Porch Delivers Q3 Adjusted EBITDA of $8.8 million

GAAP net loss of $(5.7) million

Porch Group, Inc. (“Porch Group” or “the Company”) (NASDAQ: PRCH), a leading vertical software company reinventing the home services and insurance industries, today reported third quarter results for the Company as of September 30, 2023, with total revenue of $129.6 million, which increased 67% compared to the prior year, and Adjusted EBITDA of $8.8 million, which increased $19.7 million compared to the prior year. GAAP net loss of $(5.7) million, compared to $(84.5) million in the prior year.

CEO Summary

"We are pleased to share our financial results with positive Adjusted EBITDA of $8.8 million. In March 2022, we initially communicated our important target to be Adjusted EBITDA profitable in the second half of 2023, and we are well on our way to achieving that target. We continue to focus on ongoing profitability, with underwriting actions including premium per policy increases, non-renewing policies where our data suggests they are higher risk and deductible increases in our insurance business, launching new software modules coupled with price increases in our software businesses, capital allocation toward businesses that are generating strong returns like our warranty business, and cost reduction initiatives across the company.” Matt Ehrlichman, Chief Executive Officer, Chairman and Founder.

Third Quarter 2023 Financial Results

• Total revenue of $129.6 million, an increase of 67% or $52.2 million (third quarter of 2022: $77.4 million), driven by the Insurance Segment.
• Revenue less cost of revenue of $76.6 million, or 59% of total revenue (third quarter of 2022: $44.4 million, 57% of total revenue). Increase driven by premium per policy increases and other underwriting actions in the Insurance segment and a mix shift towards higher margin businesses in the Vertical Software segment.
• GAAP net loss of $(5.7) million, compared to $(84.5) million for the third quarter of 2022.
• Adjusted EBITDA of $8.8 million, an increase from the prior year (third quarter of 2022: loss of $(10.9) million). Positive in both segments and benefiting from strong expense control.
• Gross written premium for the quarter in our Insurance segment was $154 million with approximately 334 thousand policies.
• $458.4 million unrestricted cash plus investments at September 30, 2023.
• $57 million invested into Homeowners of America Insurance Company ("HOA"), the wholly owned insurance carrier subsidiary, in exchange for a $49 million surplus note and all rights to potential claims stemming from the Vesttoo Ltd ("Vesttoo") fraud.

Third Quarter 2023 Operational Highlights

• 39% gross loss ratio and 58% combined loss ratio, demonstrating the substantial impact of our unique data.
• Approved in 12 states to use our unique property data in insurance pricing which improves risk accuracy so we can better price policies for customers.
• Sharing demand with third party agencies, with shared commissions, continues to progress nicely and perform well.
• Continue to launch new products across our software businesses to create more value for customers coupled with price increases.

The following table presents financial highlights of the Company’s third quarter 2023 results compared to the third quarter 2022 (dollars are in millions):

The following table presents the Company’s key performance indicators ⁽¹⁾.

Balance Sheet Information

The Company ended the third quarter of 2023 with unrestricted cash plus investments of $458.4 million. Of this, the insurance carrier, HOA, had unrestricted cash of $253.9 million and investments of $92.9 million. Excluding HOA, Porch held $89 million of unrestricted cash.

In the third quarter of 2023, Porch Group made a $57 million cash investment in its wholly owned insurance carrier subsidiary HOA to increase surplus, in exchange for i) a $49 million 10-year term surplus note, with interest (SOFR +9.75%), principal payments, and early redemption subject to sufficient capitalization levels at HOA and TDI approval and ii) the purchase of all rights from HOA for potential claims related to the fraud connected to Vesttoo and others.

As of September 30, 2023, outstanding principal for convertible debt was $558 million. This includes $333 million of the new 6.75% Senior Secured Convertible Notes due October 2028 (the “2028 Notes”) and $225 million of the existing 0.75% Convertible Senior Notes due September 2026 (the “2026 Notes”).

