☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
March 31, 2021
☐ | 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 ☐ Non-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 | |||||
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5 | ||||||
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| 8 | |||||
Item 2. | ||||||
Item 3. | ||||||
Item 4. | ||||||
PART II. | ||||||
Item 1. | ||||||
Item 1A. | ||||||
Item 2. | ||||||
Item 6. | ||||||
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.
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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March 31, 2021 | December 31, 2020 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 46,886 | $ | 42,870 | ||||
Accounts receivable, net | 49,067 | 46,079 | ||||||
Prepaid expenses and other current assets | 8,280 | 8,452 | ||||||
Total current assets | 104,233 | 97,401 | ||||||
Property and equipment, net | 6,080 | 6,173 | ||||||
Goodwill | 9,969 | 9,794 | ||||||
Acquired intangible assets, net | 3,063 | 3,366 | ||||||
Operating lease right-of-use | 9,070 | 9,621 | ||||||
Other assets | 3,254 | 2,695 | ||||||
Total assets | $ | 135,669 | $ | 129,050 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 32,263 | $ | 32,964 | ||||
Accrued expenses and other current liabilities | 12,232 | 9,421 | ||||||
Deferred revenue | 1,812 | 1,869 | ||||||
Operating lease liabilities | 2,819 | 2,593 | ||||||
Total current liabilities | 49,126 | 46,847 | ||||||
Operating lease liabilities, net of current portion | 7,470 | 8,093 | ||||||
Other long-term liabilities | 3,085 | 3,128 | ||||||
Total liabilities | 59,681 | 58,068 | ||||||
Commitments and contingencies (Note 9) | 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; 22,351,517 shares and 20,784,065 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 22 | 21 | ||||||
Class B common stock, $0.001 par value; 30,000,000 shares authorized; 6,407,678 shares and 7,429,502 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 6 | 7 | ||||||
Additional paid-in capital | 197,964 | 189,172 | ||||||
Accumulated other comprehensive income (loss) | 8 | (7 | ) | |||||
Accumulated deficit | (122,012 | ) | (118,211 | ) | ||||
Total stockholders’ equity | 75,988 | 70,982 | ||||||
Total liabilities and stockholders’ equity | $ | 135,669 | $ | 129,050 | ||||
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 March 31, | ||||||||
2021 | 2020 | |||||||
Revenue | $ | 103,822 | $ | 81,364 | ||||
Cost and operating expenses: | ||||||||
Cost of revenue | 5,953 | 5,335 | ||||||
Sales and marketing | 87,569 | 66,504 | ||||||
Research and development | 8,573 | 6,459 | ||||||
General and administrative | 5,596 | 4,719 | ||||||
Acquisition-related | (79 | ) | — | |||||
Total cost and operating expenses | 107,612 | 83,017 | ||||||
Loss from operations | (3,790 | ) | (1,653 | ) | ||||
Other income (expense): | ||||||||
Interest income | 14 | 111 | ||||||
Other income (expense), net | (25 | ) | 100 | |||||
Total other income (expense), net | (11 | ) | 211 | |||||
Net loss | $ | (3,801 | ) | $ | (1,442 | ) | ||
Net loss per share, basic and diluted | $ | (0.13 | ) | $ | (0.05 | ) | ||
Weighted average common shares outstanding, basic and diluted | 28,431 | 26,640 | ||||||
Comprehensive loss: | ||||||||
Net loss | $ | (3,801 | ) | $ | (1,442 | ) | ||
Other comprehensive income (loss): | ||||||||
Foreign currency translation adjustment | 15 | — | ||||||
Comprehensive loss | $ | (3,786 | ) | $ | (1,442 | ) | ||
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 Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Equity | |||||||||||||||||||||||||
Balances at December 31, 2020 | 20,784,065 | $ | 21 | 7,429,502 | $ | 7 | $ | 189,172 | $ | (7 | ) | $ | (118,211 | ) | $ | 70,982 | ||||||||||||||||
Issuance of common stock upon exercise of stock options | 213,317 | 0 | — | — | 1,272 | — | — | 1,272 | ||||||||||||||||||||||||
Vesting of restricted stock units | 332,311 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 7,520 | — | — | 7,520 | ||||||||||||||||||||||||
Transfer of Class B common stock to Class A common stock | 1,021,824 | 1 | (1,021,824 | ) | (1 | ) | — | — | — | — | ||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | 15 | — | 15 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (3,801 | ) | (3,801 | ) | ||||||||||||||||||||||
