# Porch Group, Inc.: Form 10-Q for the period ended Mar 31, 2022

- Company: [Porch Group, Inc.](/companies/prch.md) (CIK 1784535)
- Form: 10-Q
- Filed: 2022-05-10
- Accepted by EDGAR: May 10, 2022, 16:34 ET
- Period: 2022-03-31
- Accession: 0001558370-22-008131
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1784535/000155837022008131/prch-20220331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1784535/000155837022008131/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-01-01 to 2022-03-31 | $62.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-01-01 to 2022-03-31 | $21.2m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2022-01-01 to 2022-03-31 | −$25.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-01-01 to 2022-03-31 | $2.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-01-01 to 2022-03-31 | −$177.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | −$5.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.06 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-01-01 to 2022-03-31 | 96,074,527 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$13.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $1.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-03-31 | $292.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-03-31 | $601.8m | us-gaap:AssetsCurrent |
| Total assets | at 2022-03-31 | $1.04bn | us-gaap:Assets |
| Current liabilities | at 2022-03-31 | $381.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-03-31 | $821.9m | us-gaap:Liabilities |
| Long-term debt | at 2022-03-31 | $415.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-03-31 | $150.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-03-31 | $214.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 56,410 characters.

*This Quarterly 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 Quarterly 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:*

- *expansion plans and opportunities, including recently completed acquisitions as well as future acquisitions or additional business combinations;*
- *costs related to 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;*
- *further expansion into the insurance industry, and the related federal and state regulatory requirements;*
- *privacy and data protection laws, privacy or data breaches, or the loss of data; and*
- *the duration and scope of the COVID pandemic, and its continued 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 Quarterly Report are more fully described in Part II, Item 1A of this Quarterly Report, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 16,2022 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 over 25,500 home services companies, such as home inspectors, mortgage companies and loan officers, title companies, moving companies, real estate agencies, utility companies, roofers and others, helping these service providers grow their business and improve their customer experience. The Company 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 and moving, and, in turn, the Company’s platform drives demand for other services from such companies as part of the value proposition. Porch has three types of customers: (1) home services companies, such as home inspectors, mortgage companies, and loan officers and title companies, for whom Porch provides software and services and who pay recurring SaaS fees and increasingly 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 insurance, moving, security, TV/Internet, and home repair and improvement; and (3) service providers, such as insurance carriers, moving companies, security companies, title companies, mortgage companies and TV/Internet providers, who pay for new customer sign-ups.

The Company sells software and services to companies using a variety of sales and marketing tactics, including teams of inside sales representatives organized by vertical market who engage directly with companies, and enterprise sales teams that target the large named accounts in each of the vertical markets. These teams are supported by various 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 over 25,500 companies using the Company’s software to provide the company with end customer access and introductions. The Company then utilizes technology, lifecycle marketing and teams in lower cost locations to operate as a Moving Concierge to assist these consumers with services. The Company has invested in limited direct-to-consumer 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 these businesses, the Company identifies, measures and evaluates various operating metrics. The key performance measures and operating metrics used in managing the businesses are set forth below. These key performance measures and operating metrics are not prepared in accordance with generally accepted accounting principles in the United States (“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 businesses in 2020.

- **Average 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. The Company’s customers include home services companies, for whom the Company provides software and services and who provide introductions to homebuyers and homeowners and tracks the average number of home services companies from which it generates revenue each quarter in order to measure the ability to attract, retain and grow 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 across all of the Company’s home services verticals that (i) generate recurring revenue and (ii) generated revenue in the quarter. For new acquisitions, the number of companies is determined in the initial quarter based on the percentage of the quarter the acquired business is a part of the Company.
- **Average Revenue per Account per Month in Quarter —** Management views the Company’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 average revenue per month generated across all our home services company customer accounts in a quarterly period. Average Revenue per Account per Month

in Quarter is derived from all customers and total revenue, not only customers and revenues associated with the Company’s referral network.

The following table summarizes Average Companies in Quarter and Average Revenue per Account per Month in Quarter for each of the quarterly periods indicated:

| ​ ​ ​ | ​ ​ | ​ ​ 2022 Q1 | ​ ​ | ​ ​ 2022 Q2 | ​ ​ | ​ ​ 2022 Q3 | ​ ​ | ​ ​ 2022 Q4 | ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Average Companies in Quarter |  | ​ 25,512 |  | ​ — |  | ​ — |  | ​ — |  |
| Average Revenue per Account per Month in Quarter | ​ | $817 | ​ | $— | ​ | $— | ​ | $— | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| ​ | ​ | **2021** |  | **2021** |  | **2021** |  | **2021** | ​ |
| ​ | ​ | **Q1** | **​** | **Q2** | **​** | **Q3** | **​** | **Q4** | ​ |
| Average Companies in Quarter | ​ | ​ 13,995 |  | ​ 17,120 |  | ​ 20,472 |  | ​ 24,603 | ​ |
| Average Revenue per Account per Month in Quarter (adjusted)(1) | ​ | $637 | ​ | $933 | (1)​ | $985 | (1)​ | $776 | (1)​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| ​ | ​ | **2020** |  | **2020** |  | **2020** |  | **2020** | ​ |
| ​ | ​ | **Q1** | **​** | **Q2** | **​** | **Q3** | **​** | **Q4** | ​ |
| Average Companies in Quarter | ​ | ​ 10,903 |  | ​ 10,523 |  | ​ 10,792 |  | ​ 11,157 | ​ |
| Average Revenue per Account per Month in Quarter | ​ | $484 | ​ | $556 | ​ | $664 | ​ | $556 | ​ |

(1) During the quarter ended December 31, 2021, the Company corrected an immaterial error that impacted revenue and cost of revenue for the three months ended June 30, 2021 and September 30, 2021. Average Revenue per Account per Month in Quarter metrics were recalculated for the affected quarters to show the impact of the adjustments.

