~~$62.8~~$63.6 million in the three months ended ~~September 30, 2021~~March 31, 2022 to ~~$75.4~~$87.4 million in the same period in 2022. The increase in revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions, organic growth, and accelerated growth of these acquisitions. In April 2022, the Company acquired RWS for an aggregate purchase price of $39.0 million. During 2021, the Company acquired a number of businesses with an aggregate purchase price of $346.3 million as disclosed2023. Revenue in the Company’s ~~Annual Report on Form 10-K. These acquisitions included V12 Data (acquired~~Insurance segment grew by $29.6 million, driven by higher warranty sales and insurance renewals, and increases in ~~January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021)~~per-policy premiums and Floify (acquired in October 2021). Floify and RWS were not owned by the Company during the three months ended September 30, 2021, and, therefore no revenue was recognized from these businesses during that period.

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~~and cost of revenue for the three months ended June 30, 2021, and September 30, 2021. The correction did not impact operating loss or net loss in these periods.~~

~~The following table summarizes the impact of the correction~~This was partially offset by ~~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

$
—

$
—

$
—

$
—

$
—

~~Nine months ended September 30, 2022, compared to nine months ended September 30, 2021:~~

Total revenue increased by $67.8 million, or 48% from $140.9 million in the nine months ended September 30, 2021, to $208.7 million in the same period in 2022. During 2022 and 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), Floify (acquired in October 2021) and RWS (acquired in April 2022). Thus, the increase inlower revenue in ~~2022 is primarily driven by the 2022 and 2021 acquisitions, accelerated growth after acquisition and organic growth.~~our Vertical Software segment due to a 26% reduction in year-over-year industry home sales.

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 recorded 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 correction did not impact operating loss or net loss in these periods. See the table above for the impact of the correction by quarter.

Cost of Revenue

Three months ended ~~September 30, 2022,~~March 31, 2023, compared to three months ended ~~September 30, 2021:~~March 31, 2022:

Cost of revenue increased by ~~$14.1~~$26.1 million, or ~~74%~~103%, from ~~$19.2~~$25.2 million in the three months ended ~~September 30, 2021~~March 31, 2022 to ~~$33.3~~$51.3 million in the same period in ~~2022.~~2023. The increase in the cost of revenue was primarily attributable to increased claims costs due to the strategic reduction in reinsurance ceding and the 2022 ~~and 2021 acquisitions~~acquisition of RWS ~~(acquired~~warranty business, both in April 2022), 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). Floify and RWS was not owned by the Company during the three months ended September 30, 2021 and, therefore, no cost of revenue was recognized from this business during that period. Thus, the increase in cost of revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions. Higher loss and loss adjustment expense at the Company’s insurance segment, due primarily to a higher number of claims paid due to weather events, including Hurricane Ian, during the quarter. Claims costs for these events were driven higher due in part to inflation-related pressures.Insurance Segment. As a percentage of revenue, cost of revenue represented ~~44%~~59% of revenue in the three months ended ~~September 30, 2022~~March 31, 2023 compared with ~~31%~~40% in the same period in ~~2021. Cost of revenue as a percentage of revenue is higher due to the mix shift in business with insurance as the claims and loss and loss adjustment expense is recorded in cost of revenue.~~

~~Nine months ended September 30, 2022, compared to nine months ended September 30, 2021:~~

~~Cost of revenue increased by $38.4 million, or 86% from $44.6 million in the nine months ended September 30, 2021, to $83 million in the same period in~~ 2022. The increase in the cost of revenue was primarily attributable to the 2022 and 2021 acquisitions of RWS (acquired in April 2022),V12 Data (acquired in January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021), Floify (acquired in October 2021). Thus, the increase in cost of revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions. Higher loss and loss adjustment expense at the Company’s insurance segment, due primarily to a higher number of claims paid due to volatile non-catastrophe summer weather events, including Hurricane Ian, during the quarter. Claims costs for these events were driven higher due in part to inflation-related pressures. As a percentage of revenue, cost of revenue represented 40% of

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revenue in the nine months ended September 30, 2022, compared with 32% in the same period in 2021. Cost of revenue as a percentage of revenue is higher due to the mix shift in business with insurance as the claims and loss and loss adjustment expense is recorded in cost of revenue.

Selling and marketing

Three months ended ~~September 30, 2022,~~March 31, 2023, compared to three months ended ~~September 30, 2021:~~March 31, 2022:

Selling and marketing expenses increased by ~~$7.4~~$6.5 million, or ~~32%~~25%, from ~~$22.9~~$26.1 million in the three months ended ~~September 30, 2021~~March 31, 2022 to ~~$30.2~~$32.6 million in the same period in ~~2022.~~2023. The increase is due to ~~$7.7 million related to~~higher costs in the Insurance segment’s variable selling and marketing costs, ~~of the acquired businesses comprised of RWS, Floify, AHP. As a percentage of revenue, selling~~primarily policy acquisition and marketing ~~expenses represented 40% of revenue in the three months ended September 30, 2022 compared with 36% in the same period in 2021.~~

~~Nine months ended September 30, 2022, compared to nine months ended September 30, 2021:~~

Selling and marketing expenses increased by $24.2 million, or 40% from $60.6 million in the nine months ended September 30, 2021, to $84.8 million in the same period in 2022. The increase is due to $21.6 million related to the selling and marketing costs of the acquired businesses comprised of RWS, Floify and AHP, Rynoh, HOA. Growth in the insurance and software and subscription businesses further contributed to the increase. This was partially offset by a decrease of $1.3 million in stock-based compensation expenses. As a percentage of revenue, selling and marketing expenses represented ~~41%~~37% of revenue in the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023 compared with ~~43%~~41% in the same period in ~~2021. The improvement in selling and marketing expenses as a percentage of revenue is due to the growing economies of scale across the Company’s Vertical Software and Insurance segments.~~2022.

Product and technology

Three months ended ~~September 30, 2022,~~March 31, 2023, compared to three months ended ~~September 30, 2021:~~March 31, 2022:

Product and technology expenses ~~increased~~decreased by ~~$3.1~~$0.3 million, or ~~28%~~2%, from ~~$11.3~~$14.2 million in ~~the~~ three months ended ~~September 30, 2021~~March 31, 2022 to ~~$14.4~~$14.0 million in the same period in ~~2022.~~2023. The ~~increase~~decrease is mainly due to ~~$4.9 million increase~~lower depreciation and amortization expense in ~~product and technology costs of~~ the ~~acquired businesses, most notably Floify. This was partially offset by $0.5 million lower stock-based compensation expense.~~three months ended March 31, 2023. As a percentage of revenue, product and technology expenses represented ~~19%~~16% of revenue in the three months ended ~~September 30, 2022~~March 31, 2023 compared with ~~18%~~22% in the same period in ~~2021.~~2022.

