EverQuote, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited results; comparisons are with Q1 2022 unless otherwise noted. EverQuote operates an online insurance marketplace and earns revenue primarily from selling consumer referrals, with additional revenue from policy commissions.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $109.2 million | $110.7 million; down 1.3% |
| Operating loss | $2.4 million | $5.7 million loss |
| Net loss | $2.5 million; $0.08 per share | $5.7 million; $0.19 per share |
| Adjusted EBITDA (non-GAAP) | $5.4 million | $2.4 million |
| Variable marketing margin (non-GAAP operating metric) | $35.6 million; 32.6% of revenue | $34.3 million; 31.0% of revenue |
| Cash and cash equivalents | $28.8 million at March 31, 2023 | $30.8 million at December 31, 2022 |
| Operating cash flow | $(1.2) million | $(3.8) million |
| Investing cash flow | $(1.0) million | $(0.7) million |
Automotive revenue rose to $89.7 million from $87.7 million; revenue from other verticals declined to $19.5 million from $23.0 million. Commission revenue was approximately 9% of total revenue, versus 13% a year earlier. Advertising expense was $73.6 million, down from $76.4 million. Accounts receivable increased to $39.2 million from $29.6 million at year-end, and commissions receivable totaled $46.3 million, of which $34.7 million was long-term.
Total liabilities were $48.8 million and stockholders’ equity was $111.6 million at March 31, 2023. The company had no outstanding revolving-credit borrowings. Its facility provides for a revolving line of credit of up to $35 million, subject to borrowing-base limits, and a term loan of up to $10 million; the filing does not report amounts drawn under the term loan. EverQuote reported covenant compliance.
Material changes and management commentary
- Revenue decreased by $1.5 million year over year. Lower revenue in other verticals, mainly health, was partly offset by higher automotive referral revenue.
- Sales and marketing expense fell 6.1% to $90.2 million, primarily from lower advertising and DTC agency personnel costs. General and administrative expense rose 12.8% to $7.8 million, including higher personnel costs, legal and consulting fees, and bad debt expense.
- Management attributed improved variable marketing margin to traffic optimization. Adjusted EBITDA increased, although the company remained loss-making under GAAP.
- Operating cash use improved year over year, but accounts receivable growth contributed to cash use. Financing cash flow was substantially lower than in Q1 2022, which included a $15 million private placement.
Outlook, risks, and unusual items
- Management expects overall 2023 revenue to decrease compared with 2022, anticipating lower spending by carrier partners. It expects near-term sales and marketing expense to decrease with carrier spending; research and development expense is expected to increase as the platform is enhanced.
- Auto insurance carrier spending remains sensitive to inflation, claims costs, and underwriting results. Management said a major carrier returned to higher spending in January 2023 but reduced customer acquisition spending in April after higher-than-expected claims losses.
- Customer concentration is significant: Progressive represented 34% of Q1 2023 revenue and State Farm 11%. Their short-term agreements may be reduced or ended without notice. One customer represented 30% of accounts and commissions receivable at quarter-end.
- EverQuote reported accumulated losses and a $164.6 million accumulated deficit, but expects existing cash to fund operating expenses and capital expenditures for at least 12 months from issuance, without relying on credit availability. A significant portion of commission receivables is expected to be collected over multiple years.
- Q1 included a $0.1 million credit from a reduction in the fair value of PolicyFuel contingent consideration. Stock-based compensation was $6.5 million; $36.6 million of unrecognized compensation expense remained, expected to be recognized over a weighted-average 2.6 years.
- Management said ordinary-course legal matters are not expected to have a material adverse effect; no material indemnification costs had been incurred. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether Progressive, State Farm, and other carriers sustain or change referral spending, and how customer concentration evolves.
- Whether management’s expectation of lower 2023 revenue is borne out, particularly in auto and health, and the resulting impact on GAAP profitability.
- Cash conversion, accounts receivable collection, and the timing and collectability of long-term commissions receivable.
- Credit-facility availability and borrowing-base capacity, covenant compliance, and any future term-loan draws.
- The assumptions underlying commission lifetime-value estimates and adjusted EBITDA, a non-GAAP measure that excludes significant recurring stock-based compensation.