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Porch Group Expands Into InsurTech

January 18, 2021

Porch Group has made four strategic acquisitions that strengthen the Company’s rapidly expanding platform for home service companies and homeowners.

Homeowners of America (HOA) Acquisition

Porch and Homeowners of America (HOA) have executed a definitive merger agreement for Porch to acquire HOA and all related subsidiaries. The transaction, which is pending only regulatory approval, is expected to close in the second quarter of 2021.

HOA is a Managing General Agent (MGA) and insurance carrier hybrid with high margins and a capital efficient reinsurance strategy which limits retained risk. HOA operates in six states, including Texas, Arizona, North Carolina, South Carolina, Virginia, and Georgia. The company was founded in 2006 in Texas, a $10 billion homeowners insurance market, and was the 12th largest home insurer in Texas in 2019. HOA is licensed to operate in 31 states, positioning it for nationwide expansion as part of Porch.

HOA has a business-to-business-to-consumer (B2B2C) revenue model with all revenues recurring in nature. It generates new policy sales through an independent network of more than 800 independent agency partners.

HOA Strategic Rationale

Fits squarely with Porch’s strategy of going deeper into the insurance value chain. Home insurance is the highest value service in the home and a key growth opportunity for Porch. Porch will be able to feature and prioritize HOA to its large, recurring base of homebuyers. Combining an MGA and insurance carrier hybrid with Porch’s insurance agency business will allow Porch to attract the highest lifetime value (LTV) potential customers through a comprehensive insurance offering.

Porch will now be one of the largest “InsurTech” companies. When looking at Porch and HOA combined for the full year 2021, Porch expects over $270 million of pro forma Gross Written Premium1. Combining Porch’s vast access to homebuyers and unique property data with HOA’s strong pricing and claims experience, Porch will become one of the largest InsurTech companies with significant advantages to driving rapid, long-term growth.

Profitable InsurTech platform with long-term competitive and economic advantages.

Through its vertical software platform used by more than 10,500 home service companies, Porch acquires homebuyers who need insurance for little-to-no customer acquisition cost (CAC). Given Porch’s unique access to property data (such as roof quality and age of major home systems), it expects to have long-term pricing advantages. This is in addition to HOA’s strong pricing and claims technologies and insurance operations producing gross loss ratios of 57%2.

“HOA is a great business with a deep and experienced leadership team who have spent more than a decade building a growing, profitable, and innovative MGA and insurance company hybrid,” said Matt Ehrlichman, Porch founder, chairman and CEO. “We have spent significant time assessing a large number of companies in the insurance industry to identify the right fit for Porch and we can confidently say that HOA is exceptionally unique. Leveraging our property data platform, self-serve consumer technologies, and no-cost homebuyer demand stream with our own line of homeowner’s insurance alongside our existing agency positions us to build the largest, fastest growing, and most profitable InsurTech business. In addition to Porch’s existing agency operations, Porch remains committed to HOA’s independent agent distribution channel who will over time see an enhanced product offering and expanded opportunities driven by the combination of HOA’s sophisticated underwriting and claims processes with Porch’s proprietary technology and data and analytics.”

Andrew Lerner, managing partner of IA Capital Group and largest shareholder of HOA, said: “We are grateful for the efforts of HOA’s Founder, President and CEO Spence Tucker and his team for building this company into a highly efficient Managing General Agent and full stack insurer. As the longest tenured and most experienced venture capital firm predominantly focused on InsurTech, IA Capital is pleased to sell HOA to Porch.”

V12 Acquisition

V12 is a fully scaled Software-as-a-Service (SaaS) marketing and data platform with tools to help brands connect with and engage consumers at key purchasing decision points, such as moving. The platform leverages billions of buyer intent signals and has 330 million U.S. consumer records that small-to-medium-sized businesses (SMB) and enterprise brand customers like Jordan’s Furniture, a Berkshire Hathaway company, use in data-driven marketing. V12’s rapidly expanding customer base generates approximately 90% recurring or reoccurring revenue.

V12 Strategic Rationale

Fits squarely with Porch’s strategy of going deeper in mover marketing. V12 accelerates the capabilities and infrastructure to help Porch achieve its target across many verticals where the move drives economic activity.

Combining Porch and V12 SaaS and data creates a unique and winning offering for brands. V12 provides Porch with full spectrum, enterprise-grade capabilities to take advantage of the pre-mover marketing opportunity Porch uniquely possesses.

Strong leadership and industry expertise. V12 is led by Andrew Frawley, the former CEO of Epsilon, a $2 billion revenue business with approximately 9,000 employees. He has assembled a strong and experienced team with deep expertise in product, data science, data engineering, enterprise/SMB sales and consumer privacy.

