Published: 2023-11-07 00:00:00 ET

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to .

Commission File Number: 001-38549

EverQuote, Inc.

(Exact name of registrant as specified in its charter)

Delaware	26-3101161
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
210 Broadway Cambridge, Massachusetts	02139
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (855) 522-3444

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange   on which registered
Class A Common Stock, $0.001 Par Value Per Share	EVER	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 30, 2023, the registrant had 28,107,681 shares of Class A common stock, $0.001 par value per share, issued and outstanding and 5,604,278 shares of Class B common stock, $0.001 par value per share, issued and outstanding.

 

 

 

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Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	5
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 5.	Other Information	37
Item 6.	Exhibits	39
Signatures		40

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “might,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “seek,” “would” or “continue,” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition liquidity and results of operations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, in our subsequent periodic filings with the Securities and Exchange Commission and elsewhere in this Quarterly Report on Form 10-Q, particularly in Item 1A. Risk Factors. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.

Some of the key factors that could cause actual results to differ include:

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

EVERQUOTE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

		September 30, 2023				December 31, 2022
Assets
Current assets:
Cash and cash equivalents		$	39,049			$	30,835
Accounts receivable, net			22,151				29,604
Commissions receivable, current portion			4,820				13,530
Prepaid expenses and other current assets			4,078				7,005
Total current assets			70,098				80,974
Property and equipment, net			5,625				6,460
Goodwill			21,501				21,501
Acquired intangible assets, net			5,516				7,955
Operating lease right-of-use assets			2,108				5,769
Commissions receivable, non-current portion			8,724				33,410
Other assets			414				450
Total assets		$	113,986			$	156,519
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	20,627			$	30,680
Accrued expenses and other current liabilities			6,769				9,924
Deferred revenue			1,901				1,867
Operating lease liabilities			2,698				2,936
Total current liabilities			31,995				45,407
Operating lease liabilities, net of current portion			120				3,501
Other long-term liabilities			—				125
Total liabilities			32,115				49,033
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized;     no shares issued and outstanding			—				—
Class A common stock, $0.001 par value; 220,000,000 shares authorized;    28,107,681 and 26,447,880 shares issued and outstanding     at September 30, 2023 and December 31, 2022, respectively			28				26
Class B common stock, $0.001 par value; 30,000,000 shares authorized;   5,604,278 and 6,139,774 shares issued and outstanding at    September 30, 2023 and December 31, 2022, respectively			6				6
Additional paid-in capital			288,843				269,521
Accumulated other comprehensive loss			(6	)			(6	)
Accumulated deficit			(207,000	)			(162,061	)
Total stockholders' equity			81,871				107,486
Total liabilities and stockholders' equity		$	113,986			$	156,519

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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EVERQUOTE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share amounts)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Revenue		$	55,011			$	103,223			$	232,216			$	315,819
Cost and operating expenses:
Cost of revenue			6,150				5,877				17,467				17,920
Sales and marketing			46,505				89,098				195,537				273,102
Research and development			6,270				7,832				21,647				24,273
General and administrative			5,741				7,102				19,339				21,400
Restructuring and other charges			19,757				—				23,589				—
Acquisition-related costs			—				(96	)			(150	)			(4,767	)
Total cost and operating expenses			84,423				109,813				277,429				331,928
Loss from operations			(29,412	)			(6,590	)			(45,213	)			(16,109	)
Other income (expense):
Interest income			411				113				869				158
Other income, net			20				26				5				29
Total other income, net			431				139				874				187
Loss before income taxes			(28,981	)			(6,451	)			(44,339	)			(15,922	)
Income tax expense			(236	)			—				(600	)			—
Net loss		$	(29,217	)		$	(6,451	)		$	(44,939	)		$	(15,922	)
Net loss per share, basic and diluted		$	(0.87	)		$	(0.20	)		$	(1.36	)		$	(0.51	)
Weighted average common shares outstanding,    basic and diluted			33,549				32,008				33,146				31,357
Comprehensive loss:
Net loss		$	(29,217	)		$	(6,451	)		$	(44,939	)		$	(15,922	)
Other comprehensive loss:
Foreign currency translation adjustment			(27	)			(32	)			—				(51	)
Comprehensive loss		$	(29,244	)		$	(6,483	)		$	(44,939	)		$	(15,973	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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EVERQUOTE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)

 

																						Accumulated
		Class A								Class B								Additional				Other								Total
		Common Stock								Common Stock								Paid-in				Comprehensive				Accumulated				Stockholders'
		Shares				Amount				Shares				Amount				Capital				Income (Loss)				Deficit				Equity
Balances at December 31, 2022			26,447,880			$	26				6,139,774			$	6			$	269,521			$	(6	)		$	(162,061	)		$	107,486
Issuance of common stock upon    exercise of stock options			45,163				—				—				—				287				—				—				287
Net issuance of common stock upon    vesting of restricted stock units			327,943				1				—				—				(131	)			—				—				(130	)
Transfer of Class B common stock    to Class A common stock			535,496				—				(535,496	)			—				—				—				—				—
Stock-based compensation expense			—				—				—				—				6,509				—				—				6,509
Foreign currency translation adjustment			—				—				—				—				—				13				—				13
Net loss			—				—				—				—				—				—				(2,529	)			(2,529	)
Balances at March 31, 2023			27,356,482				27				5,604,278				6				276,186				7				(164,590	)			111,636
Issuance of common stock upon    exercise of stock options			8,500				—				—				—				53				—				—				53
Net issuance of common stock upon    vesting of restricted stock units			397,028				1				—				—				(103	)			—				—				(102	)
Stock-based compensation expense			—				—				—				—				7,130				—				—				7,130
Foreign currency translation adjustment			—				—				—				—				—				14				—				14
Net loss			—				—				—				—				—				—				(13,193	)			(13,193	)
Balances at June 30, 2023			27,762,010				28				5,604,278				6				283,266				21				(177,783	)			105,538
Net issuance of common stock upon    vesting of restricted stock units			345,671				—				—				—				(67	)			—				—				(67	)
Stock-based compensation expense			—				—				—				—				5,644				—				—				5,644
Foreign currency translation adjustment			—				—				—				—				—				(27	)			—				(27	)
Net loss			—				—				—				—				—				—				(29,217	)			(29,217	)
Balances at September 30, 2023			28,107,681			$	28				5,604,278			$	6			$	288,843			$	(6	)		$	(207,000	)		$	81,871

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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EVERQUOTE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)

 

