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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
FORM 10-Q
___________________________________________________________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
o 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 ClassTrading symbolName of Exchange on which registered
Common Stock, par value $0.0001 per sharePRCHThe 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 x No o
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 x No o
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
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
x
Emerging growth company
o
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of outstanding shares of the registrant’s common stock as of May 3, 2024, was 99,186,767.


Table of Contents

Page

2

PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
PORCH GROUP, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(all numbers in thousands unless otherwise stated, except per share data)
March 31, 2024December 31, 2023
Assets
Current assets
Cash and cash equivalents$279,073 $258,418 
Accounts receivable, net20,801 24,288 
Short-term investments31,175 35,588 
Reinsurance balance due75,419 83,582 
Prepaid expenses and other current assets16,666 13,214 
Deferred policy acquisition costs20,422 27,174 
Restricted cash and cash equivalents36,820 38,814 
Total current assets480,376 481,078 
Property, equipment, and software, net17,588 16,861 
Goodwill191,907 191,907 
Long-term investments102,941 103,588 
Intangible assets, net82,505 87,216 
Long-term insurance commissions receivable196 13,429 
Other assets5,600 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 liabilities53,466 59,396 
Deferred revenue215,771 248,683 
Refundable customer deposits16,040 17,980 
Current debt150 244 
Losses and loss adjustment expense reserves112,560 95,503 
Other insurance liabilities, current40,742 31,585 
Total current liabilities443,979 462,152 
Long-term debt432,082 435,495 
Other liabilities48,910 37,429 
Total liabilities924,971 935,076 
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 capital696,240 690,223 
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 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

PORCH GROUP, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(all numbers in thousands unless otherwise stated, except per share data)
Three Months Ended March 31,
20242023
Revenue$115,443$87,369
Operating expenses:
Cost of revenue75,84451,275
Selling and marketing33,94832,585
Product and technology13,92013,950
General and administrative26,39926,066
Impairment loss on intangible assets and goodwill2,021
Total operating expenses150,111125,897
Operating loss(34,668)(38,528)
Other income (expense):
Interest expense(10,787)(2,188)
Change in fair value of private warrant liability(425)345
Change in fair value of derivatives1,483
Gain on extinguishment of debt4,891
Investment income and realized gains, net of investment expenses3,644758
Other income, net22,678762
Total other income (expense)21,484(323)
Loss before income taxes(13,184)(38,851)
Income tax benefit (provision)(178)111
Net loss(13,362)(38,740)
Other comprehensive income (loss):
Change in net unrealized loss, net of tax(830)875
Comprehensive loss$(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 share97,51295,210
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

PORCH GROUP, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)
(all numbers in thousands unless otherwise stated, except per share data)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
SharesAmount
Balances as of December 31, 202397,061$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 compensation620— 5,368 — — 5,368 
Exercise of stock options243— 814 — — 814 
Income tax withholdings(55)— (165)— — (165)
Balances as of March 31, 202497,869$10 $696,240 $(735,418)$(4,690)$(43,858)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
SharesAmount
Balances as of December 31, 202298,206$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 compensation295— 6,894 — — 6,894 
Exercise of stock options5— 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, 202397,018$10 $677,426 $(626,864)$(5,296)$45,276 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

PORCH GROUP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(all numbers in thousands)
Three Months Ended March 31,
20242023
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 amortization6,317 6,015 
Impairment loss on intangible assets and goodwill 2,021 
Gain on extinguishment of debt(4,891) 
Loss on divestiture of business5,244  
Gain on settlement of contingent consideration(14,930) 
Change in fair value of private warrant liability425 (345)
Change in fair value of contingent consideration1,051 (154)
Change in fair value of derivatives(1,483) 
Stock-based compensation5,368 6,894 
Non-cash interest expense10,434 1,534 
Other(799)508 
Change in operating assets and liabilities, net of acquisitions and divestitures  
Accounts receivable(439)2,619 
Reinsurance balance due8,174 6,286 
Deferred policy acquisition costs6,752 (8,994)
Accounts payable(3,511)(69)
Accrued expenses and other current liabilities1,829 1,390 
Losses and loss adjustment expense reserves17,057 14,895 
Other insurance liabilities, current9,158 16,712 
Deferred revenue(33,017)(24,100)
Refundable customer deposits(2,034)(4,607)
Other assets and liabilities, net11,122 (3,896)
Net cash provided by (used in) operating activities8,465 (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 investments4,705 (390)
Proceeds from sale of business10,348  
Acquisitions, net of cash acquired (1,974)
Net cash provided by (used in) investing activities12,697 (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)
Other649 (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 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6

