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~~June 30, ~~2022~~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~~August 4, 2023, was ~~100,554,543.~~98,431,801.

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 and December 31, 2021~~(Unaudited)	3

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

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

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

	~~Unaudited~~ Condensed Consolidated Statements of Cash Flows ~~for the nine months ended September 30, 2022 and 2021~~(Unaudited)	8

	Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements (Unaudited)	109

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5953

Item 4.	Controls and Procedures	6054

Part II.	Other Information	6256

Item 1.	Legal Proceedings	6256

Item 1A.	Risk Factors	6256

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6257

Item 3.	Defaults Upon Senior Securities	6257

Item 4.	Mine Safety Disclosures	6258

Item 5.	Other Information	6258

Item 6.	Exhibits	6359

Exhibit Index		6359

Signatures		6460

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

PORCH GROUP, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(all numbers in thousands, except share amounts)

September 30, 2022

December 31, 2021
Assets


Current assets




Cash and cash equivalents

$
260,198

$
315,741
Accounts receivable, net

37,032

28,767
Short-term investments

7,212

9,251
Reinsurance balance due

303,987

228,416
Prepaid expenses and other current assets

21,160

14,338
Restricted cash

16,296

8,551
Total current assets

645,885

605,064
Property, equipment, and software, net

11,236

6,666
Operating lease right-of-use assets

4,697

4,504
Goodwill

228,091

225,654
Long-term investments

55,357

58,324
Intangible assets, net

111,728

129,830
Restricted cash, non-current

500

500
Long-term insurance commissions receivable

11,930

7,521
Other assets

3,057

684
Total assets

$
1,072,481

$
1,038,747




Liabilities and Stockholders’ Equity




Current liabilities




Accounts payable

$
6,717

$
6,965
Accrued expenses and other current liabilities

36,847

37,675
Deferred revenue

277,616

201,085
Refundable customer deposit

19,867

15,274
Current portion of long-term debt

6,275

150
Losses and loss adjustment expense reserves

100,298

61,949
Other insurance liabilities, current

55,945

40,024
Total current liabilities

503,565

363,122
Long-term debt

425,012

414,585
Operating lease liabilities, non-current

2,968

2,694
Earnout liability, at fair value

57

13,866
Private warrant liability, at fair value

802

15,193
Other liabilities (includes $23,228 and $9,617 at fair value, respectively)

24,952

12,242
Total liabilities

957,356

821,702
Commitments and contingencies (Note 12)




Stockholders’ equity




Common stock, $0.0001 par value:

10

10
Authorized shares – 400,000,000 and 400,000,000, respectively




Issued and outstanding shares – 100,410,325 and 97,961,597, respectively

Additional paid-in capital

664,362

641,406
Accumulated other comprehensive loss

(6,571)

(259)
Accumulated deficit

(542,676)

(424,112)
Total stockholders’ equity

115,125

217,045
Total liabilities and stockholders’ equity

$
1,072,481

$
1,038,747


June 30, 2023

December 31, 2022
Assets


Current assets




Cash and cash equivalents

$
265,573

$
215,060
Accounts receivable, net

24,715

26,438
Short-term investments

26,151

36,523
Reinsurance balance due

272,467

299,060
Prepaid expenses and other current assets

29,665

20,009
Restricted cash

39,277

13,545
Total current assets

657,848

610,635
Property, equipment, and software, net

14,768

12,240
Operating lease right-of-use assets

3,698

4,201
Goodwill

191,907

244,697
Long-term investments

66,579

55,118
Intangible assets, net

96,826

108,255
Long-term insurance commissions receivable

13,502

12,265
Other assets

2,015

1,646
Total assets

$
1,047,143

$
1,049,057




Liabilities and Stockholders’ Equity (Deficit)




Current liabilities




Accounts payable

$
9,330

$
6,268
Accrued expenses and other current liabilities

33,873

39,742
Deferred revenue

256,617

270,690
Refundable customer deposits

19,929

20,142
Current debt

5,439

16,455
Losses and loss adjustment expense reserves

165,709

100,632
Other insurance liabilities, current

112,849

61,710
Total current liabilities

603,746

515,639
Long-term debt

426,965

425,310
Operating lease liabilities, non-current

2,137

2,536
Earnout liability, at fair value

44

44
Private warrant liability, at fair value

347

707
Derivative liability, at fair value

26,820

—
Other liabilities (includes $21,328 and $24,546 at fair value, respectively)

23,826

25,468
Total liabilities

1,083,885

969,704
Commitments and contingencies (Note 12)




Stockholders’ equity (deficit)




Common stock, $0.0001 par value:

10

10
Authorized shares – 400,000,000 and 400,000,000, respectively




Issued and outstanding shares – 98,168,956 and 98,455,838, respectively

Additional paid-in capital

683,151

670,537
Accumulated other comprehensive loss

(6,076)

(6,171)
Accumulated deficit

(713,827)

(585,023)
Total stockholders’ equity (deficit)

(36,742)

79,353
Total liabilities and stockholders’ equity (deficit)

$
1,047,143

$
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
(Unaudited)
(all numbers in thousands, except share ~~amounts, unaudited)~~amounts)


Three Months Ended June 30,

Six Months Ended June 30,


2023

2022

2023

2022
Revenue

$
98,765

$
70,915

$
186,134

$
134,482
Operating expenses:








Cost of revenue

81,330

29,251

132,605

54,467
Selling and marketing

34,637

29,160

67,222

55,237
Product and technology

15,495

15,777

29,445

30,009
General and administrative

22,779

28,297

48,608

54,896
Provision for doubtful accounts

48,718

108

48,955

207
Impairment loss on intangible assets and goodwill

55,211

—

57,232

—
Total operating expenses

258,170

102,593

384,067

194,816
Operating loss

(159,405)

(31,678)

(197,933)

(60,334)
Other income (expense):








Interest expense

(8,775)

(1,925)

(10,963)

(4,352)
Change in fair value of earnout liability

—

2,587

—

13,766
Change in fair value of private warrant liability

15

4,078

360

14,267
Change in fair value of derivatives

(2,950)

—

(2,950)

—
Gain on extinguishment of debt

81,354

—

81,354

—
Investment income and realized gains, net of investment expenses

1,249

243

2,007

440
Other income (expense), net

1,578

(162)

2,340

(107)
Total other income (expense)

72,471

4,821

72,148

24,014
Loss before income taxes

(86,934)

(26,857)

(125,785)

(36,320)
Income tax benefit (provision)

(29)

(468)

82

(290)
Net loss

$
(86,963)

$
(27,325)

$
(125,703)

$
(36,610)

Net loss per share - basic and diluted (Note 15)

$
(0.91)

$
(0.28)

$
(1.32)

$
(0.38)








Shares used in computing basic and diluted net loss per share

95,731,850

97,142,163

95,472,277

96,611,294

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
(Unaudited)
(all numbers in thousands)


Three Months Ended June 30,

Six Months Ended June 30,


2023

2022

2023

2022
Net loss

$
(86,963)

$
(27,325)

$
(125,703)

$
(36,610)
Other comprehensive income (loss):

Current period change in net unrealized loss, net of tax

(780)

(1,785)

95

(4,300)
Comprehensive loss

$
(87,743)

$
(29,110)

$
(125,608)

$
(40,910)

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

Table of Contents

PORCH GROUP, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
(all numbers in thousands, except share amounts)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Equity (Deficit)
Balances as of March 31, 2023

97,018,032

$
10

$
677,426

$
(626,864)

$
(5,296)

$
45,276
Net loss

—

—

—

(86,963)

—

(86,963)
Other comprehensive loss, net of tax

—

—

—

—

(780)

(780)
Stock-based compensation

—

—

6,404

—

—

6,404
Vesting of restricted stock units

1,627,546

—

—

—

—

—
Income tax withholdings

(476,622)

—

(679)

—

—

(679)
Balances as of June 30, 2023

98,168,956

$
10

$
683,151

$
(713,827)

$
(6,076)

$
(36,742)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Equity
Balances as of March 31, 2022

98,297,186

$
10

$
647,551

$
(433,397)

$
(2,774)

$
211,390
Net loss

—

—

—

(27,325)

—

(27,325)
Other comprehensive loss, net of tax

—

—

—

—

(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 awards

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

$
(460,722)

$
(4,559)

$
194,543

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

Table of Contents

PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) – Continued

(Unaudited)

(all numbers in thousands, except share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,


2022

2021

2022

2021
Revenue

$
75,366

$
62,769

$
208,696

$
140,852
Operating expenses⁽¹⁾:








Cost of revenue

33,269

19,158

83,016

44,587
Selling and marketing

30,245

22,874

84,815

60,636
Product and technology

14,438

11,317

44,446

34,158
General and administrative

25,257

22,034

80,360

66,463
Impairment loss on intangible assets and goodwill

57,057

—

57,057

—
Total operating expenses

160,266

75,383

349,694

205,844
Operating loss

(84,900)

(12,614)

(140,998)

(64,992)
Other income (expense):








Interest expense

(2,085)

(1,857)

(6,236)

(4,296)
Change in fair value of earnout liability

43

7,413

13,809

(15,388)
Change in fair value of private warrant liability

124

2,692

14,391

(17,521)
Gain (loss) on extinguishment of debt

—

(3,133)

—

5,110
Investment income and realized gains, net of investment expenses

335

248

775

448
Other expense, net

69

316

(37)

225
Total other income (expense)

(1,514)

5,679

22,702

(31,422)
Loss before income taxes

(86,414)

(6,935)

(118,296)

(96,414)
Income tax benefit (expense)

23

1,836

(268)

9,917
Net loss

$
(86,391)

$
(5,099)

$
(118,564)

$
(86,497)

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)








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

Three Months Ended September 30,

Nine Months Ended September 30,


2022

2021

2022

2021
Cost of revenue

$
—

$
—

$
—

$
1
Selling and marketing

1,689

1,382


3,592

4,888
Product and technology

911

1,367


3,888

5,522
General and administrative

2,489

3,135


13,165

18,950

$
5,089

$
5,884

$
20,645

$
29,361

~~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,


2022

2021

2022

2021
Net loss

$
(86,391)

$
(5,099)

$
(118,564)

$
(86,497)
Other comprehensive income (loss):

Current period change in net unrealized loss, net of tax

(2,012)

(154)

(6,312)

113
Comprehensive loss

$
(88,403)

$
(5,253)

$
(124,876)

$
(86,384)

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Condensed Consolidated Statements of Stockholders’ Equity~~
~~(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 (Deficit)
Balances as of December 31, 2022

98,206,323

$
10

$
670,537

$
(585,023)

$
(6,171)

$
79,353
Net loss

—

—

—

(125,703)

—

(125,703)
Other comprehensive income, net of tax

—

—

—

—

95

95
Stock-based compensation

—

—

13,298

—

—

13,298
Vesting of restricted stock awards

1,922,960

—

—

—

—

—
Exercise of stock options

4,519

—

8

—

—

8
Income tax withholdings

(568,688)

—

(883)

—

—

(883)
Repurchases of common stock

(1,396,158)

—

—

(3,101)

—

(3,101)
Proceeds from sale of common stock

—

—

191

—

—

191
Balances as of June 30, 2023

98,168,956

$
10

$
683,151

$
(713,827)

$
(6,076)

$
(36,742)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Equity
Balances as of December 31, 2021

97,961,597

$
10

$
641,406

$
(424,112)

$
(259)

$
217,045
Net loss

—

—

—

(5,796)

—

(5,796)
Other comprehensive loss

—

—

—

—

(2,515)

(2,515)
Stock-based compensation

—

—

5,854

—

—

5,854
Contingent consideration for acquisitions

—

—

530

—

—

530
Vesting of restricted stock awards

245,855

—

—

—

—

—
Exercise of stock options

185,685

—

473

—

—

473
Income tax withholdings

(95,951)

—

(712)

—

—

(712)
Balances as of March 31, 2022

98,297,186

$
10

$
647,551

$
(429,908)

$
(2,774)

$
214,879
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

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Condensed Consolidated Statements of Stockholders’ Equity - Continued~~

~~(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, 2020

81,669,151

$
8

$
424,823

$
(317,506)

$
—

$
107,325
Balances as of December 31, 2021

97,961,597

$
10

$
641,406

$
(424,112)

$
(259)

$
217,045
Net loss

—

—

—

(65,101)

—

(65,101)

—

—

—

(36,610)

—

(36,610)
Other comprehensive loss, net of tax

—

—

—

—

(4,300)

(4,300)
Stock-based compensation

—

—

4,462

—

—

4,462

—

—

15,556

—

—

15,556
Stock-based compensation - earnout

—

—

12,373

—

—

12,373
Issuance of common stock for acquisitions

90,000

—

1,169

—

—

1,169

628,660

—

3,552

3,552
Reclassification of earnout liability upon vesting

—

—

25,815

—

—

25,815
Contingent consideration for acquisitions

—

—

530

—

—

530
Vesting of restricted stock awards

2,078,102

—

—

—

—

—

809,261

—

—

—

—

—
Exercise of stock warrants

8,087,623

1

93,007

—

—

93,008
Exercise of stock options

593,106

—

355

—

—

355

274,457

—

692

—

—

692
Income tax withholdings

(1,062,250)

—

(16,997)

—

—

(16,997)

(233,447)

—

(1,922)

—

—

(1,922)
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
Balances as of June 30, 2022

99,440,528

$
10

$
659,814

$
(460,722)

$
(4,559)

$
194,543

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
(Unaudited)
(all numbers in ~~thousands, unaudited)~~thousands)

Nine Months Ended September 30,

Six Months Ended June 30,


2022

2021

2023

2022
Cash flows from operating activities:








Net loss

$
(118,564)

$
(86,497)

$
(125,703)

$
(36,610)
Adjustments to reconcile net loss to net cash used in operating activities




Depreciation and amortization

21,574

10,787

12,229

12,899
Amortization of operating lease right-of-use assets

1,621

1,298
Provision for doubtful accounts

48,955

207
Impairment loss on intangible assets and goodwill

57,057

—

57,232

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

200

202
Gain on extinguishment of debt

—

(5,110)

(81,354)

—
Loss (gain) on remeasurement of private warrant liability

(14,391)

17,521
Gain on remeasurement of private warrant liability

(360)

(14,267)
Loss (gain) on remeasurement of contingent consideration

5,251

(380)

(2,810)

4,686
Loss (gain) on remeasurement of earnout liability

(13,809)

15,388
Loss (gain) on remeasurement of earnout liability and derivatives

2,950

(13,766)
Stock-based compensation

20,645

29,361

13,298

15,556
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

9,828

2,339
Other

480

(1,379)

805

1,916
Change in operating assets and liabilities, net of acquisitions and divestitures




Accounts receivable

(8,639)

(5,424)

1,030

(7,483)
Reinsurance balance due

(75,571)

(33,097)

(21,651)

(40,835)
Prepaid expenses and other current assets

(6,297)

90

(9,656)

(7,090)
Accounts payable

(248)

(23,284)

2,929

(4,226)
Accrued expenses and other current liabilities

(8,001)

3,031

(10,906)

1,005
Losses and loss adjustment expense reserves

38,349

1,892

65,077

26,945
Other insurance liabilities, current

15,921

5,085

51,139

21,492
Deferred revenue

71,600

42,948

(13,491)

38,167
Refundable customer deposits

4,593

(2,441)

(8,061)

(457)
Deferred income tax benefit

—

(8,153)
Long-term insurance commissions receivable

(4,409)

(3,794)

(1,237)

(2,940)
Operating lease liabilities, non-current

(1,936)

(1,469)
Other

(2,410)

655

980

(1,694)
Net cash used in operating activities

(12,808)

(41,717)

(8,777)

(4,156)
Cash flows from investing activities:








Purchases of property and equipment

(1,986)

(588)

(672)

(1,539)
Capitalized internal use software development costs

(5,803)

(2,629)

(4,735)

(3,496)
Purchases of short-term and long-term investments

(19,446)

(19,126)

(23,602)

(13,561)
Maturities, sales of short-term and long-term investments

17,794

16,367

23,033

12,241
Acquisitions, net of cash acquired

(37,003)

(178,681)

(1,974)

(32,049)
Net cash used in investing activities

(46,444)

(184,657)

(7,950)

(38,404)
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 line of credit

—

1,000
Proceeds from advance funding

316

10,690
Repayments of advance funding

(2,683)

(8,840)
Proceeds from issuance of debt

116,667

—
Repayments of principal

(10,150)

(150)
Cash paid for debt issuance costs

(4,610)

—
Proceeds from exercises of stock options

1,108

3,516

8

692
Income tax withholdings paid upon vesting of restricted stock units

(2,879)

(23,778)

(883)

(1,922)
Proceeds from sale of common stock

191

—
Payments of acquisition-related contingent consideration

(1,625)

—

(276)

(1,625)
Net cash provided by financing activities

11,454

434,752
Repurchase of stock

(5,608)

—
Net cash provided by (used in) financing activities

92,972

(155)
Net change in cash, cash equivalents, and restricted cash

$
(47,798)

$
208,378

$
76,245

$
(42,715)
Cash, cash equivalents, and restricted cash, beginning of period

$
324,792

$
207,453

$
228,605

$
324,792
Cash, cash equivalents, and restricted cash end of period

$
276,994

$
415,831

$
304,850

$
282,077

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Condensed Consolidated Statements of Cash Flows - Continued~~

~~(all numbers in thousands, unaudited)~~

Nine Months Ended September 30,


2022

2021
Supplemental disclosures




Cash paid for interest

$
3,181

$
2,675
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

Supplemental schedule of non-cash financing activities

Non-cash reduction in advanced funding arrangement obligations

$
7,848

$
—
Supplemental disclosures




Cash paid for interest

$
2,276

$
1,587
Income tax refunds received

$
2,300

$
—
Non-cash consideration for acquisitions

$
—

$
21,607
Cash payable for acquisition

$
—

$
5,000

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

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise ~~stated, unaudited)~~stated)

1. Description of Business and Summary of ~~Significant~~Significant Accounting Policies
Description of Business
Porch Group, Inc. (“Porch Group,” ~~“Porch” or~~“Porch,” the ~~“Company”~~“Company,” “we,” “our,” “us”) 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 30,700 companies and ~~loan officers, title companies, moving companies, real estate agencies, utility companies, and others. Porch’s~~small businesses. We are a values-driven company whose mission is to simplify the home with insurance at the center. Our Insurance segment, with ~~over 390,000~~approximately 358,000 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 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~~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~~our 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~~our financial position, results of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the periods and dates presented. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~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. Certain prior period amounts have been reclassified to conform to the current year's presentation.
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
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

~~Table of Contents~~

~~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.

