| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2020
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Identification Number)
| No.) | ||
210 Broadway Cambridge, Massachusetts | 02139 | |
(Address of principal executive offices) | (Zip Code) | |
(855)522-3444
(
code: (855)
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, $0.001 Par Value Per Share | EVER | The Nasdaq Global Market | ||
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ☐
| Large accelerated filer | Accelerated filer | ☐ | ||||
Non-accelerated filer | Smaller reporting company | ☒ | ||||
| Emerging growth company | ||||||
our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, cash flows and ability to achieve, and maintain, future profitability;
our ability to attract and retain consumers and insurance providers using our marketplace;
our ability to develop new and enhanced products and services to attract and retain consumers and insurance providers, and our ability to successfully monetize them;
our anticipated growth and growth strategies and our ability to effectively manage that growth;
our ability to maintain and build our brand;
our reliance on our third-party service providers;
our ability to expand internationally;
the impact of competition in our industry and innovation by our competitors;
our ability to hire and retain necessary qualified employees to expand our operations;
our ability to adequately protect our intellectual property;
our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business;
the increased expenses and administrative workload associated with being a public company;
failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud;
the future trading prices of our Class A common stock; and
our use of proceeds from our initial public offering.
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.
ITEM 1. | BUSINESS |
Consumers may view insurance as a simple commodityconnect with standard pricing. However, findingcustomers shopping for insurance.
approximately $600.
The EverQuote platform is powered by data science. Our rich data assets and proprietary algorithms efficiently attract consumers, match them with relevant insurance providers and drive our overall business model. These assets include more than 1 billion consumer-submitted data points, derived from over 47 million quote requests and 150 billion ad impressions acquired through $500 million in advertising spend through January 31, 2019. We utilize our data assets throughout our business, from advertising and consumer acquisition to the innovation of new consumer and provider experiences, as well as to guide our strategic direction. As our data assets grow, our algorithms become more powerful. We believe our data science capabilities give us a significant competitive advantage.
Our marketplace benefits from significant network effects. As we attract more consumers to our platform, we collect more data to improve user experiences, which in turn improves conversion rates and consumer satisfaction. The combination of these factors increases consumer traffic while reducing acquisition costs, leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve providers’ advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data.
We rapidly scaled our business in a capital-efficient manner, having grown our company, prior to our initial public offering, or IPO, to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business. Our revenue grew from $45.6 million in 2013 to $163.3 million in 2018, representing a compound annual growth rate of 29%. In 2017 and 2018, our total revenue was $126.2 million and $163.3 million, respectively, representing year-over-year growth of 29%. We had a net loss of $5.1 million in 2017 and a net loss of $13.8 million in 2018, and had $(1.5) million and $(5.5) million in adjusted EBITDA in 2017 and 2018, respectively. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Non-GAAP Financial Measures” 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.
The insurance industry is highly competitive and diverse. There are over 1,500 carriers operating innon-health insurance markets in the United States, but the largest carrier accounted for less than 6% of total premiums in 2017, according to data from S&P Global Market Intelligence; SNL Insurance Data. In addition, we estimate there are approximately 100,000 agencies in the United States who sell insurance products across the auto, home, life, commercial and renters insurance markets.
Insurance marketing spend is large and evolving
2020. To capture new policies and retain existing customers, insurance providers advertise across a broad range of online and offline marketing channels, devoting significant resources to sales and distribution. Separately, the internet has become increasingly influential in consumer insurance shopping, with more than 70% of insurance consumers shopping online according to a comScore survey in 2015, the last year the survey was conducted. While insurance providers have been reallocating marketing spend from traditional media sources to online media channels, we believe the shift of marketing budgets online continues to lag the shift in consumer behavior.
Based on carrier online advertising and agent marketing spend, we estimate that we have an immediate opportunity in excess of $2.9 billion per year, with a total addressable market over the long term of $123 billion annually. Given the continued shift toward online channels over traditional media and the ongoing growth in agency commissions, we expect our immediate opportunity to expand in the future:
U.S.non-health insurance carriers spent $123$154 billion in 2020 on marketing and distribution in 2017, consisting of $115$137 billion in commissions to agents and $8.2$16.7 billion in direct advertising, according to data from S&P Global Market Intelligence; SNL Insurance Data. OnlineData, a study we commissioned by Stax Inc and our own estimates. Based on these same sources, online insurance advertising spend of North American insurance carriers and agents was $1.3$6.5 billion in 2016, up 16% from 2015, according2020 and is estimated to eMarketer and Kantar Media. We believe that carriers will continue to shift advertising dollars online in order to capitalize on the superior marketing characteristics of digital channels.
According to the Independent Insurance Agents & Brokers of America, or the IIABA, U.S. insurance agencies spent, on average, $16,400 on marketing in 2018, up from $10,600 in 2014. Based on 2018 average spend and our estimate of approximately 100,000 active insurance agencies, we believe that insurance agencies alone spent over $1.6 billion in 2018 on marketing. In addition, the IIABA data show that online activities were the highest ranked priorities for agencies’ marketing budgets.
Insurance products are complex and highly regulated
While insurance may be perceived by consumers as a commodity, it is complex and must be configured to match each consumer’s particular circumstances. In the United States, regulatory requirements vary state by state, with each state having different actuarial standards, statutory requirements and regulations, and there are numerous types and levels of coverage, bundling and discounts available from each provider. These complexities make it challenging for consumers to compare and choose from among the hundreds of available insurance providers and coverage combinations.
The modification of insurance rates and policy forms is an onerous and cumbersomestate-by-state process that, in many states, can take months and require document submissions consisting of thousands of pages, and limits the consumer attributes that may be considered in setting rates. As a result, insurance providers have limited ability to quickly adjust their pricing in response to losses or changes in market conditions and lack the ability to price policies dynamically to match expected customer value, attributes and behavior.
Insurance products are not priced in a uniform manner. Pricing strategies vary across providers and assessment of individual consumer risk is based onpre-set consumer attributes, such as vehicle type and location. Eachconsumer-to-product pairing yields a specific rate based on static rate tables filed semi-annually or annually with state regulators, with pricing that may vary widely across insurance providers and consumer profiles. Consumers seeking insurance are often unaware of any given insurance provider’s product strategies, strengths or offerings, which may lead to suboptimal shopping and significant inefficiencies for consumers and providers.
Insurance shopping is being enabled by new digital tools
We expect that the ongoing shift to online insurance shopping by consumers and the increasing digitization of insurance risk assessment and workflows will enable more personal,end-to-end shopping experiences, products and services. Moreover, emerging online agencies and digital carriers launched to take advantage of these trends are typically directed towards niche audiences and have limited marketing budgets, making capturing the right consumers challenging for them. We believe that the confluence of these factors favors business models that efficiently match supply and demand, allowing insurance providers to capture consumers’ purchase intent online while taking advantage of the benefits of targeted digital advertising.
Insurance agents are an essential and growing part of the industry landscape
Despite the trend toward online shopping, insurance agents play an essential role in the insurance buying process. According to a 2015 comScore survey, whilegrow more than 70%16% annually through 2024.
As a result of pricing and regulatory complexity, many insurance providers specialize onpre-determinedsub-sets of consumers across products, sales, claims processing and support functions to optimize their business models for profitability and expected loss ratios. At the same time, consumers may struggle to make informed buying decisions due to the large number of providers, breadth of insurance products and services available, and opaque pricing and coverage options. The inability of insurance providers to attract only those consumers who match their optimal risk profiles, combined with the lack of comprehensive information for consumers, creates a supply and demand misalignment.
Complex,
Selecting the right insurance provider is challenging for consumers as there are more than 1,500 insurance carriers in the United States, each with different risk-assessment requirements, product offerings and pricing. Consumers have distinct attributes and insurance needs and historically have lacked access to comprehensive tools for identifying and connecting with the right providers. Moreover, pricing for the same coverage can vary widely from one provider to another, and even across different sales channels within the same provider. While consumers seek competitive pricing, they are often unaware of pricing differences, the level of coverage needed for their particular circumstances, and any given insurance provider’s product strategies, strengths or offerings. These market conditions may lead to suboptimal shopping, significant inefficiencies for consumers and the need for expert advice and support to make informed decisions.
Advertising for
Insurance providers require extensive information about demographic and behavioral attributes in orderare seeking more efficient ways to determine pricing and the policy value of a given consumer. This information is either unavailable or unreliable for targeting through traditional online and offline channels. In addition, traditional channels lack the ability to identify and segment providers’ existing customers, limiting the utility of these channels for retention.
Due to regulatory constraints, providers require long lead times to reprice their products. As a result, carriers may find their products mispriced to risk of loss across large consumer segments for extended periods of time. Traditional channels, and in particular television, lack the fine-grained controls to quickly and selectively adjust consumer acquisition strategies and align advertising spendconnect with loss tolerance.
Providers are constrained in their immediate ability to tailor premiums to individuals due to the regulatory environmentconsumers, and as a result cannot price competitively for every consumer. With traditionalthe internet has become increasingly influential in consumer insurance shopping. While carriers continue to shift advertising dollars online and offline advertising, providers often payin order to attract consumers who are unlikelycapitalize on the superior marketing characteristics of digital channels, the shift of marketing budgets online continues to lag the shift in consumer behavior. The insurance industry is also beginning to make products easier to buy a policy due to pricing mismatches.
Due to these factors, traditional advertisingand sell through digital channels are inefficient forwith the integration and digitalization of insurance providers.
products. We believe that the rise of digital insurance products and shopping experiences will enable more personal,
Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers shopping for insurance.
proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our network of insurance providers, saving consumers and providers time and money.
platform.
Bid
We advertise to consumers, primarily under the EverQuote brand, across hundreds of online channels including internet search, email, social media
Quote request
At the time of an online quote request, consumers submit approximately 20 to 50 items of data, depending on the type of insurance, representing the majority of data required by providers for matching, quoting and binding and, we provide returning consumers with the ability to submit subsequent quote requests without the need tore-enter all of their data. This information is securely exchanged with insurance providers at the moment of referral, enabling providers to produce quotes quickly, with minimal additional steps and information needs. In January 2019, we matched and referred nearly 1.4 million online quote requests to insurance providers’ quoting and binding workflows.
In 2019 we expect to expand our definition of quote requests to include consumer quote requests we receive through offline channels such as telephone calls, quote requests via our EverDrive app, and quote requests submitted directly to third-party partners. Quote requests from telephone calls result from consumers dialing into one of our call center partners to request a quote. Once we receive a call from a consumer, that consumer is transferred to an insurance provider. These quote requests are different from our online quote requests because these consumers may never visit one of our websites or submit an online request for an insurance quote before being referred to an insurance provider. We do not receive or provide as much information about consumers whose quote requests originate from inbound telephone calls as opposed to online. EverDrive users in select states are also now able to request insurance quotes directly through the app by agreeing to share their information with an insurance carrier offering insurance discounts based on driving habits. Lastly, beginning in the first quarter of 2019, we also started acquiring quote requests submitted to third-party partners as part of our verified partner network. Through our verified partner network, we acquire consumer quote requests that are submitted by consumers directly to select third parties. Quote requests acquired by us from third parties in our verified partner network contain substantially all the same information we obtain in our own online quote requests. At this time, neither calls, EverDrive nor our verified partner network contributes meaningfully to our number of quote requests.
Bind
We combine consumer-submitted information and our internal data with proprietary machine learning algorithms to optimize matching and bind rates for consumers and insurance providers. Based on insurance provider feedback, we believe we are a large and efficient consumer acquisition and retention channel for our insurance provider customers.
Retention
Our platform enables insurance providers to identify and run campaigns for their existing customers and provide retention-oriented offers alongside the other options being presented.
How we engage with consumers
We also engage consumers through EverDrive, our social safe-driving mobile app, which monitors driving behavior and provides useful information, coaching and encouragement to help users become safer drivers. Our driver score feature gives users a simple rating system and allows them to compete with friends, family and their local community. In September 2018, we announced that drivers who use our EverDrive app and enroll with participating carriers can anonymously share their driving data and qualify for discounts on their auto insurance. As of January 31, 2019, one insurance carrier offered usage-based discounts to EverDrive users in a limited number of states. We believe that we will be able to expand the number of carriers offering discounts to safe drivers using EverDrive over time.
In addition, we provide consumers with rich content through our Safe Driving and Insurance blog. We cover complex topics, such as deductibles, coverage levels and distracted driving in simple, approachable ways to help consumers better understand and navigate the complexities of insurance coverage.
We also recently began to engage consumers offline throughpartner. When a consumer dials into one of our call center partners, the consumer is matched to anpartner or insurance provider based on attributes provided by the consumer. In addition,agent and through our verified partner network, we acquire consumernetwork.
How we engage with insurance providers
or bind a policy
Providers in our marketplace bid for consumer referrals based on eitherpre-defined segments or dynamic profiles. Bids may be static or dynamically adjusted based on specified criteria, such as consumer attributes, time of day and geographic location. Regardless of bidding mechanism, insurance providers in our marketplace participate in a unified, real-time auction that matches consumers with the most relevant providers on our platform based on bid, preferred consumer profile, predicted bind rate and other factors. Through this auction process, we align provider economics with consumer demand.
Our tools are designed to integrate with insurance providers’ internal workflows to minimize administrative burden, and can incorporate quote, bind and lifetime value feedback, enabling providers to
evaluate and optimize their acquisition and retention campaigns through a single interface. We support the industry-standardweb-based marketing, customer relationship management and referral management systems commonly used by insurance providers, allowing easy adoption
We attract consumers seeking insurance from hundreds of online sources and a limited number of offline sources. For consumers visiting us online, we further validate purchase intent by requiring consumers to submit approximately 20 to 50 items of data in order to submit a quote request, and also provide returning consumers with the ability to submit subsequent quote requests without the need tore-enter all of their data. From 2014 to 2018, our annual quote requests grew from 2 million to 12.8 million. As a result, we are able to refer a high volume of insurance shoppers to our customers.
We offer insurance providers fine-grained controls to select specific consumer profiles relevant to their underwriting practices and preferences, enabling them to efficiently target rationalcost-per-sale relative to long-term value for each referral. In addition, the transparency of our marketplace, as well as the campaign management tools we offer, make it easy for insurance providers to evaluate the performance of their marketing spend on our platform and manage their own return on investment.
Our seamless consumer handoff technology integrates with insurance providers to reduce the number of steps required from referral to bind, increasing transparency and consumer satisfaction. We securely provide quote request data, allowing insurance providers to adjust their quoting workflows in ways that are compatible with their existing infrastructure and business requirements. This data handoff provides carriers and agents with the core information needed to bind a policy with minimal steps after quote request.
Flexible
Our marketplace allows providers to rapidly aligncost-per-acquisition and distribution of advertising dollars with preferred consumer profiles. With granular budgeting and bidding tools, providers have extensive, near real-time control over the distribution and utilization of their advertising spend on our platform.
Results-driven marketplace for consumers
We efficiently match
Disruptive data-driven approach
Algorithms.
proprietary data assets with scalable machine learning driven automation, give us a significant competitive advantage.
effects.
which we believe will improve consumer satisfaction. TheOver time, the combination of these factors has increased consumer traffic, , leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve providers’ advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data. Through these characteristics of our platform, we increased the volume of quote requests referred to our insurance provider customers from 2 million in 2014 to 12.827 million in 2018.
2020.
leverage.
Our cost structure provides us with the flexibility to react to changesexpand our potential growth opportunities. Additionally, by operating in the business cycle. Our largest expense, advertising, is variable and can be quickly adjusted to market conditions. During economic downturns, advertising expenses can be rapidly reduced. Conversely, during periods of economic expansionseveral verticals we can increase advertising spendlessen our exposure to attract consumersnegative impacts in any one of these markets.
Founder-led management team with culture ofmake insurance simpler, more affordable and personalized, ultimately reducing cost and risk. Data-driven innovation and track record of capital efficiency
Ourco-founders are Seth Birnbaum, Chief Executive Officer, and Tomas Revesz, Chief Technology Officer. Seth, aco-founder and chief executive officer of Digital Guardian, Inc. (formerly Verdasys, Inc.), brings to EverQuote a broad range of management andstart-up experience, complemented with engineering skills and information technology expertise. Tomas, aco-founder and an executive vice president of Digital Guardian, Inc. (formerly Verdasys, Inc.), brings to EverQuote extensive knowledge in IT systems development and management. Since our inception, we have built a team focused on data-driven innovation, which remainsis at the heart of our culture.
In addition, our management team has a track record of being good stewards of capital. We rapidly scaled our business in a capital-efficient manner and, prior to our IPO in July 2018, grew our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business.
Our Growth Strategies
Our core mission is to make finding insurance easy and more personal, saving consumers and insurance providers time and money. We leverage technology and data to empower consumers with better information and options, enabling them to identify and reduce risky behaviors, lower their insurance costs and lead safer lives. Ultimately, we seek to improve the way consumers understand and manage their personal risks.
Data-driven innovation remains at the heart of our strategy, culture and operating focus. With our diverse team of analysts, engineers and business development employees, as well as our partnerships with leading insurance providers, we are working to build the largest and most trusted online insurance marketplace in the world. To achieve this goal, we intend to continue to grow our business by pursuing the following strategies:
marketplace.
239,000 daily consumer visits to our online quote request workflow, resulting in more than 34,000 daily quote requests.offline. We believe that there is an opportunity to attract substantially more traffichigh-intent consumers to our current marketplaceexisting insurance offerings and that there are further expansion opportunities in adjacent verticals.
provider.
engagement.
Invest in our technology platform and people
Historically, we have increased the size of our analyst, data science and engineering teams every year, enabling us to increase our consumer traffic and conduct more A/B testing, improve conversion rates in our marketplace and improve advertising efficiency over the long term. We plan to continue to invest in our data and technology platform by growing our analyst, data science and engineering teams, enabling us to improve the breadth and efficiency of our marketplace for consumers and providers. In the future, we may also expand our capabilities and team through selective acquisitions.
Launch new verticals on our platform
We plan to introduce new offerings in order to become a leadingend-to-end provider for consumers seeking personal risk management solutions. We have demonstrated the ability to efficiently expand into new markets by leveraging our data, technology, partner relationships, consumer audience and talent. In 2016, we entered into the home and life insurance market, and from 2016 to 2018, we saw a nearly seven-fold increase in the number of quote requests for home insurance and five-fold increase in the number of quote requests for life insurance, with only a modest increase in headcount. As the shift towards digital continues to accelerate in the personal risk marketplace, we believe we are well positioned to expand into new verticals such as renters and commercial insurance.
awareness.awareness
Grow internationally
While today we operate solely in the United States, wemarketplace, through either organic development or acquisition.
Proprietary Data Assets and Algorithms
Our data assets
We leverage our data assets throughoutgrow our business, to enhance our competitive position. As of January 31, 2019, our data assets included more than 1 billion consumer-submitted data points, derived from over 47 million quote requests and 150 billion ad impressions acquired through $500 million in advertising spend.
Our data assets are comprised of:
granular bid and impression-level performance data across a diverse landscape of advertising channels and platforms;
consumer-provided geographic, demographic, preference and behavioral data obtained through our websites and mobile applications;
consumer insights derived from third-party tools, including phone number and address validations and IP address geolocation; and
insurance carrier and agent bids, and when available, quote, bind and lifetime value feedback.
We use our data assets to:
inform decision-making throughout our business;
optimize and scale our algorithmic advertising and consumer acquisition efforts;
conduct continuous A/B testing to develop our consumer experiences and insurance provider tools and services; and
make decisions regarding our company’s strategic direction, including entry into new markets and verticals.
We invest in making these assets accessible to our analysts, data scientists and engineers through a centralized warehouse, custom reporting and business intelligence tools and application programming interfaces.
Our algorithms
Our business model leverages proprietary algorithms across our marketplace, including in our advertising campaigns and consumer acquisition efforts, and for optimizing consumer-provider alignment. As our data assets grow, our algorithms become more powerful.
Multi-channel bid automation algorithms
Our data assets power our purpose-built, multi-channel bid automation and machine learning models. These tools enable granular decision-making by our consumer acquisition teams across complex, large-scale advertising campaigns.
Consumer alignment algorithms
Our consumer alignment algorithms implement a multi-step process for matching consumers with the insurance providers that we believe are most likely to provide the right coverage at a competitive price. These algorithms factor in consumer input data, insurance provider bid preferences and economics and, when available, quote, bind and lifetime value feedback. These algorithms are designed to optimize for various factors including the likelihood of a policy sale, consumer satisfaction and insurance provider return on investment. We believe that the accuracy of the matches provided by our consumer alignment algorithms will improve over time as we accumulate additional data across the insurance landscape and expand provider coverage in our marketplace.
Products and Services
Consumer products
EverQuote.com
We evolve our mobile and desktop consumer websites through continuous, iterative testing and optimization. Every change is tested and evaluated against our goal to make insurance shopping easier while saving consumers time and money. Through this rigorous process, we introduce new features to enhanceease-of-use and improve messaging, clarity and user experience.
Capabilities such aspre-fill and partial quote retrieval help reduce consumer burden and ultimately enable higher conversion rates and data quality for our insurance provider customers. By integrating our platform with providers’ online workflows, we extend this ease of use throughout the shopping experience; providers receive all or nearly all the data required to quote a consumer, allowing them to shorten or eliminate steps in their workflows. As the level of integration increases, we believe consumer satisfaction in our marketplace will continue to improve. Immediately upon submitting an online quote request, we match the consumer with insurance providers and present personalized listings determined by our consumer alignment algorithms. These listings provide access to quotes through a variety of referral formats, both online and offline. This approach helps unify the fragmented insurance landscape for the consumer and provides a single entry point to request and compare quotes. As of January 31, 2019, our marketplace has generated over 47 million auto, home and life insurance quote requests and, we estimate, nearly 5.3 million policies.
Inbound Calls and Verified Partner Network
Starting in 2019, we began to connect and match consumers to insurance providers through inbound calls from consumers to our call center partners. When a consumer dials into one of our call center partners, the consumer is offered a selection of insurance providers based on the consumer’s zip code. In addition, beginning in the first quarter of 2019, we also started acquiring quote requests submitted to third-party partners as part of our verified partner network. Through our verified partner network, we acquire consumer quote requests that are submitted by consumers directly to select third parties. Quote requests acquired by us from third parties in our verified partner network contain substantially all the same information we obtain in our own online quote requests.
Products and services for insurance providers
We provide insurance carriers and agents with industry-leading products and services to grow their businesses. Our ability to deliver a large volume of high-intent consumer referrals that are aligned with
providers’ desired consumer attributes makes us an effective channel for providers to grow efficiently. Based on insurance provider feedback, we believe we are a large and efficient consumer acquisition and retention channel for our insurance provider customers. Our products and services include:
EverQuote Pro for carriers
Carriers access our marketplace through EverQuote Pro for carriers, a web interface that enables them to manage campaigns efficiently at scale. EverQuote Pro allows for granular targeting of consumers based on insurance-related attributes including geography, demographics, behavioral characteristics and coverage needs. These tools enable carriers to acquire their ideal customers efficiently and at scale, delivering better return on investment than traditional channels.
EverQuote Pro for agents
Agents access our marketplace through EverQuote Pro for agents, a web interface that enables them to specify their desired consumer profiles, geographic areas, hours of operation, budgets and product types across auto, home and life insurance through a single interface. This self-service platform allows agents to access our marketplace with minimal effort to purchase referrals. Carriers may also provide subsidies for the benefit of agents, that are paid to us to reduce the amount agents pay for referrals.
SmartCampaigns
Our SmartCampaigns offering provides automated bidding strategies for participating insurance providers. SmartCampaigns optimizes spend to maximize quote and bind volume while meeting providers’return-on-investment targets. Participating providers integrate with SmartCampaigns by providing real-time performance feedback, including quote, bind and policy-value information for every referral, allowing our proprietary algorithms to continuously align and adjust providers’ bids and budgets across consumer segments. SmartCampaigns enables providers to acquire a higher volume of policies at better return on investment than they might be able to achieve operating independently in our marketplace. We believe insurance providers use of SmartCampaigns will expand over time.
Seamless consumer handoff
Carriers require a rich set of consumer attributes in order to render an accurate quote. Providing this information multiple times in order to compare quotes is a cumbersome process for consumers, and can lead to lower conversion rates and lost sales for providers. As a result of our scale and history as a trusted partner, we integrate directly into many providers’ online workflows, customer relationship management systems and internal quoting platforms. These integrations minimize the steps between a quote request in our marketplace and the delivery of accurate, bindable quotes across online and offline channels.
We have observed that increasing the depth of integration results in higher conversion rates, enhancing the value of our consumer referrals. Basic integrations, called ‘prefill’, allow carriers to populate their workflows with data from our platform, such that consumers are required only to confirm the data they have already provided. Fullclick-to-quote integration removes all intermediate steps, allowing the consumer to receive a quote immediately upon arrival on the provider website. In tests with carriers, conversion rates for our referrals increased by 11% to as much as 41% depending on the depth of integration and carrier work flows. While we currently have a limited number of full integrations, we believe we will be able to increase this number over time.
Insurance agent education
Our insurance agent education program delivers free content and services to further our vision of being the industry-leading resource for agencies to grow their businesses. This includes a wide range of educational materials, includinge-books, webinars, training sessions and live events.
EverDrive
EverDrive, our free social safe-driving mobile app, provides users with comprehensive information about their driving behavior along various dimensions, such as harsh braking, speedingexpanding internationally and distracted phone use. Through self-measurement and competition with friends, family and community leaderboards, EverDrive users may ultimately decrease risky driving behaviors and reduce provider losses.
In addition, EverDrive addresses key challenges currently limiting the pace of adoption of telematics-based insurance products. For consumers, EverDrive provides control over when and with whom their driving data is shared, unlike carrier telematics programs. For carriers, it provides access to an audience ofpre-qualified drivers and driving data, removing the administrative burden created by the multi-week onboarding and assessment periods required for directlaunching
In September 2018, we announced that drivers who use our EverDrive app and enroll with participating carriers can anonymously share their driving data and qualify for significant discounts on their auto insurance. As of January 31, 2019, one insurance carrier offered usage-based discounts to EverDrive users in a limited number of states. EverDrive users in these states are now able to request insurance quotes directly through the app by agreeing to share their information with the insurance carrier offering insurance discounts based on driving habits. While we are not actively advertising EverDrive at this time, we believe that we will be able to expand the number of carriers offering discounts to safe drivers using EverDrive, and plan to invest in marketing the app over time.
Our websites, mobile applications and supporting services, as well as our development and test environments, are hosted across industry-standard cloud providers such as Amazon Web Services and Google Cloud Platform. Additional internal data and analysis tools are hosted at a third-party data center in Boston, Massachusetts. We use content delivery network solutions for fast, local access to our products. We use network, website, service and hardware-level monitoring, coupled with remote-content monitoring, to maintain a high level of uptime and availability for our systems with high-performance delivery.
Additionally, we have built an efficient, consultative sales and customer success organization, which sells our marketplace referrals to insurance carriers and agencies and engages directly with consumers to sell life and health insurance policies.
We have built technology to automate our algorithmic traffic acquisition across multiple online advertising platforms. As of January 31, 2019, ourOur technology serves on average, over 200 millionmillions of advertising impressions per day across hundreds of acquisition sources in a diversified strategy including search, display, social, email and video, with no single acquisition partner accounting for more than 24%19% of quote requests.
We believe the combination of our talent, data and technology provides us with competitive advantages in acquiring more consumers as we continue to scale our business.
Agent marketing
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We reach new agents online through email, search, social media,health vertical and content marketing; accordingour own initiatives to Google Analytics, ouroffer DTC agency resource pages received an average of 28,000 visits per month in 2018. In addition, we reach agents in person at tradeshowsexperiences.
Carrier marketing
marketing.
Sales
We have built an efficient, consultative70-person This team takes a data-driven approach to helping insurance carriers bind more policies with their target consumers at lower cost per sale than other channels. Our campaign management team develops a deep understanding of our carrier customers’ objectives to optimize their campaign performance and grow their budgets in our marketplace.
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Carriers: start-ups. Our largest customer Progressive Casualty Insurance Company accounted for 22% and 21% of our revenue |
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A key element of our marketplace strategy has been to build a direct network of insurance provider customers. We increased the percentage of our total revenue derived from direct distribution from 8% to 90% for the years ended December 31, 20122020 and 2018,2019, respectively. The benefitsWe plan to continue to grow both the number of this shift include higher pricing per referral, improved pricing stability, greater revenue predictability, richer data feedback, better performancecarriers participating in our marketplace and stronger relationships with providersthe level of participation from each carrier.
renters, life, commercial and/or health insurance to consumers on behalf of one or more carriers. As of December 31, 2020, we had over 8,500 enrolled insurance agencies on our platform. We are focused on further penetrating the large base of more than 100,000 insurance agencies in the United States.
consumers.
include internet search engines and social media platforms;
brand advertisers and brand agencies across a spectrum of industries;
sites operated by individual insurance providers;
finance and credit savings sites, such as LendingTree;
sites; insurance lead-generation, affiliate and aggregator networks; and
marketing services providers for insurers and general marketing services providers.
We believe we compete favorably in attracting insurance shoppers due to our superior data assets, consumer acquisition technology, team and data sciences management infrastructure. We believe we also compete favorably in converting consumer traffic into referrals and, ultimately, purchased policies due to the depth of our provider network, our consumer matching algorithms and our intuitive and streamlined consumer interface. Furthermore, we believe the breadth of the insurance provider options in our marketplace gives us an inherent advantage over single-brand insurance providers with respect to conversion and bind rates for consumers.
spend.
Culture and
Data is at the core of our culture. Our analysts, data scientists and engineers have access to operational data and metrics about our business through our proprietary internal business data management system, known as Goat. Decisions we make as a company, from marketing and sales to product and engineering, are expected to be A/B tested and data-driven. We emphasize original thought and testing over opinion and reward the commitment, excellence and achievement of our collective team. We believe this has yielded an innovative approach that delivers results, efficiency and benefits for consumers and providers in our marketplace.
447 were full-time.
Because the laws and regulations governing insurance, financial services, privacy, data security and marketing are constantly evolving and striving to keep pace with innovations in technology and media, it is possible that we may need to materially alter the way we conduct some parts of our business activities or be prohibited from conducting such activities altogether at some point in the future.
As of January 31, 2019, we had two pending U.S. patent applications. We intend to pursue additional patent protection to the extent we believe it would be beneficial to our competitive position.
ITEM 1A. | RISK FACTORS |
In addition, insurance provider advertising spend remains concentrated in traditional offline media channels. Some of our current or potential insurance provider customers have little or no experience using the internet for advertising and marketing purposes and have allocated only limited portions of their advertising and marketing budgets to the internet. The adoption of online marketing may require a cultural shift among insurance providers as well as their acceptance of a new way of conducting business, exchanging information and evaluating new advertising and marketing technologies and services. This shift may not happen at all or at the rate we expect, in which case our business could suffer. Furthermore, we cannot assure you that the market for online marketing services will continue to grow. If the market for online marketing services fails to continue to develop or develops more slowly than we anticipate, the success of our business may be limited, and our revenue may decrease.
our ability to maintain the compatibility of our mobile applications with operating systems, such as iOS and Android, and with popular mobile devices running such operating systems; and
We rely on the data provided to us by consumers and insurance providers to improve our product and service offerings, and if we are unable to maintain or grow such data we may be unable to provide consumers with a shopping experience that is relevant, efficient and effective, which could adversely affect our business.
Our business relies on the data provided to us by consumers and insurance providers using our marketplace. The large amount of information we use in operating our marketplace is critical to the insurance shopping experience we provide for consumers. If we are unable to maintain or grow the data provided to us, the value that we provide to consumers and insurance providers using our marketplace may be limited. In addition, the quality, accuracy and timeliness of this information may suffer, which may lead to a negative shopping experience for consumers using our marketplace and could materially adversely affect our business and financial results.
this customer.
accounted for 10% and 8% of our revenue for the years ended December 31, 2018 and 2017,2019, respectively. These customersThis customer made purchases from us under short-term agreements and may decrease or cease doing business with us at any time with no notice. As a result, we have no assurances that these customersthis customer will continue to purchase from us at theirits historical levels or at all. If these customersthis customer were to reduce their levelsits level of purchases from us or discontinue theirits relationships with us, the loss could have a material adverse effect on our results of operations in both the short and long term.
Insurance providers who use our marketplace can offer products and services outside of our marketplace or obtain similar services from our competitors.
Because we do not have exclusive relationships with insurance providers, consumers may obtain quotes and purchase insurance policies from them without having to use our marketplace. Insurance providers can attract consumers directly through their own marketing campaigns or other traditional methods of distribution, such as referral arrangements, physical storefront operations or broker agreements. Insurance providers also may offer quotes to prospective customers online directly, through one or more online competitors of our business, or both. If our insurance provider customers determine to compete directly with us or choose to favor one or more of our competitors, they could cease providing us with quote information and terminate any direct interactions we have with their online workflows, customers relationship management systems and internal quoting platforms, which would reduce the breadth of the quoting information available to us and could put us at a competitive disadvantage against their direct marketing efforts or our competitors that retain such access. If consumers seek insurance policies directly from insurance providers or through our competitors, or if insurance providers cease providing us with access to their systems or information, the number of consumers searching for insurance on our marketplace may decline, and our business, financial condition and results of operations could be materially adversely affected.
We are also dependent upon the economic success of the home and life insurance industries. Declines in demand for home and life insurancecase our revenue could cause fewer consumers to usedecline or our product offerings to shop for such policies. Downturns in either of these markets, whichoperating costs could be caused by a downturn in the economy at large, could materially adversely affect our business.
increase.
expectations could harm our reputation and damage our ability to attract and retain consumers, which could adversely affect our business. If consumers do not perceive our marketplace as a better insurance shopping experience, our reputation and the strength of our brand may be adversely affected.
If we fail to manage future growth effectively, our business could be materially adversely affected.
We have at times experienced rapid growth and anticipate further growth. This growth has placed significant demands on management and our operational infrastructure. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, while maintaining the beneficial aspects of our company culture. If we do not manage the growth of our business and operations effectively, the quality of our services and efficiency of our operations could suffer and we may not be able to execute on our business plan, which could harm our brand, results of operations and overall business.
we intend to continue investing to market to our consumers including to increase awareness of our brand, including through television and radio advertisements. There can be no assurance that these investments will increase revenue or that we will eventually be able to decrease our sales and marketing expense as a percentage of revenue, and failure to do so would adversely affect our financial condition and profitability.
We also expect that new competitors will enter the online insurance industry with competing marketplaces, products and services, which could have an adverse effect on our business and financial results.
do not have limited experience, and may not be successful, in acquiring consumers from offline sources.
Insurance providers Additionally, any failure by us or third parties in our verified partner network on our marketplace may not provide competitive levels of servicewhich we rely for quote requests to consumers, whichadhere to or successfully implement appropriate processes and procedures in response to existing regulations and changing regulatory requirements could materially adversely affect our brandresult in legal and businessmonetary liability, significant fines and our ability to attract consumers.
Our ability to provide consumers with a high-quality and compelling insurance shopping experience depends, in part, on consumers receiving competitive prices, convenience, customer service and responsiveness from insurance providers with whom they are matched on our marketplace. If these providers do not meetpenalties, or exceed consumer expectations with competitive levels of convenience, customer service, price and responsiveness, the value of our brand may be harmed, our ability to attract consumersdamage to our reputation in the marketplace, may be limited and the numberany of consumers matched through our marketplace may decline, which could have a material adverse effect on our business, financial condition, and results of operations.
We rely on third-party service providers for many aspects
Our success will depend upon our relationships with third parties, including those with our payment processor, our data center host, our customer relationship manager software provider and our general ledger provider. If these third parties experience difficulty meeting our requirements or standards, or if the license agreements we have entered into with such third parties are terminated or not renewed, it could make it difficult for us to operate some aspects of our business, which could damage our business and reputation. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruptions, increase their fees, or if our relationships with these providers deteriorate, we could suffer increased costs and delays incommunication platforms, may reduce our ability to providecall or text message our consumers, with contentwhich could significantly decrease the number of quote requests and value of our data referrals and substantially harm our business.
We are subject to risks associated with a corporate culture that promotes entrepreneurialism and decentralized decision making.
We have delegated considerable operational autonomy and responsibility to our employees, including by having flexible working hours. In addition, a central tenet of our culture is providing our employees with opportunities to grow, accept new challenges and take on new responsibilities.
As a consequence, we may have relatively inexperienced people in key positions, and we routinely rotate experienced employees to other jobs within our company. In addition, the autonomy we provide to our employees could result in poor decision making, which could have a material adverse effect on our business, results of operations, financial condition and prospects.
increase due to our continued new product development and general administrative expenses, such as legal and accounting expenses related to being a public company. If we fail to increase our revenue or manage these additional costs, we may continue to incur losses in the future.
which could result in potential liability, litigation and remediation costs, as well as reputational harm, all of which could materially adversely affect our business and financial results. For example, unauthorized parties could steal our users’ names, email addresses, physical addresses, phone numbers and other information that we collect when providing referrals. While we use encryption and authentication technology licensed from third parties designed to effect secure transmission of such information, we cannot guarantee the security of the transfer and storage of the personal information we collect from customers.
Like all
new and changed rules and regulations regarding privacy, data protection and cross-border transfers of consumer information could cause us to delay planned uses and disclosures of data to comply with applicable privacy and
We may be unable to halt the operations of websites that aggregate or misappropriate our data.
From time to time, third parties may misappropriate our data through website scraping, robots or other means and aggregate this data on their websites with data from other companies. In addition, copycat websites may misappropriate data in our marketplace and attempt to imitate our brand or the functionality of our website. If we become aware of such websites, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against the effect of the operation of such websites. Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition. In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business could be harmed.
The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data are compromised due to a breach of data, we may be liable for significant costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures, and significantly higher credit card-related costs, each of which could harm our business, results of operations and financial condition.
standards may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors. Any failure to comply fully also may subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit and debit card payments. Further, there is no guarantee that such compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, card holders and transactions.
If we are unable to maintain our chargeback rate or refund rates at acceptable levels, our processing vendor may increase our transaction fees or terminate its relationship with us. Any increases in our credit and debit card fees could harm our results of operations, particularly if we elect not to raise our rates for our service to offset the increase. The termination of our ability to process payments on any major credit or debit card would significantly impair our ability to operate our business.
relating to intellectual property, as we grow our business and expand our operations we may become subject to intellectual property claims by third parties. We plan to vigorously defend our intellectual property rights and our freedom to operate our business; however, regardless of the merits of the claims, intellectual property claims are often time consuming and extremely expensive to litigate or settle and are likely to continue to divert managerial attention and resources from our business objectives. Successful infringement claims against us could result in significant monetary liability or prevent us from operating our business or portions of our business. Resolution of claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure, or we may be required to cease using intellectual property of third parties altogether. Many of our contracts require us to provide indemnification against third-party intellectual property infringement claims, which would increase our defense costs and may require that we pay damages if there were an adverse ruling in any such claims. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.
As of December 31, 2018, we had $11.0
We may from
settlement costs or require us to stop offering some features, or purchase licenses or modify our products and features while
For example, the California Consumer Privacy Act, or CCPA, went into effect on January 1, 2020. The CCPA creates new individual privacy rights for California consumers (as the word is broadly defined in the law) and places increased privacy and security
to conduct our activities. Such authorities may require us to incur substantial costs in order to comply with such laws and regulations. Regulatory statutes are broad in scope and subject to differing interpretation. In some areas of our businesses, we act on the basis of our own or the industry’s interpretations of applicable laws or regulations, which may conflict from jurisdiction to jurisdiction. In the event those interpretations eventually prove different from the interpretations of regulatory authorities, we may be penalized or precluded from carrying on our previous activities.
Risks from third-party products could adversely affect our businesses.
We offer third-party products and we provide marketing services with respect to other insurance products. Insurance, by its nature, involves a transfer of risk. If risk is not transferred in the way the customer expects, our reputation may be harmed and we may become a target for litigation. In addition, if these products do not generate competitive risk-adjusted returns that satisfy clients in a variety of asset classes, we will have difficulty maintaining existing business and attracting new business. This risk may be heightened during periods when credit, equity or other financial markets are deteriorating in value or are particularly volatile, or when clients or investors are experiencing losses. Significant declines in the performance of these third-party products could subject us to reputational damage and litigation risk.
may not be sustained, which could put downward pressure on the market price of our Class A common stock and thereby affect the ability of our stockholders to sell their shares at attractive prices, at the times that they would like to sell them, or at all.
departure
Because we do not expect to pay any dividends on our Class A common stock for the foreseeable future, investors may never receive a return on their investment.
You should not rely on an investment in our Class A common stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders
shares.88.8%78% of the voting power of our capital stock as of January 31, 2019.February 23, 2021; and Link Ventures, directly or through a voting agreement, together with Cogo Labs, held approximately 77% of the voting power of our capital stock as of that date. This concentration of voting power will limit or preclude the ability of other stockholders to influence corporate matters, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.5%10% of our common stock, and their respective affiliates, held in the aggregate approximately 88.8%78% of the voting power of our capital stock as of January 31, 2019;February 23, 2021; and Link Ventures, directly or through a voting agreement pursuant to which each of Seth Birnbaum, including through his heirs and estate, and Tomas Revesz along with one other stockholder, have agreed to vote on all matters presented to our stockholders all voting capital stock held by them in the manner directed by Link Ventures, together with Cogo Labs, held in the aggregate approximately 67%77% of the voting power of our capital stock as of that date. Becauseconcentrated controlconcentration of voting power will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. This may also prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders. In addition, major stock index providers, such as FTSE Russell and S&P Dow Jones, exclude fromshares in the long term.including:including requirements that:
we do not have a compensation committee or nominations committee, and director nominees might not be selected or recommended for the board’s selection by a qualifying nominations committee or by independent directors constituting a majority of the independent directors, and our compensation committee is not comprised solely of independent directors. Accordingly, should the interests of Link Ventures differ from those of other stockholders, the other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq Stock Market corporate governance standards. Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price.
Our management team has limited experience managing a public company.
Most members
the Securities Exchange Act of 1934, as amended, or the Exchange Act, the listing requirements of the Nasdaq Stock Market and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly afteras we are no longer an emerging growth company or a smaller reporting company. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and operating results and maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.We are currently evaluating our internal controls, identifying and remediating any deficiencies in those internal controls and documenting the results of our evaluation, testing and remediation. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting that we are unable to remediate before the end of the same fiscal year in which the material weakness is identified, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to attest to management’s report on the effectiveness of our internal controls, which will be required after we are no longer an emerging growth company or a smaller reporting company, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline.In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed. and these new rules and regulations, it is more expensive for us to obtain director and officer liability insurance than when we were a private company, and in the future we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.Failureestablishmaintain a system of effective internal control over financial reporting and any failure to maintain the adequacy of these internal controls may harm investor confidence in our company and, as a result, the value of our common stock.in accordance withand procedures. We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, could haveto furnish a material adverse effectreport by management on, our business and stock price.As a public company, we are required to comply withamong other things, the rules of the Securities and Exchange Commission, or SEC, implementing Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports andprovide an annual management report on the effectiveness of controls over financial reporting. Though we are required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant toreporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.untilnecessitates that we incur substantial accounting expense and expend significant management efforts. We will continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the year following our first annual report requiredadequacy of internal control over financial reporting, continue steps to be filedimprove control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting and to compile the system and process documentation necessary to perform the evaluation needed to comply with the SEC. As an emerging growth company and a smaller reporting company,Section 404. However, we cannot assure you that our independent registered public accounting firm will not be requiredable to formally attest to the effectiveness of our internal control over financial reporting pursuantreporting. We may not be able to Section 404 until the later of the year followingremediate any material weaknesses that may be identified, or to complete our first annual reportevaluation, testing and any required to be filed with the SEC or the date we are no longer an emerging growth company orremediation in a smaller reporting company. At such time,timely fashion and our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.To comply with the requirements of being a public company, we have undertaken various actions, and may needtake additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. In addition, when evaluating ourmaintain adequate internal control over financial reporting we may identify material weaknesses that we may not be ablecould severely inhibit our ability to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirementsaccurately report our financial condition or results of Section 404.operations. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm isauditors are unable to express an opinion as toon the effectiveness of our internal control over financial reporting once wewhen they are no longer an emerging growth company or a smaller reporting company,required to issue such opinion, investors maycould lose confidence in the accuracy and completeness of our financial reports, and the market price of our Class A common stock could be materially adversely affected,decline, and we could becomebe subject to sanctions or investigations by the stock exchange on which our securities are listed,Nasdaq Stock Market, the SEC or other regulatory authorities, which could require additionalauthorities. Failure to remedy any material weakness in our internal control over financial and management resources.We are an “emerging growth company” and a “smaller reporting, company,” and the reduced disclosure requirements applicableor to emerging growth companies and smaller reporting companies may make our Class A common stock less attractive to investors.We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Actimplement or maintain other effective control systems required of 2012, or the JOBS Act, and may remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of our initial public offering, subject to specified conditions. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies, that are not emerging growth companies. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700 million in market value ofcould also restrict our stock held bynon-affiliates (and we have been a public company for at least 12 months and have filed one annual report onForm 10-K) or we issue more than $1 billion ofnon-convertible debt securities over a three-year period. These exemptions include reduced disclosure obligations regarding executive compensation and exemptions from the requirements to holdnon-binding advisory votes on executive compensation and golden parachute payments, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, not being required to comply with certain requirements of Auditing Standard 3101 relating to providing a supplementfuture access to the auditor’s report regarding critical audit matters and not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company, which would allow us to take advantagecapital markets.
second fiscal quarter). We cannot predict whether investors will find our Class A common stock less attractive if we rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. Accordingly, we will incur additional costs in connection with complying with the accounting standards applicable to public companies at such time or times as they become applicable to us.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial condition and results of operations.
Accounting principles and related pronouncements, implementation guidelines and interpretations we apply to a wide range of matters that are relevant to our business, including, but not limited to, revenue recognition, stock-based compensation, the redemption value of our redeemable convertible preferred stock, income taxes and capitalization ofweb-site development costs are complex and involve subjective assumptions, estimates and judgments by our management. Changes in these accounting pronouncements or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Accounting principles generally accepted in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
ITEM 2. | PROPERTIES |
We believe that our current facilities are adequate to meet our immediate needs.
ITEM 3. | LEGAL PROCEEDINGS |
On February 15, 2019, Sean F. Townsend, a purported holder of our common stock, filed a civil action in the Supreme Court for the State of New York against us, our chief executive officer, our chief financial officer,
our general counsel, our directors, and the underwriters for our IPO, captionedTownsend v. EverQuote, Inc. etal., Index No. 650997-2019. On February 26, 2019, Mark Townsend, a second purported holder of our common stock, filed an identical civil action in the Supreme Court for the State of New York against the same defendants, captionedTownsend v. EverQuote, Inc. et al., Index No. 651177-2019. The plaintiffs allege claims for violations of Sections 11, 12(a), and 15 of the Securities Act of 1933, on behalf of a purported class of all persons or entities who purchased or otherwise acquired our common stock pursuant or traceable to the Registration Statement issued in connectionInformation with our IPO. Those claims generally challenge as false or misleading certain of our disclosures about our quote request volume. The plaintiffs seek, on behalf of themselves and the purported class, damages, costs and expenses of litigation, and rescission, disgorgement, or other equitable relief. We and the individual defendants intendrespect to deny any liability or wrongdoing and to vigorously defend all claims asserted.
From time to time, we may be subject to additional legal proceedings and claims that arisethis item is included in the ordinary course of our business activities. RegardlessNote 12 of the outcome, litigation can have a material adverse effectNotes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on us because of defense and settlement costs, diversion of management resources, and other factors.
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Issuance Under Equity Compensation Plans
None
2020.
ITEM 6. | SELECTED FINANCIAL DATA |
We are a
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
providers and, in select verticals, directly from commissions on the sale of policies.in the United States.connecting consumers with insurance providers. Our goalmission is to reshapeempower insurance shopping for consumersshoppers to better protect life’s most important assets—their family, property, and improvefuture. Our vision is to become the waylargest online source of insurance providers attractpolicies by using data and connect with customers shopping for insurance. With over 11 million consumer visits per month, ourtechnology to make insurance simpler, more affordable and personalized, ultimately reducing cost andmatchesis reshaping the insurance shopping experience for consumers and connects consumers seeking to purchase insurance with relevant options from our broad direct network ofimproving the way insurance providers, saving consumerswhich we view as including both carriers and providers timeagents, attract and money.Consumers may view insurance as a simple commodityconnect with standard pricing. However, findingcustomers shopping for insurance.providers.
In 2017, we reached 500,000 downloads of EverDrive.
insurance industry risk
Shift from indirect to direct distribution channels
We have shifted the majority of our revenue from our indirect channel, consisting of aggregators and media networks, to our direct channel, consisting of carriers and agents. This shift has been an important part of our maturity and evolution. The benefits of direct distribution include improved consumer experience, higher pricing per referral, improved pricing stability, greater revenue predictability, richer data feedback, better performance and stronger relationships with providers and consumers. In 2018, direct distribution accounted for 90% of total revenue, as compared to 85% in 2017.
In 2019 we expect to expand our definition of quote requests to include consumer quote requests we receive through offline channels such as telephone calls quote requests via our EverDrive app, and quote requests submitted directly to third-party partners. Quote requests from telephone calls result from consumers dialing into one
consumer is transferred to an insurance provider. These quote requests are different from our online quote requests because these consumers may never visit one of our websites or submit an online request for an insurance quote before being referred to an insurance provider. We do not receive or provide as much information about consumers whose quote requests originate from inbound telephone calls as opposed to online. EverDrive users in select states are also now able to request insurance quotes directly through the app by agreeing to share their information with an insurance carrier offering insurance discounts based on driving habits. Lastly, beginning in the first quarter of 2019, we also started acquiring quote requests submitted to third party partners as part of our verified partner network. Through our verified partner network, we acquire consumer quote requests that are submitted by consumers directly to select third parties. Quote requests acquired by us from third-parties in our verified partner network contain substantially all the same information we obtain in our own online quote requests. At this time, neither calls, EverDrive nor our verified partner network contributes meaningfully to our number of quote requests.
profitability. Automotive Home and Life Total Revenue loss,income (loss), less online advertising costs related to attracting consumers to our marketplace (which are a component of total advertising expense, which is a(a component of sales and marketing expense). We utilize VMM to measure the financial return on our online advertising, specifically to measure the degree by which the revenue generated from consumer quote requests exceeds the cost to attract those consumers to our marketplace through online advertising. We also use VMM to measure the efficiency of individual online advertising and consumer acquisition sources and to maketrade-off decisions to manage our return on advertising. We do not utilize VMM as a measure of our overall profitability. We present VMM because it is used extensively by our management and board of directors to manage our operating performance, including evaluating our operational performance against budgeted VMM and understanding the efficiency of our online advertising spend. VMM, as anon-GAAP financial measure, should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP. VMM should be considered together with other operating and financial performance measures presented in accordance with GAAP. Also, VMM 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 our VMM to the most directly comparable GAAP measure, revenue less advertising expense, please see“—Non-GAAP Financial Measures”.Beginning in the first quarter of 2019, we will define VMM as revenue as reported in our statements of operations and comprehensive loss, less total advertising costs, a componentincome (loss)). We use VMM to measure the efficiency of sales and marketing expense. This change captures the expense of new offline advertising channels, like direct response televisionindividual advertising and the cost of advertising inconsumer acquisition sources andEverDrive app, from which we have begun to generate revenue through insurance offers to our safe-driving users.return on advertising. We expect variable marketing margin to increase in absolute dollars but to remain flat or decrease slightlydo not use VMM as a percentagemeasure of revenue in 2019.adjustedAdjusted EBITDA as net loss,income (loss), adjusted to exclude: stock-based compensation expense, depreciation and amortization expense, acquisition-related costs, legal settlement expense, interest income and expense and the provision for (benefit from) income taxes. Adjusted EBITDAadjustedAdjusted 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, adjustedAdjusted 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 our adjustedAdjusted EBITDA to the most directly comparable GAAP measure, net income (loss), please see“—Non-GAAP “—Non GAAP Financial Measures”Measure”. Year Ended December 31, 2018 �� 2017 (in thousands) $ 141,187 $ 119,313 22,162 6,929 $ 163,349 $ 126,242 (in thousands) $ 283,236 $ 212,300 63,699 36,511 $ 346,935 $ 248,811
core operations.
On December 22, 2017, the Tax Cuts and Jobs Act, or the TCJA, was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018, as well as a limitation of the deduction for net operating losses to 80% of annual taxable income and the elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The federal tax rate change resulted in a reduction in our deferred tax assets and liabilities, and a corresponding reduction of our valuation allowance. As a result, no income tax expense or benefit was recognized as of the enactment date of the TCJA. The other provisions of the TCJA did not have a material impact on our financial statements.
our variable marketing margin and adjusted EBITDA as a measures. Thesenon-GAAP financial measures areareis not necessarily comparable to similarly titled measures presented by other companies.
Variable Marketing Margin. We define variable marketing margin, or VMM, as revenue as reported in our statements of operations and comprehensive loss, less online advertising costs related to attracting consumers to our marketplace (which are a component of total advertising expense, which is a component of sales and marketing expense). The most directly comparable GAAP measure for VMM is revenue less advertising expense. We utilize VMM to measure the financial return on our online advertising, specifically to measure the degree by which the revenue generated from consumer quote requests exceeds the cost to attract those consumers to our marketplace through online advertising. We also use VMM to measure the efficiency of individual online advertising and consumer acquisition sources and to maketrade-off decisions to manage our return on advertising. We do not utilize VMM as a measure of our overall profitability. We present VMM because it is used extensively by our management and board of directors to manage our operating performance, including evaluating our operational performance against budgeted VMM and understanding the efficiency of our online advertising spend.
Beginning in the first quarter of 2019, we will define VMM as revenue as reported in our statements of operations and comprehensive loss, less total advertising costs, a component of sales and marketing expense. This change captures in VMM the expense of new offline advertising channels, like direct response television advertising, and advertising in our EverDrive app, from which we have begun to generate revenue through insurance offers to our safe-driving users. VMM will no longer constitute a non-GAAP financial measure.
Ournon-GAAP financial measures are
VMM excludes general advertising costs that are designed to promote our business, attract insurance providers or produce results other than generating revenue or online marketplace traffic, which costs can represent significant cash expenditures;
Reconciliation of Revenue less Advertising Expense to Variable Marketing Margin:
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
Revenue | $ | 163,349 | $ | 126,242 | ||||
Less: total advertising expense | 117,274 | 90,471 | ||||||
|
|
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| |||||
Revenue less advertising expense | 46,075 | 35,771 | ||||||
Add: other advertising expense (1) | 1,920 | 1,780 | ||||||
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|
| |||||
Variable marketing margin | $ | 47,995 | $ | 37,551 | ||||
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| |||||
|
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
Net loss | $ | (13,791) | $ | (5,071) | ||||
Stock-based compensation | 7,121 | 1,860 | ||||||
Depreciation and amortization | 1,341 | 1,360 | ||||||
Interest (income) expense, net | (121 | ) | 382 | |||||
|
|
|
| |||||
Adjusted EBITDA | $ | (5,450 | ) | $ | (1,469 | ) | ||
|
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|
| |||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
| (in thousands) | ||||||||
Net loss | $ | (11,202 | ) | $ | (7,117 | ) | ||
Stock-based compensation | 24,179 | 12,721 | ||||||
Depreciation and amortization | 3,350 | 2,186 | ||||||
Acquisition-related costs | 2,258 | — | ||||||
Legal settlement | — | 1,227 | ||||||
Interest income | (189 | ) | (669 | ) | ||||
Adjusted EBITDA | $ | 18,396 | $ | 8,348 | ||||
2019
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
Statement of Operations Data: | ||||||||
Revenue(1) | $ | 163,349 | $ | 126,242 | ||||
|
|
|
| |||||
Cost and operating expenses(2): | ||||||||
Cost of revenue | 11,678 | 7,745 | ||||||
Sales and marketing | 140,743 | 109,473 | ||||||
Research and development | 14,173 | 9,194 | ||||||
General and administrative | 10,667 | 4,519 | ||||||
|
|
|
| |||||
Total cost and operating expenses | 177,261 | 130,931 | ||||||
|
|
|
| |||||
Loss from operations | (13,912 | ) | (4,689 | ) | ||||
Other income (expense): | ||||||||
Interest expense | (199 | ) | (382 | ) | ||||
Interest income | 320 | — | ||||||
|
|
|
| |||||
Total other income (expense), net | 121 | (382 | ) | |||||
|
|
|
| |||||
Net loss | $ | (13,791 | ) | $ | (5,071 | ) | ||
|
|
|
| |||||
Other Financial and Operational Data: | ||||||||
Quote Requests | 12,803 | 12,123 | ||||||
Variable marketing margin(3) | $ | 47,995 | $ | 37,551 | ||||
Adjusted EBITDA(3) | $ | (5,450 | ) | $ | (1,469 | ) | ||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
| (in thousands) | ||||||||
Statement of Operations Data: | ||||||||
Revenue(1) | $ | 346,935 | $ | 248,811 | ||||
Cost and operating expenses(2): | ||||||||
Cost of revenue | 21,373 | 15,903 | ||||||
Sales and marketing | 284,880 | 202,689 | ||||||
Research and development | 29,662 | 20,214 | ||||||
General and administrative | 20,444 | 16,827 | ||||||
Acquisition-related costs | 2,258 | — | ||||||
Legal settlement | — | 1,227 | ||||||
Total cost and operating expenses | 358,617 | 256,860 | ||||||
Loss from operations | (11,682 | ) | (8,049 | ) | ||||
Other income: | ||||||||
Interest income | 189 | 669 | ||||||
Other income | 291 | 263 | ||||||
Total other income | 480 | 932 | ||||||
Net loss | $ | (11,202 | ) | $ | (7,117 | ) | ||
Other Financial and Operational Data: | ||||||||
Quote requests | 27,013 | 20,011 | ||||||
Variable marketing margin | $ | 108,642 | $ | 73,316 | ||||
Adjusted EBITDA(3) | $ | 18,396 | $ | 8,348 | ||||
| (1) | Comprised of revenue from the following distribution channels: |
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
Direct channels | 90 | % | 85 | % | ||||
Indirect channels | 10 | 15 | ||||||
|
|
|
| |||||
| 100 | % | 100 | % | |||||
|
|
|
| |||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
Direct channels | 92 | % | 94 | % | ||||
Indirect channels | 8 | % | 6 | % | ||||
| 100 | % | 100 | % | |||||
| (2) | Includes stock-based compensation expense as follows: |
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
Cost of revenue | $ | 42 | $ | 27 | ||||
Sales and marketing | 1,955 | 789 | ||||||
Research and development | 2,011 | 467 | ||||||
General and administrative | 3,113 | 577 | ||||||
|
|
|
| |||||
| $ | 7,121 | $ | 1,860 | |||||
|
|
|
| |||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
| (in thousands) | ||||||||
Cost of revenue | $ | 361 | $ | 193 | ||||
Sales and marketing | 10,246 | 3,805 | ||||||
Research and development | 7,751 | 3,967 | ||||||
General and administrative | 5,821 | 4,756 | ||||||
| $ | 24,179 | $ | 12,721 | |||||
| (3) | See “—Non-GAAP Financial non-GAAP financial |
Revenue Year Ended December 31, Change 2018 2017 Amount % (dollars in thousands) $ 163,349 $ 126,242 $ 37,107 29.4 %
Year Ended December 31, | Change | |||||||||||||||
2020 | 2019 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Revenue | $ | 346,935 | $ | 248,811 | $ | 98,124 | 39.4 | % | ||||||||
| Year Ended December 31, | Change | |||||||||||||||
| 2018 | 2017 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Cost of revenue | $ | 11,678 | $ | 7,745 | $ | 3,933 | 50.8 | % | ||||||||
Percentage of revenue | 7.1 | % | 6.1 | % | ||||||||||||
Year Ended December 31, | Change | |||||||||||||||
2020 | 2019 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Cost of revenue | $ | 21,373 | $ | 15,903 | $ | 5,470 | 34.4 | % | ||||||||
Percentage of revenue | 6.2 | % | 6.4 | % | ||||||||||||
by $0.7 million.
| Year Ended December 31, | Change | |||||||||||||||
| 2018 | 2017 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Sales and marketing expense | $ | 140,743 | $ | 109,473 | $ | 31,270 | 28.6 | % | ||||||||
Percentage of revenue | 86.2 | % | 86.7 | % | ||||||||||||
Year Ended December 31, | Change | |||||||||||||||
2020 | 2019 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Sales and marketing expense | $ | 284,880 | $ | 202,689 | $ | 82,191 | 40.6 | % | ||||||||
Percentage of revenue | 82.1 | % | 81.5 | % | ||||||||||||
| Year Ended December 31, | Change | |||||||||||||||
| 2018 | 2017 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Research and development expense | $ | 14,173 | $ | 9,194 | $ | 4,979 | 54.2 | % | ||||||||
Percentage of revenue | 8.7 | % | 7.3 | % | ||||||||||||
Year Ended December 31, | Change | |||||||||||||||
2020 | 2019 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Research and development expense | $ | 29,662 | $ | 20,214 | $ | 9,448 | 46.7 | % | ||||||||
Percentage of revenue | 8.5 | % | 8.1 | % | ||||||||||||
| Year Ended December 31, | Change | |||||||||||||||
| 2018 | 2017 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
General and administrative expense | $ | 10,667 | $ | 4,519 | $ | 6,148 | 136.0 | % | ||||||||
Percentage of revenue | 6.5 | % | 3.6 | % | ||||||||||||
Year Ended December 31, | Change | |||||||||||||||
2020 | 2019 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
General and administrative expense | $ | 20,444 | $ | 16,827 | $ | 3,617 | 21.5 | % | ||||||||
Percentage of revenue | 5.9 | % | 6.8 | % | ||||||||||||
Other Income (Expense)
Interest income was $0.3 million in 2018 as a result of investing proceeds from our initial public offering or IPO,(see Note 12 to the Consolidated Financial Statements).
2020.
| Year Ended December 31, | Change | |||||||||||||||
| 2018 | 2017 | Amount | % | |||||||||||||
| (in thousands except percentages) | ||||||||||||||||
Quote requests | 12,803 | 12,123 | 680 | 5.6 | % | |||||||||||
Requests
Year Ended December 31, | Change | |||||||||||||||
2020 | 2019 | Amount | % | |||||||||||||
| (in thousands except percentages) | ||||||||||||||||
Quote requests | 27,013 | 20,011 | 7,002 | 35.0 | % | |||||||||||
advertising as well as improvements in our traffic acquisition.
| December 31, | Change | |||||||||||||||
| 2018 | 2017 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Variable Marketing Margin | $ | 47,995 | $ | 37,551 | $ | 10,444 | 27.8 | % | ||||||||
Percentage of revenue | 29.4 | % | 29.7 | % | ||||||||||||
Variable marketing margin increased by $10.4 million from $37.6 million for the year ended December 31, 2017 to $48.0 million for the year ended December 31, 2018.
Year Ended December 31, | Change | |||||||||||||||
2020 | 2019 | Amount | % | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Revenue | $ | 346,935 | $ | 248,811 | $ | 98,124 | 39.4 | % | ||||||||
Less: total advertising expense (a component of sales and marketing expense) | 238,293 | 175,495 | ||||||||||||||
Variable marketing margin | $ | 108,642 | $ | 73,316 | $ | 35,326 | 48.2 | % | ||||||||
Percentage of revenue | 31.3 | % | 29.5 | % | ||||||||||||
requests.
Since our inception, we have primarily funded our operations through issuances of shares of redeemable convertible preferred stock and common stock, debt, including a revolving line of credit with Western Alliance Bank, cash flows from operations and proceeds from our IPO. As of
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
Net cash used in operating activities | $ | (1,897 | ) | $ | (1,672 | ) | ||
Net cash used in investing activities | (3,668 | ) | (1,185 | ) | ||||
Net cash provided by (used in) financing activities | 44,836 | (7,180 | ) | |||||
|
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| |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 39,271 | $ | (10,037) | ||||
|
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| |||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
| (in thousands) | ||||||||
Net cash provided by operating activities | $ | 10,668 | $ | 4,413 | ||||
Net cash used in investing activities | (18,752 | ) | (2,975 | ) | ||||
Net cash provided by financing activities | 4,907 | 2,982 | ||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (7 | ) | — | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (3,184 | ) | $ | 4,420 | |||
During
Cash provided by operating activities in 2019 primarily resulted from the offset of net
The change in other long-term liabilities in 2020 was primarily due to the deferred payment of employer tax remittances.
options.
Revenue Recognition
Our revenue is derived from sales of consumer referrals.
We record revenue from sales of consumer referrals net of credits and other applicable allowancesgoodwill. After the measurement period, all adjustments are recorded in the same periodconsolidated statements of operations and comprehensive loss as operating expenses or income.
Effectivepattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.
be entitled in exchange for those referrals.
We measure the fair value of stock-based awards granted tonon-employees on the date at which the related service is complete. Compensation expense for nonemployee awards is recognized over the period during which services are rendered by suchnon-employee consultants until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing modelsame manner as if we had paid cash for options.
Prior to our IPO, the estimated fair value of our common stock was determined by our board of directors as of the date of each award grant, with input from management, considering our most recently available third-party valuations of our common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. Subsequent to our IPO, the fair value of our Class A common stock is based on quoted market prices.
goods or services received.
Capitalization of Website and Software Development Costs
We capitalize certain costs associated with the development of our websites andinternal-use software after the preliminary project stage is complete and until the software is ready for its intended use. Research and development costs incurred during the preliminary project stage or costs incurred for data conversion activities, training, maintenance, and administration or overhead costs are expensed as incurred. Capitalization begins when
the preliminary project stage is complete, management, with the relevant authority, authorizes and commits to the funding of the software project, it is probable the project will be completed, the software will be used to perform the functions intended and certain functional and quality standards have been met. Qualified costs incurred during the operating stage of our software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs that cannot be separated between maintenance of, and minor upgrades and enhancements to,internal-use software are expensed as incurred.
Capitalized software development costs are amortized on a straight-line basis over their estimated useful life of three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held bynon-affiliates (and we have been a public company for at least 12 months and have filed one annual report onForm 10-K) or we issue more than $1.0 billion ofnon-convertible debt securities over a three-year period.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are a
Tothe
Opinion
and Internal Control over Financial Reporting
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in
TheseOpinions
fraud, and whether effective internal control over financial reporting was maintained in all material respects.
opinions.
April
2021
| December 31, | ||||||||
| 2018 | 2017 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 41,634 | $ | 2,363 | ||||
Accounts receivable | 17,460 | 14,694 | ||||||
Prepaid expenses and other current assets | 1,456 | 593 | ||||||
|
|
|
| |||||
Total current assets | 60,550 | 17,650 | ||||||
Property and equipment, net | 4,481 | 2,129 | ||||||
Other assets | 715 | 740 | ||||||
|
|
|
| |||||
Total assets | $ | 65,746 | $ | 20,519 | ||||
|
|
|
| |||||
Liabilities, Redeemable Convertible Preferred Stock and | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 16,826 | $ | 11,894 | ||||
Accrued expenses and other current liabilities | 3,099 | 1,775 | ||||||
Deferred revenue | 1,440 | 986 | ||||||
Current portion of long-term debt, net of discount | — | 361 | ||||||
|
|
|
| |||||
Total current liabilities | 21,365 | 15,016 | ||||||
Deferred rent, net of current portion | 1,197 | 860 | ||||||
Long-term debt, net of current portion | — | 4,250 | ||||||
|
|
|
| |||||
Total liabilities | 22,562 | 20,126 | ||||||
|
|
|
| |||||
Commitments and contingencies (Note 10) | ||||||||
Redeemable convertible preferred stock (Series A, B andB-1), $0.001 par value; no shares and 1,867,886 shares authorized at December 31, 2018 and 2017, respectively; no shares and 1,574,508 shares issued and outstanding at December 31, 2018 and 2017, respectively | — | 50,937 | ||||||
|
|
|
| |||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, $0.001 par value; 10,000,000 shares and no shares authorized at December 31, 2018 and 2017, respectively; no shares issued and outstanding | — | — | ||||||
Class A common stock, $0.001 par value; 220,000,000 shares and 30,004,760 shares authorized at December 31, 2018 and 2017, respectively; 7,528,741 shares and 24,000 shares issued and outstanding at December 31, 2018 and 2017, respectively | 8 | — | ||||||
Class B common stock, $0.001 par value; 30,000,000 shares and 27,566,096 shares authorized at December 31, 2018 and 2017, respectively; 17,696,414 shares and 8,670,992 shares issued and outstanding at December 31, 2018 and 2017, respectively | 18 | 9 | ||||||
Additionalpaid-in capital | 143,050 | 766 | ||||||
Accumulated deficit | (99,892 | ) | (51,319 | ) | ||||
|
|
|
| |||||
Total stockholders’ equity (deficit) | 43,184 | (50,544 | ) | |||||
|
|
|
| |||||
Total liabilities, redeemable convertible preferred stock and | $ | 65,746 | $ | 20,519 | ||||
|
|
|
| |||||
December 31, | ||||||||
2020 | 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 42,870 | $ | 46,054 | ||||
Accounts receivable, net | 46,079 | 32,214 | ||||||
Prepaid expenses and other current assets | 8,452 | 7,065 | ||||||
| Total current assets | 97,401 | 85,333 | ||||||
Property and equipment, net | 6,173 | 5,197 | ||||||
Goodwill | 9,794 | — | ||||||
Acquired intangible assets, net | 3,366 | — | ||||||
Operating lease right-of-use | 9,621 | — | ||||||
Other assets | 2,695 | 691 | ||||||
Total assets | $ | 129,050 | $ | 91,221 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 32,964 | $ | 23,663 | ||||
Accrued expenses and other current liabilities | 9,421 | 13,225 | ||||||
Deferred revenue | 1,869 | 1,501 | ||||||
Operating lease liabilities | 2,593 | — | ||||||
| Total current liabilities | 46,847 | 38,389 | ||||||
Operating lease liabilities, net of current portion | 8,093 | — | ||||||
Other long-term liabilities | 3,128 | 1,062 | ||||||
Total liabilities | 58,068 | 39,451 | ||||||
Commitments and contingencies (Note 12) | 0 | 0 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding | 0— | 0— | ||||||
Class A common stock, $0.001 par value; 220,000,000 shares authorized; 20,784,065 shares and 14,635,834 shares issued and outstanding at December 31, 2020 and 2019, respectively | 21 | 15 | ||||||
Class B common stock, $0.001 par value; 30,000,000 shares authorized; 7,429,502 shares and 11,802,341 shares issued and outstanding at December 31, 2020 and 2019, respectively | 7 | 12 | ||||||
Additional paid-in capital | 189,172 | 158,752 | ||||||
Accumulated other comprehensive loss | (7 | ) | — | |||||
Accumulated deficit | (118,211 | ) | (107,009 | ) | ||||
Total stockholders’ equity | 70,982 | 51,770 | ||||||
Total liabilities and stockholders’ equity | $ | 129,050 | $ | 91,221 | ||||
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
Revenue | $ | 163,349 | $ | 126,242 | ||||
|
|
|
| |||||
Cost and operating expenses: | ||||||||
Cost of revenue | 11,678 | 7,745 | ||||||
Sales and marketing | 140,743 | 109,473 | ||||||
Research and development | 14,173 | 9,194 | ||||||
General and administrative | 10,667 | 4,519 | ||||||
|
|
|
| |||||
Total cost and operating expenses | 177,261 | 130,931 | ||||||
|
|
|
| |||||
Loss from operations | (13,912 | ) | (4,689 | ) | ||||
Other income (expense): | ||||||||
Interest expense | (199 | ) | (382 | ) | ||||
Interest income | 320 | — | ||||||
|
|
|
| |||||
Total other income (expense), net | 121 | (382 | ) | |||||
|
|
|
| |||||
Net loss and comprehensive loss | (13,791 | ) | (5,071 | ) | ||||
Accretion of redeemable convertible preferred | (37,415 | ) | (14,093 | ) | ||||
|
|
|
| |||||
Net loss attributable to common stockholders | $ | (51,206 | ) | $ | (19,164 | ) | ||
|
|
|
| |||||
Net loss per share attributable to common stockholders, basic and diluted | $ | (3.03 | ) | $ | (2.18 | ) | ||
|
|
|
| |||||
Weighted average common shares outstanding, basic and diluted | 16,922,225 | 8,773,880 | ||||||
|
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|
| |||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
Revenue | $ | 346,935 | $ | 248,811 | ||||
Cost and operating expenses: | ||||||||
Cost of revenue | 21,373 | 15,903 | ||||||
Sales and marketing | 284,880 | 202,689 | ||||||
Research and development | 29,662 | 20,214 | ||||||
General and administrative | 20,444 | 16,827 | ||||||
Acquisition-related costs | 2,258 | — | ||||||
Legal settlement | — | 1,227 | ||||||
Total cost and operating expenses | 358,617 | 256,860 | ||||||
Loss from operations | (11,682 | ) | (8,049 | ) | ||||
Other income: | ||||||||
Interest income | 189 | 669 | ||||||
Other income | 291 | 263 | ||||||
Total other income | 480 | 932 | ||||||
Net loss | $ | (11,202 | ) | $ | (7,117 | ) | ||
Net loss per share, basic and diluted | $ | (0.41 | ) | $ | (0.28 | ) | ||
Weighted average common shares outstanding, basic and diluted | 27,329 | 25,759 | ||||||
Comprehensive loss: | ||||||||
Net loss | $ | (11,202 | ) | $ | (7,117 | ) | ||
Other comprehensive income (loss): | ||||||||
Foreign currency translation adjustment | (7 | ) | — | |||||
Comprehensive loss | $ | (11,209 | ) | $ | (7,117 | ) | ||
| Series A, B andB-1
Redeemable | Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balances at December 31, 2016 | 1,672,451 | $ | 36,942 | — | $ | — | 8,848,976 | $ | 9 | $ | 5,501 | — | $ | — | $ | (31,168 | ) | $ | (25,658 | ) | ||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | — | — | — | — | 403,688 | — | 1,549 | — | — | — | 1,549 | |||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | 1,860 | — | — | — | 1,860 | |||||||||||||||||||||||||||||||||
Conversion of Series A redeemable convertible preferred stock to common stock | (97,943 | ) | (98 | ) | — | — | 783,544 | 1 | 97 | — | — | — | 98 | |||||||||||||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | — | — | 24,000 | — | (24,000 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred stock to redemption value | — | 14,093 | — | — | — | — | (7,759 | ) | — | — | (6,334 | ) | (14,093 | ) | ||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | (1,341,216 | ) | (1 | ) | 1 | 1,341,216 | (9,229 | ) | — | (9,229 | ) | |||||||||||||||||||||||||||||
Retirement of treasury stock | — | — | — | — | — | — | (483 | ) | (1,341,216 | ) | 9,229 | (8,746 | ) | — | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (5,071 | ) | (5,071 | ) | |||||||||||||||||||||||||||||||
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Balances at December 31, 2017 | 1,574,508 | 50,937 | 24,000 | — | 8,670,992 | 9 | 766 | — | — | (51,319 | ) | (50,544 | ) | |||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred stock to redemption value | — | 37,415 | — | — | — | — | (2,633 | ) | — | — | (34,782 | ) | (37,415 | ) | ||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock upon IPO | (1,574,508 | ) | (88,352 | ) | — | — | 12,596,064 | 13 | 88,339 | — | — | — | 88,352 | |||||||||||||||||||||||||||||||
Issuance of common stock upon IPO, net of issuance costs of $3,713 | — | — | 3,125,000 | 3 | — | — | 48,597 | — | — | — | 48,600 | |||||||||||||||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | — | — | 4,116,404 | 4 | (4,116,404 | ) | (4 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | — | — | 55,256 | — | 545,762 | — | 861 | — | — | — | 861 | |||||||||||||||||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units | — | — | 208,081 | 1 | — | — | (1 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | 7,121 | — | — | — | 7,121 | |||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (13,791 | ) | (13,791 | ) | |||||||||||||||||||||||||||||||
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Balances at December 31, 2018 | — | $ | — | 7,528,741 | $ | 8 | 17,696,414 | $ | 18 | $ | 143,050 | — | $ | — | $ | (99,892 | ) | $ | 43,184 | |||||||||||||||||||||||||
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| |||||||||||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balances at December 31, 2018 | 7,528,741 | $ | 8 | 17,696,414 | $ | 18 | $ | 143,050 | $ | — | $ | (99,892 | ) | $ | 43,184 | |||||||||||||||||
Issuance of common stock upon exercise of stock options | 645,920 | 1 | — | — | 2,981 | — | — | 2,982 | ||||||||||||||||||||||||
Vesting of restricted stock units | 567,100 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 12,721 | — | — | 12,721 | ||||||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | 5,894,073 | 6 | (5,894,073 | ) | (6 | ) | — | — | — | — | ||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (7,117 | ) | (7,117 | ) | ||||||||||||||||||||||
Balances at December 31, 2019 | 14,635,834 | 15 | 11,802,341 | 12 | 158,752 | — | (107,009 | ) | 51,770 | |||||||||||||||||||||||
Contingent consideration to be settled in Class A common stock | — | — | — | — | 1,335 | — | — | 1,335 | ||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 776,914 | 1 | — | — | 4,906 | — | — | 4,907 | ||||||||||||||||||||||||
Vesting of restricted stock units | 998,478 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 24,179 | — | — | 24,179 | ||||||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | 4,372,839 | 5 | (4,372,839 | ) | (5 | ) | — | — | — | — | ||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | (7 | ) | — | (7 | ) | ||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (11,202 | ) | (11,202 | ) | ||||||||||||||||||||||
Balances at December 31, 2020 | 20,784,065 | $ | 21 | 7,429,502 | $ | 7 | $ | 189,172 | $ | (7 | ) | $ | (118,211 | ) | $ | 70,982 | ||||||||||||||||
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (13,791 | ) | $ | (5,071 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization expense | 1,341 | 1,360 | ||||||
Stock-based compensation expense | 7,121 | 1,860 | ||||||
Noncash interest expense | 14 | 20 | ||||||
Deferred rent | 337 | 528 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (2,766 | ) | (2,478 | ) | ||||
Prepaid expenses and other current assets | (863 | ) | (8 | ) | ||||
Other assets | — | (75 | ) | |||||
Accounts payable | 4,932 | 1,552 | ||||||
Accrued expenses and other current liabilities | 1,324 | 469 | ||||||
Deferred revenue | 454 | 171 | ||||||
|
|
|
| |||||
Net cash used in operating activities | (1,897 | ) | (1,672 | ) | ||||
|
|
|
| |||||
Cash flows from investing activities: | ||||||||
Acquisition of property and equipment, including costs capitalized for development ofinternal-use software | (3,668 | ) | (1,185 | ) | ||||
|
|
|
| |||||
Net cash used in investing activities | (3,668 | ) | (1,185 | ) | ||||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Proceeds from initial public offering, net of underwriting discounts and commissions | 52,313 | — | ||||||
Proceeds from exercise of stock options | 861 | 1,549 | ||||||
Repurchase of common stock | — | (9,229 | ) | |||||
Proceeds from borrowings on line of credit | 22,729 | 20,300 | ||||||
Repayments of borrowings on line of credit | (24,729 | ) | (18,300 | ) | ||||
Repayments of term loan | (2,625 | ) | (1,500 | ) | ||||
Payments of initial public offering costs | (3,713 | ) | — | |||||
|
|
|
| |||||
Net cash provided by (used in) financing activities | 44,836 | (7,180 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 39,271 | (10,037 | ) | |||||
Cash, cash equivalents and restricted cash at beginning of period | 2,613 | 12,650 | ||||||
|
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|
| |||||
Cash, cash equivalents and restricted cash at end of period | $ | 41,884 | $ | 2,613 | ||||
|
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| |||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 214 | $ | 352 | ||||
Supplemental disclosure of noncash investing and financing information: | ||||||||
Conversion of convertible preferred stock to common stock | $ | 88,352 | $ | 98 | ||||
Conversion of Series B redeemable convertible preferred stock to SeriesB-1 | $ | — | $ | 7,900 | ||||
Retirement of treasury stock | $ | — | $ | 9,229 | ||||
Accretion of redeemable convertible preferred stock to redemption value | $ | 37,415 | $ | 14,093 | ||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (11,202 | ) | $ | (7,117 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization expense | 3,350 | 2,186 | ||||||
Loss on disposal of property and equipment | — | 98 | ||||||
Stock-based compensation expense | 24,179 | 12,721 | ||||||
Change in fair value of contingent consideration | 1,778 | — | ||||||
Provision for bad debt | 105 | 478 | ||||||
Changes in operating assets and liabilities, net of effects from acquisition: | ||||||||
Accounts receivable | (13,970 | ) | (15,232 | ) | ||||
Prepaid expenses and other current assets | 623 | (5,609 | ) | |||||
Operating lease right-of-use | 2,076 | — | ||||||
Other assets | (554 | ) | (1 | ) | ||||
Accounts payable | 9,301 | 6,837 | ||||||
Accrued expenses and other current liabilities | (3,968 | ) | 10,126 | |||||
Operating lease liabilities | (2,233 | ) | — | |||||
Deferred revenue | 368 | 61 | ||||||
Other long-term liabilities | 815 | (135 | ) | |||||
Net cash provided by operating activities | 10,668 | 4,413 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of property and equipment, including costs capitalized for development of internal-use software | (3,822 | ) | (2,975 | ) | ||||
Acquisition of business | (14,930 | ) | — | |||||
Net cash used in investing activities | (18,752 | ) | (2,975 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock options | 4,907 | 2,982 | ||||||
Net cash provided by financing activities | 4,907 | 2,982 | ||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (7 | ) | — | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (3,184 | ) | 4,420 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 46,304 | 41,884 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 43,120 | $ | 46,304 | ||||
Supplemental disclosure of noncash investing and financing information: | ||||||||
Fair value of contingent consideration in connection with acquisition included in stockholders’ equity | $ | 1,335 | $ | — | ||||
Fair value of contingent consideration in connection with acquisition included in other long-term liabilities | $ | 416 | $ | — | ||||
Operating lease liabilities arising from obtaining right-of-use | $ | 541 | $ | — | ||||
Reconciliation of cash, cash equivalents and restricted cash: | ||||||||
Cash and cash equivalents | $ | 42,870 | $ | 46,054 | ||||
Restricted cash (included in other assets) | 250 | 250 | ||||||
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 43,120 | $ | 46,304 | ||||
On July 2, 2018,
estimates in preparation of its consolidated financial statements will depend on future developments, which are highly uncertain and cannot be predicted at this time.
The Company Any reference in these notes to applicable guidance is an “emerging growth company,”meant to refer to the authoritative GAAP as definedfound in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”Accounting Standards Codification (“ASC”), and may remain an emerging growth company until the last dayAccounting Standards Update (“ASU”) of the fiscal year followingFinancial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the fifth anniversaryaccounts of the IPO, subject to specified conditions. The JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company will adopt the new or revised standard at the time private companies adopt the new or revised standard, provided that the Company continues to be an emerging growth company.
Due to the
| Estimated Useful Life | ||
Computer equipment | 3 years | |
Software | 3 years | |
Furniture and fixtures | 5 years | |
Leasehold improvements | Shorter of lease term or estimated useful life |
2019.
Classification and Accretion of Redeemable Convertible Preferred Stock
The Company classified redeemable convertible preferred stock outside of stockholders’ equity (deficit) because the shares contained certain redemption features that were not solely within the control of the Company. Costs incurredCompany’s contingent consideration included in connection with the issuance of each series of redeemable convertible preferred stock were recorded as a reduction of gross proceeds from issuance. The Company recognized changes in the redemption values of its outstanding redeemable convertible preferred stock immediately as they occurred and adjusted the carryingother long-term liabilities is carried at fair value of the redeemable convertible preferred stock to equal the redemption value at the end of each reporting period as if the end of each reporting period were the redemption date. Adjustments to the carrying values of the redeemable convertible preferred stock at each reporting date resulted in an increase or decrease to net income (loss) attributable to common stockholders.
based on Level 3 inputs (see Note 3).
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
Direct channels | 92 | % | 94 | % | ||||
Indirect channels | 8 | % | 6 | % | ||||
| 100 | % | 100 | % | |||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
Automotive | $ | 283,236 | $ | 212,300 | ||||
Other | 63,699 | 36,511 | ||||||
Total Revenue | $ | 346,935 | $ | 248,811 | ||||
Company had not capitalized any costs to obtain any of its contracts.
Deferred revenue was $1.9 million and $1.5 million as of December 31, 2020 and 2019, respectively. During the year ended December 31, 2020, the Company recognized revenue of $1.1 million that was included in the contract liability balance (deferred revenue) at December 31, 2019. The Company recognizes deferred revenue by first allocating from the beginning deferred revenue balance to the extent that the beginning deferred revenue balance exceeds the revenue to be recognized. Billings during the period are added to the deferred revenue balance to be recognized in future periods.
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. Management reviews accounts receivable on a periodic basis and reserves for receivables in the Company’s allowance for doubtful accounts on a specific identification basis when they are determined to be uncollectible. After the Company has exhausted all collection efforts, the outstanding receivable is written off against the allowance. The Company had no allowance for doubtful accounts as of December 31, 2018 and 2017, as the Company deemed all amounts to be collectible.
same manner as if the Company had paid cash for the goods or services received.
are foreign currency translation adjustments.
Prior to the closing of its IPO, the Company followed thetwo-class method when computing net income (loss) per share, as the Company had issued shares that met the definition of participating securities. Thetwo-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. Thetwo-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company’s redeemable convertible preferred stock contractually entitled the holders of such shares to participate in dividends but did not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reported a net loss, such losses were not allocated to such participating securities, and as a result, basic and diluted net loss per share were the same.
Subsequent to the closing of its IPO, basic
December 31, | ||||||||
2020 | 2019 | |||||||
Options to purchase common stock | 2,188,919 | 2,827,868 | ||||||
Unvested restricted stock units | 3,142,220 | 3,367,846 | ||||||
| 5,331,139 | 6,195,714 | |||||||
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update(“ASU”) No. 2017-09,Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting(“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.