PORCH GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all numbers in thousands unless otherwise stated, except per share amounts)
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Porch Group, Inc., together with its consolidated subsidiaries, (“Porch Group,” “Porch,” the “Company,” “we,” “our,” “us”) is a leading homeowners insurance and vertical software platform and is positioned to be the best partner to help homebuyers move, maintain, and fully protect their homes. We offer differentiated products and services, with homeowners insurance at the center of this relationship.
We differentiate and look to win in the massive and growing homeowners insurance opportunity by 1) providing the best services for homebuyers, 2) led by advantaged underwriting in insurance, 3) to protect the whole home.
As a leader in the home services software-as-a-service (“SaaS”) space, we’ve built deep relationships with approximately 30 thousand companies that are key to the home-buying transaction, such as home inspectors, mortgage companies, and title companies. These relationships provide us with early insights to United States (“U.S.”) homebuyers. In partnership with these companies, we have the ability to help simplify the move for consumers with services such as insurance, warranty, moving and more.
We have two reportable segments that are also our operating segments: Vertical Software and Insurance. See Note 16, Segment Information, for additional information on our reportable segments.
Through our vertical software products we have unique insights into the majority of U.S. properties. This data helps feed our insurance underwriting models, better understand risk, and create competitive differentiation in underwriting.
We provide full protection for the home by including a variety of home warranty products alongside homeowners insurance. We are able to fill the gaps of protection for consumers, minimize surprises, and deepen our relationships and value proposition.
Unaudited Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements include the accounts of Porch Group, Inc., and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these unaudited condensed consolidated financial statements and notes should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 15, 2024. The information as of December 31, 2023, included in the unaudited condensed consolidated balance sheets was derived from our audited consolidated financial statements. Certain prior period amounts have been reclassified to conform to the current year's presentation.
The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are of a normal recurring nature) considered necessary to present fairly our financial position, results of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the periods and dates presented. The results of operations for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any other interim period or future year due to various factors such as management estimates and the seasonal nature of some portions of our insurance business.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported of certain assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results may differ from those estimates and assumptions.
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Concentrations
Financial instruments which potentially subject us to credit risk consist principally of cash, money market accounts on deposit with financial institutions, money market funds, certificates of deposit, fixed-maturity securities, and receivable balances in the course of collection.
Our insurance carrier subsidiary has exposure and remains liable in the event of insolvency of its reinsurers. Management and its reinsurance intermediary regularly assess the credit quality and ratings of its reinsurer counterparties. As of March 31, 2024, four reinsurers represented more than 10% individually, and 60% in the aggregate, of our total reinsurance balance due.
Substantially all of our revenues in the Insurance segment are derived from customers in Texas (which represent approximately 72% of Insurance segment revenues in the three months ended March 31, 2024), South Carolina, North Carolina, Virginia, Arizona, and Illinois, which could be adversely affected by economic conditions, an increase in competition, local weather events, or environmental impacts and changes.
No individual customer represented more than 10% of total revenue for the three months ended March 31, 2024 or 2023. As of March 31, 2024, and December 31, 2023, no individual customer accounted for 10% or more of total accounts receivable.
As of March 31, 2024, we held approximately $280.1 million of cash with five U.S. commercial banks.
Cash and Cash Equivalents & Restricted Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. We maintain cash balances that may exceed the insured limits by the Federal Deposit Insurance Corporation.
Restricted cash equivalents as of March 31, 2024, includes $27.7 million held by our captive reinsurance business as collateral for the benefit of Homeowners of America Insurance Company (“HOA”), $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 our Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $6.8 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in 21 states, and $1.0 million related to acquisition indemnifications. Restricted cash equivalents as of December 31, 2023, includes $28.3 million held by our captive reinsurance business as collateral for the benefit of HOA, $1.3 million held certificates of deposit and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $7.3 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in 19 states, and $1.9 million related to acquisition indemnifications.
The reconciliation of cash, cash equivalents, and restricted cash to amounts presented in the unaudited condensed consolidated statements of cash flows are as follows:
March 31, 2024December 31, 2023
Cash and cash equivalents$279,073$258,418
Restricted cash and cash equivalents36,82038,814
Cash, cash equivalents, and restricted cash$315,893$297,232

Accounts Receivable and Long-term Insurance Commissions Receivable
Accounts receivable consist principally of amounts due from enterprise customers, other corporate partnerships, and individual policyholders. We estimate allowances for uncollectible receivables based on the creditworthiness of our customers, historical trend analysis, and macro-economic conditions. Consequently, an adverse change in those factors could affect our estimate of allowance for doubtful accounts. The allowance for uncollectible receivables at March 31, 2024, and December 31, 2023, was $0.6 million and $0.6 million, respectively.
Long-term insurance commissions receivable balance consists of the estimated commissions from policy renewals expected to be collected. We record the amount of renewal insurance commissions expected to be collected in the next twelve months as current accounts receivable.
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Goodwill
We test goodwill for impairment for each reporting unit on an annual basis or more frequently when events or changes in circumstances indicate the fair value of a reporting unit is below its carrying value. We have the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If we can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we would not need to perform a quantitative impairment test. If we cannot support such a conclusion or we do not elect to perform the qualitative assessment, then we perform a quantitative assessment. If a quantitative goodwill impairment assessment is performed, we utilize a combination of market and income valuation approaches. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the reporting unit is less than its carrying value. We have selected October 1 as the date to perform annual impairment testing.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit was estimated using a combination of income and market valuation approaches using publicly traded company multiples in similar businesses. Such fair value measurements are based predominately on Level 3 inputs. This analysis requires significant judgments including an estimate of future cash flows which is dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested.
Impairment of Long-Lived Assets
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Events that trigger a test for recoverability include a significant decrease in the market price for a long-lived asset, significant negative industry or economic trends, an accumulation of costs significantly in excess of the amount originally expected for the acquisition, a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset, or a sustained decrease in share price. When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the test for recoverability identifies a possible impairment, the asset group’s fair value is measured relying primarily on an income approach. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value. Management identifies the asset group that includes the potentially impaired long-lived asset, at the lowest level at which there are separate, identifiable cash flows..
We estimate the fair value of an asset group using the income approach. Such fair value measurements are based predominately on Level 3 inputs. Inherent in our development of cash flow projections are assumptions and estimates derived from a review of our operating results, business plan forecasts, expected growth rates, and cost of capital, similar to those a market participant would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of these factors used in assessing fair value are outside the control of management and these assumptions and estimates may change in future periods.
Deferred Policy Acquisition Costs
We capitalize deferred policy acquisitions costs (“DAC”) which consist primarily of commissions, premium taxes and policy underwriting and production expenses that are directly related to the successful acquisition by our insurance company subsidiary of new or renewal insurance contracts. DAC are amortized on a straight-line basis over the terms of the policies to which they relate, which is generally one year. DAC is also reduced by ceding commissions paid by reinsurance companies which represent recoveries of acquisition costs. DAC is periodically reviewed for recoverability and adjusted if necessary. Future investment income is considered in determining the recoverability of DAC. Amortized deferred acquisition costs included in selling and marketing expense, amounted to $13.2 million and $9.3 million, for the three months ended March 31, 2024 and 2023, respectively.
Expected Credit Losses
We regularly review our individual investment securities for factors that may indicate that a decline in fair value of an investment has resulted from an expected credit loss, including:
the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;
the extent to which the market value of the security is below its cost or amortized cost;
9

