# Porch Group, Inc.: Form 10-Q for the period ended Sep 30, 2021

- Company: [Porch Group, Inc.](/companies/prch.md) (CIK 1784535)
- Form: 10-Q
- Filed: 2021-11-15
- Accepted by EDGAR: Nov 15, 2021, 16:38 ET
- Period: 2021-09-30
- Accession: 0001558370-21-016018
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1784535/000155837021016018/prch-20210930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1784535/000155837021016018/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-07-01 to 2021-09-30 | $62.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2021-01-01 to 2021-09-30 | $140.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-07-01 to 2021-09-30 | $19.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2021-01-01 to 2021-09-30 | $44.6m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2021-07-01 to 2021-09-30 | −$12.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2021-01-01 to 2021-09-30 | −$65.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-07-01 to 2021-09-30 | $1.9m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2021-01-01 to 2021-09-30 | $4.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-07-01 to 2021-09-30 | −$1.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-01-01 to 2021-09-30 | −$9.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-07-01 to 2021-09-30 | −$5.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-01-01 to 2021-09-30 | −$86.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-07-01 to 2021-09-30 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2021-01-01 to 2021-09-30 | −$0.93 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-07-01 to 2021-09-30 | −$0.05 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2021-01-01 to 2021-09-30 | −$0.93 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-07-01 to 2021-09-30 | 97,545,942 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2021-01-01 to 2021-09-30 | 92,544,137 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2021-01-01 to 2021-09-30 | −$41.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2021-01-01 to 2021-09-30 | $588.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2021-09-30 | $410.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-09-30 | $713.4m | us-gaap:AssetsCurrent |
| Total assets | at 2021-09-30 | $1.05bn | us-gaap:Assets |
| Current liabilities | at 2021-09-30 | $377.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-09-30 | $858.0m | us-gaap:Liabilities |
| Long-term debt | at 2021-09-30 | $418.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2021-09-30 | $107.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2021-09-30 | $192.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 61,817 characters.

*This report and the documents incorporated herein by reference contain forward- looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions.*

*Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. Unless specifically indicated otherwise, the forward-looking statements in this report do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that have not been completed as of the date of this filing. You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company’s forward-looking statements:*

- *the ability to recognize the anticipated benefits of the Company’s business combination consummated on December 23, 2020 (the “Merger”) pursuant to that certain Agreement and Plan of Merger, dated July 30, 2020 (as amended by the First Amendment to the Agreement and Plan of Merger, dated as of October 12, 2020, the “Merger Agreement”), by and among PropTech Acquisition Corporation (“PTAC”), PTAC Merger Sub Corporation, a Delaware corporation and wholly-owned subsidiary of PTAC (“Merger Sub”), Porch.com, Inc. a Delaware corporation, and Joe Hanauer, in his capacity as the stockholder representative, which may be affected by, among other things, competition and the ability of the combined business to grow and manage growth profitably, maintain key commercial relationships and retain its management and key people;*
- *expansion plans and opportunities, including recently completed acquisitions as well as future acquisitions or additional business combinations;*
- *costs related to the Merger and being a public company;*
- *litigation, complaints, and/or adverse publicity;*
- *the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, demographic trends and employee availability;*
- *privacy and data protection laws, privacy or data breaches, or the loss of data; and*
- *the impact of the COVID-19 pandemic and its effect on the business and financial conditions of the Company.*

*These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in Part II, Item 1A of this report, Item 1A of the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2020 filed with the SEC on May 19,2021 and in any of the Company’s subsequent SEC filings. The risks described in these filings are not exhaustive. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward- looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary* *statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.*

### Business Overview

Porch is a vertical software platform for the home, providing software and services to approximately 20,000 home services companies, such as home inspectors, moving companies, utility companies, warranty companies, and others. Porch helps these service providers grow their business and improve their customer experience.

As of September 30, 2021, Porch has two reportable segments: the Vertical Software segment and the Insurance segment.

Porch’s Vertical Software segment provides software and services to home services companies and, through these relationships, gains unique and early access to homebuyers and homeowners, assists homebuyers and homeowners with critical services such as moving, and, in turn, Porch’s platform drives demand for other services from such companies as part of our value proposition. Vertical Software segment has three types of customers: (1) home services companies, such as home inspectors, for whom Porch provides software and services and who provide introductions to homebuyers and homeowners; (2) consumers, such as homebuyers and homeowners, whom Porch assists with the comparison and provision of various critical home services, such as moving, security, TV/internet, and home repair and improvement; and (3) service providers, such as moving companies, title companies, security companies and TV/internet providers, who pay Porch for new customer sign-ups.

Our Insurance segment offers various property-related insurance policies through its own managing general agency, carrier and agency. The Insurance segment also includes home warranty revenue.

Throughout the last eight years, Porch has established and expanded operations across a number of home-related industries. Porch has also selectively acquired companies which can be efficiently integrated into Porch’s platform. In 2017, we significantly expanded our position in the home inspection industry by acquiring ISN™, a developer of ERP and CRM software for home inspectors. In November 2018, we acquired HireAHelper™, a provider of software and demand for moving companies. In 2019, we acquired a business that connects new homebuyers to utility companies. In 2020, we acquired a moving services technology company, iRoofing, LLC a roofing software company, and two individually immaterial acquisitions. In the first half of 2021, we acquired a home inspection integrated customer service and call handling solution company, V12 Data, an omnichannel marketing platform, HOA, an insurance managing general agency, as well as Rynoh, a financial management and fraud prevention software service for the title and real estate industries. In September 2021, we acquired American Home Protect (“AHP”), a provider of whole home warranty policies across the United States. We will continue to make additional acquisitions that are consistent with our focus on insurance and home services related verticals.

We sell our software and services to companies using a variety of sales and marketing tactics. We have teams of inside sales representatives organized by vertical market who engage directly with companies. We have enterprise sales teams which target the large named accounts in each of our vertical markets. These teams are supported by a variety of typical software marketing tactics, including digital, in-person (such as trade shows and other events) and content marketing.

For consumers, Porch largely relies on our unique and proprietary relationships with the approximately 20,000 companies using Porch’s software to provide the company with end customer access and introductions. Porch then utilizes technology, lifecycle marketing and teams in lower cost locations to operate as a Moving Concierge to assist these consumers with services. Porch has invested in limited direct-to-consumer (“D2C”) marketing capabilities, but expects to become more advanced over time with capabilities such as digital and social retargeting.

### Key Performance Measures and Operating Metrics

In the management of our businesses, we identify, measure and evaluate a variety of operating metrics. The key performance measures and operating metrics we use in managing our businesses are set forth below. These key performance measures and operating metrics are not prepared in accordance with GAAP, and may not be comparable to or calculated in the same way as other similarly titled measures and metrics used by other companies. The key performance measures presented have been adjusted for divested Porch businesses in 2018 through 2020.

- **Average Number of Companies in Quarter —** Porch provides software and services to home services companies and, through these relationships, gains unique and early access to homebuyers and homeowners, assists homebuyers and homeowners with critical services such as insurance, warranty and moving. Porch’s customers include home services companies, such as home inspectors, for whom Porch provides software and services and who provide introductions to homebuyers and homeowners. Porch tracks the average number of home services companies from which it generates revenue each quarter in order to measure our ability to attract, retain and grow our relationships with home services companies. Porch management defines the average number of companies in a quarter as the straight-line average of the number of companies as of the end of period compared with the beginning of period number of companies, inclusive of all companies across Porch’s home services verticals that (i) generate recurring revenue and (ii) generated revenue in the quarter. For new acquisitions, we determine the number of customers in their initial quarter based on the percentage of the quarter they were part of Porch.
- **Average Revenue per Account per Month —** Management views Porch’s ability to increase revenue generated from existing customers as a key component of Porch’s growth strategy. Average revenue per account per month in quarter is defined as the total revenue from the quarter divided by the average number of companies in the period divided by 3 (to provide monthly revenue).

