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PORCH GROUP, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report and the documents incorporated herein by reference contain forward- looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. 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 and assumptions. 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" or "intends" or similar expressions. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. Unless specifically indicated otherwise, the forward-looking statements in this Quarterly Report 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 filing. You should understand that the following important factors, among others, could affect the Company's future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company's forward-looking statements:
? local, regional and national economic conditions, crime, weather, demographic
trends and employee availability;
? further expansion into the insurance industry, and the related federal and
state regulatory requirements;
?privacy and data protection laws, privacy or data breaches, or the loss of
data; and
? the duration and scope of the COVID pandemic, and its continued effect on the
business and financial conditions of the Company.
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Quarterly Report are more fully described in Part II, Item 1A of this Quarterly Report, Item 1A of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onMarch 16, 2022 and in any of the Company's subsequentSEC filings. The risks described in these filings are not exhaustive. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 35 Table of Contents Business OverviewPorch Group is a vertical software platform for the home, providing software and services to over 28,500 home services companies, such as home inspectors, mortgage companies and loan officers, title companies, moving companies, real estate agencies, utility companies, roofers and others, helping these service providers grow their business and improve their customer experience. The Company provides software and services to home services companies and, through these relationships, gains unique and early access to homebuyers and homeowners, assists homebuyers and homeowners with critical services such as insurance and moving, and, in turn, the Company's platform drives demand for other services from such companies as part of the value proposition. Porch has three types of customers: (1) home services companies, such as home inspectors, mortgage companies, and loan officers and title companies, for whom Porch provides software and services and who pay recurring SaaS fees and increasingly provide introductions to homebuyers and homeowners; (2) consumers, such as homebuyers and homeowners, whom Porch assists with the comparison and provision of various critical home services, such as insurance, moving, security, TV/Internet, and home repair and improvement; and (3) service providers, such as insurance carriers, moving companies, security companies, title companies, mortgage companies and TV/Internet providers, who pay for new customer sign-ups. The Company sells software and services to companies using a variety of sales and marketing tactics, including teams of inside sales representatives organized by vertical market who engage directly with companies, and enterprise sales teams that target the large named accounts in each of the vertical markets. These teams are supported by various typical software marketing tactics, including digital, in-person (such as trade shows and other events) and content marketing. For consumers, Porch largely relies on our unique and proprietary relationships with over 28,500 companies using the Company's software to provide the company with end customer access and introductions. The Company then utilizes technology, lifecycle marketing and teams in lower cost locations to operate as a Moving Concierge to assist these consumers with services. The Company has invested in limited direct-to-consumer marketing capabilities, but expects to become more advanced over time with capabilities such as digital and social retargeting.
Key Performance Measures and Operating Metrics
In the management of these businesses, the Company identifies, measures and evaluates various operating metrics. The key performance measures and operating metrics used in managing the businesses are set forth below. These key performance measures and operating metrics are not prepared in accordance with generally accepted accounting principles inthe 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. The key performance measures presented have been adjusted for divested businesses in 2020.
Average Companies in Quarter - Porch provides software and services to home
services companies and, through these relationships, gains unique and early
access to homebuyers and homeowners, assists homebuyers and homeowners with
critical services such as insurance, warranty and moving. The Company's
customers include home services companies, for whom the Company provides
software and services and who provide introductions to homebuyers and
homeowners and tracks the average number of home services companies from which
? it generates revenue each quarter in order to measure the ability to attract,
retain and grow relationships with home services companies. Porch management
defines the average number of companies in a 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 the Company's 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 the
Company. Average Revenue per Account per Month in Quarter - Management views the
Company's ability to increase revenue generated from existing customers as a
? key component of Porch's 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
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Quarter is derived from all customers and total revenue, not only customers and
revenues associated with the Company's referral network.
The following table summarizes Average Companies in Quarter and Average Revenue
per Account per Month in Quarter for each of the quarterly periods indicated:
2022 2022 2022 2022
Q1 Q2 Q3 Q4
Average Companies in Quarter 25,512 28,730 - -
Average Revenue per Account per Month
in Quarter $ 817 $ 821 $ - $ -
2021 2021 2021 2021
Q1 Q2 Q3 Q4
Average Companies in Quarter 13,995 17,120 20,472 24,603
Average Revenue per Account per Month
in Quarter (adjusted)(1) $ 637 $ 933 (1) $ 985 (1) $ 776 (1)
2020 2020 2020 2020
Q1 Q2 Q3 Q4
Average Companies in Quarter 10,903 10,523 10,792 11,157
Average Revenue per Account per Month
in Quarter $ 484 $ 556 $ 664 $ 556
During the quarter ended December 31, 2021 , the Company corrected an
immaterial error that impacted revenue and cost of revenue for the three
(1) months ended
Account per Month in Quarter metrics were recalculated for the affected
quarters to show the impact of the adjustments.
The following tables shows the impact of this error on Average Revenue per
Account per Month in Quarter:
2021 2021 2021
2021
Q1 Q2 Q3
Q4
Total Revenue (as previously reported) 26,742$ 51,340 $ 62,769 $ 51,582 Quarterly Impact of Revenue Adjustment Recorded in Q4 - (3,400) (2,300) 5,700 Total Revenue (as adjusted)$ 26,742 $ 47,940 $ 60,469 $ 57,282 Average Revenue per Account per Month in Quarter (as adjusted)$ 637 $ 933 $ 985 $ 776 Average Revenue per Account per Month in Quarter (as previously reported)$ 637 $ 1,000 $
1,022
In 2022, the Company completed acquisition of RWS. In 2021, the Company
completed acquisitions of V12 Data in Q1,
Rynoh in Q2, American Home Protect ("AHP") in Q3 and Floify in Q4, that impacted
the average number of companies in the quarter.
