EverQuote, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited, with comparison to Q1 2021. EverQuote operates an online insurance marketplace and direct-to-consumer agency, earning revenue mainly from selling consumer referrals and from policy commissions. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $110.7 | $103.8 | +6.6% |
| Automotive revenue | $87.7 | $84.5 | +3.8% |
| Other vertical revenue | $23.0 | $19.3 | +19.0% |
| Cost of revenue | $6.0 | $6.0 | +0.5% |
| Sales and marketing | $96.2 | $87.6 | +9.8% |
| Operating loss | $(5.7) | $(3.8) | Loss widened |
| Net loss | $(5.7) | $(3.8) | Loss widened |
| Adjusted EBITDA (non-GAAP) | $2.4 | $4.8 | Down 49.5% |
| Variable marketing margin (non-GAAP) | $34.3 | $31.4 | +9.0% |
Net loss per share was $(0.19), versus $(0.13). Revenue less cost of revenue was approximately 94.6% of revenue, compared with 94.3% in the prior-year quarter. Variable marketing margin was 31.0% of revenue, versus 30.3%. Sales and marketing was 86.9% of revenue, versus 84.3%; advertising expense was $76.4 million, up from $72.4 million. Commission revenue was approximately 13% of revenue, compared with less than 10% in Q1 2021.
Cash flow: Operating activities used $3.8 million, compared with $3.5 million provided in Q1 2021. Investing activities used $0.7 million. Financing activities provided $15.6 million, including $15.0 million from a private stock placement. Cash and cash equivalents were $46.1 million at quarter-end, up from $34.9 million at December 31, 2021.
Balance sheet and debt: Total assets were $170.5 million and total liabilities were $68.1 million at March 31, 2022. The company had no borrowings under its revolving credit facility, which provides up to $25.0 million and matures in August 2022. Current assets were $107.0 million against current liabilities of $58.2 million. Commissions receivable totaled $28.1 million, of which $18.9 million was long-term.
Changes versus the prior comparable period
- Revenue increased $6.9 million. Commission revenue rose by $5.2 million in automotive and $6.6 million in other verticals, partly offset by lower referral revenue: lower carrier spend in automotive and fewer referrals sold in other verticals.
- Sales and marketing expense increased $8.6 million, mainly from $4.0 million more advertising and $4.0 million more personnel costs, including DTC agency headcount.
- General and administrative expense rose 24.0% to $6.9 million; research and development declined 4.4% to $8.2 million.
- Operating cash flow shifted from a $3.5 million source to a $3.8 million use, affected by working-capital movements, including higher receivables and other assets.
Outlook, commentary, and risks
- Management expects 2022 revenue to be relatively flat or decrease slightly: anticipated commission growth is expected to be offset by lower automotive referral revenue amid auto-insurance industry challenges. Revenue may fluctuate seasonally, particularly with health-insurance enrollment periods.
- Management expects near-term operating expenses and capital expenditures to rise as the company expands its DTC agency, adds employees, and invests in technology and infrastructure. It expects sales and marketing expense to increase in the near term.
- Management believes cash and cash equivalents are sufficient for at least the next 12 months, without relying on the revolver. The filing also notes ongoing operating losses, an accumulated deficit of $143.4 million, and the possibility of reducing costs if revenue goals are not met.
- Auto insurance carrier marketing spend and bids are under pressure due to elevated industry loss ratios; the company says this trend is affecting, and is expected to continue affecting, automotive revenue growth during 2022. Automotive represented 79% of revenue in Q1 2022.
- Two customers represented 14% and 11% of Q1 2022 revenue. Customer agreements are short-term, and providers may reduce or stop purchases without notice.
- Commission revenue and receivables depend on estimates of policy duration, renewals, carrier mix, and other assumptions; changes could result in revenue adjustments or lower collections.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses in IT access controls, program change management, and controls over completeness and accuracy of data used in automated revenue calculations. The company reported no resulting financial-statement misstatement and is implementing a remediation plan.
- A state tax assessor requested payment of uncollected sales taxes. The company disputes taxability and has not accrued a liability; potential exposure, including interest and penalties, is approximately $1.5 million if it does not prevail.
- COVID-19 disruptions had not materially adversely affected financial results through March 31, 2022, but management says future effects remain uncertain. Other principal risks include competition and online traffic acquisition, regulation and privacy, cybersecurity, and dependence on third-party publishers and service providers.
Important facts for investors to verify
- Whether auto-insurer spending and referral volumes continue to weaken, and whether commission growth can offset that pressure.
- Trends in operating cash flow, receivables, and collection of the $28.1 million commission receivable balance, particularly its long-term portion.
- Progress in remediating the material weaknesses and whether revenue-related controls become effective.
- Outcome and potential financial effect of the disputed sales-tax matter.
- Terms and implications of the $15.0 million private placement to Recognition Capital, an entity controlled by the board chair and company co-founder; 1,004,016 Class A shares were issued at $14.94 per share.
- Revolver renewal or repayment arrangements before its August 2022 maturity, if financing availability remains relevant.