EVER 10-Q
EverQuote, Inc. (EVER)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of September 30, 2024, the registrant had
Table of Contents
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Page |
PART I. |
4 |
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Item 1. |
4 |
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4 |
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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
5 |
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6 |
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8 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
9 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item 3. |
31 |
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Item 4. |
32 |
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PART II. |
32 |
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Item 1. |
32 |
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Item 1A. |
32 |
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Item 2. |
32 |
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Item 5. |
33 |
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Item 6. |
33 |
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34 |
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2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “might,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “seek,” “would” or “continue,” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition liquidity and results of operations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023, in our subsequent periodic filings with the Securities and Exchange Commission and elsewhere in this Quarterly Report on Form 10-Q, particularly in Item 1A. Risk Factors. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.
Some of the key factors that could cause actual results to differ include:
3
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
EVERQUOTE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
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September 30, 2024 |
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December 31, 2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Commissions receivable, current portion |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Acquired intangible assets, net |
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Operating lease right-of-use assets |
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Commissions receivable, non-current portion |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Deferred revenue |
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Operating lease liabilities |
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Total current liabilities |
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Operating lease liabilities, net of current portion |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost and operating expenses: |
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Cost of revenue |
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Sales and marketing |
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Research and development |
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General and administrative |
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Restructuring and other charges |
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— |
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— |
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Acquisition-related costs |
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— |
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— |
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( |
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Total cost and operating expenses |
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Income (loss) from operations |
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Other income: |
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Interest income |
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Other income, net |
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Total other income, net |
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Income (loss) before income taxes |
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( |
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Income tax expense |
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( |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
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Net income (loss) per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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Comprehensive income (loss): |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment |
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( |
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Comprehensive income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share amounts)
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Accumulated |
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Class A |
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Class B |
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Additional |
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Other |
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Total |
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Common Stock |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Income |
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Deficit |
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Equity |
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Balances at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Issuance of common stock upon |
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— |
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— |
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— |
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— |
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— |
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Net issuance of common stock |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Balances at March 31, 2024 |
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( |
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Issuance of common stock upon |
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— |
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— |
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— |
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— |
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— |
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Net issuance of common stock |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Transfer of Class B common stock |
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( |
) |
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( |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Balances at June 30, 2024 |
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( |
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Issuance of common stock upon |
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— |
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— |
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— |
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— |
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— |
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Net issuance of common stock |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Balances at September 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share amounts)
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Accumulated |
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Class A |
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Class B |
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Additional |
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Other |
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Total |
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Common Stock |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Deficit |
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Equity |
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Balances at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Issuance of common stock upon |
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— |
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— |
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— |
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— |
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— |
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Net issuance of common stock |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Transfer of Class B common stock |
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— |
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( |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balances at March 31, 2023 |
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( |
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Issuance of common stock upon |
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— |
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— |
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— |
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— |
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— |
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Net issuance of common stock |
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|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balances at June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
Net issuance of common stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balances at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by |
|
|
|
|
|
|
||
Depreciation and amortization expense |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Loss on sale of health assets |
|
|
|
|
|
|
||
Impairment of right-of-use asset |
|
|
|
|
|
|
||
Change in fair value of contingent consideration liabilities |
|
|
— |
|
|
|
( |
) |
Provision for bad debt |
|
|
|
|
|
|
||
Unrealized foreign currency transaction (gains) losses |
|
|
|
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Commissions receivable, current and non-current |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Other assets |
|
|
( |
) |
|
|
|
|
Accounts payable |
|
|
|
|
|
( |
) |
|
Accrued expenses and other current liabilities |
|
|
|
|
|
( |
) |
|
Deferred revenue |
|
|
( |
) |
|
|
|
|
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) operating activities |
|
|
|
|
|
( |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
Acquisition of property and equipment, including costs capitalized |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of health assets |
|
|
— |
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
( |
) |
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Tax withholding payments related to net share settlement |
|
|
( |
) |
|
|
( |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
||
Effect of exchange rate changes on cash, cash equivalents |
|
|
|
|
|
|
||
Net increase in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of non-cash investing information: |
|
|
|
|
|
|
||
Acquisition of property and equipment included in accounts payable |
|
$ |
|
|
$ |
|
||
Operating lease liabilities arising from obtaining right-of-use assets |
|
$ |
|
|
$ |
— |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business and Basis of Presentation
EverQuote, Inc. (the “Company”) was incorporated in the state of Delaware in 2008. Through its internet websites, the Company operates an online marketplace for consumers shopping for auto, home and renters and life insurance. The Company generates revenue primarily by selling consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States. The Company also generates revenue from commission fees paid by insurance provider customers for insurance policies it sells to consumers.
The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, protection of proprietary technology, customer concentration, patent litigation, the need to obtain additional financing to support growth and dependence on third parties and key individuals.
The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. As of the issuance date of these condensed consolidated financial statements, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the issuance date of the condensed consolidated financial statements, without considering borrowing availability under the Company’s revolving line of credit.
The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The condensed consolidated balance sheet at December 31, 2023 was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 on file with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2024 and results of operations for the three and nine months ended September 30, 2024 and 2023 and cash flows for the nine months ended September 30, 2024 and 2023 have been made. The Company’s results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024 or any other period.
9
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, revenue recognition and the valuation of accounts and commissions receivables, the expensing and capitalization of website and software development costs, goodwill and acquired intangible assets, the valuation of contingent consideration liabilities, the valuation of stock-based awards and income taxes. The Company bases its estimates on historical experience, known trends and other market-specific or relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in periods in which they become known. These estimates may change, as new events occur and additional information is obtained and actual results could differ materially from these estimates.
Concentrations of Credit Risk and of Significant Customers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts and commissions receivable. The Company maintains its cash and cash equivalents at accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company sells its consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States and receives commissions from insurance provider customers for insurance policies sold. For the three months ended September 30, 2024,
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
The Company’s cash equivalents and contingent consideration liabilities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts receivable, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities. Commissions receivable are recorded at the estimated constrained lifetime values.
10
Accounts Receivable
The Company provides credit to customers in the ordinary course of business and believes its credit policies are prudent and reflect industry practices and business risk. The Company monitors economic conditions to identify facts or circumstances that may indicate that its receivables are at risk of collection. The Company provides an allowance against accounts receivable for estimated losses, if any, that may result from a customer’s inability to pay based on the composition of its accounts receivable, current economic conditions, and historical credit loss activity. Amounts determined to be uncollectible are charged or written-off against the allowance. As of September 30, 2024 and December 31, 2023, the Company’s allowance for credit losses was $
Revenue Recognition
The Company derives its revenue primarily by selling consumer referrals to its insurance provider customers, including insurance carriers, agents and indirect distributors. The Company also generates revenue from commission fees for the sale of policies, primarily in its automotive insurance vertical, and prior to its exit from health in 2023, in its health insurance vertical. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606 Revenue from Contracts with Customers (“ASC 606”), the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.
The Company only applies the five-step model to contracts when collectibility of the consideration to which the Company is entitled in exchange for the goods or services it transfers to the customer is determined to be probable. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.
Referral Revenue
The Company recognizes referral revenue when it satisfies its performance obligations by delivering the referrals to its customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those referrals.