Monetized Services in Quarter - Porch connects consumers with home services
companies nationwide and offers a full range of products and services where
homeowners can, among other things: (i) compare and buy home insurance policies
(along with auto, flood and umbrella policies) and warranties with competitive
rates and coverage; (ii) 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; (iii) discover and install home automation and security
systems; (iv) compare Internet and television options for their new home;
(v) book small handyman jobs at fixed, upfront prices with guaranteed quality;
? and (vi) compare bids from home improvement professionals who can complete
bigger jobs. The Company tracks the number of monetized services performed
through its platform each quarter and the revenue generated per service
performed in order to measure market penetration with homebuyers and homeowners
and the Company's ability to deliver high-revenue services within those groups.
Monetized Services in Quarter is defined as the total number of unique services
from which the Company 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 - Management believes that
shifting the mix of services delivered to homebuyers and homeowners toward
higher revenue services is a key component of Porch's 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.
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The following table summarizes our monetized services and average revenue per
monetized service for each of the quarterly periods indicated:
2022 2022
2022 2022
Q1 Q2 Q3 Q4 Monetized Services in Quarter 254,249 331,889 - - Average Revenue per Monetized Service in Quarter$ 176 $ 158 $ - $ - 2021 2021 2021 2021 Q1 Q2 Q3 Q4 Monetized Services in Quarter 182,779 302,462 329,359 260,352 Average Revenue per Monetized Service in Quarter (adjusted)(1)$ 92 $ 118 (1)$ 137 (1)$ 154 (1) 2020 2020 2020 2020 Q1 Q2 Q3 Q4 Monetized Services in Quarter 152,165 181,520 198,165 169,949 Average Revenue per Monetized Service in Quarter$ 93 $ 86 $
97$ 98 During the quarter endedDecember 31, 2021 , the Company corrected an
immaterial error that impacted revenue and cost of revenue for the three
(1) months ended
Monetized Service in Quarter metrics were recalculated for the affected
quarters to show the impact of the adjustments.
The following tables shows the impact of this error on Average Revenue per
Monetized Service in Quarter:
2021 2021
2021 2021
Q1 Q2 Q3
Q4
Service Revenue (as previously reported)$ 35,702 $ 39,102 $ 47,398 $ 34,351 Quarterly Impact of Revenue Adjustment Recorded in Q4 - (3,400) (2,300) 5,700 Service Revenue (as adjusted)$ 35,702 $ 35,702 $ 45,098 $ 40,051 Average Revenue per Monetized Service in Quarter (adjusted)$ 92 $ 118 $ 137 $ 154 Average Revenue per Monetized Service in Quarter (as previously reported)$ 92 $ 129 $
144
In 2022, the Company completed acquisition of RWS. In 2021, the Company
completed acquisitions of V12 Data in Q1, HOA and Rynoh in Q2, AHP in Q3 and
Floify in Q4, which impacted the number of monetized services in the quarter.
Recent Developments
Adoption of New Accounting Standards
The Company early adopted Accounting Standards Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers onJanuary 1, 2022 and will apply the guidance prospectively for business combinations that occur after the adoption date. The adoption has no impact to the existing unaudited condensed consolidated balance sheets, statements of operations, and statements of cash flows.
Key Factors Affecting Operating Results
The Company has been implementing its strategy as a vertical software platform for the home, providing software and services to over 28,500 home services companies, such as home inspectors, moving companies, utility companies, warranty companies, etc. The following are key factors affecting the Company's operating results in the three and six months endedJune 30, 2022 :
? In
Services ("RWS") with an aggregate purchase price of
In 2021, the Company completed several acquisitions with an aggregate purchase
price of
? the Company's services offerings, add additional team members with important
skillsets, and realize synergies. These acquisitions included V12 Data
(acquired in
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(acquired in
complete discussion of 2021 acquisitions, refer to Item 8 in the Company's
Annual Report on Form 10-K for the fiscal year ended
on
Continued investment in growing and expanding the Company's position in the
? home inspection industry including through core enterprise resource planning
and customer relationship management software offered by Inspection Support
Continued investment in growing and expanding the Company's position in
? providing moving services to consumers as a result of the 2018 acquisition of
HireAHelper™, a provider of software and demand for moving companies.
Intentionally building operating leverage in the business by focusing on
? growing operating expenses at a slower rate than the growth in revenue.
Specifically, by increasing economies of scale related to fixed selling costs,
Moving Concierge call center operations and product and technology costs.
? Ongoing expansion in other software verticals related to the home and related
services such as title, warranty and mortgage software.
? Investments in consumer experience to drive higher conversion rates, including
investments in apps.
Investments in establishing and maintaining controls required by the
? Sarbanes-Oxley Act of 2002 ("SOX") and other internal controls across IT and
accounting organizations.
? Investments in data platforms and leveraging that data in pricing optimization
within insurance.
? Growth across the insurance business, including geographic expansion.
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes
of the Company include the accounts of the Company and its consolidated
subsidiaries and were prepared in accordance with GAAP. All significant
intercompany accounts and transactions are eliminated in consolidation.
The Company operates in two operating segments:Vertical Software and Insurance. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker ("CODM") in making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer is the CODM.
Components of Results of Operations
Total Revenue
The Company generates revenue from (1) software and service subscription revenue
generated from fees received for providing subscription access to the Company's
software platforms and subscription services across various industries; (2)
insurance revenue in the form of commissions from third-party insurance carriers
where Porch acts as an independent agent and commissions from reinsurers,
insurance and warranty premiums, policy fees and other insurance-related fees
generated through its own insurance carrier; (3) move-related service revenue
through fees received for connecting homeowners to service providers during time
of a move including movers, TV/Internet, warranty, and security monitoring
providers and for certain move related services for providing select services
directly to the homeowner; (4) post-move related revenue in the form of fees
earned from introducing homeowners to home service
39
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professionals including handymen, plumbers, electricians, roofers etc., and for
certain projects for providing select services directly to the homeowner.
