EverQuote, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. EverQuote operates an online insurance marketplace, selling consumer referrals to insurance carriers, agents and indirect distributors. Financial amounts below are in U.S. dollars; figures are unaudited.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $107.6m | $90.0m | $316.4m | $249.6m |
| Operating loss | $(7.8)m | $(3.3)m | $(13.5)m | $(7.9)m |
| Net loss | $(5.3)m | $(3.2)m | $(11.0)m | $(7.4)m |
| Adjusted EBITDA | $2.7m | $5.2m | $14.1m | $13.0m |
| Variable marketing margin | $32.4m (30.1% of revenue) | $29.4m (32.7%) | $96.7m (30.5%) | $76.7m (30.7%) |
| Quote requests | 7.613m | 6.291m | 22.114m | 20.460m |
Revenue grew 19.5% year over year in Q3 and 26.8% for the nine-month period. Automotive revenue was $89.7m in Q3 and $260.5m year to date; the automotive vertical generated about 82% of nine-month revenue. Q3 net loss per share was $0.18, compared with $0.12 a year earlier.
Q3 sales and marketing expense rose 25.7% to $92.5m, including $75.2m of advertising expense. For the first nine months, advertising expense was $219.8m. The resulting Q3 operating loss widened despite higher revenue; adjusted EBITDA also declined year over year in Q3. Adjusted EBITDA and variable marketing margin are non-GAAP measures, and variable marketing margin is not a measure of overall profitability.
Net cash provided by operating activities was $14.0m for the first nine months, versus $13.9m in 2020. Investing activities used $18.2m, including $16.0m for the PolicyFuel acquisition; financing provided $3.1m, primarily from stock-option exercises. Cash and cash equivalents were $41.8m at September 30, 2021, and total cash, cash equivalents and restricted cash were $42.0m.
Total assets were $148.5m and total liabilities $62.5m at September 30, 2021. Current assets were $97.8m and current liabilities $49.9m. No borrowings were outstanding on the $25.0m revolving credit facility; the facility matures in August 2022. The company reported compliance with its covenants and said cash was expected to fund operating and capital expenditure needs for at least 12 months from issuance, without relying on the credit line.
Material changes and notable items
- Q3 revenue increased $17.6m, mainly from higher automotive quote-request volume, partly offset by lower automotive revenue per quote request; revenue in other verticals benefited from higher revenue per quote request. Year-to-date automotive growth reflected both more quote requests and stronger revenue per request.
- Advertising expense and sales and marketing costs grew faster than Q3 revenue, and variable marketing margin as a percentage of revenue fell to 30.1% from 32.7%.
- EverQuote acquired PolicyFuel in August 2021 for approximately $20.0m of consideration, including $16.0m cash and $3.8m estimated contingent consideration. The acquisition added $11.7m of preliminary goodwill and expanded direct-to-consumer auto and home offerings. Purchase-price allocation remained preliminary and was expected to be finalized in the first half of 2022.
- A $2.5m income tax benefit in Q3 and year to date resulted from releasing part of the valuation allowance in connection with PolicyFuel; the company continued to maintain a valuation allowance on its overall net deferred tax asset.
- Stock-based compensation was $8.3m in Q3 and $23.0m for the first nine months. Accumulated deficit was $129.2m at quarter-end.
Outlook, risks and contingencies
- No specific revenue, earnings or other numerical guidance is provided. Management said auto insurers were facing industry challenges, reducing marketing spend and bids; it expected this trend to continue into 2022 and anticipated near-term declines in automotive revenue per quote request. Management also expected sales and marketing expense to rise near term, in dollars and as a percentage of revenue.
- The business depends substantially on automotive insurance and on provider relationships that generally lack long-term purchase commitments. One customer represented 17% of Q3 revenue and 18% of nine-month revenue; the filing identifies Progressive as 18% of nine-month revenue.
- Disclosure controls and procedures were deemed ineffective due to material weaknesses in IT general 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; remediation was underway.
- A state tax assessor requested remittance of uncollected sales taxes. The company disputes taxability and estimated exposure at approximately $1.5m including interest and penalties if it does not prevail; no liability was accrued because a loss was not deemed probable.
- On November 1, 2021, after quarter-end, the company was named in a putative Florida class action alleging violations of the Florida Telephone Solicitation Act. The company said it believed the claims lacked merit and intended to defend the suit.
- COVID-19, competition and online advertising channels, consumer privacy and cybersecurity, evolving insurance and telemarketing regulation, and customer concentration remain identified risks. Management reported no material adverse financial impact from COVID-19 through September 30, 2021.
Key facts for investors to verify
- Whether reduced auto-insurer marketing spend and bids continue to pressure revenue per quote request and growth into 2022.
- How advertising efficiency and variable marketing margin develop as spending rises; compare the non-GAAP measures with GAAP losses and cash generation.
- PolicyFuel’s performance against revenue targets, contingent consideration remeasurement, and final purchase-price allocation.
- Progress remediating the revenue-related IT control weaknesses and whether controls become effective without financial-reporting errors.
- Developments in the sales-tax inquiry and Florida solicitation lawsuit, including any change to estimated exposure or accounting treatment.
- Customer concentration, especially the significant customer’s continued spending, and liquidity/covenant position as the revolving facility approaches its August 2022 maturity.