EverQuote, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2018; comparisons are with the quarter and nine months ended September 30, 2017, as applicable. Dollar amounts below are in millions unless noted.
Business context and reporting period
EverQuote operates an online marketplace connecting insurance shoppers with carriers, agents, and indirect distributors. It earns revenue by selling consumer referrals, principally for auto insurance, with home and life as additional verticals. The company completed its IPO on July 2, 2018, and its preferred stock converted into Class B common stock.
Financial and operating metrics
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $41.748 | $32.096 | $123.570 | $93.865 |
| Operating loss | $(3.936) | $(1.019) | $(6.798) | $(4.150) |
| Net loss | $(3.808) | $(1.135) | $(6.866) | $(4.418) |
| Adjusted EBITDA (non-GAAP) | $(1.008) | $(0.268) | $(1.968) | $(1.729) |
| Variable marketing margin (non-GAAP) | $12.879 | $9.498 | $37.392 | $27.462 |
| Quote requests | 3.044 million | 3.228 million | 9.519 million | 9.139 million |
- Q3 revenue increased 30.1%; nine-month revenue increased 31.6%. Q3 auto revenue was $35.9 million and home and life revenue $5.8 million. For the nine months, those verticals contributed $107.3 million and $16.2 million, respectively.
- Q3 net loss per share was $(0.15), versus $(0.07); nine-month net loss attributable to common stockholders was $(44.281) million, or $(3.12) per share. The nine-month common-stockholder loss included $37.415 million of preferred-stock accretion before the IPO conversion; reported net loss was $6.866 million.
- Q3 gross profit was approximately $38.6 million, with gross margin about 92.5%, compared with approximately $30.2 million and 94.1% a year earlier. Cost of revenue rose faster than sales, particularly due to call-center and hosting costs.
- Q3 variable marketing margin was 30.8% of revenue, up from 29.6%; nine-month margin was 30.3%, versus 29.3%. Adjusted EBITDA losses increased in Q3 and for the nine-month period.
- At September 30, cash and cash equivalents were $38.709 million; current assets were $62.143 million and current liabilities $18.850 million. Working capital was approximately $43.3 million. No debt was outstanding, and $11.0 million was available under the revolving credit facility.
- For the first nine months, operating cash flow was $(6.006) million, investing cash flow $(2.476) million, and financing cash flow $44.828 million. Financing included IPO proceeds; property and equipment spending included $1.8 million of capitalized software costs.
Material changes versus the prior period
- Q3 quote requests declined 5.7%, despite revenue growth. Management attributed the revenue increase mainly to higher revenue per quote request as insurer demand for referrals increased; higher home and life quote volume also contributed.
- Nine-month quote requests increased 4.2%, primarily with increased online marketplace advertising. Advertising expense rose to $87.7 million for the nine months from $67.6 million, while sales and marketing expense increased 27.6%.
- Research and development expense rose 68.9% in Q3 and 48.7% for the nine months, largely reflecting hiring. General and administrative expense rose sharply, including public-company professional and insurance costs and higher stock-based compensation.
- The March 2018 credit amendment increased the revolving facility from $6 million to $11 million, extended maturity to March 2020, and eliminated the term loan. The company repaid the term loan and, after IPO proceeds, reported no borrowings at quarter-end.
- The company raised approximately $48.6 million of net IPO proceeds. The cash flow statement reports $52.3 million of IPO proceeds before offering-cost payments; some IPO-related costs were paid separately.
Outlook, risks, contingencies, and unusual items
- Management expected cash on hand to fund operating expenses and capital expenditures for at least 12 months from the November 14, 2018 issuance date, without relying on the credit line. No quantified revenue or earnings guidance was provided.
- Management said that since September 2018, lower consumer referral pricing had reduced revenue per quote request and that variable marketing margin was expected to decline in the near term. It expected sales and marketing expense to increase in the near term, while anticipating longer-term efficiency gains; research and development and public-company general and administrative costs were also expected to rise.
- Key risks include dependence on short-term insurer relationships, customer concentration (one customer represented 22% of Q3 revenue and 20% of nine-month revenue), paid online traffic costs, competition, and exposure to insurance, privacy, consumer-protection, and marketing regulations. Q3 quote requests declined as cost per quote request increased.
- The revolving facility is secured by substantially all company assets and has financial and other covenants; the company reported compliance at quarter-end. Operating lease commitments totaled $14.890 million, with leases extending through 2024. Management reported no material legal proceedings or litigation reserves.
- The company planned to adopt ASC 606 revenue guidance on January 1, 2019 and was still assessing its impact; management had not identified a likely material impact based on its work to date. Lease accounting changes were also under evaluation.
- The filing reports effective disclosure controls and no material quarterly change in internal control over financial reporting. The company is a controlled company with a dual-class share structure; Class B shares carry ten votes each.
Important facts for investors to verify
- Whether lower referral pricing and rising acquisition costs continue to pressure revenue per quote request, quote volume, and variable marketing margin.
- How much revenue and receivables remain concentrated among major customers, and whether insurer relationships or spending change.
- Whether growth in revenue can outpace advertising, call-center, hosting, and personnel costs, and whether the company approaches profitability.
- Cash burn, IPO-proceeds use, capital expenditure needs, and ongoing compliance with the secured revolving-credit covenants.
- The effects of the ASC 606 and lease-accounting adoptions, and the consequences of customer-data, regulatory, and public-company risks.
- Potential share-supply and governance impacts, including the dual-class voting structure and the IPO lock-up expiration disclosed for December 24, 2018.