The following table summarizes our average companies in quarter and average revenue per account per month for each of the quarterly periods indicated:

| ​ ​ ​ | ​ ​ | ​ ​ 2018 Q4 | ​ ​ | ​ ​ 2019 Q1 | ​ ​ | ​ ​ 2019 Q2 | ​ ​ | ​ ​ 2019 Q3 | ​ ​ | ​ ​ 2019 Q4 | ​ ​ | ​ ​ 2020 Q1 | ​ ​ | ​ ​ 2020 Q2 | ​ ​ | ​ ​ 2020 Q3 | ​ ​ | ​ ​ 2020 Q4 | ​ ​ | ​ ​ 2021 Q1 | ​ ​ | ​ ​ 2021 Q2 | ​ ​ | ​ ​ 2021 Q3 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Average Companies in Quarter |  | ​ 9,627 |  | ​ 10,199 |  | ​ 10,470 |  | ​ 10,699 |  | ​ 10,972 |  | ​ 10,903 |  | ​ 10,523 |  | ​ 10,792 |  | ​ 11,157 |  | ​ 13,995 |  | ​ 17,120 |  | ​ 20,472 |
| Average Revenue per Account per Month in Quarter | ​ | $325 | ​ | $305 | ​ | $468 | ​ | $552 | ​ | $450 | ​ | $484 | ​ | $556 | ​ | $664 | ​ | $556 | ​ | $637 | ​ | $1,000 | ​ | $1,022 |

Due to COVID-19, some small companies put their business with the Company on hold which is reflected in lower number of total companies in 2020 and higher average revenue per account.

- **Number of Monetized Services in Quarter —** Porch connects consumers with home services companies nationwide and offers a full range of products and services where homeowners can, among other things: (i) compare and buy home insurance policies (along with auto, flood and umbrella policies) and warranties with competitive rates and coverage; (ii) arrange for a variety of services in connection with their move, from labor to load or unload a truck to full-service, long-distance moving services; (iii) discover and install home automation and security systems; (iv) compare internet and television options for their new home; (v) book small handyman jobs at fixed, upfront prices with guaranteed quality; and (vi) compare bids from home improvement professionals who can complete bigger jobs. Porch tracks the number of monetized services performed through its platform each quarter and the revenue generated per service performed in order to measure to measure market penetration with homebuyers and homeowners and Porch’s ability to deliver high-revenue services within those groups. Monetized services per quarter is defined as the total number of unique services from which we generated revenue, including, but not limited to, new and renewing insurance and warranty customers, completed moving jobs, security installations, TV/internet installations or other home projects, measured over a quarterly period.
- **Average Revenue per Monetized Service —** Management believes that shifting the mix of services delivered to homebuyers and homeowners toward higher revenue services is a key component of Porch’s growth strategy. Average revenue per monetized services in quarter is the average revenue generated per monetized service performed in a quarterly period. When calculating Average Revenue per Monetized Service in quarter, average revenue is defined as total quarterly service transaction revenues generated from monetized services.

The following table summarizes our monetized services and average revenue per monetized service for each of the quarterly periods indicated:

| ​ ​ ​ | ​ ​ | ​ ​ 2018 Q4 | ​ ​ | ​ ​ 2019 Q1 | ​ ​ | ​ ​ 2019 Q2 | ​ ​ | ​ ​ 2019 Q3 | ​ ​ | ​ ​ 2019 Q4 | ​ ​ | ​ ​ 2020 Q1 | ​ ​ | ​ ​ 2020 Q2 | ​ ​ | ​ ​ 2020 Q3 | ​ ​ | ​ ​ 2020 Q4 | ​ ​ | ​ ​ 2021 Q1 | ​ ​ | ​ ​ 2021 Q2 | ​ ​ | ​ ​ 2021 Q3 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Monetized Services in Quarter |  | ​ 184,645 |  | ​ 185,378 |  | ​ 205,887 |  | ​ 211,190 |  | ​ 172,862 |  | ​ 152,165 |  | ​ 181,520 |  | ​ 198,165 |  | ​ 169,949 |  | ​ 182,779 |  | ​ 302,462 |  | ​ 329,359 |
| Revenue per Monetized Service in Quarter | ​ | $44 | ​ | $43 | ​ | $63 | ​ | $76 | ​ | $78 | ​ | $93 | ​ | $86 | ​ | $97 | ​ | $98 | ​ | $92 | ​ | $129 | ​ | $144 |

In 2020, the Company shifted insurance monetization from getting paid per quote to earning multiyear insurance commissions, resulting in fewer monetized transactions with higher average revenue.

In March 2020, COVID-19 impacted the service volumes during the period from March until June. The impact on service volumes, largely recovered by June 30, 2020 and after adjusting for insurance monetization remains above prior year volumes.

### Recent Developments

#### COVID-19 Impact

In March 2020, the World Health Organization declared a pandemic related to the global novel coronavirus disease 2019 (“COVID-19”) outbreak. The COVID-19 pandemic and the measures adopted by government entities in response to it have adversely affected Porch’s business operations, which impacted revenue primarily in the first half of 2020. The impact of the COVID-19 pandemic and related mitigation measures, Porch’s ability to conduct ordinary course business activities has been and may continue to be impaired for an indefinite period. The extent of the continuing impact of the COVID-19 pandemic on Porch’s operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on the Company’s customers, suppliers, and employees, all of which is uncertain at this time. Porch expects the COVID-19 pandemic to continue to have an uncertain impact on future revenue and results of operations, but Porch is unable to predict at this time the size and duration of such impact.

### Comparability of Financial Information

Porch’s future results of operations and financial position may not be comparable to historical results as a result of the Merger.

### Key Factors Affecting Operating Results

The Company has been implementing its strategy as a vertical software platform for the home, providing software and services to approximately 20,000 home services companies, such as home inspectors, moving companies, utility companies, warranty companies and others. The following are key factors affecting our operating results in 2020 and the nine months ended September 30, 2021:

- Continued investment in growing and expanding our position in the home inspection industry as a result of the 2017 acquisition of ISN™, a developer of ERP and CRM software for home inspectors.
- Continued investment in growing and expanding our position in providing moving services to consumers as a result of the 2018 acquisition of HireAHelper™, a provider of software and demand for moving companies.
- Intentionally building operating leverage in the business by focusing on growing operating expenses at a slower rate than the growth in revenue. We are specifically increasing economies of scale related to our variable selling costs, Moving Concierge call center operations and product and technology costs.
- In the first nine months of 2021 the Company invested $178.7 million in cash, net of acquired, and $24.8 million in common stock to acquire companies to expand the scope and nature of the Company’s service offerings, add additional team members with important skillsets, and realize synergies.
- In January 2021, Porch acquired V12 Data, an omnichannel marketing platform. The purpose of the acquisition is to expand the scope and nature of Porch’s service offerings, add additional team members with important skillsets, and realize synergies.
- In April 2021, Porch acquired HOA, an insurance managing general agency. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and gain licenses to operate as an insurance carrier and managing general agent in 31 states.
- In May, 2021, Porch acquired Rynoh, a software and data analytics company that supports financial management and fraud prevention primarily for the title and real estate industries.
- In September 2021, Porch acquired AHP, a company providing home warranty policies. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and realize synergies.
- In March and April of 2021, a number of holders of public warrants exercised their warrants to acquire approximately 10.9 million shares of common stock, resulting in cash proceeds of $126.8 million.
- In September 2021, the Company raised $413.5 million in net proceeds from a private offering of its 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”). See Note 7. The proceeds from this offering, after paying down the Senior Secured Term Loan and purchasing the capped call transactions, increased the Company’s unrestricted cash balance to $410.2 million. This level of cash is expected to provide sufficient financial resources for the Company’s ongoing plans for future acquisitions and other investments, such as operating leverage and organic growth.
- Ongoing expansion in other software verticals related to the home and related services such as title, warranty and mortgage software.

### Basis of Presentation

The unaudited condensed consolidated financial statements and accompanying notes of Porch include the accounts of the Company and its consolidated subsidiaries and were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All significant intercompany accounts and transactions are eliminated in consolidation.

The Company operates in two operating segments: Vertical Software and Insurance. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the CODM in making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer is the CODM.