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

Concentrations
Financial instruments which potentially subject ~~the Company~~us 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~~Our 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,~~39% of ~~the Company’s insurance subsidiary’s~~our total reinsurance balance due as of ~~September~~June 30, ~~2022.~~2023.
Substantially all of ~~the Company’s~~our insurance-related revenues in the Insurance segment are derived from customers in Texas (which represent approximately ~~53%~~62% of such revenues in the ~~nine~~six months ended ~~September~~June 30, ~~2022)~~2023), South Carolina (which represent approximately 10% of such revenues in the six months ended June 30, 2023), North Carolina, Georgia, Virginia, and Arizona, which could be adversely affected by economic conditions, an increase in competition, local weather events, or environmental impacts and changes.
No individual customer represented more than 10% of ~~the Company’s~~ total revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023 or ~~2021.~~2022. As of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, no individual customer accounted for 10% or more of ~~the Company’s~~ total accounts receivable.
As of ~~September~~June 30, ~~2022, the Company~~2023, we held approximately ~~$138.5~~$262.0 million of cash with ~~two~~four U.S. commercial banks.
Cash, Cash Equivalents and Restricted Cash
~~The Company considers~~We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. ~~The Company maintains~~We maintain cash balances that may exceed the insured limits by the Federal Deposit Insurance Corporation.
Restricted cash equivalents as of ~~September~~June 30, ~~2022~~2023 includes ~~$5.1~~$29.1 million held by ~~the Company’s~~our captive ~~insurance company~~reinsurance business 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 our Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $6.5 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in seventeen states, and $2.4 million related to acquisition indemnifications. Restricted cash equivalents as of December 31, 2022, includes $5.1 million held by our captive reinsurance business as collateral for the benefit of 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, ~~$8.3~~$5.0 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in ~~twenty five~~nineteen states, and ~~$2.9~~$2.4 million related to acquisition indemnifications, of which $0.5 million is recorded in non-current assets. Restricted cash equivalents as of December 31, 2021, includes $0.3 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $5.9 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in ~~twenty five~~ ~~states, $0.3 million of customer deposits, and $2.6 million related to acquisition indemnifications in escrow accounts, of which $0.5 million is recorded in non-current assets.~~indemnifications.

~~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 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

June 30, 2023

December 31, 2022

Cash and cash equivalents

$
260,198

$
315,741

$
265,573

$
215,060
Restricted cash and restricted cash equivalents - current

16,296

8,551
Restricted cash and restricted cash equivalents - non-current

500

500
Cash, cash equivalents and restricted cash

$
276,994

$
324,792
Total restricted cash

39,277

13,545
Cash, cash equivalents, and restricted cash

$
304,850

$
228,605

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

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. The Company estimates~~and individual policyholders. We estimate allowances for uncollectible receivables based on the creditworthiness of ~~its~~our customers, historical trend analysis, and ~~general economic~~macro-economic conditions. Consequently, an adverse change in those factors could affect ~~the Company’s~~our estimate of allowance for doubtful accounts. The allowance for uncollectible receivables at ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, was ~~$0.6~~$0.8 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~~We record the amount of renewal insurance commissions expected to be collected in the next twelve months as current accounts receivable.

Goodwill

We test 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. We have the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If we 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, then a quantitative impairment test would not be necessary. If we cannot support such a conclusion or we do not elect to perform the qualitative assessment, then we perform a quantitative assessment. If a quantitative goodwill impairment assessment is performed, we utilize 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 the fair value of the reporting unit is less than its carrying value. We have selected October 1 as the date to perform annual impairment testing.

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 an estimate 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 13% to 18%. See Note 6 for a discussion of the impairment analysis.

Impairment of Long-Lived Assets

We review long-lived assets 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.

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

During the first and second quarters of 2023, we identified various qualitative factors that collectively indicated 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. We 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 the Vertical Software segment. Impairment charges are included in impairment loss on intangible assets and goodwill in the unaudited condensed consolidated statements of operations for the six months ended June 30, 2023.

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~~We capitalize 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~~our 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~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, DAC of ~~$9.2~~$17.9 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 $4.2 million, for the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, ~~are as follows:~~respectively, and $18.6 million and $7.2 million, for the six months ended June 30, 2023 and 2022, respectively.

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

~~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 of Financial Instruments

Fair value ~~as defined by~~principles require disclosures regarding the ~~accounting standards, represents the amount at~~manner in which ~~an asset or liability would be transferred in a current orderly transaction between willing market participants. Emphasis~~fair value is ~~placed on observable inputs being used to assess fair value. To reflect this approach, the standards require~~determined for assets and liabilities and establishes a three-tiered fair value hierarchy into which these assets and liabilities must be ~~applied~~grouped, based ~~on the nature of the inputs used when measuring fair value. The three hierarchical~~upon significant 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.

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

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 June 30, 2023		As of December 31, 2022
Ceded reinsurance premiums payable	$	26,727	$	22,523	$	77,051	$	29,204
Commissions payable, reinsurers and agents		13,633		10,697		6,650		21,045
Advance premiums		12,794		4,277		10,383		8,668
Funds held under reinsurance treaty		1,886		2,206		1,715		1,851
General and accrued expenses payable		905		321		17,050		942
Other insurance liabilities, current	$	55,945	$	40,024	$	112,849	$	61,710

Income Taxes

Provisions for income taxes for the three months ended ~~September~~June 30, 2023, and 2022, were less than $0.1 million and ~~2021 were a $23 thousand benefit and a $1.8~~$0.5 million, ~~benefit,~~ respectively, and the effective tax rates for these periods were ~~0.0% benefit~~less than 0.1% and ~~26.5% benefit,~~1.7%, respectively. The difference between our effective tax rates for the 2023 periods and the U.S. statutory rate of 21% was primarily due to a full valuation related to our net deferred tax assets and impact of acquisitions on our valuation allowance. Provisions for income taxes for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, were a $0.1 million benefit and ~~2021, were~~ a $0.3 million expense, ~~and a $9.9 million benefit,~~ respectively, and the effective tax rates for these periods were ~~0.2%~~0.1% expense and ~~10.3%~~0.8% benefit, respectively. The difference between ~~the Company’s~~our effective tax rates for the 2022 ~~period~~periods and the U.S. statutory rate of 21% was primarily due to a full valuation allowance related to ~~the Company’s~~our 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.~~assets.

~~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.

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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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Vertical Software segment
Software and service subscriptions	$	17,524	$	19,847	$	34,333	$	37,078
Move-related transactions		12,246		17,458		20,015		29,586
Post-move transactions		4,665		5,235		8,714		10,280
Total Vertical Software segment revenue		34,435		42,540		63,062		76,944

Insurance segment
Insurance and warranty premiums, commissions and policy fees		64,330		28,375		123,072		57,538
Total Insurance segment revenue		64,330		28,375		123,072		57,538

Total revenue⁽¹⁾	$	98,765	$	70,915	$	186,134	$	134,482

⁽¹⁾~~Revenue recognized during the three and nine months ended September 30, 2022, includes revenue of $19.1 million and $56.4~~
(1) Revenue recognized during the three months ended June 30, 2023 and 2022, includes revenue of $54.8 million and $18.2 million, respectively, which is accounted for separately from the revenue from contracts with customers. Revenue accounted separately from the revenue from contracts with customers for the six months ended June 30, 2023 and 2022, was $105.0 million and $39.0 million, respectively.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

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. ~~Revenue recognized during~~Liabilities are recorded for amounts that are collected in advance of the ~~three and nine months ended September 30, 2021, includes revenue~~satisfaction of ~~$11.2 million and $19.9 million, respectively, which is accounted for separately from~~performance obligations. To the ~~revenue from~~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.~~customers were not material at June 30, 2023, and December 31, 2022.

~~Contracts with Customers~~

Contract Assets - Insurance Commissions Receivable

A summary of the activity impacting the contract assets during the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~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		3,792
Cash receipts		(2,748)		(2,285)
Balance at September 30, 2022	$	14,216
Balance at June 30, 2023			$	17,028

As of ~~September~~June 30, ~~2022, $2.3~~2023, $3.5 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~~$13.5 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.

~~Table of Contents~~

~~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~~six months ended ~~September~~June 30, ~~2022,~~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.

~~Table of Contents~~

~~PORCH GROUP, INC.~~


	Vertical Software
	Deferred Revenue
Balance at December 31, 2022	$	3,874
Revenue recognized		(8,613)
Additional amounts deferred		8,695
Balance at June 30, 2023	$	3,956

~~Notes to Condensed Consolidated Statements - Continued~~

~~(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~~Deferred revenue on the unaudited condensed consolidated balance ~~sheets~~sheet as of June 30, 2023, and December 31, 2022, include $252.7 million and $266.8 million, respectively, of deferred ~~revenue.~~revenue related to the Insurance segment.

Remaining Performance Obligations

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~~June 30, ~~2022,~~2023, and December 31, ~~2021.~~2022.

~~The Company has~~We have 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~~we recognize revenue at the

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

amount which it has the right to invoice for services performed. Additionally, ~~the Company excludes~~we exclude 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 June 30, 2023, we had $19.6 million, $3.6 million and $3.0 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 June 30, 2023 and 2022, we incurred $1.3 million and $0.3 million, respectively, in expenses related to warranty claims. For the six months ended June 30, 2023 and 2022, we incurred $2.5 million and $0.7 million, respectively, in expenses related to warranty claims.

3. Investments

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

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021
Investment income, net of investment expenses

$
384

$
261

$
962

$
493
Realized gains on investments

10

26

16

46
Realized losses on investments

(59)

(39)

(203)

(91)
Investment income and realized gains, net of investment expenses

$
335

$
248

$
775

$
448


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Investment income, net of investment expenses	$	1,278	$	313	$	2,103	$	578
Realized gains on investments		7		4		11		6
Realized losses on investments		(36)		(74)		(107)		(144)
Investment income and realized gains (losses), net of investment expenses	$	1,249	$	243	$	2,007	$	440

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


	As of September 30, 2022								As of June 30, 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	$	28,407	$	1	$	(361)	$	28,047
Obligations of states, municipalities and political subdivisions		10,757		3		(1,363)		9,397		11,846		4		(1,178)		10,672
Corporate bonds		31,227		—		(3,072)		28,155		35,236		38		(2,879)		32,395
Residential and commercial mortgage-backed securities		14,645		1		(1,374)		13,272		17,607		16		(1,328)		16,295
Other loan-backed and structured securities		7,024		—		(463)		6,561		5,710		4		(393)		5,321
Total debt securities	$	69,140	$	5	$	(6,576)	$	62,569
Total investment securities									$	98,806	$	63	$	(6,139)	$	92,730

1715

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements -– Continued

(Unaudited)

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

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~~June 30, ~~2022,~~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 June 30, 2023
Remaining Time to Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	5,081	$	5,012	$	25,920	$	25,802
Due after one year through five years		21,261		19,485		19,481		17,895
Due after five years through ten years		17,577		15,152		25,245		23,099
Due after ten years		3,552		3,087		4,843		4,318
Residential and commercial mortgage-backed securities		14,645		13,272		17,607		16,295
Other loan-backed and structured securities		7,024		6,561		5,710		5,321
Total	$	69,140	$	62,569	$	98,806	$	92,730

~~Other-than-temporary~~Other-Than-Temporary Impairment

~~The Company~~We regularly ~~reviews its~~review our individual investment securities for ~~other-than-temporarily~~other-than-temporary impairment. ~~The Company considers~~We consider 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~~our 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 Financial Statements -– Continued

(Unaudited)

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

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
As of June 30, 2023													Loss		Value		Loss		Value		Loss		Value
U.S. Treasuries	$	(103)	$	2,611	$	(201)	$	2,256	$	(304)	$	4,867	$	(182)	$	25,500	$	(179)	$	2,232	$	(361)	$	27,732
Obligations of states, municipalities and political subdivisions		(902)		6,161		(461)		3,200		(1,363)		9,361		(79)		2,060		(1,099)		8,145		(1,178)		10,205
Corporate bonds		(2,461)		18,067		(611)		4,389		(3,072)		22,456		(530)		12,546		(2,349)		18,045		(2,879)		30,591
Residential and commercial mortgage-backed securities		(1,229)		11,074		(145)		2,135		(1,374)		13,209		(292)		8,365		(1,036)		7,319		(1,328)		15,684
Other loan-backed and structured securities		(442)		6,118		(21)		443		(463)		6,561		(109)		1,039		(284)		3,677		(393)		4,716
Total securities	$	(5,137)	$	44,031	$	(1,439)	$	12,423	$	(6,576)	$	56,454	$	(1,192)	$	49,510	$	(4,947)	$	39,418	$	(6,139)	$	88,928


	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
As of 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~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, there were ~~443~~470 and ~~358~~483 securities, respectively, in an unrealized loss position. Of these securities, ~~129~~380 had been in an unrealized loss position for 12 months or longer as of ~~September~~June 30, ~~2022.~~2023.

~~The Company believes~~We believe there were no fundamental issues such as credit losses or other factors with respect to any of ~~its~~our 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~~we have the ability and intent to hold ~~its~~our available-for-sale investments until a market price recovery or maturity, ~~the Company does~~we do not consider any of ~~its~~our investments to be other-than-temporarily impaired at ~~September~~June 30, ~~2022.~~2023.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements -– Continued

(Unaudited)

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

4. Fair Value

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


	Fair Value Measurement as of September 30, 2022								Fair Value Measurement as of June 30, 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	$	74,073	$	—	$	—	$	74,073
Debt securities:
U.S. Treasuries		5,184		—		—		5,184		28,047		—		—		28,047
Obligations of states and municipalities		—		9,397		—		9,397		—		10,672		—		10,672
Corporate bonds		—		28,155		—		28,155		—		32,395		—		32,395
Residential and commercial mortgage-backed securities		—		13,272		—		13,272		—		16,295		—		16,295
Other loan-backed and structured securities		—		6,561		—		6,561		—		5,321		—		5,321
	$	15,557	$	57,385	$	—	$	72,942	$	102,120	$	64,683	$	—	$	166,803
Liabilities
Liabilities, Noncurrent
Contingent consideration - business combinations	$	—	$	—	$	23,228	$	23,228	$	—	$	—	$	21,328	$	21,328
Contingent consideration - earnout		—		—		57		57		—		—		44		44
Private warrant liability		—		—		802		802		—		—		347		347
Embedded derivatives										—		—		26,820		26,820
	$	—	$	—	$	24,087	$	24,087	$	—	$	—	$	48,539	$	48,539


	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~~fixed-

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

maturity securities are based upon prices provided by an independent pricing service. ~~The Company has~~We have reviewed these prices for reasonableness and ~~has~~have 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~~We estimated the fair value of the business combination contingent consideration ~~triggered by EBITDA or revenue milestones,~~ related to ~~certain~~the Floify acquisition in October 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 Floify acquisition in October 2021,~~ using the Monte Carlo simulation method. The fair value is based on the simulated ~~stock~~market price of ~~the Company~~our common stock over the maturity date of the contingent consideration. As of ~~September~~June 30, ~~2022,~~2023, the key inputs used to determine the fair value of ~~$14.2~~$15.1 million ~~were~~included the stock price of ~~$2.25,~~$1.38, 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~~We 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~~June 30, 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~~We 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 market price of ~~the Company over~~our common stock until the maturity date of the contingent consideration and increased by certain employee forfeitures. As of ~~September~~June 30, ~~2022,~~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.~~$1.38 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~~We estimated the fair value of the private warrants ~~of $0.8 million~~ using the Black-Scholes-Merton option pricing model. As of ~~September~~June 30, 2023, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 95%, remaining contractual term of 2.48 years, and stock price of $1.38. 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~~$1.88.