General and administrative

~~Nine~~Three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

~~Product~~General and ~~technology~~administrative expenses ~~increased~~decreased by ~~$10.3~~$0.6 million, or ~~30%~~2%, from ~~$34.2~~$26.7 million in ~~the nine~~three months ended ~~September 30, 2021,~~March 31, 2022 to ~~$44.4~~$26.1 million in the same period in ~~2022. The increase is mainly~~2023, primarily due to ~~$13.6 million increase in product and technology costs~~a gain on revaluation of the acquired businesses, most notably HOA, Floify, Rynoh, RWS and AHP. This was partially offset by $1.6 million lower stock-based compensation expense. As a percentage of revenue, product and technology expenses represented 21% of revenue in the nine months ended September 30, 2022, compared with 24% in the same period in 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~~

~~Three months ended September 30, 2022,compared to three months ended September 30, 2021:~~

~~General and administrative expenses increased by $3.2 million, or 15%, from $22 million in~~contingent consideration during the three months ended ~~September 30, 2021~~March 31, 2023, as opposed to ~~$25.3 million~~a loss in the same period in 2022, ~~primarily due~~which contributed $3.4 million to the overall decrease. This was partially offset by higher ~~general and administrative expenses of Floify and RWS,~~professional fees and additional investment in corporate resources and ~~systems, as well as SOX implementation.~~systems.

~~Table~~As a percentage of ~~Contents~~

~~Also, stock-based compensation expense for~~revenue, general and administrative expenses represented 30% of revenue in the three months ended ~~September 30, 2022 was $0.6 million lower than~~March 31, 2023 compared with 42% in the same period in ~~2021.~~

~~Nine months ended September 30, 2022, compared to nine months ended September 30, 2021:~~

~~General and administrative expenses increased by $13.9 million, or 21% from $66.5 million in the nine months ended September 30, 2021, to $80.4 million in the same period in~~ 2022. In the nine months ended September 30, 2022, general and administrative expenses included $9.5 million related to the HOA, RWS, AHP, Floify and Rynoh. The increase is also due to costs related to increased hiring of corporate administrative resources, audit and accounting fees, as well as consulting fees related to the ongoing SOX requirements. In addition, during the nine months ended September 30, 2022, there was a loss on revaluation of contingent consideration of $5.3 million as compared to a gain of $0.4 million during the same period in 2021. This was offset by stock-based compensation expense for the nine months ended September 30, 2022, which was $5.8 million lower than in the same period in 2021.

Impairment loss on intangible assets and goodwill

Three months ended ~~September 30, 2022,~~March 31, 2023, compared to three months ended ~~September 30, 2021:~~March 31, 2022:

In the three months ended ~~September 30, 2022,~~March 31, 2023, the Company recorded impairment losses on intangible assets ~~and goodwill totaling $57.1~~related to a $2.0 million ~~which included a $39.4 million goodwill impairment at its Insurance segment, and a $17.7 million~~ intangible asset impairment at its Vertical Software segment. These impairment charges reflect recent continued inflationary pressures and a deterioration of the ~~Company’s common stock valuation, and broad disruptions~~macroeconomic environment in the ~~equity markets, specifically for technology~~housing and ~~property and casualty insurance companies.~~real estate industry. There were no impairment losses on intangible assets and goodwill in the same period in ~~2021.~~

~~Nine months ended September 30, 2022 compared to nine months ended September 30, 2021:~~

In the nine months ended September 30, 2022, the Company recorded impairment losses on intangible assets and goodwill totaling $57.1 million, which included a $39.4 million goodwill impairment at its Insurance segment, and a $17.7 million intangible impairment at its Vertical Software segment. These impairment charges reflect recent continued inflationary pressures, the Company’s common stock valuation, and broad disruptions in the equity markets, specifically for technology and property and casualty insurance companies. There were no impairment losses on intangible assets and goodwill in the same period in 2021.

~~Interest expense, net~~

~~Three months ended September 30, 2022 compared to three months ended September 30, 2021:~~

~~Interest expense increased by $0.3 million, or 12%, from $1.9 million in the three months ended September 30, 2021 to $2.1 million in the same period in~~ 2022. This was primarily due to issuance of $425 million of Convertible Senior Notes in September 2021, that in part was used to pay off the $42.1 million of Senior Secured Term Loans that were outstanding at June 30, 2021. The 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 increased interest expense.

~~Nine months ended September 30, 2022 compared to nine months ended September 30, 2021:~~

Interest expense increased by $1.9 million, or 44% from $4.3 million in the nine months ended September 30, 2021, to $6.2 million in the same period in 2022. This was primarily due to issuance of $425 million of Convertible Senior Notes in September 2021, that in part was used to pay off the $42.1 million of Senior Secured Term Loans that were outstanding at June 30, 2021. The higher outstanding debt balance was the primary reason for the increased interest expense.

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Interest expense, net

Three months ended March 31, 2023 compared to three months ended March 31, 2022:

Interest expense decreased by $0.2 million, or 10%, from $2.4 million in three months ended March 31, 2022 to $2.2 million in the same period in 2023. The decrease is mainly due to lower interest related to advance funding arrangement during the three months ended March 31, 2023.

Change in fair value of earnout liability

Three months ended ~~September 30, 2022~~March 31, 2023 compared to three months ended ~~September 30, 2021:~~March 31, 2022:

Changes in fair value of earnout liability were less than $0.1 million (gain) and ~~$7.4~~$11.2 million (gain) in the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The decrease in fair value was primarily due to the decline in the stock price at ~~September 30, 2022~~March 31, 2023 as compared to ~~September 30, 2021.~~March 31, 2022.

~~Nine~~Change in fair value of private warrant liability

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

Changes in fair value of ~~earnout~~private warrant liability were ~~$14.4~~$0.3 million (gain) and ~~$15.4~~$10.2 million ~~(loss)~~(gain) in the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The decrease in fair value was primarily due to the decline in the stock price at ~~September 30, 2022~~March 31, 2023 as compared to ~~September 30, 2021. During the nine months ended September 30, 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~~

~~Three months ended September 30, 2022 compared to three months ended September 30, 2021:~~

Changes in fair value of private warrant liability were $0.1 million (gain) and $2.7 million (gain) in the three months ended September 30, 2022 and 2021, respectively. The decrease in fair value was primarily due to the decline in the stock price at September 30, 2022 as compared to September 30, 2021.

~~Nine months ended September 30, 2022 compared to nine months ended September 30, 2021:~~

Changes in fair value of private warrant liability were $14.4 million (gain) and $17.5 million (loss) in the nine months ended September 30, 2022 and 2021, respectively. The decrease in fair value was primarily due to the decline in the stock price at September 30, 2022 as compared to September 30, 2021.31, 2022.

