Porch Group, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; year-over-year comparisons are to fiscal 2020 unless stated otherwise. Porch operates a Vertical Software segment and an Insurance segment, serving home-services businesses and homeowners. The year included five significant acquisitions: V12 Data, Homeowners of America (HOA), Rynoh, American Home Protect (AHP) and Floify.
Financial and operating performance
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Revenue | $192.4 million | $72.3 million | Up 166%; acquisitions and organic growth in insurance, moving and inspection contributed to the increase. |
| Operating loss | $83.4 million | $42.2 million | Loss widened 97%; operating expenses grew 141%. |
| Net loss | $106.6 million | $54.0 million | Loss widened; included $38.6 million of stock-based compensation and $33.9 million of losses from remeasurement of earnout and private-warrant liabilities. |
| Net loss per share, basic | $1.14 | $1.96 | Loss per share narrowed; share count increased substantially. |
| Cost of revenue | $58.7 million | $17.6 million | 31% of revenue versus 24%. |
| Contribution margin (non-GAAP) | $75.4 million; 39% | $22.4 million; 31% | Improved, with acquired businesses contributing $48.7 million of the increase. |
| Adjusted EBITDA (loss) (non-GAAP) | $(24.0) million; (12)% of revenue | $(18.3) million; (25)% | Loss increased $5.7 million; management cited weather-related HOA losses, investment in product, data and marketing, and public-company costs, partly offset by segment growth and acquisitions. |
| Cash from operating activities | $(34.8) million | $(48.7) million | Cash used declined; working-capital changes provided $15.7 million. |
| Cash from investing activities | $(263.4) million | $(10.7) million | Primarily reflected $256.4 million of acquisitions, net of acquired cash. |
| Cash from financing activities | $415.5 million | $259.6 million | Included convertible-note proceeds and warrant exercises, offset by debt repayment and capped-call costs. |
| Cash and cash equivalents at year-end | $315.7 million | $196.0 million | Additionally, restricted cash was $9.1 million. |
| Debt principal outstanding at year-end | $425.6 million | $50.8 million | Primarily $425 million of 0.75% convertible senior notes due 2026; carrying value was $414.7 million. |
Segments: Vertical Software revenue was $137.2 million, with adjusted EBITDA of $20.7 million. Insurance revenue was $55.3 million, with adjusted EBITDA of $9.0 million. Segment adjusted EBITDA is a non-GAAP measure and excludes corporate and other costs; those costs were $53.8 million.
Q4 operating indicators: Average companies generating revenue reached 24,603, versus 11,157 in Q4 2020; average monthly revenue per account was $699 versus $556. Monetized services were 260,352 versus 169,949, and average revenue per monetized service was $132 versus $98. Acquisitions affected these comparisons. The filing excerpt does not provide a clear Q4 consolidated revenue or profit figure.
Material changes and notable items
- Insurance became a substantial part of the business following the HOA and AHP acquisitions; Porch also expanded software offerings through V12 Data, Rynoh and Floify. Total 2021 acquisition consideration was $346.3 million, including cash, stock and contingent consideration.
- Porch issued $425 million of 0.75% convertible notes due 2026, receiving approximately $413.5 million net proceeds, and paid $52.9 million for capped-call transactions intended to reduce potential dilution. It repaid the senior secured term loan in September 2021.
- Approximately $126.7 million was raised through warrant exercises. Public warrants were redeemed in April 2021.
- Stock-based compensation rose to $38.6 million from $11.3 million, including $23.0 million related to employee and CEO earnout restricted stock. Fair-value losses on earnout and private-warrant liabilities totaled $33.9 million.
- Management reported an accumulated deficit of $424.1 million and a history of losses; the company has not achieved profitability.
Liquidity, outlook and risks
Management stated that year-end cash and cash equivalents were sufficient, under its current operating and growth plan, to fund operations, planned capital expenditures, working capital and debt service for at least the next 12 months. This is management’s assessment, not a guarantee. Porch expects to continue investing in its platform, systems and organic growth and may seek additional debt or equity capital. No specific numerical revenue or earnings guidance is provided in the supplied filing text.
Following year-end, Porch signed an agreement to acquire the CSE insurance businesses for approximately $48.6 million cash, subject to adjustments and regulatory approvals; closing was expected in mid-2022. It also signed a separate agreement in February 2022 for certain RWS businesses for approximately $33 million in cash and stock, with closing expected early in Q2 2022 and subject to conditions.
- Insurance exposure: underwriting and claims volatility, severe weather and wildfire risk, loss-reserve estimates, reinsurance availability and counterparty collectability, and state capital and licensing requirements. Five reinsurers represented 68% of insurance reinsurance receivables in aggregate.
- Market and execution risks: dependence on housing transactions, consumer demand, customer access and service-provider relationships; acquisition integration; competition; inflation and supply costs; and uncertain COVID-19 effects.
- Data, legal and regulatory risks: privacy, cybersecurity, marketing and insurance regulation. Porch disclosed 12 TCPA-related proceedings, a Kandela earnout dispute and a wage-and-hour class action settlement awaiting court approval. The filing says the potential loss range for certain disputes could not be estimated.
- Financial reporting controls: management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to material weaknesses involving IT access and change controls, design and documentation of control activities, and staffing. The independent auditor issued an adverse opinion on ICFR; its opinion on the financial statements was unqualified. Acquired 2021 businesses, representing approximately 68% of assets and 51% of revenue, were excluded from the controls assessment.
Important facts for investors to verify
- Whether revenue growth and segment profitability persist after accounting for acquisition contributions, seasonality and insurance claims experience.
- Cash burn, cash available for corporate use, insurance-subsidiary capital restrictions, and the liquidity and reinsurance implications of the $425 million convertible notes.
- Progress and effectiveness of remediation for the material weaknesses, including whether controls over recently acquired businesses are brought into the assessment.
- Final purchase accounting, goodwill and intangible-asset valuations, and whether expected acquisition synergies are realized.
- Developments in the CSE and RWS transactions, the disclosed litigation, and insurance claims and reinsurance recoveries.
- Potential dilution from the convertible notes, outstanding options and restricted awards, private warrants, and future acquisition consideration.