EverQuote, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. EverQuote operates an online insurance marketplace, earning revenue primarily from consumer referrals and, to a lesser extent, policy commissions.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $68.0 million | $101.9 million | $177.2 million | $212.6 million |
| Operating loss | $13.4 million | $3.8 million | $15.8 million | $9.5 million |
| Net loss | $13.2 million | $3.8 million | $15.7 million | $9.5 million |
| Adjusted EBITDA (non-GAAP) | $(2.1) million | $1.4 million | $3.3 million | $3.9 million |
| Variable marketing margin (VMM) | $24.7 million; 36.3% of revenue | $33.1 million; 32.5% | $60.2 million; 34.0% | $67.4 million; 31.7% |
Q2 revenue declined 33.3% year over year; first-half revenue declined 16.6%. Automotive revenue was $49.7 million in Q2, down from $81.4 million, and $139.4 million for the first half, down from $169.1 million. Management attributed most of the automotive decline to lower carrier spending on referrals. Automotive represented 79% of first-half revenue. Cost of revenue was 8.2% of Q2 revenue versus 5.9% a year earlier; sales and marketing was 86.5% versus 86.2%.
At June 30, cash and cash equivalents were $31.0 million, total assets $145.1 million, and stockholders’ equity $105.5 million. Six-month operating cash flow was positive $2.1 million, investing cash outflow was $2.0 million, and financing cash inflow was $0.1 million; cash increased $0.2 million. The company had no borrowings under its credit facility at June 30. Lease liabilities totaled $4.6 million, including $2.8 million current. Management said cash was expected to fund operating and capital needs for at least 12 months from issuance, excluding credit availability.
Material changes and management outlook
- Q2 losses widened despite lower operating expenses, reflecting the sharp revenue drop and $3.8 million of restructuring charges. Six-month adjusted EBITDA also declined year over year.
- In June, the company committed to exiting health insurance and reducing its workforce by 175 employees, approximately 28%. It recorded $3.8 million in severance and related charges, including $2.7 million expected to be paid over the following 12 months. Management expects non-marketing operating expense savings of more than 15% and expects the restructuring and exit to be completed by year-end 2023.
- On August 1, 2023, EverQuote completed the sale of its Eversurance subsidiary and health vertical assets for $13.2 million cash, subject to customary adjustments. Assets included $32.2 million of commissions receivable expected to be collected over seven years. Management said the transaction would result in additional charges in Q3; the filing does not provide a clear amount.
- Management expects 2023 revenue to decrease versus 2022, citing lower carrier spending, and expects other-vertical revenue to fall following the health exit. Auto insurers’ elevated claims costs and underwriting pressure have affected referral demand and pricing; management expects these market effects to continue.
- On August 7, the credit agreement was amended: the revolving line was reduced from $35 million to $25 million, term-loan availability was eliminated, and the interest rate became the greater of 7.0% or prime. The revised agreement requires a minimum adjusted quick ratio of 1.10; below 1.30, the lender may apply cash receipts to repayment until the ratio reaches at least 1.30 for two consecutive months.
Risks, contingencies, and other notable items
- Customer and industry concentration: two customers contributed 12% and 11% of Q2 revenue; for the first half, two customers contributed 25% and 11%. Customer agreements are short-term and customers may reduce or cease purchases. Auto insurance providers generated 79% of first-half revenue.
- Insurance carrier spending is sensitive to claims severity, frequency, inflation, and insurers’ premium adequacy. The company also relies on consumer acquisition channels, including third-party sources, and on its insurance-provider relationships.
- Commissions are recognized using estimated constrained lifetime values, while significant balances are collected over time. At June 30, current and non-current commissions receivable totaled $47.1 million; estimates may change with policy duration, renewal, conversion, and payment trends.
- The company reported an accumulated deficit of $177.8 million. It maintains a valuation allowance against its overall net deferred tax asset. Management reported disclosure controls were effective and no material change in internal control during the quarter.
- Management did not expect ordinary-course legal matters to have a material adverse effect; no material indemnification costs had been incurred. The filing identifies no material changes to contractual obligations.
Most important facts for investors to verify
- Whether auto-carrier referral spending and revenue stabilize, particularly given customer concentration and the automotive insurance market’s claims pressures.
- Whether the workforce reduction delivers the targeted savings, and the full costs and Q3 accounting effects of the health-vertical sale and exit.
- Whether the $13.2 million sale proceeds and collection of the transferred commissions receivable align with expectations.
- Liquidity and covenant headroom under the amended credit facility, including the borrowing-base limit and adjusted quick ratio provisions.
- The quality and sustainability of reported VMM and adjusted EBITDA; both are non-GAAP measures, and adjusted EBITDA excludes recurring stock compensation and other expenses.