☒ | QUARTERLY 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 No.)
210 Broadway Cambridge, Massachusetts | 02139 | ||
(Address of principal executive offices) | (Zip Code) |
☐
Value Per Share☐☒ No ☒and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation (§and post such files). Yes ☒ No ☐Large accelerated filer ☐ Accelerated filer ☐☒ ☒ (Do not check if a smaller reporting company)☐ Smaller reporting company ☐☒ Emerging growth company ☒
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PART I. | 4 | |||||
Item 1. | 4 | |||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
8 | ||||||
Item 2. | 20 | |||||
Item 3. | 30 | |||||
Item 4. | 30 | |||||
PART II. | 31 | |||||
Item 1. | 31 | |||||
Item 1A. | 31 | |||||
Item 2. | 55 | |||||
Item 6. | 56 | |||||
57 |
June 30, 2018 | December 31, 2017 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 2,382 | $ | 2,363 | ||||
Accounts receivable | 17,719 | 14,694 | ||||||
Prepaid expenses and other current assets | 1,972 | 593 | ||||||
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Total current assets | 22,073 | 17,650 | ||||||
Property and equipment, net | 3,028 | 2,129 | ||||||
Deferred initial public offering costs | 3,712 | — | ||||||
Other assets | 728 | 740 | ||||||
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Total assets | $ | 29,541 | $ | 20,519 | ||||
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Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 17,991 | $ | 11,894 | ||||
Accrued expenses and other current liabilities | 3,028 | 1,775 | ||||||
Deferred revenue | 1,152 | 986 | ||||||
Current portion of long-term debt, net of discount | — | 361 | ||||||
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Total current liabilities | 22,171 | 15,016 | ||||||
Deferred rent, net of current portion | 1,185 | 860 | ||||||
Long-term debt, net of current portion | 6,983 | 4,250 | ||||||
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Total liabilities | 30,339 | 20,126 | ||||||
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Commitments and contingencies (Note 9) | ||||||||
Redeemable convertible preferred stock (Series A, B andB-1), $0.001 par value; 1,867,886 shares authorized at June 30, 2018 and December 31, 2017; 1,574,508 shares issued and outstanding at June 30, 2018 and December 31, 2017; aggregate liquidation preference of $36,844 at June 30, 2018 and December 31, 2017 | 88,352 | 50,937 | ||||||
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Stockholders’ deficit: | ||||||||
Class A common stock, $0.001 par value; 30,004,760 shares authorized at June 30, 2018 and December 31, 2017; 164,400 and 24,000 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively | — | — | ||||||
Class B common stock, $0.001 par value; 27,566,096 shares authorized at June 30, 2018 and December 31, 2017; 8,924,440 and 8,670,992 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively | 9 | 9 | ||||||
Additionalpaid-in capital | — | 766 | ||||||
Accumulated deficit | (89,159 | ) | (51,319 | ) | ||||
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Total stockholders’ deficit | (89,150 | ) | (50,544 | ) | ||||
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Total liabilities, redeemable convertible preferred stock and stockholders’ deficit | $ | 29,541 | $ | 20,519 | ||||
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September 30, 2020 | December 31, 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 45,881 | $ | 46,054 | ||||
Accounts receivable | 41,527 | 32,214 | ||||||
Prepaid expenses and other current assets | 7,119 | 7,065 | ||||||
Total current assets | 94,527 | 85,333 | ||||||
Property and equipment, net | 5,871 | 5,197 | ||||||
Goodwill | 9,618 | — | ||||||
Acquired intangible assets, net | 3,775 | — | ||||||
Other assets | 2,444 | 691 | ||||||
Total assets | $ | 116,235 | $ | 91,221 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 33,735 | $ | 23,663 | ||||
Accrued expenses and other current liabilities | 11,224 | 13,225 | ||||||
Deferred revenue | 1,692 | 1,501 | ||||||
Total current liabilities | 46,651 | 38,389 | ||||||
Other long-term liabilities | 2,361 | 1,062 | ||||||
Total liabilities | 49,012 | 39,451 | ||||||
Commitments and contingencies (Note 9) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding | — | — | ||||||
Class A common stock, $0.001 par value; 220,000,000 shares authorized; 20,346,926 shares and 14,635,834 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 20 | 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 September 30, 2020 and December 31, 2019, respectively | 7 | 12 | ||||||
Additional paid-in capital | 181,639 | 158,752 | ||||||
Accumulated deficit | (114,443 | ) | (107,009 | ) | ||||
Total stockholders’ equity | 67,223 | 51,770 | ||||||
Total liabilities and stockholders’ equity | $ | 116,235 | $ | 91,221 | ||||
INCOME (LOSS)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | $ | 41,092 | $ | 30,017 | $ | 81,822 | $ | 61,769 | ||||||||
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Cost and operating expenses: | ||||||||||||||||
Cost of revenue | 2,873 | 1,884 | 5,488 | 3,620 | ||||||||||||
Sales and marketing | 34,932 | 26,354 | 69,955 | 54,781 | ||||||||||||
Research and development | 3,181 | 2,100 | 5,795 | 4,231 | ||||||||||||
General and administrative | 1,733 | 1,259 | 3,446 | 2,268 | ||||||||||||
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Total cost and operating expenses | 42,719 | 31,597 | 84,684 | 64,900 | ||||||||||||
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Loss from operations | (1,627 | ) | (1,580 | ) | (2,862 | ) | (3,131 | ) | ||||||||
Interest expense | (103 | ) | (85 | ) | (196 | ) | (152 | ) | ||||||||
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Net loss and comprehensive loss | (1,730 | ) | (1,665 | ) | (3,058 | ) | (3,283 | ) | ||||||||
Accretion of redeemable convertible preferred stock to redemption value | (26,402 | ) | (995 | ) | (37,415 | ) | (12,779 | ) | ||||||||
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Net loss attributable to common stockholders | $ | (28,132 | ) | $ | (2,660 | ) | $ | (40,473 | ) | $ | (16,062 | ) | ||||
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Net loss per share attributable to common stockholders, basic and diluted | $ | (3.10 | ) | $ | (0.31 | ) | $ | (4.55 | ) | $ | (1.81 | ) | ||||
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Weighted average common shares outstanding, basic and diluted | 9,084,880 | 8,523,056 | 8,897,088 | 8,891,136 | ||||||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | $ | 89,977 | $ | 67,112 | $ | 249,643 | $ | 175,012 | ||||||||
Cost and operating expenses: | ||||||||||||||||
Cost of revenue | 5,378 | 4,052 | 15,690 | 11,222 | ||||||||||||
Sales and marketing | 73,598 | 53,212 | 204,663 | 143,358 | ||||||||||||
Research and development | 8,149 | 5,596 | 21,574 | 14,685 | ||||||||||||
General and administrative | 6,141 | 4,334 | 15,614 | 12,641 | ||||||||||||
Total cost and operating expenses | 93,266 | 67,194 | 257,541 | 181,906 | ||||||||||||
Loss from operations | (3,289 | ) | (82 | ) | (7,898 | ) | (6,894 | ) | ||||||||
Other income: | ||||||||||||||||
Interest income | 18 | 168 | 176 | 536 | ||||||||||||
Other income | 87 | 87 | 288 | 175 | ||||||||||||
Total other income | 105 | 255 | 464 | 711 | ||||||||||||
Net income (loss) and comprehensive income (loss) | $ | (3,184 | ) | $ | 173 | $ | (7,434 | ) | $ | (6,183 | ) | |||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | (0.12 | ) | $ | 0.01 | $ | (0.27 | ) | $ | (0.24 | ) | |||||
Diluted | $ | (0.12 | ) | $ | 0.01 | $ | (0.27 | ) | $ | (0.24 | ) | |||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 27,526 | 25,910 | 27,102 | 25,596 | ||||||||||||
Diluted | 27,526 | 28,607 | 27,102 | 25,596 | ||||||||||||
STOCKHOLDERS’ EQUITY
Six Months Ended June 30, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (3,058 | ) | $ | (3,283 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 612 | 731 | ||||||
Stock-based compensation expense | 1,290 | 939 | ||||||
Noncash interest expense | 14 | 10 | ||||||
Deferred rent | 325 | 108 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (3,025 | ) | (255 | ) | ||||
Prepaid expenses and other current assets | (1,379 | ) | (126 | ) | ||||
Other assets | — | (61 | ) | |||||
Accounts payable | 3,193 | (1,427 | ) | |||||
Accrued expenses and other current liabilities | 863 | 1,008 | ||||||
Deferred revenue | 166 | (40 | ) | |||||
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Net cash used in operating activities | (999 | ) | (2,396 | ) | ||||
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Cash flows from investing activities: | ||||||||
Acquisition of property and equipment, including costs capitalized for development ofinternal-use software | (1,395 | ) | (648 | ) | ||||
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Net cash used in investing activities | (1,395 | ) | (648 | ) | ||||
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Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock options | 577 | 383 | ||||||
Repurchase of common stock | — | (9,229 | ) | |||||
Proceeds from borrowings on line of credit | 22,729 | 10,800 | ||||||
Repayments of borrowings on line of credit | (17,746 | ) | (9,300 | ) | ||||
Repayments of term loan | (2,625 | ) | (750 | ) | ||||
Payments of initial public offering costs | (522 | ) | — | |||||
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Net cash provided by (used in) financing activities | 2,413 | (8,096 | ) | |||||
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Net increase (decrease) in cash | 19 | (11,140 | ) | |||||
Cash at beginning of period | 2,363 | 12,400 | ||||||
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Cash at end of period | $ | 2,382 | $ | 1,260 | ||||
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Supplemental disclosure of noncash investing and financing information: | ||||||||
Purchases of property and equipment included in accounts payable | $ | 104 | $ | 77 | ||||
Deferred initial public offering costs included in accounts payable or accrued expenses | $ | 3,190 | $ | — | ||||
Conversion of Series A redeemable convertible preferred stock to common stock | $ | — | $ | 98 | ||||
Retirement of treasury stock | $ | — | $ | 9,229 | ||||
Accretion of redeemable convertible preferred stock to redemption value | $ | 37,415 | $ | 12,779 |
Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Balances at December 31, 2019 | 14,635,834 | $ | 15 | 11,802,341 | $ | 12 | $ | 158,752 | $ | (107,009 | ) | $ | 51,770 | |||||||||||||||
Issuance of common stock upon exercise of stock options | 214,179 | — | — | — | 1,364 | — | 1,364 | |||||||||||||||||||||
Vesting of restricted stock units | 329,897 | — | — | — | — | — | — | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 4,540 | — | 4,540 | |||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | 1,388,536 | 2 | (1,388,536 | ) | (2 | ) | — | — | — | |||||||||||||||||||
Net loss | — | — | — | — | — | (1,442 | ) | (1,442 | ) | |||||||||||||||||||
Balances at March 31, 2020 | 16,568,446 | 17 | 10,413,805 | 10 | 164,656 | (108,451 | ) | 56,232 | ||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 126,375 | — | — | — | 954 | — | 954 | |||||||||||||||||||||
Vesting of restricted stock units | 254,265 | — | — | — | — | — | — | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 6,250 | — | 6,250 | |||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | 1,983,220 | 2 | (1,983,220 | ) | (2 | ) | — | — | — | |||||||||||||||||||
Net loss | — | — | — | — | — | (2,808 | ) | (2,808 | ) | |||||||||||||||||||
Balances at June 30, 2020 | 18,932,306 | 19 | 8,430,585 | 8 | 171,860 | (111,259 | ) | 60,628 | ||||||||||||||||||||
Contingent consideration to be settled inClass A common stock | — | — | — | — | 1,335 | — | 1,335 | |||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 194,099 | — | — | — | 1,244 | — | 1,244 | |||||||||||||||||||||
Vesting of restricted stock units | 219,438 | — | — | — | — | — | — | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 7,200 | — | 7,200 | |||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | 1,001,083 | 1 | (1,001,083 | ) | (1 | ) | — | — | — | |||||||||||||||||||
Net loss | — | — | — | — | — | (3,184 | ) | (3,184 | ) | |||||||||||||||||||
Balances at September 30, 2020 | 20,346,926 | $ | 20 | 7,429,502 | $ | 7 | $ | 181,639 | $ | (114,443 | ) | $ | 67,223 | |||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
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 | 114,831 | — | — | — | 234 | — | 234 | |||||||||||||||||||||
Vesting of restricted stock units | 99,197 | — | — | — | — | — | — | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 2,750 | — | 2,750 | |||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | 1,032,231 | 1 | (1,032,231 | ) | (1 | ) | — | — | — | |||||||||||||||||||
Net loss | — | — | — | — | — | (4,382 | ) | (4,382 | ) | |||||||||||||||||||
Balances at March 31, 2019 | 8,775,000 | 9 | 16,664,183 | 17 | 146,034 | (104,274 | ) | 41,786 | ||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 132,770 | — | — | — | 649 | — | 649 | |||||||||||||||||||||
Vesting of restricted stock units | 182,764 | — | — | — | — | — | — | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 3,238 | — | 3,238 | |||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | 1,413,336 | 2 | (1,413,336 | ) | (2 | ) | — | — | — | |||||||||||||||||||
Net loss | — | — | — | — | — | (1,974 | ) | (1,974 | ) | |||||||||||||||||||
Balances at June 30, 2019 | 10,503,870 | 11 | 15,250,847 | 15 | 149,921 | (106,248 | ) | 43,699 | ||||||||||||||||||||
Issuance of common stock upon exercise of stock options | 212,465 | 1 | — | — | 1,172 | — | 1,173 | |||||||||||||||||||||
Vesting of restricted stock units | 130,361 | — | — | — | — | — | — | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 3,269 | — | 3,269 | |||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | 723,368 | — | (723,368 | ) | — | — | — | — | ||||||||||||||||||||
Net income | — | — | — | — | — | 173 | 173 | |||||||||||||||||||||
Balances at September 30, 2019 | 11,570,064 | $ | 12 | 14,527,479 | $ | 15 | $ | 154,362 | $ | (106,075 | ) | $ | 48,314 | |||||||||||||||
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (7,434 | ) | $ | (6,183 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization expense | 2,174 | 1,593 | ||||||
Stock-based compensation expense | 17,990 | 9,257 | ||||||
Provision for bad debt | 15 | 479 | ||||||
Changes in operating assets and liabilities, net of effects from acquisition: | ||||||||
Accounts receivable | (9,328 | ) | (12,927 | ) | ||||
Prepaid expenses and other current assets | 2,048 | (1,754 | ) | |||||
Other assets | (222 | ) | (2 | ) | ||||
Accounts payable | 10,030 | 6,532 | ||||||
Accrued expenses and other current liabilities | (2,325 | ) | 3,414 | |||||
Deferred revenue | 191 | 127 | ||||||
Other long-term liabilities | 764 | (79 | ) | |||||
Net cash provided by operating activities | 13,903 | 457 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of property and equipment, including costs capitalized for development of internal-use software | (2,708 | ) | (2,198 | ) | ||||
Acquisition of business | (14,930 | ) | — | |||||
Net cash used in investing activities | (17,638 | ) | (2,198 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock options | 3,562 | 2,056 | ||||||
Net cash provided by financing activities | 3,562 | 2,056 | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (173 | ) | 315 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 46,304 | 41,884 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 46,131 | $ | 42,199 | ||||
Supplemental disclosure of noncash investing and financing information: | ||||||||
Acquisition of property and equipment included in accounts payable | $ | 42 | $ | — | ||||
Fair value of contingent consideration in connection with acquisition included in equity | $ | 1,335 | $ | — | ||||
Fair value of contingent consideration in connection with acquisition included in other long-term liabilities | $ | 416 | $ | — | ||||
Reconciliation of cash, cash equivalents and restricted cash: | ||||||||
Cash and cash equivalents | $ | 45,881 | $ | 41,949 | ||||
Restricted cash (included in other assets) | 250 | 250 | ||||||
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 46,131 | $ | 42,199 | ||||
statements.
Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, EverQuote NI Limited. All intercompany accounts and transactions have been eliminated in consolidation.
company as of December 31, 2020. As a result, beginning with the Company’s Annual Report on Form
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 20172019 included in the Company’s Registration StatementAnnual Report onForm S-1, File No. 333-225379
2020 or any other interim period.
Due to the
Deferred Offering Costs
The Company capitalizes certain legal, professional, accounting and other third-party fees
Revenue Recognition
The Company derives its revenue by selling consumer referralsminimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to its insurance provider customers, including insurance carriersbe classified and agents. The Company recognizes revenuedisclosed in accordance with Accounting Standards Codification (“ASC”)Topic 605 Revenue Recognition (“ASC 605”). Accordingly, revenue is recognized when allone of the following criteriathree levels of the fair value hierarchy, of which the first two are met: persuasive evidenceconsidered observable and the last is considered unobservable:
• | Level 1—Quoted prices in active markets for identical assets or liabilities. |
• | Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
• | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Amounts received prior to satisfying the revenue recognition criteria listed above are recorded as deferred revenue in the accompanying balance sheets. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue.
Advertising Expense
Advertising expense consists of variable costs that are related to attracting consumers to the Company’s marketplace, increasing downloads of its social safe-driving mobile app, EverDrive, and promoting its marketplace to insurance carriers and agents. The Company expenses advertising costs as incurred and such costs are included in sales and marketing expense in the accompanying statements of operations and comprehensive loss. For the three months ended June 30, 2018 and 2017, advertising expense totaled $28.9 million and $21.4 million, respectively. For the six months ended June 30, 2018 and 2017, advertising expense totaled $58.5 million and $44.6 million, respectively.
no0 allowance for doubtful accounts as of JuneSeptember 30, 20182020 and December 31, 2017,2019, as the Company deemed all amounts were deemed to be collectible.Recently Adopted Accounting PronouncementsIn May 2017, Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”)No. 2017-09,Compensation—Stock Compensation (Topic 718): Scope non-current portionModification Accounting (“ASU2017-09”commissions receivable (included within other assets,clarifies when to account for a changemay affect the accuracy or validity of such assumptions, estimates or actual results. During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the termscarrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the consolidated statements of operationsconditionsincome.share-based payment award as a modification. Undersingle reporting unit for the new guidance, modification accounting is required only ifpurpose of conducting this goodwill impairment assessment. The Company assesses both the existence of potential impairment and the amount of impairment loss by comparing the fair value the vesting conditions, or the classification of the award (as equity or liability) changes as a resultreporting unit with its carrying amount, including goodwill. Intangible assets are recorded at their estimated fair values at the date of acquisition. The Company amortizes acquired intangible assets over their estimated useful lives based on the pattern of consumption of the change in termseconomic benefits or, conditions. ASU2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. if that pattern cannot be readily determined, on a straight-line basis.adopted the standard prospectively as of January 1, 2018. The adoption of ASU2017-09 had no net impact on the Company’s financial position, results of operations or cash flows.Recently Issued Accounting PronouncementsIn May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU2014-09”)derives its revenue by selling consumer referrals to its insurance provider customers, including insurance carriers 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 currentagents. To determine revenue recognition guidance, including industry specific guidance. The new standards require entities to apportion consideration from contracts tofor arrangements that the Company determines are within the scope of the revenue standard, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations onin the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a relative standalone selling price basis, based on a five-step model. Under ASC 606, revenueperformance obligation.obtains controlat an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when collectability of the consideration to which the Company is entitled in exchange for the goods or services it transfers to the customer is determined to be probable. Amounts are recorded as accounts receivable when the Company’s right to
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Direct channels | 93 | % | 95 | % | 93 | % | 94 | % | ||||||||
Indirect channels | 7 | % | 5 | % | 7 | % | 6 | % | ||||||||
100 | % | 100 | % | 100 | % | 100 | % | |||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Automotive | $ | 74,779 | $ | 57,306 | $ | 207,014 | $ | 152,108 | ||||||||
Other | 15,198 | 9,806 | 42,629 | 22,904 | ||||||||||||
Total Revenue | $ | 89,977 | $ | 67,112 | $ | 249,643 | $ | 175,012 | ||||||||
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
September 30, | ||||||||
2020 | 2019 | |||||||
Options to purchase common stock | 2,773,222 | 3,042,559 | ||||||
Unvested restricted stock units | 3,646,253 | 3,056,392 | ||||||
6,419,475 | 6,098,951 | |||||||
retained earnings in the period of adoption. In August 2016,November 2019, the FASB issued ASU2016-15,Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230) (“ASU2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in2019-10,statement of cash flows. For public entities, the standard was effective date for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Forthe standard is effective forto annual reporting periods beginning after December 15, 2018. Early adoption is permitted for all entities. If an entity early adopts the amendments in an2020, and 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. The Company is currently evaluating the impact that the adoption of ASU2016-15 will have on its financial statements.
In November 2016, the FASB issued ASUNo. 2016-18,Statement of Cash Flows (Topic 230) (“ASU2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. For public entities, ASU2016-18 was effective forperiods within fiscal years beginning after December 15, 20172021. Since the Company will cease to be an emerging growth company as of December 31, 2020, the Company is required to adopt the standard during the fourth quarter of 2020. The Company plans to adopt
In July 2017, the FASB issued ASUNo. 2017-11,Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU2017-11”). Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. For public entities, ASU2017-11 is required to be adopted for annual reporting periods beginning after December 15, 2020. Since the Company will cease to be an emerging growth company as of December 31, 2020, the Company is required to adopt the standard during the fourth quarter of 2020. The Company is currently assessing the impact of the adoption of this guidance on its financial statements.
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In June 2018,
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) | $ | 3,636 | ||
Customer Relationships | 3,600 | |||
Other identifiable intangible assets | 270 | |||
Goodwill | 9,618 | |||
Total assets acquired | 17,124 | |||
Accounts payable and accrued expenses (current and long-term) | (443 | ) | ||
Total allocation of purchase price consideration | $ | 16,681 | ||
3.goodwill impairment analysis. To date, the Company has had no impairments to goodwill.
September 30, 2020 | ||||||||||||||||
Weighted Average Useful Life | Gross Amount | Accumulated Amortization | Carrying Value | |||||||||||||
(in years) | ||||||||||||||||
Customer relationships | 5 | $ | 3,600 | $ | (85 | ) | $ | 3,515 | ||||||||
Other identifiable intangible assets | 3.7 | 270 | (10 | ) | 260 | |||||||||||
$ | 3,870 | $ | (95 | ) | $ | 3,775 | ||||||||||
Year Ending December 31, | ||||
2020 (Remaining three months) | $ | 425 | ||
2021 | 1,211 | |||
2022 | 846 | |||
2023 | 624 | |||
2024 | 450 | |||
Thereafter | 219 | |||
$ | 3,775 | |||
June 30, 2018 | December 31, 2017 | |||||||
Accrued advertising expenses | $ | 982 | $ | 721 | ||||
Accrued employee compensation and benefits | 1,062 | 433 | ||||||
Accrued professional fees | 230 | 154 | ||||||
Other current liabilities | 754 | 467 | ||||||
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$ | 3,028 | $ | 1,775 | |||||
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4.
September 30, | December 31, | |||||||
2020 | 2019 | |||||||
Accrued employee compensation and benefits | $ | 4,120 | $ | 2,388 | ||||
Accrued advertising expenses | 4,352 | 4,119 | ||||||
Accrued legal settlement | — | 4,750 | ||||||
Other current liabilities | 2,752 | 1,968 | ||||||
$ | 11,224 | $ | 13,225 | |||||
In March 2018, the Company executed the 2018 Loan Modification was amended during the three months ended March 31, 2020 to extend the availability of the line of credit to May 2020. The 2018 Loan Modification was
Agreement.
As of June 30, 2018, the Company had $7.0 million outstanding on the revolving line of credit, of which the full amount was classified within long-term debt, net of current portion. As of June 30, 2018, $4.0 million remained available for borrowing under the revolving line of credit. Amounts outstanding under the revolving line of credit are required to be repaid in March 2020. In July 2018, the Company repaid the $7.0 million outstanding under the revolving line of credit and, as of July 31, 2018, $11.0 million was available for borrowing under the revolving line of credit.
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended June 30, 2018 and 2017, the weighted average effective interest rate was 5.34% and 5.83%, respectively. For the six months ended June 30, 2018 and 2017, the weighted average effective interest rate was 5.54% and 5.83%, respectively.
5. Redeemable Convertible Preferred Stock
The Company 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 of SeriesB-1 Preferred Stock. No additional consideration was paid or received by the Company in connection with this exchange. The shares of SeriesB-1 Preferred Stock had all the same rights and preferences as the Series B Preferred Stock, with the exception of the SeriesB-1 Preferred Stock liquidation preference.
As of each balance sheet date, the Preferred Stock consisted of the following (in thousands, except share amounts):
June 30, 2018 | ||||||||||||||||||||
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 | 68,137 | 27,972 | 3,760,296 | |||||||||||||||
SeriesB-1 Preferred Stock | 132,749 | 132,749 | 19,243 | 7,900 | 1,061,992 | |||||||||||||||
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1,867,886 | 1,574,508 | $ | 88,352 | $ | 36,844 | 12,596,064 | ||||||||||||||
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December 31, 2017 | ||||||||||||||||||||
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 | |||||||||||||||
SeriesB-1 Preferred Stock | 132,749 | 132,749 | 11,004 | 7,900 | 1,061,992 | |||||||||||||||
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1,867,886 | 1,574,508 | $ | 50,937 | $ | 36,844 | 12,596,064 | ||||||||||||||
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In the three months ended June 30, 2018 and 2017, the Company recorded adjustments of $26.4 million and $1.0 million, respectively, to the carrying value of Series B andB-1 Preferred Stock, with corresponding offsets to additionalpaid-in capital and accumulated deficit representing the change in the redemption value from March 31, 2018 and 2017, respectively. In the six months ended June 30, 2018 and 2017, the Company recorded adjustments of $37.4 million and $12.8 million, respectively, to the carrying value of Series B andB-1 Preferred Stock, with corresponding offsets to additionalpaid-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 (see Note 13).
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
6. Common Stock
On June 15, 2018, the Company effected aneight-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.
In the six months ended June 30, 2018, 140,400 shares of Class B common stock were automatically converted to 140,400 shares of Class A common stock pursuant to a transfer as described above. No additional consideration was paid or received by the Company in connection with this exchange.
In the six months ended June 30, 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 repurchase was 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 between additionalpaid-in capital and retained earnings. The portion allocated to additionalpaid-in capital was limited to the sum of (i) all additionalpaid-in capital arising from previous retirements and net gains on sales of treasury stock of the same issue and (ii) the pro rata portion of additionalpaid-in capital and voluntary transfers of retained earnings on the same issue. To date, the Company has not reissued any treasury stock.
7. Stock-Based Compensation
2008 Stock Incentive Plan
The Company’sawards under its 2008 Stock Incentive Plan, as amended (the “2008 Plan”), provided for the Company to issue equitybut is no longer granting 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 sharesunder this plan. Shares of common stock that could have been issued under the 2008 Plan was 8,440,712 sharesupon 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 June 30, 2018. Upon effectivenesscommon stock issued upon exercise of thestock options granted after September 8, 2017 will be issued as Class A common stock.
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
2018 Equity Incentive Plan
On June 14, 2018, the Company’s board of directors adopted and its stockholders approved the 2018 Plan, which became effective on June 27, 2018. The 2018 Plan provides for the grant of incentive stock
Shares of common stock issued upon exercise of stock options granted prior to September 8, 2017 will be issued as new Class B common stock. Shares of common stock issued upon exercise of stock options granted after September 8, 2017 will be issued as new Class A common stock.
The exercise price for stock options granted is not less than the fair value of common shares as determined by the board of directors as of the date of grant. Prior to the Company’s IPO, the Company’s board of directors valued the Company’s common stock, taking into consideration its most recently available valuation of common stock performed by third parties as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.
based on quoted market prices.
$45.2 million.
Risk-free interest rate | 1.5 | % | ||
Expected volatility | 49.0 | % | ||
Expected dividend yield | 0 | % | ||
Derived service period (in years) | 4.1 |
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Cost of revenue | $ | 10 | $ | 7 | $ | 17 | $ | 13 | ||||||||
Sales and marketing | 400 | 201 | 670 | 411 | ||||||||||||
Research and development | 168 | 116 | 292 | 219 | ||||||||||||
General and administrative | 145 | 144 | 311 | 296 | ||||||||||||
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$ | 723 | $ | 468 | $ | 1,290 | $ | 939 | |||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Cost of revenue | $ | 111 | $ | 52 | $ | 253 | $ | 139 | ||||||||
Sales and marketing | 3,080 | 991 | 7,322 | 2,676 | ||||||||||||
Research and development | 2,228 | 1,061 | 5,366 | 2,914 | ||||||||||||
General and administrative | 1,781 | 1,165 | 5,049 | 3,528 | ||||||||||||
$ | 7,200 | $ | 3,269 | $ | 17,990 | $ | 9,257 | |||||||||
8. Income Taxes
2017 U.S. Tax Reform
On December 22, 2017, Additionally, 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 current year 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 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 Company’s financial statements.
Income Taxes
The Company had no income taxunrecognized compensation expense for the three months ended June 30, 2018 and 2017 or for the six months ended June 30, 2018 and 2017. The Company has no foreign operations and therefore, hasof $6.1 million related to unvested awards with performance-based vesting conditions, which have not provided for any foreign taxes.
been deemed probable.
In the first quarter of 2020, the Company entered into a three-year
During the nine months ended September 30, 2020 and 2019, the Company recorded rent expense of $1.9 million and $1.8 million, respectively.
sheet.
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Year Ending December 31, | ||||
2018 | $ | 905 | ||
2019 | 1,861 | |||
2020 | 1,996 | |||
2021 | 2,075 | |||
2022 | 1,911 | |||
Thereafter | 3,405 | |||
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$ | 12,153 | |||
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In April 2017, the Company entered into a sublease agreement with a subtenant for 7,735 square feet of general office space. The sublease terminated in June 2018. The Company recognized $0.1 million under the sublease as a reduction in rent expense in the statements of operations and comprehensive loss for the three months ended June 30, 2018. The Company recognized $0.3 million under the sublease as a reduction in rent expense in the statements of operations and comprehensive loss for the six months ended June 30, 2018. For the three months ended June 30, 2018 and 2017, the Company recognized rent expense of $0.5 million and $0.4 million, respectively. For the six months ended June 30, 2018 and 2017, the Company recognized rent expense of $1.0 million and $0.7 million, respectively.