Balances at March 31, 2021 | 22,351,517 | $ | 22 | 6,407,678 | $ | 6 | $ | 197,964 | $ | 8 | $ | (122,012 | ) | $ | 75,988 | |||||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | 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 | 0 | — | — | 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 | $ | 0 | $ | (108,451 | ) | $ | 56,232 | |||||||||||||||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (3,801 | ) | $ | (1,442 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization expense | 1,174 | 849 | ||||||
Stock-based compensation expense | 7,520 | 4,540 | ||||||
Change in fair value of contingent consideration | (79 | ) | — | |||||
Provision for (recovery of) bad debt | (46 | ) | 21 | |||||
Unrealized foreign currency transaction (gains) losses | 15 | — | ||||||
Changes in operating assets and liabilities, net of effects from acquisition: | ||||||||
Accounts receivable | (2,942 | ) | (3,462 | ) | ||||
Prepaid expenses and other current assets | 172 | (94 | ) | |||||
Operating lease right-of-use | 791 | — | ||||||
Other assets | (733 | ) | (4 | ) | ||||
Accounts payable | (702 | ) | 3,983 | |||||
Accrued expenses and other current liabilities | 2,810 | (489 | ) | |||||
Operating lease liabilities | (638 | ) | — | |||||
Deferred revenue | (57 | ) | 76 | |||||
Other long-term liabilities | 36 | (51 | ) | |||||
Net cash provided by operating activities | 3,520 | 3,927 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of property and equipment, including costs capitalized for development of internal-use software | (777 | ) | (885 | ) | ||||
Net cash used in investing activities | (777 | ) | (885 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock options | 1,272 | 1,364 | ||||||
Net cash provided by financing activities | 1,272 | 1,364 | ||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 1 | — | ||||||
Net increase in cash, cash equivalents and restricted cash | 4,016 | 4,406 | ||||||
Cash, cash equivalents and restricted cash at beginning of period | 43,120 | 46,304 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 47,136 | $ | 50,710 | ||||
Supplemental disclosure of noncash investing and financing information: | ||||||||
Operating lease liabilities arising from obtaining right-of-use | $ | 240 | $ | — | ||||
Reconciliation of cash, cash equivalents and restricted cash: | ||||||||
Cash and cash equivalents | $ | 46,886 | $ | 50,460 | ||||
Restricted cash (included in other assets) | 250 | 250 | ||||||
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 47,136 | $ | 50,710 | ||||
On July 2, 2018,
the Company’s use of estimates in preparation of its condensed 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 condensed 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.
its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
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, 20172020 included in the Company’s Registration StatementAnnual Report onForm S-1, File No. 333-225379
2021 or any other period.
Due to the
Deferred Offering Costs
loss as operating expenses or income.
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Direct channels | 90 | % | 93 | % | ||||
Indirect channels | 10 | % | 7 | % | ||||
100 | % | 100 | % | |||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Automotive | $ | 84,481 | $ | 67,641 | ||||
Other | 19,341 | 13,723 | ||||||
Total Revenue | $ | 103,822 | $ | 81,364 | ||||
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Deferred revenue was $1.8 million and $1.9 million as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021, the Company recognized revenue of $1.2 million that was included in the contract liability balance (deferred revenue) at December 31, 2020. 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
Company reported a net loss, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their affect is anti-dilutive.
March 31, | ||||||||
2021 | 2020 | |||||||
Options to purchase common stock | 1,965,185 | 3,120,480 | ||||||
Unvested restricted stock units | 2,842,867 | 3,585,469 | ||||||
4,808,052 | 6,705,949 | |||||||
equivalent.