general market conditions and industry or sector specific factors;
nonpayment by the issuer of its contractually obligated interest and principal payments; and
our intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.
Fair Value of Financial Instruments
Fair value principles require disclosures regarding the manner in which fair value is determined for assets and liabilities and establishes a three-tiered fair value hierarchy into which these assets and liabilities must be grouped, based upon significant levels of inputs as follows:
Level 1     Observable inputs, such as quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date;
Level 2     Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3     Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
Other Insurance Liabilities, Current
The following table details the components of other insurance liabilities, current, on the unaudited condensed consolidated balance sheets:
March 31, 2024December 31, 2023
Ceded reinsurance premiums payable$15,585$10,500
Commissions payable, reinsurers and agents4,4104,650
Advance premiums9,7655,975
Funds held under reinsurance treaty9,3499,820
General and accrued expenses payable1,633640
Other insurance liabilities, current$40,742$31,585


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Note 2. Revenue
Disaggregation of Revenue
Total revenues consisted of the following:
Three Months Ended March 31,
20242023
Vertical Software segment
Software and service subscriptions$16,936 $16,809 
Move-related transactions6,474 7,769 
Post-move transactions4,085 4,049 
Total Vertical Software segment revenue27,495 28,627 
Insurance segment
Insurance and warranty premiums, commissions and policy fees(1)
87,948 58,742 
Total Insurance segment revenue87,948 58,742 
Total revenue
$115,443 $87,369 
______________________________________
(1)Revenue recognized during the three months ended March 31, 2024 and 2023, includes revenue of $83.4 million and $51.0 million, respectively, which is accounted for separately from the revenue from contracts with customers.

Disclosures Related to Contracts with Customers
Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to contracts with customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. To the extent a contract exists, as defined by ASC 606, these liabilities are classified as deferred revenue. To the extent that a contract does not exist, as defined by ASC 606, these liabilities are classified as refundable customer deposits. Refundable customer deposits related to contracts with customers were not material at March 31, 2024, and December 31, 2023.
Contract Assets - Insurance Commissions Receivable
A summary of the activity impacting the contract assets during the three months ended March 31, 2024, is presented below:
Contract Assets
Balance at December 31, 2023$17,393 
Estimated lifetime value of commissions on insurance policies sold by carriers159 
Cash receipts(262)
Sale of business (Note 15)
(16,982)
Balance at March 31, 2024$308 

As of March 31, 2024, and December 31, 2023, $0.1 million and $4.0 million, respectively, of contract assets were expected to be collected within the immediately following 12 months and therefore were included in current accounts receivable on the unaudited condensed consolidated balance sheets. The remaining $0.2 million and $13.4 million as of March 31, 2024, and December 31, 2023, respectively, of contract assets are expected to be collected after the immediately following 12 months and were included in long-term insurance commissions receivable on the unaudited condensed consolidated balance sheets.
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Deferred Revenue
A summary of the activity impacting Vertical Software segment deferred revenue balances during the three months ended March 31, 2024, is presented below:
Balance at December 31, 2023$3,715 
Revenue recognized(4,590)
Additional amounts deferred5,481 
Balance at March 31, 2024$4,606 

Revenue recognized for performance obligations satisfied during the three months ended March 31, 2024, includes $3.7 million that was included in the deferred revenue balances as of December 31, 2023.
Deferred revenue on the unaudited condensed consolidated balance sheet as of March 31, 2024, and December 31, 2023, includes $211.2 million and $245.0 million, respectively, of deferred revenue related to the Insurance segment. 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.
Remaining Performance Obligations
The amount of the transaction price allocated to performance obligations to be satisfied at a later date, which is not recorded in the unaudited condensed consolidated balance sheets, is immaterial as of March 31, 2024, and December 31, 2023.
We have applied the practical expedients not to present unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which we recognize revenue at the amount which we have the right to invoice for services performed.
Warranty Revenue and Related Balance Sheet Disclosures
Payments received in advance of warranty services provided are included in refundable customer deposits or deferred revenue based upon the cancellation and refund provisions within the respective agreement. At March 31, 2024, we had $16.0 million, $3.8 million and $2.8 million of refundable customer deposits, deferred revenue, and non-current deferred revenue, respectively. At December 31, 2023, we had $17.9 million, $3.9 million and $2.9 million of refundable customer deposits, deferred revenue and non-current deferred revenue, respectively.
For the three months ended March 31, 2024 and 2023, we incurred $1.6 million and $1.2 million, respectively, in expenses related to warranty claims.

