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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

or

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

EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 001-39142

Porch Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware

83-2587663

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

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

(Address of Principal Executive Offices) (Zip Code)

(855) 767-2400

(Registrant’s telephone number, including area code)

N/A


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

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

Title of Each Class

Trading symbol

Name of Exchange on which registered

Common Stock, par value $0.0001 per share

PRCH

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of outstanding shares of the registrant’s common stock as of November 7, 2022 was 100,554,543.

Table of Contents

    

    

Page

Part I.

Financial Information

3

Item 1.

Financial Statements

3

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

3

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

4

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

5

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

6

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

8

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

59

Item 4.

Controls and Procedures

60

Part II.

Other Information

62

Item 1.

Legal Proceedings

62

Item 1A.

Risk Factors

62

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3.

Defaults Upon Senior Securities

62

Item 4.

Mine Safety Disclosures

62

Item 5.

Other Information

62

Item 6.

Exhibits

63

Exhibit Index

63

Signatures

64

2

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

PORCH GROUP, INC.

Condensed Consolidated Balance Sheets

(all numbers in thousands, except share amounts)

    

September 30, 2022

    

December 31, 2021

Assets

 

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

260,198

$

315,741

Accounts receivable, net

 

37,032

 

28,767

Short-term investments

7,212

9,251

Reinsurance balance due

303,987

228,416

Prepaid expenses and other current assets

 

21,160

 

14,338

Restricted cash

16,296

8,551

Total current assets

 

645,885

 

605,064

Property, equipment, and software, net

 

11,236

 

6,666

Operating lease right-of-use assets

4,697

4,504

Goodwill

 

228,091

 

225,654

Long-term investments

55,357

58,324

Intangible assets, net

 

111,728

 

129,830

Restricted cash, non-current

 

500

 

500

Long-term insurance commissions receivable

11,930

7,521

Other assets

 

3,057

 

684

Total assets

$

1,072,481

$

1,038,747

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

6,717

$

6,965

Accrued expenses and other current liabilities

 

36,847

 

37,675

Deferred revenue

 

277,616

 

201,085

Refundable customer deposit

 

19,867

 

15,274

Current portion of long-term debt

 

6,275

 

150

Losses and loss adjustment expense reserves

100,298

61,949

Other insurance liabilities, current

55,945

40,024

Total current liabilities

 

503,565

 

363,122

Long-term debt

 

425,012

 

414,585

Operating lease liabilities, non-current

2,968

2,694

Earnout liability, at fair value

57

13,866

Private warrant liability, at fair value

802

15,193

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

 

24,952

 

12,242

Total liabilities

 

957,356

 

821,702

Commitments and contingencies (Note 12)

 

  

 

  

Stockholders’ equity

 

  

 

  

Common stock, $0.0001 par value:

 

10

 

10

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

 

  

 

  

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

Additional paid-in capital

 

664,362

 

641,406

Accumulated other comprehensive loss

(6,571)

(259)

Accumulated deficit

 

(542,676)

 

(424,112)

Total stockholders’ equity

 

115,125

 

217,045

Total liabilities and stockholders’ equity

$

1,072,481

$

1,038,747

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

3

PORCH GROUP, INC.

Condensed Consolidated Statements of Operations

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

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Revenue

$

75,366

$

62,769

$

208,696

$

140,852

Operating expenses(1):

 

  

 

  

 

  

 

  

Cost of revenue

 

33,269

 

19,158

 

83,016

 

44,587

Selling and marketing

 

30,245

 

22,874

 

84,815

 

60,636

Product and technology

 

14,438

 

11,317

 

44,446

 

34,158

General and administrative

 

25,257

 

22,034

 

80,360

 

66,463

Impairment loss on intangible assets and goodwill

57,057

57,057

Total operating expenses

 

160,266

 

75,383

 

349,694

 

205,844

Operating loss

 

(84,900)

 

(12,614)

 

(140,998)

 

(64,992)

Other income (expense):

 

  

 

  

 

  

 

  

Interest expense

 

(2,085)

 

(1,857)

 

(6,236)

 

(4,296)

Change in fair value of earnout liability

43

7,413

13,809

(15,388)

Change in fair value of private warrant liability

124

2,692

14,391

(17,521)

Gain (loss) on extinguishment of debt

(3,133)

5,110

Investment income and realized gains, net of investment expenses

335

248

775

448

Other expense, net

 

69

 

316

 

(37)

 

225

Total other income (expense)

 

(1,514)

 

5,679

 

22,702

 

(31,422)

Loss before income taxes

 

(86,414)

 

(6,935)

 

(118,296)

 

(96,414)

Income tax benefit (expense)

 

23

 

1,836

 

(268)

 

9,917

Net loss

$

(86,391)

$

(5,099)

$

(118,564)

$

(86,497)

Loss per share - basic (Note 15)

$

(0.88)

$

(0.05)

$

(1.22)

$

(0.93)

Loss per share - diluted (Note 15)

$

(0.88)

$

(0.08)

$

(1.22)

$

(0.93)

 

  

 

  

 

  

 

  

Shares used in computing basic loss per share

 

97,792,485

 

96,839,292

 

97,009,351

 

92,544,137

Shares used in computing diluted loss per share

 

97,792,485

 

97,545,942

 

97,009,351

 

92,544,137

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

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Cost of revenue

    

$

    

$

    

$

$

1

Selling and marketing

 

1,689

 

1,382

    

 

3,592

 

4,888

Product and technology

 

911

 

1,367

    

 

3,888

 

5,522

General and administrative

 

2,489

 

3,135

    

 

13,165

 

18,950

$

5,089

$

5,884

    

$

20,645

$

29,361

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

4

PORCH GROUP, INC.