Software and service subscription revenue primarily relates to subscriptions to the Company's software offerings across its verticals as well as marketing software and services. The Company's subscription arrangements for this revenue stream do not provide the customer with the right to take possession of the software supporting the cloud-based application services. The Company's standard subscription contracts are monthly contracts in which pricing is based on a specified price per inspection completed through the software. Marketing software and services are primarily contractual monthly recurring billings. Fees earned for providing access to the subscription software are non-refundable and there is no right of return. Revenue is recognized based on the amount which the Company is entitled to for providing access to the subscription software during the monthly contract term. The Insurance segment offers various property-related insurance policies through its own risk-bearing carrier and independent agency as well as a risk-bearing home warranty company. Third-party insurance companies payPorch Company's agency upfront and renewal commissions for selling their policies, reinsurers pay the Company ceding commissions when premiums are ceded from owned insurance products, and revenues are earned in the form of policy premiums collected from insureds from owned insurance products. The Insurance segment also includes home warranty revenue which mainly consists of premiums paid by warranty customers for the Company's home warranty products. Move-related transactions revenue arises when the Company connects service providers with homeowners that meet pre-defined criteria and may be looking for relevant services. Service providers include movers, TV/Internet, warranty, and security monitoring providers. The Company earns revenue when consumers purchase services from third-party providers. For moving products where the Company manages the process of selecting the service provider and setting the price, the Company generally invoices for projects on a fixed fee or time and materials basis. Post-move-related transaction revenue includes fees earned from introducing consumers to home service providers as well as directly to the homeowner when the Company manages the service. Revenue generated from service providers is recognized at a point in time upon the connection of a homeowner to the service provider. The Company generally invoices for managed services projects on a fixed fee or time and materials basis.
Total Costs and Expenses
Operating expenses
Operating expenses are categorized into four categories:
? Cost of revenue; ? Selling and marketing;
? Product and technology; and
? General and administrative.
The categories of operating expenses include both cash expenses and non-cash
charges, such as stock-based compensation, depreciation and amortization.
Depreciation and amortization are recorded in all operating expense categories,
and consist of depreciation from property, equipment and software and intangible
assets.
Cost of revenue primarily consists of insurance claims losses and loss
adjustment expenses, claims personnel costs, warranty claims, third-party
providers for executing moving labor and handyman services when the Company is
managing the job, data costs related to marketing campaigns, certain call center
costs, credit card processing and merchant fees and operational cost of SaaS
businesses.
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Selling and marketing expenses primarily consist of payroll, employee benefits
and stock-based compensation expense, and other headcount related costs
associated with sales efforts directed toward companies and consumers, and
deferred policy acquisition costs ("DAC") of new and renewal insurance
contracts. Also included are any direct costs to acquire customers, such as
search engine optimization, marketing costs and affiliate and partner leads.
The Company capitalizes DAC, which consists primarily of commissions, premium taxes, policy underwriting, and production expenses directly related to the successful acquisition by the Company's insurance subsidiary of new or renewal insurance contracts. DAC are amortized to expense on a straight-line basis over the terms of the policies to which they relate, which is generally one year. DAC is also reduced by ceding commissions paid by reinsurance companies which represent recoveries of acquisition costs. DAC is periodically reviewed for recoverability and adjusted if necessary. Product and technology development costs primarily consist of payroll, employee benefits, stock-based compensation expense, other headcount-related costs associated with product development, net of costs capitalized as internally developed software. Also included are cloud computing, hosting and other technology costs, software subscriptions, professional services and amortization of internally developed software. General and administrative expenses primarily consist of expenses associated with functional departments for finance, legal, human resources and executive management. The primary categories of expenses include payroll, employee benefits, stock-based compensation expense and other headcount related costs, rent for office space, legal and professional fees, taxes, licenses and regulatory fees, merger and acquisition transaction costs, and other administrative costs.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported and disclosed in the unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis these estimates, which include, but are not limited to, estimated variable consideration for services performed, estimated lifetime value of the insurance agency commissions, current estimate for credit losses, depreciable lives for property and equipment, the valuation of and useful lives for acquired intangible assets, goodwill, the valuation allowance on deferred tax assets, assumptions used in stock-based compensation expense, unpaid losses for insurance claims and loss adjustment expenses, contingent consideration, earnout liabilities and private warrant liabilities, all of which are evaluated by management. Actual results could differ materially from those estimates, judgments, and assumptions. At least quarterly, the Company evaluates estimates and assumptions and makes changes accordingly. For information on the Company's significant accounting policies, see Note 1 in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
During the three months ended
critical accounting policies discussed in the Company's Annual Report on Form
10-K. For a complete discussion of the Company's Annual Report.
