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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 001-39142

Porch Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware

83-2587663

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

2200 1st Avenue S., Suite 300, Seattle, WA 98134

(Address of Principal Executive Offices)

(855) 767-2400

(Registrant’s telephone number)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading symbol

Name of Exchange on which registered

Common Stock, par value $0.0001 per share

PRCH

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

The number of outstanding shares of the Registrant’s Common Stock as of August 12, 2021 was 96,734,221.

Table of Contents

Table of Contents

    

    

Page

Part I.

Financial Information

3

Item 1.

Financial Statements

3

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

3

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020

4

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2021 and 2020

5

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2021 and 2020

6

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

7

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

49

Item 4.

Controls and Procedures

49

Part II.

Other Information

51

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3.

Defaults Upon Senior Securities

61

Item 4.

Mine Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

62

Exhibit Index

62

Signatures

63

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PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

PORCH GROUP, INC.

Condensed Consolidated Balance Sheets

(all numbers in thousands, except share amounts)

    

June 30, 2021

    

December 31, 2020

Assets

 

(unaudited)

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

150,201

$

196,046

Accounts receivable, net

 

22,982

 

4,268

Short-term investments

10,149

Reinsurance balance due

307,956

Prepaid expenses and other current assets

 

6,844

 

4,080

Restricted cash

2,222

11,407

Total current assets

 

500,354

 

215,801

Property, equipment, and software, net

 

7,888

 

4,593

Goodwill

 

120,961

 

28,289

Long-term investments

57,243

Intangible assets, net

 

84,670

 

15,961

Long-term insurance commissions receivable

6,140

3,365

Other assets

 

368

 

378

Total assets

$

777,624

$

268,387

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

4,621

$

9,203

Accrued expenses and other current liabilities

 

25,670

 

9,905

Deferred revenue

 

162,627

 

5,208

Refundable customer deposit

 

2,299

 

2,664

Current portion of long-term debt

 

104

 

4,746

Losses and loss adjustment expense reserves

115,500

Other insurance liabilities, current

106,208

Total current liabilities

 

417,029

 

31,726

Long-term debt

 

43,834

 

43,237

Refundable customer deposit, non-current

 

378

 

529

Earnout liability, at fair value

47,224

50,238

Private warrant liability, at fair value

34,903

31,534

Other liabilities (includes $2,569 and $3,549 at fair value, respectively)

 

5,486

 

3,798

Total liabilities

 

548,854

 

161,062

Commitments and contingencies (Note 11)

 

  

 

  

Stockholders’ equity

 

  

 

  

Common stock, $0.0001 par value:

 

10

 

8

Authorized shares – 400,000,000 and 400,000,000, respectively

 

  

 

  

Issued and outstanding shares – 96,293,416 and 81,669,151, respectively

Additional paid-in capital

 

627,396

 

424,823

Accumulated other comprehensive income

267

Accumulated deficit

 

(398,903)

 

(317,506)

Total stockholders’ equity

 

228,770

 

107,325

Total liabilities and stockholders’ equity

$

777,624

$

268,387

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PORCH GROUP, INC.

Condensed Consolidated Statements of Operations

(all numbers in thousands, except share amounts, unaudited)

    

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Revenue

$

51,340

$

17,122

$

78,083

$

32,196

Operating expenses(1):

 

  

 

  

 

  

 

  

Cost of revenue

 

19,500

 

3,792

 

25,429

 

7,891

Selling and marketing

 

23,122

 

8,787

 

37,762

 

21,640

Product and technology

 

11,050

 

5,071

 

22,841

 

12,423

General and administrative

 

20,611

 

5,893

 

44,625

 

10,049

Gain on divestiture of businesses

 

 

(1,442)

 

 

(1,442)

Total operating expenses

 

74,283

 

22,101

 

130,658

 

50,561

Operating loss

 

(22,943)

 

(4,979)

 

(52,575)

 

(18,365)

Other income (expense):

 

  

 

  

 

  

 

  

Interest expense

 

(1,216)

 

(3,291)

 

(2,439)

 

(6,377)

Change in fair value of earnout liability

(4,032)

(22,801)

Change in fair value of private warrant liability

(4,303)

(20,212)

Gain on extinguishment of debt

8,243

3,856

8,243

3,609

Investment income and realized gains

387

397

Other income (expense), net

 

(165)

 

(1,841)

 

(91)

 

(3,468)

Total other expense

 

(1,084)

 

(1,276)

 

(36,904)

 

(6,236)

Loss before income taxes

 

(24,027)

 

(6,255)

 

(89,479)

 

(24,601)

Income tax benefit (expense)

 

7,731

 

(3)

 

8,081

 

(24)

Net loss

$

(16,296)

