EverQuote, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request refers to 2022 Q4, the supplied filing reports full-year results; it does not provide a clear standalone fourth-quarter financial summary.
Business context
EverQuote operates an online insurance marketplace, selling consumer referrals to insurers and agents and earning commissions on policies sold through its direct-to-consumer agency. Auto insurance remains its largest business. The company reported one operating segment.
Financial performance
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $404.1 million | $418.5 million | Down 3.4% |
| Net loss | $24.4 million | $19.4 million | Loss widened |
| Loss from operations | $24.8 million | $21.9 million | Loss widened |
| Adjusted EBITDA | $5.9 million | $14.6 million | Down 59% |
| Operating cash flow | $(15.8) million | $7.2 million | Turned negative |
| Investing cash flow | $(4.3) million | $(18.8) million | Lower outflow |
| Financing cash flow | $15.8 million | $3.6 million | Primarily private placement |
- Automotive revenue was $324.4 million, down from $330.9 million; other insurance revenue was $79.7 million, down from $87.6 million. Auto represented about 80% of 2022 revenue.
- Commission revenue increased to approximately 13% of total revenue from less than 10% in each of 2021 and 2020. Referral revenue declined, partly offset by higher commissions.
- Variable marketing margin was $128.3 million, down 1.0%; it equaled 31.7% of revenue versus 31.0%. The company cautions that this non-GAAP operating metric is not a measure of profitability.
- Sales and marketing expense was $349.3 million, or 86.4% of revenue, versus $355.0 million, or 84.8%. Cost of revenue was $24.0 million (5.9% of revenue); R&D was $31.7 million; general and administrative expense was $28.1 million.
- Cash and cash equivalents were $30.8 million at year-end, versus $34.9 million. Current assets were $81.0 million and current liabilities $45.4 million. Total assets were $156.5 million; total liabilities were $49.0 million; stockholders’ equity was $107.5 million.
- Commissions receivable totaled $46.9 million, including $33.4 million classified as long-term, up from total commissions receivable of $22.7 million at year-end 2021. The company recognizes estimated lifetime commissions before collecting much of the cash, which is generally received over multiple years.
Material changes and unusual items
- Auto carrier marketing spend weakened amid elevated claims severity and inflation in vehicle repair and injury costs. Hurricane Ian added downward pressure; management said a major carrier began returning to more normalized spending in August 2022.
- Operating cash flow deteriorated primarily because commissions receivable increased by $24.2 million, alongside the net loss. The company raised $15.0 million in a private placement of Class A shares at $14.94 per share from Recognition Capital, an entity controlled by its chairman and co-founder.
- Acquisition-related costs included a $4.1 million credit from a reduction in the estimated fair value of PolicyFuel contingent consideration. The remaining contingent consideration liability was $0.2 million at year-end.
- The company had no borrowings under its credit facility at December 31, 2022. Its amended facility provides up to $35 million of revolving credit, subject to borrowing-base limits, and a term loan of up to $10 million. The company reported covenant compliance.
- Management and the auditor concluded internal control over financial reporting was effective at year-end. Previously reported material weaknesses involving IT controls for revenue-related systems were reported as remediated.
Outlook, risks and contingencies
- Management expects overall revenue to increase in 2023, anticipating increased spending from carrier partners. It expects sales and marketing expense to increase in the near term and R&D expense to rise as the platform expands. These are expectations, not guarantees.
- The company said existing cash should fund operating expenses and capital expenditures for at least 12 months from the financial-statement issuance date, without relying on credit-facility availability. It has a history of annual losses and may continue to incur losses.
- Key risks include reliance on short-term provider relationships, revenue concentration in auto insurance and two customers, exposure to carrier bidding and marketing-spend changes, and dependence on online traffic and third-party referral sources. Progressive and State Farm together represented 32% of 2022 revenue.
- Commission revenue depends on estimates of policy duration, renewals, conversion and carrier mix; changes in those assumptions may require revenue adjustments. A full valuation allowance remained against net deferred tax assets.
- The business is subject to extensive insurance, privacy, cybersecurity, and telephone and email marketing regulation, including Medicare marketing requirements. The filing describes legal proceedings and contingencies but reports no material adverse outcome expected; a state sales-tax audit concluded with no taxes due.
- Class B shares carry ten votes per share versus one vote for Class A. The filing states that affiliated holders controlled approximately 73% of voting power as of January 31, 2023. The company has never paid cash dividends and does not expect to do so in the foreseeable future.
Important facts for investors to verify
- Whether carrier marketing budgets, especially in auto, recover as management expects and whether that translates into revenue growth.
- Whether commission-receivable estimates convert into cash as expected, including policy renewals and cancellation experience.
- Customer concentration, provider spending and auction pricing trends, particularly for Progressive and State Farm.
- Cash usage, access to the credit facility, and compliance with borrowing-base and future financial covenants.
- Progress on profitability and adjusted EBITDA, while accounting for the recurring stock-based compensation excluded from that non-GAAP measure.
- Execution of regulatory, privacy, cybersecurity and Medicare marketing controls, and continued effectiveness of remediated financial reporting controls.