Embedded Derivatives

In connection with the issuance of ~~December 31, 2021,~~senior secured convertible notes in April 2023 (see Note 7) and in accordance with Accounting Standards Codification 815-15, Derivatives and Hedging – Embedded Derivatives, certain features of the ~~key~~senior secured convertible notes were bifurcated and accounted for separately from the notes. The following features are recorded as derivatives.

●

Repurchase option. If more than $30 million principal remains outstanding on June 14, 2026, holders have the right to require us to repurchase for cash on June 15, 2026, all or any portion of the notes at a

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

repurchase price equal to 106.5% of the principal amount of the notes to be repurchased, plus accrued interest.

●

Fundamental change option. If we undergo a fundamental change, as defined in the indenture and subject to certain conditions, holders have the right to require us to repurchase for cash all or any portion of the notes at a repurchase price equal to 105.25% of the principal amount of the notes to be repurchased, plus accrued interest. A fundamental change includes events such as a change in control, recapitalization, liquidation, dissolution, or delisting.

●

Asset sale repurchase option. If we sell assets, we must offer to repurchase for cash a portion of the notes equal to 50% of the aggregate net cash sales proceeds in excess of $20 million at a repurchase price equal to 100% of the principal, plus accrued interest.

The inputs ~~used to determine the~~for determining fair value ~~included exercise price~~ of ~~$11.50, expected volatility~~the embedded derivatives are classified as Level 3 inputs. Level 3 fair value is based on unobservable inputs based on the best information available. These inputs include the probabilities of ~~60%~~a repurchase, a fundamentalchange, ~~remaining contractual term of 3.98 years,~~ and ~~stock price of $15.59.~~qualifyingasset sales, ranging from 1% to 35%.

Level 3 Rollforward

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

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


				Contingent
	Contingent			Consideration -				Private
	Consideration -			Business		Embedded		Warrant
	Earnout			Combinations		Derivatives		Liability
Fair value as of December 31, 2022	$	44		$	24,546	$	—	$	707
Additions		—			—		23,870		—
Settlements		—			(408)		—		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		—	��		(2,810)		2,950		(360)
Fair value as of June 30, 2023	$	44		$	21,328	$	26,820	$	347


			Contingent
	Contingent		Consideration -		Private
	Consideration -		Business		Warrant
	Earnout		Combinations		Liability
Fair value as of December 31, 2021	$	13,866	$	9,617	$	15,193
Additions		—		15,555		—
Settlements		—		—		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		(13,766)		4,686		(14,267)
Fair value as of June 30, 2022	$	100	$	29,858	$	926

(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 liabilityare disclosed separately in the unaudited condensed consolidated statements of operations. Changes in the fair value of the embedded derivatives are included in change in fair value of derivatives in the unaudited condensed consolidated statements of operations.

2120

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements -– Continued

(Unaudited)

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

Fair Value Disclosure

As of June 30, 2023, and December 31, 2022, the fair value of the 2026 Notes (see Note 7) is $72.0 million and $238.6 million, respectively. The decrease of $166.6 million is primarily due to the decline in the stock price at June 30, 2023, as compared to December 31, 2022. As of June 30, 2023, the fair value of the 2028 Notes (see Note 7) was $216.7 million. The fair values of the line of credit, advance funding arrangement and other notes approximate the unpaid principal balance. All debt, other than the convertible notes which are Level 2, is considered a Level 3 measurement.

5. Property, Equipment, and Software

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


	June 30,		December 31,
	2023		2022
Software and computer equipment	$	8,266	$	8,326
Furniture, office equipment, and other		1,708		2,118
Internally developed software		20,017		17,128
Leasehold improvements		1,178		1,178
		31,169		28,750
Less: Accumulated depreciation and amortization		(16,401)		(16,510)
Property, equipment, and software, net	$	14,768	$	12,240

Depreciation and amortization expense related to property, equipment, and software was $1.2 million and $1.0 million for the three months ended June 30, 2023 and 2022, respectively, and $2.4 million and $2.0 million for the six months ended June 30, 2023 and 2022, respectively.

6. Intangible Assets and Goodwill

Intangible Assets

Intangible assets are stated ~~unaudited)~~at cost or acquisition-date fair value less accumulated amortization and impairment. The following table summarizes intangible assets as of June 30, 2023.


	Weighted			Accumulated
	Average	Intangible		Amortization		Intangible
	Useful Life	Assets,		And		Assets,
	(in years)	gross		Impairment		Net
Customer relationships	9.0	$	69,505	$	(19,494)	$	50,011
Acquired technology	5.0		36,041		(19,175)		16,866
Trademarks and tradenames	10.0		23,443		(5,609)		17,834
Non-compete agreements	3.0		616		(431)		185
Value of business acquired	1.0		400		(400)		—
Renewal rights	6.0		9,734		(2,764)		6,970
Insurance licenses	Indefinite		4,960		—		4,960
Total intangible assets		$	144,699	$	(47,873)	$	96,826

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

The following table summarizes intangible assets 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 $5.4 million for the three months ended June 30, 2023 and 2022, respectively, and $9.8 million and $10.9 million for the six months ended June 30, 2023 and 2022, respectively.

During the six months ended June 30, 2023, we recorded impairment charges of $2.0 million, primarily related to acquired technology, trademarks and tradenames, and customer relationships for an asset group within the Vertical Software segment. Impairment charges are included in impairment loss on intangible assets and goodwill in the unaudited condensed consolidated statements of operations.

Goodwill

The following table summarizes the changes in the carrying amount of goodwill for the six months ended June 30, 2023.


	Goodwill
Balance as of December 31, 2022, net of accumulated impairment of $43.8 million	$	244,697
Acquisition		2,421
Impairment loss		(55,211)
Balance as of June 30, 2023, net of accumulated impairment of $99.0 million	$	191,907

During the first and second quarters of 2023, management identified various qualitative factors that collectively indicated triggering events, including a sustained decrease in stock price, increased costs due to inflationary pressures, hardening of the reinsurance markets, volatile weather, and a deterioration of the macroeconomic environment in the housing and real estate and insurance industries. We performed a valuation of 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 goodwill impairment analysis required significant judgments to calculate the fair value of the reporting units, including internal forecasts and determination of weighted average cost of capital. Management considers historical experience and all available information at the time the fair values are estimated. Assumptions are subject to a high degree of judgment and complexity.

The results of the quantitative impairment assessment as of March 31, 2023, indicated that the 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%.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

Insurance reporting unit was impaired as of June 30, 2023. Impairment charges are included in impairment loss on intangible assets and goodwill in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2023.

The results of the quantitative impairment assessment as of June 30, 2023, indicated that the fair value of our Vertical Software reporting unit exceeded its carrying value by less than 10%. As a result, our remaining goodwill balance is at risk of future impairment. We monitor our reporting units at risk of impairment for interim impairment indicators and believe that the estimates and assumptions used in the calculations are reasonable as of June 30, 2023. We also reconcile the fair value of our reporting units to our market capitalization. Should the fair value of any of our reporting units fall below its carrying amount because of reduced operating performance, market declines including a deterioration of the macroeconomic environment in the housing and real estate or insurance industries, changes in the discount rate, or other adverse conditions, goodwill impairment charges may be necessary in future periods.

7. Debt

The following tables summarize outstanding debt as of June 30, 2023, and December 31, 2022.


					Debt
			Unaccreted		Issuance		Carrying
	Principal		Discount		Costs		Value
Convertible senior notes, due 2026	$	225,000	$	—	$	(3,909)	$	221,091
Convertible senior notes, due 2028		333,334		(122,877)		(4,707)		205,750
Advance funding arrangement		5,321		(32)		—		5,289
Other notes		300		(26)		—		274
Balance as of June 30, 2023	$	563,955	$	(122,935)	$	(8,616)	$	432,404


					Debt
			Unaccreted		Issuance		Carrying
	Principal		Discount		Costs		Value
Convertible senior notes, due 2026	$	425,000	$	—	$	(8,508)	$	416,492
Advance funding arrangement		15,670		(760)		—		14,910
Term loan facility, due 2029		10,000		—		—		10,000
Other notes		450		(87)		—		363
Balance as of December 31, 2022	$	451,120	$	(847)	$	(8,508)	$	441,765

Convertible Senior Notes

Interest expense recognized related to the 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”) was approximately $0.9 million and $1.4 million for the three months ended June 30, 2023 and 2022, respectively, and $2.2 million and $2.7 million for the six months ended June 30, 2023 and 2022, respectively, including contractual interest expense and amortization of debt issuance costs. The effective interest rate for the 2026 Notes is 1.3%.

In April 2023, we issued $333 million of 6.75% Senior Secured Convertible Notes due in 2028 (the “2028 Notes”) in a private placement transaction. We used a portion of the net proceeds from the 2028 Notes to repurchase $200 million of the 2026 Notes and to fund the repayment of $9.7 million outstanding under the term loan facility, in each case plus accrued and unpaid interest thereon and related fees and expenses. In connection with the partial repurchase of the 2026 Notes, we recognized an $81.4 million gain on extinguishment of debt, calculated as the difference between the reacquisition price and the net carrying amount of the portion of the 2026 Notes that was extinguished.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

The 2028 Notes are convertible into cash, shares of common stock, or a combination of cash and shares of common stock at our 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, 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 at the option of the holders only upon the satisfaction of certain conditions and during certain periods. Thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2028 Notes will be convertible at the option of the holders at any time regardless of these conditions.

Interest expense recognized related to the 2028 Notes was approximately $7.3 million in the three and six months ended June 30, 2023, including $4.4 million contractual interest expense and $2.9 million amortization of debt issuance costs and discount. The effective interest rate for the 2028 Notes is 17.9%.

Advance Funding Arrangement

For certain home warranty contracts, we participate in financing arrangements with third-party financers that provide us with the contract premium upfront, less a financing fee. Third-party financers collect installment payments from the warranty contract customer which satisfy our 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 we received. As part of the arrangement, we pay 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 $0.4 million and $0.5 million for the three months ended June 30, 2023 and 2022, respectively, and $0.9 million and $1.6 million for the six months ended June 30, 2023 and 2022, respectively.

Term Loan Facility

In April 2023, the term loan facility was repaid in full by using a portion of the proceeds received from the 2028 Notes.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

8. Equity and Warrants

Common Shares Outstanding and Common Stock Equivalents

The following table summarizes our fully diluted capital structure.


	June 30,	December 31,
	2023	2022
Issued and outstanding common shares	96,118,956	96,405,838
Earnout shares	2,050,000	2,050,000
Total common shares issued and outstanding	98,168,956	98,455,838
Common shares reserved for future issuance:
Private warrants	1,795,700	1,795,700
Stock options (Note 9)	3,717,192	3,862,918
Restricted and performance stock units and awards (Note 9)	13,244,675	6,230,165
2020 Equity Plan pool reserved for future issuance (Note 9)	8,045,331	11,189,745
Convertible senior notes, due 2026⁽¹⁾	8,999,010	16,998,130
Convertible senior notes, due 2028	13,331,893	—
Contingently issuable shares in connection with acquisitions⁽²⁾	13,969,860	10,631,558
Total shares of common stock outstanding and reserved for future issuance	161,272,617	149,164,054

(1)

In connection with the September 16, 2021, issuance of the 2026 Notes, we used a portion of the proceeds to pay for the capped call transactions, which are expected to generally reduce the potential dilution to our common stock. The capped call transactions allow us to purchase shares of our common stock at a strike price of $25 per share, which is equal to the conversion price of the 2026 Notes and 2028 Notes. The capped call transactions are designed to limit the amount of dilution of our common stock upon conversion of the notes. The maximum number of shares purchasable by us under the capped call transactions is 16,998,130. The options that underly the capped call transactions expire on September 15, 2026.

(2)

In connection with the acquisitions of Floify and HOA, we 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.

Repurchases of Common Shares

In October 2022, our board of directors approved a share repurchase program authorizing management to repurchase up to $15 million of our common stock and/or convertible notes. Repurchases under this program were permitted 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 six months ended June 30, 2023, we repurchased and canceled 1,396,158 shares with a 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 June 30, 2023.

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

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

Warrants

There was no activity related to public and private warrants during the six months ended June 30, 2023.


		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 June 30, 2023	1,795,700	11,521,412

9. Stock-Based Compensation

The following table summarizes the classification of stock-based compensation expense in the unaudited condensed consolidated statements of operations.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Selling and marketing	$	896	$	1,270	$	1,941	$	1,902
Product and technology		1,254		1,840		2,703		2,977
General and administrative		4,254		6,592		8,654		10,677
Total stock-based compensation expense	$	6,404	$	9,702	$	13,298	$	15,556

Under our 2020 Stock Incentive Plan, which replaced the 2012 Equity Incentive Plan in December 2020, employees, directors and consultants are eligible for grants of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance restricted stock units (“PRSUs”), and other stock awards, collectively referred to as “Awards.”

The following table summarizes Award activity for the six months ended June 30, 2023:


			Number of
		Number of	Performance
	Number of	Restricted	Restricted
	Options	Stock Units	Stock Units
Balances as of December 31, 2022	3,862,918	5,309,241	920,924
Granted	—	5,591,534	3,135,073
Vested		(1,164,592)	—
Exercised	(4,519)	—	—
Forfeited, canceled or expired	(141,207)	(547,505)	—
Balances as of June 30, 2023	3,717,192	9,188,678	4,055,997

10. Reinsurance

2023 Program

Our third-party quota share reinsurance program is split into three separate placements to maximize coverage and cost efficiency. The 2023 Coastal Program covers our business in certain Texas coastal regions and the Houston metropolitan area and is placed at 42% of subject property and casualty losses (“P&C losses”), as well as all business in South Carolina which is placed at 7% of P&C losses. The 2023 Core Program, which covers the portion of our business not in the Coastal Program, is placed at 49.5% of P&C losses of our remaining business in Texas and 48% of P&C

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

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

Contingent

Contingent

Consideration -

Private

Consideration -

Business

Warrant

Earnout

Combinations

Liability
Fair value as of January 1, 2022
$
13,866

$
9,617

$
15,193
Additions

—

—

—
Settlements

—

—

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

(11,179)

3,205

(10,189)
Fair value as of March 31, 2022

2,687

12,822

5,004
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

⁽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

Consideration -

Private

Consideration -

Business

Warrant


Earnout

Combinations

Liability
Fair value as of January 1, 2021

$
50,238

$
3,549

$
31,534
Additions

—

1,737

—
Settlements

(25,815)

(2,062)

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

18,770

(355)

15,910
Fair value as of March 31, 2021

$
43,193

$
2,869

$
47,444
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

~~(1)~~

~~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, and December 31, 2021, the fair value of the convertible senior notes is $243.0 million and $400.4 million, respectively. The decrease of $157.4 million is primarily due to the decline in the stock price at September 30, ~~2022, as compared to December 31, 2021. The fair value of the line of credit and other notes approximates the unpaid principal balance. Debt 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,

2022

2021
Software and computer equipment

$
8,397

$
7,287
Furniture, office equipment, and other

2,305

2,006
Internally developed software

15,555

13,102
Leasehold improvements

1,162

2,191

27,419

24,586
Less: Accumulated depreciation and amortization

(16,183)

(17,920)
Property, equipment, and software, net

$
11,236

$
6,666

Depreciation and amortization expense related to property, equipment, and software was $1.0 million and $1.4 million for the three months ended September 30, 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:~~

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

~~Table of Contents~~

~~PORCH GROUP, INC.~~

~~Notes to Condensed Consolidated Statements - Continued~~

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

~~Intangible assets consist of the following as of December 31, 2021:~~

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

The aggregate amortization expense related to intangibles was $7.6 million and $3.0 million for the three months ended September 30, 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.

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~~in 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, 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.states. In addition, the ~~Company pays 0.25%~~Combined Program covers all of our business and is placed at 5% of P&C losses. All programs are effective for 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 loss treaties were placed on April 1, 2023, and limited our net retention to $8 million per ~~annum~~occurrence. The five layers provide coverage up to a net loss of ~~the daily-unused portion of the RLOC. Outstanding borrowings~~$440 million. We also place reinstatement premium protection to cover any reinstatement premiums due 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, the Company has borrowed $10.0 million on the term loan facility. Outstanding balances under the term loan facility bear interest at 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.~~

~~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

~~(1)~~

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

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

~~Warrants~~

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


	~~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~~	$	—

~~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”.

~~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 of expense related to equity awards in the normal course, earnout restricted stock and a secondary market transaction as described below:~~

Three months ended

Nine months ended

September 30,

September 30,


2022

2021

2022

2021
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

~~Detail related to stock option, RSU and RSA activity for the three and nine months ended September 30, 2022, 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

—

~~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~~

first four layers.