The following tables shows the impact of this error on Average Revenue per Account per Month in Quarter:

| ​ ​ ​ | ​ ​ ​ | ​ ​ 2021 Q1 | ​ ​ ​ | ​ ​ 2021 Q2 | ​ ​ ​ | ​ ​ 2021 Q3 | ​ ​ ​ | ​ ​ 2021 Q4 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Total Revenue (as previously reported) | ​ | ​ 26,742 | ​ | $51,340 | ​ | $62,769 | ​ | $51,582 |
| Quarterly Impact of Revenue Adjustment Recorded in Q4 | ​ | ​ — | ​ | ​ (3,400) | ​ | ​ (2,300) | ​ | ​ 5,700 |
| Total Revenue (as adjusted) | ​ | $26,742 | ​ | $47,940 | ​ | $60,469 | ​ | $57,282 |
| Average Revenue per Account per Month in Quarter (as adjusted) | ​ | $637 | ​ | $933 | ​ | $985 | ​ | $776 |
| Average Revenue per Account per Month in Quarter (as previously reported) | ​ | $637 | ​ | $1,000 | ​ | $1,022 | ​ | $699 |

In 2021, the Company completed acquisitions of V12 Data in Q1, Homeowners of America (“HOA”) and Rynoh in Q2, American Home Protect (“AHP”) in Q3 and Floify in Q4, that impacted the average number of companies in the quarter.

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

- **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. The Company tracks the number of monetized services performed through its platform each quarter and the revenue generated per service performed in order to measure market penetration with homebuyers and homeowners and the Company’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 the Company 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 in Quarter —** 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:

| ​ ​ ​ | ​ ​ | ​ ​ 2022 Q1 | ​ ​ | ​ ​ 2022 Q2 | ​ ​ | ​ ​ 2022 Q3 | ​ ​ | ​ ​ 2022 Q4 | ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Monetized Services in Quarter |  | ​ 254,249 |  | ​ — |  | ​ — |  | ​ — |  |
| Average Revenue per Monetized Service in Quarter | ​ | $176 | ​ | $— | ​ | $— | ​ | $— | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| ​ | ​ | **2021** |  | **2021** |  | **2021** |  | **2021** | ​ |
| ​ | ​ | **Q1** | **​** | **Q2** | **​** | **Q3** | **​** | **Q4** | ​ |
| Monetized Services in Quarter | ​ | ​ 182,779 |  | ​ 302,462 |  | ​ 329,359 |  | ​ 260,352 | ​ |
| Average Revenue per Monetized Service in Quarter (adjusted)(1) | ​ | $92 | ​ | $118 | (1)​ | $137 | (1)​ | $154 | (1)​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| ​ | ​ | **2020** |  | **2020** |  | **2020** |  | **2020** | ​ |
| ​ | ​ | **Q1** | **​** | **Q2** | **​** | **Q3** | **​** | **Q4** | ​ |
| Monetized Services in Quarter | ​ | ​ 152,165 |  | ​ 181,520 |  | ​ 198,165 |  | ​ 169,949 | ​ |
| Average Revenue per Monetized Service in Quarter | ​ | $93 | ​ | $86 | ​ | $97 | ​ | $98 | ​ |

(1) During the quarter ended December 31, 2021, the Company corrected an immaterial error that impacted revenue and cost of revenue for the three months ended June 30, 2021 and September 30, 2021. Average Revenue per Monetized Service in Quarter metrics were recalculated for the affected quarters to show the impact of the adjustments.

The following tables shows the impact of this error on Average Revenue per Monetized Service in Quarter:

| ​ ​ ​ | ​ ​ ​ | ​ ​ 2021 Q1 | ​ ​ | ​ ​ 2021 Q2 | ​ ​ | ​ ​ 2021 Q3 | ​ ​ | ​ ​ 2021 Q4 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Service Revenue (as previously reported) | ​ | $16,812 | ​ | $39,102 | ​ | $47,398 | ​ | $34,351 |
| Quarterly Impact of Revenue Adjustment Recorded in Q4 | ​ | ​ — | ​ | ​ (3,400) | ​ | ​ (2,300) | ​ | ​ 5,700 |
| Service Revenue (as adjusted) | ​ | $16,812 | ​ | $35,702 | ​ | $45,098 | ​ | $40,051 |
| Average Revenue per Monetized Service in Quarter (adjusted) | ​ | $92 | ​ | $118 | ​ | $137 | ​ | $154 |
| Average Revenue per Monetized Service in Quarter (as previously reported) | ​ | $92 | ​ | $129 | ​ | $144 | ​ | $132 |

In 2021, the Company completed acquisitions of V12 in Q1, HOA and Rynoh in Q2, AHP in Q3 and Floify in Q4, which impacted the number of monetized services in the quarter.

