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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 March 31, 2022

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)

411 1st Avenue S., Suite 501, Seattle, WA 98104

(Address of Principal Executive Offices) (Zip Code)

(855) 767-2400

(Registrant’s telephone number, including area code)

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


(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 May 6, 2022 was 99,136,900.

Table of Contents

Table of Contents

    

    

Page

Part I.

Financial Information

3

Item 1.

Financial Statements

3

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

3

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021

4

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2022 and 2021

5

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

6

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

8

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

45

Item 4.

Controls and Procedures

46

Part II.

Other Information

48

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3.

Defaults Upon Senior Securities

48

Item 4.

Mine Safety Disclosures

48

Item 5.

Other Information

48

Item 6.

Exhibits

49

Exhibit Index

49

Signatures

50

2

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

PORCH GROUP, INC.

Condensed Consolidated Balance Sheets

(all numbers in thousands, except share amounts)

    

March 31, 2022

    

December 31, 2021

Assets

 

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

292,373

$

315,741

Accounts receivable, net

 

29,996

 

28,767

Short-term investments

8,462

9,251

Reinsurance balance due

239,739

228,416

Prepaid expenses and other current assets

 

21,087

 

14,338

Restricted cash

10,162

8,551

Total current assets

 

601,819

 

605,064

Property, equipment, and software, net

 

8,340

 

6,666

Operating lease right-of-use assets

3,922

4,504

Goodwill

 

226,576

 

225,654

Long-term investments

56,865

58,324

Intangible assets, net

 

124,306

 

129,830

Restricted cash, non-current

 

500

 

500

Long-term insurance commissions receivable

9,061

7,521

Other assets

 

5,373

 

684

Total assets

$

1,036,762

$

1,038,747

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

8,016

$

6,965

Accrued expenses and other current liabilities

 

35,029

 

37,675

Deferred revenue

 

198,857

 

201,085

Refundable customer deposit

 

16,686

 

15,274

Current portion of long-term debt

 

150

 

150

Losses and loss adjustment expense reserves

79,608

61,949

Other insurance liabilities, current

43,049

40,024

Total current liabilities

 

381,395

 

363,122

Long-term debt

 

415,002

 

414,585

Operating lease liabilities, non-current

2,267

2,694

Earnout liability, at fair value

2,687

13,866

Private warrant liability, at fair value

5,004

15,193

Other liabilities (includes $12,822 and $9,617 at fair value, respectively)

 

15,528

 

12,242

Total liabilities

 

821,883

 

821,702

Commitments and contingencies (Note 12)

 

  

 

  

Stockholders’ equity

 

  

 

  

Common stock, $0.0001 par value:

 

10

 

10

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

 

  

 

  

Issued and outstanding shares – 98,297,186 and 97,961,597, respectively

Additional paid-in capital

 

647,551

 

641,406

Accumulated other comprehensive loss

(2,774)

(259)

Accumulated deficit

 

(429,908)

 

(424,112)

Total stockholders’ equity

 

214,879

 

217,045

Total liabilities and stockholders’ equity

$

1,036,762

$

1,038,747

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 March 31, 

    

2022

    

2021

Revenue

$

62,561

$

26,742

Operating expenses(1):

 

  

 

  

Cost of revenue

 

21,189

 

5,930

Selling and marketing

 

25,743

 

14,638

Product and technology

 

14,231

 

11,789

General and administrative

 

26,699

 

24,016

Total operating expenses

 

87,862

 

56,373

Operating loss

 

(25,301)

 

(29,631)

Other income (expense):

 

  

 

  

Interest expense

 

(2,293)

 

(1,223)

Change in fair value of earnout liability

11,179

(18,770)

Change in fair value of private warrant liability

10,189

(15,910)

Investment income and realized gains, net of investment expenses

197

Other income, net

 

56

 

83

Total other income (expense)

 

19,328

 

(35,820)

Loss before income taxes

 

(5,973)

 

(65,451)

Income tax benefit

 

177

 

350

Net loss

$

(5,796)

$

(65,101)

Loss per share - basic and diluted (Note 14)