The Company elected to use the transition package of three practical expedients, which among other things, allowed the Company to carry forward the historical lease classification. The Company has elected, under
equivalents should be included with cash
Recently Issued Accounting Pronouncements
In May 2014, the FASB issuedASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)(“ASU 2014-09”), and has since issued several additional amendments thereto, collectively referred to herein as ASC 606. ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new standards require entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration that the entity expects to receive in exchange for the good or service. In addition, ASC 606 provides guidance on accounting for certain revenue-related costs including costs associated with obtaining and fulfilling a contract. ASC 606 may be applied using either a fullon the retrospective, approach, under which all years included in the financial statements will be presented under the revised guidance, or a modified retrospective approach, under which financial statements will be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for contracts that still require performance by the entity at the date of adoption. For public entities, the guidance was effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Fornon-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the guidance is effective for annual periods beginning after December 15, 2018. The Company will adopt ASC 606 on January 1, 2019, in accordance withthe non-public company requirements using the modified retrospective transition method. The Company has substantially completed its assessments of the new standard. The Company does not believe that the adoption of ASC 606 will have a material impact on its revenue recognition or its financial statements; however, the Company will continue to evaluate the impact that this guidance will have on its financial statements and related disclosures.
In February 2016, the FASB issuedASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record aright-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years.For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the guidance is effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted.
ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presented in the financial statements would be prepared under the revised guidance. In July 2018, the FASB issuedASU No. 2018-11, Leases (Topic 842), which added an optional transition method under which financial statements may be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize acumulative catch-up adjustment to the opening balance of retained earnings in the period of adoption. The Company is planning to adoptASU 2016-02 on January 1, 2020, in accordance with thenon-public company requirements. The company is currently evaluating the method of adoption and the impact that the adoption ofASU 2016-02 will have on its financial statements. The Company expects that the adoption will result in the recognition of materialright-of-use assets and lease liabilities on its balance sheet.
In August 2016, the FASB issuedASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230) (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For public entities, the standard was effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.For non-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the standard is effective for annual periods beginning after December 15, 2018. Early adoption is permitted for all entities. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.prospective basis. The Company is currently planning to adoptASU 2016-15 on January 1, 2019, in accordance withassessing the non-public company requirements. The Company does not believeimpact of the adoption of this guidance will have a material impact on its consolidated financial statements.
In June 2018,
3.the acquisition. The Company’s preliminary estimate of the fair value of specifically identifiable assets acquired and liabilities assumed as of the date of acquisition is subject to change upon finalizing its valuation analysis. The
Cash paid | $ | 14,930 | ||
Fair value of contingent consideration to be settled in stock | 1,751 | |||
Total purchase price consideration | $ | 16,681 | ||
Assets acquired and liabilities assumed: | ||||
Commission receivable (current and long-term) | $ | 3,460 | ||
Customer relationships | 3,600 | |||
Other identifiable intangible assets | 270 | |||
Operating lease right-of-use | 1,469 | |||
Goodwill | 9,794 | |||
Total assets acquired | 18,593 | |||
Accounts payable and accrued expenses (current and long-term) | (443 | ) | ||
Operating lease liabilities | (1,469 | ) | ||
Total allocation of purchase price consideration | $ | 16,681 | ||
December 31, 2020 | ||||||||||||||
Weighted Average Useful Life | Gross Amount | Accumulated Amortization | Carrying Value | |||||||||||
(in years) | ||||||||||||||
Customer relationships | 5 | $ | 3,600 | $ | (464 | ) | $ | 3,136 | ||||||
Other identifiable intangible assets | 3.7 | 270 | (40 | ) | 230 | |||||||||
| $ | 3,870 | $ | (504 | ) | $ | 3,366 | ||||||||
Year Ending December 31, | ||||
2021 | $ | 1,182 | ||
2022 | 826 | |||
2023 | 609 | |||
2024 | 440 | |||
2025 | 309 | |||
| $ | 3,366 | |||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
Computer equipment | $ | 2,459 | $ | 1,917 | ||||
Software | 6,419 | 4,238 | ||||||
Furniture and fixtures | 1,053 | 791 | ||||||
Leasehold improvements | 818 | 466 | ||||||
|
|
|
| |||||
| 10,749 | 7,412 | |||||||
Less: Accumulated depreciation and amortization | (6,268 | ) | (5,283 | ) | ||||
|
|
|
| |||||
| $ | 4,481 | $ | 2,129 | |||||
|
|
|
| |||||
December 31, | ||||||||
2020 | 2019 | |||||||
Computer equipment | $ | 2,183 | $ | 1,940 | ||||
Software | 11,113 | 8,829 | ||||||
Furniture and fixtures | 1,127 | 1,032 | ||||||
Leasehold improvements | 921 | 850 | ||||||
| 15,344 | 12,651 | |||||||
Less: Accumulated depreciation and amortization | (9,171 | ) | (7,454 | ) | ||||
| $ | 6,173 | $ | 5,197 | |||||
internal use software of $2.5$3.0 million and $0.7$2.7 million included in the Software line item above and recorded related amortization expense of $0.6$2.2 million and $0.5$1.4 million (included in depreciation and amortization expense) during the years ended December 31, 20182020 and 2017,2019, respectively. The remaining net book value of capitalized software costs was $2.9$4.8 million and $1.0$4.0 million as of December 31, 20182020 and 2017,2019, respectively.
4.
| December 31, | ||||||||
| 2018 | 2017 | |||||||
Accrued employee compensation and benefits | $ | 1,369 | $ | 433 | ||||
Accrued advertising expenses | 919 | 721 | ||||||
Other current liabilities | 811 | 621 | ||||||
|
|
|
| |||||
| $ | 3,099 | $ | 1,775 | |||||
|
|
|
| |||||
5.
December 31, | ||||||||
2020 | 2019 | |||||||
Accrued employee compensation and benefits | $ | 4,105 | $ | 2,388 | ||||
Accrued advertising expenses | 2,596 | 4,119 | ||||||
Accrued legal settlement | — | 4,750 | ||||||
Other current liabilities | 2,720 | 1,968 | ||||||
| $ | 9,421 | $ | 13,225 | |||||
In March 2018, the Company executed the 2018 Loan and Security Modification Agreement (the “2018 Loan Modification”). Pursuant to modify the amended2018 Loan and Security Agreement to increaseModification, borrowings under the revolving line of credit from $6.0 millioncould not exceed 80% of eligible accounts receivable balances and bore
Agreement.
As of December 31, 2018,2020, the Company had no0 amounts outstanding on the revolving line of credit and, $11.0 million was available for borrowing.
6. Redeemable Convertible Preferred Stock
The Company had issued Series A redeemable convertible preferred stock (the “Series A Preferred Stock”), Series B redeemable convertible preferred stock (the “Series B Preferred Stock”) and SeriesB-1 redeemable convertible preferred stock (the “SeriesB-1 Preferred Stock”). The Series A Preferred Stock, the Series B Preferred Stock and the SeriesB-1 Preferred Stock are collectively referred to as the “Preferred Stock.”
In February 2017, holders of 97,943 shares of Series A Preferred Stock converted their shares to 783,544 shares of common stock. No additional consideration was paid or received by the Company in connection with these conversions. In April 2017, the Company exchanged 132,749 shares of Series B Preferred Stock for an equal number of shares ofSeries B-1 Preferred Stock. No additional consideration was paid or received by the Company in connection with this exchange. The shares ofSeries B-1 Preferred Stock had all the same rights and preferences as the Series B Preferred Stock, with the exception of theSeries B-1 Preferred Stock liquidation preference.
As of December 31, 2017, the Preferred Stock consisted of the following (in thousands, except share amounts):
| Preferred Stock Authorized | Preferred Stock Issued and Outstanding | Carrying Value | Liquidation Preference | Common Stock Issuable Upon Conversion | ||||||||||||||||
Series A Preferred Stock | 1,265,100 | 971,722 | $ | 972 | $ | 972 | 7,773,776 | |||||||||||||
Series B Preferred Stock | 470,037 | 470,037 | 38,961 | 27,972 | 3,760,296 | |||||||||||||||
Series B-1 Preferred Stock | 132,749 | 132,749 | 11,004 | 7,900 | 1,061,992 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 1,867,886 | 1,574,508 | $ | 50,937 | $ | 36,844 | 12,596,064 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
During the years ended December 31, 2018 and 2017, the Company recorded adjustments of $37.4 million and $14.1 million, respectively, to the carrying value of Series Band B-1 Preferred Stock, with corresponding offsets toadditional paid-in capital and accumulated deficit representing the change in the redemption value from December 31, 2017 and 2016, respectively.
Upon the closing of the Company’s IPO in July 2018, all 1,574,508 shares of the Company’s then-outstanding Preferred Stock automatically converted into an aggregate of 12,596,064 shares of the Company’s Class B common stock. Upon conversion of the redeemable convertible preferred stock, the Company reclassified the carrying value of the Preferred Stock to common stock andadditional paid-in capital.
7.
On June 15, 2018, the Company effectedan eight-for-one forward stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s Preferred Stock. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the preferred stock conversion ratios. In connection with the stock split, the Company effected an increase in the number of authorized common shares to 57,570,856 shares.
On July 2, 2018, the Company completed its IPO, in which it issued and sold 3,125,000 shares of Class A common stock at a public offering price of $18.00 per share, resulting in net proceeds to the Company of approximately $48.6 million after deducting underwriting discounts and commissions and other offering costs. Upon closing of the IPO, the Company’s authorized shares of common stock were increased to 220,000,000 shares of Class A common stock and 30,000,000 shares of Class B common stock. The Company also authorized 10,000,000 shares of undesignated preferred stock.
During the years ended December 31, 2018 and 2017, 4,116,404 shares and 24,000 shares, respectively, of Class B common stock were automatically converted to 4,116,404 shares and 24,000 shares, respectively of Class A common stock pursuant to transfers as described above. No additional consideration was paid or received by the Company in connection with these exchanges.
During the year ended December 31, 2017, the Company repurchased 1,341,216 shares of its common stock at a price of $6.89 per share for a total cost of $9.2 million. The repurchases were pursuant to a tender offer made by the Company to its stockholders, including employee stockholders. The price paid by the Company at the settlement date of each tender was the estimated fair value of the Company’s common stock at such settlement date.
Acquisitions of treasury stock have been recorded at cost. Treasury stock held was reported as a deduction from stockholders’ deficit. When the treasury stock was retired, the carrying value of the treasury stock was allocated betweenadditional paid-in capital and retained earnings. The portion allocated toadditional paid-in capital was limited to the sum of (i) alladditional paid-in capital arising from previous retirements and net gains on sales of treasury stock of the same issue and (ii) the pro rata portion ofadditional paid-in capital and voluntary transfers of retained earnings on the same issue. To date, the Company has not reissued any treasury stock.
8. Stock-Based Compensation
The Company’sawards under its 2008 Stock Incentive Plan, as amended (the “2008 Plan”), provided for the Company to issue equity awards to employees, consultants, advisors and directors. Under the 2008 Plan, the Company could grant stock-based incentive awards, including incentive or nonqualified stock options and restricted stock units, as determined by the board of directors.
The total number of shares of common stock that could have been issued under the 2008 Plan was 8,440,712 shares. Upon effectiveness of the Company’s 2018 Equity Incentive Plan, (the “2018 Plan” and, together with the 2008 Plan, the “Plans”) on June 27, 2018, the remaining 583,056 shares that were available for grant under the 2008 Plan became available for grant under the 2018 Plan andbut is no future grants will be made under the 2008 Plan. Additionally, shares underlyinglonger granting awards under the 2008 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (subject, in the case of incentive stock options, to any limitations of the Internal Revenue Code) will be available for future grants under the 2018 Plan.
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.
On June 14, 2018, (the “2018 Plan” and, together with the Company’s board of directors adopted and its stockholders approved2008 Plan, the 2018 Plan, which became effective on June 27, 2018. The 2018 Plan“Plans”) provides for the grant of incentive stockbeginning with the fiscal year ending December 31, 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2028, equal to the least of (i) 2,500,000 shares of Class A common stock; (ii) 5% of the sum of the number of shares of Class A common stock and Class B common stock outstanding on the first day of such fiscal year; and (iii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by the Company under the 2018 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan. As of December 31, 2018, 583,0822020, 1,026,673 shares remain available for future grants under the 2018 Plan. The number of authorized shares reserved for issuance under the 2018 Plan was increased by 1,261,257 1,410,678shares effective as of January 1, 20192021 in accordance with the provisions of the 2018 Plan described above.
Risk-free interest rate | 1.5 | % | ||
Expected volatility | 49.0 | % | ||
Expected dividend yield | 0 | % | ||
Derived service period (in years) | 4.1 |
Stock Option Valuation
condition is achieved. The aggregate grant date fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company, historically, has been a private company and lacks company-specific historical and implied volatility information. Therefore, the Company estimates its expected stock volatility based on the historical volatility of its publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stockthese options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted tonon-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact thatwas $8.1 million. As the Company has never paid cash dividends and doesdeemed achievement of the performance condition to be probable, the Company is recognizing stock-based compensation for these awards over the estimated service period using the graded-vesting method.
option grants for employees and directors for the yearsyear ended December 31, 2018 and 2017 is as follows, presented on a weighted-average basis:
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
Risk-free interest rate | 2.79 | % | 2.03 | % | ||||
Expected volatility | 49.66 | % | 47.00 | % | ||||
Expected dividend yield | 0 | % | 0 | % | ||||
Expected term (in years) | 5.73 | 6.08 | ||||||
2019.
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| (in years) | (in thousands) | |||||||||||||||
Outstanding as of December 31, 2017 | 3,535,560 | $ | 4.74 | 7.30 | $ | 8,895 | ||||||||||
Granted | 1,342,840 | 10.40 | ||||||||||||||
Exercised | (601,018 | ) | 1.43 | |||||||||||||
Forfeited | (507,296 | ) | 7.51 | |||||||||||||
|
| |||||||||||||||
Outstanding as of December 31, 2018 | 3,770,086 | $ | 6.91 | 7.44 | $ | 1,956 | ||||||||||
|
| |||||||||||||||
Vested and expected to vest as of December 31, 2018 | 3,436,473 | $ | 6.70 | 7.34 | $ | 1,938 | ||||||||||
|
| |||||||||||||||
Options exercisable as of December 31, 2018 | 1,910,882 | $ | 4.90 | 6.36 | $ | 1,938 | ||||||||||
|
| |||||||||||||||
2019:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
(in years) | (in thousands) | |||||||||||||||
Outstanding as of December 31, 2019 | 2,827,868 | $ | 7.17 | 6.5 | $ | 76,850 | ||||||||||
Granted | 531,108 | 45.17 | ||||||||||||||
Exercised | (776,914 | ) | 6.32 | |||||||||||||
Forfeited | (393,143 | ) | 33.26 | |||||||||||||
Outstanding as of December 31, 2020 | 2,188,919 | $ | 12.01 | 5.72 | $ | 57,538 | ||||||||||
Vested and expected to vest as of December 31, 2020 | 2,121,884 | $ | 12.12 | 5.71 | $ | 55,616 | ||||||||||
Options exercisable as of December 31, 2020 | 1,370,762 | $ | 6.94 | 4.84 | $ | 41,689 | ||||||||||
| Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
Unvested balance December 31, 2017 | 242,496 | $ | 6.90 | |||||
Granted | 2,378,578 | 16.76 | ||||||
Vested | (208,081 | ) | 14.40 | |||||
Forfeited | (3,100 | ) | 14.75 | |||||
|
| |||||||
Unvested balance December 31, 2018 | 2,409,893 | $ | 15.98 | |||||
|
| |||||||
The
Number of Shares | Weighted Average Grant- Date Fair Value | |||||||
Unvested balance December 31, 2019 | 3,367,846 | $ | 14.84 | |||||
Granted | 1,331,417 | 42.35 | ||||||
Vested | (998,478 | ) | 16.30 | |||||
Forfeited | (558,565 | ) | 19.02 | |||||
Unvested balance December 31, 2020 | 3,142,220 | $ | 25.29 | |||||
Stock-Based Compensation
Stock-based compensation expense for the year ended December 31, 2018 includes $1.7 million of stock-based compensation expense related to performance-based RSU grants for which achievement of the performance condition washas not been deemed to be probable during the year ended December 31, 2018. probable.
