FORM 10-Q
(Mark One)
March 31, 2024
Porch Group, Inc.
Delaware | 83-2587663 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
411 1st Avenue S., Suite 501,, Seattle, WA 98104Seattle, WA98104
(855)
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 |
Large accelerated filer |
| Accelerated filer |
| ||||||||||||||
Non-accelerated filer |
| Smaller reporting company |
| Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐o
99,186,767.
Table of Contents
|
|
| ||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
|
|
| |||||||
|
| |||||||||
|
|
| ||||||||
|
|
| ||||||||
|
|
|
|
| ||||||
|
|
| ||||||||
|
|
|
| |||||||
|
|
|
| |||||||
|
|
|
|
| ||||||
|
|
|
| |||||||
|
|
|
| |||||||
|
| Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) |
| |||||||
|
|
|
| |||||||
|
|
| ||||||||
|
|
|
| |||||||
|
| Notes to Condensed Consolidated Financial Statements (Unaudited) |
| |||||||
|
|
| ||||||||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ||||||||
|
|
|
| |||||||
| Quantitative and Qualitative Disclosures |
| ||||||||
|
|
|
| |||||||
|
| |||||||||
|
|
| ||||||||
|
| |||||||||
|
|
| ||||||||
|
|
| ||||||||
|
|
|
|
| ||||||
|
|
| ||||||||
|
|
|
|
| ||||||
|
| |||||||||
|
|
|
| |||||||
|
| |||||||||
|
|
|
| |||||||
|
| |||||||||
|
|
| ||||||||
|
| |||||||||
|
|
| ||||||||
|
|
| ||||||||
|
|
|
|
| ||||||
|
|
|
| |||||||
|
|
|
|
| ||||||
|
|
|
|
(Unaudited)
| | | | | | |
|
| 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 |
data)
March 31, 2024 | December 31, 2023 | ||||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 279,073 | $ | 258,418 | |||||||
Accounts receivable, net | 20,801 | 24,288 | |||||||||
Short-term investments | 31,175 | 35,588 | |||||||||
Reinsurance balance due | 75,419 | 83,582 | |||||||||
Prepaid expenses and other current assets | 16,666 | 13,214 | |||||||||
Deferred policy acquisition costs | 20,422 | 27,174 | |||||||||
Restricted cash and cash equivalents | 36,820 | 38,814 | |||||||||
Total current assets | 480,376 | 481,078 | |||||||||
Property, equipment, and software, net | 17,588 | 16,861 | |||||||||
Goodwill | 191,907 | 191,907 | |||||||||
Long-term investments | 102,941 | 103,588 | |||||||||
Intangible assets, net | 82,505 | 87,216 | |||||||||
Long-term insurance commissions receivable | 196 | 13,429 | |||||||||
Other assets | 5,600 | 5,314 | |||||||||
Total assets | $ | 881,113 | $ | 899,393 | |||||||
Liabilities and Stockholders’ Equity (Deficit) | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 5,250 | $ | 8,761 | |||||||
Accrued expenses and other current liabilities | 53,466 | 59,396 | |||||||||
Deferred revenue | 215,771 | 248,683 | |||||||||
Refundable customer deposits | 16,040 | 17,980 | |||||||||
Current debt | 150 | 244 | |||||||||
Losses and loss adjustment expense reserves | 112,560 | 95,503 | |||||||||
Other insurance liabilities, current | 40,742 | 31,585 | |||||||||
Total current liabilities | 443,979 | 462,152 | |||||||||
Long-term debt | 432,082 | 435,495 | |||||||||
Other liabilities | 48,910 | 37,429 | |||||||||
Total liabilities | 924,971 | 935,076 | |||||||||
Commitments and contingencies (Note 14) | |||||||||||
Stockholders’ equity (deficit) | |||||||||||
Common stock, $0.0001 par value: | 10 | 10 | |||||||||
Authorized shares – 400 million and 400 million, at March 31, 2024, and December 31, 2023, respectively | |||||||||||
Issued and outstanding shares – 97.9 million and 97.1 million, at March 31, 2024, and December 31, 2023, respectively | |||||||||||
Additional paid-in capital | 696,240 | 690,223 | |||||||||
Accumulated other comprehensive loss | (4,690) | (3,860) | |||||||||
Accumulated deficit | (735,418) | (722,056) | |||||||||
Total stockholders’ equity (deficit) | (43,858) | (35,683) | |||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 881,113 | $ | 899,393 |
and Comprehensive Loss (Unaudited)
| | | | | | | | | | | | |
|
| 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 |
data)
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Revenue | $ | 115,443 | $ | 87,369 | |||||||
Operating expenses: | |||||||||||
Cost of revenue | 75,844 | 51,275 | |||||||||
Selling and marketing | 33,948 | 32,585 | |||||||||
Product and technology | 13,920 | 13,950 | |||||||||
General and administrative | 26,399 | 26,066 | |||||||||
Impairment loss on intangible assets and goodwill | — | 2,021 | |||||||||
Total operating expenses | 150,111 | 125,897 | |||||||||
Operating loss | (34,668) | (38,528) | |||||||||
Other income (expense): | |||||||||||
Interest expense | (10,787) | (2,188) | |||||||||
Change in fair value of private warrant liability | (425) | 345 | |||||||||
Change in fair value of derivatives | 1,483 | — | |||||||||
Gain on extinguishment of debt | 4,891 | — | |||||||||
Investment income and realized gains, net of investment expenses | 3,644 | 758 | |||||||||
Other income, net | 22,678 | 762 | |||||||||
Total other income (expense) | 21,484 | (323) | |||||||||
Loss before income taxes | (13,184) | (38,851) | |||||||||
Income tax benefit (provision) | (178) | 111 | |||||||||
Net loss | (13,362) | (38,740) | |||||||||
Other comprehensive income (loss): | |||||||||||
Change in net unrealized loss, net of tax | (830) | 875 | |||||||||
Comprehensive loss | $ | (14,192) | $ | (37,865) | |||||||
Net loss per share - basic and diluted (Note 17) | $ | (0.14) | $ | (0.41) | |||||||
Shares used in computing basic and diluted net loss per share | 97,512 | 95,210 |
Stockholders’ Equity (Deficit) (Unaudited)
| | | | | | | | | | | | |
|
| 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) |
thousands unless otherwise stated, except per share data)
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||
Balances as of December 31, 2023 | 97,061 | $ | 10 | $ | 690,223 | $ | (722,056) | $ | (3,860) | $ | (35,683) | ||||||||||||||||||||||||
Net loss | — | — | — | (13,362) | — | (13,362) | |||||||||||||||||||||||||||||
Other comprehensive loss, net of tax benefit less than $0.1 million | — | — | — | — | (830) | (830) | |||||||||||||||||||||||||||||
Stock-based compensation | 620 | — | 5,368 | — | — | 5,368 | |||||||||||||||||||||||||||||
Exercise of stock options | 243 | — | 814 | — | — | 814 | |||||||||||||||||||||||||||||
Income tax withholdings | (55) | — | (165) | — | — | (165) | |||||||||||||||||||||||||||||
Balances as of March 31, 2024 | 97,869 | $ | 10 | $ | 696,240 | $ | (735,418) | $ | (4,690) | $ | (43,858) |
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||
Balances as of December 31, 2022 | 98,206 | $ | 10 | $ | 670,537 | $ | (585,023) | $ | (6,171) | $ | 79,353 | ||||||||||||||||||||||||
Net loss | — | — | — | (38,740) | — | (38,740) | |||||||||||||||||||||||||||||
Other comprehensive loss, net of tax less than $0.2 million | — | — | — | — | 875 | 875 | |||||||||||||||||||||||||||||
Stock-based compensation | 295 | — | 6,894 | — | — | 6,894 | |||||||||||||||||||||||||||||
Exercise of stock options | 5 | — | 8 | — | — | 8 | |||||||||||||||||||||||||||||
Income tax withholdings | (92) | — | (204) | — | — | (204) | |||||||||||||||||||||||||||||
Repurchases of common stock | (1,396) | — | — | (3,101) | — | (3,101) | |||||||||||||||||||||||||||||
Proceeds from sale of common stock | — | — | 191 | — | — | 191 | |||||||||||||||||||||||||||||
Balances as of March 31, 2023 | 97,018 | $ | 10 | $ | 677,426 | $ | (626,864) | $ | (5,296) | $ | 45,276 |
Cash Flows (Unaudited)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 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 |
thousands)
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net loss | $ | (13,362) | $ | (38,740) | |||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities | |||||||||||
Depreciation and amortization | 6,317 | 6,015 | |||||||||
Impairment loss on intangible assets and goodwill | — | 2,021 | |||||||||
Gain on extinguishment of debt | (4,891) | — | |||||||||
Loss on divestiture of business | 5,244 | — | |||||||||
Gain on settlement of contingent consideration | (14,930) | — | |||||||||
Change in fair value of private warrant liability | 425 | (345) | |||||||||
Change in fair value of contingent consideration | 1,051 | (154) | |||||||||
Change in fair value of derivatives | (1,483) | — | |||||||||
Stock-based compensation | 5,368 | 6,894 | |||||||||
Non-cash interest expense | 10,434 | 1,534 | |||||||||
Other | (799) | 508 | |||||||||
Change in operating assets and liabilities, net of acquisitions and divestitures | |||||||||||
Accounts receivable | (439) | 2,619 | |||||||||
Reinsurance balance due | 8,174 | 6,286 | |||||||||
Deferred policy acquisition costs | 6,752 | (8,994) | |||||||||
Accounts payable | (3,511) | (69) | |||||||||
Accrued expenses and other current liabilities | 1,829 | 1,390 | |||||||||
Losses and loss adjustment expense reserves | 17,057 | 14,895 | |||||||||
Other insurance liabilities, current | 9,158 | 16,712 | |||||||||
Deferred revenue | (33,017) | (24,100) | |||||||||
Refundable customer deposits | (2,034) | (4,607) | |||||||||
Other assets and liabilities, net | 11,122 | (3,896) | |||||||||
Net cash provided by (used in) operating activities | 8,465 | (22,031) | |||||||||
Cash flows from investing activities: | |||||||||||
Purchases of property and equipment | (41) | (356) | |||||||||
Capitalized internal use software development costs | (2,315) | (2,427) | |||||||||
Purchases, maturities, sales of short-term and long-term investments | 4,705 | (390) | |||||||||
Proceeds from sale of business | 10,348 | — | |||||||||
Acquisitions, net of cash acquired | — | (1,974) | |||||||||
Net cash provided by (used in) investing activities | 12,697 | (5,147) | |||||||||
Cash flows from financing activities: | |||||||||||
Proceeds from advance funding | — | 313 | |||||||||
Repayments of advance funding | — | (1,281) | |||||||||
Repayments of principal | (3,150) | (499) | |||||||||
Repurchase of stock | — | (5,608) | |||||||||
Other | 649 | (199) | |||||||||
Net cash used in financing activities | (2,501) | (7,274) | |||||||||
Net change in cash and cash equivalents & restricted cash and cash equivalents | $ | 18,661 | $ | (34,452) | |||||||
Cash and cash equivalents & restricted cash and cash equivalents, beginning of period | $ | 297,232 | $ | 228,605 | |||||||
Cash and cash equivalents & restricted cash and cash equivalents, end of period | $ | 315,893 | $ | 194,153 | |||||||
Supplemental schedule of non-cash investing and financing activities | |||||||||||
Non-cash reduction of convertible notes | $ | 5,000 | $ | — | |||||||
Non-cash reduction in advanced funding arrangement obligations | $ | 94 | $ | — | |||||||
Supplemental disclosures | |||||||||||
Cash paid for interest | $ | 969 | $ | 1,796 | |||||||
Income tax refunds received (paid) | $ | (174) | $ | 2,380 | |||||||
PORCH GROUP, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) – Continued
(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 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 |
| — | |
| — | |
| — | |
| (36,610) | |
| — | |
| (36,610) |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | (4,300) | | | (4,300) |
Stock-based compensation |
| — | |
| — | |
| 15,556 | |
| — | |
| — | |
| 15,556 |
Issuance of common stock for acquisitions | | 628,660 | | | — | | | 3,552 | | | | | | | | | 3,552 |
Contingent consideration for acquisitions | | — | | | — | | | 530 | | | — | | | — | | | 530 |
Vesting of restricted stock awards |
| 809,261 | |
| — | |
| — | |
| — | |
| — | |
| — |
Exercise of stock options |
| 274,457 | |
| — | |
| 692 | |
| — | |
| — | |
| 692 |
Income tax withholdings | | (233,447) | | | — | | | (1,922) | | | — | | | — | | | (1,922) |
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.
