Porch(PRCH) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income (loss), statements of stockholders' equity (deficit) and noncontrolling interest, and statements of cash flows, along with detailed notes explaining the company's business, accounting policies, segment information, and specific financial items Condensed Consolidated Balance Sheets (Unaudited) This section presents the company's financial position, including assets, liabilities, and equity, at specific points in time Condensed Consolidated Balance Sheets (Unaudited) (in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total assets | $770,717 | $813,968 | | Total liabilities | $772,905 | $857,193 | | Porch stockholders' deficit | $(29,292) | $(43,225) | | Noncontrolling interest related to the Reciprocal | $27,104 | — | | Total stockholders' deficit | $(2,188) | $(43,225) | - The Reciprocal, a variable interest entity not owned by Porch Group, Inc., is consolidated for reporting purposes, with its assets and liabilities included in the consolidated balance sheets[12][17] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) This section details the company's revenues, expenses, and net income or loss over specific reporting periods Consolidated Statements of Operations (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $119,295 | $110,844 | $224,040 | $226,287 | | Cost of revenue | $43,422 | $94,046 | $82,719 | $172,412 | | Gross profit | $75,873 | $16,798 | $141,321 | $53,875 | | Operating income (loss) | $5,049 | $(52,479) | $3,783 | $(87,147) | | Net income (loss) | $8,247 | $(64,323) | $11,983 | $(77,685) | | Net income (loss) attributable to Porch | $2,579 | $(64,323) | $10,974 | $(77,685) | | Basic EPS attributable to Porch | $0.03 | $(0.65) | $0.11 | $(0.79) | | Diluted EPS attributable to Porch | $0.00 | $(0.65) | $0.10 | $(0.79) | - Net income attributable to the Reciprocal was $5,668 thousand for the three months ended June 30, 2025, and $1,009 thousand for the six months ended June 30, 2025[22] Condensed Consolidated Statements of Stockholders' Equity (Deficit) and Noncontrolling Interest (Unaudited) This section outlines changes in equity, including contributions, net income, and noncontrolling interests, over time Changes in Stockholders' Equity (Deficit) (in thousands): | Metric | As of Dec 31, 2024 | As of June 30, 2025 | | :--------------------------------------- | :----------------- | :------------------ | | Porch stockholders' deficit | $(43,225) | $(29,292) | | Noncontrolling interest related to the Reciprocal | — | $27,104 | | Total stockholders' deficit | $(43,225) | $(2,188) | - The formation of the Reciprocal on January 1, 2025, resulted in the recognition of a noncontrolling interest of $27,104 thousand as of June 30, 2025"[17][30] - Issuance of convertible debt contributed $13,400 thousand to additional paid-in capital during the six months ended June 30, 2025"[25][30] Condensed Consolidated Statements of Cash Flows (Unaudited) This section reports cash inflows and outflows from operating, investing, and financing activities over a period Consolidated Cash Flow Information (in thousands): | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :--------------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net cash provided by (used in) operating activities | $24,391 | $(17,505) | $41,896 | (239)% | | Net cash provided by (used in) investing activities | $(25,269) | $8,764 | $(34,033) | (388)% | | Net cash used in financing activities | $(8,011) | $(3,126) | $(4,885) | 156% | | Net change in cash, cash equivalents, and restricted cash | $(8,889) | $(11,867) | $2,978 | (25)% | | Cash, cash equivalents, and restricted cash at end of period | $187,893 | $285,365 | $(97,472) | (34)% | - Operating cash flows significantly improved, shifting from a net use of $17.5 million in 2024 to a net provision of $24.4 million in 2025, primarily due to higher reinsurance for weather-related activity in the prior year and increased cash collections from reinsurance recoverables[350] - Investing activities shifted from providing $8.8 million in 2024 to using $25.3 million in 2025, mainly due to net purchases of investments and capitalized internal-use software development costs[352][353] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Description of Business and Summary of Significant Accounting Policies This note details the company's operations, business