# Porch Group, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Porch Group, Inc.](/companies/prch.md) (CIK 1784535)
- Form: 10-Q
- Filed: 2024-05-08
- Accepted by EDGAR: May 8, 2024, 17:11 ET
- Period: 2024-03-31
- Accession: 0001784535-24-000063
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1784535/000178453524000063/prch-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1784535/000178453524000063/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $75.8m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$34.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $10.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $178.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$13.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.14 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.14 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 97,512,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $8.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $41.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $279.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $480.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $881.1m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $444.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $925.0m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $432.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $150.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | −$43.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,161 characters.

This quarterly report on Form 10-Q (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 we believe that our plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we 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 our 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 “believe,” “estimate,” “expect,” “project,” “forecast,” “may,” “will,” “should,” “seek,” “plan,” “scheduled,” “anticipate,” “intend,” 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 herein. 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 our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

- expansion plans and opportunities, and managing growth, to build a consumer brand;
- the incidence, frequency, and severity of weather events, extensive wildfires, and other catastrophes;
- economic conditions, especially those affecting the housing, insurance, and financial markets;
- expectations regarding revenue, cost of revenue, operating expenses, and the ability to achieve and maintain future profitability;
- existing and developing federal and state laws and regulations, including with respect to insurance, warranty, privacy, information security, data protection, and taxation, and management’s interpretation of and compliance with such laws and regulations;
- our reinsurance program, which includes the use of a captive reinsurer, the success of which is dependent on a number of factors outside management’s control, along with reliance on reinsurance to protect against loss;
- the uncertainty and significance of the known and unknown effects on our insurance carrier subsidiary, Homeowners of America Insurance Company (“HOA”), and us due to the termination of a reinsurance contract following of fraud committed by Vesttoo Ltd. (“Vesttoo”), including, but not limited to, the outcome of Vesttoo’s Chapter 11 bankruptcy proceedings; our ability to successfully pursue claims arising out of the fraud, the costs associated with pursuing the claims, and the timeframe associated with any recoveries; HOA's ability to obtain and maintain adequate reinsurance coverage against excess losses; HOA’s ability to stay out of regulatory supervision and maintain its financial stability rating;
- 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;
- reliance on strategic, proprietary relationships to provide us with access to personal data and product information, and the ability to use such data and information to increase transaction volume and attract and retain customers;
- the ability to develop new, or enhance existing, products, services, and features and bring them to market in a timely manner;
- changes in capital requirements, and the ability to access capital when needed to provide statutory surplus;
- our ability to timely repay our outstanding indebtedness;
- 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;
- retaining and attracting skilled and experienced employees;
- costs related to being a public company; and
- other risks and uncertainties discussed in Part II, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2023, as well as those discussed elsewhere in this report and in subsequent reports filed with the Securities and Exchange Commission (“SEC”), all of which are available on the SEC’s website at www.sec.gov.

We caution you that the foregoing list may not contain all the risks to forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described above and elsewhere in this Quarter Report on Form 10-Q. We disclaim any obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.

### Business Overview

Porch Group, Inc., together with its consolidated subsidiaries, (“Porch Group,” “Porch,” the “Company,” “we,” “our,” “us”) is a leading homeowners insurance and vertical software platform and is positioned to be the best partner to help homebuyers move, maintain, and fully protect their homes. We offer differentiated products and services, with homeowners insurance at the center of this relationship.

We differentiate and look to win in the massive and growing homeowners insurance opportunity by 1) providing the best services for homebuyers, 2) led by advantaged underwriting in insurance, 3) to protect the whole home.

As a leader in the home services software-as-a-service (“SaaS”) space, we’ve built deep relationships with approximately 30 thousand companies that are key to the home-buying transaction, such as home inspectors, mortgage companies, and title companies.

We have grown the utilization our software products across these industries. These relationships provide us with early insights to a majority of United States (“U.S.”) homebuyers. In partnership with these companies, we have the ability to help simplify the move for consumers with services such as insurance, warranty, moving and more.