7
PORCH GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(all numbers in thousands)
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2023 |
| 2022 | ||
Cash flows from operating activities: | | |
|
| |
|
Net loss | | $ | (125,703) | | $ | (36,610) |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | |
|
|
Depreciation and amortization | |
| 12,229 | |
| 12,899 |
Provision for doubtful accounts | | | 48,955 | | | 207 |
Impairment loss on intangible assets and goodwill | | | 57,232 | | | — |
Gain on extinguishment of debt | | | (81,354) | | | — |
Gain on remeasurement of private warrant liability | |
| (360) | |
| (14,267) |
Loss (gain) on remeasurement of contingent consideration | |
| (2,810) | |
| 4,686 |
Loss (gain) on remeasurement of earnout liability and derivatives | | | 2,950 | | | (13,766) |
Stock-based compensation | |
| 13,298 | |
| 15,556 |
Interest expense (non-cash) | |
| 9,828 | |
| 2,339 |
Other | |
| 805 | |
| 1,916 |
Change in operating assets and liabilities, net of acquisitions and divestitures | |
| | |
|
|
Accounts receivable | |
| 1,030 | |
| (7,483) |
Reinsurance balance due | | | (21,651) | | | (40,835) |
Prepaid expenses and other current assets | |
| (9,656) | |
| (7,090) |
Accounts payable | |
| 2,929 | |
| (4,226) |
Accrued expenses and other current liabilities | |
| (10,906) | |
| 1,005 |
Losses and loss adjustment expense reserves | | | 65,077 | | | 26,945 |
Other insurance liabilities, current | | | 51,139 | | | 21,492 |
Deferred revenue | |
| (13,491) | |
| 38,167 |
Refundable customer deposits | |
| (8,061) | |
| (457) |
Long-term insurance commissions receivable | |
| (1,237) | |
| (2,940) |
Other | |
| 980 | |
| (1,694) |
Net cash used in operating activities | |
| (8,777) | |
| (4,156) |
Cash flows from investing activities: | |
|
| |
|
|
Purchases of property and equipment | |
| (672) | |
| (1,539) |
Capitalized internal use software development costs | |
| (4,735) | |
| (3,496) |
Purchases of short-term and long-term investments | |
| (23,602) | |
| (13,561) |
Maturities, sales of short-term and long-term investments | | | 23,033 | | | 12,241 |
Acquisitions, net of cash acquired | | | (1,974) | | | (32,049) |
Net cash used in investing activities | |
| (7,950) | |
| (38,404) |
Cash flows from financing activities: | |
|
| |
|
|
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 | | | 8 | | | 692 |
Income tax withholdings paid upon vesting of restricted stock units | | | (883) | | | (1,922) |
Proceeds from sale of common stock | | | 191 | | | — |
Payments of acquisition-related contingent consideration | | | (276) | | | (1,625) |
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 | | $ | 76,245 | | $ | (42,715) |
Cash, cash equivalents, and restricted cash, beginning of period | | $ | 228,605 | | $ | 324,792 |
Cash, cash equivalents, and restricted cash end of period | | $ | 304,850 | | $ | 282,077 |
| | | | | | |
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.
8
stated, except per share amounts)
more.
Certain prior period amounts have been reclassified to conform to the current year's presentation.
Comprehensive Loss
Comprehensive loss consistsseasonal nature of adjustments related to unrealized gains and losses on available-for-sale securities.
some portions of our insurance business.
9
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
due.
and Cash Equivalents
| | | | | | |
|
| June 30, 2023 |
| December 31, 2022 | ||
| | | | | | |
Cash and cash equivalents | | $ | 265,573 | | $ | 215,060 |
Total restricted cash | |
| 39,277 | |
| 13,545 |
Cash, cash equivalents, and restricted cash | | $ | 304,850 | | $ | 228,605 |
10
March 31, 2024 | December 31, 2023 | ||||||||||
Cash and cash equivalents | $ | 279,073 | $ | 258,418 | |||||||
Restricted cash and cash equivalents | 36,820 | 38,814 | |||||||||
Cash, cash equivalents, and restricted cash | $ | 315,893 | $ | 297,232 |
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
Impairment of Long-Lived Assets
11
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.
recovery of costs.
|
|
|
|
|
|
12
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
March 31, 2024 | December 31, 2023 | ||||||||||
Ceded reinsurance premiums payable | $ | 15,585 | $ | 10,500 | |||||||
Commissions payable, reinsurers and agents | 4,410 | 4,650 | |||||||||
Advance premiums | 9,765 | 5,975 | |||||||||
Funds held under reinsurance treaty | 9,349 | 9,820 | |||||||||
General and accrued expenses payable | 1,633 | 640 | |||||||||
Other insurance liabilities, current | $ | 40,742 | $ | 31,585 |
| | | | | | |
|
| As of June 30, 2023 |
| As of December 31, 2022 | ||
Ceded reinsurance premiums payable | | $ | 77,051 | | $ | 29,204 |
Commissions payable, reinsurers and agents | | | 6,650 | | | 21,045 |
Advance premiums | |
| 10,383 | |
| 8,668 |
Funds held under reinsurance treaty | |
| 1,715 | |
| 1,851 |
General and accrued expenses payable | | | 17,050 | | | 942 |
Other insurance liabilities, current | | $ | 112,849 | | $ | 61,710 |
Income Taxes
Provisions for income taxes for the three months ended June 30, 2023, and 2022, were less than $0.1 million and $0.5 million, respectively, and the effective tax rates for these periods were less than 0.1% and 1.7%, respectively. The difference between our effective tax rates for the 2023 periods and the U.S. statutory rate
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Vertical Software segment | |||||||||||
Software and service subscriptions | $ | 16,936 | $ | 16,809 | |||||||
Move-related transactions | 6,474 | 7,769 | |||||||||
Post-move transactions | 4,085 | 4,049 | |||||||||
Total Vertical Software segment revenue | 27,495 | 28,627 | |||||||||
Insurance segment | |||||||||||
Insurance and warranty premiums, commissions and policy fees(1) | 87,948 | 58,742 | |||||||||
Total Insurance segment revenue | 87,948 | 58,742 | |||||||||
Total revenue | $ | 115,443 | $ | 87,369 |
| | | | | | | | | | | | |
| | 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 |
13
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
2023.
Contract Assets | |||||
Balance at December 31, 2023 | $ | 17,393 | |||
Estimated lifetime value of commissions on insurance policies sold by carriers | 159 | ||||
Cash receipts | (262) | ||||
Sale of business (Note 15) | (16,982) | ||||
Balance at March 31, 2024 | $ | 308 |
| | | |
|
| Contract Assets | |
Balance at December 31, 2022 | | $ | 15,521 |
Estimated lifetime value of commissions on insurance policies sold by carriers | |
| 3,792 |
Cash receipts | |
| (2,285) |
Balance at June 30, 2023 | | $ | 17,028 |
Balance at December 31, 2023 | $ | 3,715 | |||
Revenue recognized | (4,590) | ||||
Additional amounts deferred | 5,481 | ||||
Balance at March 31, 2024 | $ | 4,606 |
| | | |
| | 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 |
The portion of insurance premiums related to the unexpired term of policies in force as of the end of the reporting period and to be earned over the remaining term of these policies is deferred and reported as deferred revenue.
2023.
14
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 haswe have the right to invoice for services performed. Additionally, we exclude amounts related to performance obligations that are billed and recognized as they are delivered.
