EverQuote, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 1, 2021. The filing also reports unaudited fourth-quarter results. EverQuote operates an online insurance marketplace and earns revenue mainly by selling consumer referrals to insurance carriers and agents.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $346.9 million | $248.8 million | +39.4% |
| Net loss | $11.2 million | $7.1 million | Loss widened |
| Operating loss | $11.7 million | $8.0 million | Loss widened |
| Adjusted EBITDA, non-GAAP | $18.4 million | $8.3 million | More than doubled |
| Operating cash flow | $10.7 million | $4.4 million | Increased |
| Cash and cash equivalents at year-end | $42.9 million | $46.1 million | Decreased |
Revenue growth reflected higher quote-request volume and revenue per request in auto, and higher quote-request volume in other verticals. Quote requests rose 35% to 27.0 million. Automotive generated $283.2 million, about 82% of revenue; other verticals generated $63.7 million. Gross margin was approximately 93.8%, versus 93.6% in 2019. Variable marketing margin, a company-defined measure of revenue less advertising costs and not a profitability measure, rose to $108.6 million from $73.3 million; it was 31.3% of revenue versus 29.5%.
Advertising expense increased to $238.3 million from $175.5 million. Sales and marketing expense was $284.9 million, or 82.1% of revenue, versus $202.7 million, or 81.5%. Research and development expense increased 46.7% to $29.7 million. Stock-based compensation increased to $24.2 million from $12.7 million.
Fourth quarter: Revenue was $97.3 million, compared with $73.8 million in Q4 2019. Net loss was $3.8 million versus $0.9 million, and operating loss was $3.8 million versus $1.2 million. Quote requests were 6.55 million, compared with 5.86 million.
Liquidity, cash flow and debt
Year-end cash and cash equivalents were $42.9 million; current assets were $97.4 million and current liabilities were $46.8 million. Operating cash flow was positive $10.7 million. Investing activities used $18.8 million, including $14.9 million paid for Crosspointe; financing activities provided $4.9 million, mainly from stock-option exercises. The company reported no revolver borrowings at year-end and had $25.0 million available under its revolving credit facility, maturing in August 2022. The facility is secured by substantially all assets and includes financial and other covenants; EverQuote reported compliance at year-end. Management said cash was expected to fund operations and capital needs for at least 12 months, without relying on revolver availability.
Material changes, outlook and risks
- EverQuote acquired Crosspointe, a health-insurance agency, in September 2020 for $16.7 million of stated consideration: $14.9 million cash and contingent stock consideration. The preliminary purchase accounting included $9.8 million of goodwill and a $3.6 million customer-relationship intangible. Contingent consideration remeasurement produced a $1.8 million expense in 2020.
- Management expects continued investment in sales and marketing and research and development. It anticipated sales and marketing expense to rise in the near term, both in dollars and as a percentage of revenue, with longer-term improvement dependent on scale and marketplace efficiencies. No specific revenue or earnings guidance was provided.
- COVID-19 caused remote work and initially reduced consumer insurance searches after shelter-in-place orders. The company said there had been no material adverse financial impact through year-end 2020, while warning that effects remained uncertain.
- Key exposures include dependence on short-term provider relationships and auction bids, Progressive’s 22% share of 2020 revenue, and auto insurance’s approximately 82% share. Marketing acquisition costs, search and advertising-platform changes, competition, and consumer traffic or conversion declines could pressure results.
- The business faces extensive insurance, privacy, data-security, telemarketing and consumer-protection regulation. The filing disclosed a disputed state sales-tax request that could involve approximately $1.5 million, including interest and penalties; no liability was recorded because a loss was not considered probable. Two TCPA cases were settled individually for immaterial amounts; the company denied wrongdoing.
- EverQuote reported annual net losses and an accumulated deficit of $118.2 million. It has never paid cash dividends and does not anticipate doing so in the foreseeable future.
Key investor verification points
- Check whether revenue growth and the higher quote-request volume translate into durable profitability and cash generation, given increased marketing spend and widening GAAP losses.
- Monitor Progressive’s contribution, auto-vertical concentration, and the stability of provider bids and relationships.
- Assess Crosspointe’s performance against its revenue-based earnout targets, the final purchase-price allocation, and integration outcomes.
- Track cash, accounts receivable and collection trends, as receivables increased to $46.1 million from $32.2 million; review liquidity and revolver covenant capacity.
- Follow the state sales-tax inquiry and any further regulatory, privacy, telemarketing or litigation developments.
- Note that the auditor gave unqualified opinions on the financial statements and internal controls; Crosspointe was excluded from the 2020 internal-control assessment because of its recent acquisition.