Porch Group, Inc. annual report, FY2022

Porch Group, Inc. — FY 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone Q4 report; quarterly figures below are unaudited. Porch operates two segments: Vertical Software, serving home-service businesses and consumers, and Insurance, comprising its carrier, agency, and home-warranty businesses.

Financial performance and liquidity

Metric	FY 2022	FY 2021
Revenue	$275.9 million	$192.4 million
Operating loss	$177.0 million	$83.4 million
Net loss	$156.6 million	$106.6 million
Net loss per diluted share	$1.61	$1.14
Net cash used in operating activities	$17.7 million	$34.8 million
Adjusted EBITDA loss (non-GAAP)	$49.6 million	$24.0 million

Revenue less cost of revenue was $168.4 million, or approximately 61% of revenue, versus $133.7 million, or approximately 69%, in 2021. Cost of revenue rose to 39% of revenue from 31%.
Revenue grew 43%; management attributed approximately $63 million of the increase to acquisitions, with the remainder from post-acquisition and organic growth.
Vertical Software revenue was $154.9 million, up from $137.2 million. Insurance revenue was $121.0 million, up from $55.3 million. Insurance represented 44% of total revenue versus 29% in 2021.
Segment Adjusted EBITDA was $14.7 million for Vertical Software, down from $20.7 million; Insurance recorded a $5.5 million loss versus $9.0 million of positive Adjusted EBITDA in 2021. Corporate and Other costs were $58.8 million.
Q4 unaudited revenue was $64.1 million and net loss was $35.5 million.
At year-end, cash and cash equivalents were $215.1 million, restricted cash was $13.5 million, and total assets were $1.05 billion. Cash and cash equivalents were down from $315.7 million at the prior year-end.
Debt principal was $451.1 million, including $425 million of 0.75% convertible notes due 2026, $15.7 million of warranty premium advance funding, and a $10 million term loan. Management said available cash was expected to fund operations, planned capital expenditures, working capital, and debt service for at least 12 months.
Current assets were $610.6 million and current liabilities $515.6 million. The balance sheet includes $299.1 million of reinsurance balances due and $270.7 million of deferred revenue.
Operating, investing, and financing cash flows were respectively negative $17.7 million, negative $79.7 million, and positive $1.2 million. Investing outflows included $38.6 million for acquisitions, $52.5 million for investments, and $8.1 million for internally developed software, partly offset by investment maturities and sales.

Material changes and unusual items

Net loss increased by $50.0 million year over year. FY 2022 included $61.4 million of impairment charges: $43.7 million of Insurance goodwill and $17.7 million of Vertical Software intangible assets; there were no comparable impairment charges in 2021.
Insurance claims and loss-adjustment costs increased amid severe weather, including Hurricane Ian and Winter Storm Elliott, and inflation-related claims-cost pressure. Cost of revenue increased 83% to $107.6 million.
The company acquired Residential Warranty Services in April 2022 for $38.8 million, with additional Florida and California operations subject to approvals and expected to close in 2023 for approximately $2.4 million, subject to adjustments.
Porch repurchased 2.39 million shares in Q4 for $4.4 million under a program authorizing up to $15 million of stock or convertible-note repurchases through June 30, 2023. It reported buying another 1.40 million shares for $3.1 million in Q1 2023.
The filing restated 2022 interim financial statements for errors in accounting for ceded reinsurance losses, along with other immaterial errors. The restatement did not affect reported cash; the annual statements are presented as audited.

Outlook, risks, and contingencies

The filing provides no specific forward-year revenue or earnings guidance. Management cited ongoing investment in consumer experience, the app and digital platform, data infrastructure, software modules, insurance expansion, and internal controls.
Management identified a difficult housing environment: existing-home sales fell approximately 18% in 2022 amid higher interest rates, affordability challenges, and tighter inventory. About 20% of company revenue is directly related to housing transactions.
Key Insurance risks include catastrophe exposure, claims inflation, reserve-estimation uncertainty, reinsurance availability and counterparty risk, and state approval and capital requirements. Two reinsurers accounted for 45% of Insurance reinsurance receivables in aggregate at year-end.
Porch planned to seek Texas approval for a reciprocal exchange to conduct its underwriting business through a new structure. Approval, terms, launch, and potential expansion remain uncertain.
Management reported ineffective disclosure controls and ineffective internal control over financial reporting at December 31, 2022. The material weakness involved IT general controls at Homeowners of America and dependent business-process controls. The auditor issued an adverse opinion on internal control, while giving an unqualified opinion on the financial statements. Remediation is planned and remains to be demonstrated.
Twelve TCPA-related proceedings were pending; an unfavorable outcome was described as reasonably possible, but the potential loss range could not be estimated. The wage-and-hour class action settlement was finalized in 2022. Porch prevailed in the Kandela arbitration and obtained a judgment, but reported that the judgment had not been paid.

Most important facts for investors to verify

How much revenue growth is sustainable organically, apart from acquired businesses, and whether the housing slowdown continues to weaken transaction-linked revenue.
Whether Insurance underwriting results, catastrophe claims, loss reserves, and reinsurance recoverables develop as expected, including the concentration among reinsurers.
Whether cash generation improves and whether cash, restricted funds, debt service, and warranty advance-funding obligations support the company’s stated liquidity outlook.
Whether the HOA IT-control material weakness is remediated, and whether future filings show reliable controls and consistent accounting after the interim restatement.
Regulatory progress and economics of the proposed reciprocal exchange, as well as outcomes of the TCPA litigation and recovery of the Kandela judgment.
Potential dilution from convertible notes, equity awards, and acquisition-related contingent shares; the 2026 Notes’ initial conversion price is approximately $25 per share.