### Components of Results of Operations

### Total Revenue

The Company generates its Core Services Revenue from (1) fees received for connecting homeowners to individual contractors, small business service providers and large enterprise service providers, (2) commissions from third-party insurance and warranty carriers, and (3) insurance and warranty premiums, policy fees and other insurance-related fees generated through its own insurance carrier. The Company’s Managed Services Revenue is generated from fees received for providing select and limited services directly to homeowners. The Company’s Software and Service Subscription

Revenue is generated from fees received for providing subscription access to the Company’s software platforms and subscription services across various industries.

In the Core Services Revenue stream, the Company connects Service Providers with homeowners that meet pre-defined criteria and may be looking for relevant services. Service Providers include a variety of service providers throughout a homeowner’s lifecycle, including movers, TV/Internet, warranty, and security monitoring providers, plumbers, electricians, roofers, title companies, et al. The Company also sells home insurance and home warranty policies through the Company’s own insurance carrier, as well as for third-party insurance carriers.

Managed Services Revenue includes fees earned from homeowners for providing select services directly to the homeowner, including handyman and moving services. The Company generally invoices for managed services projects on a fixed fee or time and materials basis. The transaction price represents the contractually agreed upon price with the end customer for providing the respective service. Revenue is recognized as services are performed based on an output measure or progress, which is generally over a short duration (e.g., same day). Fees earned for providing managed services projects are non-refundable and there is generally no right of return.

Software and Service Subscription Revenue primarily relates to subscriptions to the Company’s home inspector software, marketing software and services, and other vertical software. The Company’s subscription arrangements for this revenue stream do not provide the customer with the right to take possession of the software supporting the cloud-based application services. The Company’s standard subscription contracts are monthly contracts in which pricing is based on a specified price per inspection completed through the software. Marketing software and services are primarily contractual monthly recurring billings. Fees earned for providing access to the subscription software are non-refundable and there is no right of return. Revenue is recognized based on the amount which the Company is entitled to for providing access to the subscription software during the monthly contract term.

### Total Costs and Expenses

#### Operating expenses

Operating expenses are categorized into four categories:

- Cost of revenue;
- Selling and marketing;
- Product and technology; and
- General and administrative.

The categories of operating expenses include both, cash expenses and non-cash charges, such as stock-based compensation, depreciation and amortization. Depreciation and amortization are recorded in all operating expense categories, and consist of depreciation from property, equipment and software and intangible assets.

Cost of revenue primarily consist of professional fees and materials under the Managed Services model, losses and loss adjustment expenses, and credit card processing and merchant fees.

Selling and marketing expenses primarily consist of third-party data leads, affiliate and partner leads, paid search and search engine optimization (“SEO”) costs, policy acquisition and other underwriting expenses, payroll, employee benefits and stock-based compensation expense and other headcount related costs associated with sales efforts directed toward companies and consumers.

Product and technology development costs primarily consist of payroll, employee benefits, stock-based compensation expense, other headcount related costs associated with product development, net of costs capitalized as internally developed software, cloud computing, hosting and other technology costs, software subscriptions, professional services and amortization of internally-development software.

General and administrative expenses primarily consist of expenses associated with functional departments for finance, legal, human resources and executive management expenses. The primary categories of expenses include payroll, employee benefits, stock-based compensation expense and other headcount related costs, rent for office space, legal and professional fees, taxes, licenses and regulatory fees, and other administrative costs.

### Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. On an ongoing basis these estimates, which include, but are not limited to, estimated variable consideration for services performed, the allowance for doubtful accounts, depreciable lives for property and equipment, acquired intangible assets, goodwill, the valuation allowance on deferred tax assets, assumptions used in stock-based compensation, unpaid losses 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.

At least quarterly, we evaluate our estimates and assumptions and make changes accordingly. For information on our significant accounting policies, see Note 1 to the accompanying Porch unaudited condensed consolidated financial statements.

During the three months ended September 30, 2021, there were no changes to the critical accounting policies discussed in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, as filed on May 19, 2021. For a complete discussion of our critical accounting policies, refer to Item 8 in the 2020 Annual Report on Form 10-K/A.

### Results of Operations

The following table sets forth our historical operating results for the periods indicated:

*(dollar amounts in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2021 | ​ | ​ ​ 2020 | ​ ​ ​ | ​ ​ ​ ​ % Change ​ | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2021 | ​ | ​ ​ 2020 | ​ | ​ ​ ​ % Change ​ |
| --- | --- | --- | --- | --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | ​ | $62,769 | ​ | $21,507 | ​ | 192% | ​ | $140,852 | ​ | $53,703 | ​ | 162% |
| Operating expenses: | ​ | ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ |  | ​ | ​ |
| Cost of revenue | ​ | 19,158 | ​ | 5,361 | ​ | 257% | ​ | 44,587 | ​ | 13,252 | ​ | 236% |
| Selling and marketing | ​ | 22,874 | ​ | 8,803 | ​ | 160% | ​ | 60,636 | ​ | 30,443 | ​ | 99% |
| Product and technology | ​ | 11,317 | ​ | 5,701 | ​ | 99% | ​ | 34,158 | ​ | 18,124 | ​ | 88% |
| General and administrative | ​ | 22,034 | ​ | 5,490 | ​ | 301% | ​ | 66,463 | ​ | 15,539 | ​ | 328% |
| Gain on divestiture of business | ​ | — | ​ | — | ​ | NM ​ | ​ | ​ — | ​ | ​ (1,442) | ​ | (100)% |
| Total operating expenses | ​ | ​ 75,383 | ​ | ​ 25,355 | ​ | 197% | ​ | 205,844 | ​ | 75,916 | ​ | 171% |
| Operating loss | ​ | (12,614) | ​ | (3,848) | ​ | 228% | ​ | (64,992) | ​ | (22,213) | ​ | 193% |
| Other income (expense): | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |  | ​ |  | ​ | ​ |
| Interest expense | ​ | ​ (1,857) | ​ | ​ (3,952) | ​ | (53)% | ​ | (4,296) | ​ | (10,329) | ​ | (58)% |
| Change in fair value of earnout liability | ​ | ​ 7,413 | ​ | ​ — | ​ | NM ​ | ​ | ​ (15,388) | ​ | ​ — | ​ | NM ​ |
| Change in fair value of private warrant liability | ​ | ​ 2,692 | ​ | ​ — | ​ | NM ​ | ​ | ​ (17,521) | ​ | ​ — | ​ | NM ​ |
| Gain (loss) on extinguishment of debt | ​ | ​ (3,133) | ​ | ​ (2,532) | ​ | 24% | ​ | ​ 5,110 | ​ | ​ 1,077 | ​ | 374% |
| Investment income and realized gains, net of investment expenses | ​ | ​ 248 | ​ | ​ — | ​ | NM ​ | ​ | ​ 448 | ​ | ​ — | ​ | NM ​ |
| Other income (expense), net | ​ | ​ 316 | ​ | ​ 1,418 | ​ | (78)% | ​ | 225 | ​ | (2,050) | ​ | (111)% |
| Total other income (expense) | ​ | ​ 5,679 | ​ | ​ (5,066) | ​ | NM ​ | ​ | (31,422) | ​ | (11,302) | ​ | 178% |
| Loss before income taxes | ​ | ​ (6,935) | ​ | ​ (8,914) | ​ | (22)% | ​ | (96,414) | ​ | (33,515) | ​ | 188% |
| Income tax benefit (expense) | ​ | ​ 1,836 | ​ | ​ (9) | ​ | NM ​ | ​ | 9,917 | ​ | (33) | ​ | NM ​ |
| Net loss | ​ | $(5,099) | ​ | $(8,923) | ​ | (43)% | ​ | $(86,497) | ​ | $(33,548) | ​ | 158% |

#### NM = Not Meaningful

### Comparison of Three and Nine Months Ended September 30, 2021 and 2020

#### Revenue

#### Three months ended September 30, 2021 compared to three months ended September 30, 2020:

Total revenue increased by $41.3 million, or 192% from $21.5 million in the three months ended September 30, 2020 to $62.8 million in the three months ended September 30, 2021. The increase in revenue in 2021 is driven by acquisitions and organic growth in our moving services, inspection and insurance businesses. As Porch has grown the number of companies that use our software and services, we have been able to grow our B2B2C (“Business to Business to Consumer”) and move related services revenues.