Through our vertical software products we have unique insights into the majority of U.S. properties. This data helps feed our insurance underwriting models, better understand risk, and create competitive differentiation in underwriting.

We provide full protection for the home by including a variety of home warranty products alongside homeowners insurance. We are able to fill the gaps of protection for consumers, minimize surprises, and deepen our relationships and value proposition.

We have two reportable segments that are also our operating segments: Vertical Software and Insurance.

**Vertical Software —** Our Vertical Software segment provides software and services to inspection, mortgage, and title companies on a subscription and transactional basis, which was 62% of total vertical software revenue, and move and post-move services, which was 38% of total vertical software revenue for the three months ended March 31, 2024. The Vertical Software segment operates as several key businesses, including inspection software and services, title insurance software, mortgage software, moving services, mover and homeowner marketing, and measurement software for roofers.

**Insurance —** Our Insurance segment provides consumers with insurance and warranty products to protect their homes, earning revenue through premiums collected on policies, policy fees and commissions. The Insurance segment includes Homeowners of America (“HOA”), a wholly owned insurance carrier, Porticus Reinsurance (“Porticus RE”), our Cayman Islands captive reinsurer, and Porch Warranty, among other warranty brands.

The financial information herein should be read in conjunction with the consolidated financial statements for the year ended December 31, 2023, contained in our Annual Report on Form 10-K for the year ended December 31, 2023, and the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report.

### Key Performance Measures and Operating Metrics

In the management of these businesses, we identify, measure and evaluate various operating metrics. The key performance measures and operating metrics used in managing the businesses are discussed 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 following table summarizes operating metrics for each of the quarterly periods indicated.

|  | Three Months Ended March 31, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| Gross Written Premium (in millions) | $83 | $115 | (28)% |
| Policies in Force (in thousands) | 256 | 376 | (32)% |
| Annualized Revenue per Policy (unrounded) | $1,375 | $612 | 125% |
| Annualized Premium per Policy (unrounded) | $1,948 | $1,468 | 33% |
| Premium Retention Rate | 90% | 107% |  |
| Gross Loss Ratio | 71% | 79% |  |
| Average Companies in Quarter (unrounded) | 29,733 | 30,618 | (3)% |
| Average Monthly Revenue per Account in Quarter (unrounded) | $1,294 | $951 | 36% |
| Monetized Services (unrounded) | 240,557 | 214,097 | 12% |
| Average Quarterly Revenue per Monetized Service (unrounded) | $422 | $328 | 29% |

**Gross Written Premium —** We define Gross Written Premium as the total premium written by our licensed insurance carrier(s) (before deductions for reinsurance); premiums from our home warranty offerings (for the face value of one year’s premium); and premiums of policies placed with third-party insurance companies for which we earn a commission.

**Policies in Force —** We define Policies in Force as the number of in-force policies at the end of the period for the Insurance segment, including policies and warranties written by us and policies and warranties written by third parties for which we earn a commission.

**Annualized Revenue per Policy —** We define Annualized Revenue per Policy as quarterly revenue for the Insurance segment, divided by the number of Policies in Force in the Insurance segment, multiplied by four.

**Annualized Premium per Policy —** We define Annualized Premium per Policy as the total direct earned premium for HOA, our insurance carrier, divided by the number of active insurance policies at the end of the period, multiplied by four.

**Premium Retention Rate —** We define Premium Retention Rate as the ratio of our insurance carrier’s renewed premiums over the last four quarters to base premiums, which is the sum of the preceding year’s premiums that either renewed or expired.

**Gross Loss Ratio —** We define Gross Loss Ratio as our insurance carrier’s gross losses divided by the gross earned premium for the respective period on an accident year basis.

**Average Companies in Quarter —** We define Average Companies in 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 our 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 Porch.

**Average Monthly Revenue per Account in Quarter —** We view our ability to increase revenue generated from existing customers as a key component of our growth strategy. Average Monthly Revenue per Account in Quarter is defined as the average revenue per month generated across all home services company customer accounts in a quarterly period. Average Monthly Revenue per Account in Quarter is derived from all customers and total revenue.

