# Porch Group, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Porch Group, Inc.](/companies/prch.md) (CIK 1784535)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 17:19 ET
- Period: 2024-09-30
- Accession: 0001784535-24-000140
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1784535/000178453524000140/prch-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1784535/000178453524000140/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $47.1m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $214.6m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$2.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$89.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $10.6m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $31.8m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | −$183.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $683.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $14.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$63.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.12 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.64 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.14 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 124,033,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 99,050,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$5.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $331.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $206.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $406.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $867.3m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $491.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $944.3m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $398.9m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $150.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | −$77.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 64,302 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 future transactions that have not been completed as of the date of this filing, including the licensure and formation of the reciprocal, the sale of our insurance carrier subsidiary, Homeowners of America Insurance Company (“HOA”), to the reciprocal, and the commencement of the reciprocal’s operations. 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 possibility that a decline in our share price would result in a negative impact to HOA’s surplus position and may require further financial support to enable HOA to meet applicable regulatory requirements and maintain financial stability rating;
- the uncertainty and significance of the known and unknown effects on 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; and HOA’s ability to maintain a healthy surplus;
- 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 (including the discount associated with the shares contributed to HOA);
- the ability of the Company and its affiliates to consummate the sale of HOA to the reciprocal exchange and to commence operations of the reciprocal exchange;
- our ability to successfully operate our businesses alongside a reciprocal exchange;
- our ability to implement our plans, forecasts and other expectations with respect to the reciprocal exchange business after the completion of the formation and to realize expected synergies and/or convert policyholders from our existing insurance carrier business into policyholders of the reciprocal exchange;
- potential business disruption following the formation of the reciprocal exchange;
- 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 our Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2023, and in Part II, Item 1A, “Risk Factors,” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, 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 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 one of the best partners 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 28 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, while also providing move and post-move services.

Software and services were 59% and 59% of total vertical software revenue for the three and nine months ended September 30, 2024, respectively. Move and post-move services were 41% and 41% of total vertical software revenue for the three and nine months ended September 30, 2024, respectively. 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 HOA, a wholly owned insurance carrier, other insurance-related legal entities, Porch Warranty, and 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. Unless otherwise noted herein, all numbers are in thousands, except per share amounts.

### 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 September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| Gross Written Premium (in millions) | $139 | $154 | (10)% |
| Policies in Force (in thousands) | 219 | 334 | (34)% |
| Annualized Revenue per Policy (unrounded) | $1,460 | $1,139 | 28% |
| Annualized Premium per Policy (unrounded) | $2,208 | $1,762 | 25% |
| Premium Retention Rate | 100% | 100% |  |
| Gross Loss Ratio | 57% | 39% |  |
| Average Companies in Quarter (unrounded) | 28,125 | 30,675 | (8)% |
| Average Monthly Revenue per Account in Quarter (unrounded) | $1,318 | $1,436 | (8)% |
| Monetized Services (unrounded) | 245,226 | 225,096 | 9% |
| Average Quarterly Revenue per Monetized Service (unrounded) | $377 | $510 | (26)% |

**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

#### Reciprocal Exchange

On July 29, 2024, we filed a new and updated application to form and license a Texas reciprocal exchange (the “Reciprocal”) with the Texas Department of Insurance (“TDI”). Our application was approved by the TDI on October 25, 2024, subject to customary administrative closing procedures that are expected to conclude this year. We expect to fund the Reciprocal during the fourth quarter of 2024 with a surplus note. We expect to sell HOA to the Reciprocal for an additional surplus note in the first quarter of 2025. Porch will operate the Reciprocal, providing services. The services to be provided include, but are not limited to, all matters related to underwriting, policy renewal, risk management, insurance portfolio management, financial management, and setting investment guidelines. In addition, Porch will maintain the Reciprocal’s books and records and be responsible for its accounting and financial reporting. In exchange for the services to be provided, Porch will receive fees. The Reciprocal will pay all claims and claims adjustment expenses, reinsurance costs, agency commissions, and taxes and license fees. With the TDI approval, we intend to launch Porch Insurance, a new brand and product to be offered by the Reciprocal, including unique benefits for consumers. There is no impact to our consolidated financials for both the three and nine months ended September 30, 2024.

#### 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 communicated and met with regulators and other key stakeholders regarding the fraud committed and the terminated reinsurance contract. 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 $48.2 million in provision for (recovery of) doubtful accounts in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 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 have been appointed to the statutory committee of unsecured creditors in the Chapter 11 bankruptcy of Vesttoo and are pursuing recovery of all losses and damages incurred as a result of terminating the reinsurance agreement due to fraud committed 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 Income (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 nine months ended September 30, 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.

In September 2024, we repurchased $43.2 million aggregate principal amount of our 2026 Notes. We paid $20.2 million, or an average of 47% of par value, plus accrued interest. We recognized a $22.5 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.