41 Table of Contents Results of Operations
The following table sets forth the Company's historical operating results for
the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
(dollar amounts in thousands)
Revenue $ 70,769 $ 51,340 19,429 38 % $ 133,330 $ 78,083 $ 55,247 71 %
Operating expenses:
Cost of revenue 28,558 19,500 9,058 46 %
49,747 25,429 24,318 96 % Selling and marketing 28,826 23,122 5,704 25 % 54,569 37,762 16,807 45 % Product and technology 15,777 11,050 4,727 43 % 30,009 22,841 7,168 31 % General and
administrative 28,405 20,611 7,794 38 % 55,103 44,625 10,478 23 % Total operating expenses 101,566 74,283 27,283 37 % 189,428 130,658 58,770 45 % Operating loss (30,797) (22,943) (7,854) 34 % (56,098) (52,575) (3,523) 7 % Other income (expense): Interest expense (1,858) (1,216) (642) 53 %
(4,151) (2,439) (1,712) 70 % Change in fair value of earnout liability 2,587 (4,032) 6,619 NM 13,766 (22,801) 36,567 NM Change in fair value of private warrant liability 4,078 (4,303) 8,381 NM 14,267 (20,212) 34,479 NM Gain (loss) on extinguishment of debt - 8,243 (8,243) NM - 8,243 (8,243) NM Investment income and realized gains, net of investment expenses 243 387 (144) (37) % 440 397 43 11 % Other income, net (162) (165) 3 (2) % (107) (91) (16) 18 % Total other income (expense) 4,888 (1,084) 5,974 NM 24,215 (36,904) 61,119 NM Loss before income
taxes (25,909) (24,027) (1,880) 8 % (31,883) (89,479) 57,596 (64) % Income tax benefit (expense) (468) 7,731 (8,199) NM (290) 8,081 (8,371) NM Net loss$ (26,377) $ (16,296) (10,079) 62 %$ (32,173) $ (81,398) $ 49,225 (60) % NM = Not Meaningful Revenue
Three months ended
Total revenue increased by$19.4 million , or 38%, from$51.3 million in the three months endedJune 30, 2021 to$70.8 million in the same period in 2022. The increase in revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions, organic growth, and accelerated growth of these acquisitions. InApril 2022 , the Company acquired RWS for an aggregate purchase price of$45.7 million . During 2021, the Company acquired a number of businesses with an aggregate purchase price of$346.3 million as disclosed in the Company's Annual Report on Form 10-K. These acquisitions included V12 Data (acquired inJanuary 2021 ), HOA (acquired inApril 2021 ), Rynoh (acquired inMay 2021 ), AHP (acquired inSeptember 2021 ) and Floify (acquired inOctober 2021 ). Other than V12 Data, HOA and Rynoh, these businesses were not owned by the Company during the three months endedJune 30, 2021 and, therefore no revenue was recognized from these businesses during that period. During the quarter endedDecember 31, 2021 , the Company corrected an immaterial error related to revenue from claims fees and contra claims expense, which was recorded in the fourth quarter of 2021. This error impacted revenue 42
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and cost of revenue for the three months ended
2021
The following table summarizes the impact of the correction by quarter (in
thousands):
Quarter ended
March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 Total
Revenue increase
(decrease) $ - $ (3,400) $ (2,300) $ 5,700 $ -
Cost of revenue increase
(decrease) - 3,400 2,300 (5,700) -
Net loss impact $ - $ - $ - $ - $ -
Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : Total revenue increased by$55.2 million , or 71% from$78.1 million in the six months endedJune 30, 2021 to$133.3 million in the same period in 2022. During 2022 and 2021, the Company acquired a number of businesses with an aggregate purchase price of$346.3 million as disclosed in the Company's Annual Report on Form 10-K. These acquisitions included V12 Data (acquired inJanuary 2021 ), HOA (acquired inApril 2021 ), Rynoh (acquired inMay 2021 ), AHP (acquired inSeptember 2021 ), Floify (acquired inOctober 2021 ) and RWS (acquired inApril 2022 ). Other than V12 Data, HOA and Rynoh, these businesses were not owned by the Company during the six months endedJune 30, 2021 and, therefore, no revenue was recognized from these businesses during that period. Thus, the increase in revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions, accelerated growth after acquisition and organic growth. During the quarter endedDecember 31, 2021 , the Company corrected an immaterial error related to revenue from claims fees and contra claims expense, which was recorded in the fourth quarter of 2021. This error impacted revenue and cost of revenue for the three months endedJune 30, 2021 andSeptember 30, 2021 . The correction did not impact operating loss or net loss in these periods. See the table above for the impact of the correction by quarter.
Cost of Revenue
Three months ended
Cost of revenue increased by$9.1 million , or 46%, from$19.5 million in the three months endedJune 30, 2021 to$28.6 million in the same period in 2022. The increase in the cost of revenue was primarily attributable to the 2022 and 2021 acquisitions of RWS (acquired inApril 2022 ), V12 Data (acquired inJanuary 2021 ), HOA (acquired inApril 2021 ), Rynoh (acquired inMay 2021 ), AHP (acquired inSeptember 2021 ), and Floify (acquired inOctober 2021 ). Other than V12 Data, HOA and Rynoh, these businesses were not owned by the Company during the three months endedJune 30, 2021 and, therefore, no cost of revenue was recognized from these businesses during that period. Thus, the increase in cost of revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions, accelerated growth after acquisition and organic growth. As a percentage of revenue, cost of revenue represented 40% of revenue in the three months endedJune 30, 2022 compared with 38% in the same period in 2021. Cost of revenue as a percentage of revenue is higher due to the mix shift in business with insurance as the claims and loss and loss adjustment expense is recorded in cost of revenue. Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : Cost of revenue increased by$24.3 million , or 96% from$25.4 million in the six months endedJune 30, 2021 to$49.7 million in the same period in 2022. The increase in the cost of revenue was primarily attributable to the 2022 and 2021 acquisitions of RWS (acquired in April 2022),V12 Data (acquired inJanuary 2021 ), HOA (acquired inApril 2021 ), Rynoh (acquired inMay 2021 ), AHP (acquired inSeptember 2021 ), Floify (acquired inOctober 2021 ). Other than V12 Data, HOA and Rynoh, these businesses were not owned by the Company during the six months endedJune 30, 2021 and, therefore, no cost of revenue was recognized from these businesses during that period. Thus, the increase in cost of revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions, accelerated growth after acquisition 43 Table of Contents
and organic growth. As a percentage of revenue, cost of revenue represented 37% of revenue in the six months endedJune 30, 2022 compared with 33% in the same period in 2021. Cost of revenue as a percentage of revenue is higher due to the mix shift in business with insurance as the claims and loss and loss adjustment expense is recorded in cost of revenue.