**Monetized Services —** We connect consumers with home services companies nationwide and offer 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. We track the number of monetized services performed through our platform each quarter and the revenue generated per service performed in order to measure market penetration with homebuyers and homeowners and our ability to deliver high-revenue services within those groups. Monetized Services is defined as the total number of services from which we generated revenue, including, but not limited to, new and renewing insurance and warranty customers, completed moving jobs, security installations, TV/Internet installations or other home projects, measured over the period.

**Average Quarterly Revenue per Monetized Service —** We believe that shifting the mix of services delivered to homebuyers and homeowners toward higher revenue services is an important component of our growth strategy. Average Quarterly Revenue per Monetized Service is the average revenue generated per monetized service performed in a quarterly period. When calculating Average Quarterly Revenue per Monetized Service, average revenue is defined as total quarterly service transaction revenues generated from monetized services.

### Recent Developments

#### Recoveries of Losses on Terminated Reinsurance Contract

During the second quarter of 2023, HOA discovered that Vesttoo Ltd (“Vesttoo”), which arranged capital for one of our reinsurance contracts, faced allegations of fraudulent activity in connection with collateral it provided to HOA and certain other third parties, which allegations have since been confirmed. We have communicated and met with regulators and other key stakeholders regarding the evolving situation. This reinsurance agreement provided partial quota share coverage as well as up to approximately $175 million in a catastrophic event.

As a result of its findings, and in accordance with the terms of the reinsurance agreement, HOA terminated the associated contract on August 4, 2023, with an effective date of July 1, 2023. Had the contract not been terminated, the contract would have expired on December 31, 2023, and HOA would have been contracted to pay approximately $20 million in additional premium payments during July through December 2023. Following the effective date of the termination, HOA seized available liquid collateral in the amount of approximately $47.6 million from a reinsurance trust, of which HOA was the beneficiary and recognized a charge of $36.0 million in provision for doubtful accounts in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2023. In addition, HOA is evaluating and intends to pursue all available legal claims and remedies to enforce its rights under the letter of credit required by the reinsurance agreement in the amount of $300 million as additional collateral. We are also seeking recovery of all losses and damages incurred as a result of terminating the reinsurance agreement due to allegations of fraudulent activity by third parties.

On January 19, 2024, we entered into a five-year business collaboration agreement with Aon Corp. and Aon Re, Inc. ("Aon"), resulting in payments to us of approximately $25 million in January 2024 and additional cash payments through the end of the contract term. Of the cash payments that we have or will receive through the end of the contract term, $8.7 million is non-refundable and immediately recognized in other income, net in the Condensed Consolidated Statements of Operations and Comprehensive Loss. A portion of the remaining amount is potentially refundable to Aon if we breach the agreement, including if we directly or indirectly place reinsurance with brokers unaffiliated with Aon, subject to customary cure rights. The remaining amount will be recognized in other income, net, over the term of the agreement. As part of this agreement, Aon and Porch also signed a mutual release of claims arising from the Vesttoo fraud. Porch has not released any claims against non-Aon parties related to these matters and intends to vigorously pursue recovery. In addition to this arrangement, we have also received cash recoveries from other parties in the amount of $3.0 million during the three months ended March 31, 2024.

There can be no guarantee or assurance that HOA will be successful in obtaining sufficient supplemental coverage. Regardless of whether additional supplemental coverage is obtained, HOA will continue to remain responsible and committed with respect to all claims and claim settlement expenses under its policies, including claims incurred but not yet reported for prior periods and claims and expenses that are no longer subject to the reimbursement rights in favor of HOA under the terminated reinsurance contract.

#### Debt Repurchase

In February 2024, we repurchased $8.0 million aggregate principal amount of our 2026 Notes. We paid $3.0 million, or 37.5% of par value, plus accrued interest. We recognized a $4.9 million gain on extinguishment of debt, calculated as the difference between the reacquisition price and the net carrying amount of the portion of the 2026 Notes that was extinguished.

