EverQuote, Inc. — FY2018 Form 10-K
Business context and reporting period. EverQuote operates a U.S. online insurance marketplace that sells consumer referrals to insurance carriers, agents and indirect distributors. This annual report covers the fiscal year ended December 31, 2018; quarterly results include the three months ended December 31, 2018.
Financial and operating results
Amounts below are in millions of dollars except percentages and quote requests. FY2017 is the prior comparable year.
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Revenue | $163.3 | $126.2 | +29.4% |
| Cost of revenue | $11.7 | $7.7 | +50.8% |
| Gross profit / gross margin | $151.7 / 92.9% | $118.5 / 93.9% | Margin down about 1.0 point |
| Operating loss | $(13.9) | $(4.7) | Loss widened |
| Net loss | $(13.8) | $(5.1) | Loss widened |
| Adjusted EBITDA | $(5.5) | $(1.5) | Loss widened |
| Quote requests | 12.803 million | 12.123 million | +5.6% |
| Variable marketing margin (VMM) | $48.0; 29.4% of revenue | $37.6; 29.7% of revenue | +27.8% in dollars |
Revenue growth came from both automotive (+$21.9 million) and home and life (+$15.2 million). Auto revenue was $141.2 million, about 86% of total; home and life revenue was $22.2 million. Management attributed auto growth primarily to higher bids and revenue per quote request, despite fewer quote requests and fewer referrals per request. Home and life growth reflected higher quote-request volume and bids. Direct distribution rose to 90% of revenue from 85%.
Sales and marketing expense increased 28.6% to $140.7 million, including $117.3 million of advertising expense. Research and development rose 54.2% to $14.2 million; general and administrative expense increased 136.0% to $10.7 million, partly reflecting public-company costs and higher stock-based compensation. Stock-based compensation totaled $7.1 million versus $1.9 million in 2017.
Q4 2018: Revenue was $39.8 million versus $32.4 million in Q4 2017. Operating loss was $7.1 million and net loss was $6.9 million, compared with losses of $0.5 million and $0.7 million, respectively, in Q4 2017.
Cash flow, liquidity and debt
- Cash and cash equivalents at year-end were $41.6 million, compared with $2.4 million a year earlier. Current assets were $60.6 million and current liabilities were $21.4 million; working capital was approximately $39.2 million.
- Operating cash flow was $(1.9) million, investing cash flow $(3.7) million and financing cash flow $44.8 million. Financing was principally driven by the IPO. The cash-flow statement reports $41.9 million of ending cash, cash equivalents and restricted cash, including restricted cash.
- No revolving credit borrowings were outstanding at year-end; $11.0 million was available under the Western Alliance Bank facility. The term loan was repaid in 2018. The facility is secured by substantially all assets, has financial and other covenants, and EverQuote reported compliance at year-end.
- Management stated available cash was expected to fund operating expenses and capital needs for at least 12 months from the financial-statement issuance date, without relying on the revolver.
Changes, outlook and material risks
- EverQuote completed its IPO in July 2018, receiving net proceeds of approximately $48.6 million. Preferred stock converted into Class B common stock upon the IPO.
- Management expected sales and marketing expense to increase in the near term, both in dollars and as a percentage of revenue, and anticipated continued investment in research and development. For 2019, it expected VMM to increase in dollars but remain flat or decline slightly as a percentage of revenue. This is management commentary, not formal earnings guidance.
- Beginning in Q1 2019, the company planned to include total advertising costs, including new offline advertising, in its VMM calculation. It also began incorporating inbound calls, EverDrive quote requests and third-party partner requests into its quote-request definition; these channels were not then contributing meaningfully.
- Two customers, Progressive and GEICO, represented 29% of FY2018 revenue combined. Provider relationships are short-term and can be reduced or ended without notice. Automotive providers generated 86% of revenue, creating significant vertical concentration.
- Key risks include advertising-platform dependence and customer-acquisition costs, insurer bid and spending variability, competition, data privacy and cybersecurity, extensive insurance and marketing regulation, and the company’s history of annual net losses. EverQuote also disclosed two putative IPO-related securities class actions alleging misleading disclosures about quote-request volume; the company said it intended to defend the claims.
- The filing reports an immaterial $0.8 million out-of-period adjustment in Q4 2018 for performance-based RSU compensation expense, within $1.1 million of Q4 performance-based RSU expense. The 2018 net loss includes a substantial noncash increase in stock-based compensation; adjusted EBITDA is a non-GAAP measure and remains negative.
Most important facts for investors to verify
- Whether revenue growth and higher provider bids can continue while quote-request growth remains modest and advertising costs remain high.
- How customer concentration, particularly Progressive and GEICO, and the auto-heavy revenue mix evolve.
- Cash consumption, the timing of progress toward profitability, and compliance with the secured revolving-credit covenants.
- The impact of the IPO-related litigation and any developments concerning quote-request disclosures.
- The effect of stock-based compensation and equity awards on reported losses and shareholder dilution; verify GAAP results alongside non-GAAP adjusted EBITDA and VMM.