#### Sale of Business

On January 31, 2024, we sold our insurance agency, Elite Insurance Group (“EIG”). The sale price was $12.2 million of which we have received $10.9 million in cash and recorded a receivable of $1.2 million as of September 30, 2024. We recorded a loss of $5.3 million in other income, net, in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

#### Weather Impact

Late in the first quarter of 2024, a Texas hailstorm resulted in approximately $16.5 million of gross losses. During the second quarter of 2024, a large hurricane-like windstorm affected Houston with straight-line and long-lived winds up to 100 miles per hour. This event resulted in approximately $20.5 million of gross losses. This sort of event impacts Houston at this level of severity once in every 10 years. In July 2024, Hurricane Beryl made landfall in Texas as a category 1 hurricane and impacted the Houston area, where HOA writes policies. Hurricane Beryl resulted in approximately $44.9 million of gross losses. In September 2024, Hurricane Helene resulted in approximately $4.6 million of gross losses.

#### Porch Common Shares Issued to HOA

We recently completed a contribution of a total of 18.3 million newly issued shares of our common stock to HOA. The contribution was completed in two transactions: 13.8 million shares on July 31, 2024, and 4.5 million shares on June 26, 2024. This contribution supports the planned transition of Porch’s insurance underwriting business to a reciprocal exchange and helps to bolster HOA’s balance sheet strength and rating after Texas May weather impacted surplus. In addition, the contribution increases HOA’s long-term surplus position, which better positions HOA for any future third party surplus note capital raise, and is expected to support premium growth in 2025 and beyond. Should Porch’s share price increase going forward, this would grow HOA’s surplus, thereby supporting higher premium levels. While this increases HOA’s surplus, there is no impact to the condensed consolidated financial statements.

### 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 28 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 and nine months ended September 30, 2024:

- Non-catastrophe gross loss ratio improved 11 percentage points from the prior year, driven by premium per policy increases and non-renewal of higher risk policies in insurance.
- We continued our cost savings initiatives by hiring highly qualified individuals to replace external contracting services.
- Effective April 1, 2024, we combined our three quota share reinsurance programs into one program covering all our business in all states and renewed all reinsurance programs.
- We had cash recoveries on terminated reinsurance contracts of approximately $28 million in the nine months ended September 30, 2024.
- We repurchased $51.2 million of our 2026 senior convertible notes, at an average par value of 45.3%, for $23.2 million during the nine months ended September 30, 2024.
- Launched new Home Factors insights as we continue to test which property characteristics correlate to predicting losses and risk.
- Continue to roll out further product enhancements in our Vertical Software businesses as we increase pricing while maintaining high customer retention.
- We are approved in 16 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 September 30, 2024, compared to the Three Months Ended September 30, 2023

#### Consolidated Results

*(dollar amounts in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $111,200 | $129,556 | $(18,356) | (14)% |
| Operating expenses: |  |  |  |  |
| Cost of revenue | 47,076 | 52,961 | (5,885) | (11)% |
| Selling and marketing | 27,233 | 40,135 | (12,902) | (32)% |
| Product and technology | 14,559 | 14,446 | 113 | 1% |
| General and administrative | 24,875 | 28,659 | (3,784) | (13)% |
| Provision for (recovery of) doubtful accounts | (39) | (6,844) | 6,805 | (99)% |
| Total operating expenses | 113,704 | 129,357 | (15,653) | (12)% |
| Operating income (loss) | (2,504) | 199 | (2,703) | (1,358)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (10,645) | (10,267) | (378) | 4% |
| Change in fair value of private warrant liability | 50 | 260 | (210) | (81)% |
| Change in fair value of derivatives | (1,048) | 510 | (1,558) | (305)% |
| Gain on extinguishment of debt | 22,545 | — | 22,545 | N/A |
| Investment income and realized gains, net of investment expenses | 3,787 | 2,485 | 1,302 | 52% |
| Other income, net | 2,014 | 1,185 | 829 | 70% |
| Total other income (expense) | 16,703 | (5,827) | 22,530 | (387)% |
| Income (loss) before income taxes | 14,199 | (5,628) | 19,827 | (352)% |
| Income tax benefit (provision) | 183 | (116) | 299 | (258)% |
| Net income (loss) | $14,382 | $(5,744) | $20,126 | (350)% |

*Revenue.* Total revenue decreased by $18.4 million, or 14%, from $129.6 million in the three months ended September 30, 2023, to $111.2 million in the three months ended September 30, 2024. The decrease in revenue was driven by our Insurance segment as a result of higher reinsurance ceding and a reduction in policies in force. Prior year Insurance revenue increased as a result of the cancellation of the Vesttoo-related reinsurance coverage which decreased the impact of ceding. This change offset organic growth in the Insurance segment, including a 25% increase in premium per policy.

*Cost of revenue.* Cost of revenue decreased by $5.9 million, or 11%, from $53.0 million in the three months ended September 30, 2023, to $47.1 million in the three months ended September 30, 2024. The decrease was primarily the result of higher reinsurance ceding in the Insurance Segment. As a percentage of revenue, cost of revenue represented 42% of revenue in the three months ended September 30, 2024, compared with 41% in the three months ended September 30, 2023.

*Selling and marketing.* Selling and marketing expenses decreased by $12.9 million, or 32%, from $40.1 million in the three months ended September 30, 2023, to $27.2 million in the three months ended September 30, 2024. The decrease is primarily related to a decrease in the Insurance segment’s variable policy acquisition and marketing expenses due to decrease in commission rates, the elimination of expenses in the current year due to the sale of the EIG business in the first quarter as described in Note 15 of the unaudited Notes to Condensed Consolidated Financial Statements, and a decrease in Vertical Software segment costs consistent with the decrease in revenue in that segment. As a percentage of revenue, selling and marketing expenses represented 24% of revenue in the three months ended September 30, 2024 compared with 31% in the three months ended September 30, 2023.

*General and administrative.* General and administrative expenses decreased by $3.8 million, or 13%, from $28.7 million in three months ended September 30, 2023, to $24.9 million in the three months ended September 30, 2024, primarily due to decreases in Insurance segment expenses, including a $1.5 million decrease in professional fees and a one-time $1.2 million guarantee assessment to the TDI that occurred in 2023.

*Provision for (recovery of) doubtful accounts.* In the second quarter of 2023, we charged to provision for doubtful accounts approximately $48.2 million of reinsurance balance due from a reinsurer as described in Note 10 of the unaudited Notes to Condensed Consolidated Financial Statements. In the third quarter of 2023, we reduced the provision for doubtful accounts related to Vesttoo by $7.0 million after experiencing improvement in loss reserves. In the three months ended September 30, 2024 we continued experiencing improvement in loss reserves and reduced the provision by $0.3 million.

*Change in fair value of private warrant liability.* The fair value of the private warrant liability changed less in the three months ended September 30, 2024, than in the three months ended September 30, 2023. Our common stock price drove the change and was relatively unchanged during the three months ended September 30, 2024, compared to a decrease in the three months ended September 30, 2023.

*Change in fair value of derivatives.* The fair value of the derivatives decreased in the three months ended September 30, 2024, compared to increasing in the three months ended September 30, 2023. The value is driven by various factors, including the fair value of the underlying debt and assumptions regarding timing of possible repurchase events. See Note 4 in the unaudited Notes to Condensed Consolidated Financial Statements.

*Gain on extinguishment of debt.* In connection with the repurchase of a portion of the 2026 Notes, we recognized a $22.5 million gain on extinguishment of debt during the three months ended September 30, 2024. There was no corresponding debt extinguishment during the three months ended September 30, 2023. 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 $3.8 million and $2.5 million in the three months ended September 30, 2024 and 2023, respectively. Total investments balance was $197.8 million at September 30, 2024, and $115.4 million at September 30, 2023. A higher investment balance and well as reinvested securities at a higher interest rate were the primary reasons for the increased investment income.

*Other income, net.* Other income, net, increased by $0.8 million from $1.2 million in the three months ended September 30, 2023, to $2.0 million in the three months ended September 30, 2024. The increase is primarily due to $1.3 million of recoveries on reinsurance contracts in the three months ended September 30, 2024.

#### Segment Results

SEGMENT REVENUE

The following table summarizes revenue by segment for the three months ended September 30, 2024 and 2023.

| Vertical Software segment | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Software and service subscriptions | $18,582 | $17,307 | $1,275 | 7% |
| Move-related transactions | 8,311 | 12,488 | (4,177) | (33)% |
| Post-move transactions | 4,359 | 4,533 | (174) | (4)% |
| Total Vertical Software segment revenue | 31,252 | 34,328 | (3,076) | (9)% |
| Insurance segment |  |  |  |  |
| Insurance and warranty premiums, commissions and policy fees | 79,948 | 95,228 | (15,280) | (16)% |
| Total Insurance segment revenue | 79,948 | 95,228 | (15,280) | (16)% |
| Total revenue | $111,200 | $129,556 | $(18,356) | (14)% |

For the three months ended September 30, 2024, Vertical Software segment revenue was $31.3 million or 28% of total revenue. For the three months ended September 30, 2023, Vertical Software segment revenue was $34.3 million or 26% of total revenue. The decrease in Vertical Software segment revenue was primarily driven in our moving business, which exited an unprofitable corporate relocations offering, redirecting focus to higher-margin services. This decline and was partially offset by price increase in our SaaS businesses, within software and service subscriptions.

Insurance segment revenue was $79.9 million or 72% of total revenue for the three months ended September 30, 2024. Insurance segment revenue was $95.2 million or 74% of total revenue for the three months ended September 30, 2023. The decrease was mainly driven by a reduction in policies in force and a higher reinsurance ceding in the current year as a result of the Vesttoo-related reinsurance coverage which decreased the impact of ceding in the prior year. This change offset organic growth in the Insurance segment, including a 25% 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, general and administrative expenses, and provision for doubtful accounts. 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 September 30, 2024 and 2023.

| Segment Adjusted EBITDA (Loss): | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Vertical Software | $5,138 | $3,179 | $1,959 | 62% |
| Insurance | 24,829 | 19,038 | 5,791 | 30% |
| Subtotal | 29,967 | 22,217 | 7,750 | 35% |
| Corporate and other | (13,032) | (13,378) | 346 | (3)% |
| Adjusted EBITDA (Loss) | $16,935 | $8,839 | $8,096 | 92% |

