# Porch Group, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Porch Group, Inc.](/companies/prch.md) (CIK 1784535)
- Form: 10-Q
- Filed: 2023-05-10
- Accepted by EDGAR: May 10, 2023, 17:18 ET
- Period: 2023-03-31
- Accession: 0001558370-23-009179
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1784535/000155837023009179/prch-20230331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1784535/000155837023009179/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $87.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $51.3m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$38.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $2.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | −$111.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$38.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.41 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.41 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 95,209,819 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$22.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $356.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-01-01 to 2023-03-31 | $5.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-03-31 | $179.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $575.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $1.02bn | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $516.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $971.4m | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $425.4m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-03-31 | $10.4m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-03-31 | $45.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 59,736 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. 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.*

*These forward-looking statements are based upon estimates and assumptions that, while considered reasonable by the Company and its management at the time they are made, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: (1) our expansion plans and opportunities, and managing our growth, to build a consumer brand; (2) the incidence, frequency and severity of weather events, extensive wildfires, and other catastrophe; (3) economic conditions, especially those affecting the housing and financial markets; (4) our expectations regarding our revenue, cost of revenue, operating expenses, and our ability to achieve and maintain future profitability; (5) existing and developing federal and state laws and regulations, including with respect to insurance, warranty, privacy, information security, data protection and taxation, and our interpretation of and compliance with such laws and regulations; (6) our reinsurance program, which includes the use of a captive reinsurer, the success of which is dependent on a number of factors outside our control, along with our reliance on reinsurance to protect us against loss; (7) uncertainties related to regulatory approval of insurance rates, policy forms, insurance products, license applications, acquisitions of businesses or strategic initiatives, including the reciprocal restructuring, and other matters within the purview of insurance regulators; (8) our reliance on strategic, proprietary relationships to provide us with access to personal data and product information, and our ability to use such data and information to increase our transaction volume and attract and retain customers; (9) our ability to develop new, or enhance existing, products, services, and features and bring them to market in a timely manner; (10) changes in capital requirements, and our ability to access capital when needed to provide statutory surplus; (11) the increased costs and initiatives required to address new legal and regulatory requirements arising from developments related to cybersecurity, privacy and data governance and the increased costs and initiatives to protect against data breaches, cyber-attacks, virus or malware attacks, or other infiltrations or incidents affecting system integrity, availability and performance; (12) retaining and attracting skilled and experienced employees; (13) costs related to being a public company; and (14) other risks and uncertainties discussed in our Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2022, Part I, Item 1A, “Risk Factors,” as well as those discussed elsewhere in this report.*

*The information included in this management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes included in this Quarterly Report, and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report for the year ended December 31, 2022.*

*Additionally, the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2022 have been revised to correct prior period errors as discussed in Note 20 “Quarterly Financial Data (Unaudited) Restatement of Previously Issued Financial Statements” to the consolidated financial statements included in Part II, Item 8 of Annual Report for the year ended December 31, 2022. Accordingly, this Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects the effects of the revisions.*

### Business Overview

Porch Group, Inc. (“Porch Group”, “Porch” or the “Company”), the vertical software platform, is a values-driven company whose mission is to simplify the home with insurance at the center. Porch Group provides software and services to approximately 30,600 home service providers including home inspectors, mortgage brokers, title companies and moving companies. Porch Group simplifies the home closing process and the move, by providing high-value services including homeowners insurance and warranty, and ongoing support with our app which saves consumers time and helps them make better decisions. To achieve this, Porch Group hires and retains great people, invests in the right opportunities, and leverages our unique capabilities such as early and privileged access to homebuyers and deep insight into properties.

Porch Group makes the moving process easier for homebuyers by helping them save time and make better decisions about critical services, including insurance, warranty, moving, security, TV/Internet, home repair and improvement. The Company provides home and personal property insurance policies through its own underwriting operations in 22 states and across the U.S. with its wholly-owned insurance agency.

Our multi-faceted value proposition resonates with a broad customer demographic, regardless of home price, income level, geographic location or age. We acquire our customers through a variety of channels, including at the time of a real estate transaction through third parties, direct-to-consumer (“DTC”), and leads from other Porch Group businesses.

Porch Group has two reportable segments: the Vertical Software segment and the Insurance segment.

Porch Group’s Vertical Software segment provides software and services to home services companies. Through these relationships, Porch earns fees, and gains a competitive advantage through unique and early access to homebuyers and homeowners. This early access allows Porch to assist homebuyers and homeowners with critical moving services. In turn, Porch’s platform drives demand for other services. The Vertical Software segment 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 to help them make their businesses run more efficiently and grow; (2) consumers, such as homebuyers and homeowners, whom Porch assists with the comparison and provision of various home services, such as moving, security, TV/Internet, and home repair and improvement; and (3) service providers, such as moving companies, security companies, title companies, mortgage companies and TV/Internet providers, who pay Porch for new customer sign-ups.

Porch Group’s Insurance segment offers various property-related insurance policies through our risk-bearing carrier, independent agency, and risk-bearing home warranty companies. We earn insurance policy premiums collected from insured homeowners for our insurance products, policy fees when policies are sold and renewed, and commissions when we cede premiums to reinsurance companies. Additionally, when we sell a homeowner an insurance policy through a carrier other than our own, these third-party insurance companies pay new business and renewal commissions to Porch’s insurance agency. The Insurance segment also includes home warranty, from which Porch receives premiums paid by homeowners for Porch’s home warranty products.