																						Accumulated
		Class A								Class B								Additional				Other								Total
		Common Stock								Common Stock								Paid-in				Comprehensive				Accumulated				Stockholders'
		Shares				Amount				Shares				Amount				Capital				Income (Loss)				Deficit				Equity
Balances at December 31, 2021			23,544,995			$	24				6,407,678			$	6			$	222,730			$	10			$	(137,645	)		$	85,125
Private placement of common stock			1,004,016				1				—				—				14,999				—				—				15,000
Issuance of common stock upon    exercise of stock options			92,975				—				—				—				558				—				—				558
Vesting of restricted stock units			307,953				—				—				—				—				—				—				—
Stock-based compensation expense			—				—				—				—				7,464				—				—				7,464
Foreign currency translation adjustment			—				—				—				—				—				10				—				10
Net loss			—				—				—				—				—				—				(5,715	)			(5,715	)
Balances at March 31, 2022			24,949,939				25				6,407,678				6				245,751				20				(143,360	)			102,442
Issuance of common stock upon    exercise of stock options			6,602				1				—				—				49				—				—				50
Net issuance of common stock upon    vesting of restricted stock units			342,028				—				—				—				(51	)			—				—				(51	)
Transfer of Class B common stock to    Class A common stock			237,904				—				(237,904	)			—				—				—				—				—
Stock-based compensation expense			—				—				—				—				7,596				—				—				7,596
Foreign currency translation adjustment			—				—				—				—				—				(29	)			—				(29	)
Net loss			—				—				—				—				—				—				(3,756	)			(3,756	)
Balances at June 30, 2022			25,536,473				26				6,169,774				6				253,345				(9	)			(147,116	)			106,252
Issuance of common stock upon    exercise of stock options			16,401				—				—				—				122				—				-				122
Net issuance of common stock upon    vesting of restricted stock units			432,653				—				—				—				136				—				-				136
Stock-based compensation expense			—				—				—				—				7,215				—				-				7,215
Foreign currency translation adjustment			—				—				—				—				—				(32	)			-				(32	)
Net loss			—				—				—				—				—				—				(6,451	)			(6,451	)
Balances at September 30, 2022			25,985,527			$	26				6,169,774			$	6			$	260,818			$	(41	)		$	(153,567	)		$	107,242

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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EVERQUOTE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

		Nine Months Ended September 30,
		2023				2022
Cash flows from operating activities:
Net loss		$	(44,939	)		$	(15,922	)
Adjustments to reconcile net loss to net cash used in   operating activities:
Depreciation and amortization expense			5,121				4,326
Stock-based compensation expense			19,283				22,363
Loss on sale of health assets			19,388				—
Impairment of right-of-use asset			384				—
Change in fair value of contingent consideration liabilities			(150	)			(4,767	)
Provision for bad debt			186				112
Unrealized foreign currency transaction gains			(1	)			(34	)
Changes in operating assets and liabilities:
Accounts receivable			7,267				(4,877	)
Prepaid expenses and other current assets			2,637				(366	)
Commissions receivable, current and non-current			2,611				(15,674	)
Operating lease right-of-use assets			2,006				1,951
Other assets			36				(19	)
Accounts payable			(10,029	)			7,620
Accrued expenses and other current liabilities			(3,522	)			(3,266	)
Deferred revenue			34				(206	)
Operating lease liabilities			(2,348	)			(2,134	)
Net cash used in operating activities			(2,036	)			(10,893	)
Cash flows from investing activities:
Acquisition of property and equipment, including costs capitalized    for development of internal-use software			(2,988	)			(3,219	)
Proceeds from sale of health assets			13,194				—
Net cash provided by (used in) investing activities			10,206				(3,219	)
Cash flows from financing activities:
Proceeds from exercise of stock options			340				730
Proceeds from private placement of common stock			—				15,000
Tax withholding payments related to net share settlement			(299	)			(79	)
Net cash provided by financing activities			41				15,651
Effect of exchange rate changes on cash, cash equivalents    and restricted cash			3				(49	)
Net increase in cash, cash equivalents and restricted cash			8,214				1,490
Cash, cash equivalents and restricted cash at beginning of period			30,835				35,101
Cash, cash equivalents and restricted cash at end of period		$	39,049			$	36,591
Supplemental disclosure of non-cash investing and    financing information:
Acquisition of property and equipment included in accounts payable and accrued expenses and other current liabilities		$	69			$	27
Operating lease liabilities arising from obtaining right-of-use assets		$	—			$	1,096
Issuance of Class A common stock in settlement of stock-based    compensation liability		$	—			$	164

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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EVERQUOTE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2022, on file with the Securities and Exchange Commission. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below, elsewhere in this Quarterly Report on Form 10-Q, particularly in Item 1A. Risk Factors, and in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.

We operate a leading online marketplace for insurance shopping, connecting consumers with insurance providers. Our mission is to empower insurance shoppers to better protect life’s most important assets—their family, property, and future. Our vision is to become the largest online source of insurance policies by using data, technology and knowledgeable advisors to make insurance simpler, more affordable and personalized, ultimately reducing cost and risk. Our results-driven marketplace, powered by our proprietary data and technology platform, is reshaping the insurance shopping experience for consumers and improving the way insurance providers attract and connect with consumers shopping for insurance.

Finding the right insurance product is often challenging for consumers, who face limited online options, complex, variable and opaque pricing, and myriad coverage configurations. We present consumers with a single starting point for a comprehensive and cost-effective insurance shopping experience. Our marketplace reduces the time consumers spend searching across multiple sites by delivering broader and more relevant results than consumers may find on their own. In addition to our marketplace, we operate a direct to consumer, or DTC, insurance agency. Our DTC agents bind policies for consumers, further streamlining the consumer shopping experience. Our services are free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers and directly from commissions on sales of policies.

Insurance providers, which we view as including carriers, our own DTC agents, and third-party agents, operate in a highly competitive and regulated industry and typically specialize in pre-determined subsets of consumers. As a result, not every consumer is a good match for every provider, and some providers can struggle to reach the segments that are most desirable for their business models. Traditional offline and online advertising channels reach broad audiences but lack the fine-grained consumer acquisition capabilities needed for optimally matching consumers to specific insurance products. We connect providers to a large volume of high-intent, pre-validated consumer referrals that match the insurers’ specific requirements. The transparency of our marketplace, as well as the campaign management tools we offer, make it easy for insurance carriers and third-party agents to evaluate the performance of their marketing spend on our platform and manage their own return on investment.

Since 2011, our core mission has been to make finding insurance easy and more personal, saving consumers and insurance providers time and money. We are working to build the largest and most trusted online insurance marketplace in the world. In pursuing this goal, we have consistently innovated through our disruptive data driven approach. Highlights of our history of innovation include:

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In June 2023, we committed to exiting our health insurance vertical, an area that would have required significant capital investment and scale to effectively compete amid an increasingly unpredictable regulatory environment, to increase focus on core verticals, and implemented a workforce reduction plan, or the Reduction Plan, to improve operating efficiency. The Reduction Plan included the elimination of 175 employees, or approximately 28%, of our workforce. We expect these reductions to produce cost savings in non-marketing operating expenses of over 15%. During the three and nine months ended September 30, 2023, we incurred $0.2 million and $4.0 million, respectively, in severance charges in connection with the workforce reduction, consisting of cash expenditures for employee separation costs of zero and $2.7 million, respectively, that are expected to be paid through August 2024, and non-cash charges for the modification of certain equity awards of $0.2 million and $1.3 million, respectively. During the three and nine months ended September 30, 2023, we recorded a credit of $0.2 million to restructuring and other charges related to estimated severance payments that were not made. On August 1, 2023, we sold all of the issued and outstanding membership interests of our former subsidiary, Eversurance LLC, for cash consideration of $13.2 million to MyPlanAdvocate Insurance Solutions Inc. There were no employees of Eversurance LLC at the time of the sale. The assets sold consisted of commissions receivable of $30.8 million, which were expected to be collected over the next seven years, net intangible assets of $1.0 million and other net assets of $0.4 million, including our Evansville, Indiana office lease. We incurred $0.4 million of transaction costs in connection with the sale. Accordingly, we recognized a loss on sale of $19.4 million during the three months ended September 30, 2023. We also recorded an impairment charge on our right-of-use asset for our Cambridge, Massachusetts office lease of $0.4 million during the three months ended September 30, 2023 in connection with subleases we entered into with two third parties for a portion of the office space. We refer to the exit of our health insurance vertical and the Reduction Plan as our recent restructuring, which we had completed as of September 30, 2023.