Our Insurance segment had a Segment Adjusted EBITDA (Loss) of $24.8 million in the third quarter of 2024, representing 147% of Adjusted EBITDA (Loss) for the same period. The improvement over the same period last year was a result of lower non-catastrophic losses and our insurance profitability actions, including premium per policy increases of 25%, increasing deductibles, non-renewals of higher risk policies, and introducing coverage exclusions for select risks. These improvements were partially offset by the effects of hurricane Beryl. See Note 10 in the unaudited Notes to Condensed Consolidated Financial Statements for tabular presentation of premiums and net losses.

Vertical Software Segment Adjusted EBITDA (Loss) was $5.1 million in the third quarter of 2024, which improved compared to prior year due to pricing increases and strong cost control, including a reduction in workforce and stronger emphasis on our more profitable services in our moving businesses.

#### Nine Months Ended September 30, 2024, compared to the Nine Months Ended September 30, 2023

#### Consolidated Results

*(dollar amounts in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $337,487 | $315,690 | $21,797 | 7% |
| Operating expenses: |  |  |  |  |
| Cost of revenue | 214,566 | 185,566 | 29,000 | 16% |
| Selling and marketing | 94,378 | 107,357 | (12,979) | (12)% |
| Product and technology | 43,210 | 43,891 | (681) | (2)% |
| General and administrative | 75,504 | 77,267 | (1,763) | (2)% |
| Provision for (recovery of) doubtful accounts | (520) | 42,111 | (42,631) | (101)% |
| Impairment loss on intangible assets and goodwill | — | 57,232 | (57,232) | (100)% |
| Total operating expenses | 427,138 | 513,424 | (86,286) | (17)% |
| Operating loss | (89,651) | (197,734) | 108,083 | (55)% |
| Other income (expense): |  |  |  |  |
| Interest expense | (31,758) | (21,230) | (10,528) | 50% |
| Change in fair value of private warrant liability | 1,076 | 620 | 456 | 74% |
| Change in fair value of derivatives | (7,772) | (2,440) | (5,332) | 219% |
| Gain on extinguishment of debt | 27,436 | 81,354 | (53,918) | (66)% |
| Investment income and realized gains, net of investment expenses | 10,957 | 4,492 | 6,465 | 144% |
| Other income, net | 27,092 | 3,525 | 23,567 | 669% |
| Total other income | 27,031 | 66,321 | (39,290) | (59)% |
| Loss before income taxes | (62,620) | (131,413) | 68,793 | (52)% |
| Income tax provision | (683) | (34) | (649) | 1,909% |
| Net loss | $(63,303) | $(131,447) | $68,144 | (52)% |

*Revenue.* The overall 7% increase in year-to-date revenue compared to the same period last year was primarily driven by the 13%, or $27.8 million, increase in revenue in our Insurance segment as a result of an increase in average premium per policy and lower reinsurance ceding partially offset by a reduction in policies in force.

*Cost of revenue.* The 16% increase in year-to-date cost of revenue was primarily the result of more severe weather in the current period. These were partially offset by the decline of our corporate relocation business. As a percentage of revenue, cost of revenue represented 64% of revenue in the nine months ended September 30, 2024, compared with 59% in the same period of 2023.

*Selling and marketing.* The 12% decrease in year-to-date selling and marketing expenses compared to prior year is due to a decrease in Vertical Software segment costs consistent with the decrease in revenue in that segment and a decrease in costs in the Insurance segment related to the sale of the EIG business as described in Note 15 of the unaudited Notes to Condensed Consolidated Financial Statements. As a percentage of revenue, selling and marketing expenses represented 28% of revenue in the current year-to-date period compared to 34% of revenue in the same period last year.

*Provision for (recovery of) doubtful accounts.* For the nine months ended September 30, 2023, we charged to provision for doubtful accounts approximately $41.2 million of reinsurance balance due from a reinsurer as described in Note 10 of the unaudited Notes to Condensed Consolidated Financial Statements. During 2024, we experienced improvement in loss reserves related to Vesttoo of $1.4 million. We had no significant charges to the provision for doubtful accounts during 2024.

*Impairment loss on intangible assets and goodwill.* In the nine months ended September 30, 2023, we recorded a goodwill impairment charge of $55.2 million in our Insurance segment and a $2.0 million impairment charge on intangible assets in our Vertical Software segment. These impairments followed a sustained decrease in stock price, increased costs due to inflationary pressures, hardening of the reinsurance markets, volatile weather, and a deterioration of the macroeconomic environment in the housing and real estate and insurance industries. There were no impairment losses on intangible assets and goodwill in the nine months ended September 30, 2024.

