EverQuote, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
EverQuote operates an online insurance marketplace, earning revenue primarily from selling consumer referrals to insurers and agents, plus commissions on policies sold. This unaudited filing covers the three and nine months ended September 30, 2023, compared with the same 2022 periods. In June 2023, EverQuote committed to exit health insurance; it sold its former subsidiary, Eversurance LLC, in August.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $55.0 million | $103.2 million | $232.2 million | $315.8 million |
| Operating loss | $29.4 million | $6.6 million | $45.2 million | $16.1 million |
| Net loss | $29.2 million | $6.5 million | $44.9 million | $15.9 million |
| Adjusted EBITDA (non-GAAP) | $(1.9) million | $2.0 million | $1.3 million | $5.8 million |
| Variable marketing margin | $19.4 million; 35.2% of revenue | $31.8 million; 30.8% | $79.6 million; 34.3% | $99.2 million; 31.4% |
Q3 automotive revenue was $43.1 million, home and renters $10.9 million, and other $1.0 million. Automotive provided 78% of Q3 revenue and 79% for the nine-month period. Direct channels contributed 76% of Q3 revenue, versus 85% a year earlier.
For the nine months, operating cash outflow was $2.0 million, compared with $10.9 million in 2022. Investing activities provided $10.2 million, principally from the $13.2 million health-business sale, partly offset by $3.0 million of property and equipment purchases. Cash increased by $8.2 million to $39.0 million. At September 30, total assets were $114.0 million, total liabilities $32.1 million, and stockholders’ equity $81.9 million. No revolving credit borrowings were outstanding. The filing reports no separate gross-margin measure.
Material changes versus the prior comparable period
- Q3 revenue fell 46.7%; nine-month revenue fell 26.5%. The principal driver was lower automotive carrier referral spending, including reduced subsidies, alongside the health exit.
- Q3 sales and marketing expense declined 47.8% to $46.5 million, mainly reflecting $35.7 million less advertising and lower personnel costs. However, revenue declined faster than several operating expense categories, and the Q3 operating loss widened.
- Q3 results included $19.8 million of restructuring and other charges, principally a $19.4 million loss on the health-asset sale and a $0.4 million office right-of-use asset impairment. Nine-month charges were $23.6 million, including $4.0 million of severance-related charges.
- Cash used in operations improved year over year, while the balance-sheet cash increase also benefited from proceeds from the health-business sale. Commissions receivable declined substantially, from $46.9 million at year-end 2022 to $13.5 million at September 30, 2023, in part reflecting the sale.
Outlook, commentary, risks and unusual items
- Management expects revenue to decrease in 2023 versus 2022 and referrals revenue to continue declining through at least Q4 2023, citing weak carrier demand and lost subsidies. No numerical revenue or earnings guidance is provided.
- State Farm, which represented 10% of Q3 revenue and 11% of nine-month revenue, notified EverQuote in October that it would discontinue subsidy payments through at least year-end 2023; discussions for 2024 were ongoing. Progressive accounted for less than 10% of Q3 revenue but 20% of nine-month revenue; the company also reported reduced purchases from both carriers.
- Management expects workforce reductions of approximately 28% (175 employees) to produce more than 15% savings in non-marketing operating expenses. The restructuring was described as complete at September 30; actual savings and operational effects remain uncertain.
- EverQuote had $39.0 million of cash and stated it expected cash to fund operating expenses and capital expenditures for at least 12 months from the financial statements’ issuance date, without relying on its credit line. The $25.0 million revolving facility matures July 2025, is subject to borrowing-base limits and covenants, and is secured by substantially all assets. The company was covenant-compliant. If its adjusted quick ratio falls below 1.30, the lender may apply cash receipts to repayment until the ratio reaches at least 1.30 for two consecutive months; the minimum covenant is 1.10.
- Principal risks include dependence on automotive insurance and a small number of customers, short-term provider relationships, volatile carrier acquisition budgets, and evolving telemarketing, consent, and privacy rules. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
- After quarter-end, on November 5, the board adopted an executive severance plan providing salary continuation and other benefits for qualifying terminations, with enhanced benefits in specified change-in-control cases.
Important facts for investors to verify
- Whether State Farm resumes subsidies or reaches a 2024 agreement, and how its decision affects agent activity and revenue.
- Carrier spending trends, particularly at Progressive and other major auto insurers, and whether referral demand stabilizes after Q3.
- Progress toward the stated cost savings, including any additional restructuring costs or disruption.
- Cash conversion and collections: commissions receivable depend on future policy renewals and carrier payments; confirm collections following the health-business sale.
- Revenue concentration, customer purchasing patterns, covenant headroom, and the availability of the revolving facility under its borrowing-base restrictions.