In the three months ended September 30, 2023 and 2022, our total revenue was $55.0 million and $103.2 million, respectively, representing a year-over-year decrease of 46.7%. We had net losses of $29.2 million and $6.5 million for the three months ended September 30, 2023 and 2022, respectively, and had $(1.9) million and $2.0 million in adjusted EBITDA for the three months ended September 30, 2023 and 2022, respectively. In the nine months ended September 30, 2023 and 2022, our total revenue was $232.2 million and $315.8 million, respectively, representing a year-over-year decrease of 26.5%. We had net losses of $44.9 million and $15.9 million for the nine months ended September 30, 2023 and 2022, respectively, and had $1.3 million and $5.8 million in adjusted EBITDA for the nine months ended September 30, 2023 and 2022, respectively. See the section titled “—Non-GAAP Financial Measure” for information regarding our use of adjusted EBITDA and its reconciliation to net income (loss) determined in accordance with generally accepted accounting principles in the United States, or GAAP.

On August 7, 2023, we amended our 2022 Amended Loan Agreement (as defined below) to, among other things, decrease the revolving line of credit, eliminate the term loan availability, adjust the interest rate and amend certain financial ratio and other covenants. See “Liquidity and Capital Resources” below.

Factors Affecting Our Performance

We believe that our performance and future growth depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below, elsewhere in this Quarterly Report on Form 10-Q, particularly in Item 1A. Risk Factors, and in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.

Auto insurance industry risk

In the three and nine months ended September 30, 2023, we derived 78% and 79%, respectively, of our revenue from auto insurance providers and our financial results depend on the performance of the auto insurance industry. The auto insurance industry has been experiencing deteriorating underwriting performance due to a rise in the severity of claims caused by inflationary increases in the cost to repair and replace vehicles and settle medical and injury claims combined with inadequate policy premiums to cover the cost of claims. This deteriorated underwriting performance has caused our insurance carrier customers to reduce spending on new customer acquisition, which has had a negative impact on the pricing and demand for consumer referrals in our marketplace.

Furthermore, revenue from one of our largest insurance carrier customers, which is comprised primarily of subsidies to us for the benefit of agents to offset agents’ costs for our referrals, was 10% and 11% of total revenue in the three and nine months ended September 30, 2023, respectively. In the third quarter of 2023, this customer reduced subsidies for its agents, which negatively impacted revenue in the third quarter. In October 2023, this customer notified us that it was discontinuing payment of subsidies to us through at least the end of 2023, and we are engaged in contract discussions with this customer for 2024.

The state of the auto insurance market remains volatile. In January 2023, we saw one of our major carriers return to higher spending patterns, but subsequently reduce customer acquisition spending in the second and third quarters of 2023 due to higher than expected claims losses. Revenue from this carrier customer decreased to less than 10% of total revenue in the three months ended September 30, 2023, from 20% of total revenue for the nine months ended September 30, 2023 and 21% of total revenue in 2022.

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We expect revenue from referrals to continue to decrease through at least the fourth quarter of 2023 due to lower demand and loss of subsidies for agents.

Expanding consumer traffic

Our success depends in part on the growth of our consumer traffic. We have historically increased consumer traffic to our marketplace by expanding existing advertising channels and adding new channels such as by engaging with consumers through our verified partner network. Over the long term, we plan to increase consumer traffic by leveraging the features and growing data assets of our platform. However, we have decreased advertising spend in response to lower demand for consumer referrals and we have the ability to decrease advertising spend in the future, when the revenue associated with such consumer traffic does not result in incremental profit to our business. We have also increased the number of quote requests acquired from our verified partner network. While we plan to continue to increase the number of quote requests we acquire from our verified partner network, our profitability will be impacted by our ability to acquire quote requests in significant volume, at prices that are attractive, and that represent high-intent shoppers for which insurance providers will purchase referrals.

Increasing the number of insurance providers and their respective spend in our marketplace

Our success also depends on our ability to retain and grow our insurance provider network. Historically, we have generally expanded both the number of insurance providers and the spend per provider on our platform. Recently, we have experienced a decrease in carrier spend in the automotive insurance vertical as described above.

Regulations

Our revenue and earnings may fluctuate from time to time as a result of changes to federal, state, and industry-based laws and regulations, or changes to standards concerning the enforcement thereof. Our business could be affected directly because we operate websites, conduct telephonic and email marketing, and collect, store, share, and use consumer information and other data. Our business also could be affected indirectly if our customers were to adjust their operations as a result of regulatory changes and enforcement activity. For example, the U.S. Federal Trade Commission recently signaled, in public statements and enforcement actions, a new position regarding the consent requirements under the Telemarketing Sales Rule, while the U.S. Federal Communications Commission has proposed changes to the consent rules under the Telephone Consumer Protection Act of 1991, or the TCPA. Although it is unclear how these changes may ultimately be implemented and/or interpreted, they could have an impact on the market for insurance quote requests, and may require us and our third-party sources to modify our marketing practices and policies. In addition, twelve states have enacted (and others are considering) broad data privacy laws that could affect our business. Although it remains unclear how these new privacy laws may be modified or interpreted, their effects could have an impact on our business, and may require us to modify our data use practices and policies and incur compliance-related costs and expenses. For a description of laws and regulations to which we are generally subject, see Item 1 “Business” and Item 1A “Risk Factors.” in our 2022 Annual Report on Form 10-K.

Key Business Metrics

We regularly review a number of metrics, including GAAP operating results and the key metrics listed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make operating and strategic decisions. Some of these metrics are non-financial metrics or are financial metrics that are not defined by GAAP.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss), adjusted to exclude: stock-based compensation expense, depreciation and amortization expense, restructuring and other charges, acquisition-related costs, interest income and the provision for (benefit from) income taxes. Adjusted EBITDA is a non-GAAP financial measure that we present in this Quarterly Report on Form 10-Q to supplement the financial information we present on a GAAP basis. We monitor and present Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. Adjusted EBITDA should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP. Adjusted EBITDA should be considered together with other operating and financial performance measures presented in accordance with GAAP. Also, Adjusted EBITDA may not necessarily be comparable to similarly titled measures presented by other companies. For further explanation of the uses and limitations of this measure and a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income (loss), please see “—Non-GAAP Financial Measure”.

Variable Marketing Margin

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We define variable marketing margin, or VMM, as revenue, as reported in our consolidated statements of operations and comprehensive loss, less advertising costs (a component of sales and marketing expense, as reported in our consolidated statements of operations and comprehensive loss). We use VMM to measure the efficiency of individual advertising and consumer acquisition sources and to make trade-off decisions to manage our return on advertising. We do not use VMM as a measure of profitability.