The effects of reinsurance on premiums written and earned for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023 and ~~2021~~2022, were as follows:


	Three Months Ended September 30,								Three Months Ended June 30,
	2022				2021				2023				2022
	Written		Earned		Written		Earned		Written		Earned		Written		Earned
Direct premiums	$	137,047	$	105,245	$	96,201	$	72,360	$	121,540	$	116,397	$	124,914	$	93,082
Ceded premiums		(119,131)		(93,982)		(87,949)		(67,666)		(67,387)		(72,166)		(117,926)		(83,095)
Net premiums	$	17,916	$	11,263	$	8,252	$	4,694	$	54,153	$	44,231	$	6,988	$	9,987

	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


	Six Months Ended June 30,
	2023				2022
	Written		Earned		Written		Earned
Direct premiums	$	218,413	$	231,221	$	212,037	$	177,400
Ceded premiums		(65,121)		(146,840)		(178,562)		(154,822)
Net premiums	$	153,292	$	84,381	$	33,475	$	22,578

Our 2023 third-party quota share program was placed at a reduced ceding percentage as compared to the 2022 program, which resulted in a portfolio transfer and lower ceded written premiums in the six months ended June 30, 2023.

The effects of reinsurance on incurred losses and loss adjustment expense (“LAE”) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023 and ~~2021~~2022, were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Direct losses and LAE	$	77,471	$	29,948	$	220,309	$	155,243	$	137,591	$	74,617	$	227,606	$	142,838
Ceded losses and LAE		(60,900)		(26,408)		(180,006)		(140,978)		(66,442)		(60,133)		(113,598)		(119,106)
Net losses and LAE	$	16,571	$	3,540	$	40,303	$	14,265	$	71,149	$	14,484	$	114,008	$	23,732

The detail of reinsurance balances due is as follows:


	September 30, 2022		December 31, 2021		June 30, 2023		December 31, 2022
Ceded unearned premium	$	202,598	$	153,710	$	147,297	$	203,157
Losses and LAE reserve		81,971		56,752		89,296		76,999
Reinsurance recoverable		18,917		17,780		29,260		18,765
Other		501		174		6,614		139
Reinsurance balance due	$	303,987	$	228,416	$	272,467	$	299,060

2927

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements -– Continued

(Unaudited)

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

11. Unpaid Losses and Loss Adjustment Reserve

The following table ~~provides~~summarizes the ~~rollforward of~~changes in the ~~beginning and ending~~ reserve balances for unpaid losses and LAE, gross of reinsurance for the ~~three and nine~~six months ended ~~September~~June 30, ~~2022:~~2023:


	2022
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		110,624
Prior years		(620)		3,384
Net incurred losses and LAE during the current year		9,248		114,008
Deduct payments for losses and LAE occurring in:
Current year		(4,431)		(44,510)
Prior years		(1,602)		(16,718)
Net claim and LAE payments during the current year		(6,033)		(61,228)
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				76,413
Reinsurance recoverables on losses and LAE		71,196		89,296
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 June 30, 2023			$	165,709

~~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 estimates of provisions of losses and loss adjustment expenses were made resulting in an increase~~in incurred losses~~ of ~~$2.6 million and $3.0~~$3.4 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2022.~~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~~we are 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~~we are 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~~we have recorded in the financial statements covering these matters. ~~The Company reviews its~~We review our estimates periodically and ~~makes~~make 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 internal and National Do Not Call restrictions of the Telephone Consumer Protection Act of ~~1991. Some of these actions allege~~1991 and a related Washington state law ~~claims.~~claim. 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 was granted in part and is due to be filed July 2023. Defendants’ motion to dismiss is due September 2023. The case is otherwise stayed pending ~~the outcome~~resolution of the ~~appeal.~~defendants’ forthcoming motion. Plaintiffs seek actual, statutory, and/or treble damages, injunctive relief, and reasonable attorneys’ fees and costs.

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

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~~We intend 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.

~~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 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. ~~The parties recently attended mediation in an effort to resolve~~ the matter. The mediation 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 in 180 days, at which point the case will be closed.

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

13. Business Combinations

During the nine months ended September 30, 2022, the Company completed a number of business combination transactions. The aggregate transaction costs of $1.1 million primarily comprised of legal and 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.

~~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 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~~we 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~~that date, ~~the Company~~we completed the acquisition of substantially all of ~~RWS’~~the operations of RWS except for those in Florida and ~~California. The aggregate consideration,~~California, which were 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 stockregulatory 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.other approvals.

The acquisitions of the Florida and California operations ~~are subject~~were closed on March 17, 2023. We paid approximately $2.1 million in cash to ~~certain regulatory~~acquire $0.2 million of cash and ~~other approvals~~current assets and ~~are expected to close in the second half~~$0.2 million of ~~2022 or as soon as practicable thereafter.~~customer relationships with an estimated useful life of three years. 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~~relationships intangible ~~assets, including renewal rights,~~asset was calculated ~~through~~using the income ~~approach using~~approach.

The aggregate transaction costs of $0.1 million are primarily comprised of legal and due diligence fees and are included in general and administrative expenses on 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~~unaudited condensed consolidated statements of operations. The results of operations for each acquisition are included in our consolidated financial ~~statements. The purpose~~statements from the date 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.onwards.

14. Segment Information

~~Beginning in 2021, the Company has~~We have two reportable segments that are also operating segments: Vertical Software and Insurance. ~~These reportable~~Reportable segments ~~have been~~were identified based on how ~~our~~the chief operating decision-maker (“CODM”) manages the business, makes operating decisions, and evaluates operating and financial performance. ~~The Chief Executive Officer is~~Our chief executive officer acts as 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~~that provides software and services to home services companies such as home inspectors, mortgage companies and loan officers, title companies, moving companies, real estate agents, 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.~~individuals.

The Insurance segment ~~offers various forms of homeowner~~operates both as an insurance carrier underwriting home insurance policies ~~through its own insurance carrier~~ and ~~certain homeowner~~as an agent selling home and auto ~~insurance policies through its licensed insurance agency.~~insurance. The Insurance segment also includes ~~home~~ warranty service ~~revenue.~~offerings and a captive reinsurance provider.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements -– Continued

(Unaudited)

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

The following table summarizes revenue by segment.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Vertical Software	$	34,435	$	42,540	$	63,062	$	76,944
Insurance		64,330		28,375		123,072		57,538
Total revenue	$	98,765	$	70,915	$	186,134	$	134,482

Our 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 each segment: cost of revenue, sales and marketing, product and technology, general and administrative expenses, and provision for doubtful accounts. Segment Adjusted EBITDA (Loss) also excludes non-cash items or items that management does not consider reflective of ongoing core operations.

We do not allocate shared expenses to the reportable segments. These expenses are included in the “Corporate and other” row in the following reconciliation. “Corporate and other” includes shared expenses such as sales and marketing; certain product and technology; accounting; human resources; legal; 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 are included in 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.

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

The following table provides ~~the Company’s revenue by segment:~~

Three Months Ended September 30,

Nine Months Ended September 30,


2022

2021

2022
��
2021
Segment revenues:

Vertical Software

$
44,463

$
42,287

$
121,964

$
101,629
Insurance

30,903

20,482

86,732

39,223
Total segment revenue

$
75,366

$
62,769

$
208,696

$
140,852

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~~a reconciliation to consolidated financial information for the periods ~~presented:~~presented.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Segment adjusted EBITDA (loss):
Segment Adjusted EBITDA (Loss):
Vertical Software	$	4,956	$	7,712	$	13,978	$	19,041	$	1,816	$	5,652	$	1,420	$	8,536
Insurance		(2,317)		5,473		(4,099)		3,067		(31,181)		(5,609)		(38,366)		(5,394)
Corporate and Other		(15,611)		(12,312)		(44,190)		(40,754)
Total segment adjusted EBITDA (loss)		(12,972)		873		(34,311)		(18,646)
Subtotal										(29,365)		43		(36,946)		3,142
Reconciling items:
Corporate and other										(13,769)		(15,048)		(28,070)		(28,503)
Depreciation and amortization		(8,676)		(4,431)		(21,574)		(10,787)		(6,214)		(6,416)		(12,229)		(12,899)
Non-cash stock-based compensation expense		(5,089)		(6,579)		(20,645)		(30,627)		(6,404)		(9,702)		(13,298)		(15,556)
Acquisition and related expense		(175)		(1,958)		(1,284)		(4,648)
Restructuring costs										(1,093)		—		(2,077)		—
Acquisition and other transaction costs										(258)		(357)		(386)		(1,322)
Impairment loss on intangible assets and goodwill		(57,057)		—		(57,057)		—		(55,211)		—		(57,232)		—
Loss on reinsurance contract (1)										(48,244)		—		(48,244)		—
Non-cash losses and impairment of property, equipment and software		(31)		(76)		(101)		(216)		(254)		—		(254)		(70)
Revaluation of contingent consideration		(565)		(195)		(5,251)		380		2,656		(1,481)		2,810		(4,686)
Investment income and realized gains		(335)		(248)		(775)		(448)		(1,249)		(243)		(2,007)		(440)
Non-cash bonus expense										—		1,526		—		—
Operating loss	$	(84,900)	$	(12,614)	$	(140,998)	$	(64,992)	$	(159,405)	$	(31,678)	$	(197,933)	$	(60,334)

⁽¹⁾See Note 16.

The CODM does not review assets on a segment basis.

~~Table of Contents~~

~~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~~our revenue is generated in the United ~~States.~~States except for an immaterial amount. As of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021, the Company~~2022, we 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~~we have 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 and 2021:

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)

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Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements -– Continued

(Unaudited)

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

The following table ~~discloses securities that could potentially dilute~~summarizes the computation of basic and diluted net loss attributable per share into common stockholders for the ~~future~~three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net loss used to compute net loss per share - basic and diluted:	$	(86,963)	$	(27,325)	$	(125,703)	$	(36,610)

Denominator:
Weighted average shares outstanding used to compute loss per share - basic and diluted:		95,731,850		97,142,163		95,472,277		96,611,294

Loss per share - basic and diluted	$	(0.91)	$	(0.28)	$	(1.32)	$	(0.38)

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


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021	2023	2022	2023	2022
Stock options	4,149,394	5,131,615	4,149,394	5,131,615	3,717,192	4,429,426	3,717,192	4,429,426
Restricted stock units and awards	5,193,177	984,135	5,193,177	984,135	9,188,678	5,331,673	9,188,678	5,331,673
Performance restricted stock units	1,825,719	—	1,825,719	—	4,055,997	1,825,719	4,055,997	1,825,719
Public and private warrants	1,795,700	—	1,795,700	—	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	2,050,000	2,050,000
Convertible debt⁽¹⁾	16,998,130	16,998,130	16,998,130	16,998,130	22,330,903	16,998,130	22,330,903	16,998,130
Contingently issuable shares in connection with acquisitions⁽²⁾					13,969,860	2,792,457	13,969,860	2,792,457

⁽¹⁾ In connection with the September 16, 2021, issuance of the 2026 Notes, ~~the Company~~we 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~~our common stock. The capped call transactions ~~impact~~allow us to purchase shares of our common stock at a strike price of $25 per share, which is equal to the conversion price of the 2026 Notes and 2028 Notes. The capped call transactions are designed to limit the amount of dilution of our common stock upon conversion of the notes. The maximum number of shares purchasable by us under the capped call transactions is 16,998,130. The options that ~~may~~underly the capped call transactions expire on September 15, 2026.

⁽²⁾In connection with the acquisitions of Floify and HOA, we 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 ~~issued by effectively increasing~~issuable if 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~~end of the ~~shares reported in this table as~~reporting periods were the end of ~~September 30, 2022.~~the contingency period.

16. Subsequent Events

~~On November 8, 2022,~~In the third quarter of 2023, HOA, a subsidiary of Porch Group, ~~announced~~discovered that ~~its Board~~Vesttoo Ltd (“Vesttoo”), which arranged capital for one of ~~Directors approved a new repurchase program authorizing~~our reinsurance contracts, faced allegations of fraudulent activity in connection with collateral it provided to HOA and certain other third parties. We immediately began investigating the ~~deployment~~rapidly evolving situation and have been moving quickly to analyze the impact on our business. Additionally, we have communicated and met with

Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements – Continued

(Unaudited)

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

regulators and other key stakeholders regarding the evolving situation. This reinsurance agreement provided partial quota share coverage as well as up to ~~$15~~approximately $175 million to repurchase the Company’s outstanding common stock or 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~~a catastrophic event.

As a result of its findings, and in accordance with ~~applicable rules and regulations (including through Rule 10b5-1 trading plans and under Rule 10b-18~~the terms of the ~~Exchange Act).Certain executive officers and directors of Porch Group may also purchase shares of Company common stock in accordance~~reinsurance agreement, HOA terminated its reinsurance contract with the ~~Company’s insider trading policy and federal securities laws. The timing and~~reinsurer on August 4, 2023, with an effective date of July 1, 2023. Had the contract not been terminated, the contract would have expired on December 31, 2023. Following the effective date of the termination, HOA seized available liquid collateral in the amount of ~~common stock~~approximately $47.6 million from a reinsurance trust, of which HOA was the beneficiary. In addition, HOA is evaluating and intends to pursue all available legal claims and remedies to enforce its rights under the letter of credit required by the reinsurance agreement in the amount of $300 million as additional collateral, and to seek recovery of all losses and damages incurred as a result of terminating the reinsurance agreement due to allegations of fraudulent activity by third parties.

We concluded this subsequent event provides additional evidence about conditions that existed at the balance sheet date and accounted for it as a recognized subsequent event. Since the Company’s request to draw on the letter of credit was not fulfilled and advisors to the issuing bank have alleged the letter of credit is invalid, we recognized a charge of $48.2 million in provision for doubtful accounts in the unaudited condensed consolidated statements of operations, calculated as the net asset due under the reinsurance contract (as we have the legal right of offset) of $95.8 million as of June 30, 2023, before adjustment, less the $47.6 million collateral received from a trust in July 2023. Following the provision for doubtful accounts recognized for the three months ended June 30, 2023, the net assets on the unaudited condensed consolidated balance sheet at June 30, 2023, is equal to the $47.6 million collected from the trust in July 2023.

HOA has already secured supplemental reinsurance coverage in the amount of approximately $42 million and is currently seeking additional supplemental reinsurance coverage (whether from Porch Group’s captive reinsurer, third parties or ~~convertible notes repurchased will depend on various factors, including price, corporate~~a combination thereof) in order to maintain adequate coverage in future periods against potential excess losses in the event of a severe weather event, and to satisfy regulatory ~~requirements, market conditions,~~ and other corporate liquidity requirements and priorities. The repurchase program does not obligate the Company to acquire a specific dollar amount or number of shares and may be modified, suspended, or discontinued at any time.rating agency requirements.

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~~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, assumptions, and ~~assumptions.~~other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. 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”~~“anticipates,” “intends,” or similar expressions.

~~Forward-looking~~These forward-looking statements are based upon estimates and assumptions that, while considered reasonable by the Company and its management at the time they are made, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not ~~guarantees~~limited to: (1) expansion plans and opportunities, and managing growth, to build a consumer brand; (2) the incidence, frequency, and severity of ~~performance.~~weather events, extensive wildfires, and other catastrophes; (3) economic conditions, especially those affecting the housing, insurance, and financial markets; (4) expectations regarding revenue, cost of revenue, operating expenses, and the 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 management’s interpretation of and compliance with such laws and regulations; (6) the Company’s reinsurance program, which includes the use of a captive reinsurer, the success of which is dependent on a number of factors outside management’s control, along with reliance on reinsurance to protect against loss; (7) the Company’s ability to obtain supplemental reinsurance coverage (whether from Porch Group, third parties, or a combination thereof) in order to maintain adequate coverage against excess losses and to satisfy regulatory or rating agency requirements, following the termination of its reinsurance contract with one of its external reinsurers due to allegations of fraudulent activity committed by such reinsurer, and uncertainty of the extent and significance of any effects on HOA and the Company due to such termination; (8) 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; (9) reliance on strategic, proprietary relationships to provide the Company with access to personal data and product information, and the ability to use such data and information to increase transaction volume and attract and retain customers; (10) the ability to develop new, or enhance existing, products, services, and features and bring them to market in a timely manner; (11) changes in capital requirements, and the ability to access capital when needed to provide statutory surplus; (12) 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; (13) retaining and attracting skilled and experienced employees; (14) costs related to being a public company; and (15) other risks and uncertainties discussed in Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2022, and in Part II, Item 1A, “Risk Factors,” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, as well as those discussed elsewhere in this report, including in Part II, Item 1A, “Risk Factors,” and in subsequent reports filed with the Securities and Exchange Commission (“SEC”), all of which are available on the SEC’s website at www.sec.gov.