Investment income and realized gains, net of investment expenses

Three months ended ~~September 30, 2022~~March 31, 2023 compared to three months ended ~~September 30, 2021:~~

Investment income and realized gains, net of investment expenses was $0.3 million and $0.2 million in the three months ended September 30, 2022 and 2021, respectively. In April 2021, the Company acquired HOA, which maintains a short-term and long-term investment portfolio that generated investment income for nine months in 2021.

~~Nine months ended September 30, 2022 compared to nine months ended September 30, 2021:~~March 31, 2022:

Investment income and realized gains, net of investment expenses was $0.8 million and ~~$0.4~~$0.2 million in the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, respectively. Total investments balance was $93.1 million at March 31, 2023 and $65.3 million at March 31, 2022 and ~~2021, respectively. In April 2021,~~this higher investment balance was the ~~Company acquired HOA, which maintains a short-term and long-term~~primary reason for the increased investment ~~portfolio that generated investment income for nine months in 2021. The Company did not have any material investments prior to April 2021.~~income.

Income tax benefit ~~(expense)~~

Three months ended ~~September 30, 2022~~March 31, 2023 compared to three months ended ~~September 30, 2021:~~March 31, 2022:

Income tax benefit of ~~$23 thousand~~$0.1 million and ~~$1.8~~$0.2 million was recognized for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The difference between the Company’s effective tax rates for the 2022 ~~period~~and 2023 periods and 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~~

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~~primarily due to the release of a portion of the valuation allowance due to deferred tax liabilities created by certain acquisitions.~~assets.

~~Nine months ended September 30, 2022 compared to nine months ended September 30, 2021:~~

Income tax expense of $0.3 million and income tax benefit of $9.9 million was recognized for the nine months ended September 30, 2022 and 2021, respectively. The difference between the Company’s effective tax rates for the 2022 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. 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 the release of a portion of the valuation allowance due to deferred tax liabilities created by certain acquisitions.

Segment Results of Operations

The Company operates the business as two reportable segments that are also operating segments: Vertical Software and Insurance. For additional information about these segments, see Note 14 (Segment Information) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

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Segment Revenue


	Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022				Three Months Ended March 31, 2023
	Vertical Software Segment		Insurance Segment		Vertical Software Segment		Insurance Segment		Vertical Software Segment		Insurance Segment			Total
Revenue:
Software and service subscriptions	$	17,529	$	—	$	55,165	$	—	$	16,809	$	—	$	16,809
Move-related transactions (excluding insurance)		21,569		—		51,155		—		7,769		—		7,769
Post-move transactions		5,365		—		15,644		—		4,049		—		4,049
Insurance		—		30,903		—		86,732		—		58,742		58,742
Total revenue	$	44,463	$	30,903	$	121,964	$	86,732	$	28,627	$	58,742	$	87,369


	Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021				Three Months Ended March 31, 2022
	Vertical Software Segment		Insurance Segment		Vertical Software Segment		Insurance Segment		Vertical Software Segment		Insurance Segment			Total
Revenue:
Software and service subscriptions	$	15,238	$	—	$	38,716	$	—	$	17,681	$	—	$	17,681
Move-related transactions (excluding insurance)		21,576		—		46,742		—
Move-related transactions										12,193		—		12,193
Post-move transactions		5,473		—		16,171		—		4,530		—		4,530
Insurance		—		20,482		—		39,223		—		29,163		29,163
Total revenue	$	42,287	$	20,482	$	101,629	$	39,223	$	34,404	$	29,163	$	63,567

Three months ended ~~September 30, 2022~~March 31, 2023 compared to three months ended ~~September 30, 2021:~~March 31, 2022:

For the three months ended ~~September 30, 2022,~~March 31, 2023, Vertical Software segment revenue was ~~$44.5~~$28.6 million or ~~59.0%~~33% of total revenue for the same period. For the three months ended ~~September 30, 2021,~~March 31, 2022, Vertical Software segment revenue was ~~$42.3~~$34.4 million or ~~67.0%~~54% of total revenue for the same period. ~~Software and service subscriptions revenue increased from $13.0 million to $20.5 million as the Company acquired RWS in April 2022, and Floify in October 2021. Thus, the increase~~The decrease in revenue in ~~2022~~2023 is primarily driven by ~~the recent acquisitions, accelerated growth after acquisition and organic growth.~~a 26% reduction in year-over-year industry home sales.

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Insurance segment revenue was ~~$30.9~~$58.7 million or ~~41.0%~~67.2% of total revenue for the three months ended ~~September 30, 2022.~~March 31, 2023. Insurance segment revenue was ~~$20.5~~$29.2 million or ~~33.0%~~46.0% of total revenue for the three months ended ~~September 30, 2021.~~March 31, 2022. The revenue increase of $29.6 million or 101% is mainly due to the acquisitions of RWS (acquired in April 2022) and AHP (acquired in September 2021), and the accelerated growth of these businesses after acquisition, as well as organic growth of the Company’s existing insurance operation of HOA.

~~Nine months ended September 30, 2022 compared to nine months ended September 30, 2021:~~

For the nine months ended September 30, 2022, Vertical Software segment revenue was $122.0 million or 58.4% of total revenue for the same period. For the nine months ended September 30, 2021, Vertical Software segment revenue was $101.6 million or 72.0% of total revenue for the same period. Software and service subscriptions revenue increased as the Company acquired RWS in April 2022, Rynoh in May 2021 and Floify in October 2021. Thus, the increase in revenue in 2022 is primarily driven by ~~the 2021 acquisitions, accelerated growth after acquisition~~higher warranty sales and ~~organic growth.~~

~~Insurance segment revenue was $86.7 million for the nine months ended September 30, 2022,~~insurance renewals, increases in per-policy premiums and represented 41.6% of total revenue for the same period. For the nine months ended September 30, 2021, Insurance segment revenue was $39.2 million or 28.0% of total revenue for the same period. The increase is mainly due to the acquisitions of RWS (acquired in April 2022), AHP (acquired in September 2021) and HOA (acquired in April 2021), and the accelerated growth of these businesses after acquisition, as well as the organic growth of HOA.lower reinsurance ceding.

Segment Adjusted EBITDA (Loss)

Segment Adjusted EBITDA (loss) is defined as revenue less operating expenses associated with the 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 14 (Segment Information) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for ~~additional information.~~reconciliations to GAAP consolidated financial information for the periods presented.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
		2022		2021		2022		2021		2023		2022
Segment adjusted EBITDA (loss):
Vertical Software	$	4,956	$	7,712	$	13,978	$	19,041	$	(396)	$	2,884
Insurance		(2,317)		5,473		(4,099)		3,067		(7,185)		216
Corporate and Other⁽¹⁾		(15,611)		(12,312)		(44,190)		(40,754)		(14,301)		(13,527)
Total segment adjusted EBITDA (loss)⁽²⁾	$	(12,972)	$	873	$	(34,311)	$	(18,646)	$	(21,882)	$	(10,427)

⁽¹⁾Includes costs that are not directly attributable to reportable segments, as well as certain shared costs.