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Total revenue increased by $87.1 million, or 162% from $53.7 million in the nine months ended September 30, 2020 to $140.9 million in the nine months ended September 30, 2021. The increase in revenue in 2021 is driven by acquisitions and organic growth in our moving services, inspection and insurance businesses, which contributed an aggregate of $75.7 million of the revenue, offset by the revenue related to divestitures of $4.3 million.

#### Cost of Revenue

#### Three months ended September 30, 2021 compared to three months ended September 30, 2020:

Cost of revenue increased by $13.8 million, or 257% from $5.4 million in the three months ended September 30, 2020 to $19.2 million in the three months ended September 30, 2021. The increase in the cost of revenue was mostly attributable to the growth in the moving business and cost of revenue for our acquired businesses. As a percentage of revenue, cost of revenue represented 31% of revenue in the three months ended September 30, 2021 compared with 25% in the same period in 2020.

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Cost of revenue increased by $31.3 million, or 236% from $13.3 million in the nine months ended September 30, 2020 to $44.6 million in the nine months ended September 30, 2021. The increase in the cost of revenue was mostly attributable to the growth in the moving business and cost of revenue for our acquired businesses. The increase is also due to the loss and loss adjustment expense related to our insurance carrier business. As a percentage of revenue, cost of revenue represented 32% of revenue in the nine months ended September 30, 2021 compared with 25% in the same period in 2020.

#### Selling and marketing

#### Three months ended September 30, 2021 compared to three months ended September 30, 2020:

Selling and marketing expenses increased by $14.1 million, or 160% from $8.8 million in the three months ended September 30, 2020 to $22.9 million in the three months ended September 30, 2021. The increase is due to $12.8 million related to higher selling and marketing costs associated with the growth in our moving, inspection and insurance businesses, as well as the selling and marketing costs of our acquired businesses. Additionally, there was an increase of $1.3 million in stock-based compensation expenses. As a percentage of revenue, selling and marketing expenses represented 36% of revenue in the three months ended September 30, 2021 compared with 41% in the same period in 2020.

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Selling and marketing expenses increased by $30.2 million, or 99% from $30.4 million in the nine months ended September 30, 2020 to $60.6 million in the nine months ended September 30, 2021. The increase is due to $27.3 million related to higher selling and marketing costs associated with the growth in our moving, inspection and insurance businesses, as well as the selling and marketing costs of our acquired businesses. Additionally, there was an increase of $4.7 million in stock-based compensation expenses. This is offset by our divested businesses’ selling and marketing costs of $1.8 million. As a percentage of revenue, selling and marketing expenses represented 43% of revenue in the nine months ended September 30, 2021 compared with 57% in the same period in 2020.

#### Product and technology

#### Three months ended September 30, 2021 compared to three months ended September 30, 2020:

Product and technology expenses increased by $5.6 million, or 99% from $5.7 million in the three months ended September 30, 2020 to $11.3 million in the three months ended September 30, 2021. The increase is due to investments in our moving, insurance and inspection groups, due to the growth in these businesses, product and technology costs from our acquired businesses, and $1.3 million higher stock-based compensation expense. As a percentage of revenue, product and technology expenses represented 18% of revenue in the three months ended September 30, 2021 compared with 27% in the same period in 2020.

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Product and technology expenses increased by $16.0 million, or 88% from $18.1 million in the nine months ended September 30, 2020 to $34.2 million in the nine months ended September 30, 2021. The increase is due to investments in moving, insurance, and inspection groups due to the growth in these businesses, product and technology costs from our acquired businesses and $4.9 million higher stock-based compensation expense. As a percentage of revenue, product and technology expenses represented 24% of revenue in the nine months ended September 30, 2021 compared with 34% in the same period in 2020.

#### General and administrative

#### Three months ended September 30, 2021 compared to three months ended September 30, 2020:

General and administrative expenses increased by $16.5 million, or 301% from $5.5 million in the three months ended September 30, 2020 to $22.0 million in the three months ended September 30, 2021, primarily due to costs related to operating as a public company and increased hiring of corporate resources. Additionally, from March 2020 through August 2020, the Company reduced pay for certain employees and partially or fully furloughed certain employees therefore reducing compensation expense during the period. Also, stock-based compensation expense for three months ended September 30, 2021 was $2.8 million higher than in the same period in 2020.

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

General and administrative expenses increased by $50.9 million, or 328% from $15.5 million in the nine months ended September 30, 2020 to $66.5 million in the nine months ended September 30, 2021.The increase is primarily due to increase in stock-based compensation of $18.2 million and costs operating as a public company and increased hiring of corporate resources. Additionally, from March 2020 through August 2020, the Company reduced pay for certain employees and partially or fully furloughed certain employees therefore reducing compensation expense in the nine months ended September 30, 2020.

Stock-based compensation consists of expense related to (1) equity awards granted as compensation in the normal course of business operations, (2) employee earnout restricted stock (see Note 9) and (3) a secondary market transaction (dollar amounts in thousands).

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2021 | ​ ​ | ​ ​ 2020 | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2021 | ​ ​ | ​ ​ 2020 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Secondary market transaction | ​ | $— | ​ | $— | ​ | $1,933 | ​ | $— |
| Employee earnout restricted stock | ​ | ​ 4,243 | ​ | ​ — | ​ | ​ 20,792 | ​ | ​ — |
| Employee awards | ​ | 1,641 | ​ | 507 | ​ | 6,636 | ​ | 1,541 |
| Total stock-based compensation expenses | ​ | $5,884 | ​ | $507 | ​ | $29,361 | ​ | $1,541 |

#### Interest expense, net

#### Three months ended September 30, 2021 compared to three months ended September 30, 2020:

Interest expense decreased by $2.1 million, or 53% from $4.0 million in the three months ended September 30, 2020 to $1.9 million in the three months ended September 30, 2021. The decrease was primarily due to decreased interest rates paid during the three months ended September 30, 2021 compared with the three months ended September 30, 2020, as a result of the January 2021 amendment to the Company’s senior secured term loans, which reduced the interest payable from 11.05% to 8.55% and subsequent repayment of these loans in September 2021 (see Note 7). The effective interest rate for the new 2026 Notes issued in September 2021 was 1.3%, which further reduced the Company’s interest expense.

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Interest expense decreased by $6.0 million, or 58% from $10.3 million in the nine months ended September 30, 2020 to $4.3 million in the nine months ended September 30, 2021. The decrease was primarily due to a decreased interest rates paid during the nine months ended September 30, 2021 compared with the nine months ended September 30, 2020, as a result of the January 2021 amendment to the Company’s senior secured term loans, their subsequent repayment and the fact that the new 2026 Notes issued in September 2021 have substantially lower interest rate.

#### Change in fair value of earnout liability

Changes in fair value of earnout liability were $7.4 million gain and $15.4 million (loss) in the three and nine months ended September 30, 2021, respectively. During the nine months ended September 30, 2021, $25.8 million of the earnout liability was reclassified to additional paid in capital as a result of a vesting event in March 2021.

#### Change in fair value of private warrant liability

Changes in fair value of private warrant liability were $2.7 million gain and $17.5 million (loss) in the three and nine months ended September 30, 2021, respectively. During the three months and nine months ended September 30, 2021, $14.5 million and $31.3 million, respectively, was reclassified to additional paid in capital as a result of warrant exercises.

#### Gain (loss) on extinguishment of debt

#### Three months ended September 30, 2021 compared to three months ended September 30, 2020:

Loss on extinguishment of debt was $3.1 million and $2.5 million in the three months ended September 30, 2021 and 2020, respectively. The $3.1 million loss in the three months ended September 30, 2021 relates to the repayment of all outstanding obligations under the Runway Loan Agreement. See Note 7. The $2.5 million loss in the three months ended September 30, 2020 relates to an amendment of a legacy 2019 promissory note, which was subsequently repaid.