Commission Revenue
The Company’s commission revenue consists of the estimated constrained lifetime values (the “constrained LTVs”) of commission payments that the Company expects to receive in its automotive insurance vertical, and prior to its exit from health, that it expected to receive in its health insurance vertical, on the sale of insurance policies to consumers and renewals of such policies. Commission revenue is recognized upon satisfaction of the Company’s performance obligation. The Company considers its performance obligation related to commissions for both the initial policy sale and future renewals of the policy to be satisfied upon submission of the policy application. Therefore, a significant portion of the commission revenue the Company records upon satisfaction of its performance obligation is paid by the Company’s insurance provider customer over a multi-year time frame as policyholders renew and pay the insurance provider for their policies. The current portion of commissions receivable consists of estimated commissions on new policies sold and estimated renewal commissions on policies expected to be renewed within one year, while the non-current portion of commissions receivable are commissions for estimated renewals expected to be renewed beyond one year. Commission revenue represented less than
Commission revenue from auto insurance carriers consists of constrained LTVs of commission payments the Company expects to receive for selling an insurance policy based on the effective date of the policy. The Company’s estimate of constrained LTVs is based on an analysis of historical commission payment trends for relevant policies to establish an expected lifetime value and incorporates management’s judgment in interpreting those trends to calculate LTVs and to apply constraints to such LTVs. The most significant factor impacting historical trends is average policy duration.
The Company applies a constraint to its estimated LTVs to only recognize the amount of variable consideration that it believes is probable that it will be entitled to receive and will not be subject to a significant revenue reversal in the future.
To the extent that commission payment trends change or the underlying factors impacting commission payments change, the Company’s estimate of constrained LTVs could be materially impacted. To the extent the Company makes changes to its estimates of constrained LTVs, it recognizes any material impact of the change to commission revenue in the reporting period in which the change is made, including revisions of estimated lifetime commissions either below or in excess of previously estimated constrained LTVs recognized as an adjustment to revenue and the related contract asset. The Company recognizes revenue for new policies by applying the latest estimated constrained LTV for that product.
11
Disaggregated Revenue
The Company presents disaggregated revenue from contracts with customers by distribution channel, as the distribution channel impacts the nature and amount of the Company’s revenue, and by vertical market segment. The Company’s direct distribution channel consists of insurance carriers and third-party agents. The Company’s indirect distribution channel consists of insurance aggregators and media networks who purchase referrals with the intent to resell. Revenue generated via the Company’s direct distribution channel is generally higher per referral than revenue generated by the Company’s indirect distribution channels and provides the Company with additional insights and data regarding insurance provider demand and referral performance.
Total revenue is comprised of revenue from the following distribution channels:
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Direct channels |
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Indirect channels |
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
|
|
|
|
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Total revenue is comprised of revenue from the following insurance verticals (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Automotive |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Home and renters |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company has elected to apply the practical expedient in ASC 606 to expense incremental direct costs of obtaining a contract, consisting of sales commissions, as incurred as the expected period of benefit of the sales commissions is
Deferred Revenue
Amounts received for referrals prior to satisfying the revenue recognition criteria are recorded as deferred revenue on the accompanying condensed consolidated balance sheets. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue. Deferred revenue was $
Commissions Receivable
Commissions receivable are contract assets that represent estimated variable consideration for commissions to be received from insurance carriers for performance obligations that have been satisfied. The current portion of commissions receivable are estimated commissions expected to be received within one year, while the non-current portion of commissions receivable are expected to be received beyond one year.
The Company assesses impairment for uncollectible consideration when information available indicates it is probable that an asset has been impaired. There were
Advertising Expense
Advertising expense consists of variable costs that are related to attracting consumers to the Company’s marketplace and generating consumer quote requests, including through its verified partner network, and promoting its marketplace to insurance carriers and agents. The Company expenses advertising costs as incurred and such costs are included in sales and marketing expense in the accompanying condensed consolidated statements of operations and comprehensive income (loss). During the three months ended September 30, 2024 and 2023, advertising expense totaled $
12
Recently Adopted Accounting Pronouncements
In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820), which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The guidance also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The guidance includes disclosure requirements including the fair value of equity securities subject to contractual sale restrictions included in the balance sheet, the nature and remaining duration of the restriction and circumstances that could cause a lapse in the restriction. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, with early adoption permitted. The amendments in this update are to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The Company
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements.
3. Fair Value of Financial Instruments
The following tables present the Company’s fair value hierarchy for assets that are measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 (in thousands):
|
|
Fair Value Measurements at September 30, 2024 Using: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Fair Value Measurements at December 31, 2023 Using: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
There were
Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.
13
Contingent consideration liabilities are valued by the Company using significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company uses a Monte Carlo simulation model in its estimates of the fair value of the contingent consideration related to the 2021 acquisition of Policy Fuel, LLC and its affiliated entities ("PolicyFuel"). The most significant assumptions and estimates utilized in the model included forecasted revenue (an acquisition specific input) and the market value of the Company’s Class A common stock (an observable input). Other assumptions utilized in the model included equity volatility, revenue volatility and discount rate. The Company assesses these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized as acquisition-related costs within the condensed consolidated statements of operations and comprehensive income (loss). The fair value of the contingent consideration liabilities was
4. Goodwill and Acquired Intangible Assets
Goodwill is not amortized, but instead is reviewed for impairment at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company considers its business to be
There were
Acquired intangible assets consisted of the following (in thousands):
|
|
|
|
|
September 30, 2024 |
|
||||||||||
|
|
Weighted Average Useful Life |
|
|
Gross Amount |
|
|
Accumulated |
|
|
Carrying Value |
|
||||
|
|
(in years) |
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Developed technology |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
December 31, 2023 |
|
||||||||||
|
|
Weighted Average Useful Life |
|
|
Gross Amount |
|
|
Accumulated Amortization |
|
|
Carrying Value |
|
||||
|
|
(in years) |
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Developed technology |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other identifiable intangible assets |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
During the first quarter of 2024, the Company updated its estimate of the remaining useful life of customer relationships from
Year Ending December 31, |
|
|
|
|
2024 (remaining three months) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
|
|
$ |
|
|
14
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Accrued employee compensation and benefits |
|
$ |
|
|
$ |
|
||
Accrued advertising expenses |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
6. Loan and Security Agreement
The Company has availability to borrow up to $
Pursuant to the 2023 Amended Loan Agreement, borrowings under the revolving line of credit cannot exceed
Borrowings are collateralized by substantially all of the Company's assets and property.
7. Stock-Based Compensation
2008 and 2018 Plans
The Company has outstanding awards under its 2008 Stock Incentive Plan, as amended (the “2008 Plan”), but is no longer granting awards under this plan. Shares of common stock issued upon exercise of stock options granted prior to September 8, 2017 will be issued as either Class A common stock or Class B common stock. Shares of common stock issued upon exercise of stock options granted after September 8, 2017 will be issued as Class A common stock.