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

#### Adoption of New Accounting Standards

We early adopted Accounting Standards Update No. 2021-08, *Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers* on January 1, 2022 and will apply the guidance prospectively for business combinations that occur after the adoption date. The adoption has no impact to the existing unaudited condensed consolidated balance sheets, statements of operations, and statements of cash flows.

### 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 over 25,500 home services companies, such as home inspectors, moving companies, utility companies, warranty companies, etc. The following are key factors affecting our operating results in the three months ended March 31, 2022:

- In 2021, the Company completed several acquisitions with an aggregate purchase price of $346.3 million to acquire companies to expand the scope and nature of the Company's services offerings, add additional team members with important skillsets, and realize synergies. These acquisitions included V12 Data (acquired in January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021) and Floify (acquired in October 2021). For a complete discussion of our 2021 acquisitions, refer to Item 8 in the 2021 Annual Report on Form 10-K.
- Continued investment in growing and expanding the Company’s position in the home inspection industry including through our core ERP and CRM software offered by ISN.
- Continued investment in growing and expanding the Company’s 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. Specifically by increasing economies of scale related to fixed selling costs, Moving Concierge call center operations and product and technology costs.
- Ongoing expansion in other software verticals related to the home and related services such as title, warranty and mortgage software.
- Investments in consumer experience to drive higher conversion rates, including investments in apps.
- Investments in establishing and maintaining controls required by the Sarbanes-Oxley Act of 2002 (“SOX”) and other internal controls across IT and accounting organizations.
- Investments in data platforms and leveraging that data in pricing optimization within insurance.
- Growth across the insurance business, including geographic expansion.

### Basis of Presentation

The unaudited condensed consolidated financial statements and accompanying notes of the Company 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 revenue from (1) software and service subscription revenue generated from fees received for providing subscription access to the Company’s software platforms and subscription services across various industries; (2) insurance revenue in the form of commissions from third-party insurance carriers where Porch acts as an independent agent and commissions from reinsurers, insurance and warranty premiums, policy fees and other insurance- related fees generated through its own insurance carrier; (3) move-related service revenue through fees received for connecting homeowners to service providers during time of a move including movers, TV/Internet, warranty, and security monitoring providers and for certain move related services for providing select services directly to the homeowner; (4) post-move related revenue in the form of fees earned from introducing homeowners to home service professionals including handymen, plumbers, electricians, roofers etc., and for certain projects for providing select services directly to the homeowner.

Software and service subscription revenue primarily relates to subscriptions to the Company’s software offerings across its verticals as well as marketing software and services. 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.

The Insurance segment offers various property-related insurance policies through its own risk-bearing carrier and independent agency as well as a risk-bearing home warranty company. Third-party insurance companies pay Porch Company’s agency upfront and renewal commissions for selling their policies, reinsurers pay the Company ceding commissions when premiums are ceded from owned insurance products, and revenues are earned in the form of policy premiums collected from insureds from owned insurance products. The Insurance segment also includes home warranty revenue which mainly consists of premiums paid by warranty customers for the Company’s home warranty products.

Move-related transactions revenue arises when the Company connects service providers with homeowners that meet pre-defined criteria and may be looking for relevant services. Service providers include movers, TV/Internet, warranty, and security monitoring providers. The Company earns revenue when consumers purchase services from third-party providers. For moving products where the Company manages the process of selecting the service provider and setting the price, the Company generally invoices for projects on a fixed fee or time and materials basis.

Post-move-related transaction revenue includes fees earned from introducing consumers to home service providers as well as directly to the homeowner when the Company manages the service. Revenue generated from service providers is recognized at a point in time upon the connection of a homeowner to the service provider. The Company generally invoices for managed services projects on a fixed fee or time and materials basis.

### 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 consists of insurance claims losses and loss adjustment expenses, warranty claims, third-party providers for executing moving labor and handyman services when the Company is managing the job, data costs related to marketing campaigns, certain call center costs, credit card processing and merchant fees and operational cost of SaaS businesses.

Selling and marketing expenses primarily consist of payroll, employee benefits and stock-based compensation expense, and other headcount related costs associated with sales efforts directed toward companies and consumers, and deferred policy acquisition costs (“DAC”) of new and renewal insurance contracts. Also included are any direct costs to acquire customers, such as search engine optimization (“SEO”), marketing (“SEM”) costs and affiliate and partner leads.

The Company capitalizes DAC, which consists primarily of commissions, premium taxes, policy underwriting, and production expenses directly related to the successful acquisition by the Company’s insurance subsidiary of new or renewal insurance contracts. DAC are amortized to expense on a straight-line basis over the terms of the policies to which they relate, which is generally one year. DAC is also reduced by ceding commissions paid by reinsurance companies which represent recoveries of acquisition costs. DAC is periodically reviewed for recoverability and adjusted if necessary.

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. Also included are cloud computing, hosting and other technology costs, software subscriptions, professional services and amortization of internally developed software.