### 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.

- **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 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.

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 | ​ ​ | ​ ​ 2023 Q1 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Average Companies in Quarter |  | ​ 25,545 |  | ​ 28,773 | ​ | ​ 30,951 | ​ | ​ 30,860 |  | ​ 30,618 |
| Average Revenue per Account per Month in Quarter | ​ | $829 | ​ | $822 | ​ | $833 | ​ | $693 | ​ | $951 |

- **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: (1) compare and buy home insurance policies (along with auto, flood and umbrella policies) and warranties with competitive rates and coverage; (2) 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; (3) discover and install home automation and security systems; (4) compare internet and television options for their new home; (5) book small handyman jobs at fixed, upfront prices with guaranteed quality; and (6) 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 in 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 an important 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 | ​ ​ | ​ ​ 2023 Q1 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Monetized Services in Quarter |  | ​ 263,183 |  | ​ 333,596 |  | ​ 318,452 |  | ​ 212,992 |  | ​ 214,097 |
| Average Revenue per Monetized Service in Quarter | ​ | $175 | ​ | $158 | ​ | $185 | ​ | $219 | ​ | $328 |

In the second quarter of 2022, the Company completed the acquisition of RWS.

### Recent Developments

#### Share Repurchases

In October 2022, the Company’s Board of Directors approved a share repurchase program authorizing management to repurchase up to $15 million in the Company’s common stock and/or convertible notes. Repurchases under this program may be made from time to time on the open market between November 10, 2022 and June 30, 2023, at prevailing market prices. During the first quarter of 2023, the Company repurchased 1,396,158 shares with the total cost of $3.1 million (including commissions).

#### Reciprocal Exchange

On March 20, 2023, Homeowners of America filed an application to form and license a Texas reciprocal exchange (the “Reciprocal”) with the Texas Department of Insurance (“TDI”). If approved by the TDI, the insurance underwriting business of Porch will be conducted through the Reciprocal. A Porch subsidiary would serve as the operator (or “attorney-in-fact”) for the Reciprocal. In that role it would perform underwriting, claims and management services for the Reciprocal and receive a management fee calculated as a percentage of its premiums. EIG and HOA’s managing general agent would act as general agents for the Reciprocal and HOAIC and receive fees and commissions. There can be no assurance that the Reciprocal will receive regulatory approval, and if obtained, that the approval would be based on terms as proposed or subject to additional requirements that may not be acceptable to the Company.

### Key Factors Affecting Operating Results

The Company has been implementing its strategy as a vertical software platform for the home, by providing software and services to approximately 30,600 pre-and-post move home service providers including inspectors, real estate, title and mortgage companies. The Company’s Insurance segment continues to grow in scale, through both policy count, and geographic expansion. The following are key factors affecting the Company’s operating results in the three months ended March 31, 2023:

- The U.S. housing market continues to see impacts from higher interest rates, existing home inventory tightening, and affordability challenges, impacting the Vertical Software segment. For the quarter ended March 31, 2023, existing home sales have declined over 26% year over year.
- In March 2023, the Company completed the acquisitions of the Florida and California operations of Residential Warranty Services (“RWS”).
- In March 2023, Porch filed an application for a Reciprocal Exchange with the Texas Department of Insurance.
- The Company continued its insurance strategic initiatives by moving to 50% reinsurance ceding and not renewing certain higher risk policies.
- In February 2023, the Company successfully launched Porch Warranty offering, with 80% of our new home warranty contracts now written under our own brand.
- The Company continues to develop its software for customers including, the expansion of its suite of solutions for customers and partners at Floify, rolled out a new module version within Rynoh, and launched a new version of report writer for inspectors as part of our home inspection solution.
- Our moving business launched a ‘Fixed Price’ product which makes the moving journey simpler for moving companies and consumers.
- The Company has rolled out its app to all eligible ISN companies, with the recall check monitoring being popular with consumers.

### 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 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 chief operating decision-maker (“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 in the following ways:

- Insurance revenue in the form of insurance and warranty premiums, policy fees, commissions from reinsurers and other insurance-related fees generated through its owned insurance carrier, as well as commissions from third-party insurance carriers where Porch acts as an independent agent;
- Software and service subscription revenue generated from fees paid by companies for access to Porch’s software and provision of services;
- Move and post-moved related transaction revenue – Move-related 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 post-move related revenue in the form of fees earned from introducing homeowners to home service professionals including handymen, plumbers, electricians, roofers, etc.

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

The Vertical Software segment includes revenue from software and services subscription revenue, move-related transactions revenue and post-move-related transaction revenue. Software and service subscription revenue primarily relates to subscriptions to the Company’s software offerings across a number of verticals. 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 price per user or seat, or a specified price per inspection completed through the software. The Company also sells marketing software and services to companies who want to advertise to movers. Marketing software and service fees 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.

Move-related transactions revenue is generated when the Company connects consumers with service providers including movers, TV/Internet, and security monitoring companies. The Company earns revenue when consumers purchase services from these third-party providers. For select moving jobs, the Company will select the mover, set the price, and manage the job end-to-end; here, the Company generates revenue based on the full job value.