#### Sales of Business

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

#### Reciprocal Exchange

In 2023, we 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, our insurance underwriting business 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. Porch subsidiaries would act as general agents for the Reciprocal and HOA and would 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 us. If the application is approved, we intend to launch Porch Insurance, a new brand and product to be offered by the Reciprocal, including unique benefits for consumers such as a free 90-day warranty and proprietary discounts to customers within the Porch ecosystem.

### Results of Operations

#### Key Factors Affecting Operating Results

We have been implementing our strategy as a vertical software platform for the home by providing software and services to approximately 30 thousand pre-and-post move home service providers including inspectors, real estate, title, and mortgage companies. Our Insurance segment continues to grow in scale through both premium growth and geographic expansion. The following key factors affected our operating results in the three months ended March 31, 2024:

- We continued our insurance profitability actions by not renewing certain higher risk policies, increasing premiums per policy by 33%, and lower reinsurance ceding. These initiatives have allowed us to achieve a gross combined loss ratio of 97% and a current accident year gross loss ratio of 71%.
- We continued our cost savings initiatives by hiring highly qualified individuals to replace external contracting services.
- We had cash recoveries on terminated reinsurance contracts of approximately $28 million.
- We repurchased $8.0 million of our 2026 Convertible Notes for $3.0 million, or 37.5% of par value.
- The U.S. housing market continues to see impacts from higher interest rates, existing home inventory tightening, and affordability challenges that are impacting the Vertical Software segment. Existing home sales have declined by 3.5% for the three months ended March 31, 2024, compared to the same periods in prior year.
- ISN, Porch’s largest inspection brand, implemented price increases, following more than 20 feature enhancements.
- We are now approved in 13 states to use our unique data to improve risk accuracy in pricing policies for our customers. This means we can charge a lower price for policies which are low-risk and more accurately price higher risk policies.

#### Three Months Ended March 31, 2024, compared to the Three Months Ended March 31, 2023

#### Consolidated Results

*(dollar amounts in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $115,443 | $87,369 | $28,074 | 32% |
| Operating expenses: |  |  |  |  |
| Cost of revenue | 75,844 | 51,275 | 24,569 | 48% |
| Selling and marketing | 33,948 | 32,585 | 1,363 | 4% |
| Product and technology | 13,920 | 13,950 | (30) | —% |
| General and administrative | 26,399 | 26,066 | 333 | 1% |
| Impairment loss on intangible assets and goodwill | — | 2,021 | (2,021) | (100)% |
| Total operating expenses | 150,111 | 125,897 | 24,214 | 19% |
| Operating loss | (34,668) | (38,528) | 3,860 | (10)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (10,787) | (2,188) | (8,599) | 393% |
| Change in fair value of private warrant liability | (425) | 345 | (770) | (223)% |
| Change in fair value of derivatives | 1,483 | — | 1,483 | N/A |
| Gain on extinguishment of debt | 4,891 | — | 4,891 | N/A |
| Investment income and realized gains, net of investment expenses | 3,644 | 758 | 2,886 | 381% |
| Other income, net | 22,678 | 762 | 21,916 | 2,876% |
| Total other income (expense) | 21,484 | (323) | 21,807 | (6,751)% |
| Loss before income taxes | (13,184) | (38,851) | 25,667 | (66)% |
| Income tax benefit (provision) | (178) | 111 | (289) | (260)% |
| Net loss | $(13,362) | $(38,740) | $25,378 | (66)% |

*Revenue.* Total revenue increased by $28.1 million, or 32%, from $87.4 million in the three months ended March 31, 2023, to $115.4 million in the three months ended March 31, 2024, driven by revenue in our Insurance segment as a result of lower reinsurance ceding and an increase in average premium per policy. This increase was partially offset by a 4%, or $1.1 million, decrease in revenue in our Vertical Software segment due to a 3.5% reduction in year-over-year industry home sales which adversely affected our moving business in particular.

*Cost of revenue.* Cost of revenue increased by $24.6 million, or 48%, from $51.3 million in the three months ended March 31, 2023, to $75.8 million in the three months ended March 31, 2024. The increase was primarily the result of the reduction in reinsurance ceding in the Insurance Segment. As a percentage of revenue, cost of revenue represented 66% of revenue in the three months ended March 31, 2024, compared with 59% in the three months ended March 31, 2023.