Key Components of Our Results of Operations

Revenue

We generate revenue primarily by selling consumer referrals to insurance provider customers, consisting of carriers and agents, as well as to indirect distributors. To simplify the quoting process for the consumer and improve performance for the provider, we are able to provide consumer-submitted quote request data along with each referral. We recognize revenue from consumer referrals at the time of delivery. We support three secure consumer referral formats:

We also generate revenue from commissions paid to us by insurance carriers for the sale of policies in our automotive insurance vertical, and prior to our exit from health, in our health insurance vertical. Commission revenue is recognized upon satisfaction of our performance obligation, which we consider to be submission of the policy application to the insurance carrier. We recognize revenue based on our constrained estimate of commission payments we expect to receive over the lifetime of the policies sold, which we refer to as constrained lifetime values, or constrained LTVs, of commission payments.

For the periods presented, our total revenue consisted of revenue generated within our insurance verticals as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
		(in thousands)
Automotive		$	43,077			$	88,150			$	182,520			$	257,200
Home and Renters			10,889				7,191			$	31,068			$	25,292
Other			1,045				7,882				18,628				33,327
Total Revenue		$	55,011			$	103,223			$	232,216			$	315,819

 

We expect an overall decrease in revenue in 2023 as compared to 2022 as we have experienced and expect to continue to experience decreased spending from our carrier partners due primarily to the deteriorated automotive vertical and loss of subsidies. We also expect other revenue to decrease in 2023 as compared to 2022 as a result of our exit from the health insurance vertical.

Cost and Operating Expenses

Our cost and operating expenses consist of cost of revenue, sales and marketing, research and development, general and administrative expenses, restructuring and other charges, and acquisition-related costs.

We allocate certain overhead expenses, such as rent, utilities, office supplies and depreciation and amortization of general office assets, to cost of revenue and operating expense categories based on headcount. As a result, an overhead expense allocation is reflected in cost of revenue and sales and marketing, research and development, and general and administrative expense categories. Personnel-related costs included in cost of revenue and operating expense categories include wages, fringe benefit costs and stock-based compensation expense.

Cost of Revenue

Cost of revenue is comprised primarily of the costs of operating our marketplace and delivering consumer referrals to our customers. These costs consist primarily of technology service costs including hosting, software, data services, and third-party call center costs. In addition, cost of revenue includes depreciation and amortization of our platform technology assets and personnel-related costs.

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Sales and Marketing

Sales and marketing expense consists primarily of advertising and marketing expenditures as well as personnel-related costs for employees engaged in sales, marketing, data analytics and consumer acquisition functions and amortization of sales and marketing-related intangible assets. Advertising expenditures consist of variable costs that are related to attracting consumers to our marketplace, generating consumer quote requests, including the cost of quote requests we acquire from our verified partner network, and promoting our marketplace to carriers and agents. Advertising costs are expensed as incurred. Marketing costs consist primarily of content and creative development, public relations, memberships, and event costs. In order to grow our business and brand awareness, we expect that we will continue to commit substantial resources to our sales and marketing efforts. We expect our sales and marketing expense will decrease in the near term as we expect decreased carrier spend for referrals, which will impact our advertising expenditures, and we expect personnel-related costs to decrease in 2023 from 2022 as a result of the Reduction Plan we implemented in June 2023.

Research and Development

Research and development expense consists primarily of personnel-related costs for software development and product management. We have focused our research and development efforts on improving ease of use and functionality of our existing marketplace platform and developing new offerings and internal tools. We primarily expense research and development costs. Direct development costs related to software enhancements that add functionality are capitalized and amortized as a component of cost of revenue. We expect that research and development expense will decrease in 2023 from 2022 as a result of the Reduction Plan we implemented in June 2023.

General and Administrative

General and administrative expense consists of personnel-related costs and related expenses for executive, finance, legal, human resources, technical support and administrative personnel as well as the costs associated with professional fees for external legal, accounting and other consulting services, insurance premiums and payment processing and billing costs. We expect that general and administrative expense will decrease in 2023 from 2022 as a result of the Reduction Plan we implemented in June 2023.

Restructuring and Other Charges

Restructuring and other charges includes costs related to the recent restructuring and our exit of the health insurance vertical.

Acquisition-related

Acquisition-related costs include expenses associated with third-party professional services we utilize for the evaluation and execution of acquisitions as well as changes in the fair value of our contingent consideration liabilities recorded as the result of our acquisitions of Eversurance LLC and PolicyFuel, which occurred in 2020 and 2021, respectively.

Other Income (Expense)

Other income (expense) consists of interest income and other income (expense). Interest income consists of interest earned on invested cash balances. Other income (expense) consists of miscellaneous income (expense) unrelated to our core operations.

Income Taxes

Income tax expense is based on our estimate of taxable income, applicable income tax rates, net research and development tax credits, net operating loss carrybacks, changes in valuation allowance estimates and deferred income taxes.

Non-GAAP Financial Measure

To supplement our consolidated financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we present in this Quarterly Report on Form 10-Q adjusted EBITDA as a non-GAAP financial measure. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similarly titled measures presented by other companies.

Adjusted EBITDA. We define adjusted EBITDA as our net income (loss), excluding the impact of stock-based compensation expense; depreciation and amortization expense; restructuring and other charges; acquisition-related costs; interest income; and our provision for (benefit from) income taxes. The most directly comparable GAAP measure to adjusted EBITDA is net income (loss). We monitor and present in this Quarterly Report on Form 10-Q adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. In particular, we believe that excluding the impact of these items in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance.

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We use adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. We believe adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculation of adjusted EBITDA. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.

Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the most directly comparable financial measure calculated and presented in accordance with GAAP. Some of these limitations are:

In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of adjusted EBITDA as a tool for comparison.

The following table reconciles adjusted EBITDA to net income (loss), the most directly comparable financial measures calculated and presented in accordance with GAAP.

Reconciliation of Net Loss to Adjusted EBITDA:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
		(in thousands)
Net loss		$	(29,217	)		$	(6,451	)		$	(44,939	)		$	(15,922	)
Stock-based compensation			5,479				7,233				17,995				22,363
Depreciation and amortization			2,251				1,410				5,121				4,326
Restructuring and other charges			19,757				—				23,589				—
Acquisition-related costs			—				(96	)			(150	)			(4,767	)
Interest income			(411	)			(113	)			(869	)			(158	)
Income tax expense			236				—				600				—
Adjusted EBITDA		$	(1,905	)		$	1,983			$	1,347			$	5,842

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Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

The following tables set forth our results of operations for the periods shown:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
		(in thousands)
Statement of Operations Data:
Revenue(1)		$	55,011			$	103,223			$	232,216			$	315,819
Cost and operating expenses(2):
Cost of revenue			6,150				5,877				17,467				17,920
Sales and marketing			46,505				89,098				195,537				273,102
Research and development			6,270				7,832				21,647				24,273
General and administrative			5,741				7,102				19,339				21,400
Restructuring and other charges			19,757				—				23,589				—
Acquisition-related costs			—				(96	)			(150	)			(4,767	)
Total cost and operating expenses			84,423				109,813				277,429				331,928
Loss from operations			(29,412	)			(6,590	)			(45,213	)			(16,109	)
Other income (expense):
Interest income			411				113				869				158
Other income, net			20				26				5				29
Total other income, net			431				139				874				187
Loss before income taxes			(28,981	)			(6,451	)			(44,339	)			(15,922	)
Income tax expense			(236	)			—				(600	)			—
Net loss		$	(29,217	)		$	(6,451	)		$	(44,939	)		$	(15,922	)
Other Financial and Operational Data:
Variable marketing margin		$	19,368			$	31,844			$	79,614			$	99,199
Adjusted EBITDA(3)		$	(1,905	)		$	1,983			$	1,347			$	5,842

 

(1)  Comprised of revenue from the following distribution channels:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Direct channels			76	%			85	%			82	%			86	%
Indirect channels			24	%			15	%			18	%			14	%
			100	%			100	%			100	%			100	%

 

(2) Includes stock-based compensation expense as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
		(in thousands)
Cost of revenue		$	57			$	67			$	170			$	221
Sales and marketing			2,216				2,461				6,761				8,635
Research and development			1,820				2,687				6,479				7,748
General and administrative			1,386				2,018				4,585				5,759
Restructuring and other charges			165				—				1,288				—
		$	5,644			$	7,233			$	19,283			$	22,363

(3) See “—Non-GAAP Financial Measure” for information regarding our use of adjusted EBITDA as a non-GAAP financial measure and a reconciliation of adjusted EBITDA to its comparable GAAP financial measure.