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Gain on extinguishment of debt was $5.1 million and $1.1 million in the nine months ended September 30, 2021 and 2020, respectively. The $5.1 million gain in the nine months ended September 30, 2021 consists of the $8.2 million gain on extinguishment of the Porch PPP Loan, offset by the $3.1 million loss on repayment of all outstanding obligations under the Runway Loan Agreement. The $1.1 million gain in the nine months ended September 30, 2020 relates to the net impact of extinguishments of several Company’s legacy promissory notes.

#### Investment income and realized gains, net of investment expenses

Investment income and realized gains, net of investment expenses was $0.2 million and $0.4 million in the three and nine months ended September 30, 2021, respectively.

#### Other income (expense)

#### Three months ended September 30, 2021 compared to three months ended September 30, 2020:

Other income, net was trivial and did not change significantly in both periods.

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Other expense, net was $0.2 million income in the nine months ended September 30, 2021 and $2.1 million expense in the nine months ended September 30, 2020. The $2.3 million change was primarily due to $1.2 million loss on remeasurement of legacy preferred stock warrant liability and $0.9 million loss on remeasurement of debt in the nine months ended September 30, 2020.

#### Income tax expense (benefit)

#### Three months ended September 30, 2021 compared to three months ended September 30, 2020:

Income tax benefit of $1.8 million was recognized for the three months ended September 30, 2021 primarily due to the impact of acquisitions on the Company’s valuation allowance. Income tax expense was not material for the three months ended September 30, 2020. The Company’s effective tax rate in both periods differs substantially from the statutory tax rate primarily due to a full valuation allowance related to the Company’s net deferred tax assets.

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Income tax benefit of $9.9 million was recognized for the nine months ended September 30, 2021 primarily due to the impact of acquisitions on the Company’s valuation allowance. Income tax expense was not material for the nine months ended September 30, 2020. The Company’s effective tax rate in both periods differs substantially from the statutory tax rate primarily due to a full valuation allowance related to the Company’s net deferred tax assets.

### Segment Results of Operations

We operate our business as two reportable segments that are also our operating segments: Vertical Software and Insurance. For additional information about our segments, see Note 12 in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

### Segment Revenue

| ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2021 ​ ​ | ​ ​ ​ | ​ ​ Nine Months Ended ​ ​ |
| --- | --- | ---: | --- | ---: |
| Vertical software | ​ | $42,287 | ​ | $101,629 |
| Insurance | ​ | ​ 20,482 | ​ | ​ 39,223 |
| Total revenue | ​ | $62,769 | ​ | $140,852 |

For the three months ended September 30, 2021, the Vertical Software segment revenues were $42.3 million or 67% of total revenue. The Insurance segment revenues were $20.5 million or 33% of total revenue during the same period.

For the nine months ended September 30, 2021 the Vertical Software segment revenues were $101.6 million or 72% of total revenue. The Insurance segment revenues were $39.2 million or 28% of total revenue during the same period.

The increase in the proportion of the Insurance segment revenue in the three months ended September 30, 2021 is mainly due to the acquisitions of HOA and AHP.

### Segment Adjusted EBITDA (Loss)

Segment Adjusted EBITDA (loss) is defined as revenue less operating expenses associated with our segments. Segment Adjusted EBITDA (loss) also excludes non-cash items, certain transactions that are not indicative of ongoing segment operating and financial performance and are not reflective of the Company’s core operations. See Note 12 in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.

| ​ ​ ​ Segment adjusted EBITDA (loss): | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2021 ​ ​ | ​ ​ ​ | ​ ​ Nine Months Ended ​ ​ |
| --- | --- | ---: | --- | ---: |
| Vertical Software | ​ | $7,712 | ​ | $19,041 |
| Insurance | ​ | ​ 5,473 | ​ | ​ 3,067 |
| Corporate and Other(1) | ​ | ​ (12,312) | ​ | ​ (40,754) |
| Total segment adjusted EBITDA (loss)(2) | ​ | $873 | ​ | $(18,646) |

(1) Includes costs that are not directly attributable to our reportable segments, as well as certain shared costs.

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

### Non-GAAP Financial Measures

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

Porch defines Adjusted EBITDA (loss) as net income (loss) adjusted for interest expense, net, income taxes, other expenses, net, depreciation and amortization, certain non-cash long-lived asset impairment charges, stock-based compensation expense and acquisition-related impacts, including compensation to the sellers that requires future service, amortization of intangible assets, gains (losses) recognized on changes in the value of contingent consideration arrangements, if any, gain or loss on divestures and certain transaction costs. Adjusted EBITDA (loss) as a percent of revenue is defined as Adjusted EBITDA (loss) divided by GAAP total revenue. Average revenue per monetized services in quarter is the average revenue generated per monetized service performed in a quarterly period. When calculating average revenue per monetized service in a quarter, average revenue is defined as total quarterly service transaction revenues generated from monetized services.

Porch’s management and Board of Directors use these non-GAAP financial measures as supplemental measures of Porch’s operating and financial performance for historical and forward-looking periods, for internal budgeting and forecasting purposes, to evaluate financial and strategic planning matters, and for certain measures, to establish performance goals for incentive programs. Porch believes that the use of these non-GAAP financial measures provides investors with useful information to evaluate projected operating results and trends and in comparing Porch’s financial measures with competitors, other similar companies and companies across different industries, many of which present similar non-GAAP financial measures to investors. However, Porch's definitions and methodology in calculating these non-GAAP measures may not be comparable to those used by other companies. In addition, Porch may modify the presentation of these non-GAAP financial measures in the future, and any such modification may be material.

You should not consider these non-GAAP financial measures in isolation, as a substitute to or superior to financial performance measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude specified income and expenses, some of which may be significant or material, that are required by GAAP to be recorded in Porch’s consolidated financial statements. Porch may also incur future income or expenses similar to those excluded from these non-GAAP financial measures, and Porch’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or non-recurring items. In addition, these non-GAAP financial measures reflect the exercise of management judgment about which income and expense are included or excluded in determining these non-GAAP financial measures.

See the reconciliation tables below for more details regarding these non-GAAP financial measures, including the reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.The following table reconciles net loss to Adjusted EBITDA (loss) for the three and nine months ended September 30, 2021 and the three and nine months ended September 30, 2020 (dollar amounts in thousands):

| ​ ​ ​ | ​ | ​ ​ ​ Three Months Ended September 30, 2021 | ​ ​ ​ ​ 2020 ​ | ​ ​ ​ Nine Months Ended September 30, 2021 | ​ ​ ​ ​ 2020 ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Net loss | ​ | $(5,099) ​ | $(8,923) ​ | $(86,497) ​ | $(33,548) ​ |
| Interest expense | ​ | 1,857 ​ | 3,952 ​ | 4,296 ​ | 10,329 ​ |
| Income tax (benefit) expense | ​ | (1,836) ​ | 9 ​ | (9,917) ​ | 33 ​ |
| Depreciation and amortization | ​ | 4,431 ​ | 1,635 ​ | 10,787 ​ | 5,021 ​ |
| Loss (gain) on extinguishment of debt | ​ | ​ 3,133 ​ | ​ 2,532 ​ | ​ (5,110) ​ | ​ (1,077) ​ |
| Other expense (income), net(1) | ​ | (316) ​ | (1,418) ​ | (225) ​ | 2,050 ​ |
| Non-cash long-lived asset impairment charge | ​ | 76 ​ | 239 ​ | 216 ​ | 540 ​ |
| Non-cash stock-based compensation expense | ​ | 5,884 ​ | 507 ​ | 29,249 ​ | 1,239 ​ |
| Non-cash bonus expense | ​ | ​ 695 ​ | ​ — ​ | ​ 1,378 ​ | ​ — ​ |
| Revaluation of contingent consideration | ​ | 195 ​ | 100 ​ | (380) ​ | 1,500 ​ |
| Revaluation of earnout liability | ​ | ​ (7,413) ​ | ​ — ​ | ​ 15,388 ​ | ​ — ​ |
| Revaluation of private warrant liability | ​ | ​ (2,692) ​ | ​ — ​ | ​ 17,521 ​ | ​ — ​ |
| Acquisition and related expense(2) | ​ | 1,958 ​ | (68) ​ | 4,648 ​ | (386) ​ |
| Adjusted EBITDA (loss) | ​ | $873 ​ | $(1,435) ​ | $(18,646) ​ | $(14,299) ​ |
| Adjusted EBITDA (loss) as a percentage of revenue | ​ | ​ 1% | ​ (7)% | ​ (13)% | ​ (27)% |

