EverQuote, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter report; selected unaudited quarterly figures are included below. Filed March 13, 2020.
Business context and results
EverQuote operates an online insurance-shopping marketplace and earns revenue by selling consumer referrals to insurance carriers, agents and indirect distributors. Growth is driven by consumer quote-request volume, referral pricing and provider participation. Auto insurance remains the largest business vertical.
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $248.8 million | $163.3 million |
| Net loss | $7.1 million | $13.8 million |
| Operating loss | $8.0 million | $13.9 million |
| Adjusted EBITDA | $8.3 million | $(5.5) million |
| Quote requests | 20.0 million | 12.8 million |
| Variable marketing margin | $73.3 million; 29.5% of revenue | $46.1 million; 28.2% of revenue |
| Cash from operating activities | $4.4 million | $(1.9) million |
Revenue increased 52.3%. Automotive revenue was $212.3 million, up from $141.2 million; other vertical revenue was $36.5 million, up from $22.2 million. Auto represented approximately 85% of FY2019 revenue. Direct distribution rose to 94% of revenue from 90%.
Cost of revenue was $15.9 million (6.4% of revenue), implying a gross margin of approximately 93.6%. Sales and marketing was $202.7 million (81.5% of revenue), including $175.5 million of advertising expense. R&D was $20.2 million and G&A was $16.8 million. Operating margin was approximately negative 3.2%; net margin was approximately negative 2.9%.
Fourth-quarter 2019 revenue was $73.8 million, operating loss $1.2 million, and net loss $0.9 million. Fourth-quarter 2018 revenue was $39.8 million and net loss $6.9 million. The filing attributes the 2018 quarterly results in part to stock-based compensation for performance-based awards, including an out-of-period adjustment that management said was not material.
Liquidity, debt and cash flows
At December 31, 2019, cash and cash equivalents were $46.1 million, versus $41.6 million a year earlier; current assets were $85.3 million and current liabilities $38.4 million. The company reported no borrowings outstanding under its revolving credit facility, with $11.0 million available. The facility is secured by substantially all assets and includes covenants; EverQuote reported compliance at year-end.
Cash provided by operations was $4.4 million, compared with cash used of $1.9 million in 2018. Operating cash flow reflected noncash expenses but was reduced by a $15.2 million increase in receivables and a $5.6 million increase in prepaid expenses and other current assets. Investing cash outflow was $3.0 million, including capitalized software development; financing provided $3.0 million, primarily from stock-option exercises. Management believed existing cash, without drawing on the facility, would fund operating and capital requirements for at least 12 months from issuance of the financial statements.
Material changes, outlook and risks
- Quote requests increased 56.3%, supported by increased online advertising and improved traffic acquisition. Advertising expense rose $58.2 million year over year.
- Management said revenue per quote request was expected to increase over the long term but decrease in the near term. Sales and marketing expense was expected to rise in the near term, both in dollars and as a percentage of revenue, with longer-term improvement anticipated from scale and marketplace efficiencies. No specific revenue or earnings guidance was provided.
- In 2019 EverQuote launched health and renters offerings and announced a partnership to add commercial insurance. It also announced it would stop supporting its EverDrive app.
- Customer concentration is significant: Progressive accounted for 21% of FY2019 revenue, while GEICO contributed just under 10%. Provider agreements are short-term and customers may reduce or end spending without notice.
- The company agreed to settle IPO-related securities litigation for $4.75 million, subject to court approval. It recorded $4.8 million of accrued settlement liability and $3.6 million of expected insurance recovery, with $1.2 million net legal settlement expense. A final approval hearing was scheduled for June 11, 2020.
- A state tax authority requested remittance of uncollected sales taxes. The company disputed taxability; potential exposure was estimated at approximately $1.5 million including interest and penalties, and no liability was accrued because loss was not deemed probable.
- COVID-19 precautions and possible disruption to employees, customers, recruiting, marketing and business development were discussed as uncertain risks; the filing did not quantify an impact.
- Additional key risks include privacy and data-security obligations, evolving insurance and marketing regulation, competition and reliance on online advertising channels, auto-industry exposure, and dependence on third-party service providers. The company reported annual net losses historically, despite positive adjusted EBITDA in 2019; adjusted EBITDA is non-GAAP.
Important facts for investors to verify
- Whether growth in quote requests and revenue can be sustained while advertising costs, provider bids and revenue per request evolve as management anticipates.
- Progress in diversifying beyond auto insurance and reducing reliance on Progressive and other large customers.
- Cash conversion and receivables quality, including the substantial year-over-year increase in accounts receivable.
- Final court approval and insurance recovery for the $4.75 million securities-litigation settlement, and the outcome of the disputed sales-tax assessment.
- Impact of COVID-19, privacy and regulatory developments, and any changes to provider spending or consumer acquisition economics.