Note 3. Investments
The following table summarizes investment income and realized gains and losses on investments during the periods presented.
Three Months Ended March 31,
20242023
Investment income, net of investment expenses$3,664 $825 
Realized gains on investments14 4 
Realized losses on investments(34)(71)
Investment income and realized gains, net of investment expenses$3,644 $758 
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The following tables summarize the amortized cost, fair value, and unrealized gains and losses of investment securities.
March 31, 2024
Amortized CostGross UnrealizedFair Value
GainsLosses
U.S. Treasuries$36,212 $21 $(414)$35,819 
Obligations of states, municipalities and political subdivisions19,481 52 (988)18,545 
Corporate bonds54,417 209 (2,213)52,413 
Residential and commercial mortgage-backed securities25,217 54 (1,098)24,173 
Other loan-backed and structured securities3,428 12 (274)3,166 
Total investment securities$138,755 $348 $(4,987)$134,116 
December 31, 2023
Amortized CostGross UnrealizedFair Value
GainsLosses
U.S. Treasuries$43,931 $95 $(330)$43,696 
Obligations of states, municipalities and political subdivisions18,281 100 (961)17,420 
Corporate bonds51,678 430 (2,067)50,041 
Residential and commercial mortgage-backed securities25,452 153 (1,004)24,601 
Other loan-backed and structured securities3,694 13 (289)3,418 
Total investment securities$143,036 $791 $(4,651)$139,176 

The amortized cost and fair value of securities at 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 MaturityAmortized CostFair Value
Due in one year or less$30,358 $30,229 
Due after one year through five years44,282 43,258 
Due after five years through ten years25,697 23,964 
Due after ten years9,773 9,326 
Residential and commercial mortgage-backed securities25,217 24,173 
Other loan-backed and structured securities3,428 3,166 
Total$138,755 $134,116 

Investments as of March 31, 2024, include $37.5 million of investments held by our captive reinsurance businesses as collateral for the benefit of HOA. Of this amount, $3.3 million is classified as short-term investments, and $34.3 million is classified as long-term investments.
Securities with gross unrealized loss position, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:
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Less Than Twelve MonthsTwelve Months or GreaterTotal
As of March 31, 2024Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
Fair
Value
U.S. Treasuries$(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)$96,717 
Less Than Twelve MonthsTwelve Months or GreaterTotal
As of December 31, 2023Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
Fair
Value
Gross
Unrealized
Loss
Fair
Value
U.S. Treasuries$(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 

At March 31, 2024, and December 31, 2023, there were 475 and 410 securities, respectively, in an unrealized loss position. Of these securities, 81 had been in an unrealized loss position for 12 months or longer as of March 31, 2024.
We believe there were no fundamental issues such as credit losses or other factors with respect to any of our available-for-sale securities. The unrealized losses on investments in fixed-maturity securities were caused primarily by interest rate changes. We expect that the securities will not be settled at a price less than par value of the investments. Because the declines in fair value are attributable to changes in interest rates or market conditions and not credit quality, and because we have the ability and intent to hold our available-for-sale investments until a market price recovery or maturity, we do not consider any of our investments to have any decline in fair value due to expected credit losses at March 31, 2024.

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Note 4. Fair Value
The following tables summarize the fair value measurements of assets and liabilities that are measured at fair value on a recurring basis.
Fair Value Measurement as of March 31, 2024
Level 1Level 2Level 3Total
Fair Value
Assets
Money market mutual funds$158,354 $ $ $158,354 
Debt securities:
U.S. Treasuries35,819   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 1Level 2Level 3Total
Fair Value
Assets
Money market mutual funds$165,744 $ $ $165,744 
Debt securities:
U.S. Treasuries43,696   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 
______________________________________
(1)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.
(2)The Condensed Consolidated Balance Sheets include $14.8 million in accrued expenses and other current liabilities and $3.7 million in other liabilities as of December 31, 2023, for contingent consideration related to business combinations.