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Investment income, net of investment expenses | $ | 3,664 | $ | 825 | |||||||
Realized gains on investments | 14 | 4 | |||||||||
Realized losses on investments | (34) | (71) | |||||||||
Investment income and realized gains, net of investment expenses | $ | 3,644 | $ | 758 |
| | | | | | | | | | | | |
| | 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 |
| | | | | | | | | | | | |
| | As of June 30, 2023 | ||||||||||
| | | | | Gross Unrealized | | | | ||||
|
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||
U.S. Treasuries | | $ | 28,407 | | $ | 1 | | $ | (361) | | $ | 28,047 |
Obligations of states, municipalities and political subdivisions | | | 11,846 | | | 4 | | | (1,178) | | | 10,672 |
Corporate bonds | |
| 35,236 | |
| 38 | |
| (2,879) | |
| 32,395 |
Residential and commercial mortgage-backed securities | | | 17,607 | | | 16 | | | (1,328) | | | 16,295 |
Other loan-backed and structured securities | | | 5,710 | | | 4 | | | (393) | | | 5,321 |
Total investment securities | | $ | 98,806 | | $ | 63 | | $ | (6,139) | | $ | 92,730 |
15
March 31, 2024 | |||||||||||||||||||||||
Amortized Cost | Gross Unrealized | Fair Value | |||||||||||||||||||||
Gains | Losses | ||||||||||||||||||||||
U.S. Treasuries | $ | 36,212 | $ | 21 | $ | (414) | $ | 35,819 | |||||||||||||||
Obligations of states, municipalities and political subdivisions | 19,481 | 52 | (988) | 18,545 | |||||||||||||||||||
Corporate bonds | 54,417 | 209 | (2,213) | 52,413 | |||||||||||||||||||
Residential and commercial mortgage-backed securities | 25,217 | 54 | (1,098) | 24,173 | |||||||||||||||||||
Other loan-backed and structured securities | 3,428 | 12 | (274) | 3,166 | |||||||||||||||||||
Total investment securities | $ | 138,755 | $ | 348 | $ | (4,987) | $ | 134,116 |
December 31, 2023 | |||||||||||||||||||||||
Amortized Cost | Gross Unrealized | Fair Value | |||||||||||||||||||||
Gains | Losses | ||||||||||||||||||||||
U.S. Treasuries | $ | 43,931 | $ | 95 | $ | (330) | $ | 43,696 | |||||||||||||||
Obligations of states, municipalities and political subdivisions | 18,281 | 100 | (961) | 17,420 | |||||||||||||||||||
Corporate bonds | 51,678 | 430 | (2,067) | 50,041 | |||||||||||||||||||
Residential and commercial mortgage-backed securities | 25,452 | 153 | (1,004) | 24,601 | |||||||||||||||||||
Other loan-backed and structured securities | 3,694 | 13 | (289) | 3,418 | |||||||||||||||||||
Total investment securities | $ | 143,036 | $ | 791 | $ | (4,651) | $ | 139,176 |
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
| | | | | | | | | | | | |
| | 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 June 30, 2023,March 31, 2024, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2024 | ||||||||||||||
Remaining Time to Maturity | Amortized Cost | Fair Value | ||||||||||||
Due in one year or less | $ | 30,358 | $ | 30,229 | ||||||||||
Due after one year through five years | 44,282 | 43,258 | ||||||||||||
Due after five years through ten years | 25,697 | 23,964 | ||||||||||||
Due after ten years | 9,773 | 9,326 | ||||||||||||
Residential and commercial mortgage-backed securities | 25,217 | 24,173 | ||||||||||||
Other loan-backed and structured securities | 3,428 | 3,166 | ||||||||||||
Total | $ | 138,755 | $ | 134,116 |
| | | | | | |
| | As of June 30, 2023 | ||||
Remaining Time to Maturity |
| Amortized Cost |
| Fair Value | ||
Due in one year or less | | $ | 25,920 | | $ | 25,802 |
Due after one year through five years | | | 19,481 | | | 17,895 |
Due after five years through ten years | | | 25,245 | | | 23,099 |
Due after ten years | |
| 4,843 | |
| 4,318 |
Residential and commercial mortgage-backed securities | | | 17,607 | | | 16,295 |
Other loan-backed and structured securities | | | 5,710 | | | 5,321 |
Total | | $ | 98,806 | | $ | 92,730 |
Other-Than-Temporary Impairment
We regularly review
16
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise 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 | ||||||||||||
| | Gross | | | | Gross | | | | Gross | | | ||||||
| | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | ||||||
As of June 30, 2023 | | Loss | | Value |
| Loss | | Value |
| Loss | | Value | ||||||
U.S. Treasuries | | $ | (182) | | $ | 25,500 | | $ | (179) | | $ | 2,232 | | $ | (361) | | $ | 27,732 |
Obligations of states, municipalities and political subdivisions | | | (79) | | | 2,060 | | | (1,099) | | | 8,145 | | | (1,178) | | | 10,205 |
Corporate bonds | | | (530) | | | 12,546 | | | (2,349) | | | 18,045 | | | (2,879) | | | 30,591 |
Residential and commercial mortgage-backed securities | | | (292) | | | 8,365 | | | (1,036) | | | 7,319 | | | (1,328) | | | 15,684 |
Other loan-backed and structured securities | | | (109) | | | 1,039 | | | (284) | | | 3,677 | | | (393) | | | 4,716 |
Total securities | | $ | (1,192) | | $ | 49,510 | | $ | (4,947) | | $ | 39,418 | | $ | (6,139) | | $ | 88,928 |
Less Than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||||||||||||||||
As of March 31, 2024 | Gross Unrealized Loss | Fair Value | Gross Unrealized Loss | Fair Value | Gross Unrealized Loss | Fair Value | ||||||||||||||||||||||||||||||||
U.S. Treasuries | $ | (358) | $ | 33,077 | $ | (56) | $ | 526 | $ | (414) | $ | 33,603 | ||||||||||||||||||||||||||
Obligations of states, municipalities and political subdivisions | (839) | 10,400 | (149) | 1,607 | (988) | 12,007 | ||||||||||||||||||||||||||||||||
Corporate bonds | (1,859) | 27,414 | (354) | 4,590 | (2,213) | 32,004 | ||||||||||||||||||||||||||||||||
Residential and commercial mortgage-backed securities | (692) | 13,523 | (406) | 2,964 | (1,098) | 16,487 | ||||||||||||||||||||||||||||||||
Other loan-backed and structured securities | (267) | 2,565 | (7) | 51 | (274) | 2,616 | ||||||||||||||||||||||||||||||||
Total securities | $ | (4,015) | $ | 86,979 | $ | (972) | $ | 9,738 | $ | (4,987) | $ | 96,717 |
Less Than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||||||||||||||||
As of December 31, 2023 | Gross Unrealized Loss | Fair Value | Gross Unrealized Loss | Fair Value | Gross Unrealized Loss | Fair Value | ||||||||||||||||||||||||||||||||
U.S. Treasuries | $ | (280) | $ | 12,345 | $ | (50) | $ | 515 | $ | (330) | $ | 12,860 | ||||||||||||||||||||||||||
Obligations of states, municipalities and political subdivisions | (813) | 8,445 | (148) | 1,639 | (961) | 10,084 | ||||||||||||||||||||||||||||||||
Corporate bonds | (1,698) | 21,104 | (369) | 4,677 | (2,067) | 25,781 | ||||||||||||||||||||||||||||||||
Residential and commercial mortgage-backed securities | (621) | 8,673 | (383) | 3,072 | (1,004) | 11,745 | ||||||||||||||||||||||||||||||||
Other loan-backed and structured securities | (281) | 2,790 | (8) | 52 | (289) | 2,842 | ||||||||||||||||||||||||||||||||
Total securities | $ | (3,693) | $ | 53,357 | $ | (958) | $ | 9,955 | $ | (4,651) | $ | 63,312 |
| | | | | | | | | | | | | | | | | | |
| | Less Than Twelve Months | | Twelve Months or Greater | | Total | ||||||||||||
| | Gross | | | | Gross | | | | Gross | | | ||||||
| | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | ||||||
As of December 31, 2022 | | Loss | | Value |
| Loss | | Value |
| Loss | | Value | ||||||
U.S. Treasuries | | $ | (127) | | $ | 10,748 | | $ | (193) | | $ | 9,824 | | $ | (320) | | $ | 20,572 |
Obligations of states, municipalities and political subdivisions | | | (929) | | | 6,258 | | | (397) | | | 3,504 | | | (1,326) | | | 9,762 |
Corporate bonds | | | (1,623) | | | 16,531 | | | (1,214) | | | 10,328 | | | (2,837) | | | 26,859 |
Residential and commercial mortgage-backed securities | | | (687) | | | 6,565 | | | (581) | | | 4,952 | | | (1,268) | | | 11,517 |
Other loan-backed and structured securities | | | (359) | | | 4,633 | | | (117) | | | 1,094 | | | (476) | | | 5,727 |
Total securities | | $ | (3,725) | | $ | 44,735 | | $ | (2,502) | | $ | 29,702 | | $ | (6,227) | | $ | 74,437 |
March 31, 2024.