$

(0.06)

$

(0.76)

 

  

 

  

Shares used in computing basic and diluted loss per share

 

96,074,527

 

85,331,575

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

Three Months Ended March 31, 

    

2022

    

2021

Cost of revenue

    

$

    

$

1

Selling and marketing

 

632

 

2,082

Product and technology

 

1,137

 

2,317

General and administrative

 

4,085

 

12,435

$

5,854

$

16,835

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 March 31, 

    

2022

    

2021

Net loss

$

(5,796)

$

(65,101)

Other comprehensive loss:

 

 

Current period change in net unrealized loss, net of tax

(2,515)

 

Comprehensive loss

$

(8,311)

$

(65,101)

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PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity

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

Accumulated

Additional 

Other

Total 

Common Stock

 

Paid-in 

 

Accumulated 

 

Comprehensive

 

Stockholders’

Shares

Amount

 

Capital

Deficit

Loss

 

Equity

Balances as of December 31, 2021

 

97,961,597

$

10

$

641,406

$

(424,112)

$

(259)

$

217,045

Net loss

 

 

 

 

(5,796)

 

 

(5,796)

Other comprehensive income

 

 

(2,515)

(2,515)

Stock-based compensation

 

 

 

5,854

 

 

 

5,854

Contingent consideration for acquisitions

 

 

 

530

 

 

530

Vesting of restricted stock awards

245,855

Exercise of stock options

 

185,685

 

 

473

 

 

473

Income tax withholdings

 

(95,951)

 

 

(712)

 

 

(712)

Balances as of March 31, 2022

98,297,186

$

10

$

647,551

$

(429,908)

$

(2,774)

$

214,879

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PORCH GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity - Continued

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

Additional 

Total 

Common Stock

 

Paid-in 

 

Accumulated 

 

Stockholders’

    

Shares

Amount

 

Capital

Deficit

Equity

Balances as of December 31, 2020

 

81,669,151

$

8

$

424,823

$

(317,506)

$

107,325

Net loss

 

 

 

 

(65,101)

 

(65,101)

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 awards

 

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

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)

Three Months Ended March 31, 

    

2022

    

2021

Cash flows from operating activities:

  

 

  

Net loss

$

(5,796)

$

(65,101)

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

 

 

  

Depreciation and amortization

 

6,483

 

2,463

Amortization of operating lease right-of-use assets

582

345

Loss on sale and impairment of long-lived assets

70

68

Loss (gain) on remeasurement of private warrant liability

 

(10,189)

 

15,910

Loss (gain) on remeasurement of contingent consideration

 

3,205

 

(355)

Loss (gain) on remeasurement of earnout liability

(11,179)

18,770

Stock-based compensation

 

5,854

 

16,835

Amortization of investment premium/accretion of discount, net

566

Net realized losses on investments

68

Interest expense (non-cash)

 

1,046

 

311

Other

 

64

 

(225)

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

 

 

  

Accounts receivable

 

(1,296)

 

(846)

Reinsurance balance due

(11,323)

Prepaid expenses and other current assets

 

(6,749)

 

441

Accounts payable

 

1,051

 

(8,090)

Accrued expenses and other current liabilities

 

(3,145)

 

2,625

Losses and loss adjustment expense reserves

17,659

Other insurance liabilities, current

3,025

Deferred revenue

 

(2,228)

 

(1,362)

Refundable customer deposits

 

1,412

 

(837)

Contingent consideration - business combination

(1,663)

Long-term insurance commissions receivable

 

(1,540)

 

(1,383)

Operating lease liabilities, non-current

(235)

(354)

Other

 

(696)

 

(487)

Net cash used in operating activities

 

(13,291)

 

(22,935)

Cash flows from investing activities:

 

  

 

  

Purchases of property and equipment

 

(1,167)

 

(34)

Capitalized internal use software development costs

 

(1,574)

 

(798)

Purchases of short-term and long-term investments

 

(8,835)

 

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

8,449

Non-refundable deposit for acquisition

 

(4,950)

 

Acquisitions, net of cash acquired

(22,882)