model, and the key accounting principles applied in its financial reporting - Porch Group operates as a homeowners insurance company, leveraging its home services software-as-a-service (SaaS) platform and unique property data to enhance risk assessment and offer comprehensive moving services[36][37][42] - Effective January 2025, the company transitioned to four reportable segments: Insurance Services, Software & Data, Consumer Services (collectively 'Porch Shareholder Interest'), and the consolidated Reciprocal Segment (a variable interest entity)[38][39] - Approximately 53% and 54% of consolidated revenue for the three and six months ended June 30, 2025, respectively, was derived from customers in Texas[47] Note 2. Segment Information This note provides financial data and qualitative information about the company's operating segments - Beginning January 2025, Porch Group's reportable segments changed from 'Vertical Software' and 'Insurance' to 'Insurance Services,' 'Software & Data,' 'Consumer Services,' and the 'Reciprocal Segment,' reflecting a shift to a reciprocal exchange model and a new focus on target customers[72][73][74] - The Insurance Services segment manages the Reciprocal, earning commissions and fees, holding surplus notes, and including a captive reinsurer for capital efficiency[75] - Segment performance is evaluated using gross profit and Adjusted EBITDA (Loss) for the Porch Shareholder Interest segments (Insurance Services, Software & Data, Consumer Services) and gross profit and Net Income (Loss) for the Reciprocal Segment[79][80] Note 3. Variable Interest Entity This note explains the company's involvement with and consolidation of the Reciprocal as a variable interest entity - On January 1, 2025, Porch Group formed the Reciprocal and sold its legacy homeowners insurance carrier, Homeowners of America (HOA), to it, with Porch Group holding approximately $106 million in surplus notes from the Reciprocal[100][231] - The Reciprocal is consolidated as a variable interest entity (VIE) because Porch Group is the primary beneficiary, providing significant financial support through surplus notes and managing its business operations[103] - Porch Group receives management fees for services provided to the Reciprocal, which are reported in net income attributable to Porch, while the Reciprocal's assets are solely for its obligations, with no recourse to Porch for underwriting or investment losses[103][104] Note 4. Revenue This note disaggregates revenue by type and provides information on deferred revenue balances Disaggregation of Revenue (in thousands): | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Transactional | $9,174 | $9,504 | $15,562 | $15,978 | | Recurring | $99,879 | $66,607 | $180,017 | $144,813 | | Insurance carrier | $55,409 | $48,739 | $95,347 | $96,234 | | Intercompany revenue | $(43,132) | $(13,760) | $(62,871) | $(30,229) | | Total Revenue | $119,295 | $110,844 | $224,040 | $226,287 | - Recurring revenue, which includes insurance services management, inspection software, and warranty products, showed significant year-over-year growth for both the three and six months ended June 30, 2025[105][106] - Deferred revenue related to the Reciprocal Segment was $193.1 million as of June 30, 2025, a decrease from $242.6 million as of December 31, 2024[112] Note 5. Investments This note details the company's investment portfolio, including fair value measurements, income, and realized gains or losses Investment Income and Realized Gains/Losses (Net of Expenses) (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Investment income, net of investment expenses | $2,681 | $3,574 | $5,519 | $7,238 | | Realized gains on investments | $181 | $26 | $256 | $40 | | Realized losses on investments | $(197) | $(74) | $(300) | $(108) | | Total Investment income and realized gains and losses, net of investment expenses | $2,665 | $3,526 | $5,475 | $7,170 | Fair Value of Investment Securities (in thousands): | Entity | As of June 30, 2025 | As of December 31, 2024 | | :--------------------------------------- | :------------------ | :-------------------- | | Porch Group (captive reinsurance business) | $32,974 | $182,751 | | Reciprocal (consolidated VIE) | $172,144 | — | | Total | $205,118 | $182,751 | - Unrealized losses on fixed-maturity securities are primarily attributed to interest rate changes rather than credit quality, and the company