⁽²⁾See reconciliation of adjusted EBITDA (loss) to net loss below.

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Non-GAAP Financial Measures

This 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.~~ service and revenue less cost of revenue.

The Company defines Adjusted EBITDA (loss) as net income (loss) adjusted for interest expense, net, income taxes, other expenses, net, depreciation and amortization, impairment loss on intangible assets and goodwill, non-cash ~~long-~~ losses and impairment of property, equipment and software, stock-based compensation expense and acquisition-related impacts, 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.

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Company management uses these non-GAAP financial measures as supplemental measures of the Company’s operating and financial performance, for internal budgeting and forecasting purposes, to evaluate financial and strategic planning matters, and to establish certain performance goals for incentive programs. The Company believes that the use of these non-GAAP financial measures provides investors with useful information to evaluate the Company’s operating and financial performance and trends and in comparing Porch’s financial results with competitors, other similar companies and companies across different industries, many of which present similar non-GAAP financial measures to investors. However, the Company’s definitions and methodology in calculating these non-GAAP measures may not be comparable to those used by other companies. In addition, 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 the Company’s consolidated financial statements. The Company may also incur future income or expenses similar to those excluded from these non-GAAP financial measures, and 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.

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.

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Revenue Less Cost of Revenue

The following table reconciles revenue less cost of revenue to operating loss for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively (dollar amounts in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Revenue	$	75,366	$	62,769	$	208,696	$	140,852	$	87,369	$	63,567
Less: Cost of revenue		(33,269)		(19,158)		(83,016)		(44,587)		(51,275)		(25,216)
Revenue less cost of revenue		42,097		43,611		125,680		96,265		36,094		38,351
Less: Selling and marketing costs		30,245		22,874		84,815		60,636		32,585		26,077
Less: Product and technology costs		14,438		11,317		44,446		34,158		13,950		14,231
Less: General and administrative costs		25,257		22,034		80,360		66,463		26,066		26,699
Less: Impairment loss on intangible assets and goodwill		57,057		—		57,057		—		2,021		—
Total operating expenses	$	160,266	$	75,383	$	349,694	$	205,844	$	125,897	$	92,223
Operating loss	$	(84,900)	$	(12,614)	$	(140,998)	$	(64,992)	$	(38,528)	$	(28,656)

Three months ended ~~September 30, 2022~~March 31, 2023 compared to three months ended ~~September 30, 2021:~~March 31, 2022:

Revenue less cost of revenue decreased by ~~$1.5~~$2.3 million, or ~~3.5%~~5.9% from ~~$43.6~~$38.4 million in the three months ended ~~September 30, 2021~~March 31, 2022 to ~~$42.1~~$36.1 million in the three months ended September 30, 2022. During 2022, the Company acquired RWS. During 2021, the Company acquired a number of businesses, including Rynoh (acquired in May 2021), AHP (acquired in September 2021) and Floify (acquired in October 2021). Floify and RWS were not owned by the Company during the three months ended September 30, 2021 and, therefore, no cost of revenue was recognized from these businesses during that period.March 31, 2023. The decreased revenue less cost of revenue in ~~2022~~2023 is primarily driven by higher ~~loss and loss adjustment expense related to the insurance business.~~

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~~Nine months ended September 30, 2022 compared to nine months ended September 30, 2021:~~

~~Revenue less cost of revenue increased by $29.4 million, or 30.6% from $96.3 million~~claims costs in the nine months ended September 30, 2021 to $125.7 million in the nine months ended September 30, 2022. During 2022, the Company acquired RWS. 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). These businesses were not owned by the Company for the entire nine months ended September 30, 2022, therefore, less 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 2022 and 2021 acquisitions, accelerated growth after acquisition and organic growth.our Insurance segment.

Adjusted EBITDA (loss)

The following table reconciles net loss to Adjusted EBITDA (loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (dollar amounts in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Net loss	$	(86,391)		$	(5,099)		$	(118,564)		$	(86,497)		$	(38,740)		$	(9,285)
Interest expense		2,085			1,857			6,236			4,296			2,188			2,427
Income tax benefit (expense)		(23)			(1,836)			268			(9,917)
Income tax benefit														(111)			(177)
Depreciation and amortization		8,676			4,431			21,574			10,787			6,015			6,483
Loss (gain) on extinguishment of debt		—			3,133			—			(5,110)
Other expense (income), net		(69)			(316)			37			(225)
Other income, net														(762)			(56)
Impairment loss on intangible assets and goodwill		57,057			—			57,057			—			2,021			—
Non-cash losses and impairment of property, equipment and software		31			76			101			216			—			69
Non-cash stock-based compensation expense		5,089			6,579			20,645			30,627			6,894			5,854
Revaluation of contingent consideration		565			195			5,251			(380)			(154)			3,205
Revaluation of earnout liability		(43)			(7,413)			(13,809)			15,388			—			(11,179)
Revaluation of private warrant liability		(124)			(2,692)			(14,391)			17,521			(345)			(10,189)
Acquisition and related expense		175			1,958			1,284			4,648
Acquisition and other transaction costs														1,112			895
Non-cash bonus expense														—			1,526
Adjusted EBITDA (loss)	$	(12,972)		$	873		$	(34,311)		$	(18,646)		$	(21,882)		$	(10,427)
Adjusted EBITDA (loss) as a percentage of revenue		(17)	%		1	%		(16)	%		(13)	%		(25)	%		(16)	%

Adjusted EBITDA (loss) for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$13~~$21.9 million, a ~~$13.9~~$11.5 million decline from Adjusted EBITDA of ~~$0.9~~$10.4 million for the same period in ~~2021. Adjusted EBITDA (loss) for the nine months ended September 30, 2022 was $34.3 million, a $15.7 million decline from Adjusted EBITDA (loss) of $18.6 million for the same period in 2021.~~2022. During 2022, the Company acquired RWS for an aggregate purchase price of ~~$39.0~~$38.8 million. 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). RWS and Floify were not owned by the Company during the three and nine months ended September 30, 2021 and, therefore, no revenue and Adjusted EBITDA (loss) was recognized from this business during these periods. The decline in Adjusted EBITDA (loss) in ~~2022~~2023 is primarily driven by lower ceding and higher losses at HOA within the Insurance segment and the macro housing environment affecting ~~both segments, and higher volume of claims paid out by HOA in~~ the ~~second and third quarter of 2022, affecting~~Vertical Software segment, primarily the ~~Insurance segment.~~moving business. Continued investments in sales and marketing and ~~product and technology related to consumer experience, app build out, data platforms and~~

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investments in establishing and maintaining ~~SOX~~the requirements of the Sarbanes-Oxley Act (“SOX”) and other internal controls across IT and accounting organizations further impacted the decline in Adjusted EBITDA (loss). ~~This decline was partially offset by the impact of the 2022 and 2021 acquisitions.~~

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Liquidity and Capital Resources

Since inception, as a private company, the Company has financed its 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 transaction costs, as it began trading publicly.