Net cash used in investing activities

 

(8,077)

 

(23,714)

Cash flows from financing activities:

 

  

 

  

Repayments of principal and related fees

 

(150)

 

(150)

Proceeds from exercises of warrants

 

 

89,771

Proceeds from exercises of stock options

473

355

Income tax withholdings paid upon vesting of restricted stock units

(712)

(16,997)

Settlement of contingent consideration related to a business acquisition

(400)

Net cash (used) provided by financing activities

 

(389)

 

72,579

Net change in cash, cash equivalents, and restricted cash

$

(21,757)

$

25,930

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

$

324,792

$

207,453

Cash, cash equivalents, and restricted cash end of period

$

303,035

$

233,383

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PORCH GROUP, INC.

Condensed Consolidated Statements of Cash Flows - Continued

(all numbers in thousands, unaudited)

Three Months Ended March 31, 

    

2022

    

2021

Supplemental disclosures

 

  

 

  

Cash paid for interest

$

1,587

$

903

Non-cash consideration for acquisitions

$

$

2,906

Earnout liability

$

$

25,815

Proceeds receivable from exercises of warrants

$

$

3,237

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 Statements

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

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 over 25,500 home services companies. The Vertical Software Segment provides software and services to home services companies, such as home inspectors, mortgage companies and loan officers, title companies, moving companies, real estate agencies, utility companies, and others, and the Insurance Segment operates both as an insurance carrier underwriting home insurance policies, and as an agent selling home and auto insurance for over 20 major and regional insurance companies. The Insurance Segment also includes Porch’s warranty service offering.

Porch helps home 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, warranty, moving, security, TV/Internet, home repair and improvement.

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 for the fiscal year ended December 31, 2021, filed with the SEC on March 16, 2022. The information as of December 31, 2021 included in the unaudited condensed consolidated balance sheets was derived from the Company’s audited consolidated financial statements.

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (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, and cash flows for the periods and dates presented. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other interim period or future year.

Comprehensive Loss

Comprehensive loss consists of adjustments related to unrealized gains and losses on available-for-sale securities.

Reclassifications

Certain reclassifications to previously reported 2021 balances were made to conform to the current period presentation in the unaudited condensed consolidated statements of cash flows.

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 unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis these estimates, which include, but are not limited to,

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

estimated variable consideration for services performed, estimated lifetime value of the commissions, current estimate for credit losses, depreciable lives for property and equipment, the valuation of and useful lives for acquired intangible assets, goodwill, the valuation allowance on deferred tax assets, assumptions used in stock-based compensation expense, unpaid losses for insurance claims and loss adjustment expenses, contingent consideration, earnout liabilities and private warrant liabilities, are evaluated by management. Actual results could differ materially from those estimates, judgments, and assumptions.

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 carrier 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 reinsurer counterparties. Two reinsurers represented more than 10% individually, and 38% in aggregate, of the Company’s insurance subsidiary’s total reinsurance receivables as of March 31, 2022.

Substantially all of the Company’s insurance-related revenues in the Insurance segment are derived from customers in Texas (which represent approximately 57% of such revenues in the three months ended March 31, 2022), South Carolina, North Carolina, Georgia, Virginia and Arizona, which could be adversely affected by economic conditions, an increase in competition, or environmental impacts and changes.

No individual customer represented more than 10% of the Company’s total revenue for the three months ended March 31, 2022, or 2021. As of March 31, 2022 and December 31, 2021, no individual customer accounted for 10% or more of the Company’s total accounts receivable.

As of March 31, 2022, the Company held approximately $233.4 million of cash with one U.S. commercial bank.

