Porch.com accountants raise red flags
Ahead of a public offering, Porch.com’s accountants said the cash-strapped startup’s recurring losses raised “substantial doubt” about its ability to remain in business.
In a prospectus filed Wednesday with the Securities and Exchange Commission, the home services startup disclosed the findings of an independent accounting firm for the year ending December 31, 2019.
Porch had $ 3.8 million in cash as of June 30 with a working capital shortfall 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 shareholder deficit was $ 263.5 million.
On the record, Porch said he plans to make up the shortfall with cash proceeds from his merger with PropTech Acquisition Corp. The Los Angeles-based special-purpose acquisition firm, formed last year by Abu Dhabi Investment Authority veterans Thomas Hennessey and Joseph Beck, raised $ 172.5 million when it went public in November. On a call to investors in July, Hennessey said PSPC assessed 300 companies before choosing Porch.
The PSPC merger, first announced in July, reportedly valued Porch at $ 523 million.
Founded in 2013, Porch provides software to insurance and moving companies in exchange for customer data from home buyers. She then sells home services to these clients.
The S-4 shows that the company loses 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 fell 14.3% to $ 32.2 million. Its losses narrowed to $ 24.6 million, from a net loss of $ 67.9 million for the first half of 2019.
Earlier this year, Porch received an $ 8.1 million loan under the Small Business Administration’s Wage Protection Program. The company has 370 full-time employees and 539 full-time independent contractors, including 530 in Mexico.
PropTech has not had the agreement with Porch assessed by an independent investment bank, according to the prospectus. “Therefore, there is no assurance from an independent source that the merger review will be fair to its shareholders from a financial point of view,” he said.
In the prospectus, Porch said that during the due diligence process for the PSPC deal, he identified a “material weakness” in his internal control over financial reporting. Specifically, he said: “We do not have sufficient qualified staff to prepare and review complex technical accounting issues.” To remedy the situation, she hired a new CFO 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 receive $ 30 million upon closing of the transaction, according to a presentation to investors in July.