intends to hold these investments until market price recovery or maturity[134] Note 6. Fair Value This note provides information on the fair value measurements of the company's financial assets and liabilities Fair Value Measurement of Assets and Liabilities (in thousands) as of June 30, 2025: | Category | Level 1 | Level 2 | Level 3 | Total Fair Value | | :------------------------------------------------- | :------ | :------ | :------ | :--------------- | | Assets: | | | | | | Money market mutual funds | $15,440 | — | — | $15,440 | | Debt securities (U.S. Treasuries, Muni, Corp, MBS) | $9,318 | $167,541 | — | $176,859 | | Total Assets | $34,789 | $185,769 | — | $220,558 | | Liabilities: | | | | | | Contingent consideration - business combinations | — | — | $55 | $55 | | Private warrant liability | — | — | $4,070 | $4,070 | | Embedded derivatives | — | — | $2,736 | $2,736 | | Total Liabilities | — | — | $6,861 | $6,861 | - The fair value of the private warrant liability increased from $460 thousand at December 31, 2024, to $4,070 thousand at June 30, 2025, influenced by changes in stock price and expected volatility[145][146] - The fair value of embedded derivatives decreased from $22,262 thousand at December 31, 2024, to $2,736 thousand at June 30, 2025, driven by factors such as the fair value of underlying debt and assumptions regarding possible repurchase events[151] Note 7. Property, Equipment, and Software This note provides details on the company's property, equipment, and software assets, including their gross values, accumulated depreciation, and net book values Property, Equipment, and Software, Net (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Software and computer equipment | $8,309 | $8,051 | | Internally developed software | $42,138 | $35,096 | | Total property, equipment, and software, gross | $52,860 | $45,546 | | Less: Accumulated depreciation and amortization | $(26,395) | $(23,004) | | Property, equipment, and software, net | $26,465 | $22,542 | - Depreciation and amortization expense related to property, equipment, and software was $1.5 million for the three months ended June 30, 2025, and $3.1 million for the six months ended June 30, 2025[154] Note 8. Intangible Assets and Goodwill This note provides information on the company's intangible assets and goodwill, including their carrying values and amortization expenses Intangible Assets, Net (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Customer relationships | $32,453 | $36,404 | | Acquired technology | $4,847 | $7,511 | | Trademarks and tradenames | $13,730 | $14,735 | | Renewal rights | $4,366 | $5,017 | | Insurance licenses | $4,960 | $4,960 | | Total intangible assets, net | $60,452 | $68,746 | - Goodwill remained at $191,907 thousand for both periods and was reallocated on January 1, 2025, to the Software & Data segment ($157,364 thousand) and Consumer Services segment ($34,543 thousand) based on a quantitative fair value analysis[158] - Aggregate amortization expense related to intangibles was $3.9 million for the three months ended June 30, 2025, and $8.3 million for the six months ended June 30, 2025[156] Note 9. Debt This note details the company's outstanding debt, including convertible notes, their carrying values, and associated interest expenses Outstanding Debt (Carrying Value, in thousands): | Debt Type | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Convertible senior unsecured notes, due 2026 | $20,414 | $172,155 | | Convertible senior secured notes, due 2028 | $241,884 | $231,633 | | Convertible senior unsecured notes, due 2030 | $131,830 | — | | Total Carrying Value | $394,128 | $403,938 | - In May 2025, the company completed refinancing transactions, exchanging $96.8 million of 2026 Notes for $83.0 million of newly issued 9.00% Convertible Senior Unsecured Notes due 2030, issuing an additional $51.0 million of 2030 Notes for cash, and repurchasing $47.5 million of 2026 Notes for cash[161][162] Interest Expense for Convertible Notes (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Contractual interest expense (2026, 2028, 2030 Notes) | $6,860 | $6,032 | $12,811 | $12,071 | | Amortization of debt issuance costs and discount (2026, 2028, 2030 Notes) | $5,317 | $4,555 | $10,690 | $9,172 | | Total Interest Expense | $12,177 | $10,587 | $23,501 | $21,243 | Note 10. Stockholders' Equity and Warrants This note provides details on the