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Revenue:

		Three Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Revenue		$	55,011			$	103,223			$	(48,212	)			-46.7	%

Revenue decreased by $48.2 million from $103.2 million for the three months ended September 30, 2022 to $55.0 million for the three months ended September 30, 2023. The decrease in revenue was due to a decrease of $45.1 million in revenue from our automotive insurance vertical and a decrease of $6.8 million in our other insurance verticals, partially offset by an increase of $3.7 million in our home and renters insurance vertical. The decrease in revenue from our automotive insurance vertical was primarily due to a decrease in carrier spend for referrals of $40.4 million, including a decrease in subsidies from one of our larger carrier customers, and a decrease in commission revenue of $4.6 million. The decrease in revenue from our other insurance verticals was primarily due to a decrease in commission revenue of $4.4 million and a decrease in referral revenue of $2.5 million, both due primarily to our exit from health insurance.

		Nine Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Revenue		$	232,216			$	315,819			$	(83,603	)			-26.5	%

Revenue decreased by $83.6 million from $315.8 million for the nine months ended September 30, 2022 to $232.2 million for the nine months ended September 30, 2023. The decrease in revenue was due to a decrease of $74.7 million in revenue from our automotive insurance vertical and a decrease of $14.7 million in our other insurance verticals, partially offset by an increase in revenue from home and renters insurance vertical of $5.8 million. The decrease in revenue from our automotive insurance vertical was primarily due to a decrease in carrier spend for referrals of $63.5 million, including a decrease in subsidies from one of our larger carrier customers, and a decrease in commission revenue of $11.2 million. The decrease in revenue from our other insurance verticals was primarily due to a decrease in commission revenue of $9.0 million and a decrease in carrier spend for referrals of $5.7 million, both due primarily to our exit from health insurance.

Cost of Revenue

 

		Three Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Cost of revenue		$	6,150			$	5,877			$	273				4.6	%
Percentage of revenue			11.2	%			5.7	%

Cost of revenue increased by $0.3 million from $5.9 million for the three months ended September 30, 2022 to $6.2 million for the three months ended September 30, 2023. Cost of revenue increased primarily due to an increase in depreciation expense of $1.1 million related primarily to technology assets that will no longer be used, partially offset by a decrease in third-party call center costs of $0.9 million as a result of shifting call referrals from third-party call centers to employees and a decrease in calls related to our health insurance vertical. Hosting costs also decreased by $0.2 million. These decreases were partially offset by increased personnel-related costs of $0.3 million due to the shift of call referrals from third-party call centers to employees.

		Nine Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Cost of revenue		$	17,467			$	17,920			$	(453	)			-2.5	%
Percentage of revenue			7.5	%			5.7	%

Cost of revenue decreased by $0.5 million from $17.9 million for the nine months ended September 30, 2022 to $17.5 million for the nine months ended September 30, 2023. Cost of revenue decreased primarily due to a decrease in third-party call center costs of $2.4 million as a result of shifting call referrals from third-party call centers to employees and a decrease in calls related to our health insurance vertical. Hosting costs also decreased by $0.7 million. These decreases were partially offset by increased

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personnel-related costs of $1.3 million due to the shift of call referrals from third-party call centers to employees and increased depreciation expense of $1.1 million related primarily to technology assets that will no longer be used.

Sales and Marketing

 

		Three Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Sales and marketing expense		$	46,505			$	89,098			$	(42,593	)			-47.8	%
Percentage of revenue			84.5	%			86.3	%

Sales and marketing expense decreased by $42.6 million from $89.1 million for the three months ended September 30, 2022 to $46.5 million for the three months ended September 30, 2023. The decrease in sales and marketing expense was primarily due to a decrease in advertising costs of $35.7 million due to a decrease in carrier spend and a decrease in personnel-related costs of $5.1 million, primarily in our DTC agency. Agent license fees decreased by $0.3 million due to the decrease in health insurance agents. Office and occupancy, agent marketing and technology services costs each also decreased by $0.2 million for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 due primarily to our exit from the health insurance vertical and the reduction in personnel. Depreciation and amortization decreased by $0.2 million due to the intangible assets sold as part of the health insurance vertical exit.

		Nine Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Sales and marketing expense		$	195,537			$	273,102			$	(77,565	)			-28.4	%
Percentage of revenue			84.2	%			86.5	%

Sales and marketing expense decreased by $77.6 million from $273.1 million for the nine months ended September 30, 2022 to $195.5 million for the nine months ended September 30, 2023. The decrease in sales and marketing expense was primarily due to a decrease in advertising costs of $64.0 million due to a decrease in carrier spend and a decrease in personnel-related costs of $10.2 million, primarily in our DTC agency. Personnel-related costs included stock-based compensation expense of $6.8 million and $8.6 million for the nine months ended September 30, 2023 and 2022, respectively. Office and occupancy costs also decreased by $0.6 million due to a reduction in personnel from 2022 to 2023. Technology services, agent marketing, and consulting service costs also decreased by $0.6 million, $0.5 million and $0.3 million, respectively, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, due primarily to our exit from the health insurance vertical and the reduction in personnel.

Research and Development

		Three Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Research and development expense		$	6,270			$	7,832			$	(1,562	)			-19.9	%
Percentage of revenue			11.4	%			7.6	%

Research and development expense decreased by $1.6 million from $7.8 million for the three months ended September 30, 2022 to $6.3 million for the three months ended September 30, 2023. The decrease in research and development expense was primarily due to a decrease in personnel-related costs.

		Nine Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Research and development expense		$	21,647			$	24,273			$	(2,626	)			-10.8	%
Percentage of revenue			9.3	%			7.7	%

 

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Research and development expense decreased by $2.6 million from $24.3 million for the nine months ended September 30, 2022 to $21.6 million for the nine months ended September 30, 2023. The decrease in research and development expense was primarily due to a decrease in personnel-related costs.

General and Administrative

		Three Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
General and administrative expense		$	5,741			$	7,102			$	(1,361	)			-19.2	%
Percentage of revenue			10.4	%			6.9	%

General and administrative expenses decreased by $1.4 million from $7.1 million for the three months ended September 30, 2022 to $5.7 million for the three months ended September 30, 2023. The decrease in general and administrative expenses was primarily due to a decrease in personnel-related costs of $1.0 million and a decrease in professional fees of $0.3 million.