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 March 31, 2022 includes $0.3 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $7.1 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in twenty five states, $0.3 million of customer deposits, $0.4 million in escrow with an insurance regulator, and $2.6 million related to acquisition indemnifications, of which $0.5 million is recorded in non-current assets. Restricted cash equivalents as of December 31, 2021, includes $0.3 million held in certificates of deposits and money market mutual funds pledged to the Department of Insurance in certain states as a condition of its Certificate of Authority for the purpose of meeting obligations to policyholders and creditors, $5.9 million in funds held for the payment of possible warranty claims as required under regulatory guidelines in twenty five states, $0.3 million of customer deposits, and $2.6 million related to acquisition indemnifications in escrow accounts, of which $0.5 million is recorded in non-current assets.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

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

    

March 31, 2022

    

December 31, 2021

Cash and cash equivalents

$

292,373

$

315,741

Restricted cash and restricted cash equivalents - current

 

10,162

 

8,551

Restricted cash and restricted cash equivalents - non-current

500

500

Cash, cash equivalents and restricted cash

$

303,035

$

324,792

Accounts Receivable and Long-term Insurance Commissions Receivable

Accounts receivable consist principally of amounts due from enterprise customers and other corporate partnerships, as well as credit card receivables. The Company estimates allowances for uncollectible receivables based on the creditworthiness of its customers, historical trend analysis and general economic conditions. Consequently, an adverse change in those factors could affect the Company’s estimate of allowance for doubtful accounts. The allowance for uncollectible receivables at March 31, 2022 and December 31, 2021, was $0.5 million and $0.4 million, respectively.

Long-term insurance commissions receivable balance consists of the estimated commissions from policy renewals expected to be collected. The Company records the amount of renewal insurance commissions expected to be collected in the next twelve months as current accounts receivable.

Deferred Policy Acquisition Costs

The Company capitalizes deferred policy acquisitions costs (“DAC”) which consist primarily of commissions, premium taxes and policy underwriting and production expenses that are directly related to the successful acquisition by the Company’s insurance subsidiary of new or renewal insurance contracts. DAC are amortized to expense on a straight-line basis over the terms of the policies to which they relate, which is generally one year. The amortization of DAC is included in sales and marketing expense in the unaudited condensed consolidated statements of operations and comprehensive loss. DAC is also reduced by ceding commissions paid by reinsurance companies which represent recoveries of acquisition costs. DAC is periodically reviewed for recoverability and adjusted if necessary. Future investment income is considered in determining the recoverability of DAC. As of March 31, 2022 and December 31, 2021, DAC of $7.7 million and $4.0 million is included in prepaid expenses and other current assets.

Changes in DAC for the three months ended March 31, 2022 are as follows:

    

2022

Deferred policy acquisition costs at December 31, 2021 (gross)

$

33,014

Ceded deferred policy acquisition costs

 

(29,026)

Deferred policy acquisition costs at December 31, 2021 (net)

3,988

Capitalized costs

16,753

Amortized costs

(13,001)

Deferred policy acquisition costs at March 31, 2022 (net)

$

7,740

Fair Value of Financial Instruments

Fair value, as defined by the accounting standards, represents the amount at which an asset or liability would be transferred in a current orderly transaction between willing market participants. Emphasis is placed on observable inputs being used to assess fair value. To reflect this approach the standards require a three-tiered fair value hierarchy be

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

applied based on the nature of the inputs used when measuring fair value. The three hierarchical levels of inputs are as follows:

Level 1

Observable inputs, such as quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date;

Level 2

Observable inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. This may include active markets for similar assets and liabilities, quoted prices in markets that are not highly active, or other inputs that are observable or can be corroborated by observable market data; and

Level 3

Unobservable inputs that are arrived at by means other than current observable market activity.

The level of the least observable significant input used in assessing the fair value determines the placement of the entire fair value measurement in the hierarchy. Management’s assessment of the significance of a particular input to the fair value measurement requires the use of judgment specific to the asset or liability.

Other Insurance Liabilities, Current

The following table details the components of other insurance liabilities, current on the condensed consolidated balance sheets:

    

March 31, 2022

    

December 31, 2021

Ceded reinsurance premiums payable

$

21,439

$

22,523

Funds held under reinsurance treaty

 

2,092

 

2,206

Commissions payable, reinsurers and agents

9,259

10,697

General and accrued expenses payable

579

321

Advance premiums

 

9,680

 

4,277

Other insurance liabilities, current

$

43,049

$

40,024

Income Taxes

Provisions for income taxes for the three months ended March 31, 2022 and 2021 were a $0.2 million benefit and a $0.4 million benefit, respectively, and the effective tax rates for these periods were 2.96% and 0.53%, respectively. The difference between the Company’s effective tax rates for the 2022 period and the U.S. statutory rate of 21% was primarily due to a full valuation allowance related to the Company’s net deferred assets. The difference between the Company’s effective tax rates for the 2021 period and the U.S. statutory rate of 21% was primarily due to a full valuation allowance related to the Company’s net deferred tax assets.