Condensed Consolidated Statements of Comprehensive Loss

(all numbers in thousands, unaudited)

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Net loss

$

(86,391)

$

(5,099)

$

(118,564)

$

(86,497)

Other comprehensive income (loss):

 

 

 

 

Current period change in net unrealized loss, net of tax

(2,012)

 

(154)

 

(6,312)

 

113

Comprehensive loss

$

(88,403)

$

(5,253)

$

(124,876)

$

(86,384)

5

PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity

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

Accumulated

Additional 

Other

Total 

Common Stock

 

Paid-in 

 

Accumulated 

 

Comprehensive

 

Stockholders’

Shares

Amount

 

Capital

Deficit

Loss

 

Equity

Balances as of December 31, 2021

 

97,961,597

$

10

$

641,406

$

(424,112)

$

(259)

$

217,045

Net loss

 

 

 

 

(5,796)

 

 

(5,796)

Other comprehensive loss

 

 

(2,515)

(2,515)

Stock-based compensation

 

 

 

5,854

 

 

 

5,854

Contingent consideration for acquisitions

 

 

 

530

 

 

530

Vesting of restricted stock awards

245,855

Exercise of stock options

 

185,685

 

 

473

 

 

473

Income tax withholdings

 

(95,951)

 

 

(712)

 

 

(712)

Balances as of March 31, 2022

98,297,186

$

10

$

647,551

$

(429,908)

$

(2,774)

$

214,879

Net loss

(26,377)

(26,377)

Other comprehensive loss

(1,785)

(1,785)

Stock-based compensation

9,702

9,702

Issuance of common stock for acquisitions

628,660

3,552

3,552

Vesting of restricted stock units

563,406

Exercise of stock options

88,772

219

219

Income tax withholdings

(137,496)

(1,210)

(1,210)

Balances as of June 30, 2022

99,440,528

$

10

$

659,814

$

(456,285)

$

(4,559)

$

198,980

Net loss

(86,391)

(86,391)

Other comprehensive loss

(2,012)

(2,012)

Stock-based compensation

5,089

5,089

Vesting of restricted stock units

1,062,323

Exercise of stock options

197,758

416

416

Income tax withholdings

(290,284)

(957)

(957)

Balances as of September 30, 2022

 

100,410,325

$

10

$

664,362

$

(542,676)

$

(6,571)

$

115,125

6

PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity - Continued

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

Accumulated

Additional 

Other

Total 

Common Stock

 

Paid-in 

 

Accumulated 

 

Comprehensive

 

Stockholders’

    

Shares

Amount

 

Capital

Deficit

Loss

 

Equity

Balances as of December 31, 2020

 

81,669,151

$

8

$

424,823

$

(317,506)

$

$

107,325

Net loss

 

 

 

 

(65,101)

 

 

(65,101)

Stock-based compensation

 

 

 

4,462

 

 

 

4,462

Stock-based compensation - earnout

12,373

12,373

Issuance of common stock for acquisitions

90,000

1,169

1,169

Reclassification of earnout liability upon vesting

25,815

25,815

Vesting of restricted stock awards

 

2,078,102

 

 

 

 

 

Exercise of stock warrants

8,087,623

1

93,007

93,008

Exercise of stock options

 

593,106

 

 

355

 

 

 

355

Income tax withholdings

(1,062,250)

(16,997)

(16,997)

Transaction costs

(402)

(402)

Balances as of March 31,2021

91,455,732

$

9

$

544,605

$

(382,607)

$

$

162,007

Net loss

(16,297)

(16,297)

Other comprehensive income

267

267

Stock-based compensation

2,466

2,466

Stock-based compensation - earnout

4,176

4,176

Issuance of common stock for acquisitions

1,292,441

28,372

28,372

Reclassification of private warranty liability upon exercise

16,843

16,843

Vesting of restricted stock awards

33,182

Exercise of stock warrants

2,862,312

1

33,761

33,762

Exercise of stock options

946,392

2,227

2,227

Income tax withholdings

(296,643)

(5,194)

(5,194)

Transaction costs

140

140

Balances as of June 30, 2021

96,293,416

$

10

$

627,396

$

(398,904)

$

267

$

228,769

Net loss

(5,099)

(5,099)

Other comprehensive income

(154)

(154)

Stock-based compensation

1,641

1,641

Stock-based compensation - earnout

4,243

4,243

Issuance of common stock for acquisitions

102,636

1,937

1,937

Reclassification of private warranty liability upon exercise

14,505

14,505

Vesting of restricted stock awards

271,432

Exercise of stock warrants

557,816

Exercise of stock options

339,150

934

934

Income tax withholdings

(231,452)

(1,587)

(1,587)

Capped call transactions

(52,913)

(52,913)

Balances as of September 30, 2021

97,332,998

$

10

$

596,156

$

(<