Post-move-related transaction revenue includes monthly fees paid by home service contractors as well as fees earned from introducing consumers to home service providers, either on a per lead, per appointment, or per job basis.

Revenue generated from service providers is recognized at a point in time upon the connection of a homeowner to the service provider.

### Total Costs and Expenses

#### Operating expenses

Operating expenses are categorized into five categories:

- Cost of revenue;
- Selling and marketing;
- Product and technology;
- General and administrative; and
- Impairment loss on intangible assets and goodwill.

The categories of operating expenses except impairment loss on intangible assets and goodwill, 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 losses and loss adjustment expenses, claims personnel costs, 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.

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 amortization of 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, marketing costs and affiliate and partner leads.

Selling and marketing costs are classified as either fixed or variable. Fixed selling and marketing costs primarily consist of compensation of sales management, professional fees and software costs that do not vary with sales volumes. Variable selling and marketing costs consist of DAC amortized to expense reduced by ceding commissions paid by reinsurance companies, third-party leads, affiliates and partner leads, paid search engine optimization and marketing, advertising costs and compensation for individuals in certain sales and marketing departments that vary with sales volumes.

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.

Impairment loss on intangible assets and goodwill results from circumstances when the fair value of a reporting unit or asset group is less than its carrying amount. Goodwill and indefinite-lived intangible assets are subject to annual impairment assessments. All intangible assets and goodwill are also subject to impairment assessments whenever facts and circumstances indicate that these assets may be impaired. See Impairment of Long-Lived Assets section of Critical Accounting Policies and Estimates for the description of methods used to determine these impairment losses.

### 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, impairment losses on intangible assets and goodwill, 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, 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 the Company’s significant accounting policies, see Note 1 (Description of Business and Summary of Significant Accounting Policies) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

During the three months ended March 31, 2023, we identified various qualitative factors with respect to long-lived assets and goodwill in the Company’s reporting units that collectively indicated that the Company had triggering events including a sustained decrease in stock price, increased costs due to inflationary pressures, and a deterioration of the macroeconomic environment in the housing and real estate and insurance industries.

### Impairment of Long-Lived Assets

During the first quarter of 2023, management identified various qualitative factors that collectively indicated that the Company had trigger events including a sustained decrease in stock price, increased costs due to inflationary pressures, and a deterioration of the macroeconomic environment in the housing and real estate industry. The Company used an income approach to determine that the estimated fair value of a certain asset group was less than its carrying value, which resulted in impairment charges of $2.0 million, primarily related to acquired technology, trademarks and tradenames, and customer relationships for certain businesses within its Vertical Software segment. Impairment charges are included in impairment loss on intangible assets and goodwill in the consolidated statements of operations.

### Impairment of Goodwill

During the first quarter of 2023, management identified various qualitative factors that collectively, indicated that the Company had triggering events, including a sustained decrease in stock price, increased costs due to inflationary pressures, and a deterioration of the macroeconomic environment in the housing and real estate and insurance industries. The Company performed a valuation of both the Vertical Software and Insurance reporting units using a combination of market and income approaches based on peer performance and discounted cash flow or dividend discount model methodologies. The results of the quantitative impairment assessment indicated that the estimated fair values of the reporting units exceeded their carrying values. As such, the Company determined that the goodwill allocated to its reporting units was not impaired as of March 31, 2023.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit was estimated using a combination of income and market valuation approaches using publicly traded company multiples in similar businesses. Such fair value measurements are based predominately on Level 3 inputs. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 14% to 20%.

As of March 31, 2023, the fair value of our Vertical Software reporting unit exceeded its carrying value by less than 5%, and the fair value of our Insurance reporting unit exceeded its carrying value by less than 10%. As a result, the Company’s goodwill balance is at risk of future impairment. The Company monitors its reporting units at risk of impairment for interim impairment indicators, and believes that the estimates and assumptions used in the calculations are reasonable as of March 31, 2023. The Company also reconciles the fair value of its reporting units to the Company’s market capitalization. Should the fair value of any of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines including a deterioration of the macroeconomic environment in the housing and real estate or insurance industries, changes in the discount rate, or other adverse conditions, goodwill impairment charges may be necessary in future periods.

There were no other changes to the critical accounting policies and estimates discussed in the Company’s Annual Report on Form 10-K.

### Results of Operations

The following table sets forth the Company’s historical operating results for the periods indicated:

*(dollar amounts in thousands)*

| ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2023 | ​ | ​ ​ 2022 | ​ ​ | ​ ​ $​% Change | ​ ​ | ​ ​ Change |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | $87,369 | ​ | $63,567 | ​ | $23,802 | ​ | 37% |
| Operating expenses: | ​ | ​ |  | ​ |  | ​ | ​ |
| Cost of revenue | 51,275 | ​ | 25,216 | ​ | 26,059 | ​ | 103% |
| Selling and marketing | 32,585 | ​ | 26,077 | ​ | 6,508 | ​ | 25% |
| Product and technology | 13,950 | ​ | 14,231 | ​ | (281) | ​ | (2)% |
| General and administrative | 26,066 | ​ | 26,699 | ​ | (633) | ​ | (2)% |
| Impairment loss on intangible assets and goodwill | ​ 2,021 | **​** | ​ — | ​ | ​ 2,021 | ​ | NM ​ |
| Total operating expenses | 125,897 | ​ | 92,223 | ​ | 33,674 | ​ | 37% |
| Operating loss | (38,528) | ​ | (28,656) | ​ | (9,872) | ​ | 34% |
| Other income (expense): |  | ​ |  | ​ |  | ​ | ​ |
| Interest expense | (2,188) | ​ | (2,427) | ​ | 239 | ​ | (10)% |
| Change in fair value of earnout liability | ​ — | ​ | ​ 11,179 | ​ | ​ (11,179) | ​ | NM ​ |
| Change in fair value of private warrant liability | ​ 345 | ​ | ​ 10,189 | ​ | ​ (9,844) | ​ | NM ​ |
| Investment income and realized gains, net of investment expenses | ​ 758 | ​ | ​ 197 | ​ | ​ 561 | ​ | 285% |
| Other income (expense), net | 762 | ​ | 56 | ​ | 706 | ​ | 1,261% |
| Total other income (expense) | (323) | ​ | 19,194 | ​ | (19,517) | ​ | NM ​ |
| Loss before income taxes | (38,851) | ​ | (9,462) | ​ | (29,389) | ​ | 311% |
| Income tax benefit | 111 | ​ | 177 | ​ | (66) | ​ | NM ​ |
| Net loss | $(38,740) | ​ | $(9,285) | ​ | $(29,455) | ​ | 317% |

#### NM = Not Meaningful

#### Revenue

#### Three months ended March 31, 2023 compared to three months ended March 31, 2022:

Total revenue increased by $23.8 million, or 37%, from $63.6 million in the three months ended March 31, 2022 to $87.4 million in the same period in 2023. Revenue in the Company’s Insurance segment grew by $29.6 million, driven by higher warranty sales and insurance renewals, and increases in per-policy premiums and lower reinsurance ceding.

This was partially offset by lower revenue in our Vertical Software segment due to a 26% reduction in year-over-year industry home sales.

#### Cost of Revenue

#### Three months ended March 31, 2023, compared to three months ended March 31, 2022:

Cost of revenue increased by $26.1 million, or 103%, from $25.2 million in the three months ended March 31, 2022 to $51.3 million in the same period in 2023. The increase in the cost of revenue was primarily attributable to increased claims costs due to the strategic reduction in reinsurance ceding and the 2022 acquisition of RWS warranty business, both in the Insurance Segment. As a percentage of revenue, cost of revenue represented 59% of revenue in the three months ended March 31, 2023 compared with 40% in the same period in 2022.

#### Selling and marketing

#### Three months ended March 31, 2023, compared to three months ended March 31, 2022:

Selling and marketing expenses increased by $6.5 million, or 25%, from $26.1 million in the three months ended March 31, 2022 to $32.6 million in the same period in 2023. The increase is due to higher costs in the Insurance segment’s variable selling and marketing costs, primarily policy acquisition and marketing expenses. As a percentage of revenue, selling and marketing expenses represented 37% of revenue in the three months ended March 31, 2023 compared with 41% in the same period in 2022.

#### Product and technology

#### Three months ended March 31, 2023, compared to three months ended March 31, 2022:

Product and technology expenses decreased by $0.3 million, or 2%, from $14.2 million in three months ended March 31, 2022 to $14.0 million in the same period in 2023. The decrease is mainly due to lower depreciation and amortization expense in the three months ended March 31, 2023. As a percentage of revenue, product and technology expenses represented 16% of revenue in the three months ended March 31, 2023 compared with 22% in the same period in 2022.

#### General and administrative

#### Three months ended March 31, 2023, compared to three months ended March 31, 2022:

General and administrative expenses decreased by $0.6 million, or 2%, from $26.7 million in three months ended March 31, 2022 to $26.1 million in the same period in 2023, primarily due to a gain on revaluation of contingent consideration during the three months ended March 31, 2023, as opposed to a loss in the same period in 2022, which contributed $3.4 million to the overall decrease. This was partially offset by higher professional fees and additional investment in corporate resources and systems.

As a percentage of revenue, general and administrative expenses represented 30% of revenue in the three months ended March 31, 2023 compared with 42% in the same period in 2022.

#### Impairment loss on intangible assets and goodwill

#### Three months ended March 31, 2023, compared to three months ended March 31, 2022:

In the three months ended March 31, 2023, the Company recorded impairment losses on intangible assets related to a $2.0 million intangible asset impairment at its Vertical Software segment. These impairment charges reflect recent continued inflationary pressures and a deterioration of the macroeconomic environment in the housing and real estate industry. There were no impairment losses on intangible assets and goodwill in the same period in 2022.

#### Interest expense, net

#### Three months ended March 31, 2023 compared to three months ended March 31, 2022:

Interest expense decreased by $0.2 million, or 10%, from $2.4 million in three months ended March 31, 2022 to $2.2 million in the same period in 2023. The decrease is mainly due to lower interest related to advance funding arrangement during the three months ended March 31, 2023.