17
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
Fair Value Measurement as of March 31, 2024 | |||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||||||||||
Assets | |||||||||||||||||||||||
Money market mutual funds | $ | 158,354 | $ | — | $ | — | $ | 158,354 | |||||||||||||||
Debt securities: | |||||||||||||||||||||||
U.S. Treasuries | 35,819 | — | — | 35,819 | |||||||||||||||||||
Obligations of states, municipalities and political subdivisions | — | 18,545 | — | 18,545 | |||||||||||||||||||
Corporate bonds | — | 52,413 | — | 52,413 | |||||||||||||||||||
Residential and commercial mortgage-backed securities | — | 24,173 | — | 24,173 | |||||||||||||||||||
Other loan-backed and structured securities | — | 3,166 | — | 3,166 | |||||||||||||||||||
$ | 194,173 | $ | 98,297 | $ | — | $ | 292,470 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||
Contingent consideration - business combinations (1) | $ | — | $ | — | $ | 4,576 | $ | 4,576 | |||||||||||||||
Private warrant liability | — | — | 1,576 | 1,576 | |||||||||||||||||||
Embedded derivatives | — | — | 26,648 | 26,648 | |||||||||||||||||||
$ | — | $ | — | $ | 32,800 | $ | 32,800 |
Fair Value Measurement as of December 31, 2023 | |||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||||||||||
Assets | |||||||||||||||||||||||
Money market mutual funds | $ | 165,744 | $ | — | $ | — | $ | 165,744 | |||||||||||||||
Debt securities: | |||||||||||||||||||||||
U.S. Treasuries | 43,696 | — | — | 43,696 | |||||||||||||||||||
Obligations of states, municipalities and political subdivisions | — | 17,420 | — | 17,420 | |||||||||||||||||||
Corporate bonds | — | 50,041 | — | 50,041 | |||||||||||||||||||
Residential and commercial mortgage-backed securities | — | 24,601 | — | 24,601 | |||||||||||||||||||
Other loan-backed and structured securities | — | 3,418 | — | 3,418 | |||||||||||||||||||
$ | 209,440 | $ | 95,480 | $ | — | $ | 304,920 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||
Contingent consideration - business combinations (2) | $ | — | $ | — | $ | 18,455 | $ | 18,455 | |||||||||||||||
Private warrant liability | — | — | 1,151 | 1,151 | |||||||||||||||||||
Embedded derivatives | — | — | 28,131 | 28,131 | |||||||||||||||||||
$ | — | $ | — | $ | 47,737 | $ | 47,737 |
| | | | | | | | | | | | |
| | Fair Value Measurement as of June 30, 2023 | ||||||||||
| | | | | | | | | | | Total | |
| | Level 1 | | Level 2 |
| Level 3 |
| Fair Value | ||||
Assets | | | | | | | | | | | | |
Money market mutual funds | | $ | 74,073 | | $ | — | | $ | — | | $ | 74,073 |
Debt securities: | | | | | | | | | | | | |
U.S. Treasuries | | | 28,047 | | | — | | | — | | | 28,047 |
Obligations of states and municipalities | | | — | | | 10,672 | | | — | | | 10,672 |
Corporate bonds | | | — | | | 32,395 | | | — | | | 32,395 |
Residential and commercial mortgage-backed securities | | | — | | | 16,295 | | | — | | | 16,295 |
Other loan-backed and structured securities | | | — | | | 5,321 | | | — | | | 5,321 |
| | $ | 102,120 | | $ | 64,683 | | $ | — | | $ | 166,803 |
Liabilities, Noncurrent | | | | | | | | | | | | |
Contingent consideration - business combinations | | $ | — | | $ | — | | $ | 21,328 |
| $ | 21,328 |
Contingent consideration - earnout | |
| — | |
| — | |
| 44 |
| | 44 |
Private warrant liability | | | — | |
| — | | | 347 | | | 347 |
Embedded derivatives | | | — | | | — | | | 26,820 | | | 26,820 |
| | $ | — | | $ | — | | $ | 48,539 | | $ | 48,539 |
| | | | | | | | | | | | |
| | Fair Value Measurement as of December 31, 2022 | ||||||||||
| | | | | | | | | | | Total | |
| | Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||
Assets | | | | | | | | | | | | |
Money market mutual funds | | $ | 6,619 | | $ | — | | $ | — | | $ | 6,619 |
Debt securities: | | | | | | | | | | | | |
U.S. Treasuries | | | 35,322 | | | — | | | — | | | 35,322 |
Obligations of states and municipalities | | | — | | | 10,225 | | | — | | | 10,225 |
Corporate bonds | | | — | | | 28,227 | | | — | | | 28,227 |
Residential and commercial mortgage-backed securities | | | — | | | 11,533 | | | — | | | 11,533 |
Other loan-backed and structured securities | | | — | | | 6,334 | | | — | | | 6,334 |
| | $ | 41,941 | | $ | 56,319 | | $ | — | | $ | 98,260 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
Contingent consideration - business combinations | | $ | — | | $ | — | | $ | 24,546 | | $ | 24,546 |
Contingent consideration - earnout | |
| — | |
| — | |
| 44 | |
| 44 |
Private warrant liability | | | — | |
| — | | | 707 | | | 707 |
| | $ | — | | $ | — | | $ | 25,297 | | $ | 25,297 |
The Condensed Consolidated Balance Sheets include $1.3 million in accrued expenses and other current liabilities and $3.3 million in other liabilities as of March 31, 2024, for contingent consideration related to business combinations.
18
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
maturityfixed-maturity securities are based upon prices provided by an independent pricing service. We have reviewed these prices for reasonableness and 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, 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 – Earnout
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 our common stock until the maturity date of the contingent consideration and increased by certain employee forfeitures. As of June 30,December 31, 2023, the key inputs used to determine the fair value included exercise price of $22.00, volatility of 100%, forfeiture$4.4 million were management’s cash flow estimates and the discount rate of 15%, and stock price of $1.38 As of December 31, 2022, the key inputs used in the determination of the fair value included exercise price of $22.00, volatility of 100%, forfeiture rate of 15% and stock price of $1.88.
17%.
$3.08.
19
(Unaudited)
(all numbersrepurchase their 2028 Notes for an aggregate amount of cash equal to 50% of such Excess Proceeds at a repurchase price per 2028 Note equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the relevant purchase date, if any. “Asset Sale Threshold” means $20.0 million in thousands, except share amountsthe aggregate, provided that on and unless otherwise stated)
The inputs for determining fair value of 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 scenarios related to a repurchase, a fundamentalchange,, and qualifyingasset sales,, ranging from 1%3% to 35%29%.
Contingent Consideration - Business Combinations | Embedded Derivatives | Private Warrant Liability | |||||||||||||||
Fair value as of December 31, 2023 | $ | 18,455 | $ | 28,131 | $ | 1,151 | |||||||||||
Settlements | (14,930) | — | — | ||||||||||||||
Change in fair value, loss (gain) included in net loss(1) | 1,051 | (1,483) | 425 | ||||||||||||||
Fair value as of March 31, 2024 | $ | 4,576 | $ | 26,648 | $ | 1,576 |
Contingent Consideration - Business Combinations | Contingent Consideration - Earnout | Private Warrant Liability | |||||||||||||||
Fair value as of December 31, 2022 | $ | 24,546 | $ | 44 | $ | 707 | |||||||||||
Settlements | (194) | — | — | ||||||||||||||
Change in fair value, loss (gain) included in net loss(1) | (154) | — | (345) | ||||||||||||||
Fair value as of March 31, 2023 | $ | 24,198 | $ | 44 | $ | 362 |
| | | | | | | | | | | | |
| | | | 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 liability are 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. |
20
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
March 31, 2024 | December 31, 2023 | ||||||||||
Software and computer equipment | $ | 8,247 | $ | 8,340 | |||||||
Furniture, office equipment, and other | 1,537 | 1,573 | |||||||||
Internally developed software | 25,428 | 24,526 | |||||||||
Leasehold improvements | 1,176 | 1,176 | |||||||||
36,388 | 35,615 | ||||||||||
Less: Accumulated depreciation and amortization | (18,800) | (18,754) | |||||||||
Property, equipment, and software, net | $ | 17,588 | $ | 16,861 |
| | | | | | |
|
| 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 |
| | | | | | | | | | | |
| | 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 |
21
As of March 31, 2024 | Weighted Average Useful Life (in years) | Intangible Assets, gross | Accumulated Amortization And Impairment | Intangible Assets, Net | |||||||||||||||||||
Customer relationships | 9.0 | $ | 69,026 | $ | (25,999) | $ | 43,027 | ||||||||||||||||
Acquired technology | 5.0 | 28,001 | (15,861) | 12,140 | |||||||||||||||||||
Trademarks and tradenames | 11.0 | 23,443 | (7,207) | 16,236 | |||||||||||||||||||
Non-compete agreements | 5.0 | 301 | (152) | 149 | |||||||||||||||||||
Renewal rights | 6.0 | 9,734 | (3,741) | 5,993 | |||||||||||||||||||
Insurance licenses | Indefinite | 4,960 | — | 4,960 | |||||||||||||||||||
Total intangible assets | $ | 135,465 | $ | (52,960) | $ | 82,505 |
As of December 31, 2023 | Weighted Average Useful Life (in years) | Intangible Assets, gross | Accumulated Amortization And Impairment | Intangible Assets, Net | |||||||||||||||||||
Customer relationships | 8.0 | $ | 69,504 | $ | (24,153) | $ | 45,351 | ||||||||||||||||
Acquired technology | 5.0 | 36,041 | (22,358) | 13,683 | |||||||||||||||||||
Trademarks and tradenames | 11.0 | 23,443 | (6,701) | 16,742 | |||||||||||||||||||
Non-compete agreements | 3.0 | 616 | (455) | 161 | |||||||||||||||||||
Value of business acquired | 1.0 | 400 | (400) | — | |||||||||||||||||||
Renewal rights | 6.0 | 9,734 | (3,415) | 6,319 | |||||||||||||||||||
Insurance licenses | Indefinite | 4,960 | — | 4,960 | |||||||||||||||||||
Total intangible assets | $ | 144,698 | $ | (57,482) | $ | 87,216 |
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$4.7 million and $5.4$4.9 million for the three months ended June 30,March 31, 2024 and 2023, 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 theis entirely included in our 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 theWe had no changes in the carrying amount of goodwill for the sixthree 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%.
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
22
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.
Note 7. Debt
2023.
Principal | Unaccreted Discount | Debt Issuance Costs | Carrying Value | ||||||||||||||||||||
Convertible senior notes, due 2026 | $ | 217,000 | $ | — | $ | (2,903) | $ | 214,097 | |||||||||||||||
Convertible senior notes, due 2028 | 333,334 | (111,191) | (4,149) | 217,994 | |||||||||||||||||||
Other notes | 150 | (9) | — | 141 | |||||||||||||||||||
Balance as of March 31, 2024 | $ | 550,484 | $ | (111,200) | $ | (7,052) | $ | 432,232 |
Principal | Unaccreted Discount | Debt Issuance Costs | Carrying Value | ||||||||||||||||||||
Convertible senior notes, due 2026 | $ | 225,000 | $ | — | $ | (3,311) | $ | 221,689 | |||||||||||||||
Convertible senior notes, due 2028 | 333,334 | (115,353) | (4,312) | 213,669 | |||||||||||||||||||
Advance funding arrangement | 94 | — | — | 94 | |||||||||||||||||||
Other notes | 300 | (13) | — | 287 | |||||||||||||||||||
Balance as of December 31, 2023 | $ | 558,728 | $ | (115,366) | $ | (7,623) | $ | 435,739 |
| | | | | | | | | | | | |
|
| | |
| | |
| 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
In April 2023, we issued $333 million of
23
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
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.
24
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
March 31, 2024 | December 31, 2023 | ||||||||||
Issued and outstanding common shares | 97,869 | 97,061 | |||||||||
Common shares reserved for future issuance: | |||||||||||
Private warrants | 1,796 | 1,796 | |||||||||
Stock options (Note 9) | 3,382 | 3,642 | |||||||||
Restricted and performance stock units and awards (Note 9) | 11,089 | 12,065 | |||||||||
2020 Equity Plan pool reserved for future issuance (Note 9) | 13,270 | 8,009 | |||||||||
Convertible senior notes, due 2026 (1) | 8,679 | 8,999 | |||||||||
Convertible senior notes, due 2028 | 13,332 | 13,332 | |||||||||
Contingently issuable shares in connection with acquisitions (2) | — | 5,908 | |||||||||
Total shares of common stock outstanding and reserved for future issuance | 149,417 | 150,812 |
| | | | |
| | 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 |
In connection with the September 16, 2021, issuance |
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, 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 impact the number of shares that may be issued by effectively increasing our conversion price from $25 per share to approximately $37.74, which would result in approximately 6 million potentially dilutive shares instead of the shares reported in this table as describedof March 31, 2024.
25
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 sixthree months ended June 30,March 31, 2024 and 2023.
As of March 31, 2024, and December 31, 2023, there were 1.8 million private warrants outstanding for 11.5 million common shares. These private warrants are liability classified financial instruments measured at fair value, with periodic changes in fair value recognized through earnings and are included in “change in fair value of private warrant liability” in the unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. See Note 4 for more information.
| | | | | |
| | | | | 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 |
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Selling and marketing | $ | 694 | $ | 1,045 | |||||||
Product and technology | 1,095 | 1,449 | |||||||||
General and administrative | 3,579 | 4,400 | |||||||||
Total stock-based compensation expense | $ | 5,368 | $ | 6,894 |
| | | | | | | | | | | | |
| | 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 |
March 31, 2024:
Number of Options | Number of Restricted Stock Units | Number of Performance Restricted Stock Units | |||||||||||||||
Balances as of December 31, 2023 | 3,642 | 8,310 | 3,754 | ||||||||||||||
Granted | — | 149 | — | ||||||||||||||
Vested | (620) | — | |||||||||||||||
Exercised | (243) | — | — | ||||||||||||||
Forfeited, canceled or expired | (17) | (504) | — | ||||||||||||||
Balances as of March 31, 2024 | 3,382 | 7,335 | 3,754 |
| | | | | | |
|
| |
| | | 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 |
Note 10. Reinsurance
26
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
losses of our business in other states. In addition, the 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.
| | | | | | | | | | | | |
| | Three Months Ended June 30, | ||||||||||
| | 2023 | | 2022 | ||||||||
| | Written | | Earned | | Written | | Earned | ||||
Direct premiums | | $ | 121,540 | | $ | 116,397 | | $ | 124,914 | | $ | 93,082 |
Ceded premiums | |
| (67,387) | |
| (72,166) | |
| (117,926) | |
| (83,095) |
Net premiums | | $ | 54,153 | | $ | 44,231 | | $ | 6,988 | | $ | 9,987 |
Three Months Ended March 31, | |||||||||||||||||||||||
2024 | 2023 | ||||||||||||||||||||||
Written | Earned | Written | Earned | ||||||||||||||||||||
Direct premiums | $ | 75,104 | $ | 108,588 | $ | 96,873 | $ | 114,824 | |||||||||||||||
Ceded premiums | (30,329) | (36,363) | 2,266 | (74,674) | |||||||||||||||||||
Net premiums | $ | 44,775 | $ | 72,225 | $ | 99,139 | $ | 40,150 |
| | | | | | | | | | | | |
| | 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.
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Direct losses and LAE | | $ | 137,591 | | $ | 74,617 | | $ | 227,606 | | $ | 142,838 |
Ceded losses and LAE | | | (66,442) | | | (60,133) | | | (113,598) | | | (119,106) |
Net losses and LAE | | $ | 71,149 | | $ | 14,484 | | $ | 114,008 | | $ | 23,732 |
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Direct losses and LAE | $ | 79,416 | $ | 90,015 | |||||||
Ceded losses and LAE | (10,483) | (47,156) | |||||||||
Net losses and LAE | $ | 68,933 | $ | 42,859 |
| | | | | | |
| | June 30, 2023 | | December 31, 2022 | ||
Ceded unearned premium | | $ | 147,297 | | $ | 203,157 |
Losses and LAE reserve | | | 89,296 | | | 76,999 |
Reinsurance recoverable | | | 29,260 | | | 18,765 |
Other | | | 6,614 | | | 139 |
Reinsurance balance due | | $ | 272,467 | | $ | 299,060 |
27
March 31, 2024 | December 31, 2023 | ||||||||||
Ceded unearned premium | $ | 41,899 | $ | 50,697 | |||||||
Losses and LAE reserve | 18,556 | 19,911 | |||||||||
Reinsurance recoverable | 14,637 | 12,629 | |||||||||
Other | 327 | 345 | |||||||||
Reinsurance balance due | $ | 75,419 | $ | 83,582 |
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
Reserve for unpaid losses and LAE at December 31, 2023 | $ | 95,503 | |||
Reinsurance recoverables on losses and LAE at December 31, 2023 | (19,808) | ||||
Reserve for unpaid losses and LAE reserve, net of reinsurance recoverables at December 31, 2023 | 75,695 | ||||
Add provisions (reductions) for losses and LAE occurring in: | |||||
Current year | 67,135 | ||||
Prior years | 1,798 | ||||
Net incurred losses and LAE during the current year | 68,933 | ||||
Deduct payments for losses and LAE occurring in: | |||||
Current year | (19,242) | ||||
Prior years (1) | (31,382) | ||||
Net claim and LAE payments during the current year | (50,624) | ||||
Reserve for losses and LAE, net of reinsurance recoverables at March 31, 2024 | 94,004 | ||||
Reinsurance recoverables on losses and LAE at March 31, 2024 | (18,556) | ||||
Reserve for unpaid losses and LAE at March 31, 2024 | $ | 112,560 |
| | | |
Reserve for unpaid losses and LAE, at December 31, 2022 | | $ | 100,632 |
Reinsurance recoverables on losses and LAE | |
| (76,999) |
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 | | | 110,624 |
Prior years | | | 3,384 |
Net incurred losses and LAE during the current year | | | 114,008 |
Deduct payments for losses and LAE occurring in: | | | |
Current year | | | (44,510) |
Prior years | | | (16,718) |
Net claim and LAE payments during the current year | | | (61,228) |
Reserve for losses and LAE, net of reinsurance recoverables, at end of period | | | 76,413 |
Reinsurance recoverables on losses and LAE | | | 89,296 |
Reserve for unpaid losses and LAE at June 30, 2023 | | $ | 165,709 |
Also includes certain charges related to Vesttoo (see Note 10).
March 31, 2024.
Note 12. Other Income (Expense), Net
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Interest income | $ | 434 | $ | 720 | |||||||
Gain on settlement of contingent consideration | 14,930 | — | |||||||||
Loss on sale of business | (5,244) | — | |||||||||
Recoveries of losses on reinsurance contracts | 12,570 | — | |||||||||
Other, net | (12) | 42 | |||||||||
Other income, net | $ | 22,678 | $ | 762 |
28
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 The action is 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). We intend to contest these casesthis case vigorously.
13.
Disposition
The acquisitions of the Florida and California operations were closed on March 17, 2023. We paid approximately $2.1have received $10.3 million in cash to acquire $0.2and recorded a receivable of $1.8 million as of cash and current assets and $0.2 million of customer relationships withMarch 31, 2024. We recorded an estimated useful lifeloss of three years.$5.2 million in other income, net, in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The estimated valuefinal price and amount of loss on sale will be determined after post-closing adjustments have been finalized, which is expected to occur in the customer relationships intangible asset was calculated using the income approach.
The aggregate transaction costssecond quarter of $0.1 million are primarily comprised of legal and due diligence fees and are included in general and administrative expenses on the unaudited condensed consolidated statements of operations. The results of operations for each acquisition are included in our consolidated financial statements from the date of acquisition onwards.
14.2024.
The
homeowner marketing, and measurement software for roofers.
29
PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements – Continued
(Unaudited)
(all numbers in thousands, except share amounts and unless otherwise stated)
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Vertical Software | $ | 27,495 | $ | 28,627 | |||||||
Insurance | 87,948 | 58,742 | |||||||||
Total revenue | $ | 115,443 | $ | 87,369 |
| | | | | | | | | | | | |
|
| 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 |
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Segment Adjusted EBITDA (Loss): | |||||||||||
Vertical Software | $ | 1,123 | $ | (396) | |||||||
Insurance | (2,885) | (7,185) | |||||||||
Subtotal | (1,762) | (7,581) | |||||||||
Reconciling items: | |||||||||||
Corporate and other | (15,026) | (14,301) | |||||||||
Depreciation and amortization | (6,317) | (6,015) | |||||||||
Impairment loss on intangible assets and goodwill | — | (2,021) | |||||||||
Stock-based compensation expense | (5,368) | (6,894) | |||||||||
Other non-operating income | (1,176) | — | |||||||||
Restructuring costs (1) | (157) | (984) | |||||||||
Acquisition and other transaction costs | (167) | (128) | |||||||||
Change in fair value of contingent consideration | (1,051) | 154 | |||||||||
Investment income and realized gains | (3,644) | (758) | |||||||||
Operating loss | $ | (34,668) | $ | (38,528) |
30
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 financial information for the two reportable segments and a reconciliation to consolidated financial information for the periods presented.
| | | | | | | | | | | | |
|
| 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 |
Reconciling items: | | | | | | | | | | | | |
Corporate and other | |
| (13,769) | |
| (15,048) | |
| (28,070) | |
| (28,503) |
Depreciation and amortization | | | (6,214) | | | (6,416) | | | (12,229) | | | (12,899) |
Non-cash stock-based compensation expense | | | (6,404) | | | (9,702) | | | (13,298) | | | (15,556) |
Restructuring costs | | | (1,093) | | | — | | | (2,077) | | | — |
Acquisition and other transaction costs | | | (258) | | | (357) | | | (386) | | | (1,322) |
Impairment loss on intangible assets and goodwill | | | (55,211) | | | — | | | (57,232) | | | — |
Loss on reinsurance contract (1) | | | (48,244) | | | — | | | (48,244) | | | — |
Non-cash losses and impairment of property, equipment and software | | | (254) | | | — | | | (254) | | | (70) |
Revaluation of contingent consideration | | | 2,656 | | | (1,481) | | | 2,810 | | | (4,686) |
Investment income and realized gains | | | (1,249) | | | (243) | | | (2,007) | | | (440) |
Non-cash bonus expense | | | — | | | 1,526 | | | — | | | — |
Operating loss | | $ | (159,405) | | $ | (31,678) | | $ | (197,933) | | $ | (60,334) |
(1) See Note 16.