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

### 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 unaudited 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, estimated lifetime value of the insurance agency commissions, current estimate for credit losses, depreciable lives for property and equipment, the valuation of and useful lives for acquired intangible assets, 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, all of which are evaluated by management. Actual results could differ materially from those estimates, judgments, and assumptions.

At least quarterly, the Company evaluates estimates and assumptions and makes 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 March 31, 2022, there were no changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed on March 16, 2022. For a complete discussion of our critical accounting policies, refer to Item 7 in the 2021 Annual Report on Form 10-K.

### Results of Operations

#### Comparison of Three Months Ended March 31, 2022 and 2021

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

*(dollar amounts in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2022 | ​ | ​ ​ 2021 | ​ ​ ​ ​ | ​ ​ $​% Change ​ ​ | ​ ​ | ​ ​ ​ Change ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | --- | --- | ---: |
| Revenue | ​ | $62,561 | ​ | $26,742 | ​ | $35,819 | **​** | 134% |
| Operating expenses: | ​ | ​ | ​ |  | ​ | ​ | **​** | ​ |
| Cost of revenue | ​ | 21,189 | ​ | 5,930 | ​ | ​ 15,259 | **​** | 257% |
| Selling and marketing | ​ | 25,743 | ​ | 14,638 | ​ | ​ 11,105 | **​** | 76% |
| Product and technology | ​ | 14,231 | ​ | 11,789 | ​ | ​ 2,442 | **​** | 21% |
| General and administrative | ​ | 26,699 | ​ | 24,016 | ​ | ​ 2,683 | **​** | 11% |
| Total operating expenses | ​ | 87,862 | ​ | 56,373 | ​ | ​ 31,489 | **​** | 56% |
| Operating loss | ​ | (25,301) | ​ | (29,631) | ​ | ​ 4,330 | **​** | (15)% |
| Other income (expense): | ​ |  | ​ |  | ​ | ​ | **​** | ​ |
| Interest expense | ​ | (2,293) | ​ | (1,223) | ​ | ​ (1,070) | **​** | 87% |
| Change in fair value of earnout liability | ​ | ​ 11,179 | ​ | ​ (18,770) | ​ | ​ 29,949 | **​** | NM ​ |
| Change in fair value of private warrant liability | ​ | ​ 10,189 | ​ | ​ (15,910) | ​ | ​ 26,099 | **​** | NM ​ |
| Investment income and realized gains, net of investment expenses | ​ | ​ 197 | ​ | ​ — | ​ | ​ 197 | **​** | NM ​ |
| Other income, net | ​ | 56 | ​ | 83 | ​ | ​ (27) | **​** | (33)% |
| Total other income (expense) | ​ | 19,328 | ​ | (35,820) | ​ | ​ 55,148 | **​** | (154)% |
| Loss before income taxes | ​ | (5,973) | ​ | (65,451) | ​ | ​ 59,478 | **​** | (91)% |
| Income tax benefit | ​ | 177 | ​ | 350 | ​ | ​ (173) | **​** | (49)% |
| Net loss | ​ | $(5,796) | ​ | $(65,101) | ​ | $59,305 | **​** | (91)% |

#### NM = Not Meaningful

#### Revenue

Total revenue increased by $35.8 million, or 134%, from $26.7 million in the three months ended March 31, 2021 to $62.6 million in the three months ended March 31, 2022. During 2021, the Company acquired a number of businesses with an aggregate purchase price of $346.3 million as disclosed in the Company’s Annual Report on Form 10-K. These acquisitions included V12 Data (acquired in January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021) and Floify (acquired in October 2021). Other than V12 Data, these businesses were not owned by the Company during the three months ended March 31, 2021, therefore no revenue was recognized from these businesses during that period. Thus, the increase in revenue in 2022 is primarily driven by the 2021 acquisitions, by accelerated growth after acquisition and by organic growth.

During the quarter ended December 31, 2021, the Company corrected an immaterial error related to revenue from claims fees and contra claims expense, which was corrected in the fourth quarter of 2021. This error impacted revenue and cost of revenue for the three months ended June 30, 2021 and September 30, 2021. The correction did not impact operating loss or net loss in these periods, and did not have any impact on the three months ended March 31, 2021.

The following table summarizes the impact of the correction by quarter (in thousands):

| ​ ​ ​ | ​ ​ | ​ ​ Quarter ended March 31, 2021 | ​ | ​ ​ June 30, 2021 | ​ | ​ ​ September 30, 2021 | ​ | ​ ​ December 31, 2021 | ​ ​ | ​ ​ ​ ​ Total |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue increase (decrease) | ​ | $— | ​ | $(3,400) | ​ | $(2,300) | ​ | $5,700 | ​ | $— |
| Cost of revenue increase (decrease) | ​ | — | ​ | 3,400 | ​ | 2,300 | ​ | (5,700) | ​ | — |
| Net loss impact | ​ | $— | ​ | $— | ​ | $— | ​ | $— | ​ | $— |

#### Cost of Revenue

Cost of revenue increased by $15.3 million, or 257%, from $5.9 million in the three months ended March 31, 2021 to $21.2 million in the three months ended March 31, 2022. The increase in the cost of revenue was primarily attributable to the 2021 acquisitions of V12 Data (acquired in January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021), and Floify (acquired in October 2021). Other than V12 Data, these businesses were not owned by the Company in the three months ended March 31, 2021, therefore no cost of revenue was recognized from these businesses during that period. Thus, the increase in cost of revenue in 2022 is primarily driven by the 2021 acquisitions, by accelerated growth after acquisition and by organic growth. As a percentage of revenue, cost of revenue represented 34% of revenue in the three months ended March 31, 2022 compared with 22% in the same period in 2021. Cost of revenue as a percentage of revenue is higher due to the mix shift in business with insurance as the claims and loss and loss adjustment expense is recorded in cost of revenue.