Year Ending December 31, | ||||
2020 (Remaining three months) | $ | 750 | ||
2021 | 3,025 | |||
2022 | 2,872 | |||
2023 | 2,785 | |||
2024 | 2,099 | |||
Thereafter | 1,003 | |||
$ | 12,534 | |||
2019.
condition.
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 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):
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss | $ | (1,730 | ) | $ | (1,665 | ) | $ | (3,058 | ) | $ | (3,283 | ) | ||||
Accretion of redeemable convertible preferred stock to redemption value | (26,402 | ) | (995 | ) | (37,415 | ) | (12,779 | ) | ||||||||
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Net loss attributable to common stockholders | $ | (28,132 | ) | $ | (2,660 | ) | $ | (40,473 | ) | $ | (16,062 | ) | ||||
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Denominator: | ||||||||||||||||
Weighted average common shares outstanding, basic and diluted | 9,084,880 | 8,523,056 | 8,897,088 | 8,891,136 | ||||||||||||
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Net loss per share attributable to common stockholders, basic and diluted | $ | (3.10 | ) | $ | (0.31 | ) | $ | (4.55 | ) | $ | (1.81 | ) | ||||
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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 three and six months ended June 30, 2018 and 2017 because including them would have had an anti-dilutive effect:
June 30, | ||||||||
2018 | 2017 | |||||||
Redeemable convertible preferred stock (as converted to common stock) | 12,596,064 | 12,596,064 | ||||||
Options to purchase common stock | 4,092,960 | 3,681,400 | ||||||
Unvested restricted stock units | 2,118,368 | 192,000 | ||||||
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18,807,392 | 16,469,464 | |||||||
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11. Retirement Plan
12.
Related party referrals
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
13. Subsequent Events
On July 2, 2018,
Upon closing of the IPO on July 2, 2018, the Company’s outstanding redeemable convertible preferred stock automatically converted into shares of Class B common stock (see Note 5). Upon conversion of the redeemable convertible preferred stock,2019, the Company reclassified the carrying valuerecorded other income of the Preferred Stock$0.3 million and $0.2 million, respectively, related to common stockthis arrangement and additionalpaid-in capital.
Upon closingreceived $0.3 million and $0.2 million, respectively, in payments. As of the IPO on July 2, 2018, the Company’s authorized sharesSeptember 30, 2020 and December 31 2019, there were 0 amounts due from related-party affiliates.
In 2017, we reached 500,000 downloads of EverDrive.
Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we have presented in this Quarterly Report on Form10-Q our variable marketing margin and adjusted EBITDA asnon-GAAP financial measures. Thesenon-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies.
We use thesenon-GAAP financial measures to evaluate our operating performance and trends and make planning decisions. We believe that each of thesenon-GAAP financial measures helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of eachnon-GAAP financial measure. Accordingly, we believe that these financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.
Ournon-GAAP financial measures are not prepared in accordance with GAAP and should not be considered in isolation of,from, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of thesenon-GAAPAdjusted EBITDA should be considered together with other operating and financial performance measures rather than revenue less advertising expense and net income (loss), which are the most directly comparable financial measures calculated and presented in accordance with GAAP. Some of these limitations 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;
adjusted EBITDA excludes stock-based compensation expense as it has recently been, and will continue to be for the foreseeable future, a significant recurringnon-cash expense for our business;
adjusted EBITDA excludes depreciation and amortization expense and, although this is anon-cash expense, the assets being depreciated and amortized may have to be replaced in the future;
adjusted EBITDA does not reflect the cash requirements necessary to service interest on our debt which affects the cash available to us;
adjusted EBITDA does not reflect income tax expense (benefit) that affects cash available to us; and
the expenses and other items that we exclude in our calculations of VMM and adjustedAlso, Adjusted EBITDA may differ fromnot necessarily be comparable to similarly titled measures presented by other companies. For further explanation of the expensesuses and other items, if any, that other companies may exclude from VMMlimitations of this measure and adjusteda reconciliation of Adjusted EBITDA when they report their operating results.
In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of ournon-GAAP financial measures as tools for comparison.
The following tables reconcile VMM and adjusted EBITDA to revenue less advertising expense and net loss, respectively, the most directly comparable financial measures calculated and presented in accordance with GAAP.
Reconciliation of revenue less advertising expense to variable marketing margin:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenue | $ | 41,092 | $ | 30,017 | $ | 81,822 | $ | 61,769 | ||||||||
Less: total advertising expense | (28,946 | ) | (21,429 | ) | (58,538 | ) | (44,590 | ) | ||||||||
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Revenue less advertising expense | 12,146 | 8,588 | 23,284 | 17,179 | ||||||||||||
Add: other advertising expense(1) | 673 | 520 | 1,229 | 785 | ||||||||||||
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Variable marketing margin | $ | 12,819 | $ | 9,108 | $ | 24,513 | $ | 17,964 | ||||||||
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Reconciliation of Net Loss to Adjusted EBITDA:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Net loss | $ | (1,730 | ) | $ | (1,665 | ) | $ | (3,058 | ) | $ | (3,283 | ) | ||||
Stock-based compensation | 723 | 468 | 1,290 | 939 | ||||||||||||
Depreciation and amortization | 318 | 327 | 612 | 731 | ||||||||||||
Interest expense | 103 | 85 | 196 | 152 | ||||||||||||
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Adjusted EBITDA | $ | (586 | ) | $ | (785 | ) | $ | (960 | ) | $ | (1,461 | ) | ||||
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GAAP measure, net income (loss), please see “—Non GAAP Financial Measure”.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Automotive | $ | 35,509 | $ | 28,943 | $ | 71,434 | $ | 59,711 | ||||||||
Home and Life | 5,583 | 1,074 | 10,388 | 2,058 | ||||||||||||
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Total Revenue | $ | 41,092 | $ | 30,017 | $ | 81,822 | $ | 61,769 | ||||||||
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2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Automotive | $ | 74,779 | 57,306 | $ | 207,014 | $ | 152,108 | |||||||||
Other | 15,198 | 9,806 | 42,629 | 22,904 | ||||||||||||
Total Revenue | $ | 89,977 | $ | 67,112 | $ | 249,643 | $ | 175,012 | ||||||||
marketplace technology.
Interest Expense
Interest expense
On December 22, 2017,
Net Loss to Adjusted EBITDA:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Net income (loss) | $ | (3,184 | ) | $ | 173 | $ | (7,434 | ) | $ | (6,183 | ) | |||||
Stock-based compensation | 7,200 | 3,269 | 17,990 | 9,257 | ||||||||||||
Depreciation and amortization | 731 | 588 | 2,174 | 1,593 | ||||||||||||
Acquisition-related costs | 480 | — | 480 | — | ||||||||||||
Interest income | (18 | ) | (168 | ) | (176 | ) | (536 | ) | ||||||||
Adjusted EBITDA | $ | 5,209 | $ | 3,862 | $ | 13,034 | $ | 4,131 | ||||||||
2019
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenue | $ | 41,092 | $ | 30,017 | $ | 81,822 | $ | 61,769 | ||||||||
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Cost and operating expenses: | ||||||||||||||||
Cost of revenue | 2,873 | 1,884 | 5,488 | 3,620 | ||||||||||||
Sales and marketing | 34,932 | 26,354 | 69,955 | 54,781 | ||||||||||||
Research and development | 3,181 | 2,100 | 5,795 | 4,231 | ||||||||||||
General and administrative | 1,733 | 1,259 | 3,446 | 2,268 | ||||||||||||
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Total cost and operating expenses | 42,719 | 31,597 | 84,684 | 64,900 | ||||||||||||
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Loss from operations | (1,627 | ) | (1,580 | ) | (2,862 | ) | (3,131 | ) | ||||||||
Interest expense | (103 | ) | (85 | ) | (196 | ) | (152 | ) | ||||||||
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Net loss | $ | (1,730 | ) | $ | (1,665 | ) | $ | (3,058 | ) | $ | (3,283 | ) | ||||
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Other Financial and Operational Data: | ||||||||||||||||
Quote requests | 3,018 | 2,950 | 6,475 | 5,911 | ||||||||||||
Variable Marketing Margin | $ | 12,819 | $ | 9,108 | $ | 24,513 | $ | 17,964 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
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Cost and operating expenses: | ||||||||||||||||
Cost of revenue | 7.0 | 6.3 | 6.7 | 5.9 | ||||||||||||
Sales and marketing | 85.0 | 87.8 | 85.5 | 88.7 | ||||||||||||
Research and development | 7.7 | 7.0 | 7.1 | 6.8 | ||||||||||||
General and administrative | 4.2 | 4.2 | 4.2 | 3.7 | ||||||||||||
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Total cost and operating expenses | 103.9 | 105.3 | 103.5 | 105.1 | ||||||||||||
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Loss from operations | (3.9 | ) | (5.3 | ) | (3.5 | ) | (5.1 | ) | ||||||||
Interest expense | (0.3 | ) | (0.3 | ) | (0.2 | ) | (0.2 | ) | ||||||||
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Net loss | (4.2 | )% | (5.6 | )% | (3.7 | )% | (5.3 | )% | ||||||||
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Other Financial Data: | ||||||||||||||||
Variable Marketing Margin | 31.2 | % | 30.3 | % | 30.0 | % | 29.1 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Statement of Operations Data: | ||||||||||||||||
Revenue(1) | $ | 89,977 | $ | 67,112 | $ | 249,643 | $ | 175,012 | ||||||||
Cost and operating expenses(2): | ||||||||||||||||
Cost of revenue | 5,378 | 4,052 | 15,690 | 11,222 | ||||||||||||
Sales and marketing | 73,598 | 53,212 | 204,663 | 143,358 | ||||||||||||
Research and development | 8,149 | 5,596 | 21,574 | 14,685 | ||||||||||||
General and administrative | 6,141 | 4,334 | 15,614 | 12,641 | ||||||||||||
Total cost and operating expenses | 93,266 | 67,194 | 257,541 | 181,906 | ||||||||||||
Loss from operations | (3,289 | ) | (82 | ) | (7,898 | ) | (6,894 | ) | ||||||||
Other income: | ||||||||||||||||
Interest income | 18 | 168 | 176 | 536 | ||||||||||||
Other income | 87 | 87 | 288 | 175 | ||||||||||||
Total other income | 105 | 255 | 464 | 711 | ||||||||||||
Net income (loss) | $ | (3,184 | ) | $ | 173 | $ | (7,434 | ) | $ | (6,183 | ) | |||||
Other Financial and Operational Data: | ||||||||||||||||
Quote requests | 6,291 | 5,516 | 20,460 | 14,148 | ||||||||||||
Variable marketing margin | $ | 29,428 | $ | 20,912 | $ | 76,721 | $ | 51,480 | ||||||||
Adjusted EBITDA(3) | $ | 5,209 | $ | 3,862 | $ | 13,034 | $ | 4,131 |
(1) | Comprised of revenue from the following distribution channels: |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Direct channels | 93 | % | 95 | % | 93 | % | 94 | % | ||||||||
Indirect channels | 7 | % | 5 | % | 7 | % | 6 | % | ||||||||
100 | % | 100 | % | 100 | % | 100 | % | |||||||||
(2) | Includes stock-based compensation expense as follows: |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Cost of revenue | $ | 111 | $ | 52 | $ | 253 | $ | 139 | ||||||||
Sales and marketing | 3,080 | 991 | 7,322 | 2,676 | ||||||||||||
Research and development | 2,228 | 1,061 | 5,366 | 2,914 | ||||||||||||
General and administrative | 1,781 | 1,165 | 5,049 | 3,528 | ||||||||||||
$ | 7,200 | $ | 3,269 | $ | 17,990 | $ | 9,257 | |||||||||
(3) | See “—Non-GAAP Financial Measure” for information regarding our use of Adjusted EBITDA and a reconciliation of such measure to the comparable GAAP financial measure. |
Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||
2018 | 2017 | Amount | % | 2018 | 2017 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
Revenue | $ | 41,092 | $ | 30,017 | $ | 11,075 | 36.9 | % | $ | 81,822 | $ | 61,769 | $ | 20,053 | 32.5 | % |
Revenue increased by $11.1 million from $30.0 million for
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||
Revenue | $ | 89,977 | $ | 67,112 | $ | 22,865 | 34.1 | % | $ | 249,643 | $ | 175,012 | $ | 74,631 | 42.6 | % |
Cost of revenue Percentage of revenue Three Months Ended
June 30, Change Six Months Ended
June 30, Change 2018 2017 Amount % 2018 2017 Amount % (dollars in thousands) $ 2,873 $ 1,884 $ 989 52.5 % $ 5,488 $ 3,620 $ 1,868 51.6 % 7.0 % 6.3 % 6.7 % 5.9 %
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||
Cost of revenue | $ | 5,378 | $ | 4,052 | $ | 1,326 | 32.7 | % | $ | 15,690 | $ | 11,222 | $ | 4,468 | 39.8 | % | ||||||||||||||||
Percentage of revenue | 6.0 | % | 6.0 | % | 6.3 | % | 6.4 | % |
Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||
2018 | 2017 | Amount | % | 2018 | 2017 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
Sales and marketing expense | $ | 34,932 | $ | 26,354 | $ | 8,578 | 32.5 | % | $ | 69,955 | $ | 54,781 | $ | 15,174 | 27.7 | % | ||||||||||||||||
Percentage of revenue | 85.0 | % | 87.8 | % | 85.5 | % | 88.7 | % |
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||
Sales and marketing expense | $ | 73,598 | $ | 53,212 | $ | 20,386 | 38.3 | % | $ | 204,663 | $ | 143,358 | $ | 61,305 | 42.8 | % | ||||||||||||||||
Percentage of revenue | 81.8 | % | 79.3 | % | 82.0 | % | 81.9 | % |
Research and Development
Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||
2018 | 2017 | Amount | % | 2018 | 2017 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
Research and development expense | $ | 3,181 | $ | 2,100 | $ | 1,081 | 51.5 | % | $ | 5,795 | $ | 4,231 | $ | 1,564 | 37.0 | % | ||||||||||||||||
Percentage of revenue | 7.7 | % | 7.0 | % | 7.1 | % | 6.8 | % |
Research and development expenses increased by $1.1 million from $2.1 million for the three months ended JuneSeptember 30, 2017 to $3.22020 and 2019 included stock-based compensation expense of $3.1 million and $1.0 million, respectively. Personnel-related costs for the threenine months ended JuneSeptember 30, 20182020 and increased by $1.62019 included stock-based compensation expense of $7.3 million from $4.2and $2.7 million, forrespectively.
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||
Research and development expense | $ | 8,149 | $ | 5,596 | $ | 2,553 | 45.6 | % | $ | 21,574 | $ | 14,685 | $ | 6,889 | 46.9 | % | ||||||||||||||||
Percentage of revenue | 9.1 | % | 8.3 | % | 8.6 | % | 8.4 | % |
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||
General and administrative expense | $ | 6,141 | $ | 4,334 | $ | 1,807 | 41.7 | % | $ | 15,614 | $ | 12,641 | $ | 2,973 | 23.5 | % | ||||||||||||||||
Percentage of revenue | 6.8 | % | 6.5 | % | 6.3 | % | 7.2 | % |
expense wasnine months ended September 30, 2020 primarily due to an increase in personnel-related costs of $1.0$1.2 million as a resultand $2.5 million, respectively. We also incurred $0.5 million of acquisition-related costs in the three and nine months ended September 30, 2020 related to our continued hiringacquisition of research and development employees to further develop and enhance our marketplace websites and technology. Office and occupancyCrosspointe. Insurance costs also increased by $0.2 million asand $0.4 million in the three and nine months ended September 30, 2020, respectively, compared to the three and nine months ended September 30, 2019. These increases were partially offset by a resultdecrease in our provision for bad debt of the increase in headcount.
General$0.1 million and Administrative
Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||
2018 | 2017 | Amount | % | 2018 | 2017 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
General and administrative expense | $ | 1,733 | $ | 1,259 | $ | 474 | 37.6 | % | $ | 3,446 | $ | 2,268 | $ | 1,178 | 51.9 | % | ||||||||||||||||
Percentage of revenue | 4.2 | % | 4.2 | % | 4.2 | % | 3.7 | % |
General and administrative expenses increased by $0.5 million from $1.3 millionin the three and nine months ended September 30, 2020, respectively, and a decrease in legal fees related to the settlement of prior litigation. Personnel-related costs for the three months ended JuneSeptember 30, 2017 to $1.72020 and 2019 included stock-based compensation expense of $1.8 million and $1.2 million, respectively. Personnel-related costs for the nine months ended September 30, 2020 and 2019 included stock-based compensation expense of $5.0 million and $3.5 million, respectively.
Interest Expense
Interest expense remained consistent atlower interest rates on invested cash balances. Other income included sublease income of $0.1 million forin each of the three months ended JuneSeptember 30, 20182020 and 20172019, and $0.3 million and $0.2 million forin the sixnine months ended JuneSeptember 30, 20182020 and 2017 primarily due to consistent average outstanding borrowings for the comparative periods.
2019, respectively.
Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||||||||||
2018 | 2017 | Amount | % | 2018 | 2017 | Amount | % | |||||||||||||||||||||||||
Quote requests | 3,018 | 2,950 | 68 | 2.3 | % | 6,475 | 5,911 | 564 | 9.5 | % |
Requests
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | |||||||||||||||||||||||||
(in thousands except percentages) | (in thousands except percentages) | |||||||||||||||||||||||||||||||
Quote requests | 6,291 | 5,516 | 775 | 14.1 | % | 20,460 | 14,148 | 6,312 | 44.6 | % |
advertising and improvements in our traffic acquisition.
Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||
2018 | 2017 | Amount | % | 2018 | 2017 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
Variable Marketing Margin | $ | 12,819 | $ | 9,108 | $ | 3,711 | 40.7 | % | $ | 24,513 | $ | 17,964 | $ | 6,549 | 36.5 | % | ||||||||||||||||
Percentage of revenue | 31.2 | % | 30.3 | % | 30.0 | % | 29.1 | % |
Variable
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | |||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||
Revenue | $ | 89,977 | $ | 67,112 | $ | 22,865 | 34.1 | % | $ | 249,643 | $ | 175,012 | $ | 74,631 | 42.6 | % | ||||||||||||||||
Less: total advertising expense (a component of sales and marketing expense) | 60,549 | 46,200 | 172,922 | 123,532 | ||||||||||||||||||||||||||||
Variable marketing margin | $ | 29,428 | $ | 20,912 | $ | 8,516 | 40.7 | % | $ | 76,721 | $ | 51,480 | $ | 25,241 | 49.0 | % | ||||||||||||||||
Percentage of revenue | 32.7 | % | 31.2 | % | 30.7 | % | 29.4 | % |
IPO. As of December 31, 2017,September 30, 2020, we had a term loan with an outstanding principal balancecash and cash equivalents of $2.6$45.9 million and a $6.0availability of $25.0 million under our revolving line of credit with an outstanding balance of $2.0 millioncredit.
On March 16, 2018, we entered into a Loan and Security Modification Agreement, or the 2018 Loan Modification, to modify our amended Loan and Security Agreement. This agreement increased the revolving line of credit to $11.0 million, extended the maturity date of the revolving line of credit to March 2020 and eliminated the term loan. Borrowings under the revolving line of credit cannot exceed 80% of eligible accounts receivable balances and bear interest at 0.5% above the greater of 4.25% or the prime rate (5.5% as of June 30, 2018). The terms of the 2018 Loan Modification required that the existing outstanding term loan under the Loan and Security Agreement be repaid. Accordingly, on March 27, 2018, we used $2.3 million of proceeds from the revolving line of credit to repay the outstanding principal balance of the term loan. As of June 30, 2018, $4.0 million remained available for borrowing under the revolving line of credit. In July 2018, we repaid the $7.0 million outstanding under the revolving line of credit and, as of July 31, 2018, $11.0 million was available for borrowing under the revolving line of credit.
Borrowings are collateralized by substantially all of our assets and property. Additionally, we are subject under our revolving line of credit to affirmative and negative covenants to which we will remain subject until maturity. These covenants include limitations on our ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses. In addition, we are required to maintain a minimum asset coverage ratio of 1.5 to 1 calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit. Events of default under the 2018 Loan Modificationour revolving line of credit include failure to make payments when due, insolvency events, failure to comply with covenants and material adverse events with respect to us. In the event of a default, the lender may declare all borrowings immediately due and payable. As of June 30, 2018, we were in compliance with all covenants related to our revolving line of credit. There can be no guarantee that these covenants will be met in the future, and if not met, that waivers will be obtained.
Six Months Ended June 30, | ||||||||
2018 | 2017 | |||||||
(in thousands) | ||||||||
Net cash used in operating activities | $ | (999 | ) | $ | (2,396 | ) | ||
Net cash used in investing activities | (1,395 | ) | (648 | ) | ||||
Net cash provided by (used in) financing activities | 2,413 | (8,096 | ) | |||||
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Net increase (decrease) in cash | $ | 19 | $ | (11,140 | ) | |||
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2019:
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
(in thousands) | ||||||||
Net cash provided by operating activities | $ | 13,903 | $ | 457 | ||||
Net cash used in investing activities | (17,638 | ) | (2,198 | ) | ||||
Net cash provided by financing activities | 3,562 | 2,056 | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (173 | ) | $ | 315 | |||
During the six months ended June 30, 2017, operating activities used $2.4 million of cash, primarily resulting from our net loss of $3.3 million and net cash used by changes in our operating assets and liabilities of $0.9 million, partially offset by netnon-cash charges of $1.8 million. Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2017 consisted primarily of an aggregate $0.4 million decrease in accounts payable and accrued expenses and other current liabilities and a $0.3 million net increase in accounts receivable. Changes in accounts receivable and accounts payable and accrued expenses were generally due to growth in our business, timing of customer and vendor invoicing and payments.
During the six months ended June 30, 2017, net cash used in financing activities was $8.1 million, consisting primarily of cash used to repurchase common stock of $9.2$3.6 million and principal payments made on our term loan$2.1 million, respectively, consisting of $0.8 million, partially offset by net borrowings from our revolving line of credit of $1.5 million and proceeds received from the exercise of common stock options of $0.4 million.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of June 30, 2018:
Payments Due By Period | ||||||||||||||||||||
Total | Less Than 1 Year | 1 to 3 Years | 4 to 5 Years | More Than 5 Years | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating lease commitments(1) | $ | 12,153 | $ | 1,831 | $ | 3,965 | $ | 3,916 | �� | $ | 2,441 | |||||||||
Debt obligations(2) | 7,641 | 384 | 7,257 | — | — | |||||||||||||||
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Total | $ | 19,794 | $ | 2,215 | $ | 11,222 | $ | 3,916 | $ | 2,441 | ||||||||||
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Due to the
Form
As of June 30, 2018, we had outstanding borrowingsinformation required under our revolving line of credit of $7.0 million bearing interest at a rate of 5.5%. Changes in interest rates could cause interest charges on our revolving line of credit to fluctuate. Based on the amount of total borrowings outstanding as of June 30, 2018, an increase or decrease of 10% in the prime rate as of June 30, 2018 would cause a corresponding increase or decrease to our net loss and cash flows of less than $0.1 million, assuming that such rate were to remain in effect for a year.
with no notice. As a result, we cannot guarantee that insurance providers will continue to work with us, or, if they do, the number of referrals they will purchase from us, the price they will pay per referral or their total spend with us. In addition, we may not be able to attract new insurance providers to our marketplace or increase the amount of revenue we earn from insurance providers over time.
