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Fair Value | 3 Months Ended
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Mar. 31, 2024
Fair Value Disclosures [Abstract] |
Fair Value | Note 4. Fair Value The following tables summarize the fair value measurements of assets and liabilities that are measured at fair value on a recurring basis.
| Fair Value Measurement as of March 31, 2024
| Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value
Assets |  |  |  |  |  |  |
Money market mutual funds | $ | 158,354 |  |  | $ | — |  |  | $ | — |  |  | $ | 158,354 |
Debt securities: |  |  |  |  |  |  |
U.S. Treasuries | 35,819 |  |  | — |  |  | — |  |  | 35,819 |
Obligations of states, municipalities and political subdivisions | — |  |  | 18,545 |  |  | — |  |  | 18,545 |
Corporate bonds | — |  |  | 52,413 |  |  | — |  |  | 52,413 |
Residential and commercial mortgage-backed securities | — |  |  | 24,173 |  |  | — |  |  | 24,173 |
Other loan-backed and structured securities | — |  |  | 3,166 |  |  | — |  |  | 3,166 |
| $ | 194,173 |  |  | $ | 98,297 |  |  | $ | — |  |  | $ | 292,470 |
Liabilities |  |  |  |  |  |  |
Contingent consideration - business combinations (1) | $ | — |  |  | $ | — |  |  | $ | 4,576 |  |  | $ | 4,576 |
Private warrant liability | — |  |  | — |  |  | 1,576 |  |  | 1,576 |
Embedded derivatives | — |  |  | — |  |  | 26,648 |  |  | 26,648 |
| $ | — |  |  | $ | — |  |  | $ | 32,800 |  |  | $ | 32,800 |
| Fair Value Measurement as of December 31, 2023
| Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value
Assets |  |  |  |  |  |  |
Money market mutual funds | $ | 165,744 |  |  | $ | — |  |  | $ | — |  |  | $ | 165,744 |
Debt securities: |  |  |  |  |  |  |
U.S. Treasuries | 43,696 |  |  | — |  |  | — |  |  | 43,696 |
Obligations of states, municipalities and political subdivisions | — |  |  | 17,420 |  |  | — |  |  | 17,420 |
Corporate bonds | — |  |  | 50,041 |  |  | — |  |  | 50,041 |
Residential and commercial mortgage-backed securities | — |  |  | 24,601 |  |  | — |  |  | 24,601 |
Other loan-backed and structured securities | — |  |  | 3,418 |  |  | — |  |  | 3,418 |
| $ | 209,440 |  |  | $ | 95,480 |  |  | $ | — |  |  | $ | 304,920 |
Liabilities |  |  |  |  |  |  |
Contingent consideration - business combinations (2) | $ | — |  |  | $ | — |  |  | $ | 18,455 |  |  | $ | 18,455 |
Private warrant liability | — |  |  | — |  |  | 1,151 |  |  | 1,151 |
Embedded derivatives | — |  |  | — |  |  | 28,131 |  |  | 28,131 |
| $ | — |  |  | $ | — |  |  | $ | 47,737 |  |  | $ | 47,737 |
______________________________________ (1)The Condensed Consolidated Balance Sheets include $1.3 million in accrued expenses and other current liabilities and $3.3 million in other liabilities as of March 31, 2024, for contingent consideration related to business combinations. (2)The Condensed Consolidated Balance Sheets include $14.8 million in accrued expenses and other current liabilities and $3.7 million in other liabilities as of December 31, 2023, for contingent consideration related to business combinations. Financial Assets Money market mutual funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above. The fair values for available-for-sale fixed-maturity securities are based upon prices provided by an independent pricing service. We have reviewed these prices for reasonableness and have not adjusted any prices received from the independent provider. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1 and Level 2. Contingent Consideration – Business Combinations As part of the acquisition of Floify, LLC (“Floify”) in October 2021, we issued shares as partial closing consideration to the sellers of Floify and guaranteed that the value of those shares would equal or exceed 200% of such price on or prior to December 31, 2024 (the “True-Up Obligation”). The True-Up Obligation could be settled at our option in cash, Porch common stock, or a combination thereof. On March 27, 2024, we entered into a settlement agreement and mutual release of claims with the sellers of Floify to settle a post-closing dispute. As part of the of this agreement, the sellers of Floify agreed to terminate the True-Up Obligation in full and released from restriction approximately $0.9 million of escrowed cash to us. We estimated the fair value of the True-Up Obligation as of the settlement date using the Monte Carlo simulation method. The fair value is based on the simulated market price of our common stock over the maturity date of the True-Up Obligation. As of March 27, 2024, the key inputs used to determine the fair value of $14.9 million included the stock price of $4.13, strike price of $36.00, discount rate of 23.6% and volatility of 95%. Subsequent to the valuation, we recognized a gain on settlement in other income, net, in the Condensed Consolidated Statements of Operations and Comprehensive Loss equal to the fair value of $14.9 million. As of December 31, 2023, the key inputs used in the determination of the fair value of $14.0 million included the stock price of $3.08, strike price of $36.00, discount rate of 27.9% and volatility of 90%. We estimated the fair value of the business combination contingent consideration based on specific metrics related to the acquisition of Residential Warranty Services (“RWS”) in April 2022, using the discounted cash flow method. The fair value is based on a percentage of revenue over the maturity date of the contingent consideration. As of March 31, 2024, the key inputs used to determine the fair value of $4.6 million were management’s cash flow estimates and the discount rate of 17%. As of December 31, 2023, the key inputs used to determine the fair value