company's common shares outstanding, shares reserved for issuance, and warrant information Common Shares Outstanding and Reserved for Future Issuance (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Outstanding common shares, total | 122,219 | 119,770 | | Private warrants | 1,796 | 1,796 | | Stock options | 3,020 | 3,181 | | Restricted and performance stock units and awards | 14,301 | 14,119 | | 2020 Equity Plan pool reserved for future issuance | 10,295 | 7,698 | | Convertible senior unsecured notes, due 2026 | 822 | 6,950 | | Convertible senior secured notes, due 2028 | 13,332 | 13,332 | | Convertible senior unsecured notes, due 2030 | 8,527 | — | | Total shares of common stock outstanding and reserved for future issuance | 174,312 | 166,846 | - There were 1.8 million private warrants outstanding as of June 30, 2025, with an exercise price of $11.50, expiring on December 23, 2025[178] Note 11. Stock-Based Compensation This note details the company's stock-based compensation expense and activity related to equity awards Stock-Based Compensation Expense (in thousands): | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $62 | — | $96 | — | | Selling and marketing | $496 | $710 | $799 | $1,404 | | Product and technology | $966 | $1,426 | $1,658 | $2,521 | | General and administrative | $6,476 | $4,969 | $10,357 | $8,548 | | Total stock-based compensation expense | $8,000 | $7,105 | $12,910 | $12,473 | Equity Award Activity (in thousands, for six months ended June 30, 2025): | Category | Options | Restricted Stock Units | Performance Restricted Stock Units | | :-------------------------- | :------ | :--------------------- | :------------------------------- | | Balances as of Dec 31, 2024 | 3,181 | 7,845 | 6,272 | | Granted | — | 3,300 | 3,544 | | Vested | — | (2,373) | — | | Exercised | (160) | — | — | | Forfeited, canceled or expired | (1) | (1,426) | (2,861) | | Balances as of June 30, 2025 | 3,020 | 7,346 | 6,955 | - Performance Restricted Stock Units (PRSUs) granted during the six months ended June 30, 2025, have vesting conditions tied to service period, revenue, Adjusted EBITDA, or Total Shareholder Return (TSR) through 2027[182][184] Note 12. Reinsurance for the Reciprocal This note describes the reinsurance arrangements for the Reciprocal, including catastrophe coverage and their effects on premiums and losses - As of April 1, 2025, the Reciprocal's excess of loss catastrophe reinsurance provides coverage from $25.0 million up to $410.0 million per occurrence, with a 7.5% third-party quota share reducing effective retention to $23.1 million per occurrence[186] Effects of Reinsurance on Premiums (in thousands): | Metric | Q2 2025 Written | Q2 2025 Earned | Q2 2024 Written | Q2 2024 Earned | | :---------------- | :-------------- | :------------- | :-------------- | :------------- | | Direct premiums | $95,779 | $100,184 | $109,716 | $102,345 | | Ceded premiums | $20,378 | $(21,229) | $(59,857) | $(40,518) | | Net premiums | $116,157 | $78,955 | $49,859 | $61,827 | Effects of Reinsurance on Incurred Losses and LAE (in thousands): | Metric | Q2 2025 | Q2 2024 | YTD Q2 2025 | YTD Q2 2024 | | :---------------- | :------ | :------ | :---------- | :---------- | | Direct losses and LAE | $39,664 | $110,210 | $84,356 | $189,626 | | Ceded losses and LAE | $(7,072) | $(26,060) | $(22,629) | $(36,543) | | Net losses and LAE | $32,592 | $84,150 | $61,727 | $153,083 | Note 13. Unpaid Losses and Loss Adjustment Reserve This note provides information on the company's reserve for unpaid losses and loss adjustment expenses Changes in Reserve for Unpaid Losses and LAE (in thousands): | Metric | December 31, 2024 | June 30, 2025 | | :--------------------------------------- | :---------------- | :------------ | | Reserve for unpaid losses and LAE (gross) | $67,785 | $68,067 | | Net incurred losses and LAE during current year | — | $61,727 | | Net claim and LAE payments during current year | — | $(59,533) | | Reserve for unpaid losses and LAE (gross) at period end | $67,785 | $68,067 | - Changes in estimates for prior year claims resulted in an increase of $3.4 million for the six months ended June 30, 2025[193] Note 14. Other Income (Expense), Net This note details the components of other income and expense, net, for various reporting periods Other Income, Net (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $396 | $360 | $814 | $794 | | Gain on