EverQuote, Inc. — Q1 2024 Form 10-Q
Business context and period. EverQuote operates an online marketplace connecting consumers shopping for insurance with insurers and agents. It earns revenue primarily by selling consumer referrals, with a smaller contribution from policy commissions. This unaudited filing covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. The company exited its health insurance vertical and completed a workforce reduction in 2023.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $91.1 million | $109.2 million |
| Operating income (loss) | $1.8 million | $(2.4) million |
| Net income (loss) | $1.9 million | $(2.5) million |
| Diluted EPS | $0.05 | $(0.08) |
| Adjusted EBITDA (non-GAAP) | $7.6 million | $5.4 million |
| Variable marketing margin (non-GAAP) | $30.8 million | $35.6 million |
| Operating cash flow | $10.4 million | $(1.2) million |
Revenue declined 16.6%. Operating margin was approximately 1.9%, versus negative 2.2%; net margin was approximately 2.1%, versus negative 2.3%. Cost of revenue was 5.5% of revenue, compared with 5.3%. Variable marketing margin was 33.8% of revenue, up from 32.6%, despite a 13.4% decline in the dollar amount. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP results.
Revenue mix: Automotive revenue was $77.5 million (down from $89.7 million); Home and Renters was $12.7 million (up from $9.5 million); Other was $0.8 million (down from $10.1 million). Direct channels generated 80% of revenue versus 86% a year earlier; indirect channels contributed 20% versus 14%. Commission revenue was less than 10% of total revenue in both periods.
Financial position and liquidity
- Cash and cash equivalents were $48.6 million at March 31, 2024, up from $38.0 million at year-end 2023. Total assets were $135.4 million and stockholders’ equity was $88.3 million.
- The company had no borrowings under its revolving credit facility. It had borrowing availability of up to $25 million, subject to eligible receivables and other agreement terms. The facility matures July 15, 2025, is secured by substantially all company assets, and carries interest at the greater of 7% or prime. The company reported covenant compliance.
- Management expects existing cash to fund operating and capital expenditure needs for at least 12 months from issuance of the statements, without relying on the credit facility.
- Cash increased by $10.7 million during the quarter. Operating cash flow benefited from net income and changes in working capital, including increases in accounts payable and accrued liabilities; accounts receivable increased by $17.1 million and partly offset those sources. Investing cash outflow was $0.8 million, primarily for property, equipment and capitalized software.
- Accounts receivable rose to $38.3 million from $21.2 million at year-end. One customer represented 48% of accounts and commissions receivable at March 31, 2024.
Material changes and management commentary
- The $18.2 million revenue decline reflected lower automotive revenue ($12.2 million lower) and lower revenue from other verticals ($9.2 million lower), partly offset by $3.2 million growth in Home and Renters. Automotive referral revenue was affected by reduced carrier spending, including lower subsidies from a carrier, and commission revenue also declined. The Other decline primarily reflected the health insurance exit.
- Sales and marketing expense decreased 21.6% to $70.8 million, primarily due to $13.4 million less advertising and lower personnel costs. Advertising expense was $60.2 million versus $73.6 million.
- Management expects overall 2024 revenue to increase versus 2023, including in automotive and Home and Renters, based on anticipated higher carrier-partner spending. It expects revenue from other verticals to decline further following the health exit. Management also anticipates higher sales and marketing expense with increased carrier spending, while personnel costs are expected to decrease; R&D is expected to remain relatively flat and G&A to decrease. These are expectations, not guaranteed results.
- Customer relationships’ estimated remaining useful life was revised from 6.6 years to five years, increasing the pace of future amortization. The filing estimates $1.4 million of intangible amortization for the remaining nine months of 2024.
- In April 2024, the company signed two Cambridge office leases through December 2027, with payments totaling $3.2 million.
Risks, contingencies and other items
- Auto insurance conditions remain volatile. Industry claims inflation and underwriting pressure led carriers to reduce customer-acquisition spending; management reported early improvement in 2024 but cautioned that recovery could be prolonged.
- Revenue and receivables are concentrated: one customer generated 30% of Q1 2024 revenue, and auto insurance providers generated 85%. The company also depends on insurance-provider relationships and third-party sources of consumer traffic.
- Regulatory changes concerning telemarketing consent and consumer privacy could require changes to marketing or data practices and increase compliance costs. Cybersecurity, competition, technology and the ability to monetize traffic are also identified risks.
- Management said ordinary-course legal matters were not expected to have a material adverse effect; no material indemnification liabilities were accrued. No material change to the prior annual report’s risk factors was reported.
- Disclosure controls were assessed as effective at a reasonable-assurance level, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether anticipated carrier spending recovery supports the company’s 2024 revenue outlook, particularly in auto insurance.
- How customer concentration and the increase in accounts receivable affect collections, cash conversion and liquidity.
- Whether improved GAAP profitability and operating cash flow persist, given the quarter’s working-capital contribution and ongoing stock-based compensation.
- Actual use and availability of the revolving credit facility, including compliance with its borrowing-base and liquidity covenants.
- The effect of the shorter customer-relationship useful life, the new office leases, and telemarketing or privacy rule changes on future expenses and cash flows.