Porch.com’s losses raised “substantial doubt” about business viability: IPO filing

Startup reported deficit of $263.5M in S-4

Porch CEO Matt Ehrlichman, with Abu Dhabi Investment Authority veterans Thomas Hennessey (left) and Joseph Beck (right) (Ehrlichman and Hennessey via Porch, Beck via LinkedIn)
Porch CEO Matt Ehrlichman, with Abu Dhabi Investment Authority veterans Thomas Hennessey (left) and Joseph Beck (right) (Ehrlichman and Hennessey via Porch, Beck via LinkedIn)

Ahead of a public offering, Porch.com’s accountants have said the cash-strapped startup’s recurring losses raised “substantial doubt” about its ability to stay in business.

In a prospectus filed with the Securities and Exchange Commission on Wednesday, the home-services startup disclosed the findings from an independent public accounting firm for the year ending Dec. 31, 2019.

Porch had $3.8 million in cash as of June 30 with a working capital deficit of $59.1 million, according to the filing. It listed total assets of $46.4 million and total debt of $63.2 million.

Its total stockholder deficit was $263.5 million.

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In the filing, Porch said it expects to cure the deficit with cash proceeds of its merger with PropTech Acquisition Corp. The Los Angeles-based special purpose acquisition company, formed last year by Abu Dhabi Investment Authority veterans Thomas Hennessey and Joseph Beck, raised $172.5 million in its November IPO. During an investor call in July, Hennessey said the SPAC evaluated 300 companies before choosing Porch.

The SPAC merger, first announced in July, reportedly valued Porch at $523 million.

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Founded in 2013, Porch provides software to insurance and moving companies in exchange for home-buyer client data. It then sells home services to those clients.

The S-4 shows the company has been losing money every year. Its net loss was $103.3 million in 2019 and $50 million in 2018. For the first six months of 2020, Porch’s revenue dropped 14.3 percent to $32.2 million. Its losses narrowed to $24.6 million, compared to a net loss of $67.9 million for the first half of 2019.

Earlier this year, Porch received an $8.1 million loan through the Small Business Administration’s Payroll Protection Program. The company has 370 full-time employees and 539 full-time independent contractors, 530 of whom are in Mexico.

PropTech did not have the deal with Porch evaluated by an independent investment banking firm, the prospectus said. “Consequently, there is no assurance from an independent source that the merger consideration is fair to its stockholders from a financial point of view,” it said.

In the prospectus, Porch said during the due diligence process for the SPAC deal, it identified a “material weakness” in its internal control over financial reporting. Specifically, it said, “We do not have sufficient, qualified personnel to prepare and review complex technical accounting issues.” To remedy the situation, it hired a new chief financial officer in June and a controller in July.

To date, Porch has raised nearly $120 million from investors including Valor Equity Partners, Lowe’s Cos., Founders Fund and Battery Ventures. Wellington Management is investing $150 million as part of the merger.

Porch shareholders will get $30 million when the deal closes, according to a July investor presentation.

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