*Interest expense.* Year-to-date interest expense, increased by $10.5 million, or 50%, from $21.2 million in the same period in 2023. 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 following table details the components of interest expense, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss):

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Contractual interest expense | $18,096 | $12,195 |
| Amortization of debt issuance costs and discount | 14,187 | 8,756 |
| Capitalized Interest | (357) | — |
| Other | (168) | 279 |
| Total interest expense | $31,758 | $21,230 |

*Change in fair value of derivatives.* The fair value of the derivatives changed more in the nine months ended September 30, 2024, than in the three months ended September 30, 2023, as the current year includes a full nine months of change whereas the prior year includes only the period of time after the 2028 Notes were issued in April 2023. The value is driven by various factors, including the fair value of the underlying debt and assumptions regarding timing of possible repurchase events. See Note 4 in the unaudited Notes to Condensed Consolidated Financial Statements.

*Gain on extinguishment of debt.* In connection with the issuance of the 2028 Notes and partial repurchase of the 2026 Notes, we recognized an $81.4 million gain on extinguishment of debt during the nine months ended September 30, 2023. For the nine months ended September 30, 2024, we recognized an $27.4 million gain on extinguishment of debt related to the partial repurchases of the 2026 Notes. See Note 7 in the unaudited Notes to Condensed Consolidated Financial Statements.

*Investment income and realized gains, net of investment expenses.* Investment income and realized gains, net of investment expenses, were $11.0 million and $4.5 million in the nine months ended September 30, 2024 and 2023, respectively. Total investments balance was $197.8 million at September 30, 2024, and $115.4 million at September 30, 2023. A higher investment balance was the primary reason for the increased investment income.

*Other income, net.* Other income, net, increased by $23.6 million from $3.5 million in the nine months ended September 30, 2023, to $27.1 million in the nine months ended September 30, 2024. The increase is due to recoveries of losses on reinsurance contract of $14.8 million and gain on settlement of contingent consideration of $14.9 million. These are offset by loss on sale of EIG business of $5.3 million. See Note 12 in the unaudited Notes to 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 nine months ended September 30, 2024 and 2023.

| Vertical Software segment | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Software and service subscriptions | $53,771 | $51,640 | $2,131 | 4% |
| Move-related transactions | 24,289 | 32,503 | (8,214) | (25)% |
| Post-move transactions | 13,280 | 13,247 | 33 | —% |
| Total Vertical Software segment revenue | 91,340 | 97,390 | (6,050) | (6)% |
| Insurance segment |  |  |  |  |
| Insurance and warranty premiums, commissions and policy fees | 246,147 | 218,300 | 27,847 | 13% |
| Total Insurance segment revenue | 246,147 | 218,300 | 27,847 | 13% |
| Total revenue | $337,487 | $315,690 | $21,797 | 7% |

For the nine months ended September 30, 2024, Vertical Software segment revenue was $91.3 million or 27% of total revenue. For the nine months ended September 30, 2023, Vertical Software segment revenue was $97.4 million or 31% of total revenue. The decrease in Vertical Software segment revenue was primarily driven by the strategic shift to more profitable moving services and the shutdown of our corporate relocation business, within move-related transaction, and was partially offset by price increase in our SaaS businesses, within software and service subscriptions.

Insurance segment revenue was $246.1 million or 73% of total revenue for the nine months ended September 30, 2024. Insurance segment revenue was $218.3 million or 69% of total revenue for the nine months ended September 30, 2023. The increase is mainly driven by lower reinsurance ceding and as a 25% increase in Annualized Premium per Policy. These were partially offset by a reduction in policies in force.

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, general and administrative expenses, and provision for doubtful accounts. 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 nine months ended September 30, 2024 and 2023.

| Segment Adjusted EBITDA (Loss): | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Vertical Software | $11,039 | $4,599 | $6,440 | 140% |
| Insurance | (5,376) | (19,328) | 13,952 | (72)% |
| Subtotal | 5,663 | (14,729) | 20,392 | (138)% |
| Corporate and other | (40,289) | (41,448) | 1,159 | (3)% |
| Adjusted EBITDA (Loss) | $(34,626) | $(56,177) | $21,551 | (38)% |

Our Insurance segment had a Segment Adjusted EBITDA (Loss) of $(5.4) million in the nine months ended September 30, 2024, compared to $(19.3) million in the same period last year. The improvement over the same period last year was a result of lower non-catastrophic losses and our insurance profitability actions, including premium per policy increases of 25%, increasing deductibles, non-renewal of higher risk policies, and introducing coverage exclusions for select risks. These improvements were partially offset by the effects of severe weather events. See Note 10 in the unaudited Notes to Condensed Consolidated Financial Statements for tabular presentation of premiums and net losses.

Vertical Software Segment Adjusted EBITDA (Loss) was $11.0 million in the nine months ended September 30, 2024, which improved compared to prior year due to pricing increases and strong cost control, including a reduction in workforce and stronger emphasis on our more profitable services in our moving businesses.

Corporate expenses were $40.3 million in the current year-to-date period, a $1.2 million decrease from the same period in the prior year due to successful cost reduction efforts across the company. Corporate expenses decreased to 12% of total revenue for the nine months ended September 30, 2024, from 13% in the same period in the prior year.

