Business Context and Reporting Period
Porch Group, Inc. filed this Form 8-K on May 13, 2021, under Item 4.02 regarding non-reliance on previously issued financial statements. The issue relates to the accounting for public and private warrants assumed in the December 23, 2020 merger with PropTech Acquisition Corporation.
Financial Metrics and Accounting Impact
- Private warrants previously classified within equity must be classified as liabilities measured at fair value, with changes in fair value recognized in earnings.
- The company expects incremental non-operating expense of approximately $3.7 million to $4.0 million for transaction costs, plus other immaterial expenses.
- The company expects approximately $2.5 million of other income from the change in fair value of the private warrant liability.
- The restatement is not expected to affect historically reported cash and cash equivalents or cash flows from operating, investing, or financing activities.
- The filing does not provide revised revenue, profit, margin, debt, liquidity, or balance-sheet amounts.
Material Changes Versus the Prior Comparable Period
The company determined that its previously issued consolidated financial statements for the year ended December 31, 2020, included in its March 31, 2021 Form 10-K, should no longer be relied upon. The company plans to restate those financial statements through an amended Form 10-K.
The restatement will reflect the reclassification of private warrants from equity to liabilities and the related fair-value accounting. The company stated that the warrants did not affect reporting periods before the merger.
Guidance, Risks, Contingencies, and Unusual Items
- The company intended to file Form 10-K/A before filing its Form 10-Q for the quarter ended March 31, 2021.
- Management identified the restatement as a second material weakness in internal control over financial reporting, in addition to a previously disclosed material weakness.
- The remediation plan will be expanded to address accounting and classification of financial instruments and key agreements.
- All expense and fair-value estimates are subject to change as management completes the restatement. Ernst & Young LLP had not audited or reviewed the estimates or ranges described in the filing.
- The completed audit could result in material changes to the estimates.
Key Facts for Investors to Verify
- Confirm the final Form 10-K/A and the restated December 31, 2020 financial statements.
- Verify the final carrying value and fair-value adjustments for the private warrant liability.
- Assess the final impact on net income, accumulated deficit, liabilities, and equity.
- Review the expanded remediation plan and subsequent disclosures regarding the two material weaknesses.
- Confirm whether reported cash balances and cash-flow statements remain unchanged after the restatement.