Nothing in this Quarterly Report or the documents incorporated herein by reference should be regarded as a representation by any person that the forward-looking statements set forth herein will be achieved or that any of the contemplated results of such forward-looking statements will be achieved. You should not ~~put~~place undue reliance on ~~these~~forward-looking statements, which speak only as of the date ~~hereof.~~ of this Quarterly Report. 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 combinations that have not been completed as of the date of this ~~filing.~~ You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company’s forward-looking statements:

●

~~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 by the forward-looking statements in this~~ Quarterly Report 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 filings are not exhaustive. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements.Report. The Company ~~undertakes no obligations~~does not undertake any duty to update ~~or revise publicly any~~these forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise, except as may be required by law.

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

Additionally, the unaudited condensed consolidated financial statements for the three and six months ended June 30, 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 consolidated financial statements included in Part II, Item 8, of the Company’s Annual Report for the year ended December 31, 2022. Accordingly, this Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects the effects of the revisions.

Business Overview

Porch Group, ~~is a~~Inc. (“Porch Group”, “Porch” or the “Company,” “we,” “our,” “us”), the vertical software platform, ~~for~~is a values-driven company whose mission is to simplify the home ~~providing~~with insurance at the center. We provide software and services to ~~over 30,900~~approximately 30,700 home ~~services companies, such as~~service providers including home inspectors, mortgage brokers, title companies and ~~loan officers, title companies,~~ moving ~~companies,~~companies. We simplify the home closing process and the move by providing high-value services including homeowners insurance, warranties, and ongoing support with our app which saves consumers time and helps them make better decisions.To achieve this, we hire and retain great people, invest in the right opportunities, and leverage our unique capabilities such as early and privileged access to homebuyers and deep insight into properties.

We make 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. We provide home and personal property insurance policies through our own underwriting operations in 21 states and across the U.S. with our 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.

We have two reportable segments: the Vertical Software segment and ~~improve their customer experience. The Company~~the Insurance segment.

Our Vertical Software segment provides software and services to home services ~~companies and, through~~companies. Through these relationships, ~~gains~~we earn fees, and gain a competitive advantage through unique and early access to homebuyers and ~~homeowners, assists~~homeowners. This early access allows us to assist homebuyers and homeowners with critical ~~services such as insurance and~~ moving ~~and, in~~services. In turn, ~~the Company’s~~our 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~~we provide 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~~we assist 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 us 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~~Our 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 our insurance agency. The Insurance segment also includes home warranty, ~~service revenue.~~

~~For consumers, Porch largely relies on~~from which we receive premiums paid by homeowners for 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.home warranty products.

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Key Performance Measures and Operating Metrics

In the management of these businesses, ~~the Company identifies, measures~~we identify, measure and ~~evaluates~~evaluate various operating metrics. The key performance measures and operating metrics used in managing the businesses are ~~set forth~~discussed 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~~following table summarizes operating metrics for ~~divested businesses in 2020.~~each of the quarterly periods indicated.


	Three Months Ended June 30,
	2023			2022			Change
Gross Written Premium (in millions)	$	143.0		$	145.0			(1)	%
Policies in Force (in thousands)		358			379			(6)	%
Annualized Revenue per Policy (unrounded)	$	517		$	286			81	%
Premium Retention Rate		104	%		102	%
Gross Loss Ratio		120	%		81	%
Average Companies in Quarter (unrounded)		30,691			28,773			7	%
Average Revenue per Account per Month in Quarter (unrounded)	$	1,073		$	822			31	%
Monetized Services in Quarter (unrounded)		244,605			333,596			(27)	%
Average Revenue per Monetized Service in Quarter (unrounded)		331			158			109	%

●

Gross Written Premium —We define Gross Written Premium as the total premium written by our licensed insurance carrier(s) (before deductions for reinsurance); premiums from our home warranty offerings (for the face value of one year’s premium); and premiums of policies placed with third-party insurance companies for which we earn a commission.

●

Policies in Force—We define Policies in Force as the number of in-force policies at the end of the period for the Insurance segment, including policies and warranties written by us and policies and warranties written by third parties for which we earn a commission.

●

Annualized Revenue per Policy —We define Annualized Revenue per Policy as quarterly revenue for the Insurance segment, divided by the number of Policies in Force in the Insurance segment, multiplied by four.

●

Premium Retention Rate —We define Premium Retention Rate as the ratio of our insurance carrier’s renewed premiums over the last four quarters to base premiums, which is the sum of the preceding year’s premiums that either renewed or expired.

●

Gross Loss Ratio —We define Gross Loss Ratio as ourinsurance carrier’s gross losses divided by the gross earned premium for the respective period.

●

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 quarterWe define Average Companies 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~~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~~our home services verticals that (i) generate recurring revenue and (ii) generated 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.~~Porch.

~~Table of Contents~~

●

Average Revenue per Account per Month in Quarter — ~~Management views the Company~~’sWe view our ability to increase revenue generated from existing customers as a key component of ~~Porch~~’sour 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

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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

~~(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~~We connect consumers with home services companies nationwide and ~~offers~~offer 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~~We track the number of monetized services performed through ~~its~~our platform each quarter and the revenue generated per service performed in order to measure market penetration with homebuyers and homeowners and ~~the Company~~’sour 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~~we 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~~We believe that shifting the mix of services delivered to homebuyers and homeowners toward higher revenue services is ~~a key~~an important component of ~~Porch~~’sour 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~~Recent Developments

Share Repurchases

In October 2022, our ~~monetized services~~Board of Directors approved a share repurchase program authorizing management to repurchase up to $15 million of our common stock and/or convertible notes. Repurchases under this program were permitted from time to time on the open market between November 10, 2022, and ~~average revenue per monetized service for each~~June 30, 2023, at prevailing market prices. During the first quarter of 2023, we repurchased 1,396,158 shares with a total cost of $3.1 million (including commissions). We did not repurchase any shares in the second quarter of 2023 prior to the termination of the ~~quarterly periods indicated:~~repurchase program.

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~~Reciprocal Exchange

On March 20, 2023, we filed an application to form and license a Texas reciprocal exchange (the “Reciprocal”) with the ~~impact~~Texas Department of ~~this error~~Insurance (“TDI”). If approved by the TDI, our insurance underwriting business 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 management services for the Reciprocal and receive a management fee calculated as a percentage of its premiums. Porch subsidiaries would act as general agents for the Reciprocal and Homeowners of America Insurance Company (“HOAIC”) and would 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 ~~Average Revenue per Monetized Service~~terms as proposed or subject to additional requirements that may not be acceptable to us. If the application is approved, we will launch Porch Insurance, a new brand and product to be offered by the Reciprocal, including unique benefits for consumers such as a free 90-day warranty and proprietary discounts to customers within the Porch ecosystem.

Convertible Notes Financing

In April 2023, we issued $333 million of 6.75% Senior Secured Convertible Notes due 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

2028 (the “2028 Notes”) in a private placement transaction. We used a portion of the net proceeds from the 2028 Notes to repurchase $200

4137

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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

million of the 2026 Notes and to fund the repayment of $9.7 million outstanding under a term loan facility. The transaction delivered additional liquidity while minimizing dilution.

Weather Events

The second quarter is often the worst and riskiest weather quarter of the year for us. The second quarter 2023 was on track until extreme weather events occurred, including wind, thunderstorm, and hail events in Texas toward the end of the second quarter, which resulted in an estimated $5.0 billion in combined industry-wide claims. These extreme weather events compared to historic trends negatively impacted our operating results in the second quarter within the Insurance Segment by approximately $18 million, net of third-party reinsurance.

Subsequent Event

In ~~2022,~~ the ~~Company completed the acquisition~~third quarter of ~~RWS. In 2021, the Company completed acquisitions~~2023, Homeowners of ~~V12 Data~~America (“HOA”), a subsidiary of Porch Group, discovered that Vesttoo Ltd (“Vesttoo”), which arranged capital for one of our reinsurance contracts, faced allegations of fraudulent activity in ~~Q1,~~connection with collateral it provided to HOA and ~~Rynoh~~certain other third parties. We immediately began investigating the rapidly evolving situation and have been moving quickly to analyze the impact on our business. Additionally, we have communicated and met with regulators and other key stakeholders regarding the evolving situation. The agreement with this reinsurer provided partial quota share coverage as well as up to approximately $175 million in ~~Q2, AHP~~a catastrophic event.

As a result of its findings, and in ~~Q3 and Floify in Q4, which impacted~~accordance with the ~~number~~terms of ~~monetized services~~the reinsurance agreement, HOA terminated its reinsurance contract with the reinsurer on August 4, 2023, with an effective date of July 1, 2023. Had the contract not been terminated, the contract would have expired on December 31, 2023. Following the effective date of the termination, HOA seized available liquid collateral in the ~~quarter.~~

~~Recent Developments~~

~~Adoption~~amount of ~~New Accounting Standards~~

~~The Company early adopted Accounting Standards Update No. 2021-08,~~ ~~Business Combinations (Topic 805): Accounting~~approximately $47.6 million from a reinsurance trust, of which HOA was the beneficiary. We recognized in the second quarter a charge of $48.2 million in provision for ~~Contract Assets and Contract Liabilities from Contracts with Customers~~ ~~on January 1, 2022 and will apply~~doubtful accounts in the ~~guidance prospectively for business combinations that occur after the adoption date. The adoption has no impact to the existing~~ unaudited condensed consolidated ~~balance sheets,~~ statements of operations to reduce the net recorded balance receivable from the reinsurance contract as of June 30, 2023, to equal the $47.6 million collateral we subsequently collected from the trust in the third quarter. In addition, HOA is evaluating and ~~statements~~intends to pursue all available legal claims and remedies to enforce its rights with respect to the letter of ~~cash flows~~.credit required by the reinsurance contract in the amount of $300 million as additional collateral, and to seek recovery of all losses and damages incurred as a result of terminating the reinsurance agreement due to allegations of fraudulent activity by third parties.

Although advisors to the issuing bank have alleged the letter of credit is invalid, HOA received the original letter of credit documents from one of the bank’s branches and believed its partners had performed appropriate due diligence on the bank and the letter of credit. HOA is currently seeking to understand its rights under the letter of credit.

HOA has already secured supplemental reinsurance coverage in the amount of approximately $42 million and is currently seeking additional supplemental reinsurance coverage (whether from Porch Group’s captive reinsurer, third parties or a combination thereof) in order to maintain adequate coverage in future periods against potential excess losses in the event of a severe weather event, and to satisfy regulatory and rating agency requirements. There can be no guarantee or assurance that HOA will be successful in obtaining sufficient supplemental coverage. Regardless of whether additional supplemental coverage is obtained, HOA will continue to remain responsible and committed with respect to all claims and claim settlement expenses under its policies, including claims incurred but not yet reported for prior periods and claims and expenses that are no longer subject to the reimbursement rights in favor of HOA under the terminated reinsurance contract.

Please see Note 16 in the Notes to Condensed Consolidated Financial Statements for additional details regarding the financial impacts related to the termination of this reinsurance contract. Please also see Part II, Item 1A. “Risk Factors” for specific risks related to the termination of this reinsurance contract.

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Key Factors Affecting Operating Results

~~The Company has~~We have been implementing ~~its~~our strategy as a vertical software platform for the home by providing software and services to ~~over 30,900~~approximately 30,700 pre-and-post move home ~~services companies, such as home~~service providers including inspectors, ~~moving companies, utility companies, warranty companies, etc. The Company’s~~real estate, title, and mortgage companies. Our Insurance segment continues to grow in scale through both ~~policy count,~~premium growth and geographic expansion. The following ~~are~~ key factors ~~affecting the Company’s~~affected our operating results in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:

●

The ~~U.S~~U.S. housing market continues to see impacts from higher interest rates, existing home inventory tightening, and affordability challenges that are impacting the Vertical Software segment. For the quarter ended ~~September~~ June30, ~~2022,~~2023, existing home sales have declined over ~~22% on~~21% year over year.

●

During the second quarter of 2023, a series of uncommon and extreme weather events resulted in a negative impact of approximately $18 million on Adjusted EBITDA (Loss) in our Insurance segment.

●

In March 2023, we completed the acquisitions of the Florida and California operations of Residential Warranty Services (“RWS”). We had previously completed the acquisition of substantially all of the operations of RWS on April 1, 2022, other than the operations located in Florida and California which were delayed pending regulatory approval.

●

In March 2023, we filed an application for a Reciprocal Exchange with the Texas Department of Insurance (“TDI”). The ~~Company~~application is currently being reviewed by the TDI.

●

We continued our insurance strategic initiatives by moving to 50% reinsurance ceding and not renewing certain higher risk policies. We are focused on improving overall underwriting performance by increasing premiums and claim deductibles where appropriate.

●

In February 2023, we successfully launched Porch Warranty offering.

●

Our warranty business entered new partnerships with certain businesses where we utilize a co-branded journey to provide exclusive home service offerings to utility customers, including warranties.

●

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

●

Our moving business launched a ‘Fixed Price’ product which makes the moving journey simpler for moving companies and consumers.

●

We have rolled out our app to all eligible ISN companies, with the recall check monitoring being popular with consumers.

●

We are now approved in 11 states to use our unique data to improve risk accuracy in pricing policies for our customers. This means we can charge a lower price for policies which are low-risk and more accurately price higher risk policies.

●

We are expanding our distribution channels by partnering with third-party insurance agencies and sharing commissions. We send them customer leads, enabling them to access Porch’s ~~Insurance division paid out a higher volume of claims from volatile weather events, including Hurricane Ian, during the quarter. Claims costs for these events were driven higher due in part~~unique and valuable customer ecosystem to ~~inflation-related pressures.~~grow their businesses and enabling us to expand our insurance distribution capacity.

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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~~We operate 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~~We have determined that ~~its~~our Chief Executive Officer is the CODM.

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Components of Results of Operations

Total Revenue

~~The Company generates~~We generate 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 we act as an independent agent;

●

Software and service subscription revenue generated from fees paid by companies for access to our 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 our 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 the Company’s software platforms and subscription services across various industries; (2)~~from policyholders of our own underwritten homeowners insurance ~~revenue~~products, reinsurers pay us ceding commissions when premiums are ceded from owned insurance 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 our 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~~our software offerings across ~~its verticals as well as marketing software and services. The Company’s~~a number of verticals. Our 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~~Our 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. We also sell 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 to which ~~the Company is~~we are 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~~we connect 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. The Company earns~~companies. We earn revenue when consumers purchase services from these third-party providers. For select moving ~~products where~~jobs, we will select the ~~Company manages the process of selecting the service provider and setting~~mover, set the price, and manage the ~~Company generally invoices for projects~~job end-to-end; here, we generate revenue based on ~~a fixed fee or time and materials basis.~~the full job value.

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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. 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, other than 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~~of property, equipment, and software and amortization of 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~~we are 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~~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~~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.

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 of~~ Critical Accounting ~~Policies and~~ Estimates for the description of methods used to determine these impairment losses.

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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~~we evaluate estimates and assumptions and ~~makes~~make changes accordingly. For information on ~~the Company’s~~our 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 and six months ended ~~September~~June 30, ~~2022, we identified additional critical accounting estimates related to the impairment of long-lived assets and impairment of goodwill. During the fiscal year,~~2023, we identified various qualitative factors with respect to long-lived assets and goodwill in ~~the Company’s~~our reporting units that collectively indicated that ~~the Company had~~there were 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.~~and insurance industries.

Impairment of Long-Lived Assets

In the first quarter of 2023, we recorded impairment charges of $2.0 million, primarily related to acquired technology, trademarks and tradenames, and customer relationships for certain businesses within our Vertical Software segment. We ~~test our long-lived asset groups when changes in circumstances indicate their carrying value may not be recoverable. Events~~used an income approach to determine 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 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 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’sestimated 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 a reporting unit iswas less than its carrying ~~amount. Factors that indicate the fair value of a reporting unit may be less than its carrying amount include industry~~value. Impairment charges are included in impairment loss on intangible assets and ~~market considerations such as a deterioration~~goodwill 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 impairmentunaudited condensed consolidated statements of ~~goodwill is highly subjective and requires significant judgment. If factors indicate that the fair value~~operations.

Impairment 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.

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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%.Goodwill

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,first and ~~a deterioration~~second quarters of ~~the macroeconomic environment in the housing and real estate industry. The Company~~2023, we 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. ~~Given the~~

The results of the quantitative impairment assessment as of March 31, 2023, indicated that the ~~Company~~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%.

The results of the quantitative impairment assessment as of June 30, 2023, indicated that the carrying value of the Insurance reporting unit exceeded its estimated fair value. As such, we determined that the goodwill allocated to the Insurance reporting ~~unit’s~~unit was impaired as of June 30, 2023. Impairment charges of $55.2 million are included in impairment loss on intangible assets and goodwill ~~was impaired.~~

~~During~~in the unaudited condensed consolidated statements of operations for the three and six months ended ~~September~~June 30, ~~2022,~~2023. See Note 6 for a discussion of the ~~Company recorded~~impairment analysis.

Table of ~~$39.4 million, related to its Insurance segment.~~Contents

There were no other changes to the critical accounting policies and estimates discussed in ~~the Company’s~~our 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~~summarizes our consolidated operating results for the periods ~~indicated:~~indicated.