~~During the nine months ended September 30, 2022, the Company drew $15.0 million combined, on HOA’s line of credit and term loan facility. See Note 7.~~

During 2021, the Company completed a private offering of $425 million aggregate principal amounts of convertible debt maturing in 2026 (the “2026 Notes”), and raised $126.7 million and $4.3 million from exercise of public warrants and stock options, respectively. Also during 2022, the Company drew $10.0 million on HOA’s term loan facility.

In 2023 and 2022, the Company participated in an advance funding arrangement with third-party financers that provide the Company with contract premiums upfront for certain home warranty contracts. We remain obligated to repay these premiums to the third-party financer if a customer cancels its warranty contract prior to full repayment of the advance funding amount received by the Company. As of March 31, 2023 and December 31, 2022, the principal balance of this advance funding arrangement is $9.3 million and $15.7 million. See Note 7 (Debt) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.

As of ~~September 30, 2022,~~March 31, 2023, the Company had cash and cash equivalents of ~~$260.2~~$179.4 million and ~~$16.8~~$14.8 million of restricted cash, respectively. Restricted cash equivalents as of ~~September 30, 2022~~March 31, 2023 includes ~~$5.1~~$5.2 million held by the Company’s captive insurance company as a collateral for the benefit of ~~HOA, $0.5~~Homeowners of America (“HOA”), $1.3 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, ~~$8.3~~$6.0 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in ~~twenty five~~seventeen states, and ~~$2.9~~$2.4 million related to acquisition indemnifications.

The Company has incurred net losses since its inception, and has an accumulated deficit at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 totaling ~~$542.7~~$626.9 million and ~~$424.1~~$585.0 million, respectively.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had ~~$440.5~~$444.2 million and ~~$425.6~~$451.1 million aggregate principal amount outstanding in convertible notes, promissory notes, ~~and~~ line of credit, ~~and~~ term loan ~~facilities,~~facility and advance funding arrangement, respectively.

In April 2023, the Company issued $333 million aggregate principal amount of 6.75% Senior Secured Convertible Notes due in 2028 (the “2028 Notes”) in a private placement transaction. The Company used a portion of the net proceeds from the 2028 Notes offering to repurchase $200 million of the 2026 Notes and to fund the repayment of $9.7 million outstanding under HOA’s term loan facility, in each case plus accrued interest and unpaid interest thereon and related fees and expenses. Porch intends to use the remainder of the net proceeds for general corporate purposes. See Note 16 (Subsequent Events) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.

Based on the Company’s current operating and growth plan, management believes cash and cash equivalents at ~~September 30, 2022,~~March 31, 2023, 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 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.

Porch Group, Inc. is a holding company that transacts athe majority of its business through operating subsidiaries, including insurance subsidiaries. Consequently, the Company’s ability to pay dividends and expenses is largely

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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 amount of dividends they may pay without the prior approval of their respective regulatory authorities. As of ~~September 30, 2022,~~March 31, 2023, these companies held cash and cash equivalents of ~~$77.7~~$72.1 million and investments ~~held~~of $93.1 million.

Insurance companies in the United States are also required by ~~these companies~~state law to maintain a minimum level of policyholder’s surplus. Insurance regulators in the states in which we operate have a risk-based capital standard designed to identify property and casualty insurers, or reinsurers, that may be inadequately capitalized based on inherent risks of the insurer’s assets and liabilities and its mix of net written premium. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action. As of December 31, 2022, the total adjusted capital of our U.S. insurance subsidiary was ~~$62.6 million.~~in excess of its respective prescribed risk-based capital requirements.

The Company may, at any time and from time to time, seek to retire or purchase its outstanding debt or equity through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

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The following table provides a summary of cash flow data for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


	Nine Months Ended September 30,				$		%		Three Months Ended March 31,				$		%
	2022		2021		Change		Change		2023		2022		Change		Change
Net cash used in operating activities	$	(12,808)	$	(41,717)	$	28,909	69	%	$	(22,031)	$	(15,401)	$	(6,630)	(43)	%
Net cash used in investing activities		(46,444)		(184,657)		138,213	75	%		(5,147)		(8,077)		2,930	36	%
Net cash (used) provided by financing activities		11,454		434,752		(423,298)	97	%
Net cash (used in) provided by financing activities										(7,274)		1,721		(8,995)	(523)	%
Change in cash, cash equivalents and restricted cash	$	(47,798)	$	208,378	$	(256,176)	NM		$	(34,452)	$	(21,757)	$	(12,695)	(58.3)	%

Operating Cash Flows

Net cash used in operating activities was ~~$12.8~~$22.0 million for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. Net cash used in operating activities consists of net loss of ~~$118.6~~$38.7 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include impairment loss on intangible assets ~~and goodwill~~ of ~~$57.1~~$2.0 million, stock-based compensation expense of ~~$20.6~~$6.9 million, depreciation and amortization of ~~$21.6~~$6.0 million, non-cash interest expense of ~~$2.3~~$1.5 million, fair value adjustments to contingent consideration of ~~$5.3~~$0.2 million ~~(loss)~~(gain), and fair value adjustments to ~~earnout liability and~~ private warrant liability of ~~$13.8~~$0.3 million (gain) ~~and $14.4 million (gain), respectively.~~. Net changes in working capital were a ~~source~~use of cash of ~~$23~~$0.2 million, primarily due to ~~increases~~decreases in deferred revenue and refundable deposits, and increases in prepaid expenses and other current assets and reinsurance balance due, offset by higher losses and loss adjustment expense reserves, ~~and~~ other insurance liabilities ~~offset by reinsurance balance due,~~and accounts ~~receivable and current liabilities.~~receivable.

Net cash used in operating activities was ~~$41.7~~$15.4 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~~$9.3 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~~$6.5 million, ~~gain~~loss on ~~extinguishment~~remeasurement of ~~debt~~contingent consideration of ~~$5.1~~$3.2 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~~$2.7 million, primarily due to increases in prepaid expenses and current ~~liabilities~~assets, offset by higher losses and ~~reinsurance balance due.~~loss adjustment expense reserves.

Investing Cash Flows

Net cash used in investing activities was ~~$46.4~~$5.1 million for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. Net cash used in investing activities is primarily related to acquisitions, net of cash acquired of ~~$37.0~~$2.0 million, purchases of investments of ~~$19.4~~$5.4 million, investments in developing internal-use software of ~~$5.8~~$2.4 million, and purchases of property and equipment of ~~$2.0~~$0.4 million. This was offset by the cash inflows related to maturities and sales of investments of ~~$17.8~~$5.0 million.