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Financial Assets
Money market mutual funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above. The fair values for available-for-sale fixed-maturity securities are based upon prices provided by an independent pricing service. 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 – Business Combinations
As part of the acquisition of Floify, LLC (“Floify”) in October 2021, we issued shares as partial closing consideration to the sellers of Floify and guaranteed that the value of those shares would equal or exceed 200% of such price on or prior to December 31, 2024 (the “True-Up Obligation”). The True-Up Obligation could be settled at our option in cash, Porch common stock, or a combination thereof. On March 27, 2024, we entered into a settlement agreement and mutual release of claims with the sellers of Floify to settle a post-closing dispute. As part of the of this agreement, the sellers of Floify agreed to terminate the True-Up Obligation in full and released from restriction approximately $0.9 million of escrowed cash to us. We estimated the fair value of the True-Up Obligation as of the settlement date using the Monte Carlo simulation method. The fair value is based on the simulated market price of our common stock over the maturity date of the True-Up Obligation. As of March 27, 2024, the key inputs used to determine the fair value of $14.9 million included the stock price of $4.13, strike price of $36.00, discount rate of 23.6% and volatility of 95%. Subsequent to the valuation, we recognized a gain on settlement in other income, net, in the Condensed Consolidated Statements of Operations and Comprehensive Loss equal to the fair value of $14.9 million. As of December 31, 2023, the key inputs used in the determination of the fair value of $14.0 million included the stock price of $3.08, strike price of $36.00, discount rate of 27.9% and volatility of 90%.
We estimated the fair value of the business combination contingent consideration based on specific metrics related to the acquisition of Residential Warranty Services (“RWS”) in April 2022, using the discounted cash flow method. The fair value is based on a percentage of revenue over the maturity date of the contingent consideration. As of March 31, 2024, the key inputs used to determine the fair value of $4.6 million were management’s cash flow estimates and the discount rate of 17%. As of December 31, 2023, the key inputs used to determine the fair value of $4.4 million were management’s cash flow estimates and the discount rate of 17%.
Private Warrants
We estimated the fair value of the private warrants using the Black-Scholes-Merton option pricing model. As of March 31, 2024, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 88%, remaining contractual term of 1.73 years, and stock price of $4.31. As of December 31, 2023, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 95%, remaining contractual term of 1.98 years, and stock price of $3.08.
Embedded Derivatives
In connection with the issuance of senior secured convertible notes in April 2023 (see Note 7) and in accordance with Accounting Standards Codification 815-15, Derivatives and Hedging – Embedded Derivatives, certain features of the senior secured convertible notes were bifurcated and accounted for separately from the notes. The following features are recorded as derivatives.
Repurchase option. If more than $30 million aggregate principal amount of the 2026 Notes remains outstanding on June 14, 2026, the 2028 Note holders have the right to require us to repurchase for cash on June 15, 2026, all or any portion of their 2028 Notes, in principal amounts of one thousand dollars or an integral number thereof, at a repurchase price equal to 106.5% of the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.
Fundamental change option. If we undergo a fundamental change, as defined in the indenture governing the 2028 Notes and subject to certain conditions, holders of the 2028 Notes have the right to require us to repurchase for cash all or any portion of their 2028 Notes, in principal amounts of one thousand dollars or an integral multiple thereof, at a repurchase price equal to 105.25% of the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date. A fundamental change includes events such as a change in control, recapitalization, liquidation, dissolution, or delisting.
Asset sale repurchase option. If we sell assets and receive net cash proceeds of $2.5 million in excess of the Asset Sale Threshold (as defined below) (such excess net cash proceeds, the “Excess Proceeds”), we must
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offer to all holders of 2028 Notes to repurchase 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 the aggregate, provided that on and after the date on which the cumulative net cash proceeds received by the Company and its restricted subsidiaries from the sale of assets after April 20, 2023, exceeds $20.0 million in the aggregate, the “Asset Sale Threshold” means $0.
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 fundamental change, and qualifying asset sales, ranging from 3% to 29%.
Level 3 Rollforward
Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value, and such changes could result in a significant increase or decrease in the fair value.
The changes for Level 3 items measured at fair value on a recurring basis using significant unobservable inputs are as follows:
Contingent Consideration - Business CombinationsEmbedded DerivativesPrivate 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 CombinationsContingent Consideration - EarnoutPrivate 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 
______________________________________
(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.

Fair Value Disclosure
As of March 31, 2024, and December 31, 2023, the fair value of the 2026 Notes (see Note 7) was $78.0 million and $73.1 million, respectively. The increase of $4.9 million is primarily due to the increase in the stock price at March 31, 2024, as compared to December 31, 2023. As of March 31, 2024, and December 31, 2023, the fair value of the 2028 Notes (see Note 7) was $227.5 million and $196.7 million, respectively. The increase of $30.8 million is primarily due to the increase in the stock price at March 31, 2024, as compared to December 31, 2023. The fair values of the line of credit, advance funding arrangement and other notes approximate the unpaid principal balance. All debt, other than the convertible notes which are Level 2, is considered a Level 3 measurement.

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Note 5. Property, Equipment, and Software
Property, equipment, and software, net, consists of the following:
March 31,
2024
December 31,
2023
Software and computer equipment$8,247 $8,340 
Furniture, office equipment, and other1,537 1,573 
Internally developed software25,428 24,526 
Leasehold improvements1,176 1,176 
36,388 35,615 
Less: Accumulated depreciation and amortization(18,800)(18,754)
Property, equipment, and software, net$17,588 $16,861 

Depreciation and amortization expense related to property, equipment, and software was $1.6 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively.

Note 6. Intangible Assets and Goodwill
Intangible Assets
Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization and impairment. The following tables summarize intangible asset balances.
As of March 31, 2024Weighted
Average
Useful Life
(in years)
Intangible
Assets,
gross
Accumulated
Amortization
And
Impairment
Intangible
Assets,
Net
Customer relationships9.0$69,026 $(25,999)$43,027 
Acquired technology5.028,001 (15,861)12,140 
Trademarks and tradenames11.023,443 (7,207)16,236 
Non-compete agreements5.0301 (152)149 
Renewal rights6.09,734 (3,741)5,993 
Insurance licensesIndefinite4,960 — 4,960 
Total intangible assets$135,465 $(52,960)$82,505 
As of December 31, 2023Weighted
Average
Useful Life
(in years)
Intangible
Assets,
gross
Accumulated
Amortization
And
Impairment
Intangible
Assets,
Net
Customer relationships8.0$69,504$(24,153)$45,351
Acquired technology5.036,041(22,358)13,683
Trademarks and tradenames11.023,443(6,701)16,742
Non-compete agreements3.0616(455)161
Value of business acquired1.0400(400)
Renewal rights6.09,734(3,415)6,319
Insurance licensesIndefinite4,9604,960
Total intangible assets$144,698$(57,482)$87,216

The aggregate amortization expense related to intangibles was $4.7 million and $4.9 million for the three months ended March 31, 2024 and 2023, respectively.
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Goodwill
The goodwill balance at March 31, 2024, and December 31, 2023, was $191.9 million and is entirely included in our Vertical Software segment. We had no changes in the carrying amount of goodwill for the three months ended March 31, 2024.