Recently Adopted Accounting Standards

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. The amendments of this ASU do not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with Topic 606. The amendments of this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods in those fiscal years. The ASU clarifies that early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company early adopted this ASU as of January 1, 2022 and will apply the guidance prospectively for business combinations that occur after the adoption date. Therefore, the adoption will have no impact to the existing consolidated balance sheets, statements of operations, and statements of cash flows.

2. Revenue

Disaggregation of Revenue

The Company generates revenue in its Vertical Software segment from (1) software and service subscription fees received for continued access to and transactions processed using owned software platforms by individual contractors, small business service providers and large enterprise service providers, (2) move-related transactions for a variety of services when end customers are connected with service providers primarily related to moving or settling into a new home, and (3) post-move transactions for the delivery of leads to service providers who primarily support the continued maintenance of the home.

The revenue generated by the Company’s Insurance segment is primarily from the sale of its own written insurance and warranty policies or third-party policies via its agency. This revenue includes insurance and warranty premiums earned over the life of the policy, reinsurance profit share, policy fees, commissions earned at the time it is put in force or ceded.

Total revenues consisted of the following:

Three Months Ended March 31, 

2022

2021

Vertical Software segment

Software and service subscriptions

$

17,965

$

10,879

Move-related transactions (excluding insurance)

12,193

8,960

Post-move transactions

4,530

5,098

Total Vertical Software segment revenue

34,688

24,937

Insurance segment

Insurance and warranty premiums, commissions and policy fees(1)

27,873

1,805

Total Insurance segment revenue

27,873

1,805

Total revenue

$

62,561

$

26,742

(1) Revenue recognized during the three months ended March 31, 2022 includes revenue from regulated property and casualty insurance entity in the form of insurance premiums, policy fees, ceding commissions, and reinsurance profit sharing of $20.0 million which is accounted for separately from the revenue from contracts with customers.

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Table of Contents

PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

Contracts with Customers

Contract Assets - Insurance Commissions Receivable

A summary of the activity impacting the contract assets during the three months ended March 31, 2022, is presented below:

    

Contract Assets

Balance at December 31, 2021

$

9,384

Estimated lifetime value of insurance policies sold by carriers

 

2,422

Cash receipts

 

(753)

Balance at March 31, 2022

$

11,053

As of March 31, 2022, $2.0 million of contract assets are expected to be collected within the next 12 months and therefore are included in current accounts receivable on the condensed consolidated balance sheets. The remaining $9.1 million of contract assets are expected to be collected in the following periods and are included in long-term insurance commissions receivable on the condensed consolidated balance sheets.

Contract Liabilities — Refundable Customer Deposits

A summary of the activity impacting the contract liabilities during the three months ended March 31, 2022 is presented below:

Contract 

    

Liabilities

Balance at December 31, 2021

 

15,274

Additions to contract liabilities

 

7,891

Contract liabilities transferred to revenue

(6,479)

Balance at March 31, 2022

$

16,686

As of March 31, 2022, $16.7 million in contract liabilities related to refundable customer deposits received in advance of warranty services provided, are included in current refundable customer deposits on the consolidated balance sheets because the policyholder may cancel the policy at any time and receive a pro-rated refund. If the policies are not canceled, the balance is expected to be transferred to revenue over the term of the policies, which is, on average, 19 months.

Deferred Revenue

Timing may differ between the satisfaction of performance obligations and the collection of amounts from customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. To the extent the amounts relate to services or coverage performed by the Company over time, these liabilities are classified as deferred revenue. If the amounts collected are related to a point in time obligation which has yet to be performed, these liabilities are classified as refundable customer deposits.

