EverQuote, Inc. — FY 2021 Form 10-K
Business context and reporting period. EverQuote operates an online insurance marketplace, earning primarily from consumer referrals sold to insurers and agents, with a smaller contribution from policy commissions. This filing reports the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019; it is not a standalone fourth-quarter report. The filing does not provide a clear set of standalone Q4 financial results.
Key financial metrics
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $418.5 million | $346.9 million | Up 20.6% |
| Operating loss | $21.9 million | $11.7 million | Loss widened |
| Net loss | $19.4 million | $11.2 million | Loss widened |
| Adjusted EBITDA (non-GAAP) | $14.6 million | $18.4 million | Down 20.6% |
| Operating cash flow | $7.2 million | $10.7 million | Down $3.5 million |
| Variable marketing margin (non-GAAP) | $129.6 million; 31.0% of revenue | $108.6 million; 31.3% of revenue | Up 19.2% in dollars |
| Cash and cash equivalents at year-end | $34.9 million | $42.9 million | Down $8.0 million |
Advertising expense was $289.0 million, up from $238.3 million, and sales and marketing expense was 84.8% of revenue versus 82.1%. Cost of revenue was 5.7% of revenue versus 6.2%. The filing does not present a conventional gross-margin measure.
Automotive revenue was $330.9 million, up from $283.2 million; other-vertical revenue was $87.6 million, up from $63.7 million. Automotive represented about 79% of revenue. Quote requests totaled 30.27 million, up 12.1%. Progressive accounted for 16% of revenue, down from 22% in 2020.
At December 31, 2021, total assets were $143.6 million and total liabilities were $58.5 million. The company had no borrowings outstanding on its $25 million revolving credit facility, which matures in August 2022; it reported covenant compliance. Current assets were $84.7 million and current liabilities were $47.4 million. Lease liabilities totaled $8.2 million. The company also reported $22.7 million of commissions receivable, including $13.4 million classified as long term.
Material changes and notable items
- Revenue growth slowed to 20.6% from 39.4% in 2020. Increased quote-request volume and commission revenue supported growth, while sales and marketing costs rose faster than revenue.
- Net loss widened despite a $2.5 million income tax benefit related to the PolicyFuel acquisition. Adjusted EBITDA also declined.
- EverQuote acquired PolicyFuel in August 2021 for approximately $20.0 million of consideration, including $16.0 million cash net of acquired cash and contingent stock consideration. It expanded the company’s direct-to-consumer auto and home agency services. The preliminary purchase accounting included $11.5 million of goodwill and $6.6 million of customer relationships; final valuation was expected in the first half of 2022.
- Investing cash outflow was $18.8 million, including $16.0 million for PolicyFuel. Cash declined by $8.0 million overall. In February 2022, the company raised $15.0 million in a private placement to an entity controlled by its chairman and co-founder.
- Stock-based compensation was $30.0 million, compared with $24.2 million in 2020.
Outlook, risks, and contingencies
- Management expected a modest overall revenue increase in 2022, as higher commission revenue was expected to be mostly offset by lower automotive referral revenue. It expected reduced auto-insurer marketing spend to continue into 2022 and revenue per quote request to decline in the near term.
- Management expected near-term sales and marketing expense to increase in dollars and as a share of revenue, particularly as the direct-to-consumer agency expands; research and development expense was also expected to rise.
- The business is exposed to auto-insurance carrier loss ratios and spending decisions, provider relationships that can end or change on short notice, and customer concentration. Auto insurance represented 79% of FY 2021 revenue; Progressive represented 16%.
- The company has material weaknesses in revenue-related IT controls, including user access, program-change management, and completeness and accuracy of data used in automated revenue calculations. Management and the auditor concluded internal control over financial reporting was ineffective at year-end. The weaknesses had not caused a reported financial-statement misstatement; remediation was underway.
- A state tax assessor requested uncollected sales taxes. EverQuote disputed that its services were taxable; potential exposure was approximately $1.5 million, including interest and penalties, and no liability was accrued because a loss was not considered probable.
- Commission revenue depends on estimates of policy lifetime value and renewals. Carrier commission changes, policy cancellations, and lower renewals could lead to adjustments. Medicare marketing and sales are subject to complex and changing CMS and state requirements. Other key risks include privacy and cybersecurity, telemarketing regulation and litigation, competition for online traffic, and COVID-19-related uncertainty.
- EverQuote reported a $104.1 million federal net operating loss carryforward and maintained a valuation allowance on its overall net deferred tax asset. It had not generated annual net income since inception.
Most important facts for investors to verify
- Whether auto-insurer spending and bids recover or fall further, and the resulting effect on referral revenue and revenue per quote request.
- Whether growth in commissions and non-auto verticals can diversify revenue and offset automotive weakness.
- Whether marketing spend can be moderated while preserving quote volume and variable marketing margin, and whether profitability improves.
- Progress in remediating the revenue-related internal-control material weaknesses and any subsequent auditor assessment.
- Actual PolicyFuel performance, final purchase accounting, contingent consideration, and the effect of the February 2022 related-party private placement.
- Cash conversion and collection timing for commissions receivable, including the long-term portion, and the status and terms of the revolving credit facility after its August 2022 maturity.
- Developments in the disputed sales-tax matter and any material regulatory, privacy, telemarketing, or litigation exposure.