15
The Company’s 2018 Equity Incentive Plan (the “2018 Plan” and, together with the 2008 Plan, the “Plans”) provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards. The number of shares initially reserved for issuance under the 2018 Plan is the sum of
Options and restricted stock units (“RSUs”) granted under the Plans vest over periods determined by the board of directors. Options granted under the Plans expire no later than
During the nine months ended September 30, 2024, the Company granted
Inducement Grants
In connection with the acquisition of PolicyFuel in 2021, the Company granted service- and service- and performance-based RSUs to newly hired employees. The RSUs were approved by the Company’s board of directors and were granted as an inducement material to the new employees entering into employment with the Company in accordance with Nasdaq Rule 5635(c)(4) (the “Inducement Awards”). The Inducement Awards were granted outside of the 2018 Plan.
Stock-Based Compensation
The Company recorded stock-based compensation expense in the following expense categories of its condensed consolidated statements of operations and comprehensive income (loss) (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restructuring and other charges |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As of September 30, 2024, unrecognized compensation expense for RSUs and option awards was $
16
8. Commitments and Contingencies
Leases
The Company leases office space under various non-cancelable operating leases. In April 2024, the Company entered into two agreements to lease office space in Cambridge, Massachusetts through December 2027 for fixed payments totaling $
There have been no other material changes to the Company’s leases during the three and nine months ended September 30, 2024. For additional information, please read Note 12, Leases, to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Indemnification Agreements
In the normal course of business, the Company may provide indemnification of varying scope and terms to third parties and enters into commitments and guarantees (“Agreements”) under which it may be required to make payments. The duration of these Agreements varies, and in certain cases, is indefinite. Furthermore, many of these Agreements do not limit the Company’s maximum potential payment exposure.
In addition, the Company has entered into indemnification agreements with members of its board of directors and executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.
Through September 30, 2024, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of September 30, 2024 and December 31, 2023.
Legal Proceedings and Other Contingencies
The Company is from time to time subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of its business. While the outcome of these claims cannot be predicted with certainty, management does not believe, based on its current knowledge, that the outcome of any of these legal matters will have a material adverse effect on the Company’s consolidated results of operations or financial condition. Notwithstanding the foregoing, the ultimate outcome of legal proceedings involves judgments, estimates and inherent uncertainties, and cannot be predicted with certainty. It is possible that an adverse outcome of any matter could be material to the Company's business, financial position, results of operations or cash flows as a whole for any particular reporting period of occurrence. In addition, it is possible that a matter may prompt litigation or additional investigations or proceedings by other government agencies or private litigants.
On May 15, 2024, Tim Presto, individually and in his capacity as Seller Representative of Ryan McClintock, Edward Hames and Tim Presto, the former equity owners (collectively, the “Sellers”) of Kanopy Insurance Center, LLC, One Eight Software, Inc., Parachute Insurance Services Corp., and Policy Fuel, LLC (collectively, the “Acquired Entities”), brought a civil action in the Court of Chancery in the State of Delaware against the Company alleging, among other things, breaches of the Equity Purchase Agreement governing the Company’s acquisition of the Sellers’ equity interests in the Acquired Entities (the “Purchase Agreement”). Among other claims, the Seller Representative alleges, principally, that the Sellers are entitled to payment in the form of a combination of common stock and performance stock units pursuant to the earnout provisions set forth in the Purchase Agreement, based on the Seller Representative's assertion that the Acquired Entities would have achieved certain revenue thresholds for the 12-month periods ended June 30, 2023 and 2024, respectively, absent the alleged breaches of the Purchase Agreement. The complaint generally seeks an unspecified amount of damages related to such claims. The Company intends to vigorously defend against the lawsuit and believes it has substantial defenses to the claims asserted by the Seller Representative and that it complied with its contractual obligations under the Purchase Agreement in all respects. Nevertheless, because the case is still in the preliminary stages, the Company cannot predict or determine the timing or final outcome of this matter at this time or the effect that any adverse determinations the lawsuit may have on its business, financial condition or results of operations.
17
9. Retirement Plan
The Company has established a defined-contribution plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. As currently established, the Company is not required to make any contributions to the 401(k) Plan. The Company contributed $
10. Related Party Transactions
The Company has, in the ordinary course of business, entered into arrangements with other companies who have shareholders in common with the Company. Pursuant to these arrangements, related-party affiliates receive payments for providing website visitor referrals. During the three months ended September 30, 2024 and 2023, the Company recorded expense of $
11. Net Income (Loss) per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted stock units. For periods in which the Company reports a net loss, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
The Company has two classes of common stock outstanding: Class A common stock and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion.
A reconciliation of the numerators and the denominators of the basic and dilutive net income (loss) per common share computations are as follows (in thousands, except per share amounts):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
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|
||||
Denominator: |
|
|
|
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|
|
|
|
|
|
|
||||
Weighted average basic common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average diluted common shares |
|
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|
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|
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|
||||
|
|
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|
|
|
|
||||
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
18
The Company excluded the following potential common shares, presented based on weighted average shares outstanding during the periods, from the computation of diluted net income (loss) per share because including them would have had an anti-dilutive effect (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The tables above do not include shares of Class A common stock issuable upon settlement of contingent consideration for the Company’s 2021 acquisition of PolicyFuel.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2023, on file with the Securities and Exchange Commission. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below, elsewhere in this Quarterly Report on Form 10-Q, particularly in Item 1A. Risk Factors, and in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023.
We operate a leading online marketplace for insurance shopping, connecting consumers with insurance provider customers, which includes both carriers and agents. Our vision is to become the largest online source of insurance policies by using data, technology and knowledgeable advisors to make insurance simpler, more affordable and personalized. Our results-driven marketplace, powered by our proprietary data and technology platform, is improving the way insurance providers attract and connect with consumers shopping for insurance.
We operate a marketplace to connect insurance providers to a large volume of high-intent, pre-validated consumer referrals that match the insurers’ specific underwriting and profitability requirements. The transparency of our marketplace, as well as the campaign management tools we offer, are designed to make it easy for insurance carriers and third-party agents to evaluate the performance of their marketing spend on our platform and manage their own return on investment. We present consumers with a single starting point for a comprehensive insurance shopping experience where consumers can engage with insurance carriers through multiple channels based on their preferences. Our marketplace enables consumers to choose to visit an insurance provider’s website to purchase a policy or engage with a carrier or agent by phone or submit their data to insurance providers to receive quotes. Our services are free for consumers, and we derive our revenue from consumer inquires sold as referrals to insurance providers and directly from commissions on sales of policies by our direct to consumer, or DTC, insurance agency.
In 2023, we exited our health insurance vertical, an area that would have required significant capital investment and scale to effectively compete amid an increasingly unpredictable regulatory environment, to increase focus on core verticals, and implemented a workforce reduction plan, or the Reduction Plan, to improve operating efficiency. We refer to the exit of our health insurance vertical and the Reduction Plan as our restructuring, which we completed by September 30, 2023.