#### Change in fair value of earnout liability

#### Three months ended March 31, 2023 compared to three months ended March 31, 2022:

Changes in fair value of earnout liability were less than $0.1 million (gain) and $11.2 million (gain) in the three months ended March 31, 2023 and 2022, respectively. The decrease in fair value was primarily due to the decline in the stock price at March 31, 2023 as compared to March 31, 2022.

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

#### Three months ended March 31, 2023 compared to three months ended March 31, 2022:

Changes in fair value of private warrant liability were $0.3 million (gain) and $10.2 million (gain) in the three months ended March 31, 2023 and 2022, respectively. The decrease in fair value was primarily due to the decline in the stock price at March 31, 2023 as compared to March 31, 2022.

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

#### Three months ended March 31, 2023 compared to three months ended March 31, 2022:

Investment income and realized gains, net of investment expenses was $0.8 million and $0.2 million in the three months ended March 31, 2023 and 2022, respectively. Total investments balance was $93.1 million at March 31, 2023 and $65.3 million at March 31, 2022 and this higher investment balance was the primary reason for the increased investment income.

#### Income tax benefit

#### Three months ended March 31, 2023 compared to three months ended March 31, 2022:

Income tax benefit of $0.1 million and $0.2 million was recognized for the three months ended March 31, 2023 and 2022, respectively. The difference between the Company’s effective tax rates for the 2022 and 2023 periods and the U.S. statutory rate of 21% was primarily due to a full valuation allowance related to the Company’s net deferred tax assets.

### Segment Results of Operations

The Company operates the business as two reportable segments that are also operating segments: Vertical Software and Insurance. For additional information about these segments, see Note 14 (Segment Information) 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, 2023 Vertical Software Segment ​ ​ | ​ ​ ​ | ​ ​ Insurance Segment ​ ​ | ​ ​ ​ | ​ ​ ​ Total ​ ​ |
| --- | --- | --- | --- | --- | --- | --- |
| Software and service subscriptions | ​ | $16,809 | ​ | $— | ​ | $16,809 |
| Move-related transactions (excluding insurance) | ​ | ​ 7,769 | ​ | ​ — | ​ | ​ 7,769 |
| Post-move transactions | ​ | ​ 4,049 | ​ | ​ — | ​ | ​ 4,049 |
| Insurance | ​ | ​ — | ​ | ​ 58,742 | ​ | ​ 58,742 |
| Total revenue | ​ | $28,627 | ​ | $58,742 | ​ | $87,369 |

| ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2022 Vertical Software Segment ​ ​ | ​ ​ ​ | ​ ​ Insurance Segment ​ ​ | ​ ​ ​ | ​ ​ ​ Total ​ ​ |
| --- | --- | --- | --- | --- | --- | --- |
| Software and service subscriptions | ​ | $17,681 | ​ | $— | ​ | $17,681 |
| Move-related transactions | ​ | ​ 12,193 | ​ | ​ — | ​ | ​ 12,193 |
| Post-move transactions | ​ | ​ 4,530 | ​ | ​ — | ​ | ​ 4,530 |
| Insurance | ​ | ​ — | ​ | ​ 29,163 | ​ | ​ 29,163 |
| Total revenue | ​ | $34,404 | ​ | $29,163 | ​ | $63,567 |

#### Three months ended March 31, 2023 compared to three months ended March 31, 2022:

For the three months ended March 31, 2023, Vertical Software segment revenue was $28.6 million or 33% of total revenue for the same period. For the three months ended March 31, 2022, Vertical Software segment revenue was $34.4 million or 54% of total revenue for the same period. The decrease in revenue in 2023 is primarily driven by a 26% reduction in year-over-year industry home sales.

Insurance segment revenue was $58.7 million or 67.2% of total revenue for the three months ended March 31, 2023. Insurance segment revenue was $29.2 million or 46.0% of total revenue for the three months ended March 31, 2022. The revenue increase of $29.6 million or 101% is mainly driven by higher warranty sales and insurance renewals, increases in per-policy premiums and lower reinsurance ceding.

### Segment Adjusted EBITDA (Loss)

Segment Adjusted EBITDA (loss) is defined as revenue less operating expenses associated with the 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 14 (Segment Information) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for reconciliations to GAAP consolidated financial information for the periods presented.

| ​ ​ ​ Segment adjusted EBITDA (loss): | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, ​ 2023 ​ ​ | ​ ​ ​ | ​ ​ ​ 2022 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Vertical Software | ​ | $(396) | ​ | $2,884 |
| Insurance | ​ | ​ (7,185) | ​ | ​ 216 |
| Corporate and Other(1) | ​ | ​ (14,301) | ​ | ​ (13,527) |
| Total segment adjusted EBITDA (loss)(2) | ​ | $(21,882) | ​ | $(10,427) |

(1) Includes costs that are not directly attributable to 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, average revenue per monetized service and revenue less cost of revenue.