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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.

Financing Cash Flows

Net cash used in financing activities was $7.3 million for the three months ended March 31, 2023. Net cash provided by financing activities is primarily related to repurchases of stock of $5.6 million, repayments of advance funding of $1.3 million, debt repayments of $0.5 million and shares repurchased to pay income tax withholdings upon vesting of RSUs of $0.2 million.

Net cash provided by financing activities was ~~$11.5~~$1.7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022. Net cash provided by financing activities is primarily related to proceeds from ~~debt issuance, net~~advance funding of ~~fees of $15.0~~$5.1 million and proceeds from exercises of stock options of ~~$1.1 million. This was~~$0.5 million, partially offset by shares repurchased to pay income tax withholdings upon vesting of RSUs of ~~$2.9 million, payments of acquisition-related contingent consideration of $1.6~~$0.7 million, and ~~debt~~ repayments of ~~$0.2 million.~~

Net cash provided by financing activities was $434.8 million for the nine months ended September 30, 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 million, partially

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~~offset by shares repurchased to pay income tax withholdings upon vesting of RSUs of $23.8 million~~advance funding and debt ~~repayments~~ of ~~$43.0~~$3.2 million.

Off-Balance Sheet Arrangements

Since the date of incorporation, the Company has not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Recent Accounting Pronouncements

See Note 1 (Description of Business and Summary of Significant Accounting Policies) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for more information about recent accounting pronouncements, the timing of their adoption, and the assessment, to the extent one has been made, of their potential impact on the Company’s financial condition and results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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 the Company’s financial instruments and financial position represents the potential loss arising from adverse changes in interest rates. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the Company has interest-bearing debt of ~~$440.5~~$444.2 million and ~~$425.6~~$451.1 million, respectively. The Company’s 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”) have a principal balance of $425 million as of ~~September 30, 2022,~~March 31, 2023, have a fixed coupon rate of 75 basis points, and effective interest rate of 1.3%. As such, interest expense on the 2026 Notes will not change if market interest rates increase. Other debt as of ~~September 30, 2022~~March 31, 2023 totaled ~~$15.5~~$10.0 million and is variable-rate.

A 1% increase in interest rates in the Company’s variable rate indebtedness would result in a nominal change in annual interest expense.

As of ~~September 30, 2022,~~March 31, 2023, the Company’s insurance subsidiary has a ~~$62.6~~$93.1 million portfolio of fixed income securities and an unrealized loss of ~~$6.6~~$5.3 million, as described in Note 3 in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report. In a rising interest rate environment, the portfolio would result in unrealized losses.

~~At September 30, 2022,~~49

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As of March 31, 2023, accounts receivable and reinsurance balances due were ~~$37.0~~$23.6 million and ~~$304.0~~$292.8 million, respectively, were not 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.

Inflation Risk

The Company believes its operations have been negatively affected by inflation, in addition to the change in the interest rate environment. General economic factors beyond its control, and changes in the global economic environment, specifically fluctuations in inflation, including the access to credit under terms favorable to the Company, could result in lower revenues, higher costs and decreased margins and earnings in the foreseeable future. While the Company and its management teams take action, wherever possible, to reduce the impact of the effects of inflation, in the case of sustained inflation across several of the markets in which Porch operates, it could become increasingly difficult to effectively mitigate the increases to costs. In addition, the effects of inflation on consumers’ budgets could result in the reduction of consumer spending habits, specifically in the move and post-move markets. If unable to take actions to effectively mitigate the effect of the resulting higher costs, the Company’s profitability and financial position could be materially and adversely impacted.

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Foreign Currency Risk

There was no material foreign currency risk for ~~nine~~the three months ended ~~September 30, 2022.~~March 31, 2023. The Company’s activities to date have been conducted primarily in the United States.

Other Risks

We are exposed to a variety of market and other risks, including risks to the availability of funding sources, reinsurance providers, weather and other catastrophic hazard events, and specific asset risks.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of 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, 2022,~~March 31, 2023, which is the end of the period covered by this Quarterly Report. Based on this evaluation, the 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 SEC’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, 2022~~March 31, 2023 due to the material ~~weaknesses~~weakness in internal control over financial reporting described in Part II, Item 9A of the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 filed with the SEC on March 16, ~~2022.~~2023.

Remediation Plan

~~Porch Group~~Our planned remediation efforts ~~for these~~related to the above identified material ~~weaknesses have included the following:~~weakness include:

●

~~consolidation of relevant financial systems across internal~~Reassess the existing IT general controls to determine if they are appropriately designed to meet the control ~~framework;~~objectives;

●

Perform ongoing trainings with control performers to improve documentation that supports effective control activities, including IT general controls over logical user access;

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●

Design and implement additional monitoring controls necessary to detect misstatements over data produced by relevant financial systems at HOA;

●

Determine if additional investments are needed to upgrade or replace existing systems which do not have the appropriate infrastructure to meet the requirements of our internal control framework; and

●

~~expanding~~Expand the available resources at the Company with experience in designing and implementing control activities, including information technology general controls and automated ~~controls, through hiring and use of third-party consultants and specialists;~~

●

~~recruiting and hiring additional personnel with the appropriate skills and experience to operate the internal controls required by the nature, pace, and complexity of the business, and~~

●

perform ongoing training with control performers to improve documentation that supports effective control activities, including evidence of the completeness and accuracy of information produced by the entity.controls.

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. The Company plans to continue to assess internal controls and procedures and ~~intend~~intends to take further action as necessary or appropriate to address any other matters as they are identified.

Changes in Internal Control over Financial Reporting

Except for actions taken under the Remediation Plan described above in this Part I, Item 4, there has been no change in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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During ~~2022,~~2023, the Company continued to take ~~actions~~action on initiatives to improve the internal control ~~environment, which started in 2021. Specifically, we formed an internal~~environment. We have been working ~~group~~ to ~~detail~~identify and implement specific remediation plans for these control deficiencies, ~~engaged with outside consultants to provide advice~~ and ~~assistance, and~~have hired additional personnel to perform and monitor internal control activity.

Limitations on Effectiveness of Controls and Procedures

As specified above, the Company disclosure controls and procedures are designed to provide reasonable assurance of achieving their 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 12 ~~(“Commitments~~(Commitments and ~~Contingencies”)~~Contingencies) in the notes to the unaudited condensed consolidated financial statements included in 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, 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 the Company, would individually or in the aggregate have a material adverse effect on the business, financial condition or results of operations.

Item 1A. Risk Factors

AsExcept as set forth below, as of ~~November 9, 2022,~~ the ~~Company’s~~date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors ~~have not materially changed from those described~~disclosed in Part 1, Item 1A of the Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2021,~~2022, as filed with the SEC on March 16, ~~2022.~~2023.