In the three months ended September 30, 2024 and 2023, our total revenue was $144.5 million and $55.0 million, respectively, representing a year-over-year increase of 162.7%. We had net income of $11.6 million for the three months ended September 30, 2024 and a net loss of $29.2 million for the three months ended September 30, 2023, and had $18.8 million and $(1.9) million in adjusted EBITDA for the three months ended September 30, 2024 and 2023, respectively. In the nine months ended September 30, 2024 and 2023, our total revenue was $352.7 million and $232.2 million, respectively, representing a year-over-year increase of 51.9%. We had net income of $19.9 million for the nine months ended September 30, 2024 and a net loss of $44.9 million for the nine months ended September 30, 2023, and had $39.3 million and $1.3 million in adjusted EBITDA for the nine months ended September 30, 2024 and 2023, respectively. See the section titled “—Non-GAAP Financial Measure” for information regarding our use of adjusted EBITDA and its reconciliation to net income (loss) determined in accordance with generally accepted accounting principles in the United States, or GAAP.
Factors Affecting Our Performance
We believe that our performance and future growth depend on a number of factors that present opportunities for us but also pose risks and challenges, including those discussed below, elsewhere in this Quarterly Report on Form 10-Q, particularly in Item 1A. Risk Factors, and in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023.
Auto insurance industry risk
For the nine months ended September 30, 2024 and 2023, we derived 88% and 79%, respectively, of our revenue from auto insurance providers and our financial results depend on the performance of the auto insurance industry. Furthermore, total revenue from our largest auto insurance carrier customer was 39% and 20% of our revenue for the nine months ended September 30, 2024 and 2023, respectively. In the last two years, the auto insurance industry experienced deteriorated underwriting performance due to a rise in claims, inflation, and inadequate policy premiums. This deteriorated underwriting performance caused our insurance carrier customers to reduce spending on new customer acquisition, which had a negative impact on the pricing and demand for consumer referrals in our marketplace throughout 2023. The state of the auto insurance market remains volatile and while we have seen improvements in spending patterns in 2024, including from our largest carrier, not all of our carrier customers have increased their
20
spend in a proportional or significant manner, and a full recovery could be prolonged by further cost inflation, increased claim severity and frequency, or insufficient policy premium increases.
Expanding consumer traffic
Our success depends in part on the growth of our consumer traffic. We have historically increased consumer traffic to our marketplace by expanding existing advertising channels and adding new channels such as by engaging with consumers through our verified partner network. Over the long term, we plan to increase consumer traffic by leveraging the features and growing the data assets of our platform. While we plan to grow consumer traffic, we have the ability to decrease advertising spend when the revenue associated with such consumer traffic does not result in incremental profit to our business or in response to lower demand for consumer referrals. Further, our profitability will be impacted by our ability to acquire quote requests in significant volume, at prices that are attractive, and that represent high-intent shoppers for which insurance providers will purchase referrals.
Increasing the number of insurance providers and their respective spend in our marketplace
Our success also depends on our ability to retain and grow our insurance provider network. Historically, we have generally expanded both the number of insurance providers and the spend per provider on our platform. In the more recent past, we experienced periods of decreasing carrier spend in the automotive insurance vertical as described above.
Regulation
Our revenue and earnings may fluctuate from time to time as a result of changes to federal, state, and industry-based laws and regulations, or changes to standards concerning the enforcement thereof. Our business could be affected directly because we operate websites, conduct telephonic and email marketing, and collect, store, share, and use consumer information and other data. Our business also could be affected indirectly if our customers were to adjust their operations as a result of regulatory changes and enforcement activity. For example, since late 2023, the U.S. Federal Trade Commission has been signaling, in public statements and enforcement actions, a new position that consent to receive robocalls under the Telemarketing Sales Rule must be received directly from the consumer, rather than through a third party such as a lead generator. In addition, on January 26, 2024, the U.S. Federal Communications Commission (the “FCC”) published regulations which, among other things, amend the consent requirements of the Telephone Consumer Protection Act of 1991 (“TCPA”) to close what the FCC refers to as the “lead generator loophole” by requiring “one-to-one consent” for outbound telemarketing calls or texts made using an automatic telephone dialing system or pre-recorded or artificial voice messages to wireless or residential numbers. The new “one-to-one consent” rule is scheduled to take effect on January 27, 2025.
Although it remains unclear how these changes may ultimately be implemented or interpreted, we anticipate that they will have an adverse impact on the market for insurance quote requests and will require us and our third-party sources to modify our marketing practices and policies. While we have been and will continue to analyze our marketing practices and policies in order to mitigate the impact on our business and to ensure continuing compliance with the new rules, there is no assurance that we will be successful in doing so.
In addition, a number of states have enacted (and others are considering) broad data privacy laws that could affect our business. Although it remains unclear how these new privacy laws may be modified or interpreted, their effects could have an impact on our business, and may require us to modify our data use practices and policies and incur compliance-related costs and expenses.
Key Business Metrics
We regularly review a number of metrics, including GAAP operating results and the key metrics listed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make operating and strategic decisions. Some of these metrics are non-financial metrics or are financial metrics that are not defined by GAAP.
21
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss), adjusted to exclude: stock-based compensation expense, depreciation and amortization expense, restructuring and other charges, acquisition-related costs, interest income and income taxes. Adjusted EBITDA is a non-GAAP financial measure that we present in this Quarterly Report on Form 10-Q to supplement the financial information we present on a GAAP basis. We monitor and present Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. Adjusted EBITDA should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP. Adjusted EBITDA should be considered together with other operating and financial performance measures presented in accordance with GAAP. Also, Adjusted EBITDA may not necessarily be comparable to similarly titled measures presented by other companies. For further explanation of the uses and limitations of this measure and a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income (loss), please see “—Non-GAAP Financial Measure”.
Variable Marketing Margin
We define variable marketing margin, or VMM, as revenue, as reported in our consolidated statements of operations and comprehensive income (loss), less advertising costs (a component of sales and marketing expense, as reported in our consolidated statements of operations and comprehensive income (loss)). We use VMM to measure the efficiency of individual advertising and consumer acquisition sources and to make trade-off decisions to manage our return on advertising. We do not use VMM as a measure of profitability.
Key Components of Our Results of Operations
Revenue
We generate our revenue primarily from consumer inquiries sold as referrals to insurance provider customers, consisting of carriers and agents, as well as to indirect distributors. To simplify the quoting process for the consumer and improve performance for the provider, we are able to provide consumer-submitted quote request data along with each referral. We recognize revenue from consumer referrals at the time of delivery. We support three secure consumer referral formats:
We also generate revenue from commissions paid to us by insurance carriers for the sale of policies in our automotive insurance vertical, and prior to our exit from health, in our health insurance vertical. Commission revenue is recognized upon satisfaction of our performance obligation, which we consider to be submission of the policy application to the insurance carrier. We recognize revenue based on our constrained estimate of commission payments we expect to receive over the lifetime of the policies sold, which we refer to as constrained LTVs, of commission payments. Commission revenue represented less than 10% of total revenue for the three and nine months ended September 30, 2024 and 2023.
For the periods presented, our total revenue consisted of revenue generated within our insurance verticals as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Automotive |
|
$ |
130,005 |
|
|
$ |
43,077 |
|
|
$ |
310,165 |
|
|
$ |
182,520 |
|
Home and renters |
|
|
14,142 |
|
|
|
10,889 |
|
|
|
40,715 |
|
|
|
31,068 |
|
Other |
|
|
383 |
|
|
|
1,045 |
|
|
|
1,855 |
|
|
|
18,628 |
|
Total revenue |
|
$ |
144,530 |
|
|
$ |
55,011 |
|
|
$ |
352,735 |
|
|
$ |
232,216 |
|
22
We expect an overall increase in revenue in 2024 as compared to 2023, including in our automotive and home and renters verticals, as we anticipate increased spending from our carrier partners. We expect revenue from our other insurance verticals to significantly decrease from 2023 to 2024 as a result of our exit from the health insurance vertical in 2023.