#### Selling and marketing

Selling and marketing expenses increased by $11.1 million, or 76%, from $14.6 million in the three months ended March 31, 2021 to $25.7 million in the three months ended March 31, 2022. The increase is due to $8.3 million related to the selling and marketing costs of the acquired businesses comprised of the underwriting and policy acquisition costs for HOA and additional selling and marketing expenses for V12, AHP, Floify and Rynoh. The increase was also due to a $1.5 million increase in amortization expense related to acquired intangibles. This was partially offset by a decrease of $1.5 million in stock-based compensation expenses. As a percentage of revenue, selling and marketing expenses represented 41% of revenue in the three months ended March 31, 2022 compared with 55% in the same period in 2021.The improvement in selling and marketing expenses as a percentage of revenue is due to the growing economies of scale across the Company’s vertical software and insurance segments.

#### Product and technology

Product and technology expenses increased by $2.4 million, or 21%, from $11.8 million in the three months ended March 31, 2021 to $14.2 million in the three months ended March 31, 2022. The increase is mainly due to a $2.0 million increase in amortization expense related to acquired intangibles and a $1.8 million increase in product and technology costs of the acquired businesses, most notably HOA. This was offset by $1.2 million lower stock-based compensation expense. As a percentage of revenue, product and technology expenses represented 23% of revenue in the three months ended March 31, 2022 compared with 44% in the same period in 2021. The improvement in product and technology expenses as a percentage of revenue is due to the growing economies of scale in the overall business.

#### General and administrative

General and administrative expenses increased by $2.7 million, or 11%, from $24.0 million in the three months ended March 31, 2021 to $26.7 million in the three months ended March 31, 2022, primarily due to costs related to increased hiring of corporate resources, audit and accounting fees, as well as consulting fees related to the ongoing SOX requirements. In the three months ended March 31, 2022, general and administrative expenses included $11.7 million related to the HOA, AHP, Floify and Rynoh, which were acquired in 2021, and $3.8 million attributable to increased corporate resources, investments in corporate systems and SOX implementation. In addition, during the three months ended March 31, 2022, there was a loss on revaluation of contingent consideration of $3.2 million, while during the three months ended March 31, 2021, there was a gain of $0.4 million. This was offset by stock-based compensation expense for the three months ended March 31, 2022, which was $8.4 million lower than in the same period in 2021.

#### Interest expense, net

Interest expense increased by $1.1 million, or 87%, from $1.2 million in the three months ended March 31, 2021 to $2.3 million in the three months ended March 31, 2022. This was primarily due to issuance of $425 million of Convertible Senior Notes in September 2021, that in part was used to pay off the $42.1 million of Senior Secured Term Loans that were outstanding at March 31, 2021. The total level of interest-bearing debt balance was $425.6 million at January 1, 2022 and $50.8 million at January 1, 2021 and this higher outstanding debt balance was the primary reason for the increased interest expense.

#### Change in fair value of earnout liability

Changes in fair value of earnout liability were $11.2 million (gain) and $18.8 million (loss) in the three months ended March 31, 2022 and 2021, respectively. The decrease in fair value was primarily due to the decline in the stock price at March 31, 2022 as compared to March 31, 2021. During the three months ended March 31, 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 $10.2 million (gain) and $15.9 million (loss) in the three months ended March 31, 2022 and 2021, respectively. The decrease in fair value was primarily due to the decline in the stock price at March 31, 2022 as compared to March 31, 2021.

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

Investment income and realized gains, net of investment expenses was $0.2 million in the three months ended March 31, 2022. In April 2021, the Company acquired HOA that maintains a short-term and long-term investment portfolio that generated investment income for nine months in 2021. The Company did not have any material investments prior to April 2021.