	Three Months Ended September 30,							Nine Months Ended September 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2022		2021		$ Change	% Change		2022		2021		$ Change		% Change		2023		2022		$ Change		% Change		2023		2022		$ Change		% Change

	(dollar amounts in thousands)															(dollar amounts in thousands)								(dollar amounts in thousands)
Revenue	$	75,366	$	62,769	12,597	20	%	$	208,696	$	140,852	$	67,844	48	%	$	98,765	$	70,915	$	27,850	39	%	$	186,134	$	134,482	$	51,652	38	%
Operating expenses:
Cost of revenue		33,269		19,158	14,111	74	%		83,016		44,587		38,429	86	%		81,330		29,251		52,079	178	%		132,605		54,467		78,138	143	%
Selling and marketing		30,245		22,874	7,371	32	%		84,815		60,636		24,179	40	%		34,637		29,160		5,477	19	%		67,222		55,237		11,985	22	%
Product and technology		14,438		11,317	3,121	28	%		44,446		34,158		10,288	30	%		15,495		15,777		(282)	(2)	%		29,445		30,009		(564)	(2)	%
General and administrative		25,257		22,034	3,223	15	%		80,360		66,463		13,897	21	%		22,779		28,297		(5,518)	(20)	%		48,608		54,896		(6,288)	(11)	%
Provision for doubtful accounts																	48,718		108		48,610	45,009	%		48,955		207		48,748	23,550	%
Impairment loss on intangible assets and goodwill		57,057		—	57,057	NM			57,057		—		57,057	NM			55,211		—		55,211	—	%		57,232		—		57,232	—	%
Total operating expenses		160,266		75,383	84,883	113	%		349,694		205,844		143,850	70	%		258,170		102,593		155,577	152	%		384,067		194,816		189,251	97	%
Operating loss		(84,900)		(12,614)	(72,286)	573	%		(140,998)		(64,992)		(76,006)	117	%		(159,405)		(31,678)		(127,727)	403	%		(197,933)		(60,334)		(137,599)	228	%
Other income (expense):
Interest expense		(2,085)		(1,857)	(228)	12	%		(6,236)		(4,296)		(1,940)	45	%		(8,775)		(1,925)		(6,850)	356	%		(10,963)		(4,352)		(6,611)	152	%
Change in fair value of earnout liability		43		7,413	(7,370)	NM			13,809		(15,388)		29,197	NM			—		2,587		(2,587)	(100)	%		—		13,766		(13,766)	(100)	%
Change in fair value of private warrant liability		124		2,692	(2,568)	NM			14,391		(17,521)		31,912	NM			15		4,078		(4,063)	(100)	%		360		14,267		(13,907)	(97)	%
Gain (loss) on extinguishment of debt		—		(3,133)	3,133	NM			—		5,110		(5,110)	NM
Change in fair value of derivatives																	(2,950)		—		(2,950)	—	%		(2,950)		—		(2,950)	—	%
Gain on extinguishment of debt																	81,354		—		81,354	—	%		81,354		—		81,354	—	%
Investment income and realized gains, net of investment expenses		335		248	87	35	%		775		448		327	73	%		1,249		243		1,006	414	%		2,007		440		1,567	356	%
Other income, net		69		316	(247)	(78)	%		(37)		225		(262)	(116)	%
Other income (expense), net																	1,578		(162)		1,740	(1,074)	%		2,340		(107)		2,447	(2,287)	%
Total other income (expense)		(1,514)		5,679	(7,193)	NM			22,702		(31,422)		54,124	NM			72,471		4,821		67,650	1,403	%		72,148		24,014		48,134	200	%
Loss before income taxes		(86,414)		(6,935)	(79,479)	1,146	%		(118,296)		(96,414)		(21,882)	23	%		(86,934)		(26,857)		(60,077)	224	%		(125,785)		(36,320)		(89,465)	246	%
Income tax benefit (expense)		23		1,836	(1,813)	NM			(268)		9,917		(10,185)	NM
Income tax benefit (provision)																	(29)		(468)		439	(94)	%		82		(290)		372	(128)	%
Net loss	$	(86,391)	$	(5,099)	(81,292)	1,594	%	$	(118,564)	$	(86,497)	$	(32,067)	37	%	$	(86,963)	$	(27,325)	$	(59,638)	218	%	$	(125,703)	$	(36,610)	$	(89,093)	243	%

~~NM = Not Meaningful~~Revenue

~~Revenue~~

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

Total revenue increased by ~~$12.6~~$28 million, or ~~20%~~39%, from ~~$62.8~~$70.9 million in the three months ended ~~September~~June 30, ~~2021~~2022, to ~~$75.4~~$98.8 million in the same period in ~~2022.~~ 2023, driven by revenue in our Insurance segment as a result of increases in per-policy premiums and lower reinsurance ceding. This increase was partially offset by a 19%, or $8.1 million, decrease in revenue in our Vertical Software segment due to a 21% reduction in year-over-year industry home sales which adversely affected our moving business.

Six months ended June 30, 2023, compared to six months ended June 30, 2022

The overall 38% increase in year-to-date revenue compared to the same period last year was primarily driven by the 114%, or $65.6 million, increase in revenue in ~~2022 is primarily driven by the 2022~~our Insurance segment as a result of higher warranty sales 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 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). 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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as well as increases in per-policy premiums and ~~cost~~lower reinsurance ceding. This increase was partially offset by an 18%, or $13.9 million, decrease in revenue in our Vertical Software segment due to a 23% reduction in year-over-year industry home sales which adversely affected our moving business.

Cost of Revenue

Three months ended June 30, 2023, compared to three months ended June 30, 2022

Cost of revenue ~~for~~increased by $52.1 million, or 178%, from $29.3 million in 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 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~~$81.3 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, the2023. The 178% increase in ~~revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions, accelerated growth after acquisition and organic growth.~~

During the quarter ended December 31, 2021, the Company corrected an immaterial error related to revenue from claims fees and contra claims expense, which was 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, compared to three months ended September 30, 2021:~~

~~Cost of revenue increased by $14.1 million, or 74%, from $19.2 million in the three months ended September 30, 2021 to $33.3 million in the same period in 2022. The increase in the~~quarter-to-date cost of revenue was primarily ~~attributable~~the result of increased insurance claims costs due to the ~~2022~~extreme weather toward the end of the second quarter of 2023, the reduction in reinsurance ceding, 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), 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~~acquisition of the ~~Company’s insurance segment, due primarily to a higher number of claims paid due to weather events, including Hurricane Ian, during~~RWS warranty business, all in 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%~~82% of revenue in the three months ended ~~September~~June 30, ~~2022~~2023, compared with ~~31%~~41% 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.~~2022.

~~Nine~~Six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022

~~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 143% increase in ~~the~~year-to-date cost of revenue was primarily ~~attributable~~result of increased insurance claims costs due to catastrophic weather events toward the end of the second quarter of 2023 and the strategic reduction in reinsurance ceding in the Insurance Segment. The RWS warranty business acquired in 2022 ~~and 2021 acquisitions of RWS (acquired~~resulted 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~~$1.0 million additional 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~~current year-to-date period when compared 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.prior year. As a percentage of revenue, cost of revenue represented ~~40%~~71% of

~~Table of Contents~~

revenue in the ~~nine~~three months ended ~~September~~June 30, ~~2022,~~2023, compared with ~~32%~~41% 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.~~2022.

Selling and ~~marketing~~Marketing

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

Selling and marketing expenses increased by ~~$7.4~~$5.5 million, or ~~32%~~19%, from ~~$22.9~~$29.2 million in the three months ended ~~September~~June 30, ~~2021~~2022, to ~~$30.2~~$34.6 million in the same period in ~~2022. The~~2023. An increase ~~is due to $7.7 million related to~~in the ~~selling~~Insurance segment’s variable policy acquisition and marketing expenses was partially offset by a decrease in Vertical Software segment costs ofthat were consistent with the ~~acquired businesses comprised of RWS, Floify, AHP.~~decrease in revenue in that segment. As a percentage of revenue, selling and marketing expenses represented ~~40%~~35% of revenue in the three months ended ~~September~~June 30, ~~2022~~2023 compared with ~~36%~~41% in the same period in ~~2021.~~2022.

~~Nine~~Six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022

~~Selling~~The 22% increase in year-to-date selling and marketing expenses ~~increased by $24.2 million, or 40% from $60.6 million in the nine months ended September 30, 2021,~~compared to ~~$84.8 million in the same period in 2022. The increase~~prior year is due to ~~$21.6 million related to the selling and marketing~~higher costs ~~of the acquired businesses comprised of RWS, Floify and AHP, Rynoh, HOA. Growth~~ in the ~~insurance~~Insurance segment’s variable policy acquisition 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~~marketing expenses. As a percentage of revenue, selling and marketing expenses represented 36% of revenue in the current year-to-date period compared to 41% of revenue in the ~~nine months ended September 30, 2022, compared with 43% 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.~~last year.

Product and ~~technology~~Technology

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

Product and technology expenses ~~increased~~decreased by ~~$3.1~~$0.3 million, or ~~28%~~2%, from ~~$11.3~~$15.8 million in the three months ended ~~September~~June 30, ~~2021~~2022, to ~~$14.4~~$15.5 million in the same period in 2022. The increase is mainly due to $4.9 million increase 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.2023. As a percentage of revenue, product and technology expenses represented ~~19%~~16% of revenue in the three months ended ~~September~~June 30, ~~2022~~2023, compared with ~~18% in the same period in 2021.~~

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

~~Product and technology expenses increased by $10.3 million, or 30% from $34.2 million in the nine months ended September 30, 2021, to $44.4 million~~22% in the same period in 2022. The ~~increase~~decrease is mainly due to ~~$13.6 million increase in product~~lower depreciation and amortization expense.

Six months ended June 30, 2023, compared to six months ended June 30, 2022

Product and technology ~~costs of~~expenses decreased by $0.6 million, or 2%, from $30.0 million in the ~~acquired businesses, most notably HOA, Floify, Rynoh, RWS and AHP. This was partially offset by $1.6~~six months ended June 30, 2022, to $29.4 million ~~lower stock-based compensation expense.~~in the same period in 2023. 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 the three months ended September 30, 2021 to $25.3 million in the same period in 2022, primarily due to higher general and administrative expenses of Floify and RWS, and additional investment in corporate resources and systems, as well as SOX implementation.

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~~Also, stock-based compensation expense for~~expenses represented 16% of revenue in the ~~three~~six months ended ~~September~~June 30, ~~2022 was $0.6 million lower than~~2023, compared with 22% in the same period in ~~2021.~~2022. The decrease is mainly due to lower depreciation and amortization expense.

~~Nine~~General and Administrative

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

General and administrative expenses ~~increased~~decreased by ~~$13.9~~$5.5 million, or ~~21%~~20%, from ~~$66.5~~$28.3 million in ~~the nine~~three months ended ~~September~~June 30, ~~2021,~~2022, to ~~$80.4~~$22.8 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~~2023, primarily 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~~$2.7 million non-cash gain on revaluation of contingent consideration ~~of $5.3 million as~~during the three months ended June 30, 2023, compared to a ~~gain of $0.4~~$1.4 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~~non-cash loss on revaluation in the same period in ~~2021.~~2022, which contributed $4.1 million to the overall decrease. Successful expense control efforts drove the remaining decrease.

~~Impairment~~As a percentage of revenue, general and administrative expenses represented 23% of revenue in the three months ended June 30, 2023, compared with 40% in the same period in 2022.

Six months ended June 30, 2023, compared to six months ended June 30, 2022

General administrative expenses for the six months ended June 30, 2023, decreased by $6.2 million, or 11%, compared to the same period last year. The decrease was primarily due to a $2.8 million non-cash gain on revaluation of contingent consideration during the current year compared to a $4.7 million non-cash loss on ~~intangible assets~~revaluation in the same period in 2022, which contributed $7.5 million to the overall decrease. This decrease was partially offset by higher professional fees and ~~goodwill~~additional investment in corporate resources and systems in the first quarter of 2023.

Provision for Doubtful Accounts

Three and six months ended June 30, 2023, compared to three and six months ended June 30, 2022

In the second quarter of 2023, we wrote off approximately $48.2 million of reinsurance balance due from a reinsurer as described in Note 16 of the notes to the unaudited condensed consolidated financial statements. There was no significant write-off of reinsurance balance due in the same period last year.

Impairment Loss on Intangible Assets and Goodwill

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

In the three months ended ~~September~~June 30, ~~2022, the Company~~2023, we recorded ~~impairment losses on intangible assets and goodwill totaling $57.1 million, which included~~ a ~~$39.4 million~~ goodwill impairment ~~at its~~charge of $55.2 million in our Insurance ~~segment, and~~segment. This impairment follows a ~~$17.7 million intangible impairment at its Vertical Software segment. These impairment charges reflect recent continued~~sustained decrease in stock price, increased costs due to inflationary pressures, hardening of the ~~Company’s common stock valuation,~~reinsurance markets, and ~~broad disruptions in the equity markets, specifically for technology and property and casualty insurance companies.~~volatile weather. There were no impairment losses on intangible assets and goodwill in the same period in ~~2021.~~2022.

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023, compared to ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022

In the ~~nine months ended September 30, 2022,~~second quarter of 2023, we recorded a goodwill impairment charge of $55.2 million in our Insurance segment. In the ~~Company~~first quarter of 2023, we recorded a $2.0 million impairment ~~losses~~charge 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~~in our Vertical Software segment. These ~~impairment charges reflect recent continued~~impairments follow a sustained decrease in stock price, increased costs due to inflationary pressures, hardening of the ~~Company’s common stock valuation,~~reinsurance markets, volatile weather, and ~~broad disruptions~~a deterioration of the macroeconomic environment in the ~~equity markets, specifically for technology~~housing and ~~property~~real estate and ~~casualty~~ insurance ~~companies.~~industries. There were no impairment ~~losses on intangible assets and goodwill~~charges in the ~~same~~corresponding 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.last year.

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~~Change in fair value of earnout liability~~Interest Expense

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

~~Changes in fair value of earnout liability were less than $0.1~~Interest expense increased by $6.9 million, ~~(gain) and $7.4~~or 356%, from $1.9 million ~~(gain)~~ in the three months ended ~~September~~June 30, 2022, ~~and 2021, respectively.~~to $8.8 million in the same period in 2023. The ~~decrease in fair value was primarily~~increase is mainly due to interest at a higher weighted average rate on a higher aggregate debt balance after issuance of the ~~decline~~2028 Notes in April 2023. The non-cash amortization of debt discount and issuance costs also contributed to the increase.

Six months ended June 30, 2023, compared to six months ended June 30, 2022

Year-to-date interest expense, increased by $6.6 million, or 152%, from $4.4 million 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~~same period in ~~fair value of earnout liability were $14.4 million (gain) and $15.4 million (loss) in the nine months ended September 30, 2022 and 2021, respectively.~~2022. The ~~decrease in fair value was primarily~~increase is mainly due to ~~the decline in the stock price~~interest at ~~September 30, 2022 as compared to September 30, 2021. During the nine months ended September 30, 2021, $25.8 million~~a higher weighted average rate on a higher aggregate debt balance after issuance of the ~~earnout liability was reclassified~~2028 Notes in April 2023. The non-cash amortization of debt discount and issuance costs also contributed to ~~additional paid in capital as a result of a vesting event in March 2021.~~the increase.

Change in ~~fair value~~Fair Value of ~~private warrant liability~~Earnout Liability

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

~~Changes in~~The fair value of ~~private warrant~~the earnout liability ~~were $0.1 million (gain) and $2.7 million (gain)~~changed more in the ~~three months ended September 30,~~second quarter of 2022 ~~and 2021, respectively.~~than in the same quarter this year. The decrease in ~~fair value~~our common stock price drove the change and was ~~primarily due to~~more pronounced during the ~~decline~~second quarter of 2022 than in the ~~stock price at September~~second quarter of 2023.

Six months ended June 30, ~~2022 as~~2023, compared to ~~September 30, 2021.~~

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

~~Changes in~~The fair value of ~~private warrant~~the earnout liability ~~were $14.4 million (gain) and $17.5 million (loss)~~changed more in the ~~nine~~six months ended ~~September~~June 30, 2022, ~~and 2021, respectively.~~than in the same period this year. The decrease in ~~fair value was primarily due to the decline in the~~our common stock price ~~at September 30,~~drove the change and was more pronounced in 2022 ~~as compared to September 30, 2021.~~than in 2023.

~~Investment income and realized gains, net~~Change in Fair Value of ~~investment expenses~~Private Warrant Liability

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

The fair value of the private warrant liability changed more in the second quarter of 2022 than in the same quarter this year. The decrease in our common stock price drove the change and was more pronounced during the second quarter of 2022 than in the second quarter of 2023.

Six months ended June 30, 2023, compared to six months ended June 30, 2022:

The fair value of the private warrant liability changed more in the six months ended June 30, 2022, than in the same period this year. The decrease in our common stock price drove the change and was more pronounced in 2022 than in 2023.