(1) Other expense, net includes:

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended September 30, 2021 | ​ | ​ ​ 2020 | ​ ​ | ​ ​ Nine Months Ended September 30, 2021 | ​ | ​ ​ 2020 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Loss (gain) on remeasurement of debt | ​ | ​ — | ​ | ​ (488) | ​ | ​ — | ​ | ​ 924 |
| Loss (gain) on remeasurement of legacy preferred stock warrant liability | ​ | — | ​ | (785) | ​ | — | ​ | 1,214 |
| Other, net | ​ | (316) | ​ | (145) | ​ | (225) | ​ | (88) |
| ​ | ​ | $(316) | ​ | $(1,418) | ​ | $(225) | ​ | $2,050 |

(2) Acquisition and related expense includes:

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2021 | ​ ​ | ​ ​ 2020 | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2021 | ​ ​ | ​ ​ 2020 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Acquisition compensation – stock-based compensation expense |  | $— |  | $— |  | $112 |  | $302 |
| Gain on divestiture of businesses | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ (1,442) |
| Professional fees | ​ | 1,956 | ​ | (91) | ​ | 4,526 | ​ | 609 |
| Transaction expenses and other | ​ | 2 | ​ | 23 | ​ | 10 | ​ | 145 |
| ​ | ​ | $1,958 | ​ | $(68) | ​ | $4,648 | ​ | $(386) |

Adjusted EBITDA for the three months ended September 30, 2021 was $0.9 million, a $2.3 million improvement from Adjusted EBITDA (loss) of $1.4 million for the same period in 2020. The improvement in the three months ended September 30, 2021 is primarily due to the increase in revenue driven by acquisitions and organic growth in our moving services, inspection and insurance businesses.

Adjusted EBITDA (loss) for the nine months ended September 30, 2021 was $18.6 million, a $4.3 million decline from Adjusted EBITDA (loss) of $14.3 million for the same period in 2020. The decline in Adjusted EBITDA (loss) is due to the weather-related loss impact of the HOA insurance business, legal costs attributable to general legal matters, increase in general and administrative costs related to public companies and increased hiring for corporate resources. Additionally during the nine months ended September 30, 2020 there was a compensation reduction which did not recur during the comparable period in the current year. This was partially offset by revenue growth in the moving, insurance and inspection groups, as well as no negative impact of the divested businesses in 2020.

### Liquidity and Capital Resources

Since inception, we have financed our operations primarily from the sales of redeemable convertible preferred stock and convertible promissory notes, and proceeds from the senior secured term loans. On December 23, 2020, the Company received approximately $269.5 million of aggregate cash proceeds from recapitalization, net of transactions costs. As of September 30, 2021, the Company had cash and cash equivalents of $410.2 million and $5.6 million of restricted cash.

The Company has incurred net losses since its inception, and has an accumulated deficit at September 30, 2021 and December 31, 2020 totaling $404.0 million and $317.5 million, respectively.

As of September 30, 2021 and December 31, 2020, the Company had $429.6 million and $50.8 million aggregate principal amount outstanding in convertible notes, term loans and promissory notes, respectively. During 2020 and the first half of 2021, the Company refinanced the existing $40.0 million term loans and received additional loan proceeds of $7.0 million from new senior secured term loans and $10.3 million from the U.S. government pursuant to the Paycheck Protection Program under the CARES Act.

In September 2021, the Company completed a private offering of $425 million aggregate principal amounts of its 2026 Notes. The Company used a portion of the net proceeds from the 2026 Notes offering to repay all outstanding obligations under a Loan and Security Agreement, dated as of July 22, 2020 (as subsequently amended, the “Runway Loan Agreement”), among the Company’s wholly-owned subsidiary Porch.com, Inc., as borrower representative, a syndicate of lenders party thereto, the other borrowers party thereto, the guarantors party thereto and Runway Growth Finance Corp (f/k/a Runway Growth Credit Fund Inc.), as administrative agent and collateral agent (the “Agent”), pursuant to which there was a $40.4 million senior secured term loan outstanding (the “Senior Secured Term Loan”). The total repayment amount of $42.8 million consisted of outstanding principal, accrued interest, prepayment fees and related expenses. Concurrent with such repayment in full of all outstanding obligations under the Senior Secured Term Loan on September 16, 2021, the Runway Loan Agreement (and all commitments and liens thereunder) was terminated. A loss on extinguishment of $3.1 million was recorded.

Based on the Company’s current operating and growth plan, management believes cash and cash equivalents at September 30, 2021, are sufficient to finance the Company’s operations, planned capital expenditures, working capital requirements and debt service obligations for at least the next 12 months. As the Company’s operations evolve and continues its growth strategy, including through acquisitions, the Company may elect or need to obtain alternative sources of capital, and it may finance additional liquidity needs in the future through one or more equity or debt financings. The Company may not be able to obtain equity or additional debt financing in the future when needed or, if available, the terms may not be satisfactory to the Company or could be dilutive to its stockholders.

Additionally, in the nine months ended September 30, 2021, the Company raised approximately $130.3 million from the exercises of public warrants and stock options.

The Company has used the proceeds from debt and equity principally to fund general operations and acquisitions.

In the nine months ended September 30, 2021, the Company spent $178.7 million in cash, net of cash acquired, plus stock of $24.8 million to acquire several companies, in transactions accounted for as business combinations.

The following table provides a summary of cash flow data for the three and nine months ended September 30, 2021 and 2020:

*(dollar amounts in thousands)*

| ​ ​ ​ ​ | ​ ​ | ​ ​ Nine Months Ended September 30, 2021 | ​ | ​ ​ 2020 | ​ | ​ ​ $% Change | ​ ​ ​ Change ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- |
| Net cash used in operating activities | ​ | $(41,717) | ​ | $(17,015) | ​ | $(24,702) | 145% |
| Net cash used in investing activities | ​ | (184,657) | ​ | (3,852) | ​ | (180,805) | NM ​ |
| Net cash provided by financing activities | ​ | 434,752 | ​ | 21,825 | ​ | 412,927 | NM ​ |
| Change in cash, cash equivalents and restricted cash | ​ | $208,378 | ​ | $958 | ​ | $207,420 | NM ​ |

#### Operating Cash Flows

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Net cash used in operating activities was $41.7 million for the nine months ended September 30, 2021. Net cash used in operating activities consists of net loss of $86.5 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of $29.4 million, depreciation and amortization of $10.8 million, gain on extinguishment of debt of $5.1 million, and fair value adjustments to earnout liability and private warrant liability of $15.4 million and $17.5 million, respectively. Net changes in working capital were a use of cash of $22.7 million, primarily due to increases in current liabilities and reinsurance balance due.

Net cash used in operating activities was $17.0 million for the nine months ended September 30, 2020. Net cash used in operating activities consists of net loss of $33.5 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of $1.5 million, depreciation and amortization of $5.0 million, non-cash accrued and payment-in-kind interest of $4.9 million, gain on extinguishment of debt of $1.1 million, fair value adjustments to debt, contingent consideration and warrants with combined losses of $3.6 million, gain on divestiture of businesses of $1.4 million, and loss on sale and impairment of long-lived assets of $0.8 million. Net changes in working capital provided cash of $3.0 million, primarily due to increases in current liabilities.

#### Investing Cash Flows

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

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

Net cash used in investing activities was $3.9 million for the nine months ended September 30, 2020. Net cash used in investing activities is primarily related to investments to develop internal use software of $2.1 million and acquisitions of $1.6 million.