settlement of contingent consideration | — | — | — | $14,930 | | Loss on sale of business | — | $(87) | — | $(5,331) | | Recoveries of losses on reinsurance contracts | $925 | $924 | $8,949 | $13,494 | | Other, net | $172 | $1,203 | $130 | $1,191 | | Total Other Income, Net | $1,493 | $2,400 | $9,893 | $25,078 | - The decrease in total other income, net, for the six months ended June 30, 2025, was primarily due to the absence of a $14.9 million gain on settlement of contingent consideration and a $5.3 million loss on sale of business, both recognized in the prior year[194][284] Note 15. Income Taxes This note provides information on the company's income tax benefit or provision and effective tax rates Income Tax Benefit (Provision) and Effective Tax Rates: | Period | 2025 Amount (in thousands) | 2025 Rate | 2024 Amount (in thousands) | 2024 Rate | | :---------------------- | :------------------------- | :-------- | :------------------------- | :-------- | | Three Months Ended June 30 | $1,087 | 15.2% benefit | $(688) | 1.1% provision | | Six Months Ended June 30 | $184 | 1.6% benefit | $(866) | 1.1% provision | - The effective tax rates differ from the U.S. statutory rate of 21% primarily due to a full valuation allowance related to net deferred tax assets[195] - The six months ended June 30, 2025, includes $0.9 million of deferred federal income tax expense recognized in conjunction with the formation of the Reciprocal and the subsequent sale of HOA[196] Note 16. Commitments and Contingencies This note outlines the company's legal obligations, ongoing litigation, and potential financial exposures - Porch and GoSmith.com are involved in a mass tort action alleging violations of the Telephone Consumer Protection Act (TCPA) and a related Washington state law claim, with 956 plaintiffs remaining in the consolidated Western District of Washington action[200][201] - The company is currently unable to determine the likelihood of an unfavorable outcome or provide an estimate of the range or amount of potential loss for these disputes[203][204] Note 17. Net Income (Loss) Attributable To Porch Per Share This note provides the calculation of basic and diluted net income (loss) per share attributable to Porch stockholders Net Income (Loss) Attributable to Porch Per Share: | Period | 2025 Basic | 2025 Diluted | 2024 Basic | 2024 Diluted | | :---------------------- | :--------- | :----------- | :--------- | :----------- | | Three Months Ended June 30 | $0.03 | $0.00 | $(0.65) | $(0.65) | | Six Months Ended June 30 | $0.11 | $0.10 | $(0.79) | $(0.79) | - Weighted average shares outstanding used to compute diluted EPS for the three months ended June 30, 2025, increased to 131,679 thousand from 99,193 thousand in the prior year[22][207] - Securities not included in the diluted EPS computation for the three months ended June 30, 2025, due to antidilution or unmet performance conditions, included 224 thousand stock options, 2,621 thousand performance restricted stock units, 1,796 thousand private warrants, and 8,527 thousand 2030 Notes[208] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, discussing key factors affecting performance, recent developments, and detailed analysis of consolidated and segment-level financial results for both quarter-to-date and year-to-date periods. It also covers key performance measures, liquidity, capital resources, and non-GAAP financial measures Business Overview This section provides an overview of the company's business model, operational structure, and strategic focus - Porch Group operates as a homeowners insurance company, leveraging its SaaS platform and unique property data to enhance risk assessment for its managed Reciprocal Exchange and offering comprehensive home services[215][221] - The company's operations are structured into four segments: Insurance Services, Software & Data, Consumer Services (collectively 'Porch Shareholder Interest'), and the Reciprocal Segment (a consolidated variable interest entity)[216][217][218][219][222] - Porch manages the Reciprocal as its attorney-in-fact, providing services for ongoing commissions and policy fees based on the Reciprocal's gross written premium, with Porch Shareholder Interests largely tied to the Reciprocal's growth and financial condition[223][224] Recent Developments This section highlights significant events and strategic changes that have impacted the company's