*Impairment loss on intangible assets and goodwill.* In the three months ended March 31, 2023, we recorded impairment losses on intangible assets totaling $2.0 million in our Vertical Software segment. These impairment charges reflected 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 three months ended March 31, 2024.

*Interest expense.* Interest expense increased by $8.6 million, or 393%, from $2.2 million in the three months ended March 31, 2023, to $10.8 million in the three months ended March 31, 2024. The increase is mainly due to interest at a higher weighted average rate on a higher aggregate debt balance after issuance of the 2028 Notes in April 2023. The non-cash amortization of debt discount and issuance costs also contributed to the increase.

*Change in fair value of private warrant liability.* The fair value of the private warrant liability increased in the three months ended March 31, 2024, compared to a decrease in the three months ended March 31, 2023. The increase in our common stock price drove the change for the three months ended March 31, 2024, compared with a decrease in stock price for the three months ended March 31, 2023.

*Change in fair value of derivatives.* In connection with the issuance of the 2028 Notes in April 2023 and in accordance with GAAP, certain features of the notes were bifurcated and accounted for separately from the notes. These features are recorded as derivatives, and changes in their fair value are recognized in net loss each period. There were no corresponding derivatives in prior year.

*Gain on extinguishment of debt.* In connection with the partial repurchase of the 2026 Notes, we recognized an $4.9 million gain on extinguishment of debt. See Note 7 in the notes to the unaudited condensed consolidated financial statements.

*Investment income and realized gains, net of investment expenses.* Investment income and realized gains, net of investment expenses, were $3.6 million and $0.8 million in the three months ended March 31, 2024 and 2023, respectively. Total investments balance was $134.1 million at March 31, 2024, and $93.1 million at March 31, 2023. A higher investment balance was the primary reason for the increased investment income.

*Other income, net.* Other income, net, increased by $21.9 million from $0.8 million in the three months ended March 31, 2023, to $22.7 million in the three months ended March 31, 2024. The increase is due to recoveries of losses on reinsurance contract of $12.6 million and gain on settlement of contingent consideration of $14.9 million. These are offset by loss on the sale of EIG business of $5.2 million. See Note 12 in the notes to the unaudited condensed consolidated financial statements for detail of other income, net, for each period presented.

#### Segment Results

SEGMENT REVENUE

The following table summarizes revenue by segment for the three months ended March 31, 2024 and 2023.

| Vertical Software segment | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Software and service subscriptions | $16,936 | $16,809 | $127 | 1% |
| Move-related transactions | 6,474 | 7,769 | (1,295) | (17)% |
| Post-move transactions | 4,085 | 4,049 | 36 | 1% |
| Total Vertical Software segment revenue | 27,495 | 28,627 | (1,132) | (4)% |
| Insurance segment |  |  |  |  |
| Insurance and warranty premiums, commissions and policy fees | 87,948 | 58,742 | 29,206 | 50% |
| Total Insurance segment revenue | 87,948 | 58,742 | 29,206 | 50% |
| Total revenue | $115,443 | $87,369 | $28,074 | 32% |

For the three months ended March 31, 2024, Vertical Software segment revenue was $27.5 million or 24% of total revenue. For the three months ended March 31, 2023, Vertical Software segment revenue was $28.6 million or 33% of total revenue. The decrease in Vertical Software segment revenue was primarily driven by a 3.5% reduction in year-over-year industry home sales which adversely affected our moving business.

Insurance segment revenue was $87.9 million or 76% of total revenue for the three months ended March 31, 2024. Insurance segment revenue was $58.7 million or 67% of total revenue for the three months ended March 31, 2023. The increase is mainly driven by lower reinsurance ceding and a 33% increase in Annualized Premium per Policy.