Selling and marketing
Three months ended
Selling and marketing expenses increased by$5.7 million , or 25%, from$23.1 million in the three months endedJune 30, 2021 to$28.8 million in the same period in 2022. The increase is due to$4.9 million related to the selling and marketing costs of the acquired businesses comprised of RWS, V12 Data, AHP, Floify and Rynoh. The increase was also due to the growth of the insurance and software and subscription businesses. This was partially offset by a decrease of$0.2 million in stock-based compensation expenses. As a percentage of revenue, selling and marketing expenses represented 41% of revenue in the three months endedJune 30, 2022 compared with 45% in the same period in 2021. The improvement in selling and marketing expenses as a percentage of revenue is due to the growing economies of scale across the Company'sVertical Software and Insurance segments. Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : Selling and marketing expenses increased by$16.8 million , or 45% from$37.8 million in the six months endedJune 30, 2021 to$54.6 million in the same period in 2022. The increase is due to$12.8 million related to the selling and marketing costs of the acquired businesses comprised of HOA, RWS, V12 Data, AHP, Floify and Rynoh. The increase was also due to a$2.2 million increase in amortization expense related to acquired intangibles. Growth in the insurance and software and subscription businesses further contributed to the increase. This was partially offset by a decrease of$1.6 million in stock-based compensation expenses. As a percentage of revenue, selling and marketing expenses represented 41% of revenue in the six months endedJune 30, 2022 compared with 48% in the same period in 2021. The improvement in selling and marketing expenses as a percentage of revenue is due to the growing economies of scale across the Company'sVertical Software and Insurance segments.
Product and technology
Three months ended
Product and technology expenses increased by$4.7 million , or 43%, from$11.1 million in the three months endedJune 30, 2021 to$15.8 million in the same period in 2022. The increase is mainly due to a$2.5 million increase in amortization expense related to acquired intangibles and a$1.2 million increase in product and technology costs of the acquired businesses, most notably Floify. As a percentage of revenue, product and technology expenses represented 22% of revenue in the three months endedJune 30, 2022 compared with 22% in the same period in 2021. Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : Product and technology expenses increased by$7.2 million , or 31% from$22.8 million in the six months endedJune 30, 2021 to$30.0 million in the same period in 2022. The increase is mainly due to a$3.4 million increase in amortization expense related to acquired intangibles and a$7.2 million increase in product and technology costs of the acquired businesses, most notably HOA, Floify, Rynoh, RWS and AHP. This was offset by$1.2 million lower stock-based compensation expense. As a percentage of revenue, product and technology expenses represented 23% of revenue in the six months endedJune 30, 2022 compared with 29% in the same period in 2021. The improvement in product and technology expenses as a percentage of revenue is due to the growing economies of scale in the overall business. 44 Table of Contents General and administrative
Three months ended
General and administrative expenses increased by$7.8 million , or 38%, from$20.6 million in the three months endedJune 30, 2021 to$28.4 million in the same period in 2022, primarily due to costs related to increased hiring of corporate resources, audit and accounting fees, as well as consulting fees related to the ongoing SOX requirements. In the three months endedJune 30, 2022 , general and administrative expenses included$6.2 million related to the HOA, RWS, AHP, Floify and Rynoh, and additional investment in corporate resources and systems, as well as SOX implementation. In addition, during the three months endedJune 30, 2022 , loss on revaluation of contingent consideration of$1.5 million was$0.9 million higher than during the three months endedJune 30, 2021 .
Also, stock-based compensation expense for the three months ended
was
Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : General and administrative expenses increased by$10.5 million , or 23% from$44.6 million in the six months endedJune 30, 2021 to$55.1 million in the same period in 2022. The increase is primarily due to costs related to increased hiring of corporate resources, audit and accounting fees, as well as consulting fees related to the ongoing SOX requirements. In the six months endedJune 30, 2022 , general and administrative expenses included$12.4 million related to the HOA, RWS, AHP, Floify and Rynoh. Additional investment in corporate resources and systems, and SOX implementation also contributed to the increase. In addition, during the six months endedJune 30, 2022 , loss on revaluation of contingent consideration of$3.2 million was$4.5 million higher than during the six months endedJune 30, 2021 . This was offset by stock-based compensation expense for the six months endedJune 30, 2022 , which was$5.1 million lower than in the same period in 2021.
Interest expense, net
Three months ended
Interest expense increased by$0.7 million , or 53%, from$1.2 million in the three months endedJune 30, 2021 to$1.9 million in the same period in 2022. This was primarily due to issuance of$425 million of Convertible Senior Notes inSeptember 2021 , that in part was used to pay off the$42.1 million of Senior Secured Term Loans that were outstanding atJune 30, 2021 . The total level of interest-bearing debt balance was$425.6 million atJanuary 1, 2022 and$50.8 million atJanuary 1, 2021 and this higher outstanding debt balance was the primary reason for the increased interest expense. Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : Interest expense increased by$1.8 million , or 75% from$2.4 million in the six months endedJune 30, 2021 to$4.2 million in the same period in 2022. This was primarily due to issuance of$425 million of Convertible Senior Notes inSeptember 2021 , that in part was used to pay off the$42.1 million of Senior Secured Term Loans that were outstanding atJune 30, 2021 . The higher outstanding debt balance was the primary reason for the increased interest expense.
Change in fair value of earnout liability
Three months ended
Changes in fair value of earnout liability were$2.6 million (gain) and$4.0 million (loss) in the three months endedJune 30, 2022 and 2021, respectively. The decrease in fair value was primarily due to the decline in the stock price atJune 30, 2022 as compared toJune 30, 2021 . 45
Table of Contents
Six months ended
Changes in fair value of earnout liability were$14.3 million (gain) and$22.8 million (loss) in the six months endedJune 30, 2022 and 2021, respectively. The decrease in fair value was primarily due to the decline in the stock price atJune 30, 2022 as compared toJune 30, 2021 . During the six months endedJune 30, 2021 ,$25.8 million of the earnout liability was reclassified to additional paid in capital as a result of a vesting event inMarch 2021 .
Change in fair value of private warrant liability
Three months ended
Changes in fair value of private warrant liability were$4.1 million (gain) and$4.3 million (loss) in the three months endedJune 30, 2022 and 2021, respectively. The decrease in fair value was primarily due to the decline in the stock price atJune 30, 2022 as compared toJune 30, 2021 . Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : Changes in fair value of private warrant liability were$14.3 million (gain) and$20.2 million (loss) in the six months endedJune 30, 2022 and 2021, respectively. The decrease in fair value was primarily due to the decline in the stock price atJune 30, 2022 as compared toJune 30, 2021 .