The indenture governing our 2028 Notes contains, and instruments governing any future indebtedness of ours would likely contain, restrictions that may limit our flexibility in operating our business, and any default on our 2028 Notes or other future secured indebtedness could result in foreclosure by our secured debtholders on our assets.

The indenture and security agreement and related documents governing our 2028 Notes contain, and instruments governing any future indebtedness of ours would likely contain, a number of covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

•

create liens on certain assets;

•

incur or guarantee additional debt or issue redeemable equity;

•

pay dividends on, repurchase or make distributions on account of capital stock or make other restricted payments (including limiting repurchases of our 2026 Notes to $25 million per year and $50 million in the aggregate);

•

make certain unpermitted investments;

•

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

•

sell, transfer or otherwise convey certain assets.

The indenture governing our 2028 Notes also requires us to maintain a minimum amount of unrestricted cash and cash equivalents of at least $25 million (tested monthly on the last day of each calendar month) on a consolidated basis among Porch Group, Inc. and certain of its domestic subsidiaries.

In addition, if more than $30 million aggregate principal amount of our 2026 Notes remain outstanding on June 14, 2026, the holders of the 2028 Notes have the right to require us to repurchase for cash on June 15, 2026 all or any portion of their 2028 Notes at a repurchase price equal to 106.5% of the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest. As of April 30, 2023, there was $225 million aggregate principal amount of 2026 Notes outstanding. If we are unable to repurchase or otherwise refinance a sufficient amount of the remaining outstanding 2026 Notes prior to June 14, 2026 and the holders of all or a substantial portion of the outstanding 2028 Notes require us to repurchase their 2028 Notes pursuant to this indenture provision, our liquidity will be materially adversely affected, and there are no assurances that we would have sufficient funds available to satisfy the repurchase of all such 2028 Notes.

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As a result of these restrictions, we will be limited as to how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to capitalize on available business opportunities. Any failure to comply with these covenants could result in a default under our 2028 Notes or instruments governing any future indebtedness of ours. Additionally, our 2028 Notes are secured by a first-priority lien in substantially all assets of Porch Group, Inc. and certain of its domestic subsidiaries. Upon a default, unless waived, amounts due under the 2028 Notes could be accelerated, and the holders of our 2028 Notes could initiate foreclosure proceedings against their collateral, which could potentially force us into bankruptcy or liquidation. In addition, a default under our 2028 Notes indenture could trigger a cross-default under agreements governing any future indebtedness as well as the indenture governing our 2026 Notes. Our results of operations may not be sufficient to service our indebtedness and to fund our other expenditures, and we may not be able to obtain financing to meet these requirements. If we experience a default under our 2028 Notes indenture, 2026 Notes indenture or instruments governing our future indebtedness, our business, financial condition, and results of operations may be materially adversely effected.

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

~~None.~~Share Repurchase Program

The following table summarizes repurchases of our stock in the quarter ended March 31, 2023. See Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for the description of our repurchase program and Note 8 (Equity and Warrants) to the accompanying consolidated financial statements included in this Quarterly Report for additional information.


					Total Number of		Approximate Dollar Value
					Shares Purchased as		that May Yet
					Part of Publicly		Be Purchased
	Total Number of		Average Price		Announced Plans		Under the Plans
	Shares Purchased		Paid per Share		or Programs		or Programs (in millions)
Beginning repurchase authority							$	10.7
January 1, 2023 through January 31, 2023		1,396,158	$	2.20		1,396,158		7.6
February 1, 2023 through February 28, 2023		—		—		—		7.6
March 1, 2023 through March 31, 2023		—		—		—		7.6
Total Fiscal 2023 First Quarter		1,396,158	$	2.20		1,396,158	$	7.6

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

~~10.1~~2.1		~~CFO~~ Agreement and Plan of Merger, dated as of July 30, 2020, by and among the Company, PTAC, Merger Sub, and Joe Hanauer, in his capacity as the representative of all Pre-Closing Holders (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on July 31, 2020).
2.2		First Amendment to the Agreement and Plan of Merger, dated as of October 12, 2020, by and among the Company, PTAC and Merger Sub (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on October 14, 2020).
2.3+		Agreement and Plan of Merger, dated as of January 13, 2021, by and among Homeowners of America Holding Corporation, Porch Group, Inc., HPAC, Inc. and HOA Securityholder Representative, LLC, solely in its capacity as the Securityholder Representative (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on January 14, 2021).
2.4+		Membership Interest Purchase Agreement, dated as of January 12, 2021, by and among Porch.com, Inc., DataMentors Intermediate, LLC and DataMentors, LLC (incorporated by reference to Exhibit 2.2 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on January 14, 2021).
2.5+		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).
3.1		Second Amended and Restated Certificate of Incorporation of the Company, dated December 23, 2020 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on December 29, 2020).
3.2		Third Amended and Restated Certificate of Incorporation of Porch Group, Inc., as filed with the Secretary of State of the State of Delaware on June 9, 2022 (incorporated by reference to Exhibit 3.1 of the Company's Form 8-K (File No. 001-39142), filed with the SEC on June 10, 2022).
3.3		Amended and Restated By-Laws of the Company, dated December 23, 2020 (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on December 29, 2020).
4.1		Description of Securities (incorporated by reference to Exhibit 4.4 of the Company’s Form 10-K (File No. 001-39142), filed with the SEC on March 31, 2021).
4.2		Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on December 31, 2020).
4.3		Form of Warrant Certificate of the Company (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on December 31, 2020).
4.4		Warrant Agreement, dated November 21, 2019, by and between the Company and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on November 26, 2019).
4.5		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).
4.6		Form of 0.75% Convertible Senior Notes due 2026 (included as Exhibit A in Exhibit 4.5) (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).
4.7		Indenture, dated as of April 20, 2023, by and among Porch Group, Inc., the Subsidiary Guarantors from time to time party thereto, and U.S. Bank Trust Company, National Association, in its capacity as trustee and as collateral agent thereunder (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on April 21, 2023).
4.8		Form of 6.75% Senior Secured Convertible Notes due 2028 (incorporated by reference to Exhibit 4.1, as Exhibit A thereto, of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on April 21, 2023).