SEGMENT ADJUSTED EBITDA (LOSS)

Segment Adjusted EBITDA (Loss) is defined as revenue less the following expenses associated with each segment: cost of revenue, selling and marketing, product and technology, and general and administrative expenses. Segment Adjusted EBITDA (Loss) also excludes non-cash items or items that management does not consider reflective of ongoing core operations. See *Note 16, 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.

The following table summarizes Segment Adjusted EBITDA (Loss) for the three months ended March 31, 2024 and 2023.

| Segment Adjusted EBITDA (Loss): | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Vertical Software | $1,123 | $(396) | $1,519 | (384)% |
| Insurance | (2,885) | (7,185) | 4,300 | (60)% |
| Subtotal | (1,762) | (7,581) | 5,819 | (77)% |
| Corporate and other | (15,026) | (14,301) | (725) | 5% |
| Adjusted EBITDA (Loss) | $(16,788) | $(21,882) | $5,094 | (23)% |

Our Insurance segment had a Segment Adjusted EBITDA (Loss) of $2.9 million in the first quarter of 2024, representing 17% of Adjusted EBITDA (Loss) for the same period. The improvement over the same period last year was a result of our insurance profitability actions, including premium per policy increases of 33%, increasing deductibles, introducing certain coverage exclusions for select risks, and a reduction in ceded reinsurance. See Note 10 in the notes to the unaudited condensed consolidated financial statements for tabular presentation of premiums and net losses.

Vertical Software Segment Adjusted EBITDA (Loss) was $1.1 million in the first quarter of 2024, which declined compared to prior year due to the soft housing market, declines in the moving and corporate relocation industries, and inflationary pressures in fixed costs.

Corporate expenses were $15.0 million in the first quarter of 2024, a $0.7 million increase from the same period in the prior year due changing bonus payouts from equity grants to cash. Stock-based compensation expense is an adjustment to net loss to derive Adjusted EBITDA (Loss) whereas accrual for cash bonus is not an adjustment.

### Non-GAAP Financial Measures

This Quarterly Report includes non-GAAP financial measures, such as Adjusted EBITDA (Loss) and Adjusted EBITDA (Loss) as a percent of revenue.

We define Adjusted EBITDA (Loss) as net income (loss) adjusted for interest expense; income taxes; depreciation and amortization; gain or loss on extinguishment of debt; other expense (income), net; impairments of intangible assets and goodwill; impairments of property, equipment, and software; stock-based compensation expense; mark-to-market gains or losses recognized on changes in the value of contingent consideration arrangements, earnouts, warrants, and derivatives; restructuring costs; acquisition and other transaction costs; and non-cash bonus expense. Adjusted EBITDA (Loss) as a percent of revenue is defined as Adjusted EBITDA (Loss) divided by total revenue.

Our management uses these non-GAAP financial measures as supplemental measures of our 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. We believe that the use of these non-GAAP financial measures provides investors with useful information to evaluate our operating and financial performance and trends and in comparing our financial results with competitors, other similar companies and companies across different industries, many of which present similar non-GAAP financial measures to investors. However, our definitions and methodology in calculating these non-GAAP measures may not be comparable to those used by other companies. In addition, we 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 our consolidated financial statements. We 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.

The following table reconciles Net loss to Adjusted EBITDA (Loss) for the three months ended March 31, 2024 and 2023 (dollar amounts in thousands).

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net loss | $(13,362) | $(38,740) |
| Interest expense | 10,787 | 2,188 |
| Income tax provision (benefit) | 178 | (111) |
| Depreciation and amortization | 6,317 | 6,015 |
| Mark-to-market gains | (7) | (499) |
| Gain on extinguishment of debt | (4,891) | — |
| Impairment loss on intangible assets and goodwill | — | 2,021 |
| Stock-based compensation expense | 5,368 | 6,894 |
| Other income, net (1) | (21,502) | (762) |
| Restructuring costs (2) | 157 | 984 |
| Acquisition and other transaction costs | 167 | 128 |
| Adjusted EBITDA (Loss) | $(16,788) | $(21,882) |
| Adjusted EBITDA (Loss) as a percentage of revenue | (15)% | (25)% |

(1) Difference from Other Income, net in Condensed Consolidated Statements of Operations and Comprehensive Loss is primarily due to a portion of the income resulting from the Aon business collaboration agreement, disclosed in Note 10, that is not a non-GAAP adjustment.

