Porch Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Porch is a U.S.-focused vertical software and services platform for the home. Its revenue includes referral-network transactions, managed services, and software and service subscriptions. The company reported one operating segment.
Financial performance and liquidity
- Revenue: $26.7 million, up 77% from $15.1 million in Q1 2020. Software and service subscription revenue rose to $11.1 million from $1.8 million; referral-network revenue was $11.0 million versus $9.1 million; managed-services revenue was $4.6 million versus $4.1 million.
- Profitability: Gross profit was $20.8 million, or approximately 77.8% of revenue, compared with $11.0 million, or 72.8%, in Q1 2020. Operating loss widened to $29.6 million from $13.4 million. Net loss was $65.1 million, or $0.76 per diluted share, versus $18.4 million, or $0.53 per share.
- Adjusted EBITDA: Loss of $9.6 million, improved from a $10.8 million loss; adjusted EBITDA margin was negative 36% versus negative 71%. This is a non-GAAP measure defined by the company.
- Cash flow: Operating cash use was $22.9 million, versus $9.6 million. Investing cash use was $23.7 million, including $22.9 million for acquisitions. Financing provided $72.6 million, primarily from warrant exercises, net of tax withholding payments and debt repayments. Cash, cash equivalents and restricted cash increased $25.9 million.
- Cash and liquidity: Cash and cash equivalents were $222.9 million and restricted cash was $10.4 million at quarter-end. Current assets were $250.9 million and current liabilities $35.5 million.
- Debt: Debt principal totaled approximately $53.1 million; carrying value was $50.1 million. The amended senior secured term loan carried an 8.55% rate, matures December 2024, and Porch reported compliance with its covenants. Management estimated a 1 percentage-point rate increase would add about $0.5 million of annual interest expense.
Changes versus Q1 2020
- Revenue increased $11.7 million, reflecting acquisitions and organic growth in moving, inspection and insurance, partly offset by $2.5 million of prior-year revenue from divested businesses.
- Operating expenses increased 98% to $56.4 million. General and administrative expense rose to $24.0 million from $4.2 million, principally reflecting higher stock-based compensation, public-company costs, corporate hiring and legal expenses.
- Stock-based compensation was $16.8 million versus $0.7 million. Q1 2021 included $12.4 million related to employee and CEO earnout awards and $1.9 million from accelerated vesting of other awards.
- Net loss included $18.8 million of expense from remeasurement of the earnout liability and $15.9 million from remeasurement of the private warrant liability. These fair-value charges were non-cash in the period. Interest expense declined to $1.2 million from $3.1 million, following the loan amendment.
- The company acquired V12 Data and another business during the quarter. V12 Data contributed $5.6 million of revenue and $0.6 million of net loss from its acquisition date through quarter-end.
Outlook, risks and unusual items
- Guidance: The filing provides no specific financial guidance. Management said Q1 results are not necessarily indicative of full-year results.
- Management commentary: Porch reported recovery in home sales, inspections and related services toward pre-COVID levels in the second half of 2020 and Q1 2021. It nevertheless expected COVID-19 to adversely affect future revenue and results, with the scale and duration uncertain.
- Acquisition and dilution matters: Porch completed two acquisitions in Q1 and acquired homeowners insurer Homeowners of America for stated consideration of $106.2 million on April 6, 2021. Warrant exercises generated $89.8 million in Q1 proceeds; additional exercises generated $33.8 million in April, and remaining public warrants were redeemed on April 16. Earnout shares, options, RSUs and private warrants create potential dilution.
- Contingencies: Porch and an acquired entity faced 14 TCPA-related proceedings; the company said potential loss could not be estimated. It recorded accruals for the Kandela dispute and a putative California wage-and-hour class action, but losses could exceed the accrued amount in the latter case.
- Controls: Management concluded disclosure controls and procedures were ineffective at March 31, 2021 because of previously reported material weaknesses in internal control over financial reporting. Remediation was underway; the company cautioned that it might be time-consuming and costly and could not assure successful remediation.
- Other uncertainty: Acquisition purchase-price valuations remained preliminary. The company’s PPP loan forgiveness applications had not been resolved, and forgiveness was not assured. Fair-value liabilities rely on significant unobservable inputs and are sensitive to assumptions.
Important facts for investors to verify
- Whether organic growth, excluding acquisitions and divested-business effects, supports the reported 77% revenue increase.
- How much of the operating loss and future expense reflects recurring operations versus stock compensation, acquisition costs and fair-value remeasurement.
- Cash-burn trajectory, acquisition funding needs, debt service and compliance with minimum-revenue covenants.
- Progress on internal-control remediation and resolution or potential exposure from the TCPA, Kandela and wage-and-hour matters.
- Outcome of PPP forgiveness applications and final purchase accounting for recent acquisitions, including the HOA acquisition’s integration and economics.
- Potential dilution from outstanding equity awards, private warrants and contingent or earnout shares.