The Company defines Adjusted EBITDA (loss) as net income (loss) adjusted for interest expense, net, income taxes, other expenses, net, depreciation and amortization, impairment loss on intangible assets and goodwill, non-cash losses and impairment of property, equipment and software, stock-based compensation expense and acquisition-related impacts, amortization of intangible assets, gains (losses) recognized on changes in the value of contingent consideration arrangements, 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, 2023 and 2022, respectively (dollar amounts in thousands):

| ​ ​ ​ | ​ | ​ ​ Three Months Ended March 31, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Revenue | ​ | $87,369 | ​ | $63,567 | ​ |
| Less: Cost of revenue | ​ | (51,275) | ​ | (25,216) | ​ |
| Revenue less cost of revenue | ​ | 36,094 | ​ | 38,351 | ​ |
| Less: Selling and marketing costs | ​ | ​ 32,585 | ​ | ​ 26,077 | ​ |
| Less: Product and technology costs | ​ | ​ 13,950 | ​ | ​ 14,231 | ​ |
| Less: General and administrative costs | ​ | ​ 26,066 | ​ | ​ 26,699 | ​ |
| Less: Impairment loss on intangible assets and goodwill | ​ | ​ 2,021 | ​ | ​ — | ​ |
| Total operating expenses | ​ | $125,897 | ​ | $92,223 | ​ |
| Operating loss | ​ | $(38,528) | ​ | $(28,656) | ​ |

#### Three months ended March 31, 2023 compared to three months ended March 31, 2022:

Revenue less cost of revenue decreased by $2.3 million, or 5.9% from $38.4 million in the three months ended March 31, 2022 to $36.1 million in the three months ended March 31, 2023. The decreased revenue less cost of revenue in 2023 is primarily driven by higher claims costs in our Insurance segment.

### Adjusted EBITDA (loss)

The following table reconciles net loss to Adjusted EBITDA (loss) for the three months ended March 31, 2023 and 2022 (dollar amounts in thousands):

| ​ ​ ​ | ​ | ​ ​ ​ Three Months Ended March 31, 2023 | ​ ​ ​ ​ 2022 ​ |
| --- | --- | ---: | ---: |
| Net loss | ​ | $(38,740) ​ | $(9,285) ​ |
| Interest expense | ​ | 2,188 ​ | 2,427 ​ |
| Income tax benefit | ​ | (111) ​ | (177) ​ |
| Depreciation and amortization | ​ | 6,015 ​ | 6,483 ​ |
| Other income, net | ​ | (762) ​ | (56) ​ |
| Impairment loss on intangible assets and goodwill | ​ | ​ 2,021 ​ | ​ — ​ |
| Non-cash losses and impairment of property, equipment and software | ​ | — ​ | 69 ​ |
| Non-cash stock-based compensation expense | ​ | 6,894 ​ | 5,854 ​ |
| Revaluation of contingent consideration | ​ | (154) ​ | 3,205 ​ |
| Revaluation of earnout liability | ​ | ​ — ​ | ​ (11,179) ​ |
| Revaluation of private warrant liability | ​ | ​ (345) ​ | ​ (10,189) ​ |
| Acquisition and other transaction costs | ​ | 1,112 ​ | 895 ​ |
| Non-cash bonus expense | ​ | ​ — ​ | ​ 1,526 ​ |
| Adjusted EBITDA (loss) | ​ | $(21,882) ​ | $(10,427) ​ |
| Adjusted EBITDA (loss) as a percentage of revenue | ​ | ​ (25)% | ​ (16)% |

Adjusted EBITDA (loss) for the three months ended March 31, 2023 was $21.9 million, a $11.5 million decline from Adjusted EBITDA of $10.4 million for the same period in 2022. During 2022, the Company acquired RWS for an aggregate purchase price of $38.8 million. The decline in Adjusted EBITDA (loss) in 2023 is primarily driven by lower ceding and higher losses at HOA within the Insurance segment and the macro housing environment affecting the Vertical Software segment, primarily the moving business. Continued investments in sales and marketing and investments in establishing and maintaining the requirements of the Sarbanes-Oxley Act (“SOX”) and other internal controls across IT and accounting organizations further impacted the decline in Adjusted EBITDA (loss).

### Liquidity and Capital Resources

Since inception, as a private company, the Company has financed its 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 (the “2026 Notes”), and raised $126.7 million and $4.3 million from exercise of public warrants and stock options, respectively. Also during 2022, the Company drew $10.0 million on HOA’s term loan facility.

In 2023 and 2022, the Company participated in an advance funding arrangement with third-party financers that provide the Company with contract premiums upfront for certain home warranty contracts. We remain obligated to repay these premiums to the third-party financer if a customer cancels its warranty contract prior to full repayment of the advance funding amount received by the Company. As of March 31, 2023 and December 31, 2022, the principal balance of this advance funding arrangement is $9.3 million and $15.7 million. See Note 7 (Debt) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.

As of March 31, 2023, the Company had cash and cash equivalents of $179.4 million and $14.8 million of restricted cash, respectively. Restricted cash equivalents as of March 31, 2023 includes $5.2 million held by the Company’s captive insurance company as collateral for the benefit of Homeowners of America (“HOA”), $1.3 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $6.0 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in seventeen states, and $2.4 million related to acquisition indemnifications.

The Company has incurred net losses since its inception, and has an accumulated deficit at March 31, 2023 and December 31, 2022 totaling $626.9 million and $585.0 million, respectively.

As of March 31, 2023 and December 31, 2022, the Company had $444.2 million and $451.1 million aggregate principal amount outstanding in convertible notes, promissory notes, line of credit, term loan facility and advance funding arrangement, respectively.