The CODM does not review assets on a segment basis.
15.Note 17. Net Loss Per Share
Under the two-class method, basic net loss per share attributable to common stockholdersand 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.
31
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 the computation of basic and diluted net loss attributable per share to common stockholders for the three and six months ended June 30, 2023March 31, 2024 and 2022:
2023:
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Numerator: | |||||||||||
Net loss used to compute net loss per share - basic and diluted | $ | (13,362) | $ | (38,740) | |||||||
Denominator: | |||||||||||
Weighted average shares outstanding used to compute net loss used to compute net loss per share - basic and diluted | 97,512 | 95,210 | |||||||||
Net loss per share - basic and diluted | $ | (0.14) | $ | (0.41) |
| | | | | | | | | | | | |
| | 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) |
| | | | | | | | |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||
| | 2023 |
| 2022 | | 2023 |
| 2022 |
Stock options |
| 3,717,192 |
| 4,429,426 | | 3,717,192 |
| 4,429,426 |
Restricted stock units and awards | | 9,188,678 | | 5,331,673 | | 9,188,678 | | 5,331,673 |
Performance restricted stock units | | 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 |
Earnout shares | | 2,050,000 | | 2,050,000 | | 2,050,000 | | 2,050,000 |
Convertible debt(1) | | 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 |
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Stock options | 3,382 | 3,735 | |||||||||
Restricted stock units and awards | 7,335 | 4,994 | |||||||||
Performance restricted stock units | 3,754 | 1,223 | |||||||||
Public and private warrants | 1,796 | 1,796 | |||||||||
Earnout shares (1) | — | 2,050 | |||||||||
Convertible debt (2) | 22,011 | 16,998 | |||||||||
Contingently issuable shares in connection with acquisitions (3) | — | 13,958 |
(1)(2)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 purchaseimpact the number of shares ofthat may be issued by effectively increasing our common stock at a strikeconversion price offrom $25 per share to approximately $37.74, which is equal to the conversion pricewould result in approximately 6 million potentially dilutive shares instead of the 2026 Notes and 2028 Notes. The capped call transactions are designed to limit the amountshares reported in this table as 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) March 31, 2024.
full.
16. Subsequent Events
In the third quarter of 2023, 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 connection with collateral it provided to HOA and 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
32
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 approximately $175 million in a catastrophic event.
As a result of its findings, 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 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 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 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.
33
These
www.sec.gov.
Nothing
34
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
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. more.
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 throughby including a variety of channels, including athome warranty products alongside homeowners insurance. We are able to fill the timegaps of a real estate transaction through third parties, direct-to-consumer (“DTC”),protection for consumers, minimize surprises, and leads from other Porch Group businesses.
deepen our relationships and value proposition.
Insurance.
roofers.
35
Key Performance Measures and Operating Metrics
| | | | | | | | | | |
|
| 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 | % |
36
Three Months Ended March 31, | |||||||||||||||||
2024 | 2023 | % Change | |||||||||||||||
Gross Written Premium (in millions) | $ | 83 | $ | 115 | (28) | % | |||||||||||
Policies in Force (in thousands) | 256 | 376 | (32) | % | |||||||||||||
Annualized Revenue per Policy (unrounded) | $ | 1,375 | $ | 612 | 125 | % | |||||||||||
Annualized Premium per Policy (unrounded) | $ | 1,948 | $ | 1,468 | 33 | % | |||||||||||
Premium Retention Rate | 90 | % | 107 | % | |||||||||||||
Gross Loss Ratio | 71 | % | 79 | % | |||||||||||||
Average Companies in Quarter (unrounded) | 29,733 | 30,618 | (3) | % | |||||||||||||
Average Monthly Revenue per Account in Quarter (unrounded) | $ | 1,294 | $ | 951 | 36 | % | |||||||||||
Monetized Services (unrounded) | 240,557 | 214,097 | 12 | % | |||||||||||||
Average Quarterly Revenue per Monetized Service (unrounded) | $ | 422 | $ | 328 | 29 | % |
Recent Developments
Share Repurchases
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 permittedgrowth strategy. Average Quarterly Revenue per Monetized Service is the average revenue generated per monetized service performed in a quarterly period. When calculating Average Quarterly Revenue per Monetized Service, average revenue is defined as total quarterly service transaction revenues generated from time to timemonetized services.
2024.
On March 20,
Convertible Notes Financing
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
37
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 the third quarter of 2023, Homeowners of 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 connection with collateral it provided to HOA and 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 a catastrophic event.
As a result of its findings, 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 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 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 doubtful accounts in the unaudited condensed consolidated 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 intends to pursue all available legal claims and remedies to enforce its rights with respect to the letter of 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.
38
March 31, 2024: •We continued our insurance profitability actions by not renewing certain higher risk policies, increasing premiums per policy by 33%, and lower reinsurance ceding. These initiatives have allowed us to achieve a gross combined loss ratio of 97% and a current accident year gross loss ratio of 71%. •We continued our cost savings initiatives by hiring highly qualified individuals to replace external contracting services. •We had cash recoveries on terminated reinsurance contracts of approximately $28 million. •We repurchased $8.0 million of our 2026 Convertible Notes for $3.0 million, or 37.5% of par value. •The U.S. housing market continues to see impacts from higher interest rates, existing home inventory tightening, and affordability challenges that are impacting the |
39
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes 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.
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. We have determined that our Chief Executive Officer is the CODM.
Components of Results of Operations
Total Revenue
We generate revenue in the following ways:
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 from policyholders of our own underwritten homeowners insurance products, reinsurers pay us ceding commissions when premiums are ceded from owned insurance products, revenues are earned in the form of policy premiums collected from insureds from owned insurance products, and third-party insurance 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 software and services subscription revenue, move-related transactions revenue and post-move-related transaction revenue. Software and service subscription revenue primarily relates to subscriptions to our software offerings across 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. 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 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 we are entitled for providing access to the subscription software during the monthly contract term.
Move-related transactions revenue is generated when we connect consumers with service providers including movers, TV/Internet, and security monitoring companies. We earn revenue when consumers purchase services from these third-party providers. For select moving jobs, we will select the mover, set the price, and manage the job end-to-end; here, we generate revenue based on the full job value.
40
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, 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.
Total Costs and Expenses
Operating expenses
Operating expenses are categorized into five categories:
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 of property, equipment, and software and amortization of intangible assets.
Cost of revenue primarily consists of insurance losses and loss adjustment expenses, claims personnel costs, warranty claims, third-party providers for executing moving labor and handyman services when we are managing the job, data costs related to marketing campaigns, certain call center costs, credit card processing, and merchant fees.
Selling and marketing expenses primarily consist of payroll, employee benefits, stock-based compensation, other headcount-related costs associated with sales efforts directed toward companies and consumers, and amortization of deferred policy acquisition costs (“DAC”) of new and renewal insurance contracts. Also included are any direct costs to acquire customers such as search engine optimization, marketing costs, and affiliate and partner leads.
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 amortized to expense reduced by ceding commissions paid by reinsurance companies, third-party leads, affiliates and partner leads, paid search engine optimization and marketing, advertising costs, and compensation for individuals in certain sales and marketing departments that vary with sales volumes.
Product and technology development costs primarily consist of payroll, employee benefits, stock-based compensation, 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, other headcount-related costs, rent for office space, legal and professional fees, taxes, licenses and regulatory fees, merger and acquisition transaction costs, and other administrative costs.
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 Critical Accounting Estimates for the description of methods used to determine these impairment losses.
41
Critical Accounting 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.
At least quarterly, we evaluate estimates and assumptions and make changes accordingly. For information on 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 June 30, 2023, we identified various qualitative factors with respect to long-lived assets and goodwill in our reporting units that collectively indicated that 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 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 used an income approach to determine that the estimated fair value of the asset group was less than its carrying value. Impairment charges are included in impairment loss on intangible assets and goodwill in the unaudited condensed consolidated statements of operations.
Impairment of Goodwill
During the first and second quarters of 2023, 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 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 valueExisting home sales have declined 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 was impaired as of June 30, 2023. Impairment charges of $55.2 million are included in impairment loss on intangible assets and goodwill in the unaudited condensed consolidated statements of operations3.5% for the three and six months ended June 30, 2023. See Note 6March 31, 2024, compared to the same periods in prior year.
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 atlower price for policies which are low-risk and more accurately price higher 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.
42
There were no other changesThree Months Ended March 31, 2024, compared to the critical accounting policies and estimates discussed in our Annual Report on Form 10-K.