### 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 income (loss) to Adjusted EBITDA (Loss) for the three and nine months ended September 30, 2024 and 2023 (dollar amounts in thousands).

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income (loss) | $14,382 | $(5,744) | $(63,303) | $(131,447) |
| Interest expense | 10,645 | 10,267 | 31,758 | 21,230 |
| Income tax provision (benefit) | (183) | 116 | 683 | 34 |
| Depreciation and amortization | 6,049 | 6,272 | 18,568 | 18,501 |
| Mark-to-market losses (gains) | 1,140 | (1,557) | 6,538 | (1,777) |
| Gain on extinguishment of debt | (22,545) | — | (27,436) | (81,354) |
| Impairment loss on intangible assets and goodwill | — | — | — | 57,232 |
| Impairment loss on property, equipment, and software | — | — | — | 254 |
| Stock-based compensation expense | 6,735 | 6,979 | 19,208 | 20,277 |
| Loss (gain) on reinsurance contract (1) | (285) | (7,043) | (1,391) | 41,201 |
| Other income, net (2) | (773) | (1,185) | (22,979) | (3,525) |
| Restructuring costs (3) | 1,668 | 712 | 3,460 | 2,789 |
| Acquisition and other transaction costs | 102 | 22 | 268 | 408 |
| Adjusted EBITDA (Loss) | $16,935 | $8,839 | $(34,626) | $(56,177) |
| Adjusted EBITDA (Loss) as a percentage of revenue | 15% | 7% | (10)% | (18)% |

(1) See Note 10 in the notes to unaudited condensed consolidated financial statements.

(2) Difference from Other Income, net in Condensed Consolidated Statements of Operations and Comprehensive Income (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.

(3) Primarily consists of costs related to forming a reciprocal exchange and professional fees related to share contributions to HOA (see Note 8)

Adjusted EBITDA (Loss) for the three months ended September 30, 2024, was $16.9 million, a $8.1 million improvement from Adjusted EBITDA (Loss) of $8.8 million for the same period in 2023. The improvement in Adjusted EBITDA (Loss) in 2024 is primarily driven by insurance profitability actions, including price increases implemented over the last year, as well as cost reductions across the business. We are seeing the benefit of prior year 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. These improvements were partially offset by the effects of severe weather events, lower ceding, and the decline of the corporate relocation business in our Vertical Software segment.

Adjusted EBITDA (Loss) for the nine months ended September 30, 2024, was $(34.6) million, a $21.6 million improvement from Adjusted EBITDA (Loss) of $(56.2) million for the same period in 2023. The improvement in Adjusted EBITDA (Loss) in 2024 is primarily driven by insurance profitability actions, including price increases implemented over the last year, as well as cost reductions across the business. These improvements were partially offset by the effects of severe weather events and the decline of the corporate relocation business in our Vertical Software segment.

### Liquidity and Capital Resources

As of September 30, 2024, we had cash and cash equivalents of $206.7 million and restricted cash and cash equivalents of $10.0 million. Restricted cash and cash equivalents includes the following:

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Held as collateral by captive reinsurer for benefit of HOA (1) | $1,062 | $28,341 |
| Pledged to state departments of insurance (2) | 1,201 | 1,340 |
| Held for payment of possible warranty claims (3) | 6,687 | 7,273 |
| Other | 1,000 | 1,860 |
| Restricted cash and cash equivalents | $9,950 | $38,814 |

(1) Held by our captive reinsurance business as collateral for the benefit of Homeowners of America Insurance Company (“HOA”).

(2) 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.

(3) Required under regulatory guidelines in 22 states and 19 states as of September 30, 2024 and December 31, 2023, respectively.

We have incurred net losses since our inception and have an accumulated deficit at September 30, 2024, and December 31, 2023, totaling $785.4 million and $722.1 million, respectively.

As of September 30, 2024, and December 31, 2023, we had $507.3 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. In September 2024, we repurchased $43.2 million aggregate principal amount of our 2026 Notes. We paid $20.2 million, or an average of 47% of par value, plus accrued interest. We recognized a $22.5 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 September 30, 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 September 30, 2024, our insurance carrier, HOA, held cash and cash equivalents of $150.5 million and investments of $166.0 million.

We recently completed a contribution of a total of 18.3 million newly issued shares of our common stock to HOA. The contribution was completed in two transactions: 13.8 million shares on July 31, 2024, and 4.5 million shares on June 26, 2024. This contribution supports the planned transition of Porch’s insurance underwriting business to a reciprocal exchange and helps to bolster HOA’s balance sheet strength and rating after Texas May weather impacted surplus. In addition, the contribution increases HOA’s long-term surplus position, which better positions HOA for any future third party surplus note capital raise, and is expected to support premium growth in 2025 and beyond. Should Porch’s share price increase going forward, this would grow HOA’s surplus, thereby supporting higher premium levels. While the shares contributed to HOA have been issued and are outstanding, as provided under Delaware law, these shares will neither be entitled to vote nor be counted for quorom purposes so long as HOA (or any successor transferee) holds the shares and is a direct or indirect subsidiary of Porch or is otherwise controlled, directly or indirectly, by Porch. For accounting purposes, the shares contributed to HOA are considered treasury stock because HOA is a subsidiary that is included in our consolidated financial results. While this increases HOA’s surplus, there is no impact to the condensed consolidated financial statements.