Cost and Operating Expenses
Our cost and operating expenses consist of cost of revenue, sales and marketing, research and development, general and administrative expenses, restructuring and other charges, and acquisition-related costs.
We allocate certain overhead expenses, such as rent, utilities, office supplies and depreciation and amortization of general office assets, to cost of revenue and operating expense categories based on headcount. As a result, an overhead expense allocation is reflected in cost of revenue and sales and marketing, research and development, and general and administrative expense categories. Personnel-related costs included in cost of revenue and operating expense categories include wages, fringe benefit costs and stock-based compensation expense.
Cost of Revenue
Cost of revenue is comprised primarily of the costs of operating our marketplace and delivering consumer referrals to our customers. These costs consist primarily of technology service costs including hosting, software, data services, and third-party call center costs. In addition, cost of revenue includes depreciation and amortization of our platform technology assets and personnel-related costs.
Sales and Marketing
Sales and marketing expense consists primarily of advertising and marketing expenditures as well as personnel-related costs for employees engaged in sales, marketing, data analytics and consumer acquisition functions and amortization of sales and marketing-related intangible assets. Advertising expenditures consist of variable costs that are related to attracting consumers to our marketplace, generating consumer quote requests, including the cost of quote requests we acquire from our verified partner network, and promoting our marketplace to carriers and agents. Advertising costs are expensed as incurred. Marketing costs consist primarily of content and creative development, public relations, memberships, and event costs. We expect our sales and marketing expense will increase as we expect increased carrier spend for referrals in 2024, which will impact our advertising expenditures, though we expect personnel-related costs to decrease in 2024 from 2023 as a result of the Reduction Plan.
Research and Development
Research and development expense consists primarily of personnel-related costs for software development and product management. We have focused our research and development efforts on improving ease of use and functionality of our existing marketplace platform and developing new offerings and internal tools. We primarily expense research and development costs. Direct development costs related to software enhancements that add functionality are capitalized and amortized as a component of cost of revenue. We expect that research and development expense will increase slightly in 2024 as compared to 2023.
General and Administrative
General and administrative expense consists of personnel-related costs and related expenses for executive, finance, legal, human resources, technical support and administrative personnel as well as the costs associated with professional fees for external legal, accounting and other consulting services, insurance premiums and payment processing and billing costs. We expect that general and administrative expense will increase in 2024 as compared to 2023.
Other Income (Expense)
Other income (expense) consists of interest income and other income (expense). Interest income consists of interest earned on invested cash balances. Other income (expense) consists of miscellaneous income (expense) unrelated to our core operations.
Non-GAAP Financial Measure
To supplement our consolidated financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we present in this Quarterly Report on Form 10-Q adjusted EBITDA as a non-GAAP financial measure. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similarly titled measures presented by other companies.
23
Adjusted EBITDA. We define adjusted EBITDA as our net income (loss), excluding the impact of stock-based compensation expense, depreciation and amortization expense, restructuring and other charges, acquisition-related costs, interest income and income taxes. The most directly comparable GAAP measure to adjusted EBITDA is net income (loss). We monitor and present in this Quarterly Report on Form 10-Q adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. In particular, we believe that excluding the impact of these items in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance.
We use adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. We believe adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculation of adjusted EBITDA. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.
Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the most directly comparable financial measure calculated and presented in accordance with GAAP. Some of these limitations are:
In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of adjusted EBITDA as a tool for comparison.
The following table reconciles adjusted EBITDA to net income (loss), the most directly comparable financial measures calculated and presented in accordance with GAAP.
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Net income (loss) |
|
$ |
11,554 |
|
|
$ |
(29,217 |
) |
|
$ |
19,863 |
|
|
$ |
(44,939 |
) |
Stock-based compensation |
|
|
5,446 |
|
|
|
5,479 |
|
|
|
15,304 |
|
|
|
17,995 |
|
Depreciation and amortization |
|
|
1,618 |
|
|
|
2,251 |
|
|
|
4,117 |
|
|
|
5,121 |
|
Restructuring and other charges |
|
|
— |
|
|
|
19,757 |
|
|
|
— |
|
|
|
23,589 |
|
Acquisition-related costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(150 |
) |
Interest income |
|
|
(554 |
) |
|
|
(411 |
) |
|
|
(1,396 |
) |
|
|
(869 |
) |
Income tax expense |
|
|
719 |
|
|
|
236 |
|
|
|
1,411 |
|
|
|
600 |
|
Adjusted EBITDA |
|
$ |
18,783 |
|
|
$ |
(1,905 |
) |
|
$ |
39,299 |
|
|
$ |
1,347 |
|
24
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2024 and 2023
The following tables set forth our results of operations for the periods shown:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue(1) |
|
$ |
144,530 |
|
|
$ |
55,011 |
|
|
$ |
352,735 |
|
|
$ |
232,216 |
|
Cost and operating expenses(2): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
5,450 |
|
|
|
6,150 |
|
|
|
15,502 |
|
|
|
17,467 |
|
Sales and marketing |
|
|
111,794 |
|
|
|
46,505 |
|
|
|
273,491 |
|
|
|
195,537 |
|
Research and development |
|
|
8,026 |
|
|
|
6,270 |
|
|
|
21,913 |
|
|
|
21,647 |
|
General and administrative |
|
|
7,594 |
|
|
|
5,741 |
|
|
|
22,105 |
|
|
|
19,339 |
|
Restructuring and other charges |
|
|
— |
|
|
|
19,757 |
|
|
|
— |
|
|
|
23,589 |
|
Acquisition-related costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(150 |
) |
Total cost and operating expenses |
|
|
132,864 |
|
|
|
84,423 |
|
|
|
333,011 |
|
|
|
277,429 |
|
Income (loss) from operations |
|
|
11,666 |
|
|
|
(29,412 |
) |
|
|
19,724 |
|
|
|
(45,213 |
) |
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
554 |
|
|
|
411 |
|
|
|
1,396 |
|
|
|
869 |
|
Other income, net |
|
|
53 |
|
|
|
20 |
|
|
|
154 |
|
|
|
5 |
|
Total other income, net |
|
|
607 |
|
|
|
431 |
|
|
|
1,550 |
|
|
|
874 |
|
Income (loss) before income taxes |
|
|
12,273 |
|
|
|
(28,981 |
) |
|
|
21,274 |
|
|
|
(44,339 |
) |
Income tax expense |
|
|
(719 |
) |
|
|
(236 |
) |
|
|
(1,411 |
) |
|
|
(600 |
) |
Net income (loss) |
|
$ |
11,554 |
|
|
$ |
(29,217 |
) |
|
$ |
19,863 |
|
|
$ |
(44,939 |
) |
Other Financial and Operational Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable marketing margin |
|
$ |
43,931 |
|
|
$ |
19,368 |
|
|
$ |
111,204 |
|
|
$ |
79,614 |
|
Adjusted EBITDA(3) |
|
$ |
18,783 |
|
|
$ |
(1,905 |
) |
|
$ |
39,299 |
|
|
$ |
1,347 |
|
(1) Comprised of revenue from the following distribution channels:
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Direct channels |
|
|
|
|
|
|
86 |
% |
|
|
76 |
% |
|
|
83 |
% |
|
|
82 |
% |
Indirect channels |
|
|
|
|
|
|
14 |
% |
|
|
24 |
% |
|
|
17 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
(2) Includes stock-based compensation expense as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Cost of revenue |
|
$ |
51 |
|
|
$ |
57 |
|
|
$ |
129 |
|
|
$ |
170 |
|
Sales and marketing |
|
|
1,837 |
|
|
|
2,216 |
|
|
|
5,083 |
|
|
|
6,761 |
|
Research and development |
|
|
1,342 |
|
|
|
1,820 |
|
|
|
4,080 |
|
|
|
6,479 |
|
General and administrative |
|
|
2,216 |
|
|
|
1,386 |
|
|
|
6,012 |
|
|
|
4,585 |
|
Restructuring and other charges |
|
|
— |
|
|
|
165 |
|
|
|
— |
|
|
|
1,288 |
|
|
|
$ |
5,446 |
|
|
$ |
5,644 |
|
|
$ |
15,304 |
|
|
$ |
19,283 |
|
(3) See “—Non-GAAP Financial Measure” for information regarding our use of adjusted EBITDA as a non-GAAP financial measure and a reconciliation of adjusted EBITDA to its comparable GAAP financial measure.
