EverQuote, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. EverQuote operates an online insurance marketplace, earning revenue primarily by selling consumer referrals to insurers, agents and indirect distributors.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $103.8 million | $81.4 million | +27.6% |
| Net loss | $3.8 million | $1.4 million | Loss increased |
| Loss from operations | $3.8 million | $1.7 million | Loss increased |
| Adjusted EBITDA (non-GAAP) | $4.8 million | $3.8 million | +25.1% |
| Operating cash flow | $3.5 million | $3.9 million | Down $0.4 million |
| Capital expenditures and capitalized software | $0.8 million | $0.9 million | Down $0.1 million |
| Quote requests | 7.72 million | 7.39 million | +4.4% |
| Variable marketing margin (VMM) | $31.4 million; 30.3% of revenue | $23.8 million; 29.3% | +32.0% |
Amounts are in U.S. dollars. VMM is revenue less advertising expense, a company-defined operating metric, and is not a measure of profitability. Adjusted EBITDA is non-GAAP and excludes, among other items, stock-based compensation.
Margins, expenses and revenue mix
- Cost of revenue was $6.0 million, or 5.7% of revenue, versus $5.3 million, or 6.6%, a year earlier.
- Sales and marketing rose 31.7% to $87.6 million, equal to 84.3% of revenue versus 81.7%. Advertising expense increased $14.8 million to $72.4 million.
- Research and development increased 32.7% to $8.6 million; general and administrative expense rose 18.6% to $5.6 million.
- Automotive revenue was $84.5 million, up from $67.6 million; other verticals generated $19.3 million, up from $13.7 million. Direct channels accounted for 90% of revenue, compared with 93%.
- Management attributed automotive growth mainly to higher revenue per quote request, reflecting insurer demand for higher-performing referrals. Other-vertical growth reflected increased quote-request volume and higher revenue per request.
Balance sheet, cash and debt
- At March 31, 2021, cash and cash equivalents were $46.9 million; total assets were $135.7 million and stockholders’ equity was $76.0 million.
- Current assets were $104.2 million and current liabilities were $49.1 million. Accounts receivable totaled $49.1 million.
- The company had no borrowings on its revolving credit line and $25.0 million of borrowing availability, subject to the agreement’s terms. The facility matures in August 2022, bears interest at the greater of 3.25% or prime, and is secured by substantially all company assets.
- Operating lease liabilities totaled approximately $10.3 million, including $2.8 million current and $7.5 million long-term. The filing reports no material change to lease commitments since year-end.
- Cash, cash equivalents and restricted cash increased $4.0 million during the quarter to $47.1 million. Operating activities provided $3.5 million; financing provided $1.3 million, primarily from option exercises.
Changes, outlook and risks
- Revenue growth exceeded quote-request growth, while sales and marketing expense grew faster than revenue; net loss widened despite higher VMM and adjusted EBITDA.
- Stock-based compensation was $7.5 million, up from $4.5 million. The company reported $52.4 million of unrecognized compensation expense expected to be recognized over a weighted-average 3.4 years, plus $4.1 million tied to performance awards not deemed probable.
- Management said existing cash was expected to fund operating expenses and capital needs for at least 12 months from issuance, without relying on the credit line. It did not provide numerical revenue or earnings guidance. Management expected sales and marketing expense to increase in the near term, in dollars and as a share of revenue, with a longer-term decline in the share as efficiencies develop; R&D and G&A were also expected to rise.
- COVID-19 disruptions had not materially adversely affected results through March 31, 2021, but their future effects remained uncertain. Most employees continued working remotely as of May 6, 2021.
- Revenue and receivables were concentrated: one customer represented 20% of Q1 revenue and 17% of receivables at quarter-end. Progressive accounted for 20% of Q1 revenue. Insurance-provider relationships are generally short-term and can be ended or reduced without notice. Automotive insurance represented 81% of Q1 revenue.
- A state tax assessor requested remittance of uncollected sales taxes. EverQuote disputes taxability and is investigating; possible exposure, including interest and penalties, is approximately $1.5 million. No liability was accrued because loss was not considered probable.
- Other key risks include dependence on paid advertising and third-party traffic, insurer bidding and marketing budgets, competition, privacy and cybersecurity, insurance and telemarketing regulation (including TCPA), and the continuing possibility of losses. The company also disclosed dual-class voting control and related governance risks.
Investor verification points
- Track customer concentration, especially Progressive, and whether insurer spending, referral pricing and bids remain stable.
- Assess advertising efficiency and unit economics: revenue per quote request, cost per request, VMM, and sales and marketing as a share of revenue.
- Monitor conversion of operating cash flow to cash, accounts-receivable growth and the company’s stated liquidity runway.
- Review stock-based compensation, unrecognized awards and potential dilution alongside non-GAAP adjusted EBITDA.
- Follow the outcome of the approximately $1.5 million sales-tax matter and material regulatory, privacy or telemarketing proceedings.