Note 7. Debt
The following tables summarize outstanding debt as of March 31, 2024, and December 31, 2023.
PrincipalUnaccreted
Discount
Debt
Issuance
Costs
Carrying
Value
Convertible senior notes, due 2026$217,000 $ $(2,903)$214,097 
Convertible senior notes, due 2028333,334 (111,191)(4,149)217,994 
Other notes150 (9) 141 
Balance as of March 31, 2024$550,484 $(111,200)$(7,052)$432,232 
PrincipalUnaccreted
Discount
Debt
Issuance
Costs
Carrying
Value
Convertible senior notes, due 2026$225,000 $ $(3,311)$221,689 
Convertible senior notes, due 2028333,334 (115,353)(4,312)213,669 
Advance funding arrangement94   94 
Other notes300 (13) 287 
Balance as of December 31, 2023$558,728 $(115,366)$(7,623)$435,739 
Convertible Senior Notes
Interest expense recognized related to the 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”) was approximately $0.7 million and $1.4 million for the three months ended March 31, 2024 and 2023, respectively, and includes contractual interest expense and amortization of debt issuance costs. The effective interest rate for the 2026 Notes is 1.3%.
Interest expense recognized related to the 6.75% Convertible Senior Notes due 2028 (the “2028 Notes”) was approximately $9.9 million and zero for the three months ended March 31, 2024 and 2023, respectively. Interest expense includes $5.6 million contractual interest expense and $4.3 million amortization of debt issuance costs and discount for the three months ended March 31, 2024. The effective interest rate for the 2028 Notes is 17.9%.
For the three months ended March 31, 2024, we capitalized $0.1 million of interest expense on the 2028 Notes related to ongoing internally developed software projects.
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.
Advance Funding Arrangement
For certain home warranty contracts, we participated in financing arrangements with third-party financers that provided us with the contract premium upfront, less a financing fee. Third-party financers collect installment payments from the warranty contract customer which satisfy our repayment obligation over a portion of the contract term. We remain obligated to repay the third-party financer if a customer cancels its warranty contract prior to full repayment of the advance funding amount we received. As part of the arrangement, we paid financing fees, which were collected by the third-party financers upfront and were initially recognized as a debt discount. Financing fees were amortized as interest expense under the effective interest method. The implied interest rate varied per contract and was generally approximately 14% of total funding received. As of March 31, 2024, our obligation was completely satisfied with the third-party financers, we had no outstanding balance.

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Note 8. Stockholders' Equity and Warrants
Common Shares Outstanding and Common Stock Equivalents
The following table summarizes our fully diluted capital structure.
March 31,
2024
December 31,
2023
Issued and outstanding common shares97,86997,061
Common shares reserved for future issuance:
Private warrants1,7961,796
Stock options (Note 9)3,3823,642
Restricted and performance stock units and awards (Note 9)11,08912,065
2020 Equity Plan pool reserved for future issuance (Note 9)13,2708,009
Convertible senior notes, due 2026 (1)
8,6798,999
Convertible senior notes, due 202813,33213,332
Contingently issuable shares in connection with acquisitions (2)
5,908
Total shares of common stock outstanding and reserved for future issuance149,417150,812
______________________________________
(1)In connection with the September 16, 2021, issuance of the 2026 Notes, we used a portion of the proceeds to pay for the capped call transactions, which are expected to generally reduce the potential dilution to our common stock. The capped call transactions 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 of March 31, 2024.
(2)In connection with the acquisition of Floify, we issued shares as partial closing consideration and guaranteed that the value of those shares would equal or exceed 200% of such price on or prior to December 31, 2024. If the value of those shares did not equal or exceed 200% of their value, we would have been obligated to settle any differences in cash, Porch common stock, or combination thereof. On March 27, 2024, we entered into a settlement agreement to settle a post-closing dispute. As part of this agreement, the sellers of Floify agreed to terminate this obligation in full.
Warrants
There was no activity related to private warrants during the three months ended 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.