Recently Issued Accounting Pronouncements
In May 2014,
Cash paid | $ | |||
Fair value of contingent consideration to be settled in stock | 1,751 | |||
Total purchase price consideration | $ | 16,681 | ||
Assets Acquired and Liabilities Assumed: | ||||
Commission s receivable (current and long-term) | $ | 3,285 | ||
Customer Relationships | 3,600 | |||
Other identifiable intangible assets | 270 | |||
Operating lease right-of-use assets | 1,469 | |||
Goodwill | 9,969 | |||
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 | ||
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In February 2016,
March 31, 2021 | ||||||||||||||||
Weighted Average Useful Life | Gross Amount | Accumulated Amortization | Carrying Value | |||||||||||||
(in years) | ||||||||||||||||
Customer relationships | 5 | $ | 3,600 | $ | (735 | ) | $ | 2,865 | ||||||||
Other identifiable intangible assets | 3.7 | 270 | (72 | ) | 198 | |||||||||||
$ | 3,870 | $ | (807 | ) | $ | 3,063 | ||||||||||
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 | ||||||||||
In August 2016, the FASB issued ASUNo. 2016-15,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 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. Fornon-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 reflectedintangible assets 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 CompanyMarch 31, 2021, 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 for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Fornon-public entities and emerging growth companies that choose to take advantage of the extended transition periods, the standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. 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. The Company is currently evaluating the impact that the adoption of ASU2016-18 will have on its financial statements.
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 requiredexpected to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Fornon-public entities and emerging growth companies that choose to take advantageas follows (in thousands):
Year Ending December 31, | ||||
2021 (Remaining nine months) | $ | 879 | ||
2022 | 826 | |||
2023 | 609 | |||
2024 | 440 | |||
2025 | 309 | |||
$ | 3,063 | |||
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In June 2018, the FASB issued ASU No.2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting(“ASU2018-07”). ASU2018-07 is intended to simplify aspects of share-based compensation issued tonon-employees by making the guidance consistent with the accounting for employee share-based compensation. For public entities, ASU2018-07 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Fornon-public entities and emerging growth companies that choose to take advantage of the extended transition periods, ASU2018-07 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities but no earlier than the Company’s adoption of ASU2014-09. The Company is currently evaluating the impact that the adoption of ASU2018-07 will have on its financial statements.
3.
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.
December 31, | ||||||||
2021 | 2020 | |||||||
Accrued employee compensation and benefits | $ | 2,543 | $ | 4,105 | ||||
Accrued advertising expenses | 6,381 | 2,596 | ||||||
Other current liabilities | 3,308 | 2,720 | ||||||
$ | 12,232 | $ | 9,421 | |||||
In March 2018, the Company executed the 2018 Loan Modification (the “2018 Loan Modification”Agreement”) to modify the amended Loan and Security Agreement to increase the revolving line of credit from $6.0 million to $11.0 million, extend the maturity date of the revolving line of credit to March 2020 and eliminate the term loan.. Pursuant to the 20182020 Loan Modification,Agreement, borrowings under the revolving line of credit cannot exceed 80% of eligible accounts receivable balances, and continue to bear interest atone-half percent (0.5%) above the greater of 4.25%3.25% or the prime rate.rate and mature in August 2022. Borrowings are collateralized by substantially all of the Company’s assets and property. The terms of the 2018 Loan Modification required that the existing outstanding term loan outstanding under the amended Loan and Security Agreement be repaid. Accordingly, on March 27, 2018, the Company used $2.3 million of proceeds from the revolving line of credit to repay all amounts then due on the term loan. The interest rate for the revolving line of credit was 5.5% as of June 30, 2018.
As of June 30, 2018,March 31, 2021, the Company had $7.0 million0 amounts 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.
$12.3 million.
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 March 31, | ||||||||
2021 | 2020 | |||||||
Cost of revenue | $ | 91 | $ | 54 | ||||
Sales and marketing | 3,391 | 1,695 | ||||||
Research and development | 2,327 | 1,276 | ||||||
General and administrative | 1,711 | 1,515 | ||||||
$ | 7,520 | $ | 4,540 | |||||
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 $4.1 million related to unvested awards with performance-based vesting conditions, which have not provided for any foreign taxes.
been deemed probable.