of $4.4 million were management’s cash flow estimates and the discount rate of 17%. Private Warrants We estimated the fair value of the private warrants using the Black-Scholes-Merton option pricing model. As of March 31, 2024, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 88%, remaining contractual term of 1.73 years, and stock price of $4.31. As of December 31, 2023, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 95%, remaining contractual term of 1.98 years, and stock price of $3.08. Embedded Derivatives In connection with the issuance of senior secured convertible notes in April 2023 (see Note 7) and in accordance with Accounting Standards Codification 815-15, Derivatives and Hedging – Embedded Derivatives, certain features of the senior secured convertible notes were bifurcated and accounted for separately from the notes. The following features are recorded as derivatives. •Repurchase option. If more than $30 million aggregate principal amount of the 2026 Notes remains outstanding on June 14, 2026, the 2028 Note holders have the right to require us to repurchase for cash on June 15, 2026, all or any portion of their 2028 Notes, in principal amounts of one thousand dollars or an integral number thereof, at a repurchase price equal to 106.5% of the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date. •Fundamental change option. If we undergo a fundamental change, as defined in the indenture governing the 2028 Notes and subject to certain conditions, holders of the 2028 Notes have the right to require us to repurchase for cash all or any portion of their 2028 Notes, in principal amounts of one thousand dollars or an integral multiple thereof, at a repurchase price equal to 105.25% of the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date. A fundamental change includes events such as a change in control, recapitalization, liquidation, dissolution, or delisting. •Asset sale repurchase option. If we sell assets and receive net cash proceeds of $2.5 million in excess of the Asset Sale Threshold (as defined below) (such excess net cash proceeds, the “Excess Proceeds”), we must offer to all holders of 2028 Notes to repurchase their 2028 Notes for an aggregate amount of cash equal to 50% of such Excess Proceeds at a repurchase price per 2028 Note equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the relevant purchase date, if any. “Asset Sale Threshold” means $20.0 million in the aggregate, provided that on and after the date on which the cumulative net cash proceeds received by the Company and its restricted subsidiaries from the sale of assets after April 20, 2023, exceeds $20.0 million in the aggregate, the “Asset Sale Threshold” means $0. The inputs for determining fair value of the embedded derivatives are classified as Level 3 inputs. Level 3 fair value is based on unobservable inputs based on the best information available. These inputs include the probabilities of scenarios related to a repurchase, a fundamental change, and qualifying asset sales, ranging from 3% to 29%. Level 3 Rollforward Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value, and such changes could result in a significant increase or decrease in the fair value. The changes for Level 3 items measured at fair value on a recurring basis using significant unobservable inputs are as follows:
| Contingent Consideration - Business Combinations |  | Embedded Derivatives |  | Private Warrant Liability
Fair value as of December 31, 2023 | $ | 18,455 |  |  | $ | 28,131 |  |  | $ | 1,151 |
Settlements | (14,930) |  |  | — |  |  | — |
Change in fair value, loss (gain) included in net loss(1) | 1,051 |  |  | (1,483) |  |  | 425 |
Fair value as of March 31, 2024 | $ | 4,576 |  |  | $ | 26,648 |  |  | $ | 1,576 |
| Contingent Consideration - Business Combinations |  | Contingent Consideration - Earnout |  | Private Warrant Liability
Fair value as of December 31, 2022 | $ | 24,546 |  |  | $ | 44 |  |  | $ | 707 |
Settlements | (194) |  |  | — |  |  | — |
Change in fair value, loss (gain) included in net loss(1) | (154) |  |  | — |  |  | (345) |
Fair value as of March 31, 2023 | $ | 24,198 |  |  | $ | 44 |  |  | $ | 362 |
______________________________________ (1)Changes in fair value of contingent consideration related to business combinations are included in general and administrative expenses in the unaudited condensed consolidated statements of operations. Changes in fair value of the earnout contingent consideration and private warrant liability are disclosed separately in the unaudited condensed consolidated statements of operations. Changes in the fair value of the embedded derivatives are included in change in fair value of derivatives in the unaudited condensed consolidated statements of operations. Fair Value Disclosure As of March 31, 2024, and December 31, 2023, the fair value of the 2026 Notes (see Note 7) was $78.0 million and $73.1 million, respectively. The increase of $4.9 million is primarily due to the increase in the stock price at March 31, 2024, as compared to December 31, 2023. As of March 31, 2024, and December 31, 2023, the fair value of the 2028 Notes (see Note 7) was $227.5 million and $196.7 million, respectively. The increase of $30.8 million is primarily due to the increase in the stock price at March 31, 2024, as compared to December 31, 2023. The fair values of the line of credit, advance funding arrangement and other notes approximate the unpaid principal balance. All debt, other than the convertible notes which are Level 2, is considered a Level 3 measurement.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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