Investment income and realized gains, net of investment expenses
Three months ended
Investment income and realized gains, net of investment expenses was
million
respectively. In
short-term and long-term investment portfolio that generated investment income
for nine months in 2021.
Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : Investment income and realized gains, net of investment expenses was$0.4 million and$0.4 million in the six months endedJune 30, 2022 and 2021, respectively. InApril 2021 , the Company acquired HOA, which maintains a short-term and long-term investment portfolio that generated investment income for nine months in 2021. The Company did not have any material investments
prior toApril 2021 . Income tax benefit (expense)
Three months ended
Income tax expense of$0.5 million and income tax benefit of$7.7 million was recognized for the six months endedJune 30, 2022 and 2021, respectively. The difference between the Company's effective tax rates for the 2022 period and theU.S. statutory rate of 21% was primarily due to a full valuation allowance related to the Company's net deferred assets. The difference between the Company's effective tax rates for the 2021 period and theU.S. statutory rate of 21% was primarily due to the release of a portion of the valuation allowance due to deferred tax liabilities created by certain acquisitions. Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : Income tax expense of$0.3 million and income tax benefit$8.1 million was recognized for the six months endedJune 30, 2022 and 2021, respectively. The Company's effective tax rates in both periods differs substantially from theU.S. federal statutory tax rate of 21% primarily due to a full valuation allowance related to the Company's net deferred tax assets. 46 Table of Contents Segment Results of Operations
The Company operates the business as two reportable segments that are also operating segments:Vertical Software and Insurance. For additional information about these segments, see Note 14 in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report. Segment Revenue Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 Vertical Software Vertical Software Segment Insurance Segment Segment Insurance Segment Revenue:
Software and service subscriptions $ 20,544 $ - $ 38,509 $
-
Move-related transactions (excluding
insurance) 17,535 - 29,728 -
Post-move transactions 4,734 - 9,264 -
Insurance - 27,956 - 55,829
Total revenue $ 42,813 $ 27,956 $ 77,501 $ 55,829
Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
Vertical Software Vertical Software
Segment Insurance Segment Segment Insurance Segment
Revenue:
Software and service subscriptions $ 12,987 $ - $ 23,867 $
-
Move-related transactions (excluding insurance) 16,295 - 25,256 - Post-move transactions 5,122 - 10,219 - Insurance - 16,936 - 18,741 Total revenue $ 34,404 $ 16,936 $ 59,342 $ 18,741
Three months ended
For the three months endedJune 30, 2022 ,Vertical Software segment revenue was$42.8 million or 60.5% of total revenue for the same period. For the three months endedJune 30, 2021 ,Vertical Software segment revenue was$34.4 million or 67.0% of total revenue for the same period. Software and service subscriptions revenue increased from$13.0 million to$20.5 million as the Company acquired RWS inApril 2022 , Rynoh inMay 2021 and Floify inOctober 2021 . Thus, the increase in revenue in 2022 is primarily driven by the recent acquisitions, accelerated growth after acquisition and organic growth. Insurance segment revenue was$28.0 million or 39.6% of total revenue for the three months endedJune 30, 2022 . Insurance segment revenue was$16.9 million or 33.0% of total revenue for the three months endedJune 30, 2021 . The increase is mainly due to the acquisitions of RWS (acquired inApril 2022 ) and AHP (acquired inSeptember 2021 ), and the accelerated growth of these businesses after acquisition, as well as organic growth of the Company's existing insurance operation of HOA. Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : For the six months endedJune 30, 2022 ,Vertical Software segment revenue was$77.5 million or 58.1% of total revenue for the same period. For the six months endedJune 30, 2021 ,Vertical Software segment revenue was$59.3 million or 76.0% of total revenue for the same period. Software and service subscriptions revenue increased as the Company acquired RWS inApril 2022 , Rynoh inMay 2021 and Floify inOctober 2021 . Thus, the increase in revenue in 2022 is primarily driven by the 2021 acquisitions, accelerated growth after acquisition and organic growth. 47 Table of Contents Insurance segment revenue was$55.8 million for the six months endedJune 30, 2021 , and represented 41.9% of total revenue for the same period. For the six months endedJune 30, 2021 , Insurance segment revenue was$18.7 million or 24.0% of total revenue for the same period. The increase is mainly due to the acquisitions of RWS (acquired inApril 2022 ), AHP (acquired inSeptember 2021 ) and HOA (acquired inApril 2021 ), and the accelerated growth of these businesses after acquisition, as well as the organic growth of HOA.
Segment Adjusted EBITDA (Loss)
Segment Adjusted EBITDA (loss) is defined as revenue less operating expenses
associated with the segments. Segment Adjusted EBITDA (loss) also excludes
non-cash items, certain transactions that are not indicative of ongoing segment
operating and financial performance and are not reflective of the Company's core
operations. See Note 14 in the notes to the unaudited condensed consolidated
financial statements included in Part I, Item 1 of this Quarterly Report for
additional information.
Three Months Ended June 30 ,
Six Months Ended
2022 2021 2022 2021 Segment adjusted EBITDA (loss): Vertical Software $ 6,038$ 8,107 $ 9,022$ 11,258 Insurance (5,068) (2,951) (1,782) (2,443) Corporate and Other(1) (15,237) (15,081) (28,577) (28,334) Total segment adjusted EBITDA (loss)(2)$ (14,267) $ (9,925)
(1) Includes costs that are not directly attributable to reportable segments, as
well as certain shared costs.
(2) See reconciliation of adjusted EBITDA (loss) to net loss below.
Non-GAAP Financial Measures
This Quarterly Report includes non-GAAP financial measures, such as Adjusted
EBITDA (loss), Adjusted EBITDA (loss) as a percent of revenue, and average
revenue per monetized service.