Operating
Lease incentives, payment escalations and rent holidays specified in the lease agreements are accrued or deferred as appropriate such that rent expense per square foot is recognized on a straight-line basis over the terms of occupancy. As of June 30, 2018 and December 31, 2017, the Company had a deferred rent liability of $1.2 million and $0.9 million, respectively.
As of June 30, 2018 and December 31, 2017, the Company maintained security deposits of $0.4 million with the landlords of its leases, which amounts are included in other assets (long-term) onleases. There have been no material changes to the Company’s balance sheets.
Future minimum lease payments under the operating leases as of June 30, 2018 are as follows (in thousands):
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 | |||
|
| |||
$ | 12,153 | |||
|
|
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 forduring the three months ended June 30, 2018. The Company recognized $0.3 million underMarch 31, 2021. For additional information, please read Note 11,
December 31, 2020.
2020.
and Other Contingencies
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
12.2020.
Related party referrals
EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
13. Subsequent Events
On July 2, 2018, the Company completed the IPO, and issued and sold 3,125,000 shares
Consumers may view insurance as a simple commodityconnect with standard pricing. However, findingcustomers shopping for insurance.
providers and, in select verticals, directly from commissions on the sale of policies.
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,or other interactions we have presentedwith consumers through third-party websites that result 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.
a revenue generating transaction.
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 andAlso, 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 a 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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Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
(in thousands) | ||||||||
Automotive | $ | 84,481 | $ | 67,641 | ||||
Other | 19,341 | 13,723 | ||||||
Total Revenue | $ | 103,822 | $ | 81,364 | ||||
marketplace technology.
Interest Expense
Interest expense
core operations.
On December 22, 2017,
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
(in thousands) | ||||||||
Net loss | $ | (3,801 | ) | $ | (1,442 | ) | ||
Stock-based compensation | 7,520 | 4,540 | ||||||
Depreciation and amortization | 1,174 | 849 | ||||||
Acquisition-related | (79 | ) | — | |||||
Interest income | (14 | ) | (111 | ) | ||||
Adjusted EBITDA | $ | 4,800 | $ | 3,836 | ||||
2020
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 March 31, | ||||||||
2021 | 2020 | |||||||
(in thousands) | ||||||||
Statement of Operations Data: | ||||||||
Revenue(1) | $ | 103,822 | $ | 81,364 | ||||
Cost and operating expenses(2): | ||||||||
Cost of revenue | 5,953 | 5,335 | ||||||
Sales and marketing | 87,569 | 66,504 | ||||||
Research and development | 8,573 | 6,459 | ||||||
General and administrative | 5,596 | 4,719 | ||||||
Acquisition-related | (79 | ) | — | |||||
Total cost and operating expenses | 107,612 | 83,017 | ||||||
Loss from operations | (3,790 | ) | (1,653 | ) | ||||
Other income (expense): | ||||||||
Interest income | 14 | 111 | ||||||
Other income (expense), net | (25 | ) | 100 | |||||
Total other income (expense), net | (11 | ) | 211 | |||||
Net loss | $ | (3,801 | ) | $ | (1,442 | ) | ||
Other Financial and Operational Data: | ||||||||
Quote requests | 7,720 | 7,392 | ||||||
Variable marketing margin | $ | 31,438 | $ | 23,815 | ||||
Adjusted EBITDA(3) | $ | 4,800 | $ | 3,836 |
(1) | Comprised of revenue from the following distribution channels: |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Direct channels | 90 | % | 93 | % | ||||
Indirect channels | 10 | % | 7 | % | ||||
100 | % | 100 | % | |||||
(2) | Includes stock-based compensation expense as follows: |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
(in thousands) | ||||||||
Cost of revenue | $ | 91 | $ | 54 | ||||
Sales and marketing | 3,391 | 1,695 | ||||||
Research and development | 2,327 | 1,276 | ||||||
General and administrative | 1,711 | 1,515 | ||||||
$ | 7,520 | $ | 4,540 | |||||
(3) | See “—Non-GAAP Financial Measure” for information regarding our use of adjusted EBITDA as anon-GAAP financial measure and a reconciliation of adjusted EBITDA to its 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 | % |
Three Months Ended March 31, | Change | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Revenue | $ | 103,822 | $ | 81,364 | $ | 22,458 | 27.6 | % |
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 March 31, | Change | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of revenue | $ | 5,953 | $ | 5,335 | $ | 618 | 11.6 | % | ||||||||
Percentage of revenue | 5.7 | % | 6.6 | % |
increases.