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
Cost of revenue | $ | 42 | $ | 27 | ||||
Sales and marketing | 1,955 | 789 | ||||||
Research and development | 2,011 | 467 | ||||||
General and administrative | 3,113 | 577 | ||||||
|
|
|
| |||||
| $ | 7,121 | $ | 1,860 | |||||
|
|
|
| |||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
Cost of revenue | $ | 361 | $ | 193 | ||||
Sales and marketing | 10,246 | 3,805 | ||||||
Research and development | 7,751 | 3,967 | ||||||
General and administrative | 5,821 | 4,756 | ||||||
| $ | 24,179 | $ | 12,721 | |||||
2017 U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018, as well as a limitation of the deduction for net operating losses to 80% of annual taxable income and the elimination of net operating loss carrybacks, in each case, for the Company’s losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The federal tax rate change resulted in a reduction of the Company’s deferred tax assets and liabilities, and a corresponding reduction to its valuation allowance. As a result, no income tax expense or benefit was recognized as of the enactment date of the TCJA. The other provisions of the TCJA did not have a material impact on the financial statements.
Income Taxes
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
Federal statutory income tax rate | 21.0 | % | 34.0 | % | ||||
State taxes, net of federal benefit | 6.1 | 3.0 | ||||||
Federal and state research and development tax credits | 9.6 | 13.7 | ||||||
Nondeductible items | (0.8 | ) | (1.7 | ) | ||||
2017 TCJA | — | (26.9 | ) | |||||
Stock-based compensation | 4.4 | (2.6 | ) | |||||
Other | 0.2 | 0.3 | ||||||
Change in valuation allowance | (40.5 | ) | (19.8 | ) | ||||
|
|
|
| |||||
Effective income tax rate | — | % | — | % | ||||
|
|
|
| |||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
Federal statutory income tax rate | 21.0 | % | 21.0 | % | ||||
State taxes, net of federal benefit | 4.2 | 5.5 | ||||||
Federal and state research and development tax credits | 12.4 | 19.4 | ||||||
Nondeductible items | (0.7 | ) | (1.6 | ) | ||||
Stock-based compensation | 97.2 | 13.3 | ||||||
Other | 2.2 | (0.9 | ) | |||||
Change in valuation allowance | (136.3 | ) | (56.7 | ) | ||||
Effective income tax rate | 0 | % | 0 | % | ||||
| December 31, | ||||||||
| 2018 | 2017 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 5,691 | $ | 2,363 | ||||
Research and development tax credit carryforwards | 3,772 | 2,501 | ||||||
Accrued expenses and other current liabilities | 501 | 392 | ||||||
Intangible assets | 38 | 42 | ||||||
Property and equipment | 150 | 111 | ||||||
Stock-based compensation | 1,479 | 265 | ||||||
Other | 382 | 259 | ||||||
|
|
|
| |||||
Total deferred tax assets | 12,013 | 5,933 | ||||||
Valuation allowance | (11,257 | ) | (5,677 | ) | ||||
|
|
|
| |||||
Net deferred tax assets | 756 | 256 | ||||||
|
|
|
| |||||
Deferred tax liabilities: | ||||||||
Capitalized software development costs | (756 | ) | (256 | ) | ||||
|
|
|
| |||||
Deferred tax liabilities | (756 | ) | (256 | ) | ||||
|
|
|
| |||||
Net deferred tax assets and liabilities | $ | — | $ | — | ||||
|
|
|
| |||||
December 31, | ||||||||
2020 | 2019 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 19,197 | $ | 8,165 | ||||
Research and development tax credit carryforwards | 6,470 | 5,040 | ||||||
Accrued expenses and other current liabilities | 566 | 671 | ||||||
Intangible assets | 1,598 | 33 | ||||||
Property and equipment | 220 | 215 | ||||||
Stock-based compensation | 3,092 | 1,463 | ||||||
Operating lease liability | 2,829 | — | ||||||
Other | 221 | 725 | ||||||
Total deferred tax assets | 34,193 | 16,312 | ||||||
Valuation allowance | (30,558 | ) | (15,292 | ) | ||||
Net deferred tax assets | 3,635 | 1,020 | ||||||
Deferred tax liabilities: | ||||||||
Capitalized software development costs | (1,088 | ) | (1,020 | ) | ||||
Operating lease right-of-use | (2,547 | ) | — | |||||
Deferred tax liabilities | (3,635 | ) | (1,020 | ) | ||||
Net deferred tax assets and liabilities | $ | 0 | $ | 0 | ||||
will be available to cover future taxable income.
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
Valuation allowance as of beginning of year | $ | 5,677 | $ | 3,795 | ||||
Increases recorded to accumulated deficit (adoption of ASU2016-09) | — | 876 | ||||||
Decreases recorded as a benefit to income tax provision | — | (1,368 | ) | |||||
Increases recorded to tax provision | 5,580 | 2,374 | ||||||
|
|
|
| |||||
Valuation allowance as of end of year | $ | 11,257 | $ | 5,677 | ||||
|
|
|
| |||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
Valuation allowance as of beginning of year | $ | 15,292 | $ | 11,257 | ||||
Increases recorded to tax provision | 15,266 | 4,035 | ||||||
Valuation allowance as of end of year | $ | 30,558 | $ | 15,292 | ||||
2019.
applicable. There are currently no pending tax examinations. The Company is open to future tax examination under statute from 20152017 to the present, however, carryforward attributes that were generated prior to January 1, 20152017 may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in a future period.
10. Commitments and Contingencies
Operating
Lease incentives, payment escalations and rent holidays specified In the first quarter of 2020, the Company entered into
As of December 31, 2018 and 2017,2019, the Company maintained security deposits of $0.5 million and $0.4 million, respectively, with the landlords of its leases, which amounts are included in other assets on the Company’s consolidated balance sheet.
Year Ended December 31, 2020 | ||||
Operating lease cost | $ | 2,590 | ||
Short-term lease cost | 0 | |||
Variable lease cost | 387 | |||
| $ | 2,977 | |||
Year Ended | ||||
December 31, 2020 | ||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 2,747 | ||
Operating lease liabilities arising from obtaining right-of-use | $ | 541 | ||
December 31, 2020 | ||||
Weighted-average remaining lease term - operating leases (in years) | 4.44 | |||
Weighted-average discount rate - operating leases | 4.67 | % | ||
Year Ending December 31, | ||||
2021 | $ | 3,025 | ||
| 2022 | 2,872 | |||
| 2023 | 2,785 | |||
| 2024 | 2,099 | |||
| 2025 | 177 | |||
| Thereafter | 826 | |||
Total future minimum lease payments | 11,784 | |||
| Less: imputed interest | (1,098 | ) | ||
Total operating lease liabilities | $ | 10,686 | ||
Included in the balance sheet (in thousands): | December 31, 2020 | |||
| Current operating lease liabilities | $ | 2,593 | ||
| Operating lease liabilities, net of current portion | 8,093 | |||
| Total operating lease liabilities | $ | 10,686 | ||
Year Ending December 31, | ||||
2020 | $ | 2,573 | ||
2021 | 2,659 | |||
2022 | 2,502 | |||
2023 | 2,534 | |||
2024 | 1,922 | |||
Thereafter | 0 | |||
| $ | 12,190 | |||
Year Ending December 31, | ||||
2019 | $ | 2,243 | ||
2020 | 2,573 | |||
2021 | 2,659 | |||
2022 | 2,502 | |||
2023 | 2,534 | |||
Thereafter | 1,922 | |||
|
| |||
| $ | 14,433 | |||
|
| |||
described in Note 11.
and Other Contingencies
lacked merit. On July 23, 2020, the U.S. District Court granted a stay pending the Supreme Court’s decision in Facebook Inc. v. Duguid,
11. Net Loss per Share
The Company has two classes of common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. As a result, basic and diluted net income (loss) per share of Class A common stock and share of Class B common stock are equivalent. Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
Numerator: | ||||||||
Net loss | $ | (13,791 | ) | $ | (5,071 | ) | ||
Accretion of redeemable convertible preferred stock to redemption value | (37,415 | ) | (14,093 | ) | ||||
|
|
|
| |||||
Net loss attributable to common stockholders | $ | (51,206 | ) | $ | (19,164 | ) | ||
|
|
|
| |||||
Denominator: | ||||||||
Weighted average common shares outstanding, | 16,922,225 | 8,773,880 | ||||||
|
|
|
| |||||
Net loss per share attributable to common stockholders, | $ | (3.03 | ) | $ | (2.18 | ) | ||
|
|
|
| |||||
The Company’s potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share attributable to common stockholders. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.
The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
| December 31, | ||||||||
| 2018 | 2017 | |||||||
Redeemable convertible preferred stock (as converted to common stock) | — | 12,596,064 | ||||||
Options to purchase common stock | 3,770,086 | 3,535,560 | ||||||
Unvested restricted stock units | 2,409,893 | 242,496 | ||||||
|
|
|
| |||||
| 6,179,979 | 16,374,120 | |||||||
|
|
|
| |||||
12.
13.
15. | Selected Quarterly Financial Data (Unaudited) |
| Three Months Ended | ||||||||||||||||||||||||||||||||
| Dec 31, 2018 | Sep 30, 2018 | Jun 30, 2018 | Mar 31, 2018 | Dec 31, 2017 | Sep 30, 2017 | Jun 30, 2017 | Mar 31, 2017 | |||||||||||||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||||||||||||||
Revenue | $ | 39,779 | $ | 41,748 | $ | 41,092 | $ | 40,730 | $ | 32,377 | $ | 32,096 | $ | 30,017 | $ | 31,752 | ||||||||||||||||
Cost of revenue | 3,075 | 3,115 | 2,873 | 2,615 | 2,236 | 1,889 | 1,884 | 1,736 | ||||||||||||||||||||||||
Loss from operations(1) | (7,114 | ) | (3,936 | ) | (1,627 | ) | (1,235 | ) | (539 | ) | (1,019 | ) | (1,580 | ) | (1,551 | ) | ||||||||||||||||
Net loss(1) | (6,925 | ) | (3,808 | ) | (1,730 | ) | (1,328 | ) | (653 | ) | (1,135 | ) | (1,665 | ) | (1,618 | ) | ||||||||||||||||
Net loss attributable to common stockholders(1) | (6,925 | ) | (3,808 | ) | (28,132 | ) | (12,341 | ) | (2,498 | ) | (604 | ) | (2,660 | ) | (13,402 | ) | ||||||||||||||||
Basic and diluted net loss attributable to common stockholders per share(1): | $ | (0.28 | ) | $ | (0.15 | ) | $ | (3.10 | ) | $ | (1.42 | ) | $ | (0.29 | ) | $ | (0.07 | ) | $ | (0.31 | ) | $ | (1.45 | ) | ||||||||
Three Months Ended | ||||||||||||||||||||||||||||||||
Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | |||||||||||||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||||||||||||||
| Revenue | $ | 97,292 | $ | 89,977 | $ | 78,302 | $ | 81,364 | $ | 73,799 | $ | 67,112 | $ | 55,667 | $ | 52,233 | ||||||||||||||||
| Cost of revenue | 5,683 | 5,378 | 4,977 | 5,335 | 4,681 | 4,052 | 3,504 | 3,666 | ||||||||||||||||||||||||
| Loss from operations | (3,784 | ) | (3,289 | ) | (2,956 | ) | (1,653 | ) | (1,155 | ) | (82 | ) | (2,246 | ) | (4,566 | ) | ||||||||||||||||
| Net income (loss) | (3,768 | ) | (3,184 | ) | (2,808 | ) | (1,442 | ) | (934 | ) | 173 | (1,974 | ) | (4,382 | ) | |||||||||||||||||
| Basic and diluted net income (loss) per share available (attributable) to common stockholders: | $ | (0.13 | ) | $ | (0.12 | ) | $ | (0.10 | ) | $ | (0.05 | ) | $ | (0.04 | ) | $ | 0.01 | $ | (0.08 | ) | $ | (0.17 | ) | |||||||||
|
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. | CONTROLS AND PROCEDURES |
This Annual Report on Form10-K does not include a report of management’s assessment regarding
as stated in their report which is included herein.
ITEM 9B. | OTHER INFORMATION |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
| 2. |
|
| 3. |
|
| (b) | Exhibit Index. |
Exhibit Number | Description | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
| # | Indicates management contract or compensation plan. |
| † | The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K, 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 Annual Report on Form10-K, irrespective of any general incorporation language contained in such filing. |
ITEM 16. |
| EVERQUOTE, INC. | ||||||
| By: | /s/ | ||||
| Jayme Mendal | ||||||
| Chief Executive Officer and President | ||||||
Signature | Title | Date | ||
|
| |||
/s/ Jayme Mendal Jayme Mendal | Chief Executive Officer and President and Director (Principal Executive Officer) | |||
/s/ John Wagner John Wagner | Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | |||
/s/ David Blundin David Blundin | Chairman of the Board of Directors | |||
/s/ Darryl Auguste Darryl Auguste | Director | March 1, 2021 | ||
/s/ Sanju Bansal Sanju Bansal | Director | |||
/s/ Paul Deninger Paul Deninger | Director | March 1, 2021 | ||
/s/ John Lunny John Lunny | Director | |||
/s/ George Neble George Neble | Director | |||
/s/ John Shields John Shields | Director | |||
/s/ Mira Wilczek Mira Wilczek | Director | |||
101