Change in Fair Value of Derivatives

Three and six months ended June 30, 2023, compared to three and six months ended June 30, 2022

In connection with the issuance of the 2028 Notes in April 2023 and in accordance with GAAP, certain features of the notes were bifurcated and accounted for separately from the notes. These features are recorded as derivatives, and changes in their fair value are recognized in net loss each period. There were no corresponding derivatives in prior year.

Table of Contents

Gain on Extinguishment of Debt

Three months ended June 30, 2023, compared to three months ended June 30, 2022

In connection with the partial repurchase of the 2026 Notes, we recognized an $81.4 million gain on extinguishment of debt. See Note 7 in the notes to the unaudited condensed consolidated financial statements.

Six months ended June 30, 2023, compared to six months ended June 30, 2022:

Investment Income and Realized Gains, Net of Investment Expenses

Three months ended June 30, 2023, compared to three months ended June 30, 2022

Investment income and realized gains, net of investment expenses, ~~was $0.3~~were $1.2 million and $0.2 million in the three months ended ~~September~~June 30, 2023 and 2022, respectively. Total investments balance was $92.7 million at June 30, 2023, and ~~2021, respectively. In April 2021,~~$64.4 million at June 30, 2022. A 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.~~income.

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023, compared to ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022

Investment income and realized gains, net of investment expenses, ~~was $0.8~~were $2.0 million and $0.4 million in the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, respectively. Total investments balance was $92.7 million at June 30, 2023, and ~~2021, respectively. In April 2021,~~$64.4 million at June 30, 2022. A 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)~~Tax Benefit

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

Income tax ~~benefit~~provision of ~~$23 thousand~~less than $0.1 million and ~~$1.8~~$0.5 million was recognized for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, 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~~our 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~~

~~Table of Contents~~

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

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023, compared to ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022

Income tax ~~expense~~benefit of ~~$0.3~~$0.1 million and income tax ~~benefit~~provision of ~~$9.9~~$0.3 million was recognized for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, 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~~our 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.~~assets.

Segment Results of Operations

~~The Company operates~~We operate 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.

~~Segment Revenue~~

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Vertical Software Segment

Insurance Segment

Vertical Software Segment

Insurance Segment
Revenue:

Software and service subscriptions

$
17,529

$
—

$
55,165

$
—
Move-related transactions (excluding insurance)

21,569

—

51,155

—
Post-move transactions

5,365

—

15,644

—
Insurance

—

30,903

—

86,732
Total revenue

$
44,463

$
30,903

$
121,964

$
86,732

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Vertical Software Segment

Insurance Segment

Vertical Software Segment

Insurance Segment
Revenue:

Software and service subscriptions

$
15,238

$
—

$
38,716

$
—
Move-related transactions (excluding insurance)

21,576

—

46,742

—
Post-move transactions

5,473

—

16,171

—
Insurance

—

20,482

—

39,223
Total revenue

$
42,287

$
20,482

$
101,629

$
39,223

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

For the three months ended September 30, 2022, Vertical Software segment revenue was $44.5 million or 59.0% of total revenue for the same period. For the three months ended September 30, 2021, Vertical Software segment revenue was $42.3 million or 67.0% 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 in revenue in 2022 is primarily driven by the recent acquisitions, accelerated growth after acquisition and organic growth.

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Segment Revenue


	Three Months Ended June 30, 2023				Six Months Ended June 30, 2023
	Vertical Software Segment		Insurance Segment		Vertical Software Segment		Insurance Segment
Revenue:
Software and service subscriptions	$	17,524	$	—	$	34,333	$	—
Move-related transactions		12,246		—		20,015		—
Post-move transactions		4,665		—		8,714		—
Insurance		—		64,330		—		123,072
Total revenue	$	34,435	$	64,330	$	63,062	$	123,072


	Three Months Ended June 30, 2022				Six Months Ended June 30, 2022
	Vertical Software Segment		Insurance Segment		Vertical Software Segment		Insurance Segment
Revenue:
Software and service subscriptions	$	19,847	$	—	$	37,078	$	—
Move-related transactions		17,458		—		29,586		—
Post-move transactions		5,235		—		10,280		—
Insurance		—		28,375		—		57,538
Total revenue	$	42,540	$	28,375	$	76,944	$	57,538

Three months ended June 30, 2023, compared to three months ended June 30, 2022

For the three months ended June 30, 2023, Vertical Software segment revenue was $34.4 million or 35% of total revenue. For the three months ended June 30, 2022, Vertical Software segment revenue was $42.5 million or 60% of total revenue. The decrease in revenue is primarily driven by a 21% reduction in year-over-year industry home sales which adversely affected our moving business.

Insurance segment revenue was ~~$30.9~~$64.3 million or ~~41.0%~~65% of total revenue for the three months ended ~~September~~June 30, ~~2022.~~2023. Insurance segment revenue was ~~$20.5~~$28.4 million or ~~33.0%~~40% of total revenue for the three months ended ~~September~~June 30, ~~2021.~~2022. The increase is mainly ~~due to the acquisitions of RWS (acquired in April 2022)~~driven by higher warranty sales and ~~AHP (acquired in September 2021), and the accelerated growth of these businesses after acquisition,~~insurance renewals as well as ~~organic growth of the Company’s existing insurance operation of HOA.~~increases in per-policy premiums and lower reinsurance ceding.

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023, compared to ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022

For the ~~nine~~six months ended ~~September~~June 30, 2023, Vertical Software segment revenue was $63.0 million or 34% of total revenue. For the six months ended June 30, 2022, Vertical Software segment revenue was ~~$122.0~~$76.9 million or ~~58.4%~~57% of total revenue. The decrease in revenue is mainly driven by a 23% reduction in year-over-year industry home sales which adversely affected our moving business.

Insurance segment revenue was $123.1 million or 66% of total revenue for the ~~same period. For the nine~~six months ended ~~September~~June 30, ~~2021, Vertical Software~~2023. Insurance segment revenue was ~~$101.6~~$57.5 million or ~~72.0%~~43% 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 and organic growth.

~~Insurance segment revenue was $86.7 million for the nine~~six months ended ~~September~~June 30, 2022, 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.2022. The increase is mainly ~~due to the acquisitions of RWS (acquired in April 2022), AHP (acquired in September 2021)~~driven by higher warranty sales and ~~HOA (acquired in April 2021), and the accelerated growth of these businesses after acquisition,~~renewals as well as ~~the organic growth~~increases in per-policy premiums and lower reinsurance ceding.

Table of ~~HOA.~~Contents

Segment Adjusted EBITDA (Loss)

~~Segment Adjusted EBITDA (loss)~~ is defined as revenue less ~~operating~~the following expenses associated with ~~the segments.~~each segment: cost of revenue, sales and marketing, product and technology, general and administrative expenses, and provision for doubtful accounts. Segment Adjusted EBITDA ~~(loss)~~(Loss) also excludes non-cash items ~~certain transactions~~or items that ~~are~~management does not ~~indicative of ongoing segment operating and financial performance and are not~~consider reflective of ~~the Company’s~~ongoing 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.~~

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021
Segment adjusted EBITDA (loss):

Vertical Software

$
4,956

$
7,712

$
13,978

$
19,041
Insurance

(2,317)

5,473

(4,099)

3,067
Corporate and Other⁽¹⁾

(15,611)

(12,312)

(44,190)

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

$
(12,972)

$
873

$
(34,311)

$
(18,646)

⁽¹⁾~~Includes costs that are not directly attributable~~reconciliations to ~~reportable segments, as well as certain shared costs.~~GAAP consolidated financial information for the periods presented.

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


	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
Segment Adjusted EBITDA (Loss):
Vertical Software	$	1,816	$	5,652	$	1,420	$	8,536
Insurance		(31,181)		(5,609)		(38,366)		(5,394)
Subtotal		(29,365)		43		(36,946)		3,142
Corporate and other		(13,769)		(15,048)		(28,070)		(28,503)
Adjusted EBITDA (Loss)	$	(43,134)	$	(15,005)	$	(65,016)	$	(25,361)

Our Insurance segment had a Segment Adjusted EBITDA (Loss) of $(31.2) million in the second quarter of 2023, representing 72% of Adjusted EBITDA (Loss) for the same period. Our Insurance segment had a Segment Adjusted EBITDA (Loss) of $(38.4) million in the six months ended June 30, 2023, compared to $(5.4) million in the same period last year. This was a significantly larger loss than the same period last year due to extreme weather events toward the end of the second quarter of 2023 and hardened reinsurance markets. Our insurance carrier continues to focus on underwriting performance, including future premium per policy increases, increasing deductibles, and expanding the number of states where we are approved to use our unique data to better price risk.

Vertical Software Segment Adjusted EBITDA (Loss) was $1.8 million in the second quarter of 2023 and $1.4 million in the six months ended June 30, 2023, impacted by the soft housing market and inflationary pressures in fixed costs.

Corporate expenses were $13.8 million in the second quarter of 2023, a $1.3 million decrease from the same period in the prior year due to strong expense control, and $28.1 million in the current year-to-date period, which is consistent with the same period in the prior year. Corporate expenses decreased to 14% of total revenue for the three-month period ended June 30, 2023, from 21% in the same period in the prior year.

Non-GAAP Financial Measures

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

~~The Company defines~~We define Adjusted EBITDA ~~(loss)~~(Loss) as net income (loss) adjusted for interest ~~expense, net,~~expense; income ~~taxes, other expenses, net,~~taxes; depreciation and ~~amortization, impairment~~amortization; gain or loss on extinguishment of debt; other expense (income), net; impairments of intangible assets and ~~goodwill, non-cash long- losses and impairment~~goodwill; provision for doubtful accounts related to reinsurance, or related recoveries; impairments of property, equipment, and ~~software,~~software; stock-based compensation ~~expense and acquisition-related impacts, amortization of intangible assets,~~expense; mark-to-market gains ~~(losses)~~or losses recognized on changes in the value of contingent consideration arrangements, ~~if any, gain or loss on divestures~~earnouts, warrants, and ~~certain~~derivatives; restructuring costs; acquisition and other transaction ~~costs.~~costs; and non-cash bonus expense. Adjusted EBITDA ~~(loss)~~(Loss) as a percent of revenue is defined as Adjusted EBITDA ~~(loss)~~(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~~Our management uses these non-GAAP financial measures as supplemental measures of ~~the Company’s~~our 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~~We believe that the use of these non-GAAP financial measures provides investors with useful information to evaluate ~~the Company’s~~our operating and financial performance and trends and in comparing ~~Porch’s~~our 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~~our definitions and methodology in

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calculating these non-GAAP measures may not be comparable to those used by other companies. In addition, ~~the Company~~we 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~~our consolidated financial statements. ~~The Company~~We 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.

~~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, 2022 and 2021, respectively (dollar amounts in thousands):~~

Three Months Ended September 30,


Nine Months Ended September 30,


2022

2021


2022

2021

Revenue

$
75,366

$
62,769

$
208,696

$
140,852

Less: Cost of revenue

(33,269)

(19,158)

(83,016)

(44,587)

Revenue less cost of revenue

42,097

43,611

125,680

96,265

Less: Selling and marketing costs

30,245

22,874

84,815

60,636

Less: Product and technology costs

14,438

11,317

44,446

34,158

Less: General and administrative costs

25,257

22,034

80,360

66,463

Less: Impairment loss on intangible assets and goodwill

57,057

—

57,057

—

Total operating expenses

$
160,266

$
75,383

$
349,694

$
205,844

Operating loss

$
(84,900)

$
(12,614)

$
(140,998)

$
(64,992)

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

Revenue less cost of revenue decreased by $1.5 million, or 3.5% from $43.6 million in the three months ended September 30, 2021 to $42.1 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. The decreased revenue less cost of revenue in 2022 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 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.

Adjusted EBITDA ~~(loss)~~(Loss)

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

Three Months Ended September 30,

Nine Months Ended September 30,


2022

2021

2022

2021

Net loss

$
(86,391)

$
(5,099)

$
(118,564)

$
(86,497)

Interest expense

2,085

1,857

6,236

4,296

Income tax benefit (expense)

(23)

(1,836)

268

(9,917)

Depreciation and amortization

8,676

4,431

21,574

10,787

Loss (gain) on extinguishment of debt

—

3,133

—

(5,110)

Other expense (income), net

(69)

(316)

37

(225)

Impairment loss on intangible assets and goodwill

57,057

—

57,057

—

Non-cash losses and impairment of property, equipment and software

31

76

101

216

Non-cash stock-based compensation expense

5,089

6,579

20,645

30,627

Revaluation of contingent consideration

565

195

5,251

(380)

Revaluation of earnout liability

(43)

(7,413)

(13,809)

15,388

Revaluation of private warrant liability

(124)

(2,692)

(14,391)

17,521

Acquisition and related expense

175

1,958

1,284

4,648

Adjusted EBITDA (loss)

$
(12,972)

$
873

$
(34,311)

$
(18,646)

Adjusted EBITDA (loss) as a percentage of revenue

(17)
%

1
%

(16)
%

(13)
%


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net loss	$	(86,963)		$	(27,325)		$	(125,703)		$	(36,610)
Interest expense		8,775			1,925			10,963			4,352
Income tax provision (benefit)		29			468			(82)			290
Depreciation and amortization		6,214			6,416			12,229			12,899
Gain on extinguishment of debt		(81,354)			—			(81,354)			—
Other expense (income), net		(1,578)			162			(2,340)			107
Impairment loss on intangible assets and goodwill		55,211			—			57,232			—
Loss on reinsurance contract (1)		48,244			—			48,244			—
Impairment loss on property, equipment, and software		254			—			254			70
Stock-based compensation expense		6,404			9,702			13,298			15,556
Mark-to-market losses (gains)		279			(5,184)			(220)			(23,347)
Restructuring costs		1,093			—			2,077			—
Acquisition and other transaction costs		258			357			386			1,322
Non-cash bonus expense		—			(1,526)			—			—
Adjusted EBITDA (Loss)	$	(43,134)		$	(15,005)		$	(65,016)		$	(25,361)
Adjusted EBITDA (Loss) as a percentage of revenue		(44)	%		(21)	%		(35)	%		(19)	%

⁽¹⁾See Note 16 in the notes to unaudited condensed consolidated financial statements.

Adjusted EBITDA ~~(loss)~~(Loss) for the three months ended ~~September~~June 30, ~~2022~~2023, was ~~$13~~$(43.1) million, a ~~$13.9~~$28.1 million ~~decline~~increase from Adjusted EBITDA (Loss) of ~~$0.9~~$(15.0) 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. During 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 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.2022. The ~~decline~~increase in Adjusted EBITDA ~~(loss)~~(Loss) in ~~2022~~2023 is primarily driven by extreme weather events, lower ceding, and the macro housing environment affecting ~~both segments, and higher volume of claims paid out by HOA~~primarily the moving business in ~~the second and third quarter of 2022, affecting the Insurance~~our Vertical Software segment. Continued investments in sales and marketing and ~~product and technology related to consumer experience, app build out, data platforms and~~ 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 Adjusted EBITDA ~~(loss)~~(Loss). ~~This decline~~

Adjusted EBITDA (Loss) for the six months ended June 30, 2023, was ~~partially offset~~$(65.0) million, a $39.6 million increase from Adjusted EBITDA (Loss) of $(25.4) million for the same period in 2022. The increase in Adjusted EBITDA (Loss) in 2023 is primarily driven by extreme weather events, lower ceding, and the ~~impact~~macro housing environment affecting primarily the moving business in our Vertical Software segment. Continued investments in sales and marketing and investments in establishing and maintaining the requirements of the ~~2022~~Sarbanes-Oxley Act (“SOX”) and ~~2021 acquisitions.~~other internal controls across IT and accounting organizations further impacted Adjusted EBITDA (Loss).

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Liquidity and Capital Resources

Since inception, as a private company, ~~the Company has~~we have financed ~~its~~our operations primarily from the sales of redeemable convertible preferred stock and convertible promissory notes, and proceeds from ~~the~~ senior secured term loans. On December 23, 2020, ~~the Company~~we received approximately $269.5 million of aggregate cash proceeds from recapitalization, net of transaction costs, as itwe 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~~we 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 the exercise of public warrants and stock options, respectively. Also during 2022, we drew $10.0 million on HOA’s term loan facility.

In April 2023, we issued $333 million of 6.75% Senior Secured Convertible Notes due in 2028 (the “2028 Notes”) in a private placement transaction. We 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. We intend to use the remainder of the net proceeds for general corporate purposes.

We participate in an advance funding arrangement with third-party financers that provide us 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 us. As of June 30, 2023, and December 31, 2022, the principal balance of this advance funding arrangement is $5.3 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~~June 30, ~~2022, the Company~~2023, we had cash and cash equivalents of ~~$260.2~~$265.6 million and ~~$16.8 million of~~ restricted cash ~~respectively.~~of $39.3 million. Restricted cash ~~equivalents~~ as of ~~September~~June 30, ~~2022~~2023, includes ~~$5.1~~$29.1 million held by ~~the Company’s~~our 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~~$6.5 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~~We have incurred net losses since ~~its~~our inception and ~~has~~have an accumulated deficit at ~~September~~June 30, ~~2022~~2023, and December 31, ~~2021~~2022 totaling ~~$542.7~~$713.8 million and ~~$424.1~~$585.0 million, respectively.