25
Revenue
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Revenue |
|
$ |
144,530 |
|
|
$ |
55,011 |
|
|
$ |
89,519 |
|
|
|
162.7 |
% |
Revenue increased by $89.5 million from $55.0 million for the three months ended September 30, 2023 to $144.5 million for the three months ended September 30, 2024. The increase in revenue was due to an increase of $86.9 million in our automotive vertical and an increase of $3.3 million in our home and renters insurance vertical, partially offset by a decrease of $0.7 million in our other insurance verticals. The increase in revenue from our automotive vertical was due to an increase in carrier spend for referrals of $87.4 million, primarily from our largest customer. The increase in revenue from our home and renters insurance vertical was primarily due to an increase in carrier spend for referrals. The decrease in revenue from our other insurance verticals was due to a decrease in carrier spend for referrals due primarily to our exit from the health insurance vertical.
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Revenue |
|
$ |
352,735 |
|
|
$ |
232,216 |
|
|
$ |
120,519 |
|
|
|
51.9 |
% |
Revenue increased by $120.5 million from $232.2 million for the nine months ended September 30, 2023 to $352.7 million for the nine months ended September 30, 2024. The increase in revenue was due to an increase of $127.6 million in our automotive vertical and an increase of $9.6 million in our home and renters insurance vertical, partially offset by a decrease of $16.8 million in our other insurance verticals. The increase in revenue from our automotive vertical was due to an increase in carrier spend for referrals of $132.1 million, primarily from our largest customer, partially offset by a decrease in commission revenue of $4.5 million. The increase in revenue from our home and renters insurance vertical was primarily due to an increase in carrier spend for referrals. The decrease in revenue from our other insurance verticals was due to a decrease in commission revenue of $10.3 million and a decrease in carrier spend for referrals of $6.5 million, both due primarily to our exit from the health insurance vertical.
Cost of Revenue
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Cost of revenue |
|
$ |
5,450 |
|
|
$ |
6,150 |
|
|
$ |
(700 |
) |
|
|
-11.4 |
% |
Percentage of revenue |
|
|
3.8 |
% |
|
|
11.2 |
% |
|
|
|
|
|
|
||
Cost of revenue decreased by $0.7 million from $6.2 million for the three months ended September 30, 2023 to $5.5 million for the three months ended September 30, 2024. Cost of revenue decreased primarily due to a decrease in depreciation expense for technology assets that were fully depreciated in the three months ended September 30, 2023 as they were no longer going to be used. Decreases in personnel-related costs of $0.5 million primarily related to decreased headcount in our call center were fully offset by increases in third-party call center costs due to increased volume.
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Cost of revenue |
|
$ |
15,502 |
|
|
$ |
17,467 |
|
|
$ |
(1,965 |
) |
|
|
-11.2 |
% |
Percentage of revenue |
|
|
4.4 |
% |
|
|
7.5 |
% |
|
|
|
|
|
|
||
Cost of revenue decreased by $2.0 million from $17.5 million for the nine months ended September 30, 2023 to $15.5 million for the nine months ended September 30, 2024. Cost of revenue decreased primarily due to a decrease in personnel-related costs of $1.1 million related primarily to decreased headcount in our call center, partially offset by an increase in third-party call center costs of $0.2 million due primarily to a net increase in call volume. Depreciation costs decreased by $1.0 million in 2024 due primarily to
26
depreciation costs of technology assets that were fully depreciated in 2023 as they were no longer being used. Hosting costs also decreased by $0.3 million.
Sales and Marketing
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Sales and marketing expense |
|
$ |
111,794 |
|
|
$ |
46,505 |
|
|
$ |
65,289 |
|
|
|
140.4 |
% |
Percentage of revenue |
|
|
77.4 |
% |
|
|
84.5 |
% |
|
|
|
|
|
|
||
Sales and marketing expense increased by $65.3 million from $46.5 million for the three months ended September 30, 2023 to $111.8 million for the three months ended September 30, 2024. The increase in sales and marketing expense was primarily due to an increase in advertising costs of $65.0 million due to an increase in carrier spend.
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Sales and marketing expense |
|
$ |
273,491 |
|
|
$ |
195,537 |
|
|
$ |
77,954 |
|
|
|
39.9 |
% |
Percentage of revenue |
|
|
77.5 |
% |
|
|
84.2 |
% |
|
|
|
|
|
|
||
Sales and marketing expense increased by $78.0 million from $195.5 million for the nine months ended September 30, 2023 to $273.5 million for the nine months ended September 30, 2024. The increase in sales and marketing expense was primarily due to an increase in advertising costs of $88.9 million due to an increase in carrier spend, partially offset by decreases in personnel-related costs of $9.9 million, primarily in our DTC agency. Personnel-related costs included stock-based compensation expense of $5.1 million and $6.8 million for the nine months ended September 30, 2024 and 2023, respectively. Technology services and agent license fees also decreased by $0.7 million and $0.6 million, respectively, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, due primarily to our exit from the health insurance vertical and the reduction in personnel.
Research and Development
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Research and development expense |
|
$ |
8,026 |
|
|
$ |
6,270 |
|
|
$ |
1,756 |
|
|
|
28.0 |
% |
Percentage of revenue |
|
|
5.6 |
% |
|
|
11.4 |
% |
|
|
|
|
|
|
||
Research and development expense increased by $1.8 million from $6.3 million for the three months ended September 30, 2023 to $8.0 million for the three months ended September 30, 2024. The increase in research and development expense was due primarily to an increase in personnel-related costs related primarily to net compensation. Personnel-related costs included stock-based compensation expense of $1.3 million and $1.8 million for the three months ended September 30, 2024 and 2023, respectively.