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 March 31, | Change | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Sales and marketing expense | $ | 87,569 | $ | 66,504 | $ | 21,065 | 31.7 | % | ||||||||
Percentage of revenue | 84.3 | % | 81.7 | % |
$1.7 million, respectively.
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 | % |
Three Months Ended March 31, | Change | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Research and development expense | $ | 8,573 | $ | 6,459 | $ | 2,114 | 32.7 | % | ||||||||
Percentage of revenue | 8.3 | % | 7.9 | % |
Three Months Ended March 31, | Change | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
General and administrative expense | $ | 5,596 | $ | 4,719 | $ | 877 | 18.6 | % | ||||||||
Percentage of revenue | 5.4 | % | 5.8 | % |
expenseadministrative expenses was primarily due to an increase in personnel-related costs of $1.0$0.4 million, as a result of our continued hiring of research and development employees to further develop and enhance our marketplace websites and technology. Office and occupancy costs also increased by $0.2 million as a result of thean increase in headcount.
Generalprofessional fees of $0.4 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 millionan increase in insurance costs of $0.2 million. Personnel-related costs for the three months ended June 30, 2017 toMarch 31, 2021 and 2020 included stock-based compensation expense of $1.7 million and $1.5 million, respectively.
Interest Expense
Interest expense remained consistent atless than $0.1 million for the three months ended June 30, 2018March 31, 2021 and 2017 and $0.2 million for the six months ended June 30, 2018 and 2017 primarily due to consistent average outstanding borrowings for the comparative periods.
Quote requests
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 | % |
Quote requests increased by 0.1was $0.1 million for the three months ended June 30, 2018 and increased by 0.6 million for the six months ended June 30, 2018. Quote requests increased due to increased spending on online marketplace advertising.
Variable Marketing Margin
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 marketing margin increased by $3.7 million from $9.1March 31, 2020. Other income (expense), net included net foreign transaction losses of less than $0.1 million for the three months ended June 30, 2017 to $12.8March 31, 2021 and included sublease income of $0.1 million for the three months ended June 30, 2018 andMarch 31, 2020.
Three Months Ended March 31, | Change | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
(in thousands except percentages) | ||||||||||||||||
Quote requests | 7,720 | 7,392 | 328 | 4.4 | % |
Three Months Ended March 31, | Change | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Revenue | $ | 103,822 | $ | 81,364 | $ | 22,458 | 27.6 | % | ||||||||
Less: total advertising expense (a component of sales and marketing expense) | 72,384 | 57,549 | ||||||||||||||
Variable marketing margin | $ | 31,438 | $ | 23,815 | $ | 7,623 | 32.0 | % | ||||||||
Percentage of revenue | 30.3 | % | 29.3 | % |
Since
As of December 31, 2017, we had a term loan with an outstanding principal balance of $2.6 million and a $6.0 million revolving line of credit with an outstanding balance of $2.0 million under our amended Loan and Security Agreement. Borrowings under the revolving line of credit could not exceed 80% of eligible accounts receivable balances and bore interest at an annual rate of 0.5% above the greater of 3.5% or the prime rate (5.0% as of December 31, 2017). The term loan was repayable in 36 equal monthly installments through August 2019 and accrued interest at an annual rate of 2.0% above the greater of 3.5% or the prime rate (6.50% as of December 31, 2017). Borrowings under the amended Loan and Security Agreement were collateralized by substantially all of our assets and property.