The Company defines Adjusted EBITDA (loss) as net income (loss) adjusted for
interest expense, net, income taxes, other expenses, net, depreciation and
amortization, certain non-cash long-lived asset impairment charges, stock-based
compensation expense and acquisition-related impacts, amortization of intangible
assets, gains (losses) recognized on changes in the value of contingent
consideration arrangements, if any, gain or loss on divestures and certain
transaction costs. Adjusted EBITDA (loss) as a percent of revenue is defined as
Adjusted EBITDA (loss) divided by GAAP total revenue. 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 a quarter, average revenue is defined as total quarterly
service transaction revenues generated from monetized services.
Company management uses these non-GAAP financial measures as supplemental
measures of the Company's 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. The
Company believes that the use of these non-GAAP financial measures provides
investors with useful information to evaluate the Company's operating and
financial performance and trends and in comparing Porch's financial results with
competitors, other similar companies and companies across different industries,
many of which present similar non-GAAP financial measures to investors. However,
the Company's definitions and methodology in calculating these non-GAAP measures
may not be comparable to those used by other companies. In addition, the Company
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 the
Company's consolidated financial statements. The Company may also incur future
income or expenses similar to those excluded from these non-GAAP financial
measures, and the presentation of
48
Table of Contents
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. See the reconciliation tables below for more details regarding these non-GAAP financial measures, including the reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.
Revenue Less Cost of Revenue
The following table reconciles revenue less cost of revenue to operating loss for the three and six months endedJune 30, 2022 and 2021, respectively (dollar amounts in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue$ 70,769 $ 51,340 $ 133,330 $ 78,083 Less: Cost of revenue (28,558) (19,500) (49,747) (25,429) Revenue less cost of revenue 42,211 31,840 83,583 52,654
Less: Selling and marketing costs 28,826 23,122 54,569 37,762 Less: Product and technology costs 15,777 11,050 30,009 22,841 Less: General and administrative costs 28,405
20,611 55,103 44,625 Total operating expenses$ 101,566 $ 74,283 $ 189,428 $ 130,658 Operating loss$ (30,797) $ (22,943) $ (56,098) $ (52,575)
Three months ended
Revenue less cost of revenue increased by$10.4 million , or 32.6% from$31.8 million in the three months endedJune 30, 2021 to$42.2 million in the three months endedJune 30, 2022 . During 2022, the Company acquired RWS. During 2021, the Company acquired a number of businesses, including Rynoh (acquired inMay 2021 ), AHP (acquired inSeptember 2021 ) and Floify (acquired inOctober 2021 ). The increase revenue less cost of revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions, accelerated growth after acquisition and organic growth. Six months endedJune 30, 2022 compared to six months endedJune 30, 2021 : Revenue less cost of revenue increased by$30.9 million , or 58.7% from$52.7 million in the six months endedJune 30, 2021 to$83.6 million in the six months endedJune 30, 2022 . During 2022, the Company acquired RWS During 2021, the Company acquired a number of businesses with an aggregate purchase price of$346.3 million as disclosed in the Company's Annual Report on Form 10-K. These acquisitions included V12 Data (acquired inJanuary 2021 ), HOA (acquired inApril 2021 ), Rynoh (acquired inMay 2021 ), AHP (acquired inSeptember 2021 ) and Floify (acquired inOctober 2021 ). Other than V12 Data, HOA and Rynoh, these businesses were not owned by the Company in the six months endedJune 30, 2022 , therefore, no revenue less cost of revenue was recognized from these businesses during that period. Thus, the increase revenue less cost of revenue in 2022 is primarily driven by the 2022 and 2021 acquisitions, accelerated growth after acquisition and organic growth. 49 Table of Contents Adjusted EBITDA (loss) The following table reconciles net loss to Adjusted EBITDA (loss) for the three and six months endedJune 30, 2022 and 2021, respectively (dollar amounts in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net loss$ (26,377) $ (16,296) $ (32,173) $ (81,398) Interest expense 1,858 1,216 4,151 2,439 Income tax benefit (expense) 468 (7,731) 290 (8,081) Depreciation and amortization 6,416 3,894 12,899 6,356 Gain on extinguishment of debt - (8,243) - (8,243) Other expense (income), net 162 165 107 91 Non-cash long-lived asset impairment charge - 72 70 139 Non-cash stock-based compensation expense 9,702 7,035 15,556 24,048 Revaluation of contingent consideration 1,481 574 4,686 220 Revaluation of earnout liability (2,587) 4,032 (13,766) 22,801 Revaluation of private warrant liability (4,078) 4,303 (14,267) 20,212 Acquisition and related expense 214 1,056 1,110 1,896 Non-cash bonus expense (1,526) - - - Adjusted EBITDA (loss)$ (14,267) $ (9,925) $ (21,337) $ (19,519) Adjusted EBITDA (loss) as a percentage of revenue (20) %
(19) % (16) % (25) %
Adjusted EBITDA (loss) for the three months endedJune 30, 2022 was$14.3 million , a$4.4 million decline from Adjusted EBITDA (loss) of$9.9 million for the same period in 2021. Adjusted EBITDA (loss) for the six months endedJune 30, 2022 was$21.3 million , a$1.8 million decline from Adjusted EBITDA (loss) of$19.5 million for the same period in 2021. During 2022, the Company acquired RWS for an aggregate purchase price of$45.7 million . During 2021, the Company acquired a number of businesses with an aggregate purchase price of$346.3 million as disclosed in the Company's Annual Report on Form 10-K. These acquisitions included V12 Data (acquired inJanuary 2021 ), HOA (acquired inApril 2021 ), Rynoh (acquired inMay 2021 ), AHP (acquired inSeptember 2021 ) and Floify (acquired inOctober 2021 ). Other than V12 Data, HOA and Rynoh, these businesses were not owned by the Company during the three and six months endedJune 30, 2021 and, therefore, no revenue and Adjusted EBITDA (loss) was recognized from these businesses during these periods. The decline in Adjusted EBITDA (loss) in 2022 is primarily driven by the macro housing environment affecting both segments, and higher volume of claims paid out by HOA in the second quarter of 2022, affecting the Insurance segment, as well as by continued investments in sales and marketing and product and technology related to consumer experience, app build out, data platforms and investments in establishing and maintaining SOX and other internal controls across IT and accounting organizations. This decline was partially offset by the impact of the 2022 and 2021 acquisitions.
