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

(Address of Principal Executive Offices) (Zip Code)

(855) 767-2400

(Registrant’s telephone number, including area code)

N/A

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

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

Title of Each Class	Trading symbol	Name of Exchange on which registered
Common Stock, par value $0.0001 per share	PRCH	The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer	☒	Accelerated filer	☐
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 August 5, 2022 was 99,760,638.

Table of Contents

		Page
Part I.	Financial Information	3
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	3
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021	4
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2022 and 2021	5
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 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	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	53
Part II.	Other Information	55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56
Exhibit Index		56
Signatures		57

2

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

PORCH GROUP, INC.

Condensed Consolidated Balance Sheets

(all numbers in thousands, except share amounts)

	June 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	271,003	$	315,741
Accounts receivable, net		38,474		28,767
Short-term investments		8,165		9,251
Reinsurance balance due		273,971		228,416
Prepaid expenses and other current assets		22,621		14,338
Restricted cash		10,574		8,551
Total current assets		624,808		605,064
Property, equipment, and software, net		9,984		6,666
Operating lease right-of-use assets		6,052		4,504
Goodwill		273,831		225,654
Long-term investments		56,228		58,324
Intangible assets, net		136,575		129,830
Restricted cash, non-current		500		500
Long-term insurance commissions receivable		10,461		7,521
Other assets		1,519		684
Total assets	$	1,119,958	$	1,038,747
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	7,739	$	6,965
Accrued expenses and other current liabilities		47,967		37,675
Deferred revenue		243,425		201,085
Refundable customer deposit		19,246		15,274
Current portion of long-term debt		150		150
Losses and loss adjustment expense reserves		88,894		61,949
Other insurance liabilities, current		61,516		40,024
Total current liabilities		468,937		363,122
Long-term debt		416,568		414,585
Operating lease liabilities, non-current		3,622		2,694
Earnout liability, at fair value		100		13,866
Private warrant liability, at fair value		926		15,193
Other liabilities (includes $29,858 and $9,617 at fair value, respectively)		30,825		12,242
Total liabilities		920,978		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 – 99,440,528 and 97,961,597, respectively
Additional paid-in capital		659,814		641,406
Accumulated other comprehensive loss		(4,559)		(259)
Accumulated deficit		(456,285)		(424,112)
Total stockholders’ equity		198,980		217,045
Total liabilities and stockholders’ equity	$	1,119,958	$	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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue	$	70,769	$	51,340	$	133,330	$	78,083
Operating expenses(1):
Cost of revenue		28,558		19,500		49,747		25,429
Selling and marketing		28,826		23,122		54,569		37,762
Product and technology		15,777		11,050		30,009		22,841
General and administrative		28,405		20,611		55,103		44,625
Total operating expenses		101,566		74,283		189,428		130,658
Operating loss		(30,797)		(22,943)		(56,098)		(52,575)
Other income (expense):
Interest expense		(1,858)		(1,216)		(4,151)		(2,439)
Change in fair value of earnout liability		2,587		(4,032)		13,766		(22,801)
Change in fair value of private warrant liability		4,078		(4,303)		14,267		(20,212)
Gain on extinguishment of debt		—		8,243		—		8,243
Investment income and realized gains, net of investment expenses		243		387		440		397
Other expense, net		(162)		(165)		(107)		(91)
Total other income (expense)		4,888		(1,084)		24,215		(36,904)
Loss before income taxes		(25,909)		(24,027)		(31,883)		(89,479)
Income tax benefit (expense)		(468)		7,731		(290)		8,081
Net loss	$	(26,377)	$	(16,296)	$	(32,173)	$	(81,398)
Loss per share - basic and diluted (Note 15)	$	(0.27)	$	(0.17)	$	(0.33)	$	(0.89)
Shares used in computing basic and diluted loss per share		97,142,163		95,221,928		96,611,294		91,483,053

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Cost of revenue	$	—	$	—	$	—	$	1
Selling and marketing		1,270		1,424		1,902		3,506
Product and technology		1,840		1,836		2,977		4,154
General and administrative		6,592		3,382		10,677		15,816
	$	9,702	$	6,642	$	15,556	$	23,477

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(26,377)	$	(16,296)	$	(32,173)	$	(81,398)
Other comprehensive loss:
Current period change in net unrealized loss, net of tax		(1,785)		267		(4,300)		267
Comprehensive loss	$	(28,162)	$	(16,029)	$	(36,473)	$	(81,131)

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 income	—		—		—		—		(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 income	—		—		—		—		(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

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	—		—		—		(16,296)		—		(16,296)
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	$	(398,903)	$	267	$	228,770

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

7

PORCH GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(all numbers in thousands, unaudited)