Results of Operations
The following table summarizes our consolidated operating results for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||||||||||||||
| | 2023 |
| 2022 | | $ Change | | % Change | | 2023 |
| 2022 |
| $ Change | | % Change | ||||||||
| | (dollar amounts in thousands) | | (dollar amounts in thousands) | ||||||||||||||||||||
Revenue | | $ | 98,765 | | $ | 70,915 | | $ | 27,850 | | 39 | % | | $ | 186,134 | | $ | 134,482 | | $ | 51,652 | | 38 | % |
Operating expenses: | |
| | |
| | | | | | | | |
| | |
|
| |
|
| | | |
Cost of revenue | |
| 81,330 | |
| 29,251 | | | 52,079 | | 178 | % | |
| 132,605 | |
| 54,467 | |
| 78,138 | | 143 | % |
Selling and marketing | |
| 34,637 | |
| 29,160 | | | 5,477 | | 19 | % | |
| 67,222 | |
| 55,237 | |
| 11,985 | | 22 | % |
Product and technology | |
| 15,495 | |
| 15,777 | | | (282) | | (2) | % | |
| 29,445 | |
| 30,009 | |
| (564) | | (2) | % |
General and administrative | |
| 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 | | | 55,211 | | | — | | | 55,211 | | — | % | | | 57,232 | | | — | | | 57,232 | | — | % |
Total operating expenses | | | 258,170 | | | 102,593 | | | 155,577 | | 152 | % | |
| 384,067 | |
| 194,816 | |
| 189,251 | | 97 | % |
Operating loss | |
| (159,405) | |
| (31,678) | | | (127,727) | | 403 | % | |
| (197,933) | |
| (60,334) | |
| (137,599) | | 228 | % |
Other income (expense): | | | | | | | | | | | | | |
|
| |
|
| |
|
| | | |
Interest expense | | | (8,775) | | | (1,925) | | | (6,850) | | 356 | % | |
| (10,963) | |
| (4,352) | |
| (6,611) | | 152 | % |
Change in fair value of earnout liability | | | — | | | 2,587 | | | (2,587) | | (100) | % | | | — | | | 13,766 | | | (13,766) | | (100) | % |
Change in fair value of private warrant liability | | | 15 | | | 4,078 | | | (4,063) | | (100) | % | | | 360 | | | 14,267 | | | (13,907) | | (97) | % |
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 | | | 1,249 | | | 243 | | | 1,006 | | 414 | % | | | 2,007 | | | 440 | | | 1,567 | | 356 | % |
Other income (expense), net | | | 1,578 | | | (162) | | | 1,740 | | (1,074) | % | |
| 2,340 | |
| (107) | |
| 2,447 | | (2,287) | % |
Total other income (expense) | | | 72,471 | | | 4,821 | | | 67,650 | | 1,403 | % | |
| 72,148 | |
| 24,014 | |
| 48,134 | | 200 | % |
Loss before income taxes | | | (86,934) | | | (26,857) | | | (60,077) | | 224 | % | |
| (125,785) | |
| (36,320) | |
| (89,465) | | 246 | % |
Income tax benefit (provision) | | | (29) | | | (468) | | | 439 | | (94) | % | |
| 82 | |
| (290) | |
| 372 | | (128) | % |
Net loss | | $ | (86,963) | | $ | (27,325) | | $ | (59,638) | | 218 | % | | $ | (125,703) | | $ | (36,610) | | $ | (89,093) | | 243 | % |
Revenue
Three months ended June 30,Months Ended March 31, 2023 compared to three months ended June 30, 2022
Three Months Ended March 31, | |||||||||||||||||||||||
2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
(dollar amounts in thousands) | |||||||||||||||||||||||
Revenue | $ | 115,443 | $ | 87,369 | $ | 28,074 | 32 | % | |||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Cost of revenue | 75,844 | 51,275 | 24,569 | 48 | % | ||||||||||||||||||
Selling and marketing | 33,948 | 32,585 | 1,363 | 4 | % | ||||||||||||||||||
Product and technology | 13,920 | 13,950 | (30) | — | % | ||||||||||||||||||
General and administrative | 26,399 | 26,066 | 333 | 1 | % | ||||||||||||||||||
Impairment loss on intangible assets and goodwill | — | 2,021 | (2,021) | (100) | % | ||||||||||||||||||
Total operating expenses | 150,111 | 125,897 | 24,214 | 19 | % | ||||||||||||||||||
Operating loss | (34,668) | (38,528) | 3,860 | (10) | % | ||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense | (10,787) | (2,188) | (8,599) | 393 | % | ||||||||||||||||||
Change in fair value of private warrant liability | (425) | 345 | (770) | (223) | % | ||||||||||||||||||
Change in fair value of derivatives | 1,483 | — | 1,483 | N/A | |||||||||||||||||||
Gain on extinguishment of debt | 4,891 | — | 4,891 | N/A | |||||||||||||||||||
Investment income and realized gains, net of investment expenses | 3,644 | 758 | 2,886 | 381 | % | ||||||||||||||||||
Other income, net | 22,678 | 762 | 21,916 | 2,876 | % | ||||||||||||||||||
Total other income (expense) | 21,484 | (323) | 21,807 | (6,751) | % | ||||||||||||||||||
Loss before income taxes | (13,184) | (38,851) | 25,667 | (66) | % | ||||||||||||||||||
Income tax benefit (provision) | (178) | 111 | (289) | (260) | % | ||||||||||||||||||
Net loss | $ | (13,362) | $ | (38,740) | $ | 25,378 | (66) | % |
Six months ended June 30, 2023, compared to six months ended June 30, 2022
The overall 38% increasebusiness 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 our Insurance segment as a result of higher warranty sales and renewals
43
as well as increases in per-policy premiums and 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
revenue. Cost of revenue increased by $52.1$24.6 million, or 178%48%, from $29.3$51.3 million in the three months ended June 30, 2022,March 31, 2023, to $81.3$75.8 million in the same period in 2023.three months ended March 31, 2024. The 178% increase in quarter-to-date cost of revenue was primarily the result of increased insurance claims costs due to the extreme weather toward the end of the second quarter of 2023, the reduction in reinsurance ceding and the 2022 acquisition of the RWS warranty business, all in the Insurance Segment. As a percentage of revenue, cost of revenue represented 82%66% of revenue in the three months ended June 30, 2023,March 31, 2024, compared with 41% in the same period in 2022.
Six months ended June 30, 2023, compared to six months ended June 30, 2022
The 143% increase in year-to-date cost of revenue was primarily 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 resulted in $1.0 million additional cost of revenue in the current year-to-date period when compared to prior year. As a percentage of revenue, cost of revenue represented 71% of revenue59% in the three months ended June 30, 2023, compared with 41% in the same period of 2022.
Selling and Marketing
Three months ended June 30, 2023, compared to three months ended June 30, 2022
Selling and marketing expenses increased by $5.5 million, or 19%, from $29.2 million in the three months ended June 30, 2022, to $34.6 million in the same period inMarch 31, 2023. An increase in the Insurance segment’s variable policy acquisition and marketing expenses was partially offset by a decrease in Vertical Software segment costs that were consistent with the decrease in revenue in that segment. As a percentage of revenue, selling and marketing expenses represented 35% of revenue in the three months ended June 30, 2023 compared with 41% in the same period in 2022.
Six months ended June 30, 2023, compared to six months ended June 30, 2022
The 22% increase in year-to-date selling and marketing expenses compared to prior year is due to higher costs in the Insurance segment’s variable policy acquisition and 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 same period last year.
Product and Technology
Three months ended June 30, 2023, compared to three months ended June 30, 2022
Product and technology expenses decreased by $0.3 million, or 2%, from $15.8 million in the three months ended June 30, 2022, to $15.5 million in the same period in 2023. As a percentage of revenue, product and technology expenses represented 16% of revenue in the three months ended June 30, 2023, compared with 22% in the same period in 2022. The decrease is mainly due to lower depreciation and amortization expense.
Six months ended June 30, 2023, compared to six months ended June 30, 2022
Product and technology expenses decreased by $0.6 million, or 2%, from $30.0 million in the six months ended June 30, 2022, to $29.4 million in the same period in 2023. As a percentage of revenue, product and technology
44
expenses represented 16% of revenue in the six months ended June 30, 2023, compared with 22% in the same period in 2022. The decrease is mainly due to lower depreciation and amortization expense.
General and Administrative
Three months ended June 30, 2023, compared to three months ended June 30, 2022
General and administrative expenses decreased by $5.5 million, or 20%, from $28.3 million in three months ended June 30, 2022, to $22.8 million in the same period in 2023, primarily due to a $2.7 million non-cash gain on revaluation of contingent consideration during the three months ended June 30, 2023, compared to a $1.4 million non-cashImpairment loss on revaluation in the same period in 2022, which contributed $4.1 million to the overall decrease. Successful expense control efforts drove the remaining decrease.
As a percentage of revenue, generalintangible assets 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 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 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 June 30, 2023, compared to three months ended June 30, 2022
goodwill. In the three months ended June 30,March 31, 2023, we recorded a goodwill impairment charge of $55.2 million in our Insurance segment. This impairment follows a sustained decrease in stock price, increased costs due to inflationary pressures, hardening of the reinsurance markets, and volatile weather. There were no impairment losses on intangible assets and goodwill in the same period in 2022.
Six months ended June 30, 2023, compared to six months ended June 30, 2022
In the second quarter of 2023, we recorded a goodwill impairment charge of $55.2 million in our Insurance segment. In the first quarter of 2023, we recorded atotaling $2.0 million impairment charge on intangible assets in our Vertical Software segment. These impairments follow a sustained decrease in stock price, increased costs due toimpairment charges reflected 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.industry. There were no impairment chargeslosses on intangible assets and goodwill in the corresponding period last year.
45
Interest Expense
Three months ended June 30, 2023, compared to three months ended June 30, 2022
March 31, 2024.
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 same period in 2022. The increase is mainly due to interest at a higher weighted average rate on a higher aggregate debt balance after issuance of the 2028 Notes in April 2023. The non-cash amortization of debt discount and issuance costs also contributed to the increase.
Three months ended June 30, 2023, compared to three months ended June 30, 2022
private warrant liability.
The fair value of theSixthree months ended June 30, 2023,March 31, 2024, compared to sixwith a decrease in stock price for the three months ended June 30, 2022
TheMarch 31, 2023.
Change in Fair Value of Private Warrant Liability
Three months ended June 30, 2023, compared to three months ended June 30, 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
derivatives.
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.46
Gain on Extinguishmentextinguishment of Debt
Three months ended June 30, 2023, compared to three months ended June 30, 2022
debt. In connection with the partial repurchase of the 2026 Notes, we recognized an $81.4$4.9 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:
In connection with the partial repurchase
Investment Income and Realized Gains, Net of Investment Expenses
Three months ended June 30, 2023, compared to three months ended June 30, 2022
investment expenses.
Investment income and realized gains, net of investment expenses, wereSix months ended June 30, 2023, compared to six months ended June 30, 2022
Income Tax Benefit
Three months ended June 30, 2023, compared to three months ended June 30, 2022
Income tax provision of less than $0.1 million and $0.5 million was recognized for the three months ended June 30,March 31, 2023, and 2022, respectively.to $22.7 million in the three months ended March 31, 2024. The difference between the effective tax rates for the 2022 and 2023 periods and the U.S. statutory rate of 21% was primarilyincrease is due to a full valuation allowance related to our net deferred tax assets.