financial position and operations - On May 27, 2025, Porch completed a debt refinancing, exchanging $96.8 million of 2026 Notes for $83.0 million of new 2030 Notes, issuing an additional $51.0 million of 2030 Notes for cash, and repurchasing $47.5 million of 2026 Notes for cash[226][229] - Effective April 1, 2025, the Reciprocal's reinsurance programs were updated, with catastrophe reinsurance starting at $25.0 million per occurrence up to $410.0 million, and a 7.5% third-party quota share reducing effective retention to $23.1 million[228] - On January 1, 2025, the Reciprocal was formed, and Porch sold its homeowners insurance carrier, HOA, to it, resulting in Porch holding approximately $106 million in surplus notes from the Reciprocal and managing its operations for commissions and fees[231] Results of Operations This section analyzes the company's financial performance, including revenue, expenses, and profitability, for various periods Consolidated Quarter-to-Date Results This section provides an analysis of the company's consolidated financial performance for the most recent quarter Consolidated Quarter-to-Date Financial Performance (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :--------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Revenue | $119,295 | $110,844 | $8,451 | 8% | | Cost of revenue | $43,422 | $94,046 | $(50,624) | (54)% | | Gross Profit | $75,873 | $16,798 | $59,075 | 352% | | Operating income (loss) | $5,049 | $(52,479) | $57,528 | (110)% | | Net income (loss) attributable to Porch | $2,579 | $(64,323) | $66,902 | (104)% | | Adjusted EBITDA (Loss) | $15,630 | $(34,773) | $50,403 | (145)% | | Adjusted EBITDA (Loss) Margin | 13% | (31)% | +44 pp | N/A | - The 54% decrease in cost of revenue was primarily driven by a reduction in weather-related claims compared to the prior year's seasonal trends[238] - Adjusted EBITDA (Loss) improved by $50.4 million, primarily due to the absence of weather-related claims in the current period and the shift in the business model to higher-margin management fees from the Reciprocal[242] Porch Shareholder Interest Quarter-to-Date Results (Non-GAAP) This section analyzes the non-GAAP financial performance of Porch Shareholder Interest segments for the most recent quarter Porch Shareholder Interest Quarter-to-Date Performance (Non-GAAP, in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | | :--------------------------------------- | :------------------------------- | :------------------------------- | :--------- | | Revenue | $107,018 | $75,865 | $31,153 | | Gross Profit | $89,234 | $46,788 | $42,446 | | Adjusted EBITDA (Loss) | $15,630 | $(3,204) | $18,834 | - Porch Shareholder Interest revenue increased by $31.2 million, primarily due to increased ceding from the Reciprocal Segment and associated revenue streams from Porch acting as its manager[253] - Insurance Services Adjusted EBITDA Margin increased to 29% (from 11% in prior year) due to higher revenue from increased ceding activity from the Reciprocal Segment and a reduction in weather-related claims[257][263] Consolidated Year-to-Date Results This section provides an analysis of the company's consolidated financial performance for the year-to-date period Consolidated Year-to-Date Financial Performance (in thousands): | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | $ Change | % Change | | :--------------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Revenue | $224,040 | $226,287 | $(2,247) | (1)% | | Cost of revenue | $82,719 | $172,412 | $(89,693) | (52)% | | Gross Profit | $141,321 | $53,875 | $87,446 | 162% | | Operating income (loss) | $3,783 | $(87,147) | $90,930 | (104)% | | Net income (loss) attributable to Porch | $10,974 | $(77,685) | $88,659 | (114)% | | Adjusted EBITDA (Loss) | $32,491 | $(51,561) | $84,052 | (163)% | | Adjusted EBITDA (Loss) Margin | 15% | (23)% | +38 pp | N/A | - The 52% decrease in cost of revenue was primarily due to a significant reduction in weather-related claims compared to the prior year[280] - Adjusted EBITDA (Loss) improved by $84.1 million, driven by reduced weather-related claims and the strategic shift to a higher-margin manager model for the Reciprocal[278] Porch Shareholder Interest Year-to-Date Results (Non-GAAP) This section analyzes the non-GAAP financial performance of Porch Shareholder Interest segments for the year-to-date period Porch Shareholder Interest Year-to-Date