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. As of March 31, 2021, we were in compliance with these covenants. 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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2020:
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
(in thousands) | ||||||||
Net cash provided by operating activities | $ | 3,520 | $ | 3,927 | ||||
Net cash used in investing activities | (777 | ) | (885 | ) | ||||
Net cash provided by financing activities | 1,272 | 1,364 | ||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 1 | — | ||||||
Net increase in cash, cash equivalents and restricted cash | $ | 4,016 | $ | 4,406 | ||||
During the six months ended June 30, 2018, operating
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 each of the three months ended March 31, 2021 and 2020, we capitalized $0.7 million of software development costs.
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$1.3 million and principal payments made on our term loan$1.4 million, respectively, and consisted 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.
options.
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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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) | $ | 11,784 | $ | 3,025 | $ | 5,657 | $ | 2,276 | $ | 826 | ||||||||||
Total | $ | 11,784 | $ | 3,025 | $ | 5,657 | $ | 2,276 | $ | 826 | ||||||||||
(1) | Amounts in table reflect payments due for our office leases |
|
We prepare our
under different assumptions or conditions.
Commission.
As of June 30, 2018,March 31, 2021, we had no outstanding borrowings under our revolving line of credit of $7.0 million bearing interest at a rate of 5.5%. Changesand therefore no material exposure to fluctuations in interest rates.
effective at the reasonable assurance level.
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 compete with other media for advertising spend from our insurance provider customers, and if we are unable to maintain or increase our share of the advertising spend of our insurance provider customers, our business could be harmed.
We compete for insurance provider advertising spend with traditional offline media such as television, billboards, radio, magazines and newspapers, as well as online sources such as websites, social media and websites dedicated to providing multiple quote insurance information. Our ability to attract and retain insurance provider customers, and to generate advertising revenue from them, depends on a number of factors, including:
the ability of our insurance provider customers to earn an attractive return on investment from their spending with us;
our ability to increase the number of consumers using our marketplace;
our ability to compete effectively with other media for advertising spending; and
our ability to keep pace with changes in technology and the practices and offerings of our competitors.
We may not succeed in retaining or capturing a greater share of our insurance provider customers’ advertising spending compared to alternative channels. If our current insurance provider customers reduce or end their advertising spending with us and we are unable to increase the spending of our other insurance provider customers or attract new insurance provider customers, our revenue and business and financial results would be materially adversely affected.
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.
If consumers do not find value in our services or do not like the consumer experience on our platform, the number of referrals in our marketplace may decline, and our business, results of operations and financial condition could be materially adversely affected.
If we fail to provide a compelling insurance shopping experience to our consumers both through our web and mobile platforms, the number of consumer referrals purchased from us will decline, and insurance providers may terminate their relationships with us or reduce their spending with us. If insurance providers stop offering insurance in our marketplace, we may not be able to maintain and grow our consumer traffic, which may cause other insurance providers to stop using our marketplace. We believe that our ability to provide a compelling insurance shopping experience, both on the web and through mobile devices, is subject to a number of factors, including:
our ability to maintain a marketplace for consumers and insurance providers that efficiently captures user intent and effectively delivers relevant quotes to each individual insurance buyer;
our ability to continue to innovate and improve our marketplace;
our ability to launch new vertical offerings that are effective and have a high degree of consumer and insurance provider engagement;
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
our ability to access a sufficient amount of data to enable us to provide relevant quotes to consumers.
If the use of our marketplace declines or does not continue to grow, our business and operating results would be harmed.
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.
A significant portion of our revenue in recent periods was derived from one customer, and our results of operations could be adversely affected and stockholder value harmed if we lose business from this customer.
Sales to Progressive Casualty Insurance Company accounted for 23% and 20% of our revenue for the years ended December 31, 2016 and 2017, respectively, and for 23% and 19% of our revenue for the six months ended June 30, 2017 and 2018, respectively. This customer made purchases from us under short-term agreements and may cease doing business with us at any time with no notice. As a result, we have no assurances that this customer will continue to purchase from us at its historical levels or at all. If this customer were to reduce its levels of purchases from us or discontinue its relationship with us, the loss could have a material adverse effect on our results of operations in both the short and long term.
