Porch(PRCH) - 2025 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements Unaudited Q1 2025 consolidated financial statements reflect the company's financial position and performance, significantly impacted by the Reciprocal Exchange formation Condensed Consolidated Balance Sheets The March 31, 2025, balance sheet reflects total assets of $802.3 million and a $32.0 million stockholders' deficit, including the consolidated Reciprocal Exchange Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $65,899 | $167,643 | | Total current assets | $111,368 | $365,127 | | Goodwill | $191,907 | $191,907 | | Assets of Reciprocal (VIE) | $403,267 | $0 | | Total assets | $802,283 | $813,968 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $73,071 | $414,156 | | Long-term debt | $409,160 | $403,788 | | Liabilities of Reciprocal (VIE) | $319,911 | $0 | | Total liabilities | $834,332 | $857,193 | | Porch stockholders' deficit | ($52,418) | ($43,225) | | Total stockholders' deficit | ($32,049) | ($43,225) | - On January 1, 2025, Porch sold HOA to the newly formed Porch Reciprocal Exchange, a consolidated VIE managed by Porch[8] Condensed Consolidated Statements of Operations Q1 2025 consolidated net income was $3.7 million, a turnaround from a $13.4 million loss in Q1 2024, driven by reduced cost of revenue Q1 2025 vs Q1 2024 Performance (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenue | $104,745 | $115,443 | | Cost of revenue | $39,297 | $78,366 | | Gross Profit | $65,448 | $37,077 | | Operating loss | ($1,266) | ($34,668) | | Net income (loss) | $3,736 | ($13,362) | | Net loss attributable to the Reciprocal | ($4,659) | $0 | | Net income (loss) attributable to Porch | $8,395 | ($13,362) | | Net income (loss) attributable to Porch per share - basic | $0.08 | ($0.14) | Condensed Consolidated Statements of Cash Flows Q1 2025 net cash used in operating activities was $11.2 million, a reversal from $8.5 million provided in Q1 2024, primarily due to working capital shifts Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($11,178) | $8,465 | | Net cash provided by (used in) investing activities | ($19,368) | $12,697 | | Net cash used in financing activities | ($229) | ($2,501) | | Net change in cash | ($30,775) | $18,661 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies and the strategic shift to a reciprocal insurance model, establishing new segments and the Reciprocal's formation - As of January 2025, the company operates under new segments: Insurance Services, Software & Data, Consumer Services (Porch Shareholder Interest), and the Reciprocal Segment[32][62] - The Reciprocal's formation on January 1, 2025, involved Porch selling HOA and receiving approximately $106 million in surplus notes[85] - As of April 1, 2025, the Reciprocal's reinsurance program includes excess of loss catastrophe coverage starting at $25 million and a 7.5% third-party quota share[163][164] - The company is involved in legal proceedings alleging TCPA violations, with potential loss currently unestimable[173][177] Management's Discussion and Analysis (MD&A) Management discusses the Q1 2025 transition to a new reciprocal insurance model, leading to improved profitability and Adjusted EBITDA despite a revenue decrease Business Overview Porch leverages SaaS relationships and property data for its homeowners insurance business, operating under four new segments as of January 2025 - Porch leverages relationships with approximately 24,000 SaaS companies to gain insights into U.S. homebuyers and properties for its insurance business[187] - Unique property data enhances risk assessment, pricing, and underwriting for the policyholder-owned Porch Reciprocal Exchange, managed by Porch[193] Results of Operations Q1 2025 consolidated revenue decreased 9% to $104.7 million, but operating loss significantly narrowed, and Adjusted EBITDA turned positive due to the new reciprocal model Consolidated Results Summary (in thousands) | Metric | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $104,745 | $115,443 | ($10,698) | (9)% | | Cost of revenue | $39,297 | $78,366 | ($39,069) | (50)% | | Operating loss | ($1,266) | ($34,668) | $33,402 | (96)% | | Net income (loss) attributable to Porch | $8,395 | ($13,362) | $21,757 | (163)% | | Adjusted EBITDA (Loss) | $16,861 | ($16,788) | $33,649 | (200)% | - Revenue decreased primarily due to higher reinsurance ceding, while cost of revenue fell due to the same program and fewer weather-related claims[202][203] - Adjusted EBITDA improved due to the shift to the reciprocal model, generating higher-margin management fees, and reduced weather-related claims[206] Porch Shareholder Interest Results (Non-GAAP) Porch Shareholder Interest segments showed strong Q1 2025 performance, with flat revenue but significant increases in Gross Profit and Adjusted EBITDA Porch Shareholder Interest Performance (in thousands) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $84,546 | $84,416 | $130 | | Gross Profit | $69,074 | $49,838 | $19,236 | | Adjusted EBITDA (Loss) | $16,861 | ($4,075) | $20,936 | - Gross Profit and Adjusted EBITDA improved due to the shift to managing the Reciprocal, generating high-margin management fees, and reduced weather-related claims[220][221] Key Performance Measures and Operating Metrics The company tracks key operating metrics for its new segments, including Reciprocal Written Premium, Average Companies, and Monetized Services - Q1 2025 Insurance Services metrics include $96.9 million in Reciprocal Written Premium and 36.1 thousand policies written[222] - Q1 2025 Software & Data metrics include 24.1 thousand average companies and $3,644 in annualized average revenue per company[228] - Q1 2025 Consumer Services metrics include 71.0 thousand monetized services and $207 in average revenue per monetized service[232] Liquidity and Capital Resources The company's liquidity and capital resources as of March 31, 2025, are discussed, with management affirming sufficient funding for 12 months Liquidity of Porch Shareholder Interest (in thousands) | Component | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Unrestricted cash, cash equivalents, and investments | $96,624 | $61,648 | | Restricted cash and cash equivalents | $17,213 | $28,244 | | Total cash, cash equivalents, and investments | $113,837 | $89,892 | - The company has outstanding convertible notes totaling $507.1 million principal, with maturities in 2026 ($173.8 million) and 2028 ($333.3 million)[254][255] - Net cash used in operating activities was $11.2 million in Q1 2025, a reversal from $8.5 million provided in Q1 2024, due to ceded insurance premium timing[260][261] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks including interest rate fluctuations, inflation, and dependence on the Reciprocal's financial health - The company's $507.1 million fixed-rate convertible debt means interest expense is not directly impacted by market rate changes[280] - Fixed income investment portfolios of both the company and the Reciprocal are exposed to unrealized losses in a rising interest rate environment[282] - Inflation negatively impacts operations through higher costs and could reduce consumer spending[284] - A key risk is the company's dependence on the Reciprocal's financial condition and growth, as it impacts Porch's management fee revenue[286] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2025[287] - No material changes in internal control over financial reporting occurred during the quarter[288] PART II — OTHER INFORMATION Legal Proceedings The company refers to Note 16 for legal proceedings, believing current claims will not materially adversely affect the business - The report refers to Note 16 in the financial statements for a description of certain litigation and legal proceedings[291] - Management believes current legal proceedings will not materially adversely affect the company's business, financial condition, or results of operations[292] Risk Factors No material changes to risk factors were disclosed from the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[293] Other Information Two Board members entered Rule 10b5-1 trading plans in March 2025 to sell shares for tax obligations related to board compensation - Lead Independent Director Alan Pickerill entered a Rule 10b5-1 trading plan on March 13, 2025, to sell up to 40,000 shares[297] - Board member Rachel Lam entered a Rule 10b5-1 trading plan on March 14, 2025, to sell up to 50,000 shares[298]