Ehrlichman said: “With this acquisition, V12 immediately becomes the anchor in our strategy to attack the highly-attractive mover marketing opportunity. Together, we expect to provide unique and compelling products to brands given proprietary data both companies possess. The strong SaaS platform, data products and leadership team from V12 positions us to win in mover marketing.”

PalmTech and iRoofing Acquisitions

Porch also announced two smaller and equally strategic acquisitions in PalmTech and iRoofing. Both acquisitions are consistent with Porch’s strategy to go deeper into existing industries and expand its vertical software platform into new home service categories.

PalmTech is a software company for home inspectors, historically targeted to smaller home inspectors, which complements Porch’s strong adoption across medium and large inspection companies. Porch expects to execute its playbook by providing PalmTech the ability to help its consumers with key move-related transactions such as insurance.

iRoofing provides an all-in-one SaaS application for roofing contractors bundled in a monthly or annual subscription. Its software provides remote measurement and quoting, contract management and materials ordering. iRoofing currently processes more than 485,000 jobs on its platform annually. Porch expects to accelerate iRoofing’s growth by providing its contractors the ability to help consumers save money on home insurance after completing their new roof installation project.

HOA and V12 Transaction Highlights

Porch is acquiring HOA and V12 for a combined $122 million. This includes $97 million in cash and $25 million in cash or equity (at Porch’s election) based on Porch’s share price at the time of the HOA acquisition close. This equates to a purchase price multiple of 2.0 times combined estimated 2021 HOA and V12 revenue. With these acquisitions, Porch is increasing its 2021 revenue guidance from $120 million to $170 million.

Porch CFO Marty Heimbigner said: “Porch’s business model produces a highly recurring or reoccurring stream of homebuyers that are candidates for HOA and V12 services. Over time, we believe we will be able to accelerate the revenue growth of the newly acquired companies to our long-term target of 30% and believe these acquisitions are synergistic and accretive for our shareholders.”

Preliminary 2020 Financial Results

While fourth quarter and full year 2020 financial results are expected to be reported in March, Porch is providing a preliminary update on selected financial information. Porch expects 2020 revenue to be slightly better than $72 million.

Heimbigner continued: “We executed well to plan and achieved our first month of positive Adjusted EBITDA earlier in the third quarter. However, during the quarter we made the decision to invest more aggressively in sales teams and marketing, R&D—such as self-service insurance and data platforms—and public company expenses as our SPAC merger and corresponding capital raise became more certain. A consistent recommendation we heard from our SPAC and PIPE investors was for us to invest more aggressively given our strong LTV/CAC unit economics and the size of the market in front of us.

“In addition to investing further in sales and marketing to accelerate future growth, the R&D spend includes fully tech-enabling our insurance experience. This includes instant and self-service quoting for homebuyers, expanding self-service moving experiences, such as moving and TV/Internet, and deepening our value proposition to home inspectors, among others. With the $220 million in cash on our balance sheet at the close of our SPAC merger and our increased 2021 revenue outlook, we believe this is a prudent strategy.”

Given these incremental investments, Porch expects net loss in 2020 to range between $(53) million to $(55) million and Adjusted EBITDA loss in 2020 to range between $(18) million to $(19) million, or approximately (25)% of revenue, compared to its previous target of $(10) million. The Company’s revised preliminary net loss and Adjusted EBITDA loss ranges represent an improvement from $(103.3) million net loss and $(36.8) million of Adjusted EBITDA loss in 2019, respectively, or approximately (47)% of revenue.

Updated 2021 Financial Outlook

Porch is raising its 2021 revenue outlook from $120 million to $170 million, representing 134% year-over-year revenue growth. Porch expects approximately 25% of 2021 revenue to be from B2B SaaS fees, approximately 65% of revenue from B2B2C move-related services, which includes recurring insurance revenue, and approximately 10% of revenues from post-move services.

Porch expects to aggressively invest while still showing an approximate 2x improvement in Adjusted EBITDA as a percentage of revenue like it did in 2020. Thus, Porch now expects Adjusted EBITDA loss to range between $(17) million to $(27) million (or -13% of revenue at the mid-point).

Ehrlichman concluded: “These strategic acquisitions accelerate our already fast-growing business and have expanded our U.S. TAM by almost $100 billion to more than $320 billion. This includes the creation of a new addressable market in mover marketing. While we estimate property & casualty insurance to represent an $84 billion increase to our total insurance addressable market, there is massive potential for future additional market expansion as we seek to add additional insurance product lines and capture even more of the economics. We remain confident in our long-term 25% Adjusted EBITDA margin target while still being able to invest aggressively in R&D and believe this is only the beginning of our journey to build a truly great company.”

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