#### Income tax benefit

Income tax benefit of $0.2 million and $0.4 million was recognized for the three months ended March 31, 2022 and 2021, respectively. The Company’s effective tax rates in both periods differs substantially from the U.S. federal statutory tax rate of 21% 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 13 in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

### Segment Revenue

| ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2022 Vertical Software Segment ​ ​ | ​ ​ ​ | ​ ​ Insurance Segment ​ ​ | ​ ​ ​ | ​ ​ ​ Total ​ ​ |
| --- | --- | --- | --- | --- | --- | --- |
| Software and service subscriptions | ​ | $17,965 | ​ | $— | ​ | $17,965 |
| Move-related transactions (excluding insurance) | ​ | ​ 12,193 | ​ | ​ — | ​ | ​ 12,193 |
| Post-move transactions | ​ | ​ 4,530 | ​ | ​ — | ​ | ​ 4,530 |
| Insurance | ​ | ​ — | ​ | ​ 27,873 | ​ | ​ 27,873 |
| Total revenue | ​ | $34,688 | ​ | $27,873 | ​ | $62,561 |

| ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2021 Vertical Software Segment ​ ​ | ​ ​ ​ | ​ ​ Insurance Segment ​ ​ | ​ ​ ​ | ​ ​ ​ Total ​ ​ |
| --- | --- | --- | --- | --- | --- | --- |
| Software and service subscriptions | ​ | $10,880 | ​ | $— | ​ | $10,880 |
| Move-related transactions (excluding insurance) | ​ | ​ 8,961 | ​ | ​ — | ​ | ​ 8,961 |
| Post-move transactions | ​ | ​ 5,096 | ​ | ​ — | ​ | ​ 5,096 |
| Insurance | ​ | ​ — | ​ | ​ 1,805 | ​ | ​ 1,805 |
| Total revenue | ​ | $24,937 | ​ | $1,805 | ​ | $26,742 |

For the three months ended March 31, 2022, Vertical Software segment revenues were $34.7 million or 55.5% of total revenue. Software and service subscriptions revenue increased from $10.9 million to $18.0 million as the Company acquired a V12 Data in January 2021, Rynoh in May 2021 and Floify in October 2021. Other than V12 Data, these businesses were not owned by the Company during the quarter ended March 31, 2021, and therefore no revenue was recognized from these businesses in the same period. Thus, the increase in revenue in 2022 is primarily driven by the 2021 acquisitions, by accelerated growth after acquisition and by organic growth.

Insurance segment revenues were $27.9 million or 44.6% of total revenue during the same period. The increase from $1.8 million in the three months ended March 31, 2021 to $27.9 million in the three months ended March 31, 2022 is mainly due to the acquisitions of HOA (acquired in April 2021) and AHP (acquired in September 2021), and the accelerated growth of these businesses after acquisition, as well as the organic growth of the Company’s existing insurance operation.

### 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 13 in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.

| ​ ​ ​ Segment adjusted EBITDA (loss): | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, ​ 2022 ​ ​ | ​ ​ ​ | ​ ​ ​ 2021 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Vertical Software | ​ | $2,984 | ​ | $3,151 |
| Insurance | ​ | ​ 3,286 | ​ | ​ 508 |
| Corporate and Other(1) | ​ | ​ (13,342) | ​ | ​ (13,261) |
| Total segment adjusted EBITDA (loss)(2) | ​ | $(7,072) | ​ | $(9,602) |

(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 Quarterly 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.

The Company 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, 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.

Company management uses these non-GAAP financial measures as supplemental measures of the Company’s operating and financial performance, for internal budgeting and forecasting purposes, to evaluate financial and strategic planning matters, and to establish certain performance goals for incentive programs. The Company believes that the use of these non-GAAP financial measures provides investors with useful information to evaluate the Company’s operating and financial performance and trends and in comparing Porch’s financial results with competitors, other similar companies and companies across different industries, many of which present similar non-GAAP financial measures to investors. However, the Company’s definitions and methodology in calculating these non-GAAP measures may not be comparable to those used by other companies. In addition, the Company 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 the Company’s consolidated financial statements. The Company may also incur future income or expenses similar to those excluded from these non-GAAP financial measures, and the 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.

### Revenue Less Cost of Revenue

The following table reconciles revenue less cost of revenue to operating loss for the three months ended March 31, 2022 and 2021, respectively (dollar amounts in thousands):

| ​ ​ ​ | ​ | ​ ​ Three Months Ended March 31, 2022 | ​ | ​ ​ 2021 | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Revenue | ​ | $62,561 | ​ | $26,742 | ​ |
| Less: Cost of revenue | ​ | (21,189) | ​ | (5,930) | ​ |
| Revenue less cost of revenue | ​ | 41,372 | ​ | 20,812 | ​ |
| Less: Selling and marketing costs | ​ | ​ 25,743 | ​ | ​ 14,638 | ​ |
| Less: Product and technology costs | ​ | ​ 14,231 | ​ | ​ 11,789 | ​ |
| Less: General and administrative costs | ​ | ​ 26,699 | ​ | ​ 24,016 | ​ |
| Total operating expenses | ​ | $87,862 | ​ | $56,373 | ​ |
| Operating loss | ​ | $(25,301) | ​ | $(29,631) | ​ |

Revenue less cost of revenue increased by $20.6 million, or 98.8% from $20.8 million in the three months ended March 31, 2021 to $41.4 million in the three months ended March 31, 2022. During 2021, the Company acquired a number of businesses with an aggregate purchase price of $346.3 million as disclosed in the Company’s Annual Report on Form 10-K. These acquisitions included V12 Data (acquired in January 2021), HOA (acquired in April 2021), Rynoh (acquired in May 2021), AHP (acquired in September 2021) and Floify (acquired in October 2021). Other than V12 Data, these businesses were not owned by the Company in the three months ended March 31, 2021, therefore no revenue less cost of revenue was recognized from these businesses during that period. Thus, the increase revenue less cost of revenue in 2022 is primarily driven by the 2021 acquisitions, by accelerated growth after acquisition and by organic growth.

### Adjusted EBITDA (loss)

The following table reconciles net loss to Adjusted EBITDA (loss) for the three months ended March 31, 2022 and 2021, respectively (dollar amounts in thousands):

| ​ ​ ​ | ​ | ​ ​ ​ Three Months Ended March 31, 2022 | ​ ​ ​ ​ 2021 ​ |
| --- | --- | ---: | ---: |
| Net loss | ​ | $(5,796) ​ | $(65,101) ​ |
| Interest expense | ​ | 2,293 ​ | 1,223 ​ |
| Income tax benefit | ​ | (177) ​ | (350) ​ |
| Depreciation and amortization | ​ | 6,483 ​ | 2,463 ​ |
| Other expense (income), net | ​ | (56) ​ | (83) ​ |
| Non-cash long-lived asset impairment charge | ​ | 69 ​ | 68 ​ |
| Non-cash stock-based compensation expense | ​ | 5,854 ​ | 16,835 ​ |
| Revaluation of contingent consideration | ​ | 3,205 ​ | (355) ​ |
| Revaluation of earnout liability | ​ | ​ (11,179) ​ | ​ 18,770 ​ |
| Revaluation of private warrant liability | ​ | ​ (10,189) ​ | ​ 15,910 ​ |
| Acquisition and related expense | ​ | 895 ​ | 728 ​ |
| Non-cash bonus expense | ​ | ​ 1,526 ​ | ​ 290 ​ |
| Adjusted EBITDA (loss) | ​ | $(7,072) ​ | $(9,602) ​ |
| Adjusted EBITDA (loss) as a percentage of revenue | ​ | ​ (11)% | ​ (36)% |

Adjusted EBITDA (loss) for the three months ended March 31, 2022 was $7.1 million, a $2.5 million improvement from Adjusted EBITDA (loss) of $9.6 million for the same period in 2021. During 2021, the Company acquired a number of businesses with an aggregate purchase price of $346.3 million as disclosed in the Company’s Annual Report on Form 10-K. These acquisitions included V12 Data (acquired in January 2021), HOA (acquired in April 2021), Rynoh

(acquired in May 2021), AHP (acquired in September 2021) and Floify (acquired in October 2021). Other than V12 Data, these businesses were not owned by the Company in the three months ended March 31, 2021, therefore no revenue and Adjusted EBITDA (loss) was recognized from these businesses during that period. Thus, the improvement in Adjusted EBITDA (loss) in 2022 is primarily driven by the 2021 acquisitions, offset by investments in sales and marketing and product and technology related to consumer experience, app build out, data platforms and investments in establishing and maintaining SOX and other internal controls across IT and accounting organizations.

### Liquidity and Capital Resources

Since inception, as a private company, we have financed our operations primarily from the sales of redeemable convertible preferred stock and convertible promissory notes, and proceeds from the senior secured term loans. On December 23, 2020, the Company received approximately $269.5 million of aggregate cash proceeds from recapitalization, net of transaction costs, as it began trading publicly.

During 2021, the Company completed a private offering of $425 million aggregate principal amounts of convertible debt maturing in 2026, and raised $126.7 million and $4.3 million from exercise of public warrants and stock options, respectively.

As of March 31, 2022, the Company had cash and cash equivalents of $292.4 million and $10.7 million of restricted cash, respectively. Restricted cash consists of funds held for the payment of possible warranty claims as required in 25 states; funds held in certificates of deposits and money market mutual funds pledged to, or held in escrow with, certain state insurance regulators in connection with our insurance operations; customer deposits; and acquisition indemnifications.

The Company has incurred net losses since its inception, and has an accumulated deficit at March 31, 2022 and December 31, 2021 totaling $429.9 million and $424.1 million, respectively.

As of March 31, 2022 and December 31, 2021, the Company had $425.5 million and $425.6 million aggregate principal amount outstanding in convertible notes and promissory notes, respectively.

Based on the Company’s current operating and growth plan, management believes cash and cash equivalents at March 31, 2022, 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 continue 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.

Porch Group, Inc. is a holding company that transacts a majority of its business through operating subsidiaries, including insurance subsidiaries. Consequently, the Company’s ability to pay dividends and expenses is largely dependent on dividends or other distributions from its subsidiaries. The Company’s insurance company subsidiaries are highly regulated and are restricted by statute as to the amount of dividends they may pay without the prior approval of their respective regulatory authorities. As of March 31, 2022, cash and cash equivalents of $35.5 million and investments held by these companies was $65.3 million.