		Nine Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
General and administrative expense		$	19,339			$	21,400			$	(2,061	)			-9.6	%
Percentage of revenue			8.3	%			6.8	%

General and administrative expenses decreased by $2.1 million from $21.4 million for the nine months ended September 30, 2022 to $19.3 million for the nine months ended September 30, 2023. The decrease in general and administrative expenses was primarily due to a decrease in personnel-related costs of $2.3 million and decreases in professional fees of $0.4 million, partially offset by an increase in legal fees of $0.5 million.

Restructuring and Other Charges

Restructuring and other charges of $19.8 million and $23.6 million for the three and nine months ended September 30, 2023, respectively, consisted of costs related to the Reduction Plan we implemented in June 2023. For the three and nine months ended September 30, 2023, restructuring and other charges primarily included the loss on the sale of health insurance vertical assets of $19.4 million and an asset impairment charge of $0.4 million for the right-of-use asset related to our Cambridge, Massachusetts office lease. For the nine months ended September 30, 2023, restructuring costs and other charges also included net employee separation charges and non-cash compensation related to the restructuring of $3.8 million.

Acquisition-related

Acquisition-related costs for the three months ended September 30, 2023 and 2022 solely consisted of the change in fair value of our contingent consideration liabilities recorded as the result of our acquisitions. We recorded credits to acquisition-related costs for the three months ended September 30, 2023 and 2022 of zero and $0.1 million, respectively.

Acquisition-related costs for the nine months ended September 30, 2023 and 2022 solely consisted of the change in fair value of our contingent consideration liabilities recorded as the result of our acquisitions. We recorded credits to acquisition-related costs for the nine months ended September 30, 2023 and 2022 of $0.2 million and $4.8 million, respectively, related to the decrease in the fair value of our contingent consideration liability primarily due to changes to our future revenue forecasts and, to a lesser extent, changes in market value of our Class A common stock.

Other Income (Expense)

Interest income increased by $0.3 million and $0.7 million in the three and nine months ended September 30, 2023, respectively, compared to the three and nine months ended September 30, 2022 due to increases in interest rates earned on our cash balances. Other income (expense), net was not significant for any periods presented.

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Income Tax Expense

We recorded income tax expense of $0.2 million and $0.6 million in the three and nine months ended September 30, 2023, respectively. We maintain a valuation allowance on our overall net deferred tax asset as it is deemed more likely than not the net deferred tax asset will not be realized.

Variable Marketing Margin

		Three Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Revenue		$	55,011			$	103,223			$	(48,212	)			-46.7	%
Less: total advertising expense (a component of sales and marketing expense)			35,643				71,379
Variable marketing margin		$	19,368			$	31,844			$	(12,476	)			-39.2	%
Percentage of revenue			35.2	%			30.8	%

 

		Nine Months Ended September 30,								Change
		2023				2022				Amount				%
		(dollars in thousands)
Revenue		$	232,216			$	315,819			$	(83,603	)			-26.5	%
Less: total advertising expense (a component of sales and marketing expense)			152,602				216,620
Variable marketing margin		$	79,614			$	99,199			$	(19,585	)			-19.7	%
Percentage of revenue			34.3	%			31.4	%

 

The decrease in variable marketing margin in the three and nine months ended September 30, 2023 was due primarily to decreased carrier spend.

Liquidity and Capital Resources

As of September 30, 2023, our principal sources of liquidity were cash and cash equivalents of $39.0 million and up to $25.0 million of availability under our revolving line of credit pursuant to the 2023 Amended Loan Agreement (defined as the Amended and Restated Loan and Security Agreement, dated as of August 7, 2020 between us and Western Alliance Bank, as Lender, or the 2020 Loan Agreement, as amended by the Loan and Security Modification Agreement dated as of July 15, 2022, or the 2022 Loan Amendment, as amended by the Loan and Security Modification Agreement dated as of August 1, 2023, or the 2023 Consent and Release, as amended by the Loan and Security Modification Agreement, dated as of on August 7, 2023, or the 2023 Loan Amendment). The 2020 Loan Agreement, as amended by the 2022 Loan Amendment, is referred to as the 2022 Amended Loan Agreement. The 2023 Loan Amendment amended our 2022 Amended Loan Agreement, as amended by the 2023 Consent and Release, to among other things, eliminate the term loan availability thereunder, decrease the revolving line of credit available thereunder from $35.0 million to $25.0 million, adjust the interest rate and amend certain financial and other covenants.

Pursuant to the 2023 Amended Loan Agreement, borrowings under the revolving line of credit cannot exceed 85% of eligible accounts receivable balances, bear interest at the greater of 7.0% or the prime rate as published in The Wall Street Journal and mature on July 15, 2025. In an event of default, as defined in the 2023 Amended Loan Agreement, and until such event is no longer continuing, the annual interest rate to be charged would be the annual rate otherwise applicable to borrowings under the 2023 Amended Loan Agreement plus 5.00%.

Borrowings are collateralized by substantially all of our assets and property. Under the 2023 Amended Loan Agreement, we have agreed to certain affirmative and negative covenants to which we will remain subject until maturity. The covenants include limitations on our ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses. In addition, under the 2023 Amended Loan Agreement and through the maturity date, we are required to maintain a minimum Adjusted Quick Ratio of 1.10 to 1.00 defined as the ratio of (1) the sum of unrestricted cash and cash equivalents held at the Lender plus (y) net accounts receivable reflected on our balance sheet to (2) current liabilities, including all borrowings outstanding under the 2023 Amended Loan Agreement, but excluding the current portion of deferred revenue (in each case determined in accordance with GAAP). At any time the Adjusted Quick Ratio is less than 1.30 to 1.00 the Lender shall have the ability to use our cash receipts to repay outstanding obligations until such time as the Adjusted Quick Ratio is equal to or greater than

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1.30 to 1.00 for two consecutive months. As of September 30, 2023, we were in compliance with these covenants and we had no amounts outstanding under the revolving line of credit.

Since our inception, we have incurred operating losses and may continue to incur losses in the foreseeable future. We believe our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months, without considering the borrowing availability under our revolving line of credit. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our revenue, the timing and extent of spending on business initiatives, purchases of capital equipment to support our growth, sales and marketing activities, impact to our business from our recent restructuring, expansion of our business through acquisitions or our investments in complementary offerings, technologies or businesses, market acceptance of our platform and overall economic conditions. If we do not achieve our revenue goals as planned, we believe that we can reduce our operating costs. If we need additional funds and are unable to obtain funding on a timely basis, we may need to significantly curtail our operations in an effort to provide sufficient funds to continue our operations, which could adversely affect our business prospects.

Cash Flows

The following table shows a summary of our cash flows for the nine months ended September 30, 2023 and 2022:

 

		Nine Months Ended September 30,
		2023				2022
		(in thousands)
Net cash used in operating activities		$	(2,036	)		$	(10,893	)
Net cash provided by (used in) investing activities			10,206				(3,219	)
Net cash provided by financing activities			41				15,651
Effect of exchange rate changes on cash, cash equivalents   and restricted cash			3				(49	)
Net increase in cash, cash equivalents and restricted cash		$	8,214			$	1,490

 

 

Net cash used in operating activities

Operating activities used $2.0 million in cash during the nine months ended September 30, 2023, primarily resulting from our net loss of $44.9 million and net cash used by changes in our operating assets and liabilities of $1.3 million, partially offset by net non-cash charges of $44.2 million, which included the loss on sale of health insurance vertical assets of $19.4 million. Net cash used by changes in our operating assets and liabilities consisted primarily of a $13.6 million decrease in accounts payable and accrued expenses and other current liabilities, partially offset by decreases in accounts receivable, prepaid expenses and other current assets and commissions receivable of $7.3 million, $2.6 million and $2.6 million, respectively. Operating activities used $10.9 million during the nine months ended September 30, 2022 primarily resulting from our net loss of $15.9 million and net cash used by changes in our operating assets and liabilities of $17.0 million, partially offset by net non-cash charges of $22.0 million. Net cash used by changes in our operating assets and liabilities consisted primarily of a $15.7 million increase in commissions receivable, partially offset by a $4.4 million decrease in accounts receivable.