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 unaudited Notes to 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 nine months ended September 30, 2024 and 2023:

|  | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net cash provided by (used in) operating activities | $(5,080) | $74,898 | $(79,978) | (107)% |
| Net cash used in investing activities | (52,209) | (34,203) | (18,006) | 53% |
| Net cash provided by (used in) financing activities | (23,265) | 92,414 | (115,679) | (125)% |
| Change in cash, cash equivalents and restricted cash | $(80,554) | $133,109 | $(213,663) | (161)% |

#### Operating Cash Flows

Net cash provided by (used in) operating activities was $(5.1) million for the nine months ended September 30, 2024. Net cash used in operating activities includes cash outflows to cover losses from severe weather during the year and timing of working capital disbursements. These outflows of cash were partially offset by 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).

Net cash provided by (used in) operating activities was $74.9 million for the nine months ended September 30, 2023. Net cash provided by (used in) operating activities consists of net loss of $131.4 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include impairment loss on goodwill and intangible assets of $57.2 million, stock-based compensation expense of $20.3 million, depreciation and amortization of $18.5 million, non-cash interest expense of $20.2 million, loss (gain) on remeasurement of contingent consideration of $(3.6) million, and loss (gain) on remeasurement of private warrant liability of $(0.6) million. Net changes in working capital were net proceeds of cash of $130.1 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 used in investing activities was $52.2 million for the nine months ended September 30, 2024. Net cash used in investing activities is primarily related to proceeds from sale of EIG of $10.9 million and maturities and sales of investments of $44.0 million offset by purchases of investments of $98.1 million and investments in developing internal-use software of $8.6 million.

Net cash used in investing activities was $34.2 million for the nine months ended September 30, 2023. Net cash used in investing activities is primarily related to acquisitions, net of cash acquired of $2.0 million, purchases of investments of $59.9 million, investments in developing internal-use software of $6.9 million, and purchases of property and equipment of $0.8 million. This was offset by the cash inflows related to maturities and sales of investments of $35.3 million.

#### Financing Cash Flows

Net cash provided by (used in) financing activities was $(23.3) million for the nine months ended September 30, 2024. Net cash provided by (used in) financing activities is primarily related to the repurchase of the 2026 Notes of $23.2 million.

Net cash provided by (used in) financing activities was $92.4 million for the nine months ended September 30, 2023. Net cash provided by financing activities is primarily related to proceeds from issuance of the 2028 Notes of $112.1 million offset by $5.6 million of stock repurchases.

### 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 nine months ended September 30, 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, 4,184 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 September 30, 2024, and December 31, 2023, we have interest-bearing debt of $507.3 million and $558.7 million, respectively. Our 0.75% convertible senior notes due in September 2026 (the “2026 Notes”) have a principal balance of $173.8 million as of September 30, 2024, a fixed coupon rate of 0.75%, and an effective interest rate of 1.3%. Our 6.75% senior secured convertible notes due in October 2028 (the “2028 Notes”) have a principal balance of $333.3 million as of September 30, 2024, a fixed coupon rate of 6.75%, and an effective interest rate of 17.9%. Interest expense includes both contractual interest expense and amortization of debt issuance costs and discount. The following table details the interest expense recognized for both the 2026 and 2028 Notes:

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Contractual interest expense for 2026 Notes | 399 | 422 | 1,220 | 1,720 |
| Contractual interest expense for 2028 Notes | 5,625 | 5,625 | 16,875 | 10,063 |
| Amortization of debt issuance costs and discount for 2026 Notes | 295 | 299 | 882 | 1,215 |
| Amortization of debt issuance costs and discount for 2028 Notes | 4,711 | 3,914 | 13,295 | 6,713 |
|  | 11,030 | 10,260 | 32,272 | 19,711 |

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 September 30, 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 September 30, 2024, our insurance segment has a $197.8 million portfolio of fixed income securities and an unrealized gain (loss) of $(0.9) 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 September 30, 2024, accounts receivable and reinsurance balances due were $21.3 million and $103.4 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 the nine months ended September 30, 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, 1,735 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 September 30, 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, 7,921 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, 2023, as filed with the SEC on March 15, 2024.