A summary of the activity impacting deferred revenue balances during the three months ended March 31, 2022 is presented below:

Vertical Software

Insurance

Total

    

Deferred Revenue

Deferred Revenue

Deferred Revenue

Balance at December 31, 2021

3,814

$

197,271

$

201,085

Revenue recognized(1)

 

(5,279)

 

(91,994)

 

(97,273)

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

Additional amounts deferred

 

5,722

 

89,323

 

95,045

Balance at March 31, 2022

$

4,257

$

194,600

$

198,857

(1)In the table above, revenue recognized on earned premiums related to the insurance segment is presented as the gross amount from policy holders excluding the impact of ceded premiums. On the unaudited condensed statements of operations earned premiums are presented net of ceded premiums of $71.7 million.

Remaining Performance Obligations

Contracts with customers include $4.3 million to performance obligations that will be satisfied at a later date. These amounts primarily include performance obligations that are recorded in the condensed consolidated balance sheets as deferred revenue.

The amount of the transaction price allocated to performance obligations to be satisfied at a later date, which is not recorded in the condensed consolidated balance sheets, is immaterial as of March 31, 2022 and December 31, 2021.

The Company has applied the practical expedients provided for in the accounting standards, and does not present unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which it has the right to invoice for services performed. Additionally, the Company excludes amounts related to performance obligations that are billed and recognized as they are delivered.

3. Investments

The following table provides the Company’s investment income, and realized gains on investments:

Three Months Ended March 31, 

2022

Investment income, net of investment expenses

$

265

Realized gains on investments

2

Realized losses on investments

(70)

Investment income and realized gains, net of investment expenses

$

197

The Company did not have significant investment income during the three months ended March 31, 2021.

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

The following table provides the amortized cost, fair value and unrealized gains and (losses) of the Company’s investment securities:

March 31, 2022

Gross Unrealized

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

U.S. Treasuries

$

3,653

$

1

$

(135)

$

3,519

Obligations of states, municipalities and political subdivisions

9,997

(584)

9,413

Corporate bonds

 

30,283

 

3

 

(1,234)

 

29,052

Residential and commercial mortgage-backed securities

15,237

27

(617)

14,647

Other loan-backed and structured securities

8,931

2

(237)

8,696

Total debt securities

$

68,101

$

33

$

(2,807)

$

65,327

December 31, 2021

Gross Unrealized

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

U.S. Treasuries

$

5,452

$

1

$

(36)

$

5,417

Obligations of states, municipalities and political subdivisions

8,913

21

(84)

8,850

Corporate bonds

 

31,491

 

89

 

(155)

 

31,425

Residential and commercial mortgage-backed securities

14,387

34

(139)

14,282

Other loan-backed and structured securities

7,637

5

(41)

7,601

Total debt securities

$

67,880

$

150

$

(455)

$

67,575

The amortized cost and fair value of securities at March 31, 2022, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

March 31, 2022

Remaining Time to Maturity

    

Amortized Cost

    

Fair Value

Due in one year or less

$

6,425

$

6,388

Due after one year through five years

20,771

19,914

Due after five years through ten years

13,700

12,820

Due after ten years

 

3,037

 

2,862

Residential and commercial mortgage-backed securities

15,237

14,647

Other loan-backed and structured securities

8,931

8,696

Total

$

68,101

$

65,327

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporarily impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including:

-the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;
-the length of time and the extent to which the market value of the security has been below its cost or amortized cost;

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PORCH GROUP, INC.

Notes to Condensed Consolidated Statements - Continued

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

-general market conditions and industry or sector-specific factors;
-nonpayment by the issuer of its contractually obligated interest and principal payments; and
-the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

Securities with gross unrealized loss position, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:

Less Than Twelve Months

Twelve Months or Greater

Total

Gross

Gross

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

At March 31, 2022

Loss

Value

    

Loss

Value

    

Loss

Value

U.S. Treasuries

$

(135)

$

3,204

$

$

$

(135)

$

3,204

Obligations of states, municipalities and political subdivisions

(584)