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Research and development expense |
|
$ |
21,913 |
|
|
$ |
21,647 |
|
|
$ |
266 |
|
|
|
1.2 |
% |
Percentage of revenue |
|
|
6.2 |
% |
|
|
9.3 |
% |
|
|
|
|
|
|
||
Research and development expense increased by $0.3 million from $21.6 million for the nine months ended September 30, 2023 to $21.9 million for the nine months ended September 30, 2024. The increase in research and development expense was due to an increase in personnel-related costs related primarily to net compensation, partially offset by a decrease in stock-based compensation
27
expense. Personnel-related costs included stock-based compensation expense of $4.1 million and $6.5 million for the nine months ended September 30, 2024 and 2023, respectively.
General and Administrative
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
General and administrative expense |
|
$ |
7,594 |
|
|
$ |
5,741 |
|
|
$ |
1,853 |
|
|
|
32.3 |
% |
Percentage of revenue |
|
|
5.3 |
% |
|
|
10.4 |
% |
|
|
|
|
|
|
||
General and administrative expenses increased by $1.9 million from $5.7 million for the three months ended September 30, 2023 to $7.6 million for the three months ended September 30, 2024. The increase in general and administrative expenses was primarily due to an increase in personnel-related costs of $1.5 million and an increase in professional fees of $0.2 million for consulting services. Personnel-related costs included stock-based compensation expense of $2.2 million and $1.4 million for the three months ended September 30, 2024 and 2023, respectively.
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
General and administrative expense |
|
$ |
22,105 |
|
|
$ |
19,339 |
|
|
$ |
2,766 |
|
|
|
14.3 |
% |
Percentage of revenue |
|
|
6.3 |
% |
|
|
8.3 |
% |
|
|
|
|
|
|
||
General and administrative expenses increased by $2.8 million from $19.3 million for the nine months ended September 30, 2023 to $22.1 million for the nine months ended September 30, 2024. The increase in general and administrative expenses was primarily due to an increase in personnel-related costs of $2.4 million and an increase in professional fees of $1.1 million for consulting services, partially offset by decreases in legal fees of $0.4 million and bad debt expense of $0.2 million. Personnel-related costs included stock-based compensation expense of $6.0 million and $4.6 million for the nine months ended September 30, 2024 and 2023, respectively.
Restructuring and Other Charges
Restructuring and other charges of $19.8 million and $23.6 million for the three and nine months ended September 30, 2023, respectively, consisted of costs related to the Reduction Plan we implemented in June 2023. For the three and nine months ended September 30, 2023, restructuring and other charges primarily included the loss on the sale of health insurance vertical assets of $19.4 million and an asset impairment charge of $0.4 million for the right-of-use asset related to our Cambridge, Massachusetts office lease. For the nine months ended September 30, 2023, restructuring costs and other charges also included net employee separation charges and non-cash compensation related to the restructuring of $3.8 million.
Acquisition-related
Acquisition-related costs for the nine months ended September 30, 2023 of $0.2 million consisted of the decrease in fair value of our contingent consideration liabilities recorded as the result of our 2021 acquisition of PolicyFuel. We did not record any changes in fair value of our contingent consideration liabilities in the three months ended September 30, 2023 or in either of the three and nine months ended September 30, 2024.
Other Income (Expense)
Interest income increased by $0.1 million and $0.5 million in the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023, respectively, due to an increase in interest earned on our cash balances. Other income (expense), net was not significant for any periods presented.
28
Income Tax Expense
Our income tax expense consisted primarily of state income taxes as well as federal income taxes for the portion of our taxable income that was not offset by operating loss and tax credit carryforwards. We maintain a valuation allowance on our overall net deferred tax asset as it is deemed more likely than not the net deferred tax asset will not be realized.
Variable Marketing Margin
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Revenue |
|
$ |
144,530 |
|
|
$ |
55,011 |
|
|
$ |
89,519 |
|
|
|
162.7 |
% |
Less: total advertising expense (a component of sales and marketing expense) |
|
|
100,599 |
|
|
|
35,643 |
|
|
|
|
|
|
|
||
Variable marketing margin |
|
$ |
43,931 |
|
|
$ |
19,368 |
|
|
$ |
24,563 |
|
|
|
126.8 |
% |
Percentage of revenue |
|
|
30.4 |
% |
|
|
35.2 |
% |
|
|
|
|
|
|
||
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Revenue |
|
$ |
352,735 |
|
|
$ |
232,216 |
|
|
$ |
120,519 |
|
|
|
51.9 |
% |
Less: total advertising expense (a component of sales and marketing expense) |
|
|
241,531 |
|
|
|
152,602 |
|
|
|
|
|
|
|
||
Variable marketing margin |
|
$ |
111,204 |
|
|
$ |
79,614 |
|
|
$ |
31,590 |
|
|
|
39.7 |
% |
Percentage of revenue |
|
|
31.5 |
% |
|
|
34.3 |
% |
|
|
|
|
|
|
||
The increase in variable marketing margin in the three and nine months ended September 30, 2024 was due primarily to increased carrier spend, partially offset by a decrease in variable marketing margin due to the relative mix of referral types.
Liquidity and Capital Resources
As of September 30, 2024, our principal sources of liquidity were cash and cash equivalents of $82.8 million and up to $25.0 million of availability under our revolving line of credit pursuant to the 2023 Amended Loan Agreement (defined as the Amended and Restated Loan and Security Agreement, dated as of August 7, 2020 between us and Western Alliance Bank, as Lender, or the 2020 Loan Agreement, as amended by the Loan and Security Modification Agreement dated as of July 15, 2022, or the 2022 Loan Amendment, as amended by the Loan and Security Modification Agreement dated as of August 1, 2023, or the 2023 Consent and Release, as amended by the Loan and Security Modification Agreement, dated as of on August 7, 2023, or the 2023 Loan Amendment, as amended by the Loan and Security Modification Agreement, dated as of September 4, 2024).
Pursuant to the 2023 Amended Loan Agreement, borrowings under the revolving line of credit cannot exceed 85% of eligible accounts receivable balances, bear interest at the greater of 7.0% or the prime rate as published in The Wall Street Journal and mature on July 15, 2025. In an event of default, as defined in the 2023 Amended Loan Agreement, and until such event is no longer continuing, the annual interest rate to be charged would be the annual rate otherwise applicable to borrowings under the 2023 Amended Loan Agreement plus 5.00%.
Borrowings are collateralized by substantially all of our assets and property. Under the 2023 Amended Loan Agreement, we have agreed to certain affirmative and negative covenants to which we will remain subject until maturity. The covenants include limitations on our ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses. In addition, under the 2023 Amended Loan Agreement and through the maturity date, we are required to maintain a minimum Adjusted Quick Ratio of 1.10 to 1.00 defined as the ratio of (1) the sum of (x) unrestricted cash and cash equivalents held at the Lender plus (y) net accounts receivable reflected on our balance sheet to (2) current liabilities, including all borrowings outstanding under the 2023 Amended Loan Agreement, but excluding the current portion of deferred revenue (in each case determined in accordance with GAAP). At any time the Adjusted Quick Ratio is less than 1.30 to 1.00 the Lender shall have the ability to use our cash receipts to repay outstanding obligations until such time as the Adjusted Quick Ratio is equal to or greater than 1.30 to 1.00 for two consecutive months. As of September 30, 2024, we were in compliance with these covenants and we had no amounts outstanding under the revolving line of credit.