Update on Vesttoo Matter

In the third quarter of 2023, HOA, a subsidiary of Porch Group, discovered that Vesttoo Ltd (“Vesttoo”), which arranged capital for one of our reinsurance contracts, faced allegations of fraudulent activity in connection with collateral it provided to HOA and certain other third parties. HOA terminated the associated contract on August 4, 2023, with an effective date of July 1, 2023. Porch recognized a charge of $41.2 million in provision for doubtful accounts for the nine months ended September 30, 2023 in the unaudited condensed consolidated financial statements.

In September 2023, HOA was placed under temporary supervision by the Texas Department of Insurance ("TDI"). The supervision order provides the TDI with more visibility and control during uncertain periods and to ensure there are sufficient plans to build capital surplus at the carrier. Following this, Demotech, Inc. withdrew the financial stability rating.

Following the period end, HOA was released from temporary supervision by the Texas Department of Insurance. The supervision period lasted for approximately two months, while the TDI became sufficiently comfortable with HOA’s operations and financial position post-Vesttoo.

Full Year 2023 Financial Outlook

Porch Group increases its previously provided full year 2023 guidance based on current market conditions and expectations. Taking into consideration the strong results from the third quarter of 2023 and the positive trends in the business.

The Company also reiterated its Adjusted EBITDA profitability target in the second half of the year and in future years on a full year basis. This assumes cat weather in Q4 is in line with historic trends with a 35% gross loss ratio, which is equivalent to approximately $160 of average claims cost per policy. This would be higher than the $110 5-year average. Catastrophic weather events in excess of historic trends occurring in the fourth quarter of the year are excluded from guidance and from this target.

Revised 2023 guidance is as follows:

Porch Group is not providing reconciliations of expected Adjusted EBITDA (loss) for future periods to the most directly comparable measures prepared in accordance with GAAP because the Company is unable to provide these reconciliations without unreasonable effort because certain information necessary to calculate such measures on a GAAP basis is unavailable or dependent on the timing of future events outside of the Company’s control.

Conference Call

Porch Group management will host a conference call today, November 7, 2023, at 5:00 p.m. Eastern time (2:00 p.m. Pacific time). The call will be accompanied by a slide presentation available on the Investor Relations section of the Company’s website at ir.porchgroup.com. A question-and-answer session will follow management’s prepared remarks.

All are invited to listen to the event by registering for the webinar here. A replay of the webinar will also be available in the Investor Relations section of the Porch Group’s corporate website at ir.porchgroup.com.

About Porch Group

Seattle-based Porch Group, Inc., the vertical software and insurance platform for the home, provides software and services to approximately 30,700 home services companies such as home inspectors, mortgage companies and loan officers, title companies, moving companies, real estate agencies, utility companies, and warranty companies. Through these relationships and its multiple brands, Porch Group provides a moving concierge service to homebuyers, helping them save time and make better decisions on critical services, including insurance, warranty, moving, security, TV/internet, home repair and improvement, and more. To learn more about Porch Group, visit porchgroup.com or porch.com.

Forward-Looking Statements

Certain statements in this release may be considered “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Although the Company believes that its plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions, or expectations. Forward-looking statements are inherently subject to risks, uncertainties, assumptions, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. These statements may be preceded by, followed by, or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends,” or similar expressions.