#### Financing Cash Flows

#### Nine months ended September 30, 2021 compared to nine months ended September 30, 2020:

Net cash provided by financing activities was $434.8 million for the nine months ended September 30, 2021. Net cash provided by financing activities is primarily related to the issuance of the 2026 Notes of $413.5 million, financing of the capped call transactions of $42.9 million, and exercises of warrants and stock options of $130.3 million, partially offset by shares repurchased to pay income tax withholdings upon vesting of RSUs of $23.8 million and debt repayments of $43.0 million.

Net cash provided by financing activities was $21.8 million for the nine months ended September 30, 2020. Net cash provided by financing activities is primarily related to debt financing of $61.2 million, net of loan repayments of $42.9 million, and proceeds from issuance of redeemable convertible preferred stock of $4.7 million, partially offset by deferred offering costs of $1.3 million.

### Off-Balance Sheet Arrangements

Since the date of our incorporation, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

### Emerging Growth Company Status

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). In accordance with the JOBS Act, the Company previously elected to delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. As of June 30, 2021, the last business day of the second fiscal quarter, the Company met certain thresholds for qualification as a “large accelerated filer” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. Therefore, the Company expects to lose EGC status as of December 31, 2021. The impact of this change in filing status includes being subject to the requirements of large accelerated filers, which includes shortened filing timelines, no delayed adoption of certain accounting standards, presentation of two comparative periods, and attestation of the Company’s internal control over financial reporting by its independent auditor.

### Recent Accounting Pronouncements

See Note 1 to our unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2021 for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.

## Market risk

As filed, 1,933 characters.

We are exposed to a variety of market and other risks, including the effects of changes in interest rates, and inflation, as well as risks to the availability of funding sources, hazard events, and specific asset risks.

#### Interest Rate Risk

The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates. As of September 30, 2021, and December 31, 2020, we have interest-bearing debt of $429.6 million and $50.8 million. Our 2026 Notes have a principal balance of $425 million as of September 30, 2021, have a fixed coupon rate of 75 basis points, and the effective interest rate is 1.3%. As such, interest expense on the 2026 Notes will not change if market interest rates increase. The other debt as of September 30, 2021 totaled $4.6 million and is variable-rate.

A one percent increase in interest rates in our variable rate indebtedness would result in a nominal change in annual interest expense.

As of September 30, 2021, the Company’s insurance subsidiary has a $68.8 million portfolio of fixed income securities and an unrealized gain of approximately $0.1 million, as described in Note 3. In a rising interest rate environment the portfolio would result in unrealized losses.

At September 30, 2021, accounts receivable and reinsurance balances due were $33.6 million and $246.2 million, respectively, were not interest bearing assets and are generally collected in less than 180 days. As such, the Company does not consider these assets to have material interest rate risk.

#### Inflation Risk

Porch does not believe that inflation has had, or currently has, a material effect on its business.

#### Foreign Currency Risk

There was no material foreign currency risk for three and nine months ended September 30, 2021 and the year ended December 31, 2020. Porch’s activities to date have been conducted in the United States.

## Controls and procedures

As filed, 4,663 characters.

#### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2021, which is the end of the period covered by this Quarterly Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures to ensure that information required to be disclosed by the Company in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the United States Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures were not effective as of September 30, 2021 due to the material weaknesses in internal control over financial reporting described in Part II, Item 9A of the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020 filed with the SEC on May 19, 2021.

#### Remediation Plan

Our remediation efforts for these material weaknesses have included the following:

- we hired a new Chief Financial Officer in June 2020 and our new Controller joined in April 2021; both are experienced finance and accounting professionals for public companies;
- we recruited additional personnel, in addition to utilizing third-party consultants and specialists, to supplement our internal resources;
- we have been and continue designing and implementing additional automation and integration in our financially significant systems;
- we will continue to expand and improve our review process of complex securities, significant transactions, and related accounting standards; and,
- we are implementing additional training of our personnel to improve our understanding and documentation that supports effective control operation, and have engaged a national CPA firm with whom to consult regarding complex accounting literature as necessary.
- The Company is attempting to have effective disclosure controls and procedures and internal control over financial reporting as of December 31, 2021, although such effectiveness cannot be assured.

These remediation measures may be time consuming and costly. In addition, there is no assurance that we will be successful in remediating the material weakness. We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify.

#### Changes in Internal Control over Financial Reporting

Except for actions taken under the Remediation Plan described in this Part I, Item 4, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management initiated the process of implementing remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, we are continuing to expand and improve our review process for complex securities, transactions, and related accounting standards, including the determination of the appropriate accounting classification of our financial instruments. We plan to further improve this process by implementing additional training of personnel to improve our understanding and documentation that supports effective control operation and will identify third-party professionals with whom to consult regarding the application of complex accounting literature as necessary. These remediation measures may be time consuming and costly. In addition, there is no assurance that we will be successful in remediating the material weakness.

#### Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, as specified above. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met.

## Risk factors

As filed, 19,833 characters.

Except as set forth (i) below, (ii) in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 filed with the SEC on August 16, 2021, and (iii) in Item 8.01 under “Risk Factors Update” in our Current Report on Form 8-K filed with the SEC on September 13, 2021, the Company’s risk factors, as of November 15, 2021, have not materially changed from those described in Part 1, Item 1A of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020 filed with the SEC on May 19, 2021.

### Risks Relating to the Company’s Business and Industry

***Certain of our business customers (namely, including loan officers, mortgage companies, financial institutions and other companies’ business customers that may be involved in the home purchase, mortgage and settlement process) (“Specified Customers”) are or may be, and in some cases we are or may be, subject to, and/or we facilitate compliance with, a variety of federal, state, and local laws, including those related to consumer protection and financial services.***

Many of our customers and prospective customers are highly regulated and, of that group, may be required to comply with stringent regulations in connection with performing business functions that our products and services address. In some cases, we facilitate (directly or indirectly) compliance with these regulatory requirements. While we currently operate our business in an effort to ensure our business itself is not subject to extensive regulation, there is a risk that certain regulations could become applicable to us, including as we expand the functionality of and services offered through our platforms. In addition, we and our partners, vendors, and other service providers must comply with laws and regulatory regimes that apply to us directly and our partners, vendors, and other service providers indirectly, such as through certain of our products and/or our contractual relationships with our customers.

In particular, certain laws, regulations, and rules our customers are subject to, and with which may or do facilitate compliance, directly or indirectly, include:

- the Truth in Lending Act, or TILA, and Regulation Z promulgated thereunder, and similar state laws, which require certain disclosures to borrowers regarding the terms and conditions of their loans and credit transactions, and require creditors to comply with certain lending practice restrictions as well as the TILA-RESPA Integrated Disclosure rule, or TRID, which imposes specific requirements around the collection of information, charging of fees, and disclosure of specific loan terms and costs upon receipt of an application for credit;
- the Real Estate Settlement Procedures Act, or RESPA, and Regulation X, which, among other matters, prohibits giving or accepting any fee, kickback or a thing of value for the referral of real estate settlement services or accepting a portion or split of a settlement fee other than for services actually provided; for affiliated business

relationships, prohibits receiving anything other than a legitimate return on ownership, requiring use of an affiliate, and failing to provide a disclosure of the affiliate relationship;