***Regulatory factors could impact the value at which Homeowners of America Insurance Company (“HOA”) carries contributed shares on its statutory financial statements, negatively impact HOA regulatory surplus, and require us to take additional steps to enable HOA to adhere to regulatory requirements and maintain its financial stability rating.***

As a Texas domestic property and casualty insurer, HOA is subject to various regulatory requirements, including minimum surplus as regards to policyholders and requirements relating to the credit quality, liquidity and diversification of investments. The amount of surplus and investments maintained by HOA also impacts its financial stability rating. Pursuant to the contribution transactions described in Note 8 of the unaudited Notes to Condensed Consolidated Financial Statements, a total of 18.3 million shares of common stock were contributed to HOA primarily to support its compliance with requirements under Texas law relating to surplus and to maintain its financial stability rating. The value at which the contributed shares are carried on the statutory financial statements of HOA is subject to ongoing regulatory risks, including the following:

- Valuation of the contributed shares for purposes of HOA statutory financial statements remains subject to continuing oversight by the Texas Department of Insurance (“TDI”), which may in the future require that the shares be recorded at a more steeply discounted value than TDI initially approved depending upon our results of operation and other future events, including excess losses incurred by the HOA insurance business due to severe weather events.
- Other restrictions under Texas law on the total amount HOA may invest in an affiliate such as Porch Group, Inc., which could limit the portion of the contributed shares’ value that can be included as admitted assets on its statutory financial statements.

These and other regulatory factors beyond our control or that we have not anticipated could negatively impact the value at which the contributed shares are recorded on the selling stockholder’s statutory financial statements in future filings with TDI, which could negatively impact the selling stockholder’s surplus position and its Demotech, Inc. financial stability rating. In such event, our strategy to bolster the selling stockholder’s surplus through the contribution of shares may prove ineffective, and we may need to contribute cash or other admitted assets or take other steps to enable the selling stockholder to adhere to Texas regulatory requirements, including as to surplus, and to maintain its financial stability rating. Our ability to effectively maintain the selling stockholder’s surplus position due to these factors will be subject to numerous risks, such as whether we have sufficient cash or other assets that would count as admitted assets of the selling stockholder under Texas insurance law available for additional contributions to the selling stockholder or the availability of additional debt or equity financing in the event that we do not. The availability of additional debt or equity financing is subject to numerous risks, including the trading price of our common stock at such time, other market conditions, and restrictions under the indentures governing our outstanding convertible senior notes on the incurrence of additional indebtedness.

***A sustained decline in the price of our common stock would negatively impact HOA regulatory surplus, which may require us to contribute additional funds or shares to enable HOA to adhere to regulatory requirements and maintain its financial stability rating.***

The shares of our common stock held by HOA represent a significant portion of its surplus as regards to policyholders. The value at which HOA carries these shares for regulatory financial reporting purposes will fluctuate over time with changes in the trading price of our common stock. A decline in the trading price of our common stock (whether sustained or temporary but at quarter end) would negatively impact the amount of surplus that HOA reports on its statutory financial statements. It is possible that this could require us to contribute additional funds to enable HOA to adhere to regulatory requirements relating to surplus and to maintain its financial stability rating. In such case, if we do not have sufficient cash resources on hand to fund needed contributions, we may need to raise additional capital through equity or debt financings or contribute additional shares of our common stock instead. Additional equity financings could result in significant additional dilution to existing stockholders, and we face significant restrictions on our ability to obtain additional debt financing due to the restrictive covenants under the indentures governing our outstanding convertible senior notes. As a result of these and other factors, additional capital may not be available on terms that are acceptable, if at all, which, if acceptable to TDI, could require us to contribute additional shares of our common stock to HOA to enable it to remain in compliance with regulatory requirements and maintain its financial stability rating, which could be delayed if such additional contribution were subject to shareholder approval under applicable Nasdaq listing rules. The contribution of additional shares of common stock to HOA and the possibility that HOA may sell such additional shares could cause the price of our common stock to decline and make it more difficult for us to raise funds through the sale of equity.

***Future sales of our common stock by HOA could cause our stock price to decline and be dilutive.***

Although HOA holds the shares of common stock described in this Quarterly Report on Form 10-Q primarily to strengthen its surplus position and maintain its financial stability rating, HOA may sell all or a portion of the shares from time to time in the future as it may deem necessary or appropriate to support the needs of its business, including, for example, to generate additional cash to pay claims and expenses, to improve liquidity and asset diversification, to otherwise meet applicable regulatory requirements and maintain its financial stability rating, or to finance the acquisition of new business. In addition, HOA could be forced to sell shares if insurance regulatory authorities disallow the shares to be recorded as admitted assets on its statutory financial statements or require the shares to be recorded at a greater discount than initially approved by TDI. Additionally, if HOA is placed under receivership by TDI, the receiver may sell shares in connection with the liquidation or rehabilitation of HOA. The timing and amount of any such sales, and the offering price and proceeds thereof, cannot be predicted as of the date of this prospectus. Market conditions, the method of distribution and other factors could make it difficult for the selling shareholder to sell shares when necessary to meet underlying needs or objectives. The sale of shares of our common stock by HOA in the public market, or the perception by the market that those sales could occur, may cause the market price of our common stock to decline. Such sales, or the possibility that such sales may occur, also could make it more difficult for us to raise funds through the sale of equity in the future. Once shares are sold by HOA to unrelated parties, they will no longer be treated as treasury shares for financial reporting purposes, may be dilutive to earnings per share, will be entitled to vote and will count for quorum purposes.

Filed Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0001784535-24-000140. Last ingested by Listed: Nov 6, 2026, 18:36 ET. No prices; not investment advice.