Changes in accounts receivable, accounts payable and accrued expenses and other current liabilities were generally due to changes in our business and timing of customer and vendor invoicing and payments. Collection of commissions receivable depends upon the timing of our receipt of commission payments from insurance carriers. A significant portion of our commissions receivable is classified as long-term.

Net cash provided by (used in) investing activities

Net cash provided by investing activities was $10.2 million for the nine months ended September 30, 2023, consisting of cash proceeds from the sale of Eversurance LLC of $13.2 million, partially offset by the acquisition of property and equipment of $3.0 million, which included the capitalization of certain software development costs. Net cash used in investing activities of $3.2 million for the nine months ended September 30, 2022 was attributable to the acquisition of property and equipment, which included the capitalization of certain software development costs. During the nine months ended September 30, 2023 and 2022, we capitalized $2.7 million and $2.5 million, respectively, of software development costs.

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Net cash provided by financing activities

During the nine months ended September 30, 2023 and 2022, net cash provided by financing activities was less than $0.1 million and $15.7 million, respectively. Net cash provided by financing activities during the nine months ended September 30, 2023 consisted of proceeds received from the exercise of common stock options, partially offset by tax withholding payments relating to net share settlements. Net cash provided by financing activities during the nine months ended September 30, 2022 consisted of $15.0 million of proceeds from the issuance and sale of shares of common stock in a private placement with Recognition Capital, LLC, an entity which is owned and controlled by David Blundin, Chairman of the Board of Directors and co-founder of our company, and $0.7 million from the exercise of common stock options.

Contractual Obligations and Commitments

There have been no material changes to the contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2022.

Critical Accounting Policies and Significant Judgments and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

The following critical accounting policies reflect significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

There have been no material changes to our critical accounting policies from those disclosed in our financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2022, on file with the Securities and Exchange Commission. For further disclosure, refer to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We have a credit agreement that provides us with credit at a floating rate of interest. As of September 30, 2023, we had no outstanding borrowings under our revolving line of credit and therefore no material exposure to fluctuations in interest rates.

We contract with vendors in foreign countries and we have foreign subsidiaries. As such, we have exposure to adverse changes in exchange rates of foreign currencies associated with our foreign transactions and our foreign subsidiaries. We believe this exposure to be immaterial. We do not hedge against this exposure to fluctuations in exchange rates.

 

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

Information with respect to legal proceedings and this item is included in Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements contained in Part I, Item I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to risks and uncertainties in the ordinary course of business that are common to all businesses, important factors that are specific to our industry and company could have a material and adverse impact on our business, financial condition, results of operations and cash flows. You should carefully consider the risk factors set forth in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 and in our subsequent periodic filings with the Securities and Exchange Commission. Other than as reflected in the following updated risk factors, there has been no material change from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022:

A significant portion of our revenue in recent periods was derived from two customers, and our results of operations could be adversely affected and stockholder value harmed if we continue to lose business from these customers.

Sales to Progressive Casualty Insurance Company, or Progressive, accounted for less than 10% of our revenue for the three months ended September 30, 2023, but for 20% of our revenue for the nine months ended September 30, 2023 and 21% of our revenue for the year ended December 31, 2022. Sales to State Farm Mutual Automobile Insurance Company, or State Farm, accounted for 10% and 11% of our revenue for the three and nine months ended September 30, 2023, respectively, and 11% of our revenue for the year ended December 31, 2022. These customers made purchases from us under short-term agreements and may decrease or cease doing business with us at any time with no notice. As a result, we have no assurances that these customers will continue to purchase from us at their historical levels or at all. We have in fact experienced significant decreased levels of purchasing from both of these customers in 2023. Additionally, in October 2023, State Farm informed us that it was discontinuing payment of subsidies to us through at least the end of 2023, and we are engaged in contract discussions with State Farm for 2024. If Progressive or State Farm further reduce their level of purchases from us or discontinue their relationships with us, the loss could have a material adverse effect on our results of operations in both the short and long term.

Our business is substantially dependent on revenue from automotive insurance providers and subject to risks related to automotive insurance and the larger automotive industry.

A substantial majority of the referrals made through our marketplace are for automotive insurance and our financial prospects depend significantly on the larger automotive industry ecosystem. Revenue from automotive insurance providers accounted for 78% and 79% of our total revenue for the three and nine months ended September 30, 2023, respectively, and revenue from automotive insurance providers accounted for 80% and 79% of our total revenue for the years ended December 31, 2022 and 2021, respectively. The automotive insurance industry has been experiencing deteriorating underwriting performance due to a rise in the severity of claims caused by inflationary increases in the cost to repair and replace vehicles and settle medical and injury claims combined with inadequate policy premiums to cover the cost of claims. If insurance carriers continue to experience large or unexpected losses through the offering of insurance, these carriers may continue to decrease the amount of money they spend with us. For example, in January 2023, we saw a major carrier return to higher spending patterns, but subsequently reduce customer acquisition spending in the second quarter of 2023 due to higher than expected claims losses. This decrease has continued throughout the third quarter of 2023. In addition, decreases in consumer demand in the automotive industry in general could adversely affect the demand for insurance and, in turn, the number of consumers using our marketplace to request insurance quotes. For example, trends in the automotive industry, such as from the effects of ride sharing applications, including Uber and Lyft, distracted driving and autonomous driving technologies, have the potential to adversely affect automobile purchases and to decrease the demand for auto insurance. Similarly, we believe that shortages of semiconductor chips for new car production, as well as the availability of automotive parts used in car repair, have resulted in higher insurance claims losses and increasing insurance carrier loss ratios.

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Our business is dependent on our relationships with insurance providers with no long-term contractual commitments. If insurance providers stop purchasing consumer referrals from us or decrease the amount they are willing to spend per referral, or if we are unable to establish and maintain new relationships with insurance providers, our business, results of operations and financial condition could be materially adversely affected.

A substantial majority of our revenue is derived from sales of consumer referrals to insurance providers, including both insurance carriers and agents. Our relationships with insurance providers are dependent on our ability to deliver quality referrals at attractive volumes and prices. If insurance providers are not able to acquire their preferred referrals in our marketplace, they may stop buying referrals from us, or may decrease the amount they are willing to spend for referrals. Our agreements with insurance providers are short-term agreements, and insurance providers can stop participating in our marketplace at any time with no notice. As a result, we cannot guarantee that insurance providers will continue to work with us, or, if they do, the number of referrals they will purchase from us, the price they will pay per referral or their total spend with us. For example, in 2022, we experienced decreased auto insurance carrier marketing spend, which we believe was due to challenges in the auto insurance industry. We have continued to experience depressed marketing spend during 2023. Further, State Farm recently notified us that it was discontinuing payment of subsidies to us through at least the end of 2023, and we are engaged in contract discussions with State Farm for 2024. We have no assurance that State Farm will resume payment of subsidies. Our revenue could be unfavorably impacted if a significant number of agents terminate or reduce the extent of their relationship with us as a result of the elimination in subsidies. In addition, we may not be able to attract new insurance providers to our marketplace or increase the amount of revenue we earn from insurance providers over time.

