Porch Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Dollar amounts below are in millions unless otherwise stated. Porch operates Vertical Software and Insurance segments, serving home-service businesses and consumers.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $62.6 | $26.7 |
| Operating loss | $(25.3) | $(29.6) |
| Net loss | $(5.8) | $(65.1) |
| Adjusted EBITDA (non-GAAP) | $(7.1), or (11)% of revenue | $(9.6), or (36)% |
| Net cash used in operating activities | $(13.3) | $(22.9) |
- Revenue less cost of revenue was $41.4 million, equal to 66% of revenue, versus $20.8 million, or 78%, a year earlier. Cost of revenue rose to 34% of revenue from 22%, partly reflecting the increased insurance business mix.
- Revenue by segment: Vertical Software $34.7 million, up from $24.9 million; Insurance $27.9 million, up from $1.8 million. Insurance growth primarily reflects the 2021 HOA and AHP acquisitions, post-acquisition growth, and organic growth.
- Cash and cash equivalents were $292.4 million; restricted cash was $10.7 million. Investment securities were $65.3 million. Current assets were $601.8 million and current liabilities $381.4 million.
- Debt principal was approximately $425.5 million, principally $425 million of 0.75% convertible senior notes due 2026. Interest expense was $2.3 million, up from $1.2 million.
Material changes versus the prior period
- Revenue increased 134%, driven substantially by businesses acquired during 2021, as well as post-acquisition growth and organic growth. The comparison includes limited contribution from those acquisitions in Q1 2021.
- Operating expenses rose 56% to $87.9 million, less than revenue growth; operating loss narrowed by $4.3 million. Selling and marketing and product and technology expenses declined as a share of revenue, while cost of revenue increased with insurance mix.
- Net loss improved by $59.3 million, but the comparison was heavily affected by non-cash fair-value movements: Q1 2022 included gains of $11.2 million on the earnout liability and $10.2 million on private warrants, versus losses of $18.8 million and $15.9 million, respectively, in Q1 2021.
- Cash, cash equivalents and restricted cash declined $21.8 million during the quarter. Operating cash use improved year over year; investing cash use was $8.1 million, including a $5.0 million non-refundable acquisition deposit.
- Available-for-sale securities had $2.8 million of unrealized losses at quarter-end, primarily attributed by the company to interest-rate changes; management reported no credit-related impairment.
Outlook, risks and unusual items
- No specific revenue, earnings or cash-flow guidance is provided. Management stated that quarter-end cash and cash equivalents were sufficient for operations, planned capital expenditures, working capital and debt service for at least the next 12 months, while noting possible future financing needs and dilution or unfavorable financing terms.
- Management is investing in acquisitions, software and consumer experience, insurance growth and geographic expansion, as well as systems and personnel for internal controls. It described operating leverage as a focus.
- Disclosure controls and procedures were deemed ineffective at March 31, 2022 because of material weaknesses previously reported in the 2021 Form 10-K. Remediation is underway; the filing cautions it may be time-consuming and costly and may not succeed.
- Risks include insurance regulation and expansion, claims and loss-reserve estimates, reliance on reinsurers, privacy and data protection, inflation, economic and weather impacts, acquisitions, and litigation. Two reinsurers represented 38% in aggregate of insurance reinsurance receivables; Texas generated approximately 57% of insurance-related revenue. About $233.4 million of cash was held at one U.S. commercial bank.
- The filing describes TCPA proceedings, a Kandela earnout dispute and a wage-and-hours class action settlement awaiting final court approval. The company said it could not estimate potential losses for certain matters. It also had a pending $48.6 million cash acquisition of CSE, subject to closing conditions. Subsequent to quarter-end, Porch acquired RWS businesses for stated total consideration of $33 million, including $29 million cash and $4 million stock, plus contingent consideration.
Most important facts for investors to verify
- How much of reported growth and segment performance is attributable to acquired businesses versus organic growth, and how insurance premiums, ceded reinsurance and claims affect revenue and margins.
- Whether operating cash use, losses and the stated 12-month liquidity assessment remain consistent with the company’s acquisition and investment plans.
- The potential dilution and conversion economics of the $425 million notes, including the capped-call arrangements and other outstanding equity awards.
- Progress and independent validation of remediation of material weaknesses in internal controls.
- Developments in reinsurance recoverables and concentration, insurance loss reserves, CSE closing, RWS integration and the disclosed legal matters.