EverQuote, Inc. — Q2 2021 Form 10-Q
Business context and period: EverQuote operates an online marketplace connecting insurance shoppers with carriers, agents and distributors. This unaudited filing covers the quarter and six months ended June 30, 2021, compared with the corresponding 2020 periods. Amounts below are in millions of dollars unless noted.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $105.1 | $78.3 | $208.9 | $159.7 |
| Operating loss | $(1.9) | $(3.0) | $(5.7) | $(4.6) |
| Net loss | $(1.9) | $(2.8) | $(5.7) | $(4.3) |
| Adjusted EBITDA (non-GAAP) | $6.6 | $4.0 | $11.4 | $7.8 |
| Variable marketing margin | $32.8 (31.2% of revenue) | $23.5 (30.0%) | $64.3 (30.8%) | $47.3 (29.6%) |
| Quote requests (thousands) | 6,781 | 6,777 | 14,501 | 14,169 |
- Revenue grew 34.2% in Q2 and 30.8% for the first six months. Auto generated $86.4 million of Q2 revenue and $170.8 million for the half; other insurance verticals contributed $18.7 million and $38.0 million, respectively.
- Operating cash flow was $11.2 million for the first half, versus $7.9 million a year earlier. Investing activities used $1.3 million and financing activities provided $1.7 million. Cash, cash equivalents and restricted cash were $54.8 million at June 30.
- Cash and cash equivalents were $54.5 million; current assets were $108.9 million and current liabilities $47.5 million. The company had no revolving-credit borrowings and $25.0 million available, subject to facility terms and covenants. Lease liabilities were $9.6 million in total.
- Total assets were $138.8 million, total liabilities $57.2 million and stockholders’ equity $81.7 million at June 30. Accumulated deficit was $123.9 million.
Changes versus prior comparable periods
- Revenue growth was driven mainly by higher revenue per quote request, reflecting increased insurer demand for higher-performing referrals. Q2 quote requests were nearly flat year over year; first-half requests rose 2.3%.
- Variable marketing margin increased faster than revenue, while advertising expense rose to $72.2 million in Q2 and $144.6 million in the first half. Sales and marketing expense increased 32.6% in Q2 and 32.1% for the half.
- Net loss narrowed in Q2 but widened for the first half. Adjusted EBITDA increased in both comparisons; it is a non-GAAP measure and excludes, among other items, substantial stock-based compensation.
Outlook, commentary and risks
- The filing gives no specific numerical revenue or earnings guidance. Management expects sales and marketing expense to increase in the near term, both in dollars and as a share of revenue, and expects research and development expense to rise as the platform is expanded. Management anticipates longer-term sales and marketing efficiencies, but this is not assured.
- Management expects cash and cash equivalents to fund operating and capital expenditure needs for at least 12 months from issuance, excluding the credit line. The company has incurred operating losses and may continue to do so.
- COVID-19’s future effects remain uncertain; management said disruptions had not materially adversely affected results through June 30, 2021. Remote work and changes in consumer insurance-shopping behavior remain potential risks.
- Customer concentration is material: one customer represented 19% of first-half 2021 revenue; two customers represented 18% and 11% of Q2 revenue. Auto insurance accounted for 82% of first-half revenue. Provider relationships are generally short-term and customers may reduce spending or exit without notice.
- Disclosure controls were not effective because of material weaknesses in IT controls affecting revenue-related systems, including user access, program changes, and completeness and accuracy of data used in automated revenue calculations. The weaknesses had not caused a financial-statement misstatement; management was developing remediation and planned to test updated controls in Q4 2021.
- A state tax assessor requested uncollected sales taxes. The company disputes taxability and has not accrued a liability; potential exposure was estimated at approximately $1.5 million, including interest and penalties.
- On July 20, 2021, EverQuote signed an agreement to acquire PolicyFuel for approximately $16.0 million cash at closing plus contingent stock, subject to customary conditions; closing was expected by the end of Q3 2021. The filing also describes the Crosspointe acquisition and its contingent consideration.
- Other significant risks include competition and advertising-channel dependence, privacy and cybersecurity, telemarketing and insurance regulation, and the company’s dual-class voting structure. Class B shares carry ten votes each; affiliated holders controlled approximately 77% of voting power at June 30.
Important facts for investors to verify
- Whether rising revenue per quote request and variable marketing margin can be sustained, particularly with Q2 quote requests essentially flat.
- Customer and auto-vertical concentration, and any changes in insurer bids, referral demand or provider relationships.
- Progress and independent validation of remediation for the revenue-system control weaknesses.
- Resolution of the disputed sales-tax matter and the final terms, funding and integration risks of the PolicyFuel acquisition.
- Cash generation relative to continuing operating losses, advertising investment, stock-based compensation and acquisition spending; adjusted EBITDA should be assessed alongside GAAP results and cash flows.