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10.1#		Amended and Restated Registration Rights Agreement, dated December 23, 2020, by and among the Company and certain stockholders of the Company (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on December 31, 2020).
10.2		Amended and Restated Registration Rights Agreement, dated December 23, 2020, by and among the Company and certain stockholders of the Company (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on December 31, 2020).
10.3		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).
10.4		Security Agreement, dated as of April 20, 2023, among Porch Group, Inc., the other Grantors from time to time party thereto, and U.S. Bank Trust Company, National Association, as collateral agent (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on April 21, 2023).
10.6#		Porch.com, Inc. 2012 Equity Incentive Plan (incorporated by reference to Exhibit 4.4 of the Company’s Form S-8 (File No. 333-253778) filed with the SEC on March 2, 2021).
10.7#		Form of Restricted Stock Award Agreement under Porch Group, Inc. 2020 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q (File No. 001-39142), filed with the SEC on May 20, 2021).
10.8#*		Form of Stock Award Agreement under Porch Group, Inc. 2020 Stock Incentive Plan.
10.9#*		Form of Restricted Stock Unit Award Agreement under Porch Group, Inc. 2020 Stock Incentive Plan.
10.10#		Form of Stock Option Agreement under Porch Group, Inc. 2020 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q (File No. 001-39142), filed with the SEC on May 20, 2021).
10.11#		Form of Senior Level Performance Bonus Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on May 23, 2022).
10.12#		Form of Performance-Based Restricted Stock Unit Award Notice and Agreement (Initial Awards in 2022) (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on May 23, 2022).
10.13#		Form of Restricted Stock Unit Award Agreement under Porch.com, Inc. 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q (File No. 001-39142), filed with the SEC on August 16, 2021).
10.14#		Form of Restricted Stock Award Agreement under Porch.com, Inc. 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 of the Company’s Form 10-Q (File No. 001-39142), filed with the SEC on August 16, 2021).
10.15#		Form of Stock Option Agreement under Porch.com, Inc. 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 of the Company’s Form 10-Q (File No. 001-39142), filed with the SEC on August 16, 2021).
10.16#*		Non-Employee Director Compensation Policy.
10.17#		Employment Agreement, dated February 11, 2022, by and between Porch Group, Inc. and Matthew Ehrlichman (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on February 11, 2022).
10.18#		Form of Performance-Based (Market-Condition) Restricted Stock Unit Award Agreement (CEO) under Porch Group, Inc. 2020 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on February 11, 2022).
10.19#		Form of Restricted Stock Unit Award Agreement (CEO) under Porch Group, Inc. 2020 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on February 11, 2022).
10.20#		Letter Agreement, dated November 2,8, 2013, by and between Porch.com, Inc. and Matthew Neagle (incorporated by reference to Exhibit 10.9 of the Company’s Form S-4 (File No. 333-249468), filed with the SEC on October 14, 2020).
10.21#		Retention Agreement, dated February 20, 2018, by and between Porch.com, Inc. and Matthew Neagle (incorporated by reference to Exhibit 10.7 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on December 31, 2020).

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10.22#		Employment Agreement, dated February 11, 2022, by and between Porch Group, Inc. and Matthew Neagle (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on February 11, 2022).
10.23#		Form of Performance-Based (Market-Condition) Restricted Stock Unit Award Agreement (COO) under Porch Group, Inc. 2020 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on November 19, 2021).
10.24#		Form of Restricted Stock Unit Award Agreement (COO) under Porch Group, Inc. 2020 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on November 19, 2021).
10.25#		First Amendment to Offer Letter, dated February 11, 2022, by and between Porch.com, Inc. and Martin Heimbigner (incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on February 11, 2022).
10.26#		Second Amendment to Offer Letter, by and between Porch.com, Inc. and Martin Heimbigner, dated August 9, 2022 (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K (File No. 001-39142), filed with the SEC on August 9, 2022).
10.27#		CFO Employment Agreement, by and between Porch Group, Inc. and Shawn Tabak, dated November 2, 2022 (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K (File No. 001-39142), filed with the SEC on November 2, 2022).
31.1*		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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**		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*		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*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

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

* Filed herewith.

** These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

# Indicates a management contract or compensatory plan or arrangement.

+ The schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.

Date: ~~November 9, 2022~~May 10, 2023


	PORCH GROUP, INC.

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

6457


	2022
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
Capitalized costs		23,617
Amortized costs		(23,584)
Deferred policy acquisition costs at June 30, 2022 (net)		7,773
Capitalized costs		27,956
Amortized costs		(26,491)
Deferred policy acquisition costs at September 30, 2022 (net)	$	9,238


	Contract
	Liabilities
Balance at December 31, 2021	$	15,274
Additions to contract liabilities		25,952
Contract liabilities transferred to revenue		(21,359)
Balance at September 30, 2022	$	19,867


	Vertical Software		Insurance		Total
	Deferred Revenue		Deferred Revenue		Deferred Revenue
Balance at December 31, 2021	$	3,814	$	197,271	$	201,085
Revenue recognized⁽¹⁾		(5,279)		(91,994)		(97,273)
Additional amounts deferred		5,722		89,323		95,045
Balance at March 31, 2022		4,257		194,600		198,857
Revenue recognized⁽¹⁾		(6,027)		(97,654)		(103,681)
Additional amounts deferred		5,815		136,728		142,543
Impact of acquisitions		196		5,510		5,706
Balance at June 30, 2022		4,241		239,184		243,425
Revenue recognized⁽¹⁾		(5,674)		(112,911)		(118,585)
Additional amounts deferred		5,733		147,043		152,776
Balance at September 30, 2022	$	4,300	$	273,316	$	277,616


	Goodwill
Balance as of December 31, 2021	$	225,654
Purchase price adjustments		922
Balance as of March 31, 2022		226,576
Acquisitions		47,445
Purchase price adjustments		(190)
Balance as of June 30, 2022		273,831
Impairment loss		(39,430)
Purchase price adjustments		(6,310)
Balance as of September 30, 2022	$	228,091


	Weighted Average Useful Life (in years)	RWS		Other		Total
Purchase consideration:
Cash		$	25,572	$	13,763	$	39,335
Issuance of common stock			3,552		—		3,552
Holdback liabilities and amounts in escrow			1,000		1,500		2,500
Contingent consideration - liability-classified			8,900		—		8,900
Total purchase consideration:		$	39,024	$	15,263	$	54,287
Assets:
Cash, cash equivalents and restricted cash		$	2,030	$	256	$	2,286
Current assets			525		7		532
Property and equipment			497		—		497
Operating lease right-of-use assets			871		—		871
Intangible assets:
Customer relationships	7.0		11,920		2,750		14,670
Acquired technology	4.5		500		1,480		1,980
Trademarks and tradenames	9.3		500		200		700
Non-competition agreements	6.6		180		20		200
Renewal rights	5.0		90		—		90
Goodwill			30,071		10,719		40,790
Total assets acquired			47,184		15,432		62,616
Current liabilities			(4,884)		(169)		(5,053)
Operating lease liabilities, non-current			(871)		—		(871)
Long term liabilities			(2,405)		—		(2,405)
Net assets acquired		$	39,024	$	15,263	$	54,287


			Estimated
	Fair		Useful Life
	Value		(in years)
Intangible assets:
Customer relationships	$	11,920	5.4
Acquired technology		500	3.0
Trademarks and tradenames		500	9.0
Non-competition agreements		180	7.0
Renewal rights		90	5.0
	$	13,190


	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	$	—	$	—	$	—	$	—	$	—