These forward-looking statements are based upon estimates and assumptions that, while considered reasonable by the Company and its management at the time they are made, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: (1) expansion plans and opportunities, and managing growth, to build a consumer brand; (2) the incidence, frequency, and severity of weather events, extensive wildfires, and other catastrophes; (3) economic conditions, especially those affecting the housing, insurance, and financial markets; (4) expectations regarding revenue, cost of revenue, operating expenses, and the ability to achieve and maintain future profitability; (5) existing and developing federal and state laws and regulations, including with respect to insurance, warranty, privacy, information security, data protection, and taxation, and management’s interpretation of and compliance with such laws and regulations; (6) the Company’s reinsurance program, which includes the use of a captive reinsurer, the success of which is dependent on a number of factors outside management’s control, along with reliance on reinsurance to protect against loss; (7) the uncertainty and significance of the known and unknown effects on the Company's insurance carrier subsidiary, Homeowners of America Insurance Company (“HOA”), and the Company due to the termination of a reinsurance contract following the allegations of fraud against Vesttoo Ltd. (“Vesttoo”), including, but not limited to, the implications from Demotech, Inc.’s (“Demotech”) withdrawal of HOA’s financial stability rating and the length of time before the rating is restored; the outcome of Vesttoo’s Chapter 11 bankruptcy proceedings; the Company's ability to successfully pursue claims arising out of the alleged fraud, the costs associated with pursuing the claims, and the timeframe associated with any recoveries; HOA's ability to obtain and maintain adequate reinsurance coverage against excess losses; HOA’s ability to stay out of regulatory supervision; and HOA’s ability to maintain a healthy surplus; (8) uncertainties related to regulatory approval of insurance rates, policy forms, insurance products, license applications, acquisitions of businesses, or strategic initiatives, including the reciprocal restructuring, and other matters within the purview of insurance regulators; (9) reliance on strategic, proprietary relationships to provide the Company with access to personal data and product information, and the ability to use such data and information to increase transaction volume and attract and retain customers; (10) the ability to develop new, or enhance existing, products, services, and features and bring them to market in a timely manner; (11) changes in capital requirements, and the ability to access capital when needed to provide statutory surplus; (12) the increased costs and initiatives required to address new legal and regulatory requirements arising from developments related to cybersecurity, privacy, and data governance and the increased costs and initiatives to protect against data breaches, cyber-attacks, virus or malware attacks, or other infiltrations or incidents affecting system integrity, availability, and performance; (13) retaining and attracting skilled and experienced employees; (14) costs related to being a public company; and (15) other risks and uncertainties discussed in Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2022, in Part II, Item 1A, “Risk Factors,” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and in Part II, Item 1A, “Risk Factors,” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, as well as those discussed elsewhere in this report, including in Part II, Item 1A, “Risk Factors,” and in subsequent reports filed with the Securities and Exchange Commission (“SEC”), all of which are available on the SEC’s website at www.sec.gov.

Nothing in this release should be regarded as a representation by any person that the forward-looking statements set forth herein will be achieved or that any of the contemplated results of such forward-looking statements will be achieved. You should not place undue reliance on forward-looking statements, which speak only as of the date of this release. Unless specifically indicated otherwise, the forward-looking statements in this release do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that have not been completed as of the date of this release. The Company does not undertake any duty to update these forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise, except as may be required by law.

Non-GAAP Financial Measures

This release includes non-GAAP financial measures, such as Adjusted EBITDA (Loss) and Adjusted EBITDA (Loss) as a percent of revenue.

We define Adjusted EBITDA (Loss) as net income (loss) adjusted for interest expense; income taxes; depreciation and amortization; gain or loss on extinguishment of debt; other expense (income), net; impairments of intangible assets and goodwill; provision for doubtful accounts related to reinsurance, or related recoveries; impairments of property, equipment, and software; stock-based compensation expense; mark-to-market gains or losses recognized on changes in the value of contingent consideration arrangements, earnouts, warrants, and derivatives; restructuring costs; acquisition and other transaction costs; and non-cash bonus expense. Adjusted EBITDA (Loss) as a percent of revenue is defined as Adjusted EBITDA (Loss) divided by total revenue.

Our management uses these non-GAAP financial measures as supplemental measures of our operating and financial performance, for internal budgeting and forecasting purposes, to evaluate financial and strategic planning matters, and to establish certain performance goals for incentive programs. We believe that the use of these non-GAAP financial measures provides investors with useful information to evaluate our operating and financial performance and trends and in comparing our financial results with competitors, other similar companies and companies across different industries, many of which present similar non-GAAP financial measures to investors. However, our definitions and methodology in calculating these non-GAAP measures may not be comparable to those used by other companies. In addition, we may modify the presentation of these non-GAAP financial measures in the future, and any such modification may be material.

You should not consider these non-GAAP financial measures in isolation, as a substitute to or superior to financial performance measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude specified income and expenses, some of which may be significant or material, that are required by GAAP to be recorded in our consolidated financial statements. We may also incur future income or expenses similar to those excluded from these non-GAAP financial measures, and the presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or non-recurring items. In addition, these non-GAAP financial measures reflect the exercise of management judgment about which income and expense are included or excluded in determining these non-GAAP financial measures.