Performance (Non-GAAP, in thousands): | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | $ Change | | :--------------------------------------- | :----------------------------- | :----------------------------- | :--------- | | Revenue | $191,564 | $160,282 | $31,282 | | Gross Profit | $158,308 | $96,627 | $61,681 | | Adjusted EBITDA (Loss) | $32,491 | $(7,279) | $39,770 | - Porch Shareholder Interest revenue increased by $31.3 million, primarily due to the launch of the Reciprocal and increased ceding from new reinsurance programs[295] - Insurance Services Adjusted EBITDA Margin increased to 39% (from 13% in prior year) due to higher revenue from increased ceding activity from the Reciprocal Segment and a reduction in weather-related claims[299][304] Key Performance Measures and Operating Metrics This section outlines the primary metrics used by management to evaluate the performance of each operating segment - For Insurance Services, key metrics include Reciprocal Written Premium, Reciprocal Policies Written, and Reciprocal Written Premium per Policy Written[321][322] - For Software & Data, key metrics are Average Number of Companies and Annualized Average Revenue per Company[323][325] - For Consumer Services, key metrics include Monetized Services and Average Revenue per Monetized Service[326][327] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, its capital structure, and its capacity to meet financial obligations - As of June 30, 2025, Porch Group had $487.9 million in aggregate principal amount outstanding in convertible notes, which serve as its primary source of capital[328] - Management believes current cash, cash equivalents, and liquid investments are sufficient to finance operations, capital expenditures, working capital, and debt service obligations for at least the next 12 months[329] Liquidity and Capital Resources (in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------------------------------------- | :------------ | :---------------- | | Porch Shareholder Interest: | | | | Unrestricted cash, cash equivalents, and investments | $109,065 | $61,648 | | Restricted cash and cash equivalents | $8,407 | $28,244 | | Reciprocal (Consolidated VIE): | | | | Unrestricted cash, cash equivalents, and investments | $274,520 | $288,746 | | Restricted cash and cash equivalents | $1,019 | $895 | | Total Statutory Surplus (Reciprocal) | $299,200 | N/A | Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures used by management to assess performance, providing additional insights beyond GAAP metrics - Management uses non-GAAP financial measures, such as Adjusted EBITDA (Loss) and Porch Shareholder Interest metrics, for internal budgeting, forecasting, strategic planning, and evaluating performance, as well as for investor communication[359] - Adjusted EBITDA (Loss) is defined as net income (loss) adjusted for net income (loss) attributable to the Reciprocal, interest expense, income taxes, depreciation and amortization, stock-based compensation expense, and mark-to-market gains or losses, among other items[362] - These non-GAAP measures exclude specified income and expenses required by GAAP and should not be considered in isolation or as a substitute for GAAP financial performance measures[360][361] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to various market risks, including interest rate risk from its fixed-rate convertible debt and investment portfolios, inflation risk impacting costs and consumer spending, and foreign currency risk. It also highlights the dependence of Porch's financial results on the Reciprocal's performance - As of June 30, 2025, Porch had $487.9 million in interest-bearing debt, primarily fixed-rate convertible notes (2026, 2028, and 2030 Notes), meaning interest expense will not change with market interest rate fluctuations[371][372] - Porch's fixed income portfolio ($33.0 million) and the Reciprocal's portfolio ($172.1 million) are exposed to interest rate risk, with unrealized losses expected in a rising interest rate environment[373] - Inflation risk negatively affects operations through higher costs, decreased margins, and potential reductions in consumer spending, while foreign currency risk is immaterial as activities are primarily in the U.S.