We depend on search engines, display advertising, social media, email, content-based online advertising and other online sources to attract consumers to our websites or marketplace, and if we are unable to cost-effectively attract consumers and convert them into quote requests in a cost-effective manner,that we can sell to our insurance provider customers, our business and financial results may be harmed.
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’
Consumer traffic to our websites and the volume of quote requests generated by consumer traffic varies and can decline from to time. For example, quote requests increased to 4,113,000 in the three months ended March 31, 2019, increased to 4,519,000 in the three months ended June 30, 2019, increased to 5,516,000 in the three months ended September 30, 2019 and increased to 5,863,000 in the three months ended December 31, 2019. Quote requests increased to 7,392,000 in the three months ended March 31, 2020, decreased to 6,777,000 in the three months ended June 30, 2020 decreased to 6,291,000 in the three months ended September 30, 2020 and increased to 6,553,000 in the three months ended December 31, 2020. Quote requests increased to 7,720,000 in the three months ended March 31, 2021. Additionally, even if we are successful in generating traffic to our websites, we may not be able to convert these visits into consumer quote requests.
Because we do not have exclusive relationshipsagreements with insurance providers consumers may obtain quotes and purchaseare short-term agreements, insurance policies from them without having to use our marketplace. Insurance providers can attract consumers directly throughdecrease their own marketing campaignsbids or other traditional methods of distribution, such as referral arrangements, physical storefront operations or broker agreements. Insurancestop participating in our auctions at any time with no notice. In addition, insurance providers also may offer quotesfrequently change their bidding in our auctions, which can make it difficult to prospective customers online directly, through one or more online competitors of our business, or both. Ifpredict revenue from period to period. Because our insurance provider customers determine to compete directlycan stop buying from us, or spend less with us, or choose to favor one or more of our competitors, they could cease providing us with quote information and terminateat 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, andtime our business, financial condition and results of operations and financial condition 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
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 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.
Insurance providers on our marketplace
Our ability to providesuccessfully match these consumers with insurance providers.
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.
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
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.
Like all
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.
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.
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.
Although we are not currently
As of July 31, 2018, we had $11.0
We may from
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
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.
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 of our Class A common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our Class A common stock.
In addition, as of JulyMarch 31, 2018,2021, there were 1,265,480982,788 shares of Class A common stock subject to outstanding options, 2,535,848982,397 shares of either Class A common stock or Class B common stock subject to outstanding options, 1,875,8722,842,867 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 1,129,6322,414,810 shares of Class A common stock reserved for future issuance under our equity incentive plans.plan. Because we have registered all14,088,187 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
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our management team and could divert their attention away from theday-to-day management of our business, which could materially adversely affect our business, financial condition and operating results.
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, 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.
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.
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 and provide 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.
To comply with the requirements of being a public company, we have undertaken various actions, and may need
We are an “emerging growth company,” and the reduced disclosure requirements applicablereporting, or to emerging growth 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. 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.
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 ofASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act with respect to ASU2014-09, which will result in ASU2014-09 becoming applicable to us on January 1, 2019. We are evaluating ASU2014-09 and have not determined the impact it may have on our financial reporting.
Changes in lease accounting standards may materially and adversely affect us.
The FASB recently adopted new accounting rules, to be effective for our fiscal year beginning after December 2019, that will require companies to capitalize most leases on their balance sheets by recognizing a lessee’s rights and obligations. When the rules are effective, we will be required to account for the leases for our office space as assets and liabilities on our balance sheet, while previously we accounted for such leases on an “off balance sheet” basis. As a result, lease-related assets and liabilities will be recorded on our balance sheet, and we may be required to make other changes to the recording and classification of our lease-related expenses. Though these changes will not have any direct effect on our overall financial condition, these changes will cause the total amount of assets and liabilities we report to increase.
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
affiliates, other than payments in the ordinary course of business to officers for salaries
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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/ | ||||
Jayme Mendal Chief Executive Officer and President (Principal Executive Officer) | ||||||
Date: | By: | /s/ John Wagner | ||||
John Wagner Chief Financial Officer and Treasurer (Principal Financial Officer) |
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