	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(32,173)	$	(81,398)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		12,899		6,356
Amortization of operating lease right-of-use assets		604		803
Loss on sale and impairment of long-lived assets		169		126
Gain on extinguishment of debt		—		(8,243)
Loss (gain) on remeasurement of private warrant liability		(14,267)		20,212
Loss (gain) on remeasurement of contingent consideration		4,686		(314)
Loss (gain) on remeasurement of earnout liability		(13,766)		22,801
Stock-based compensation		15,556		23,477
Amortization of investment premium/accretion of discount, net		1,132		654
Net realized losses on investments		138		—
Interest expense (non-cash)		2,339		67
Other		80		(1,479)
Change in operating assets and liabilities, net of acquisitions and divestitures
Accounts receivable		(9,907)		(5,017)
Reinsurance balance due		(45,555)		(94,883)
Prepaid expenses and other current assets		(7,758)		1,654
Accounts payable		(4,226)		(21,417)
Accrued expenses and other current liabilities		2,358		(3,292)
Losses and loss adjustment expense reserves		26,945		29,655
Other insurance liabilities, current		21,492		76,474
Deferred revenue		37,610		15,824
Refundable customer deposits		3,972		(1,273)
Deferred income tax benefit		—		(8,153)
Long-term insurance commissions receivable		(2,940)		(2,775)
Operating lease liabilities, non-current		(1,368)		(886)
Other		(326)		255
Net cash used in operating activities		(2,306)		(30,772)
Cash flows from investing activities:
Purchases of property and equipment		(1,539)		(539)
Capitalized internal use software development costs		(3,496)		(1,510)
Purchases of short-term and long-term investments		(13,561)		(9,476)
Maturities, sales of short-term and long-term investments		12,241		8,110
Acquisitions, net of cash acquired		(32,049)		(127,883)
Net cash used in investing activities		(38,404)		(131,298)
Cash flows from financing activities:
Repayments of principal and related fees		(150)		(150)
Proceeds from line of credit		1,000		—
Proceeds from exercises of warrants		—		126,772
Proceeds from exercises of stock options		692		2,544
Income tax withholdings paid upon vesting of restricted stock units		(1,922)		(22,126)
Payments of acquisition-related contingent consideration		(1,625)		—
Net cash (used) provided by financing activities		(2,005)		107,040
Net change in cash, cash equivalents, and restricted cash	$	(42,715)	$	(55,030)
Cash, cash equivalents, and restricted cash, beginning of period	$	324,792	$	207,453
Cash, cash equivalents, and restricted cash end of period	$	282,077	$	152,423

8

PORCH GROUP, INC.

Condensed Consolidated Statements of Cash Flows - Continued

(all numbers in thousands, unaudited)

	Six Months Ended June 30,
	2022		2021
Supplemental disclosures
Cash paid for interest	$	1,587	$	1,779
Non-cash consideration for acquisitions	$	21,607	$	37,792
Cash payable for acquisition	$	5,000	$	—
Reduction of earnout liability due to a vesting event	$	—	$	25,815

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

9

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements

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

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Porch Group, Inc. (“Porch Group,” “Porch” or the “Company”) is a vertical software platform for the home, providing software and services to over 28,500 home services companies. The Vertical Software segment provides software and services to home services companies, such as home inspectors, mortgage companies and loan officers, title companies, moving companies, real estate agencies, utility companies, and others, and the Insurance segment operates both as an insurance carrier underwriting home insurance policies, and as an agent selling home and auto insurance for over 20 major and regional insurance companies. The Insurance segment also includes Porch’s warranty service offering.

Porch helps home service providers grow their business and improve their customer experience. In addition, through these relationships Porch gains access to homebuyers and is able to offer services to make the moving process easier, helping consumers save time and make better decisions about critical services, including insurance, warranty, moving, security, TV/Internet, home repair and improvement.

Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements include the accounts of Porch Group, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these unaudited condensed consolidated financial statements and notes should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 16, 2022. The information as of December 31, 2021, included in the unaudited condensed consolidated balance sheets was derived from the Company’s audited consolidated financial statements.

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, comprehensive loss, stockholders’ equity, and cash flows for the periods and dates presented. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or any other interim period or future year.

Comprehensive Loss

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

Reclassifications

Certain reclassifications to previously reported 2021 balances were made to conform to the current period presentation in the unaudited condensed consolidated statements of cash flows.

Use of Estimates

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,

10

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

estimated variable consideration for services performed, estimated lifetime value of insurance agency commission revenue, current estimate for credit losses, depreciable lives for property and equipment, the valuation of and useful lives for acquired intangible assets, goodwill, the valuation allowance on deferred tax assets, assumptions used in stock-based compensation expense, unpaid losses for insurance claims and loss adjustment expenses, contingent consideration, earnout liabilities and private warrant liabilities, are evaluated by management. Actual results could differ materially from those estimates, judgments, and assumptions.

Concentrations

Financial instruments which potentially subject the Company to credit risk consist principally of cash, money market accounts on deposit with financial institutions, money market funds, certificates of deposit and fixed-maturity securities, as well as receivable balance in the course of collection.

The Company’s insurance carrier subsidiary has exposure and remains liable in the event of insolvency of one of its primary reinsurers. Management and its reinsurance intermediary regularly assess the credit quality and ratings of its reinsurer counterparties. One reinsurer represented more than 10% individually, and 34% in aggregate, of the Company’s insurance subsidiary’s total reinsurance receivables as of June 30, 2022.

Substantially all of the Company’s insurance-related revenues in the Insurance segment are derived from customers in Texas (which represent approximately 55% of such revenues in the six months ended June 30, 2022), South Carolina, North Carolina, Georgia, Virginia and Arizona, which could be adversely affected by economic conditions, an increase in competition, or environmental impacts and changes.

No individual customer represented more than 10% of the Company’s total revenue for the three and six months ended June 30, 2022 or 2021. As of June 30, 2022 and December 31, 2021, no individual customer accounted for 10% or more of the Company’s total accounts receivable.

As of June 30, 2022, the Company held approximately $169.7 million of cash with one U.S. commercial bank.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. The Company maintains cash balances that may exceed the insured limits by the Federal Deposit Insurance Corporation.

Restricted cash equivalents as of June 30, 2022 includes $0.5 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $7.7 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in twenty five states, $0.5 million in escrow with an insurance regulator, and $2.9 million related to acquisition indemnifications, of which $0.5 million is recorded in non-current assets. Restricted cash equivalents as of December 31, 2021, includes $0.3 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $5.9 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in twenty five states, $0.3 million of customer deposits, and $2.6 million related to acquisition indemnifications in escrow accounts, of which $0.5 million is recorded in non-current assets.

11

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

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

	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	271,003