$

(6,258)

$

(81,398)

$

(24,625)

 

  

 

  

 

 

  

Net loss attributable per share to common stockholders:

 

  

 

  

 

  

 

  

Basic

$

(0.17)

$

(0.18)

$

(0.89)

$

(0.70)

Diluted

$

(0.17)

$

(0.18)

$

(0.89)

$

(0.70)

 

  

 

  

 

  

 

  

Weighted-average shares used in computing net loss attributable per share to common stockholders:

 

  

 

  

 

  

 

  

Basic

 

95,221,928

 

35,478,347

 

91,483,053

 

35,117,130

Diluted

 

95,221,928

 

35,478,347

 

91,483,053

 

35,117,130

(1)Amounts include stock-based compensation expense, as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Cost of revenue

    

$

    

$

$

1

$

Selling and marketing

 

1,424

 

48

 

3,506

 

98

Product and technology

 

1,836

 

105

 

4,154

 

504

General and administrative

 

3,382

 

209

 

15,816

 

432

$

6,642

$

362

$

23,477

$

1,034

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PORCH GROUP, INC.

Condensed Consolidated Statements of Comprehensive Loss

(all numbers in thousands, unaudited)

    

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Net loss

$

(16,296)

$

(6,258)

$

(81,398)

$

(24,625)

Other comprehensive income:

 

 

 

 

Current period change in net unrealized gain (loss), net of tax (expense) benefit

267

 

 

267

 

Change in fair value of convertible promissory notes due to own credit

 

 

(3,856)

 

 

Comprehensive loss

$

(16,029)

$

(10,114)

$

(81,131)

$

(24,625)

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PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(all numbers in thousands, except share amounts, unaudited)

`

    

    

Additional 

    

    

    

Total 

Common Stock

 

Paid-in 

 

Accumulated 

 

Accumulated Other

 

Stockholders’

    

Shares

Amount

 

Capital

Deficit

Comprehensive Income

 

Equity (Deficit)

Balances as of December 31, 2019(1)

 

34,197,822

$

3

$

203,492

$

(263,474)

$

$

(59,979)

Net loss

 

 

 

 

(18,367)

 

 

(18,367)

Other comprehensive income

 

 

3,856

3,856

Stock-based compensation

 

 

 

672

 

 

 

672

Issuance of Series C redeemable convertible preferred stock(1)

 

671,836

 

 

4,714

 

 

 

4,714

Conversion of convertible notes to Series C redeemable convertible preferred stock(1)

 

198,750

 

 

1,436

 

 

 

1,436

Vesting of restricted stock awards issued for acquisitions

 

472,141

 

 

 

 

 

Issuance of common stock warrants

44

44

Exercise of stock options

 

8,409

 

 

1

 

 

 

1

Balances as of March 31, 2020

35,548,958

$

3

$

210,359

$

(281,841)

$

3,856

$

(67,623)

Net loss

(6,258)

(6,258)

Other comprehensive income

(3,856)

(3,856)

Stock-based compensation

362

362

Issuance of common stock for acquisitions

11,744

39

39

Exercise of stock options

1,174

Balances as of June 30, 2020

35,561,876

$

3

$

210,760

$

(288,099)

$

$

(77,336)

Balances as of December 31, 2020

 

81,669,151

$

8

$

424,823

$

(317,506)

$

$

107,325

Net loss

 

 

 

 

(65,101)

 

 

(65,101)

Other comprehensive income

 

 

Stock-based compensation

 

 

 

4,462

 

 

 

4,462

Stock-based compensation - earnout

 

12,373

12,373

Issuance of common stock for acquisitions

 

90,000

 

 

1,169

 

 

 

1,169

Reclassification of earnout liability upon vesting

 

 

 

25,815

 

 

25,815

Vesting of restricted stock units

2,078,102

Exercise of stock warrants

8,087,623

1

93,007

93,008

Exercise of stock options

 

593,106

 

 

355

 

 

355

Income tax withholdings

 

(1,062,250)

 

 

(16,997)

 

 

(16,997)

Transaction costs

(402)

(402)

Balances as of March 31, 2021

91,455,732

$

9

$

544,605

$

(382,607)

$

$

162,007

Net loss

(16,296)

(16,296)

Other comprehensive income

267

267

Stock-based compensation

2,466

2,466

Stock-based compensation - earnout

4,176

4,176

Issuance of common stock for acquisitions

1,292,441

28,372

28,372

Reclassification of private warrant liability upon exercise

16,843

16,843

Vesting of restricted stock units

33,182

Exercise of stock warrants

2,862,312

1

33,761

33,762

Exercise of stock options

946,392

2,227

2,227

Income tax withholdings

(296,643)

(5,194)