Liquidity and Capital Resources
Since inception, as a private company, the Company has financed its operations primarily from the sales of redeemable convertible preferred stock and convertible promissory notes, and proceeds from the senior secured term loans. OnDecember 23, 2020 , the Company received approximately$269.5 million of aggregate cash proceeds from recapitalization, net of transaction costs, as it began trading publicly. During 2021, the Company completed a private offering of$425 million aggregate principal amounts of convertible debt maturing in 2026, and raised$126.7 million and$4.3 million from exercise of public warrants and stock options, respectively. As ofJune 30, 2022 , the Company had cash and cash equivalents of$271.0 million and$11.1 million of restricted cash, respectively. Restricted cash consists of funds held for the payment of possible warranty claims as required in 25 states; funds held in certificates of deposits and money market mutual funds pledged to, or held in escrow with, certain state insurance regulators in connection with insurance operations; customer deposits; and acquisition indemnifications. 50
Table of Contents
The Company has incurred net losses since its inception, and has an accumulated
deficit at
As ofJune 30, 2022 andDecember 31, 2021 , the Company had$426.5 million and$425.6 million aggregate principal amount outstanding in convertible notes and promissory notes, respectively. Based on the Company's current operating and growth plan, management believes cash and cash equivalents atJune 30, 2022 , are sufficient to finance the Company's operations, planned capital expenditures, working capital requirements and debt service obligations for at least the next 12 months. As the Company's operations evolve and continue its growth strategy, including through acquisitions, the Company may elect or need to obtain alternative sources of capital, and it may finance additional liquidity needs in the future through one or more equity or debt financings. The Company may not be able to obtain equity or additional debt financing in the future when needed or, if available, the terms may not be satisfactory to the Company or could be dilutive to its stockholders.Porch Group, Inc. is a holding company that transacts a majority of its business through operating subsidiaries, including insurance subsidiaries. Consequently, the Company's ability to pay dividends and expenses is largely dependent on dividends or other distributions from its subsidiaries. The Company's insurance company subsidiaries are highly regulated and are restricted by statute as to the amount of dividends they may pay without the prior approval of their respective regulatory authorities. As ofJune 30, 2022 , cash and cash equivalents of$35.5 million and investments held by these companies was$64.4 million . The Company may, at any time and from time to time, seek to retire or purchase its outstanding debt or equity through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
The following table provides a summary of cash flow data for the six months
ended
Six Months Ended June 30, $ %
2022 2021 Change Change
(dollar amounts in thousands)
Net cash used in operating activities$ (2,306) $ (30,772) $ 28,466 93 % Net cash used in investing activities (38,404) (131,298) 92,894 71 % Net cash (used) provided by financing activities (2,005) 107,040 (109,045) NM Change in cash, cash equivalents and restricted cash$ (42,715) $ (55,030) $ 12,315 NM Operating Cash Flows Net cash used in operating activities was$2.3 million for the six months endedJune 30, 2022 . Net cash used in operating activities consists of net loss of$32.2 million , adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of$15.6 million , depreciation and amortization of$12.9 million , non-cash interest expense of$2.3 million , fair value adjustments to contingent consideration of$4.7 million (loss), and fair value adjustments to earnout liability and private warrant liability of$13.8 million (gain) and$14.3 million (gain), respectively. Net changes in working capital were a use of cash of$20.3 million , primarily due to increases in reinsurance balance due and current liabilities, offset by losses and loss adjustment expense reserves, other insurance liabilities and deferred revenue. Net cash used in operating activities was$30.8 million for the six months endedJune 30, 2021 . Net cash used in operating activities consists of net loss of$81.4 million , adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of$23.5 million , depreciation and amortization of$6.4 million , non-cash accrued and payment-in-kind interest of$0.1 million , fair value adjustments to earnout liability and private warrant liability of$22.8 million and$20.2 million , respectively. Net changes in working capital were a use of cash of$13.0 million , primarily due to increases in current liabilities. 51 Table of Contents Investing Cash Flows
Net cash used in investing activities was$38.4 million for the six months endedJune 30, 2022 . Net cash used in investing activities is primarily related to acquisitions, net of cash acquired of$32.0 million , purchases of investments of$13.6 million , investments in developing internal-use software of$3.5 million , and purchases of property and equipment of$1.5 million . This was offset by the cash inflows related to maturities and sales of investments of$12.2 million .
Net cash used in investing activities was
ended
to investments to develop internal use software of
acquisitions, net of cash acquired of
Financing Cash Flows
Net cash used in financing activities was$2.0 million for the six months endedJune 30, 2022 . Net cash used in financing activities is primarily related to shares repurchased to pay income tax withholdings upon vesting of RSUs of$1.9 million , payments of acquisition-related contingent consideration of$1.6 million and debt repayments of$0.2 million . This was partially offset by proceeds from line of credit of$1.0 million and exercises of stock options of$0.7 million . Net cash provided by financing activities was$107.0 million for the six months endedJune 30, 2021 . Net cash provided by financing activities is primarily related to exercises of warrants and stock option of$129.3 million , offset by shares repurchased to pay income tax withholdings upon vesting of RSUs of$22.1 million and debt repayments of$0.2 million .
Off-Balance Sheet Arrangements
Since the date of incorporation, the Company has not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of theSecurities and Exchange Commission (the "SEC").
Recent Accounting Pronouncements
See Note 1 in the notes to the unaudited condensed consolidated financial
statements included in Part I, Item 1 of this Quarterly Report for more
information about recent accounting pronouncements, the timing of their
adoption, and the assessment, to the extent one has been made, of their
potential impact on the Company's financial condition and results of operations.
RADNET, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
INVESTORS TITLE CO – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
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