(2) Primarily consists of costs related to forming a reciprocal exchange.

Adjusted EBITDA (Loss) for the three months ended March 31, 2024, was $(16.8) million, a $5.1 million improvement from Adjusted EBITDA (Loss) of $(21.9) million for the same period in 2023. The improvement in Adjusted EBITDA (Loss) in 2024 is primarily driven by underwriting enhancements at our insurance business, including price increases implemented over the last year, as well as cost reductions across the business. The improvement was partially offset by the effects of extreme weather events, lower ceding, and the macro housing environment affecting primarily the moving business in our Vertical Software segment. Continued investments in sales and marketing and investments in IT systems further impacted Adjusted EBITDA (Loss).

### Liquidity and Capital Resources

As of March 31, 2024, we had cash and cash equivalents of $279.1 million and restricted cash of $36.8 million. Restricted cash equivalents as of March 31, 2024 includes $27.7 million held by our captive reinsurance business as collateral for the benefit of Homeowners of America Insurance Company (“HOA”), $1.4 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of our Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $6.8 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in 21 states, and $1.0 million related to acquisition indemnifications.

We have incurred net losses since our inception and have an accumulated deficit at March 31, 2024, and December 31, 2023, totaling $735.4 million and $722.1 million, respectively.

As of March 31, 2024, and December 31, 2023, we had $550.5 million and $558.7 million, respectively, of aggregate principal amount outstanding in convertible notes, promissory notes, line of credit, term loan facility, and advance funding arrangement. In February 2024, we repurchased $8.0 million aggregate principal amount of our 2026 Notes. We paid $3.0 million, or 37.5% of par value, plus accrued interest. We recognized a $4.9 million gain on extinguishment of debt, calculated as the difference between the reacquisition price and the net carrying amount of the portion of the 2026 Notes that was extinguished.

Based on our current operating and growth plan, management believes cash and cash equivalents at March 31, 2024, are sufficient to finance our operations, planned capital expenditures, working capital requirements, and debt service obligations for at least the next 12 months. As our operations evolve and we continue our growth strategy, including through acquisitions, we may elect or need to obtain alternative sources of capital, and we may finance additional liquidity needs in the future through one or more equity or debt financings. We 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 us or could be dilutive to our stockholders.

Porch Group, Inc. is a holding company that transacts the majority of its business through operating subsidiaries, including insurance subsidiaries. Consequently, our ability to pay dividends and expenses is largely dependent on dividends or other distributions from our subsidiaries. Our 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, 2024, our insurance carrier, HOA, held cash and cash equivalents of $204.4 million and investments of $96.6 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. See Note 10 in the notes to the unaudited condensed consolidated financial statements for a description of our reinsurance programs.

We may, at any time and from time to time, seek to retire or purchase our 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, 2024 and 2023:

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net cash provided by (used in) operating activities | $8,465 | $(22,031) | $30,496 | (138)% |
| Net cash provided by (used in) investing activities | 12,697 | (5,147) | 17,844 | (347)% |
| Net cash used in financing activities | (2,501) | (7,274) | 4,773 | (66)% |
| Change in cash, cash equivalents and restricted cash | $18,661 | $(34,452) | $53,113 | (154)% |

#### Operating Cash Flows

Net cash provided by (used in) operating activities was $8.5 million for the three months ended March 31, 2024. Net cash provided by (used in) operating activities consists primarily of positive cash flow from the non-recurring cash receipt of $25 million related to the Aon agreement (see Note 10 in the notes to the unaudited condensed consolidated financial statements) partially offset by net loss of $13.4 million during the three months ended March 31, 2024.