We depend on search engines, display advertising, social media, email, content-based online advertising and other online sources to attract consumers to our websites, and if we are unable to attract consumers and convert them into quote requests in a cost-effective manner, our business and financial results may be harmed.
Our success depends on our ability to attract online consumers to our websites and convert them into referrals in a cost-effective manner. We depend, in part, on search engines, display advertising, social media, email, content-based online advertising and other online sources for our website traffic. We are included in search results as a result of both paid search listings, where we purchase specific search terms that result in the inclusion of our advertisement, and, separately, organic searches that depend upon the content on our sites.
Search engines, social media platforms and other online sources often revise their algorithms and introduce new advertising products. If one or more of the search engines or other online sources on which we rely for website traffic were to modify its general methodology for how it displays our advertisements, resulting in fewer consumers clicking through to our websites, our business could suffer. In addition, if our online display advertisements are no longer effective or are not able to reach certain consumers due to consumers’ use ofad-blocking software, our business could suffer.
If one or more of the search engines or other online sources on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, we could lose consumers and traffic to our websites could decrease, any of which could have a material adverse effect on our business, financial condition and results of operations.
We currently compete with numerous other online marketing companies, and we expect that competition will intensify. Some of these existing competitors may have more capital or complementary products or services than we do, and they may leverage their greater capital or diversification in a manner that adversely affects our competitive position. In addition, other newcomers, including major search engines and content aggregators, may be able to leverage their existing products and services to our disadvantage. We may be forced to expend significant resources to remain competitive with current and potential competitors. If any of our competitors are more successful than we are at attracting and retaining consumers, our business, financial condition and results of operations could be materially adversely affected.
Many of our competitors have more resources than we do and can spend more advertising their brands and services. As a result, we are required to spend considerable money and other resources to create brand awareness and build our reputation. Should the need or competition formaintainmaintaining and enhancing our reputation could fail. Even if we are successful in our branding efforts, such efforts may not be cost-effective. If we are unable to maintain or enhance consumer awareness of our brand cost-effectively, our business, results of operations and financial condition could be materially adversely affected.
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, or increase their fees, or if our relationships with these providers deteriorate, we could suffer increased costs and delays in our ability to provide consumers with content or provide similar services until an equivalent provider could be found or we could develop replacement technology or operations. In addition, if we are unsuccessful in identifying or finding high-quality partners, if we fail to negotiate cost-effective relationships with them or if we ineffectively manage these relationships, it could adversely affect our business and financial results.
prove more expensive than we anticipate, and we may not succeed in increasing our revenue and margins sufficiently to offset these higher expenses. We incur significant expenses in acquiring consumers, developing our technology and marketing the products and services we offer. Our costs also may 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.
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 data protection requirements. Moreover, if third parties that we work with violate applicable laws or our policies, such violations also may put consumer or insurance provider information at risk and could in turn harm our reputation, business and operating results.
Although we
As of July 31, 2018, we had $11.0
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
For example, we were contacted by a representative from a state tax assessor’s office requesting remittance of uncollected sales taxes. While we do not believe our services are taxable in this state, if we do not prevail in our position, uncollected sales taxes due for the period could amount to approximately $1.5 million including interest and penalties.
consumers. TheCAN-SPAM Act regulates
In addition, as of July 31, 2018,September 30, 2020, there were 1,265,4801,413,961 shares of Class A common stock subject to outstanding options, 2,535,8481,359,261 shares of either Class A common stock or Class B common stock subject to outstanding options, 1,875,8723,646,253 shares of Class A common stock subject to outstanding restricted stock unit awards, or RSUs, 242,496 shares of Class B common stock subject to outstanding RSUs and an additional 1,129,632432,095 shares of Class A common stock reserved for future issuance under our equity incentive plans.plan. Because we have registered all12,677,509 shares of our Class A common stock and Class B common stock that may be issued under our equity incentive plans pursuant to a Registration Statement registration statements
In particular, in May 2014, the FASB issued Accounting Standards Update, or ASU,No. 2014-09,Revenue from Contracts with Customers (Topic 606), or ASU2014-09, which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. The core principle
Proceeds.ProceedsRecent Sales of Unregistered Equity SecuritiesFrom April 1, 2018 through June 30, 2018, we granted under our Amended and Restated 2008 Stock Incentive Plan (i) options to purchase 884,000 shares of our Class A common stock, at an exercise price of $10.42 per share, and (ii) 103,984 restricted stock units to be settled in shares of our Class A common stock.From April 1, 2018 through June 30, 2018, we issued and sold to one employee an aggregate of 6,936 shares of Class B common stock upon the exercise of stock options under our Amended and Restated 2008 Stock Incentive Plan at per share exercise price of $1.27.The stock options and restricted stock units and the common stock issued upon the exercise of options described above were issued under our Amended and Restated 2008 Stock Incentive Plan in reliance on the exemption provided by Rule 701 promulgated under the Securities Act of 1933, as amended, or the Securities Act. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us. The foregoing transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering.
J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as joint book-running managers of the IPO, with Canaccord Genuity LLC, JMP Securities LLC, Needham & Company LLC, Oppenheimer & Co. Inc., Raymond James & Associates, Inc. and William Blair & Company, L.L.C. acting asco-managers. The offering commenced on June 27, 2017 and terminated without the sale of the 703,125 shares registered for potential issuance upon exercise of the underwriters’ option to purchase additional shares in the IPO.
On July 2, 2018, 3,125,000 shares of Class A common stock were sold on our behalf and 1,562,500 shares of Class A common stock were sold on behalf of the selling stockholders at an initial public offering price to the public of $18.00 per share, resulting in aggregate gross proceeds of $56.3 million to us and $28.1 million to the selling stockholders. We paid to the underwriters of the IPO an underwriting discount of $3.9 million and the selling stockholders paid to the underwriters an aggregate underwriting discount of $2.0 million. In addition, we incurred expenses of approximately $3.7 million which, when added to the underwriting discount paid by us, amounted to total expenses to us of approximately $7.6 million. Thus, the net offering proceeds to us, after deducting underwriting discounts and commissions and other offering expenses, were approximately $48.6 million. No offering expensesNone of the net proceeds were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10.0% or more of any class of our equity securities or to any other affiliates.
affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors as compensation for board or board committee service. As of September 30, 2020, we estimate that we have used approximately $28.4 million of the net proceeds from our IPO for general corporate purposes, capital expenditures and our acquisition of Crosspointe, including $7.0 million to repay amounts outstanding under our revolving line of credit with Western Alliance Bank. There has been no material change in the planned use of IPO proceeds from that described in the final prospectus for the IPO filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on June 28, 2018.
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The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not 10-Q, irrespective of any general incorporation language contained in such filing. |
EVERQUOTE, INC. | ||||||
Date: | By: | /s/ Seth Birnbaum | ||||
Seth Birnbaum President and Chief Executive Officer (Principal Executive Officer) | ||||||
Date: | By: | /s/ John Wagner | ||||
John Wagner Chief Financial Officer and Treasurer (Principal Financial Officer) |
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