- the Equal Credit Opportunity Act, or ECOA, and Regulation B promulgated thereunder, and similar state fair lending laws, which prohibit creditors from discouraging or discriminating against credit applicants on the basis of race, color, sex, age, religion, national origin, marital status, the fact that all or part of the applicant’s income derives from any public assistance program or the fact that the applicant has in good faith exercised any right under the federal Consumer Credit Protection Act;
- the Fair Credit Reporting Act, or FCRA, and Regulation V promulgated thereunder, impose certain obligations on consumer reporting agencies, users of consumer reports and those that furnish information to consumer reporting agencies, including obligations relating to obtaining consumer reports, marketing using consumer reports, taking adverse action on the basis of information from consumer reports and protecting the privacy and security of consumer reports and consumer report information;
- Section 5 of the Federal Trade Commission Act, or the FTC Act, which prohibits unfair and deceptive acts or practices in or affecting commerce, and Section 1031 of the Dodd-Frank Act, which prohibits unfair, deceptive or abusive acts or practices in connection with any consumer financial product or service, and analogous state laws prohibiting unfair, deceptive or abusive acts or practices;
- the Gramm-Leach-Bliley Act, or GLBA, and Regulation P promulgated thereunder, which include limitations on financial services firms’ disclosure of nonpublic personal information about a consumer to nonaffiliated third parties, in certain circumstances requires financial services firms to limit the use and further disclosure of nonpublic personal information by nonaffiliated third parties to whom they disclose such information, and requires financial services firms to disclose certain privacy notices and practices with respect to information sharing with affiliated and unaffiliated entities as well as to safeguard personal borrower information, and other privacy laws and regulations;
- the Home Mortgage Disclosure Act, or HMDA, and Regulation C, which require reporting of loan origination data, including the number of loan applications taken, approved, denied and withdrawn;
- the Fair Housing Act, or FHA, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics;
- the Secure and Fair Enforcement for Mortgage Licensing, or the SAFE Act, which imposes state licensing requirements on mortgage loan originators;
- the Electronic Signatures in Global and National Commerce Act, or ESIGN Act, and similar state laws, particularly the Uniform Electronic Transactions Act, or UETA, which authorize the creation of legally binding and enforceable agreements utilizing electronic records and signatures and which require financial services firms to obtain a consumer’s consent to electronically receive disclosures required under federal and state laws and regulations;
- the Americans with Disabilities Act, or ADA, which has been interpreted to include websites as “places of public accommodations” that must meet certain federal requirements related to access and use;
- the Bank Secrecy Act, or BSA, and the USA PATRIOT Act, which relate to compliance with anti-money laundering, borrower due diligence and record-keeping policies and procedures;
- the regulations promulgated by the Office of Foreign Assets Control, or OFAC, under the U.S. Treasury Department related to the administration and enforcement of sanctions against foreign jurisdictions and persons that threaten U.S. foreign policy and national security goals, primarily to prevent targeted jurisdictions and persons from accessing the U.S. financial system; and
- other federal, state-specific and local laws and regulations.

In addition to the laws, regulations, and rules that apply to our customers and others, and that we facilitate compliance with, we may be deemed to be subject to certain laws, regulations, and rules through our relationships with our customers or others including RESPA, FCRA, FTC Act, GLBA, FHA, TSR, ESIGN Act, ADA, OFAC, and other federal and state-specific laws and regulations, including those that impose requirements related to unfair or deceptive business practices and consumer protection, as well as other state laws relating to privacy, information security, and conduct in connection with data breaches. We may also be examined on a periodic basis by various regulatory agencies and may be required to review certain of our partners, vendors, or other service providers. These potential examinations may lead to increased regulatory compliance efforts that are time-consuming and expensive operationally. Matters subject to review and examination by federal and state regulatory agencies and external auditors include our internal information technology controls in connection with our performance of services, the agreements giving rise to these activities, and the design of our products and services. Any inability to satisfy these examinations and maintain compliance with applicable regulations could adversely affect our ability to conduct our business, including attracting and maintaining customers.

Furthermore, federal and state officials are discussing various potential changes to laws and regulations that could impact us, including additional data privacy regulations, among others. Changes in these areas, generally in the regulatory environment in which we operate and our customers operate, could adversely impact our competitive position and results of operations.

While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that our compliance policies and procedures will be effective. Compliance with these requirements is also costly, time-consuming and limits our operational flexibility. Additionally, Congress, the states and regulatory agencies, as well as local municipalities, could further regulate the relevant industries in ways that make it more difficult or costly for us to offer our products and related services. These laws also are often subject to changes that could severely limit the operations of our business model. Further, changes in the regulatory application or judicial interpretation of the laws and regulations applicable to our businesses also could impact the manner in which we conduct our business. If we or our partners, vendors or other service providers are found to not comply with applicable laws, we could become subject to greater scrutiny by federal and state regulatory agencies, or face other sanctions, which may have an adverse effect on our ability to continue to provide our services or make our products and related services available in particular states, or utilize the services of third-party providers, which may harm our business. In addition, non-compliance could subject us to damages, class action lawsuits, administrative enforcement actions, rescission rights held by investors in securities offerings and civil and criminal liability, all of which would adversely affect our business, financial condition, and results of operations.

### Risks Related to our 2026 Notes

***The conditional conversion feature of the 2026 Notes, if triggered, may adversely affect our financial condition and operating results.***

We completed an offering of the 2026 Notes in September 2021. In the event the conditional conversion feature of the notes is triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

**C*****onversion of our 2026 Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stock.***

The conversion of some or all of our 2026 Notes may dilute the ownership interests of our stockholders. Upon conversion of the notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to settle our conversion obligation in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. However, in connection with the pricing of the 2026 Notes, we entered into capped call transactions with the option counterparties. The capped call transactions are expected generally to reduce (but not eliminate) potential dilution to our common stock upon conversion of any notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap. Finally, the existence of the 2026 Notes may encourage short selling by market participants that engage in hedging or arbitrage activity, and anticipated conversion of the notes into shares of our common stock could depress the price of our common stock.

***Certain provisions in the indenture governing the 2026 Notes may delay or prevent an otherwise beneficial takeover attempt of us.***

Certain provisions in the indenture governing the 2026 Notes may make it more difficult or expensive for a third party to acquire us. For example, the indenture governing the notes requires us to repurchase the notes for cash upon the occurrence of a fundamental change (as defined in the indenture governing the notes) of us and, in certain circumstances, to increase the conversion rate for a holder that converts their notes in connection with a make-whole fundamental change (as defined in the indenture governing the notes). A takeover of us may trigger the requirement that we repurchase the notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to investors.

***Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to make such payments.***

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness now or in the future (including the 2026 Notes), depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. In addition, our ability to repurchase the 2026 Notes or to pay cash upon conversions of the notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our business may not continue to generate cash flow from operations in the future sufficient to service our indebtedness and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance indebtedness (including the 2026 Notes) will depend on the capital markets and our financial condition at such time. Our failure to repurchase notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or make cash payments upon conversions thereof. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default the notes.

***The accounting method for the 2026 Notes could adversely affect our reported financial condition and results.***

The accounting method for reflecting the 2026 Notes on our balance sheet, accruing interest expense for the notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition. We expect that the notes will be reflected as a liability on our balance sheets, with the initial carrying amount equal to the principal amount of the notes, net of issuance costs. The issuance costs attributable to the notes will be treated as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the notes. As a result of this amortization, the interest expense that we expect to recognize for the notes for accounting purposes will be greater than the cash interest payments we will pay on the notes, which will result in lower reported income. In addition, we expect that the shares underlying the notes will be reflected in our diluted earnings per share using the “if converted” method. However, if reflecting the notes in diluted earnings per share is anti-dilutive, then the shares underlying the notes will not be reflected in our diluted earnings per share. Accounting standards may change in the future in a manner that may adversely affect our diluted earnings per share. Furthermore, if any of the conditions to the convertibility of the notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the notes as current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their notes and could materially reduce our reported working capital.

***The capped call transactions may affect the value of the 2026 Notes and our common stock.***

In connection with the pricing of the 2026 Notes, we entered into capped call transactions with the option counterparties. The capped call transactions are expected generally to reduce potential dilution to our common stock upon conversion of any notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap. In connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates purchased shares of our common stock and/or entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the notes. In addition, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so during any observation period related to a conversion of notes). This activity could cause or avoid an increase or a decrease in the market price of our common stock or the notes, which could affect your ability to convert the notes and, to the extent the activity occurs following conversion or during any observation period related to a conversion of notes, it could affect the number of shares and value of the consideration that you will receive upon conversion of such notes. Finally, if any such capped call transactions fail to become effective, the option counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock, which could adversely affect the value of our common stock and the value of the notes.

Filed Nov 15, 2021.
Source: SEC EDGAR, the filing index for accession 0001558370-21-016018. Last ingested by Listed: Nov 11, 2026, 03:48 ET. No prices; not investment advice.