Net cash provided by (used in) operating activities was $(22.0) million for the three months ended March 31, 2023. Net cash provided by (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 stock-based compensation expense of $6.9 million, depreciation and amortization of $6.0 million, non-cash interest expense of $1.5 million, loss (gain) on remeasurement of contingent consideration of $(0.2) million, and loss (gain) on remeasurement of private warrant liability of $(0.3) million. Net changes in working capital were net proceeds of cash of $0.2 million, primarily due to increases in deferred revenue, losses and loss adjustment expense reserves and other insurance liabilities, offset by higher reinsurance balance due.

#### Investing Cash Flows

Net cash provided by (used in) investing activities was $12.7 million for the three months ended March 31, 2024. Net cash provided by (used in) investing activities is primarily related to proceeds from sale of EIG of $10.3 million and maturities and sales of investments of $4.7 million offset by investments in developing internal-use software of $2.3 million.

Net cash provided by (used in) investing activities was $(5.1) million for the three months ended March 31, 2023. Net cash provided by (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..

#### Financing Cash Flows

Net cash used in financing activities was $2.5 million for the three months ended March 31, 2024. Net cash used in financing activities is primarily related to the repurchase of the 2026 Notes of $3.0 million.

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 proceeds from a term loan and line of credit, partially offset by repayments of advance funding and debt.

### Critical Accounting Estimates

Our critical accounting policies, including the assumptions and judgements underlying them, are disclosed in the 2023 Annual Report, including those policies as discussed in Note 1 to the Notes to Consolidated Financial Statements include in the 2023 Annual Report. There have been no material changes to these policies during the three months ended March 31, 2024. .

### Off-Balance Sheet Arrangements

Since the date of incorporation, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission (the “SEC”).

## Market risk

As filed, 3,755 characters.

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

### Interest Rate Risk

The market risk inherent in our financial instruments and financial position represents the potential loss arising from adverse changes in interest rates. As of March 31, 2024, and December 31, 2023, we have interest-bearing debt of $550.5 million and $558.7 million, respectively. Our 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”) have a principal balance of $217 million as of March 31, 2024, a fixed coupon rate of 0.75%, and an effective interest rate of 1.3%. Our 6.75% Senior Secured Convertible Notes due 2028 (the “2028 Notes”) have a principal balance of $333.3 million as of March 31, 2024, a fixed coupon rate of 6.75%, and an effective interest rate of 17.9%. Interest expense recognized related to the 6.75% Convertible Senior Notes due 2028 (the “2028 Notes”) was approximately $9.9 million for the three months ended March 31, 2024. Interest expense includes $5.6 million contractual interest expense and $4.3 million amortization of debt issuance costs and discount for the three months ended March 31, 2024. Because the coupon rates are fixed, interest expense on the 2026 Notes and the 2028 Notes will not change if market interest rates increase. Other debt as of March 31, 2024, totaled $0.2 million and is variable-rate. A 1% increase in interest rates in our variable rate indebtedness would result in a nominal change in annual interest expense.

As of March 31, 2024, our insurance segment has a $134.1 million portfolio of fixed income securities and an unrealized gain (loss) of $(4.6) million, as described in Note 3, Investments, 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, 2024, accounts receivable and reinsurance balances due were $20.8 million and $75.4 million, respectively, were not interest-bearing assets, and are generally collected in less than 180 days. As such, we do not consider these assets to have material interest rate risk.

### Inflation Risk

We believe our operations have been negatively affected by inflation and the change in the interest rate environment. General economic factors beyond our control and changes in the global economic environment, specifically fluctuations in inflation, including access to credit under favorable terms, could result in lower revenues, higher costs, and decreased margins and earnings in the foreseeable future. While we 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 we operate, 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, our profitability and financial position could be materially and adversely impacted.

### Foreign Currency Risk

There was no material foreign currency risk for three months ended March 31, 2024. Our 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, 1,731 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 defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures to ensure that information required to be disclosed 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 management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures were effective as of March 31, 2024.

### Changes in Internal Control over Financial Reporting

There were no changes in our 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 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

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

## Risk factors

As filed, 254 characters.

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, 2023, as filed with the SEC on March 15, 2024.

Filed May 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001784535-24-000063. Last ingested by Listed: Nov 11, 2026, 03:48 ET. No prices; not investment advice.