[376][377] Item 4. Controls and Procedures This section confirms that management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, and concluded they were effective. It also states that there were no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025[379] - There were no material changes in internal control over financial reporting during the most recent fiscal quarter[380] PART II — OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 16 for details on legal proceedings and reiterates that, despite ongoing litigation in the ordinary course of business, management does not believe any current proceedings would individually or in aggregate have a material adverse effect on the company's financial condition or operations - The company is a party to various legal proceedings, including property, personal injury, contract, intellectual property, and class action lawsuits, arising in the ordinary course of business[384] - Management believes that the outcome of current legal proceedings, if determined adversely, would not individually or in the aggregate have a material adverse effect on the company's business, financial condition, or results of operations[384] Item 1A. Risk Factors This section updates the risk factors, specifically focusing on those related to the newly issued 2030 Notes. It highlights potential adverse impacts such as liquidity issues from conditional conversion, dilution of stockholder ownership, deterrence of beneficial takeover attempts, and negative effects on reported financial condition and earnings due to accounting methods - The conditional conversion feature of the 2030 Notes, if triggered, could adversely affect liquidity by requiring cash settlement or materially reduce net working capital by reclassifying the debt as a current liability[386] - Conversion of the 2030 Notes may dilute existing stockholders' ownership interests or depress the price of common stock, and certain provisions in the indenture could delay or prevent beneficial takeover attempts[387][388] - The accounting method for the 2030 Notes, including debt discount amortization and the 'if converted' method for diluted EPS, could adversely affect reported earnings and financial condition[389] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section states that there were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the reporting period, beyond what was previously disclosed in the company's Form 8-K filed on May 28, 2025 - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities were reported, other than as disclosed in the company's Form 8-K filed on May 28, 2025[390] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[391] Item 4. Mine Safety Disclosures This section states that the disclosure requirements for mine safety are not applicable to the company - Mine safety disclosures are not applicable to the company[392] Item 5. Other Information This section discloses that two members of the Board of Directors entered into Rule 10b5-1 trading arrangements in June 2025 to sell common stock to satisfy tax obligations upon the vesting of shares received for Board service. No other directors or officers adopted, terminated, or modified such plans during the quarter - Regi Vengalil, a Board member, entered a Rule 10b5-1 trading arrangement on June 6, 2025, to sell up to 40,000 shares to satisfy tax obligations upon vesting, with the plan scheduled to terminate on September 15, 2026[393] - Amanda Reierson, a Board member, entered a Rule 10b5-1 trading arrangement on June 13, 2025, to sell up to 60,000 shares for similar tax purposes, with the plan scheduled to terminate on June 19, 2026[394] - No other director or officer adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[395] Item 6. Exhibits This section lists all exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q. These include corporate organizational documents, debt indentures, stock award agreements, and various certifications required by the Sarbanes-Oxley Act - Exhibits include corporate governance documents (Certificate of Incorporation, By-Laws), debt instruments (Indenture for 2030 Notes, Form of 9.00% Convertible Senior Notes due 2030), and stock award agreements[397] - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are furnished[397][398] - XBRL Instance Document and Taxonomy Extension documents are included for interactive data filing[397] SIGNATURES - The report was duly signed on behalf of Porch Group, Inc. by Shawn Tabak, Chief Financial Officer and Duly Authorized Officer, on August 5, 2025[401][402]