As of ~~September~~June 30, ~~2022~~2023, and December 31, ~~2021, the Company~~2022, we had ~~$440.5~~$564.0 million and ~~$425.6~~$451.1 million, respectively, of aggregate principal amount outstanding in convertible notes, promissory notes, ~~and~~ line of credit, ~~and~~ term loan ~~facilities, respectively.~~facility, and advance funding arrangement.

Based on ~~the Company’s~~our current operating and growth plan, management believes cash and cash equivalents at ~~September~~June 30, ~~2022,~~2023, are sufficient to finance ~~the Company’s~~our operations, planned capital expenditures, working capital requirements, and debt service obligations for at least the next 12 months. As ~~the Company’s~~our operations evolve and we continue ~~its~~our growth strategy, including through acquisitions, ~~the Company~~we may elect or need to obtain alternative sources of capital, and itwe may finance additional liquidity needs in the future through one or more equity or debt financings. ~~The Company~~We 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~~us or could be dilutive to ~~its~~our 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~~our ability to pay dividends and expenses is largely dependent on dividends or other distributions from its subsidiaries. ~~The Company’s~~Our 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~~June 30, ~~2022,~~2023, our insurance companies held cash and cash equivalents of ~~$77.7~~$99.0 million and investments ~~held~~of $92.7 million.

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Insurance companies in the United States are also required by ~~these companies was $62.6 million.~~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. We are currently assessing the impact of the subsequent event discussed in the “Recent Developments” section above on capital requirements. We recovered $47.6 million cash collateral in the third quarter of 2023 and are in the process of pursuing additional collateral. HOA has already secured supplemental reinsurance coverage in the amount of approximately $42 million and is currently seeking additional supplemental reinsurance coverage (whether from Porch Group’s captive reinsurer, third parties or a combination thereof) in order to maintain adequate coverage in future periods against potential excess losses in the event of a severe weather event, and to satisfy regulatory and rating agency requirements.

~~The Company~~We 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.

~~Table of Contents~~

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


	Nine Months Ended September 30,				$		%		Six Months Ended June 30,				$		%
	2022		2021		Change		Change		2023		2022		Change		Change
Net cash used in operating activities	$	(12,808)	$	(41,717)	$	28,909	69	%	$	(8,777)	$	(4,156)	$	(4,621)	(111)	%
Net cash used in investing activities		(46,444)		(184,657)		138,213	75	%		(7,950)		(38,404)		30,454	79	%
Net cash (used) provided by financing activities		11,454		434,752		(423,298)	97	%
Net cash (used in) provided by financing activities										92,972		(155)		93,127	(60,082)	%
Change in cash, cash equivalents and restricted cash	$	(47,798)	$	208,378	$	(256,176)	NM		$	76,245	$	(42,715)	$	118,960	278.50	%

Operating Cash Flows

Net cash used in operating activities was ~~$12.8~~$8.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. Net cash used in operating activities consists of net loss of ~~$118.6~~$125.7 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include impairment loss on goodwill and intangible assets ~~and goodwill~~ of ~~$57.1~~$57.2 million, stock-based compensation expense of ~~$20.6~~$13.3 million, depreciation and amortization of ~~$21.6~~$12.2 million, non-cash interest expense of ~~$2.3~~$9.8 million, fair value adjustments to contingent consideration of ~~$5.3~~$2.8 million ~~(loss)~~(gain), and fair value adjustments to private warrant liability of $0.4 million (gain). Net changes in working capital were proceeds of cash of $56.2 million, primarily due to higher loss and loss adjustment expense reserves, other insurance liabilities, and accounts receivable offset by decreases in deferred revenue, refundable deposits and accrued expenses, and increases in prepaid expenses and other current assets and reinsurance balance due.

Net cash used in operating activities was $4.2 million for the six months ended June 30, 2022. Net cash used in operating activities consists of net loss of $36.6 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of $15.6 million, depreciation and amortization of $12.9 million, non-cash interest expense of $2.3 million, loss on remeasurement of contingent consideration of $4.7 million, and fair value adjustments to earnout liability and private warrant liability of $13.8 million (gain) and ~~$14.4~~$14.3 million (gain), respectively. Net changes in working capital were ~~a source~~net proceeds of cash of ~~$23~~$22.9 million, primarily due to increases in deferred revenue, losses and loss adjustment expense reserves and other insurance liabilities, offset by ~~reinsurance balance due, accounts receivable and current liabilities.~~

Net cash used in operating activities was $41.7 million for the nine months ended September 30, 2021. Net cash used in operating activities consists of net loss of $86.5 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 million, depreciation and amortization of $10.8 million, gain on extinguishment of debt of $5.1 million, and fair value adjustments to earnout liability and private warrant liability of $15.4 million and $17.5 million, respectively. Net changes in working capital were a use of cash of $22.7 million, primarily due to increases in current liabilities andhigher reinsurance balance due.

Investing Cash Flows

Net cash used in investing activities was ~~$46.4~~$8.0 million for the ~~nine~~six months ended ~~September~~June 30, 2023. Net cash used in investing activities is primarily related to acquisitions, net of cash acquired, of $2.0 million, purchases of investments of $23.6 million, investments in developing internal-use software of $4.7 million, and purchases of property and equipment of $0.7 million. This was offset by the cash inflows related to maturities and sales of investments of $23.0 million.

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Net cash used in investing activities was $38.4 million for the six months ended June 30, 2022. Net cash used in investing activities is primarily related to acquisitions, net of cash acquired of ~~$37.0~~$32.0 million, purchases of investments of ~~$19.4~~$13.6 million, investments in developing internal-use software of ~~$5.8~~$3.5 million, and purchases of property and equipment of ~~$2.0~~$1.5 million. This was offset by the cash inflows related to maturities and sales of investments of ~~$17.8~~$12.2 million.

Net cash used in investing activities was $184.7 million for the nine months ended September 30, 2021. Net cash used in investing activities is primarily related to purchases of investments of $19.1 million, investments to develop internal use software of $2.6 million, and acquisitions, net of cash acquired of $178.7 million. This was offset by the cash inflows related to maturities and sales of investments of $16.4 million.

Financing Cash Flows

Net cash provided by financing activities was ~~$11.5~~$93.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. Net cash provided by financing activities is primarily related to the net proceeds from issuance of the 2028 Notes of $112.1 million offset by repurchases of stock of $5.6 million, repayments of advance funding of $2.7 million, debt ~~issuance, net~~repayments of ~~fees of $15.0~~$10.2 million and ~~exercises of stock options of $1.1 million. This was 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 million and debt repayments of $0.2~~$0.9 million.

Net cash ~~provided by~~used in financing activities was ~~$434.8~~$0.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Net cash ~~provided by~~used in financing activities is primarily related to ~~the issuance~~repayments of ~~the 2026 Notes~~advance funding and debt of ~~$413.5~~$9.0 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~~$1.9 million and ~~debt repayments~~payments of ~~$43.0~~acquisition-related contingent consideration of $1.6 million, partially offset by proceeds from advance funding of $10.7 million.

Off-Balance Sheet Arrangements

Since the date of incorporation, ~~the Company has~~we have 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 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~~No recently issued accounting pronouncements ~~the timing of their adoption, and the assessment,~~are expected to ~~the extent one has been made, of their potential~~be applicable to our business or materially impact ~~on the Company’s~~our financial condition and results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~The Company is~~We are 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~~our financial instruments and financial position represents the potential loss arising from adverse changes in interest rates. As of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021, the Company has~~2022, we have interest-bearing debt of ~~$440.5~~$564.0 million and ~~$425.6~~$451.1 million, respectively. ~~The Company’s~~Our 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”) have a principal balance of ~~$425~~$225 million as of ~~September~~June 30, ~~2022, have~~2023, a fixed coupon rate of ~~75 basis points,~~0.75%, and an effective interest rate of 1.3%. ~~As such,~~Our 6.75% Senior Secured Convertible Notes due 2028 (the “2028 Notes”) have a principal balance of $333 million as of June 30, 2023, a fixed coupon rate of 6.75%, and an effective interest rate of 17.9%. Interest expense recognized related to the 2028 Notes was approximately $7.3 million in the three and six months ended June 30, 2023, including $4.4 million contractual interest expense and $2.9 million amortization of debt issuance costs and discount. Because the coupon rates are fixed, interest expense on the 2026 Notes and the 2028 Notes will not change if market interest rates increase. Other debt as of ~~September~~June 30, ~~2022~~2023, totaled ~~$15.5~~$0.3 million and is variable-rate.

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

As of ~~September~~June 30, ~~2022, the Company’s~~2023, our insurance subsidiary has a ~~$62.6~~$92.7 million portfolio of fixed income securities and an unrealized loss of ~~$6.6~~$6.1 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~~53

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As of June 30, ~~2022,~~2023, accounts receivable and reinsurance balances due were ~~$37.0~~$24.7 million and ~~$304.0~~$272.5 million, respectively, were not interest-bearing assets, and are generally collected in less than 180 days. As such, ~~the Company does~~we do not consider these assets to have material interest rate risk.

Inflation Risk

~~The Company believes its~~We believe our operations have been negatively affected by inflation ~~in addition to~~and the change in the interest rate environment. General economic factors beyond ~~its~~our control and changes in the global economic environment, specifically fluctuations in inflation, including ~~the~~ access to credit under ~~terms~~ favorable ~~to the Company,~~terms, could result in lower revenues, higher costs, and decreased margins and earnings in the foreseeable future. While ~~the Company and its management teams~~we 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,~~we operate, 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~~our 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 and six months ended ~~September~~June 30, ~~2022. The Company’s~~2023. Our 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~~June 30, ~~2022,~~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~~our disclosure controls and procedures to ensure that information required to be disclosed by ~~the Company~~us 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~~our management, including ~~the Company’s~~our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures were not effective as of ~~September~~June 30, ~~2022~~2023, due to the material ~~weaknesses~~weakness in internal control over financial reporting described in Part II, Item 9A, of ~~the~~our 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 ongoing remediation efforts ~~for these~~related to the above identified material ~~weaknesses have included the following:~~weakness include:

●

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

●

~~investments~~Performing ongoing trainings with control performers to ~~upgrade or replace existing~~improve documentation that supports effective control activities, including IT general controls over logical user access;

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●

Designing and implementing additional monitoring controls necessary to detect misstatements over data produced by relevant financial systems ~~which~~at HOA;

●

Investing in the replacement of systems that do not have the appropriate infrastructure to meet the requirements of our internal control framework; and

●

~~expanding~~Expanding 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~~We plan to continue to assess internal controls and procedures and intend 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~~our internal control over financial reporting.

~~Table~~During the first six months of ~~Contents~~

~~During 2022, the Company~~2023, we have continued to take ~~actions~~action on initiatives to improve ~~the~~its 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. We intend to continue to take action on these initiatives to continue to improve our internal control environment.

Limitations on Effectiveness of Controls and Procedures

As specified above, ~~the Company~~our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. ~~Company~~Our 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,~~us, 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.

Termination of a reinsurance contract due to distress at one of HOA’s reinsurers may expose HOA and the Company to various risks that could materially and adversely affect HOA’s and the Company’s business, financial condition, and results of operations.

In the third quarter of 2023, HOA, a subsidiary of Porch Group, discovered that for one of its reinsurance contracts for which capital was arranged by Vesttoo Ltd (“Vesttoo”), there are allegations of fraudulent activity in connection with collateral provided to HOA and certain other third parties. As a result, and in accordance with the terms of the reinsurance agreement, HOA terminated its reinsurance contract with the reinsurer on August 4, 2023, with an effective date of July 1, 2023. Had HOA not terminated the contract, the contract would have expired on its own terms on December 31, 2023. The agreement with this reinsurer provided coverage for 40% of HOA’s core book and coverage up to approximately $175 million in a catastrophic event.

Following the effective date of the termination, HOA seized approximately $47.6 million in available liquid collateral from a reinsurance trust, of which HOA was the beneficiary. In addition, HOA has secured supplemental reinsurance coverage in the amount of approximately $42 million and is currently seeking additional supplemental reinsurance coverage (whether from Porch Group, third parties or a combination thereof) in order to maintain adequate coverage in future periods against potential excess losses in the event of a severe weather event, and to satisfy regulatory and rating agency requirements. Regardless of whether sufficient coverage is obtained, HOA will continue to remain obligated with respect to all claims and claim settlement expenses under its policies, including claims incurred but not yet reported for prior periods and claims and expenses that are no longer subject to the reimbursement rights in favor of HOA under the terminated reinsurance contract. HOA is also seeking to understand and pursue its rights with respect to the letter of credit required by the reinsurance contract in the amount of $300 million as additional collateral, which advisors to the issuing bank have alleged is invalid.

In the event HOA is unable to enforce or recover the collateral underlying the letter of credit, secure sufficient replacement coverage on terms favorable to HOA, or a severe weather event occurs in the absence of sufficient coverage, HOA and the Company could be subject to significant and unforeseen risks, including, but not limited to, capital, liquidity, regulatory, rating agency, operational, financial, and accounting risks, any or all of which could have material and adverse impact on HOA’s and the Company’s business, operations, financial condition, and results of operations.

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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.

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 affected.

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

None.

Item 3. Defaults Upon Senior Securities

~~None.~~

~~Item 4. Mine Safety Disclosures~~

~~Not applicable.~~

~~Item 5. Other Information~~

None.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Matt Ehrlichman, our Chairman, Chief Executive Officer, and Founder, entered into a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) on June 2, 2023 (the “10b5-1 Plan”). The 10b5-1 Plan is scheduled to terminate on December 31, 2023, and covers the purchase of up to an aggregate of 2,327,777 shares of the Company’s common stock. The 10b5-1 Plan is intended to satisfy the affirmative defense Rule of 10b5-1(c). Trades under the 10b5-1 Plan will not commence until at least 90 days following the date on which such plan was entered. During the three months ended June 30, 2023, no other director or officer (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K).

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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


3.1	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).
3.2	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	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).
4.2	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).
10.1			Form of Subscription Agreement (incorporated by referenced to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on April 17, 2023).
10.2			Form of Notes Purchase Agreement (incorporated by referenced to Exhibit 10.4 of the Company’s Form 8-K (File No. 001-39142), filed with the SEC on April 17, 2023).
10.3+		~~CFO Employment~~Security Agreement, dated ~~November 2, 2022~~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 ~~November 2, 2022)~~April 21, 2023).
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~~ + 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 ~~compensatory plan or arrangement.~~

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~~August 9, ~~2022~~2023


	PORCH GROUP, INC.

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

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								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Loss		Equity (Deficit)
Balances as of March 31, 2023	97,018,032	$	10	$	677,426	$	(626,864)	$	(5,296)	$	45,276
Net loss	—		—		—		(86,963)		—		(86,963)
Other comprehensive loss, net of tax	—		—		—		—		(780)		(780)
Stock-based compensation	—		—		6,404		—		—		6,404
Vesting of restricted stock units	1,627,546		—		—		—		—		—
Income tax withholdings	(476,622)		—		(679)		—		—		(679)
Balances as of June 30, 2023	98,168,956	$	10	$	683,151	$	(713,827)	$	(6,076)	$	(36,742)


Supplemental schedule of non-cash financing activities
Non-cash reduction in advanced funding arrangement obligations	$	7,848	$	—
Supplemental disclosures
Cash paid for interest	$	2,276	$	1,587
Income tax refunds received	$	2,300	$	—
Non-cash consideration for acquisitions	$	—	$	21,607
Cash payable for acquisition	$	—	$	5,000


	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


	September 30,		December 31,
	2022		2021
Software and computer equipment	$	8,397	$	7,287
Furniture, office equipment, and other		2,305		2,006
Internally developed software		15,555		13,102
Leasehold improvements		1,162		2,191
		27,419		24,586
Less: Accumulated depreciation and amortization		(16,183)		(17,920)
Property, equipment, and software, net	$	11,236	$	6,666


	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


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
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


	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	$	—	$	—	$	—	$	—	$	—


	Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022
	Vertical Software Segment		Insurance Segment		Vertical Software Segment		Insurance Segment
Revenue:
Software and service subscriptions	$	17,529	$	—	$	55,165	$	—
Move-related transactions (excluding insurance)		21,569		—		51,155		—
Post-move transactions		5,365		—		15,644		—
Insurance		—		30,903		—		86,732
Total revenue	$	44,463	$	30,903	$	121,964	$	86,732


	Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
	Vertical Software Segment		Insurance Segment		Vertical Software Segment		Insurance Segment
Revenue:
Software and service subscriptions	$	15,238	$	—	$	38,716	$	—
Move-related transactions (excluding insurance)		21,576		—		46,742		—
Post-move transactions		5,473		—		16,171		—
Insurance		—		20,482		—		39,223
Total revenue	$	42,287	$	20,482	$	101,629	$	39,223