Note 9. Stock-Based Compensation
The following table summarizes the classification of stock-based compensation expense in the unaudited condensed consolidated statements of operations.
Three Months Ended March 31,
20242023
Selling and marketing$694 $1,045 
Product and technology1,095 1,449 
General and administrative3,579 4,400 
Total stock-based compensation expense$5,368 $6,894 

Under our 2020 Stock Incentive Plan, employees, directors and consultants are eligible for grants of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance restricted stock units (“PRSUs”), and other stock awards, collectively referred to as “Equity Awards.”
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The following table summarizes Equity Award activity for the three months ended March 31, 2024:
Number of
Options
Number of
Restricted
Stock Units
Number of
Performance
Restricted
Stock Units
Balances as of December 31, 20233,6428,3103,754
Granted149
Vested(620)
Exercised(243)
Forfeited, canceled or expired(17)(504)
Balances as of March 31, 20243,3827,3353,754

Note 10. Reinsurance
2023 Program
Our third-party quota share reinsurance program is split into three separate placements to maximize coverage and cost efficiency. The Coastal Program covers our business in certain Texas coastal regions and the Houston metropolitan area and is placed at 42% of subject property and casualty losses (“P&C losses”), as well as all business in South Carolina which is placed at 7% of P&C losses. The Core Program, which covers the portion of our business not in the Coastal Program, is placed at 9.5% of P&C losses of our remaining business in Texas and 8% of P&C 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.
Property catastrophe excess of loss treaties were placed on April 1, 2023, and were updated in August 2023 after the events described in the “Terminated Reinsurance Contract” section below. Coverage for wind storms starts at $20 million per occurrence. Losses are shared between $20 million and $80 million. Over $80 million losses are covered up to a net loss of $440 million. We also place reinstatement premium protection to cover any reinstatement premiums due on the first four layers.
2024 Program
As of April 1, 2024, our quota share program will consist of one combined program covering all of our business in all states and is placed at 27.5% of P&C losses. All programs are effective for the period April 1, 2024, through March 31, 2025, and are subject to certain limits and exclusions, which vary by participating reinsurer.
Coverage for catastrophe events starts immediately within the quota share contracts and at $45.0 million per occurrence within the property catastrophe excess of loss treaties placed on April 1, 2024. Losses are shared at various levels up to $75.0 million. Over $75.0 million losses are covered up to a loss of $465.0 million. We also place reinstatement premium protection to cover any reinstatement premiums due on the first five layers.
Reinsurance Impact
The effects of reinsurance on premiums written and earned for the three months ended March 31, 2024 and 2023, were as follows:
Three Months Ended March 31,
20242023
WrittenEarnedWrittenEarned
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

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The effects of reinsurance on incurred losses and loss adjustment expense (“LAE”) for the three months ended March 31, 2024 and 2023, were as follows:
Three Months Ended March 31,
20242023
Direct losses and LAE$79,416 $90,015 
Ceded losses and LAE(10,483)(47,156)
Net losses and LAE$68,933 $42,859 

The detail of reinsurance balances due is as follows:
March 31,
2024
December 31,
2023
Ceded unearned premium$41,899 $50,697 
Losses and LAE reserve18,556 19,911 
Reinsurance recoverable14,637 12,629 
Other327 345 
Reinsurance balance due$75,419 $83,582 

Terminated Reinsurance Contract
During the second quarter of 2023, HOA 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, which allegations have since been confirmed. We have communicated and met with 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 the associated contract 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, and HOA would have been contracted to pay approximately $20 million in additional premium payments during July through December 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 and recognized a charge of $36.0 million in provision for doubtful accounts in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2023. 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. We are also seeking recovery of all losses and damages incurred as a result of terminating the reinsurance agreement due to allegations of fraudulent activity by third parties.
On January 19, 2024, we entered into a five-year business collaboration agreement with Aon Corp. and Aon Re, Inc. ("Aon"), resulting in payments to us of approximately $25 million in January 2024 and additional cash payments through the end of the contract term. Of the cash payments that we have or will receive through the end of the contract term, $8.7 million is non-refundable and immediately recognized in other income, net in the Condensed Consolidated Statements of Operations and Comprehensive Loss. A portion of the remaining amount is potentially refundable to Aon if we breach the agreement, including if we directly or indirectly place reinsurance with brokers unaffiliated with Aon, subject to customary cure rights. The remaining amount will be recognized in other income, net, over the term of the agreement. As part of this agreement, Aon and Porch also signed a mutual release of claims arising from the Vesttoo fraud. Porch has not released any claims against non-Aon parties related to these matters and intends to vigorously pursue recovery. In addition to this arrangement, we have also received cash recoveries from other parties in the amount of $3.0 million during the three months ended March 31, 2024.

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Note 11. Unpaid Losses and Loss Adjustment Reserve
The following table summarizes the changes in the reserve balances for unpaid losses and LAE, gross of reinsurance, for the three months ended March 31, 2024:
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, 202375,695
Add provisions (reductions) for losses and LAE occurring in:
Current year67,135
Prior years1,798
Net incurred losses and LAE during the current year68,933
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, 202494,004
Reinsurance recoverables on losses and LAE at March 31, 2024(18,556)
Reserve for unpaid losses and LAE at March 31, 2024$112,560
______________________________________
(1)Also includes certain charges related to Vesttoo (see Note 10).

As a result of additional information on claims occurring in prior years becoming available to management, changes in estimates of provisions of losses and loss adjustment expenses were made resulting in an increase of $1.8 million for the three months ended March 31, 2024.