29
Since our inception, we have incurred operating losses on an annual basis and may incur losses in the future. We believe our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months, without considering the borrowing availability under our revolving line of credit. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our revenue, the timing and extent of spending on business initiatives, purchases of capital equipment to support our growth, sales and marketing activities, impact to our business from our restructuring, expansion of our business through acquisitions or our investments in complementary offerings, technologies or businesses, market acceptance of our platform and overall economic conditions. If we do not achieve our revenue goals as planned, we believe that we can reduce our operating costs. If we need additional funds and are unable to obtain funding on a timely basis, we may need to significantly curtail our operations in an effort to provide sufficient funds to continue our operations, which could adversely affect our business prospects.
Cash Flows
The following table shows a summary of our cash flows for the nine months ended September 30, 2024 and 2023:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Net cash provided by (used in) operating activities |
|
$ |
46,432 |
|
|
$ |
(2,036 |
) |
Net cash provided by (used in) investing activities |
|
|
(3,111 |
) |
|
|
10,206 |
|
Net cash provided by financing activities |
|
|
1,552 |
|
|
|
41 |
|
Effect of exchange rate changes on cash, cash equivalents |
|
|
12 |
|
|
|
3 |
|
Net increase in cash, cash equivalents and restricted cash |
|
$ |
44,885 |
|
|
$ |
8,214 |
|
Net cash provided by operating activities
Operating activities provided $46.4 million in cash during the nine months ended September 30, 2024, primarily resulting from our net income of $19.9 million, net non-cash charges of $19.5 million and net cash provided by changes in our operating assets liabilities of $7.1 million. Net cash provided by changes in our operating assets and liabilities consisted primarily of a $30.8 million increase in accounts payable and accrued expenses and other current liabilities and a $3.7 million decrease in commissions receivable, partially offset by an increase in accounts receivable of $27.1 million. Operating activities used $2.0 million in cash during the nine months ended September 30, 2023, primarily resulting from our net loss of $44.9 million and net cash used by changes in our operating assets and liabilities of $1.3 million, partially offset by net non-cash charges of $44.2 million, which included the loss on sale of health insurance vertical assets of $19.4 million. Net cash used by changes in our operating assets and liabilities consisted primarily of a $13.6 million decrease in accounts payable and accrued expenses and other current liabilities, partially offset by decreases in accounts receivable, prepaid expenses and other current assets and commissions receivable of $7.3 million, $2.6 million and $2.6 million, respectively.
Changes in accounts receivable, accounts payable and accrued expenses and other current liabilities were generally due to changes in our business and timing of customer and vendor invoicing and payments. Collection of commissions receivable depends upon the timing of our receipt of commission payments from insurance carriers. A significant portion of our commissions receivable is classified as long-term.
Net cash used in investing activities
Net cash used in investing activities of $3.1 million for the nine months ended September 30, 2024 was attributable to the acquisition of property and equipment, which included the capitalization of certain software development costs. Net cash provided by investing activities was $10.2 million for the nine months ended September 30, 2023, consisting of cash proceeds from the sale of Eversurance LLC of $13.2 million, partially offset by the acquisition of property and equipment of $3.0 million, which included the capitalization of certain software development costs. During the nine months ended September 30, 2024 and 2023, we capitalized $2.2 million and $2.7 million, respectively, of software development costs.
Net cash provided by financing activities
During the nine months ended September 30, 2024 and 2023, net cash provided by financing activities was $1.6 million and less than $0.1 million, respectively. Net cash provided by financing activities during the nine months ended September 30, 2024 and 2023 consisted of proceeds received from the exercise of common stock options, partially offset by tax withholding payments relating to net share settlements.
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Contractual Obligations and Commitments
In April 2024, we entered into two agreements to lease office space in Cambridge, Massachusetts through December 2027 for fixed payments totaling $3.2 million through 2027. In August 2024, we entered into an agreement to sublease office space in Belfast, Northern Ireland through July 2027 for fixed payments totaling approximately $1.6 million through 2027. There have been no other material changes to the contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2023.
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies from those disclosed in our financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2023, on file with the Securities and Exchange Commission. For further disclosure, refer to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We have a credit agreement that provides us with credit at a floating rate of interest. As of September 30, 2024, we had no outstanding borrowings under our revolving line of credit and therefore no material exposure to fluctuations in interest rates.
We contract with vendors in foreign countries and we have foreign subsidiaries. As such, we have exposure to adverse changes in exchange rates of foreign currencies associated with our foreign transactions and our foreign subsidiaries. We believe this exposure to be immaterial. We do not hedge against this exposure to fluctuations in exchange rates.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Information with respect to legal proceedings and this item is included in Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements contained in Part I, Item I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors.
In addition to risks and uncertainties in the ordinary course of business that are common to all businesses, important factors that are specific to our industry and company could have a material and adverse impact on our business, financial condition, results of operations and cash flows. You should carefully consider the risk factors set forth in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023 and in our subsequent periodic filings with the Securities and Exchange Commission. There has been no material change from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Equity Securities
There were no shares of equity securities sold or issued, or options granted, by us during the three months ended September 30, 2024 that were not registered under the Securities Act, and that were not previously reported in a Current Report on Form 8-K.
Issuer Purchases of Equity Securities
We did not purchase any of our registered equity securities during the period from July 1, 2024 to September 30, 2024.
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Item 5. Other Information.
Rule 10b5-1 Trading Plans
The adoption or termination of contracts, instructions or written plans for the purchase or sale of our securities by our Section 16 officers and directors for the three months ended September 30, 2024, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 Plan”), were as follows:
Name (Title) |
Action Taken |
Type of Trading Arrangement |
Nature of Trading |
Duration of Trading |
Aggregate Number |
Rule 10b5-1 trading arrangement |
Sale |
Until |
Up to |
||
Rule 10b5-1 trading arrangement |
Sale |
Until |
Indeterminable(1) |
(1) Mr. Ayotte's Rule 10b5-1 Trading Plan provides for the sale of an indeterminable number of shares of common stock from the settlement of restricted stock units (“RSUs”). The shares of common stock is unknown as the number will vary based on the extent to which vesting conditions of the RSUs are satisfied, the market price of the Company’s common stock at the time of settlement and the amount of shares that would otherwise be issuable on each settlement date of a covered RSU that are sold or withheld in an amount sufficient to satisfy applicable tax withholding obligations.
Item 6. Exhibits.
Exhibit Number |
|
Description |
|
|
|
|
|
|
10.1 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1† |
|
|
|
|
|
32.2† |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
† The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of EverQuote, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
EVERQUOTE, INC. |
|
|
|
|
|
Date: November 4, 2024 |
|
By: |
/s/ Jayme Mendal
|
|
|
|
Jayme Mendal Chief Executive Officer and President (Principal Executive Officer) |
|
|
|
|
Date: November 4, 2024 |
|
By: |
/s/ Joseph Sanborn
|
|
|
|
Joseph Sanborn Chief Financial Officer and Treasurer (Principal Financial Officer) |
34