(5,194)

Transaction costs

140

140

Balances as of June 30, 2021

 

96,293,416

$

10

$

627,396

$

(398,903)

$

267

$

228,770

(1) Issuance of redeemable convertible preferred stock and convertible preferred stock warrants have been retroactively restated to give effect to the recapitalization transaction.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PORCH GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(all numbers in thousands, unaudited)

Six Months Ended June 30, 

    

2021

    

2020

Cash flows from operating activities:

  

 

  

Net loss

$

(81,398)

$

(24,625)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

  

Depreciation and amortization

 

6,356

 

3,386

Loss on sale and impairment of long-lived assets

126

325

Loss (gain) on extinguishment of debt

 

(8,243)

 

(3,609)

Loss on remeasurement of debt

 

 

1,412

Loss (gain) on divestiture of businesses

 

 

(1,442)

Loss on remeasurement of warrants

 

20,212

 

1,999

Loss (gain) on remeasurement of contingent consideration

 

(314)

 

1,400

Loss on remeasurement of earnout liability

22,801

Stock-based compensation

 

23,477

 

1,034

Amortization of premium/accretion of discount, net

654

Net realized (gains) losses on investments

Interest expense (non-cash)

 

67

 

2,775

Other

 

(1,479)

 

310

Change in operating assets and liabilities, net of acquisitions and divestitures

 

  

 

  

Accounts receivable

 

(5,017)

 

(1,130)

Reinsurance balance due

(94,883)

Prepaid expenses and other current assets

 

1,654

 

130

Long-term insurance commissions receivable

(2,775)

(984)

Accounts payable

 

(21,417)

 

2,723

Accrued expenses and other current liabilities

 

(3,292)

 

3,522

Losses and loss adjustment expense reserves

29,655

Other insurance liabilities, current

76,474

Deferred revenue

 

15,824

 

4,320

Refundable customer deposits

 

(1,273)

 

(1,506)

Contingent consideration - business combination

Deferred income tax benefit

(8,153)

Other

 

172

 

218

Net cash used in operating activities

 

(30,772)

 

(9,742)

Cash flows from investing activities:

 

  

 

  

Purchases of property and equipment

 

(539)

 

(62)

Capitalized internal use software development costs

 

(1,510)

 

(1,571)

Purchases of short-term and long-term investments

 

(9,476)

 

Maturities, sales of short-term and long-term investments

8,110

Acquisitions, net of cash acquired

 

(127,883)

 

Net cash used in investing activities

 

(131,298)

 

(1,633)

Cash flows from financing activities:

 

  

 

  

Proceeds from debt issuance, net of fees

 

 

10,079

Repayments of principal and related fees

 

(150)

 

(3,731)

Proceeds from issuance of redeemable convertible preferred stock, net of fees

 

 

4,714

Proceeds from exercises of warrants

 

126,772

 

Proceeds from exercises of stock options

2,544

1

Income tax withholdings paid upon vesting of restricted stock units

(22,126)

Settlement of contingent consideration related to a business combination

Net cash provided by financing activities

 

107,040

 

11,063

Change in cash, cash equivalents, and restricted cash

$

(55,030)

$

(312)

Cash, cash equivalents, and restricted cash, beginning of period

$

207,453

$

7,179

Cash, cash equivalents, and restricted cash end of period

$

152,423

$

6,867

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PORCH GROUP, INC.

Condensed Consolidated Statements of Cash Flows - Continued

(all numbers in thousands, unaudited)

Six Months Ended June 30, 

    

2021

    

2020

Supplemental disclosures

 

  

 

  

Conversion of debt to redeemable convertible preferred stock (non-cash)

$

$

1,436

Cash paid for interest

$

1,779

$

2,408

Cancelation of a convertible promissory note on divestiture of a business

$

$

2,724

Reduction of earnout liability due to a vesting event

$

25,815

$

Non-cash consideration for acquisitions

$

37,792

$

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Financial Statements (unaudited)

(all numbers in thousands, except share amounts and unless otherwise stated)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Porch Group, Inc. (“Porch Group”, “Porch” or the “Company”) is a vertical software platform for the home, providing software and services to home services companies, such as home inspectors, insurance carriers, moving companies, utility companies, warranty companies, and others. Porch helps these service providers grow their business and improve their customer experience. In addition, through these relationships Porch gains access to homebuyers and is able to offer services to make the moving process easier, helping consumers save time and make better decisions about critical services, including insurance, moving, security, TV/internet, home repair and improvement, and more.