In April 2023, the Company issued $333 million aggregate principal amount of 6.75% Senior Secured Convertible Notes due in 2028 (the “2028 Notes”) in a private placement transaction. The Company used a portion of the net proceeds from the 2028 Notes offering to repurchase $200 million of the 2026 Notes and to fund the repayment of $9.7 million outstanding under HOA’s term loan facility, in each case plus accrued interest and unpaid interest thereon and related fees and expenses. Porch intends to use the remainder of the net proceeds for general corporate purposes. See Note 16 (Subsequent Events) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.

Based on the Company’s current operating and growth plan, management believes cash and cash equivalents at March 31, 2023, 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 the 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, 2023, these companies held cash and cash equivalents of $72.1 million and investments of $93.1 million.

Insurance companies in the United States are also required by state law to maintain a minimum level of policyholder’s surplus. Insurance regulators in the states in which we operate have a risk-based capital standard designed to identify property and casualty insurers, or reinsurers, that may be inadequately capitalized based on inherent risks of the insurer’s assets and liabilities and its mix of net written premium. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action. As of December 31, 2022, the total adjusted capital of our U.S. insurance subsidiary was in excess of its respective prescribed risk-based capital requirements.

The Company may, at any time and from time to time, seek to retire or purchase its outstanding debt or equity through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

The following table provides a summary of cash flow data for the three months ended March 31, 2023 and 2022:

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended March 31, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ $% Change | ​ ​ ​ Change ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Net cash used in operating activities | ​ | $(22,031) | ​ | $(15,401) | ​ | $(6,630) | (43)% |
| Net cash used in investing activities | ​ | (5,147) | ​ | (8,077) | ​ | 2,930 | 36% |
| Net cash (used in) provided by financing activities | ​ | (7,274) | ​ | 1,721 | ​ | (8,995) | (523)% |
| Change in cash, cash equivalents and restricted cash | ​ | $(34,452) | ​ | $(21,757) | ​ | $(12,695) | (58.3)% |

#### Operating Cash Flows

Net cash used in operating activities was $22.0 million for the three months ended March 31, 2023. Net cash used in operating activities consists of net loss of $38.7 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include impairment loss on intangible assets of $2.0 million, stock-based compensation expense of $6.9 million, depreciation and amortization of $6.0 million, non-cash interest expense of $1.5 million, fair value adjustments to contingent consideration of $0.2 million (gain), and fair value adjustments to private warrant liability of $0.3 million (gain). Net changes in working capital were a use of cash of $0.2 million, primarily due to decreases in deferred revenue and refundable deposits, and increases in prepaid expenses and other current assets and reinsurance balance due, offset by higher losses and loss adjustment expense reserves, other insurance liabilities and accounts receivable.

Net cash used in operating activities was $15.4 million for the three months ended March 31, 2022. Net cash used in operating activities consists of net loss of $9.3 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, loss on remeasurement of contingent consideration of $3.2 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 $2.7 million, primarily due to increases in prepaid expenses and current assets, offset by higher losses and loss adjustment expense reserves.

#### Investing Cash Flows

Net cash used in investing activities was $5.1 million for the three months ended March 31, 2023. Net cash used in investing activities is primarily related to acquisitions, net of cash acquired of $2.0 million, purchases of investments of $5.4 million, investments in developing internal-use software of $2.4 million, and purchases of property and equipment of $0.4 million. This was offset by the cash inflows related to maturities and sales of investments of $5.0 million.

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.

#### Financing Cash Flows

Net cash used in financing activities was $7.3 million for the three months ended March 31, 2023. Net cash provided by financing activities is primarily related to repurchases of stock of $5.6 million, repayments of advance funding of $1.3 million, debt repayments of $0.5 million and shares repurchased to pay income tax withholdings upon vesting of RSUs of $0.2 million.

Net cash provided by financing activities was $1.7 million for the three months ended March 31, 2022. Net cash provided by financing activities is primarily related to proceeds from advance funding of $5.1 million and proceeds from exercises of stock options of $0.5 million, partially offset by shares repurchased to pay income tax withholdings upon vesting of RSUs of $0.7 million, and repayments of advance funding and debt of $3.2 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 Securities and Exchange Commission (the “SEC”).

### Recent Accounting Pronouncements

See Note 1 (Description of Business and Summary of Significant Accounting Policies) in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for more information about recent accounting pronouncements, the timing of their adoption, and the assessment, to the extent one has been made, of their potential impact on the Company’s financial condition and results of operations.

## Market risk

As filed, 3,316 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 the Company’s financial instruments and financial position represents the potential loss arising from adverse changes in interest rates. As of March 31, 2023, and December 31, 2022, the Company has interest-bearing debt of $444.2 million and $451.1 million, respectively. The Company’s 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”) have a principal balance of $425 million as of March 31, 2023, 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, 2023 totaled $10.0 million and is variable-rate.

A 1% increase in interest rates in the Company’s variable rate indebtedness would result in a nominal change in annual interest expense.

As of March 31, 2023, the Company’s insurance subsidiary has a $93.1 million portfolio of fixed income securities and an unrealized loss of $5.3 million, as described in Note 3 in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report. In a rising interest rate environment, the portfolio would result in unrealized losses.

As of March 31, 2023, accounts receivable and reinsurance balances due were $23.6 million and $292.8 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

The Company believes its operations have been negatively affected by inflation, in addition to the change in the interest rate environment. General economic factors beyond its control, and changes in the global economic environment, specifically fluctuations in inflation, including the access to credit under terms favorable to the Company, could result in lower revenues, higher costs and decreased margins and earnings in the foreseeable future. While the Company and its management teams take action, wherever possible, to reduce the impact of the effects of inflation, in the case of sustained inflation across several of the markets in which Porch operates, it could become increasingly difficult to effectively mitigate the increases to costs. In addition, the effects of inflation on consumers’ budgets could result in the reduction of consumer spending habits, specifically in the move and post-move markets. If unable to take actions to effectively mitigate the effect of the resulting higher costs, the Company’s profitability and financial position could be materially and adversely impacted.

#### Foreign Currency Risk

There was no material foreign currency risk for the three months ended March 31, 2023. The Company’s activities to date have been conducted primarily in the United States.

#### Other Risks

We are exposed to a variety of market and other risks, including risks to the availability of funding sources, reinsurance providers, weather and other catastrophic hazard events, and specific asset risks.

## Controls and procedures

As filed, 3,838 characters.

#### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of 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, 2023, which is the end of the period covered by this Quarterly Report. Based on this evaluation, the 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 SEC’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, 2023 due to the material weakness 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, 2022 filed with the SEC on March 16, 2023.

#### Remediation Plan

Our planned remediation efforts related to the above identified material weakness include:

- Reassess the existing IT general controls to determine if they are appropriately designed to meet the control objectives;
- Perform ongoing trainings with control performers to improve documentation that supports effective control activities, including IT general controls over logical user access;
- Design and implement additional monitoring controls necessary to detect misstatements over data produced by relevant financial systems at HOA;
- Determine if additional investments are needed to upgrade or replace existing systems which do not have the appropriate infrastructure to meet the requirements of our internal control framework; and
- Expand the available resources at the Company with experience in designing and implementing control activities, including information technology general controls and automated controls.

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. The Company plans to continue to assess internal controls and procedures and intends to take further action as necessary or appropriate to address any other matters as they are identified.

#### 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 internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

During 2023, the Company continued to take action on initiatives to improve the internal control environment. We have been working to identify and implement specific remediation plans for these control deficiencies, and have 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, 4,109 characters.

Except as set forth below, as of the date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors disclosed in Part 1, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 16, 2023.

*The indenture governing our 2028 Notes contains, and instruments governing any future indebtedness of ours would likely contain, restrictions that may limit our flexibility in operating our business, and any default on our 2028 Notes or other future secured indebtedness could result in foreclosure by our secured debtholders on our assets.*

The indenture and security agreement and related documents governing our 2028 Notes contain, and instruments governing any future indebtedness of ours would likely contain, a number of covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

- create liens on certain assets;
- incur or guarantee additional debt or issue redeemable equity;
- pay dividends on, repurchase or make distributions on account of capital stock or make other restricted payments (including limiting repurchases of our 2026 Notes to $25 million per year and $50 million in the aggregate);
- make certain unpermitted investments;
- consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and
- sell, transfer or otherwise convey certain assets.

The indenture governing our 2028 Notes also requires us to maintain a minimum amount of unrestricted cash and cash equivalents of at least $25 million (tested monthly on the last day of each calendar month) on a consolidated basis among Porch Group, Inc. and certain of its domestic subsidiaries.

In addition, if more than $30 million aggregate principal amount of our 2026 Notes remain outstanding on June 14, 2026, the holders of the 2028 Notes have the right to require us to repurchase for cash on June 15, 2026 all or any portion of their 2028 Notes at a repurchase price equal to 106.5% of the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest. As of April 30, 2023, there was $225 million aggregate principal amount of 2026 Notes outstanding. If we are unable to repurchase or otherwise refinance a sufficient amount of the remaining outstanding 2026 Notes prior to June 14, 2026 and the holders of all or a substantial portion of the outstanding 2028 Notes require us to repurchase their 2028 Notes pursuant to this indenture provision, our liquidity will be materially adversely affected, and there are no assurances that we would have sufficient funds available to satisfy the repurchase of all such 2028 Notes.

As a result of these restrictions, we will be limited as to how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to capitalize on available business opportunities. Any failure to comply with these covenants could result in a default under our 2028 Notes or instruments governing any future indebtedness of ours. Additionally, our 2028 Notes are secured by a first-priority lien in substantially all assets of Porch Group, Inc. and certain of its domestic subsidiaries. Upon a default, unless waived, amounts due under the 2028 Notes could be accelerated, and the holders of our 2028 Notes could initiate foreclosure proceedings against their collateral, which could potentially force us into bankruptcy or liquidation. In addition, a default under our 2028 Notes indenture could trigger a cross-default under agreements governing any future indebtedness as well as the indenture governing our 2026 Notes. Our results of operations may not be sufficient to service our indebtedness and to fund our other expenditures, and we may not be able to obtain financing to meet these requirements. If we experience a default under our 2028 Notes indenture, 2026 Notes indenture or instruments governing our future indebtedness, our business, financial condition, and results of operations may be materially adversely effected.

Filed May 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-009179. Last ingested by Listed: Nov 11, 2026, 03:48 ET. No prices; not investment advice.