The following table provides a summary of cash flow data for the three months ended March 31, 2022 and 2021:

*(dollar amounts in thousands)*

| ​ ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended March 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ $% Change ​ ​ | ​ ​ ​ Change ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Net cash used in operating activities | ​ | $(13,291) | ​ | $(22,935) | ​ | $9,644 | 42% |
| Net cash used in investing activities | ​ | (8,077) | ​ | (23,714) | ​ | 15,637 | 66% |
| Net cash (used) provided by financing activities | ​ | (389) | ​ | 72,579 | ​ | (72,968) | NM ​ |
| Change in cash, cash equivalents and restricted cash | ​ | $(21,757) | ​ | $25,930 | ​ | $(47,687) | NM ​ |

#### Operating Cash Flows

Net cash used in operating activities was $13.3 million for the three months ended March 31, 2022. Net cash used in operating activities consists of net loss of $5.8 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of $5.9 million, depreciation and amortization of $6.5 million, and fair value adjustments to earnout liability and private warrant liability of $11.2 million (gain) and $10.2 million (gain), respectively. Net changes in working capital were a use of cash of $4.1 million, primarily due to increases in current liabilities and reinsurance balance due, offset by losses and loss adjustment expense reserves.

Net cash used in operating activities was $22.9 million for the three months ended March 31, 2021. Net cash used in operating activities consists of net loss of $65.1 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of $16.8 million, depreciation and amortization of $2.5 million, non-cash accrued and payment-in-kind interest of $0.3 million, fair value adjustments to earnout liability and private warrant liability of $18.8 million (loss) and $15.9 million (loss), respectively. Net changes in working capital were a use of cash of $11.6 million, primarily due to increases in current liabilities.

#### Investing Cash Flows

Net cash used in investing activities was $8.1 million for the three months ended March 31, 2022. Net cash used in investing activities is primarily related to purchases of investments of $8.8 million, investments in developing internal-use software of $1.6 million, purchases of property and equipment of $1.2 million, and a $5.0 million non-refundable deposit for an acquisition. This was offset by the cash inflows related to maturities and sales of investments of $8.4 million.

Net cash used in investing activities was $23.7 million for the three months ended March 31, 2021. Net cash used in investing activities is primarily related to investments to develop internal-use software of $0.8 million and acquisitions, net of cash acquired of $22.9 million, including V12 Data.

#### Financing Cash Flows

Net cash used in financing activities was $0.4 million for the three months ended March 31, 2022. Net cash used in financing activities is primarily related to shares repurchased to pay income tax withholdings upon vesting of RSUs of $0.7 million and debt repayments of $0.2 million, partially offset by proceeds from exercises of stock options of $0.5 million.

Net cash provided by financing activities was $72.6 million for the three months ended March 31, 2021. Net cash provided by financing activities is primarily related to exercises of warrants and stock options of $89.9 million, offset by shares repurchased to pay income tax withholdings upon vesting of RSUs of $14.6 million and debt repayments of $0.2 million.

### Off-Balance Sheet Arrangements

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

### Recent Accounting Pronouncements

See Note 1 to our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2022 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, 2,078 characters.

The Company is 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 March 31, 2022, and December 31, 2021, the Company has interest-bearing debt of $425.5 million and $425.6 million, respectively. Our 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”) have a principal balance of $425 million as of March 31, 2022, have a fixed coupon rate of 75 basis points, and effective interest rate of 1.3%. As such, interest expense on the 2026 Notes will not change if market interest rates increase. Other debt as of March 31, 2022 totaled $0.5 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 March 31, 2022, the Company’s insurance subsidiary has a $65.3 million portfolio of fixed income securities and an unrealized loss of $2.8 million, as described in Note 3. In a rising interest rate environment, the portfolio would result in unrealized losses.

At March 31, 2022, accounts receivable and reinsurance balances due were $30.0 million and $239.7 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

Due to significant increases in the consumer price index in the past twelve months, supply chain disruptions, war in Ukraine and other geo-political events, the Company believes that inflation may have a material impact on its business in the future.

#### Foreign Currency Risk

There was no material foreign currency risk for three months ended March 31, 2022. The Company’s activities to date have been conducted in the United States.

## Controls and procedures

As filed, 4,040 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 March 31, 2022, 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 March 31, 2022 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 for the fiscal year ended December 31, 2021 filed with the SEC on March 16, 2022.

#### Remediation Plan

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

- consolidation of relevant financial systems across our internal control framework;
- investments to upgrade or replace existing systems which do not have the appropriate infrastructure to meet the requirements of our internal control framework;
- expanding the available resources at the Company with experience designing and implementing control activities, including information technology general controls and automated controls, through hiring and use of third-party consultants and specialists;
- recruiting and hiring additional personnel with the appropriate skills and experience to operate the internal controls required by the nature, pace, and complexity of our business, and
- perform ongoing training with control performers to improve documentation that supports effective control activities, including evidence of the completeness and accuracy of information produced by the entity.

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 above 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.

During 2022, the Company continued to take actions on initiatives to improve the internal control environment, which started in 2021. Specifically, we formed an internal working group to detail and implement specific remediation plans for these control deficiencies, engaged with outside consultants to provide advice and assistance, and hired additional personnel to perform and monitor internal control activity.

#### Limitations on Effectiveness of Controls and Procedures

As specified above, the Company disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Company 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, 230 characters.

As of May 10, 2022, the Company’s risk factors have not materially changed from those described in Part 1, Item 1A of the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 16, 2022.

Filed May 10, 2022.
Source: SEC EDGAR, the filing index for accession 0001558370-22-008131. Last ingested by Listed: Nov 11, 2026, 03:48 ET. No prices; not investment advice.