On April 5, 2021, the Company acquired Homeowners of America Holding Corporation (“HAHC”), an insurance holding company established to hold insurance entities for the purpose of marketing personal lines insurance products on a national basis. HAHC owns 100% of Homeowners of America Insurance Company (“HAIC”). HAIC is domiciled in Texas, licensed in multiple states and is authorized to write various forms of homeowners insurance. HAHC also owns 100% of Homeowners of America MGA, Inc. (“HAMGA”), a Texas Corporation, formed to provide marketing and claims administration services. Collectively the companies are referred to as Homeowners of America (“HOA”).

The Merger

On July 30, 2020, Porch.com, Inc. (“Legacy Porch”) entered into a definitive agreement (as amended, the “Merger Agreement”) with PropTech Acquisition Corporation (“PTAC”), a special purpose acquisition company, whereby the parties agreed to merge, resulting in the parent of Porch.com, Inc. becoming a publicly-listed company under the name Porch Group, Inc. (“Porch”). This merger (the “Merger”) closed on December 23, 2020, and was accounted for as a reverse recapitalization, equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation accompanied by a recapitalization (“Recapitalization”). The accounting is similar to that of a reverse acquisition, except that no goodwill or other intangible assets should be recorded. Therefore, the net assets of PTAC as of December 23, 2020, were stated at historical cost, and no goodwill or other intangible assets were recorded.

COVID-19 Update

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

Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements include the accounts of Porch Group, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these unaudited condensed consolidated financial statements and notes should be read in conjunction with the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, filed with the SEC on May 19, 2021.The information as of December 31, 2020 included in the unaudited condensed consolidated balance sheets was

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derived from the Company’s audited consolidated financial statements. Certain reclassifications to 2020 balances were made to conform to the current period presentation in the consolidated financial statements.

The unaudited condensed consolidated financial statements included in this Quarterly Report were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the periods and dates presented. The results of operations for both the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other interim period or future year.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of adjustments related to (1) unrealized gains and losses on available-for-sale securities, and (2) the effect of the Company’s own credit components on the fair value of certain convertible notes at fair value in accordance with the fair value option (“FVO Notes”).

Each reporting period, the fair value of the FVO Notes is determined and resulting gains and losses from the change in fair value of the FVO Notes associated with the Company’s own credit component is recognized in accumulated other comprehensive income (“AOCI”), while the resulting gains and losses associated with non-credit components are included in the unaudited condensed consolidated statements of operations. The FVO Notes were extinguished during the quarter ended June 30, 2020, resulting in a reversal of the previously recognized gain from the change in fair value of the FVO associated with the Company’s own credit component in AOCI.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. On an ongoing basis these estimates, which include, but are not limited to, estimated variable consideration for services performed, the allowance for doubtful accounts, depreciable lives for property and equipment, acquired intangible assets, goodwill, the valuation allowance on deferred tax assets, assumptions used in stock-based compensation, unpaid losses and loss adjustment expenses, contingent consideration, earnout liabilities and private warrant liabilities, are evaluated by management. Actual results could differ from those estimates, judgments, and assumptions, and to the extent those differences are material, the consolidated financial statements will be affected.

Segment Reporting

The Company operates as a single reportable segment. Operating segments are components of an enterprise for which separate discrete financial information is available and operational results are regularly evaluated by the chief operating decision maker (“CODM”) for the purposes of making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer (“CEO”) is the CODM, and to date, the CEO has made such decisions and assessed performance at the aggregated level.

All the Company’s revenue is generated in the United States.

As of June 30, 2021 and December 31, 2020, the Company did not have assets located outside of the United States.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to credit risk consist principally of cash, money market accounts on deposit with financial institutions, money market funds, certificates of deposit and fixed- maturity securities, as well as receivable balance in the course of collection.

The Company’s insurance subsidiary has exposure and remains liable in the event of an insolvency of one of its primary reinsurers. Management and its reinsurance intermediary regularly assess the credit quality and ratings of its

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reinsurer base companies. No individual reinsurer represented more than 10% of the Company’s insurance subsidiary’s total reinsurance receivables as of the dates or for the periods presented.

Substantially all of the Company’s insurance-related revenues are derived from customers in Texas, Arizona, Georgia, North Carolina, and South Carolina, which could be adversely affected by economic conditions, an increase in competition, or environmental impacts and changes.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. The Company maintains cash balances that may exceed the insured limits by the Federal Deposit Insurance Corporation.

Restricted cash equivalents as of June 30, 2021 includes $314 thousand held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors and $1.9 million related to acquisition indemnification hold backs. Restricted cash as of December 31, 2020 includes $8.4 million related to the Paycheck Protection Program Loans held in escrow with a commercial bank (see Note 7) and a $3.0 million minimum cash balance required by the Company’s senior secured lender.

The reconciliation of cash and cash equivalents to amounts presented in the consolidated statements of cash flows are as follows: