EverQuote(EVER) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Unaudited Q3 2023 financials reflect decreased assets and revenue, with a net loss primarily due to a restructuring charge and health vertical exit Condensed Consolidated Balance Sheets Total assets decreased to $114.0 million from $156.5 million at year-end 2022, driven by reduced commissions receivable and leading to lower equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $113,986 | $156,519 | | Cash and cash equivalents | $39,049 | $30,835 | | Accounts receivable, net | $22,151 | $29,604 | | Commissions receivable (current & non-current) | $13,544 | $46,940 | | Total Liabilities | $32,115 | $49,033 | | Accounts payable | $20,627 | $30,680 | | Total Stockholders' Equity | $81,871 | $107,486 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q3 2023 revenue fell 46.7% to $55.0 million, resulting in a $29.2 million net loss, largely due to a $19.8 million restructuring charge Key Operating Results (in thousands, except per share amounts) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $55,011 | $103,223 | $232,216 | $315,819 | | Loss from operations | $(29,412) | $(6,590) | $(45,213) | $(16,109) | | Net loss | $(29,217) | $(6,451) | $(44,939) | $(15,922) | | Net loss per share | $(0.87) | $(0.20) | $(1.36) | $(0.51) | | Restructuring and other charges | $19,757 | $— | $23,589 | $— | Condensed Consolidated Statements of Cash Flows Net cash used in operations improved to $2.0 million for nine months ended Sep 30, 2023, with investing activities providing $10.2 million from asset sales Summary of Cash Flows (Nine Months Ended Sep 30, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | 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 | | Net increase in cash | $8,214 | $1,490 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the company's online insurance marketplace business, recent exit from the health vertical, 28% workforce reduction, and significant customer concentration - In June 2023, the company initiated a restructuring by exiting its health insurance vertical and implementing a workforce reduction plan eliminating 175 employees (approx. 28%)[81] - In August 2023, the company sold its health insurance assets (Eversurance LLC) for $13.2 million in cash, recognizing a loss on the sale of $19.4 million[81] Revenue by Vertical (in thousands) | Vertical | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | 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 | - For the nine months ended September 30, 2023, two customers represented 20% and 11% of total revenue, respectively, indicating significant customer concentration[31] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q3 2023 revenue declined 46.7% due to auto insurance industry challenges and carrier spending cuts, prompting a restructuring with a $19.8 million charge and improved VMM percentage Overview and Recent Developments The company, an online insurance marketplace, underwent a June 2023 restructuring, exiting the health vertical and reducing workforce by 28% for efficiency and 15% cost savings - The company operates an online marketplace for insurance, connecting consumers with providers, and derives revenue from consumer referrals and policy commissions[86][87] - In June 2023, the company exited its health insurance vertical and reduced its workforce by 175 employees (28%) to improve efficiency and focus on core verticals[90] - The restructuring is expected to generate over 15% in cost savings for non-marketing operating expenses[90] Factors Affecting Our Performance Performance is heavily influenced by the auto insurance industry (78% of Q3 revenue), facing challenges from rising claims costs and reduced carrier acquisition spending - The auto insurance industry's poor underwriting performance, due to inflation and claims severity, has caused insurance carriers to reduce spending on customer acquisition, negatively impacting EverQuote's revenue[94] - A major insurance carrier customer, representing 10% of Q3 revenue, reduced agent subsidies during the quarter and notified the company of a discontinuation of these payments through at least the end of 2023[95] - Another major carrier, which accounted for 20% of revenue for the nine-month period, significantly reduced spending in Q2 and Q3 2023[96] Results of Operations Q3 2023 revenue declined 46.7% to $55.0 million due to reduced auto vertical spending, resulting in a $29.2 million net loss after a $19.8 million restructuring charge Revenue Change by Period (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Q3 | $55,011 | $103,223 | $(48,212) | -46.7% | | 9 Months | $232,216 | $315,819 | $(83,603) | -26.5% | - The decrease in automotive revenue was primarily due to a $40.4 million reduction in carrier spending for referrals in Q3 2023[126] - Restructuring charges for Q3 2023 totaled $19.8 million, including a $19.4 million loss on the sale of health assets and a $0.4 million asset impairment charge[138] Variable Marketing Margin (VMM) (in thousands) | Period | VMM 2023 | VMM 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Q3 | $19,368 | $31,844 | $(12,476) | -39.2% | | 9 Months | $79,614 | $99,199 | $(19,585) | -19.7% | Liquidity and Capital Resources Liquidity as of Sep 30, 2023, includes $39.0 million cash and a $25.0 million credit facility, deemed sufficient for the next 12 months - Principal sources of liquidity as of September 30, 2023, were $39.0 million in cash and cash equivalents and an available $25.0 million revolving line of credit[144] - In August 2023, the company amended its loan agreement, decreasing the revolving line of credit from $35.0 million to $25.0 million and eliminating term loan availability[144] Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Category | 2023 | 2022 | | :--- | :--- | :--- | | 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 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports immaterial exposure to market risks, with minimal interest rate risk due to no outstanding borrowings and immaterial foreign currency risk - The company has no outstanding borrowings under its revolving line of credit, resulting in no material exposure to fluctuations in interest rates[158] - Exposure to foreign currency exchange rate risk is considered immaterial[159] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting - Based on an evaluation as of the end of the quarter, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[161] - No changes occurred during the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[162] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings, but management does not anticipate a material adverse effect on financial results - The company states that while it is subject to various legal proceedings from time to time, management does not believe any current matters will have a material adverse effect on its financial results[76][165] Item 1A. Risk Factors Key risks include customer concentration, heavy reliance on the struggling auto insurance industry, and potential disruptions from the recent restructuring and workforce reduction - The company faces customer concentration risk, with State Farm (10% of Q3 revenue) and Progressive (20% of 9-month revenue) having significantly decreased their spending in 2023 State Farm has discontinued subsidies through at least the end of 2023[167] - The business is heavily reliant on the automotive insurance industry, which is experiencing poor performance due to inflation and rising claims costs, leading carriers to reduce marketing spend[168] - The recent restructuring, including a 28% workforce reduction, carries risks that anticipated savings may not be realized, operations could be disrupted, and employee morale and retention could be negatively impacted[172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company did not sell or issue any unregistered equity securities, nor did it repurchase any registered equity securities - There were no sales of unregistered equity securities during the third quarter of 2023[173] Item 5. Other Information The Board adopted an Executive Severance Plan on November 5, 2023, providing benefits for CEO and senior executives upon qualifying termination, with enhanced terms for Change in Control - On November 5, 2023, the company's Board adopted an Executive Severance Plan for the CEO and other senior executives[175] - The plan provides for severance benefits upon termination without cause or resignation for good reason, with enhanced benefits if the termination occurs within a specified period around a Change in Control[176] Item 6. Exhibits This section lists key exhibits filed with the Form 10-Q, including the health asset sale agreement, loan modifications, and the Executive Severance Plan - The report includes several key exhibits, such as the sale agreement for the health vertical assets, loan modification agreements, and the new Executive Severance Plan[182]