You should review the tables accompanying this release for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure. We are not providing reconciliations of non-GAAP financial measures for future periods to the most directly comparable measures prepared in accordance with GAAP. We are unable to provide these reconciliations without unreasonable effort because certain information necessary to calculate such measures on a GAAP basis is unavailable or dependent on the timing of future events outside of our control.

The following tables reconcile Net loss to Adjusted EBITDA (Loss) for the periods presented (dollar amounts in thousands):

The following table presents Segment Adjusted EBITDA (Loss) as a percentage of segment revenue for the periods presented:

Key Performance Indicators

In the management of these businesses, we identify, measure and evaluate various operating metrics. The key performance measures and operating metrics used in managing the businesses are discussed below. These key performance measures and operating metrics are not prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and may not be comparable to or calculated in the same way as other similarly titled measures and metrics used by other companies.

Gross Written Premium — We define Gross Written Premium as the total premium written by our licensed insurance carrier(s) (before deductions for reinsurance); premiums from our home warranty offerings (for the face value of one year’s premium); and premiums of policies placed with third-party insurance companies for which we earn a commission.

Policies in Force — We define Policies in Force as the number of in-force policies at the end of the period for the Insurance segment, including policies and warranties written by us and policies and warranties written by third parties for which we earn a commission.

Annualized Revenue per Policy — We define Annualized Revenue per Policy as quarterly revenue for the Insurance segment, divided by the number of Policies in Force in the Insurance segment, multiplied by four.

Annualized Premium per Policy — We define Annualized Premium per Policy as the total direct earned premium for HOA, our insurance carrier, divided by the number of active insurance policies at the end of the period, multiplied by four.

Premium Retention Rate — We define Premium Retention Rate as the ratio of our insurance carrier’s renewed premiums over the last four quarters to base premiums, which is the sum of the preceding year’s premiums that either renewed or expired.

Gross Loss Ratio — We define Gross Loss Ratio as our insurance carrier’s gross losses divided by the gross earned premium for the respective period.

Average Companies in Quarter — We define Average Companies in Quarter as the straight-line average of the number of companies as of the end of period compared with the beginning of period across all of our home services verticals that (i) generate recurring revenue and (ii) generated revenue in the quarter. For new acquisitions, the number of companies is determined in the initial quarter based on the percentage of the quarter the acquired business is a part of Porch.

Average Revenue per Account per Month in Quarter — We view our ability to increase revenue generated from existing customers as a key component of our growth strategy. Average Revenue per Account per Month in Quarter is defined as the average revenue per month generated across all home services company customer accounts in a quarterly period. Average Revenue per Account per Month in Quarter is derived from all customers and total revenue.

Monetized Services in Quarter — We connect consumers with home services companies nationwide and offer a full range of products and services where homeowners can, among other things: (1) compare and buy home insurance policies (along with auto, flood and umbrella policies) and warranties with competitive rates and coverage; (2) arrange for a variety of services in connection with their move, from labor to load or unload a truck to full-service, long-distance moving services; (3) discover and install home automation and security systems; (4) compare internet and television options for their new home; (5) book small handyman jobs at fixed, upfront prices with guaranteed quality; and (6) compare bids from home improvement professionals who can complete bigger jobs. We track the number of monetized services performed through our platform each quarter and the revenue generated per service performed in order to measure market penetration with homebuyers and homeowners and our ability to deliver high-revenue services within those groups. Monetized Services in Quarter is defined as the total number of unique services from which we generated revenue, including, but not limited to, new and renewing insurance and warranty customers, completed moving jobs, security installations, TV/Internet installations or other home projects, measured over a quarterly period.

Average Revenue per Monetized Service in Quarter — We believe that shifting the mix of services delivered to homebuyers and homeowners toward higher revenue services is an important component of our growth strategy. Average Revenue per Monetized Services in Quarter is the average revenue generated per monetized service performed in a quarterly period. When calculating Average Revenue per Monetized Service in Quarter, average revenue is defined as total quarterly service transaction revenues generated from monetized services.

The following table summarizes the classification of stock-based compensation expense in the unaudited condensed consolidated statements of operations.

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