Note 12. Other Income (Expense), Net
The following table details the components of other income, net, on the Condensed Consolidated Statements of Operations and Comprehensive Loss:
Three Months Ended March 31,
20242023
Interest income$434$720
Gain on settlement of contingent consideration14,930
Loss on sale of business(5,244)
Recoveries of losses on reinsurance contracts12,570
Other, net(12)42
Other income, net$22,678$762

Note 13. Income Taxes
Benefit (provision) for income taxes for the three months ended March 31, 2024, and 2023, were $(0.2) million and $0.1 million, respectively, and the effective tax rates for these periods were (1.4)% and 0.3%, respectively. The difference between our effective tax rates for the 2024 and 2023 periods and the U.S. statutory rate of 21% was primarily due to a full valuation related to our net deferred tax assets.
23

Note 14. Commitments and Contingencies
From time to time we are or may become subject to various legal proceedings arising in the ordinary course of business, including proceedings initiated by users, other entities, or regulatory bodies. Estimated liabilities are recorded when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In many instances, we are unable to determine whether a loss is probable or to reasonably estimate the amount of such a loss and, therefore, the potential future losses arising from a matter may differ from the amount of estimated liabilities we have recorded in the financial statements covering these matters. We review our estimates periodically and make adjustments to reflect negotiations, estimated settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter.
Cases under Telephone Consumer Protection Act
Porch and/or an acquired entity, GoSmith.com, are party to a legal proceeding alleging violations of the automated calling and/or internal and National Do Not Call restrictions of the Telephone Consumer Protection Act of 1991 and a related Washington state law claim. The proceedings were commenced as thirteen separate mass tort actions brought by a single plaintiffs’ law firm in December 2019 and April/May 2020 in federal district courts throughout the United States. One of the actions was dismissed with prejudice and appealed to the Ninth Circuit Court of Appeals. While the appeal was pending, the remaining cases were consolidated in the United States District Court for the Western District of Washington, where Porch resides. On October 12, 2022, in a split decision, the Ninth Circuit Court of Appeals reversed. Following remand, that case was also consolidated with the Western District of Washington action. Plaintiffs then filed a motion for leave to file a second amended complaint, which was granted in part and denied in part. The Second Amended Complaint was filed in July 2023. In September 2023, Defendants filed a Motion to Strike the Second Amended Complaint; this motion was denied. Defendants’ Motion to Dismiss was filed on February 15, 2024 and is fully briefed and awaiting a decision. The parties’ filed a required Joint Status Report and Discovery Plan on February 16, 2024. Discovery is stayed until Defendants’ Motion to Dismiss is decided. Plaintiffs seek actual, statutory, and/or treble damages, injunctive relief, and reasonable attorneys’ fees and costs. 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 this case vigorously.
Other
In addition, in the ordinary course of business, we and our subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims, as well as stockholder derivative actions, class action lawsuits and other matters. The amounts that may be recovered in such matters may be subject to insurance coverage. Although the results of legal proceedings and claims cannot be predicted with certainty, neither we nor any of our subsidiaries are currently a party to any legal proceedings the outcome of which, we believe, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.

Note 15. Business Disposition
On January 31, 2024, we sold our insurance agency, Elite Insurance Group (“EIG”). The estimated price is $12.2 million of which we have received $10.3 million in cash and recorded a receivable of $1.8 million as of March 31, 2024. We recorded an estimated loss of $5.2 million in other income, net, in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The final price and amount of loss on sale will be determined after post-closing adjustments have been finalized, which is expected to occur in the second quarter of 2024.

Note 16. Segment Information
We have two reportable segments that are also our operating segments: Vertical Software and Insurance. Reportable segments were identified based on how the chief operating decision-maker (“CODM”) manages the business, makes operating decisions, and evaluates operating and financial performance. Our chief executive officer acts as the CODM and reviews financial and operational information for our reportable segments. Operating segments are components of an enterprise for which separate discrete financial information is available and operational results are regularly evaluated by the CODM for the purposes of making decisions regarding resource allocation and assessing performance.
24

Our Vertical Software segment provides software and services to inspection, mortgage, and title companies on a subscription and transactional basis, which was 62% of total vertical software revenue, and move and post-move services, which was 38% of total vertical software revenue for the three months ended March 31, 2024. The Vertical Software segment operates as several key businesses, including inspection software and services, title insurance software, mortgage software, moving services, mover and homeowner marketing, and measurement software for roofers.
Our Insurance segment provides consumers with insurance and warranty products to protect their homes, earning revenue through premiums collected on policies, policy fees and commissions. The Insurance segment includes Homeowners of America (“HOA”), a wholly owned insurance carrier, Porticus Reinsurance (“Porticus RE”), our Cayman Islands captive reinsurer, and Porch Warranty, among other warranty brands.
The following table summarizes revenue by segment.
Three Months Ended March 31,
20242023
Vertical Software$27,495 $28,627 
Insurance87,948 58,742 
Total revenue$115,443 $87,369 

Our segment operating and financial performance measure is Segment Adjusted EBITDA (Loss). Segment Adjusted EBITDA (Loss) is defined as revenue less the following expenses associated with each segment: cost of revenue, selling and marketing, product and technology, and general and administrative. Segment Adjusted EBITDA (Loss) also excludes non-cash items or items that management does not consider reflective of ongoing core operations.
We do not allocate shared expenses to the reportable segments. These expenses are included in the “Corporate and other” row in the following reconciliation. “Corporate and other” includes shared expenses such as selling and marketing; certain product and technology; accounting; human resources; legal; general and administrative; and other income, expenses, gains, and losses that are not allocated in assessing segment performance due to their function. Such transactions are excluded from the reportable segments’ results but are included in consolidated results.
The reconciliation of Segment Adjusted EBITDA (Loss) to consolidated “Operating loss” below includes the effects of corporate and other items that the CODM does not consider in assessing segment performance.
Three Months Ended March 31,
20242023
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