If we are unable to maintain existing relationships with insurance providers in our marketplace, or are unable to add new insurance providers, we may be unable to offer our consumers the shopping experience they expect. This deficiency could reduce consumers’ confidence in our services, making us less popular with consumers. As a result, consumers could cease to use us, or use us at a decreasing rate.

In addition, we derive revenue as a result of subsidy payments made by carriers to us on behalf of their agents. Our insurance carrier customers often provide subsidies for the benefit of agents to offset agents’ costs in connection with selling insurance policies from our referrals. Our carrier customers have no obligation to provide such subsidies and may reduce the amount of such subsidies or cease providing them at any time. If our carrier customers were to reduce the amounts of or cease providing such subsidies, as recently occurred with State Farm, our insurance agent customers may terminate or reduce the extent of their relationships with us. Because our insurance provider customers can stop buying from us, or spend less with us, at any time and our insurance carrier customers may cease providing subsidies to our insurance agent customers at any time, our business, results of operations and financial condition could be materially adversely affected with little to no notice. If agents decide to terminate or reduce their relationships with us as a result of the elimination in subsidies, our revenue would likely be reduced and our financial results would be adversely affected.

Our recent restructuring may not result in anticipated savings or operational efficiencies, could result in total costs and expenses that are greater than expected and could disrupt our business.

In June 2023, we committed to exiting our health insurance vertical and implemented a workforce reduction plan, or the Reduction Plan, to reduce the total number of our employees by approximately 28%. In August 2023, we sold assets all of the issued and outstanding membership interests of Eversurance LLC, our former subsidiary. We refer to the exit of our health insurance vertical and the Reduction Plan as our recent restructuring, which we had completed as of September 30, 2023. We undertook these initiatives to strengthen our balance sheet, improve operational efficiencies and operating costs and better align our workforce with current business needs, top strategic priorities and key growth opportunities. We may not realize, in full or in part, the anticipated benefits and savings from this restructuring due to unforeseen difficulties or delays or unexpected costs or other charges. In addition, we may incur additional expenses not currently contemplated due to events associated with the restructuring. If we are unable to realize the expected operational efficiencies and cost savings from the restructuring, or if we incur additional expenses related to the restructuring, our operating results and financial condition would be adversely affected. Furthermore, the restructuring may be disruptive to our operations. For example, our management may need to divert a disproportionate amount of its attention away from our day-to-day strategic and operational activities and devote a substantial amount of time to managing the organizational changes brought about by the reduction in force. In addition, our workforce reduction could yield unanticipated consequences, such as attrition beyond planned staff reductions, increased difficulties in our day-to-day operations and reduced employee morale. If employees who were not affected by the reduction in force seek alternative employment, this could result in unplanned additional expense to ensure adequate staffing of our company or harm our productivity. Our workforce reduction could also harm our ability to attract and retain qualified personnel who are critical to our business. Any failure to attract or retain qualified personnel could adversely affect our business.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Equity Securities

There were no shares of equity securities sold or issued, or options granted, by us during the three months ended September 30, 2023 that were not registered under the Securities Act of 1933, as amended, and that were not previously reported in a Current Report on Form 8-K.

Issuer Purchases of Equity Securities

We did not purchase any of our registered equity securities during the period from July 1, 2023 to September 30, 2023.

Item 5. Other Information.

On November 5, 2023, the Board of Directors of the Company (the “Board”) adopted an Executive Severance Plan (the “Severance Plan”). The Severance Plan applies to the Company’s Chief Executive Officer (“CEO” or “Tier 1 Executive”), as well as executives who report directly to the Company’s CEO, who are designated by the Company as subject to the reporting provisions and trading restrictions of Section 16 of the Securities Exchange Act of 1934, or who are members of the Company’s senior leadership team whose compensation is reviewed annually by the Compensation Committee of the Board (each a “Tier 2 Executive” and together with the Tier 1 Executive, the “Eligible Executives” and each an “Eligible Executive”).

The Severance Plan provides for severance benefits in the event of (i) a termination of an Eligible Executive’s employment by the Company other than For Cause (as defined in the Severance Plan) or a resignation by such Eligible Executive for Good Reason (as defined in the Severance Plan) (“Severance Benefits”), or (ii) a termination of an Eligible Executive’s employment by the Company other than For Cause or a resignation by such Eligible Executive for Good Reason, in either case within three (3) months prior to or within twelve (12) months following a Change in Control (as defined in the Severance Benefit Plan) (“Change in Control Severance Benefits”). Except as specifically provided in the Severance Plan, the Severance Plan is superseded by the provisions of any agreements between any Eligible Executive and the Company that provide for severance benefits, except to the extent that the Eligible Executive is entitled to payments and benefits under the Severance Plan that are greater than those provided by any such agreement.

Under the terms of the Severance Plan, subject to the execution and effectiveness of a release of all claims against the Company, if an Eligible Executive qualifies for Severance Benefits, the Company will be obligated to:

Under the terms of the Severance Plan, subject to the execution and effectiveness of a release of all claims against the Company, if an Eligible Executive qualifies for Change in Control Severance Benefits (as defined in the Severance Plan), in lieu of the severance benefits described above, the Company will be obligated to:

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The Severance Plan will be administered by the Board (or a committee of the Board that has been delegated the authority to administer the Severance Plan). The Board may amend, modify, or terminate the Severance Plan at any time in its sole discretion; provided that (a) any such amendment, modification or termination made prior to a Change in Control that adversely affects the rights of any Eligible Executive must be unanimously approved by the Board, (b) no such amendment, modification or termination may affect the rights of an Eligible Executive then receiving payments or benefits under the Severance Plan without the consent of such Eligible Executive, and (c) no such amendment, modification or termination made after a Change in Control will be effective for one year from the date of the Change in Control.

The foregoing description of the Severance Plan is qualified in its entirety by reference to the full text of the Severance Plan, which is filed herewith and attached as Exhibit 10.3 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

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Item 6. Exhibits.

 

Exhibit Number		Description
2.1		Purchase and Sale Agreement, dated August 1, 2023, by and between MyPlanAdvocate Insurance Solutions Inc. and the Company (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 7, 2023).
10.1		Loan and Security Modification Agreement, dated August 1, 2023, by and between Western Alliance Bank and the Company (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 7, 2023).
10.2		Loan and Security Modification Agreement, dated August 7, 2023, by and between Western Alliance Bank and the Company (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 7, 2023).
10.3		Executive Severance Plan, dated November 5, 2023
31.1		Certification of Chief Executive Officer of the Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer of the Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1†		Certification of Chief Executive Officer of the Registrant Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2†		Certification of Chief Financial Officer of the Registrant Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

† The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of EverQuote, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		EVERQUOTE, INC.
Date: November 7, 2023		By:	/s/ Jayme Mendal
			Jayme Mendal Chief Executive Officer and President (Principal Executive Officer)
Date: November 7, 2023		By:	/s/ Joseph Sanborn
			Joseph Sanborn Chief Financial Officer and Treasurer (Principal Financial Officer)

 

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