Six months ended June 30, 2023, compared to six months ended June 30, 2022
Income tax benefitrecoveries of $0.1losses on reinsurance contract of $12.6 million and income tax provisiongain on settlement of $0.3 million was recognized forcontingent consideration of $14.9 million. These are offset by loss on the six months ended June 30, 2023 and 2022, respectively. The difference between the effective tax rates for the 2022 and 2023 periods and the U.S. statutory ratesale of 21% was primarily due to a full valuation allowance related to our net deferred tax assets.
Segment ResultsEIG business of Operations
We operate the business as two reportable segments that are also operating segments: Vertical Software and Insurance. For additional information about these segments, see$5.2 million. See Note 14 (Segment Information)12 in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1,for detail of this Quarterly Report.
47
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 toSEGMENT REVENUE
March 31, 2024 and 2023.
Three Months Ended March 31, | |||||||||||||||||||||||
2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
Vertical Software segment | |||||||||||||||||||||||
Software and service subscriptions | $ | 16,936 | $ | 16,809 | $ | 127 | 1 | % | |||||||||||||||
Move-related transactions | 6,474 | 7,769 | (1,295) | (17) | % | ||||||||||||||||||
Post-move transactions | 4,085 | 4,049 | 36 | 1 | % | ||||||||||||||||||
Total Vertical Software segment revenue | 27,495 | 28,627 | (1,132) | (4) | % | ||||||||||||||||||
Insurance segment | |||||||||||||||||||||||
Insurance and warranty premiums, commissions and policy fees | 87,948 | 58,742 | 29,206 | 50 | % | ||||||||||||||||||
Total Insurance segment revenue | 87,948 | 58,742 | 29,206 | 50 | % | ||||||||||||||||||
Total revenue | $ | 115,443 | $ | 87,369 | $ | 28,074 | 32 | % |
Six months ended June 30, 2023, compared to six months ended June 30, 2022
For the six months ended 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 $76.9 million or 57% of total revenue. The decreaseceding and a 33% increase 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 six months ended June 30, 2023. Insurance segment revenue was $57.5 million or 43% of total revenue for the six months ended June 30, 2022. The increase is mainly driven by higher warranty sales and renewals as well as increases in per-policy premiums and lower reinsurance ceding.
48
Segment Adjusted EBITDA (Loss)
Segment Adjusted EBITDA (Loss) is defined as revenue less the following expenses associated with each segment: cost of revenue, salesselling and marketing, product and technology, and general and administrative expenses, and provision for doubtful accounts.expenses. Segment Adjusted EBITDA (Loss) also excludes non-cash items or items that management does not consider reflective of ongoing core operations. See Note 14 (Segment Information)16, Segment Information, in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report for reconciliations to GAAP consolidated financial information for the periods presented.
| | | | | | | | | | | | |
| | 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) |
Three Months Ended March 31, | |||||||||||||||||||||||
2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
Segment Adjusted EBITDA (Loss): | |||||||||||||||||||||||
Vertical Software | $ | 1,123 | $ | (396) | $ | 1,519 | (384)% | ||||||||||||||||
Insurance | (2,885) | (7,185) | 4,300 | (60) | % | ||||||||||||||||||
Subtotal | (1,762) | (7,581) | 5,819 | (77)% | |||||||||||||||||||
Corporate and other | (15,026) | (14,301) | (725) | 5 | % | ||||||||||||||||||
Adjusted EBITDA (Loss) | $ | (16,788) | $ | (21,882) | $ | 5,094 | (23) | % |
premiums and net losses.
49
calculating these non-GAAP measures may not be comparable to those used by other companies. In addition, we may modify the presentation of these non-GAAP financial measures in the future, and any such modification may be material.
Adjusted EBITDA (Loss)
Three Months Ended March 31, | |||||||||||
2024 | 2023 | ||||||||||
Net loss | $ | (13,362) | $ | (38,740) | |||||||
Interest expense | 10,787 | 2,188 | |||||||||
Income tax provision (benefit) | 178 | (111) | |||||||||
Depreciation and amortization | 6,317 | 6,015 | |||||||||
Mark-to-market gains | (7) | (499) | |||||||||
Gain on extinguishment of debt | (4,891) | — | |||||||||
Impairment loss on intangible assets and goodwill | — | 2,021 | |||||||||
Stock-based compensation expense | 5,368 | 6,894 | |||||||||
Other income, net (1) | (21,502) | (762) | |||||||||
Restructuring costs (2) | 157 | 984 | |||||||||
Acquisition and other transaction costs | 167 | 128 | |||||||||
Adjusted EBITDA (Loss) | $ | (16,788) | $ | (21,882) | |||||||
Adjusted EBITDA (Loss) as a percentage of revenue | (15) | % | (25) | % |
| | | | | | | | | | | | | | |
|
| 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)SeeDifference from Other Income, net in Condensed Consolidated Statements of Operations and Comprehensive Loss is primarily due to a portion of the income resulting from the Aon business collaboration agreement, disclosed in Note 16 in the notes10, that is not a non-GAAP adjustment.
forming a reciprocal exchange.
Adjusted EBITDA (Loss) for the six months ended June 30, 2023, was $(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 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 Sarbanes-Oxley Act (“SOX”) and other internal controls across IT and accounting organizations further impacted Adjusted EBITDA (Loss).
50
Liquidity and Capital Resources
Since inception, as a private company, we have financed our operations primarily from the sales of redeemable convertible preferred stock and convertible promissory notes, and proceeds from senior secured term loans. On December 23, 2020, we received approximately $269.5 million of aggregate cash proceeds from recapitalization, net of transaction costs, as we began trading publicly. During 2021, 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, 2023,2024, we had cash and cash equivalents of $265.6$279.1 million and restricted cash of $39.3$36.8 million. Restricted cash equivalents as of June 30, 2023,March 31, 2024 includes $29.1$27.7 million held by our captive insurance companyreinsurance business as collateral for the benefit of Homeowners of America Insurance Company (“HOA”), $1.3$1.4 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of itsour Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $6.5$6.8 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in seventeen21 states, and $2.4$1.0 million related to acquisition indemnifications.
In February 2024, we repurchased $8.0 million aggregate principal amount of our 2026 Notes. We paid $3.0 million, or 37.5% of par value, plus accrued interest. We recognized a $4.9 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.
51
Insurance companies in the United States are also required by 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 discussedSee Note 10 in the “Recent Developments” section above on capital requirements. We recovered $47.6 million cash collateral innotes to the third quarterunaudited condensed consolidated financial statements for a description of 2023 and are in the process of pursuing additional collateral. HOA has already secured supplementalour 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.
programs.
| | | | | | | | | | | | |
|
| Six Months Ended June 30, |
| $ |
| % |
| |||||
| | 2023 |
| 2022 |
| Change |
| Change | | |||
Net cash used in operating activities | | $ | (8,777) | | $ | (4,156) | | $ | (4,621) |
| (111) | % |
Net cash used in investing activities | |
| (7,950) | |
| (38,404) | |
| 30,454 |
| 79 | % |
Net cash (used in) provided by financing activities | |
| 92,972 | |
| (155) | |
| 93,127 |
| (60,082) | % |
Change in cash, cash equivalents and restricted cash | | $ | 76,245 | | $ | (42,715) | | $ | 118,960 |
| 278.50 | % |
2023:
Three Months Ended March 31, | |||||||||||||||||||||||
2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 8,465 | $ | (22,031) | $ | 30,496 | (138) | % | |||||||||||||||
Net cash provided by (used in) investing activities | 12,697 | (5,147) | 17,844 | (347) | % | ||||||||||||||||||
Net cash used in financing activities | (2,501) | (7,274) | 4,773 | (66) | % | ||||||||||||||||||
Change in cash, cash equivalents and restricted cash | $ | 18,661 | $ | (34,452) | $ | 53,113 | (154) | % |
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$38.7 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$6.9 million, depreciation and amortization of $12.9$6.0 million, non-cash interest expense of $2.3$1.5 million, loss (gain) on remeasurement of contingent consideration of $4.7$(0.2) million, and fair value adjustments to earnout liability andloss (gain) on remeasurement of private warrant liability of $13.8 million (gain) and $14.3 million (gain), respectively.$(0.3) million. Net changes in working capital were net proceeds of cash of $22.9$0.2 million, primarily due to increases in deferred revenue, losses and loss adjustment expense reserves and other insurance liabilities, offset by higher reinsurance balance due.
Investing Cash Flows
52
Financing Cash Flows
Financing Cash Flows
Net cash used in financing activities was $0.2 million for the six months ended June 30, 2022. Net cash used in financing activities is primarily related to repayments of advance funding and debt of $9.0 million, shares repurchaseddebt.
the Notes to Consolidated Financial Statements include in the 2023 Annual Report. There have been no material changes to these policies during the three months ended March 31, 2024. .
Recent Accounting Pronouncements
No recently issued accounting pronouncements are expected to be applicable to our business or materially impact our financial condition and results of operations.
53
As of June 30, 2023,March 31, 2024, accounts receivable and reinsurance balances due were $24.7$20.8 million and $272.5$75.4 million, respectively, were not interest-bearing assets, and are generally collected in less than 180 days. As such, we do not consider these assets to have material interest rate risk.
Remediation Plan
Our ongoing remediation efforts related to the above identified material weakness include:
54
These remediation measures may be time-consuming and costly. In addition, there is no assurance that we will be successful in remediating the material weakness.We plan to continue to assess 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
During the first six months of 2023, we have continued to take action on initiatives to improve its internal control environment. We have been working to identify and implement specific remediation plans for these control deficiencies 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.
55
Except as set forth below, as
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.
56
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:
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
57
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.
58
Exhibit No. | Description | ||||
3.1 | |||||
| |||||
| |||||
3.2 | |||||
| |||||
| |||||
| |||||
| |||||
| |||||
31.1* | |||||
31.2* | |||||
32.1** | |||||
32.2** | |||||
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
| ||||
|
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) | ||||
|
|
59
Date: August 9, 2023
| ||||||||||
PORCH GROUP, INC. | ||||||||||
| /s/ Shawn Tabak | |||||||||
| Shawn Tabak | |||||||||
| Chief Financial Officer and Duly Authorized Officer | |||||||||
| (Principal Financial Officer and Principal Accounting Officer) | |||||||||
|
|
|
60