EverQuote(EVER) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) EverQuote's unaudited Q1 2024 and 2023 condensed consolidated financial statements, covering balance sheets, operations, equity, and cash flows, are presented with notes Condensed Consolidated Balance Sheets | Metric (in millions) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total assets | $135.401 | $110.925 | | Total liabilities | $47.078 | $30.018 | | Total stockholders' equity | $88.323 | $80.907 | - Total assets increased by $24.476 million (22.07%) from December 31, 2023, to March 31, 2024, primarily driven by an increase in cash and cash equivalents and accounts receivable[15] - Total liabilities increased by $17.060 million (56.83%) over the same period, mainly due to higher accounts payable and accrued expenses[15] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $91.065 | $109.220 | | Total cost and operating expenses | $89.299 | $111.651 | | Income (loss) from operations | $1.766 | $(2.431) | | Net income (loss) | $1.907 | $(2.529) | | Basic EPS | $0.06 | $(0.08) | | Diluted EPS | $0.05 | $(0.08) | - Revenue decreased by 16.6% year-over-year, from $109.220 million in Q1 2023 to $91.065 million in Q1 2024[16] - The company achieved a net income of $1.907 million in Q1 2024, a significant improvement from a net loss of $2.529 million in Q1 2023[16] Condensed Consolidated Statements of Stockholders' Equity | Metric (in millions) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total Stockholders' Equity | $88.323 | $80.907 | | Additional Paid-in Capital | $299.708 | $294.191 | | Accumulated Deficit | $(211.441) | $(213.348) | - Total stockholders' equity increased by $7.416 million from December 31, 2023, to March 31, 2024, primarily due to net income and stock-based compensation expense[18] - Accumulated deficit decreased by $1.907 million, reflecting the net income reported for the quarter[18] Condensed Consolidated Statements of Cash Flows | Metric (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $10.440 | $(1.237) | | Net cash used in investing activities | $(0.770) | $(1.007) | | Net cash provided by financing activities | $0.999 | $0.157 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $10.664 | $(2.082) | | Cash, cash equivalents and restricted cash at end of period | $48.620 | $28.753 | - Operating activities generated $10.440 million in cash in Q1 2024, a significant improvement from a cash usage of $1.237 million in Q1 2023[23] - Cash and cash equivalents increased by $10.664 million in Q1 2024, reaching $48.620 million by period end[23] Notes to Unaudited Condensed Consolidated Financial Statements 1. Nature of the Business and Basis of Presentation - EverQuote, Inc. operates an online marketplace for auto, home, renters, and life insurance, generating revenue primarily from selling consumer referrals to insurance providers and commission fees from policy sales[24] - The company expects its cash and cash equivalents to be sufficient to fund operating expenses and capital expenditures for at least the next 12 months[26] 2. Summary of Significant Accounting Policies - The financial statements are prepared in conformity with GAAP, with certain disclosures condensed or omitted per SEC rules for interim statements[27][28] - Significant estimates include revenue recognition, valuation of receivables, website/software development costs, goodwill, intangible assets, contingent consideration, stock-based awards, and income taxes[29] - One customer represented 30% of total revenue for Q1 2024 (down from 34% in Q1 2023) and 48% of total accounts and commissions receivable as of March 31, 2024[31] - Revenue is primarily derived from selling consumer referrals and commission fees for policy sales, with commission revenue representing less than 10% of total revenue in both Q1 2024 and Q1 2023[34][37] | Revenue Source | Q1 2024 | Q1 2023 | | :------------- | :------ | :------ | | Direct channels | 80 % | 86 % | | Indirect channels | 20 % | 14 % | | Vertical (in millions) | Q1 2024 | Q1 2023 | | :-------------------- | :------ | :------ | | Automotive | $77.538 | $89.699 | | Home and Renters | $12.689 | $9.456 | | Other | $0.838 | $10.065 | - Advertising expense decreased from $73.6 million in Q1 2023 to $60.2 million in Q1 2024[46] - The company adopted ASU No. 2022-03 on January 1, 2024, with no material impact, and is assessing ASU 2023-07 and ASU 2023-09 for future impact[47][49][50] 3. Fair Value of Financial Instruments | Asset (in millions) | March 31, 2024 (Total) | December 31, 2023 (Total) | | :------------------- | :--------------------- | :------------------------ | | Money market funds | $3.251 | $3.210 | - Money market funds are valued using Level 1 inputs (quoted market prices)[52] - Contingent consideration liabilities, valued using Level 3 inputs (Monte Carlo simulation), were zero at both March 31, 2024, and December 31, 2023[53] 4. Goodwill and Acquired Intangible Assets - Goodwill remained unchanged at $21.501 million for the three months ended March 31, 2024, with no impairment recorded to date[15][54] | Acquired Intangible Assets (in millions) | March 31, 2024 (Carrying Value) | December 31, 2023 (Carrying Value) | | :---------------------------------------- | :------------------------------ | :--------------------------------- | | Customer relationships | $4.452 | $4.852 | | Developed technology | $0.200 | $0.336 | | Other identifiable intangible assets | — | — | | Total | $4.652 | $5.188 | - The estimated remaining useful life of customer relationships was updated from 6.6 years to 5 years during Q1 2024[55] 5. Accrued Expenses and Other Current Liabilities | Accrued Expenses (in millions) | March 31, 2024 | December 31, 2023 | | :------------------------------ | :------------- | :---------------- | | Accrued employee compensation and benefits | $5.352 | $5.188 | | Accrued advertising expenses | $3.800 | $2.285 | | Other current liabilities | $1.494 | $1.311 | | Total | $10.646 | $8.784 | - Accrued expenses and other current liabilities increased by $1.862 million (21.2%) from December 31, 2023, to March 31, 2024[56] - A restructuring liability of $0.4 million at December 31, 2023, was fully paid by March 31, 2024[56] 6. Loan and Security Agreement - The company has a revolving line of credit up to $25.0 million, maturing on July 15, 2025, with no outstanding amounts as of March 31, 2024[57][58][59] - Borrowings are collateralized by substantially all assets and are subject to an Adjusted Quick Ratio covenant (minimum 1.10 to 1.00), with which the company was in compliance[59] 7. Stock-Based Compensation - The 2018 Equity Incentive Plan's authorized shares increased by 1,708,925 as of January 1, 2024, with 3,049,855 shares remaining available for future grants[61] - In Q1 2024, the company granted 486,923 service-based RSUs ($7.6 million fair value) and 327,075 performance-based RSUs ($5.1 million fair value)[63] | Expense Category (in millions) | Q1 2024 | Q1 2023 | | :------------------------------ | :------ | :------ | | Cost of revenue | $0.036 | $0.054 | | Sales and marketing | $1.594 | $2.273 | | Research and development | $1.312 | $2.374 | | General and administrative | $1.576 | $1.808 | | Total Stock-Based Compensation | $4.518 | $6.509 | - Unrecognized compensation expense for RSUs and options was $26.8 million as of March 31, 2024, to be recognized over a weighted average period of 2.1 years[66] 8. Commitments and Contingencies - The company entered into a new office lease in Cambridge, Massachusetts, in April 2024, totaling $3.2 million through December 2027[68][79] - No material costs have been incurred from indemnification agreements, and no material adverse effect is expected from legal proceedings[71][72] 9. Retirement Plan - The company contributed $0.2 million to its 401(k) Plan in both Q1 2024 and Q1 2023[73] 10. Related Party Transactions - Expenses related to related-party affiliates for website visitor referrals increased to $2.3 million in Q1 2024 from $1.8 million in Q1 2023[74] - Amounts due to related-party affiliates increased significantly to $1.6 million as of March 31, 2024, from $0.3 million as of December 31, 2023[74] 11. Net Income (Loss) per Share | EPS Metric | Q1 2024 | Q1 2023 | | :--------- | :------ | :------ | | Basic EPS | $0.06 | $(0.08) | | Diluted EPS | $0.05 | $(0.08) | - The company reported positive basic and diluted EPS in Q1 2024, a turnaround from a loss per share in Q1 2023[77] - Potential common shares excluded from diluted EPS due to anti-dilutive effect decreased from 4.469 million in Q1 2023 to 0.829 million in Q1 2024[78] 12. Subsequent Events - In April 2024, the company signed two new office lease agreements in Cambridge, Massachusetts, for total payments of $3.2 million through December 2027[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses EverQuote's Q1 2024 financial condition and operational results, covering business model, performance drivers, and liquidity Overview/Business Description - EverQuote operates an online marketplace connecting consumers with insurance providers, aiming to be the largest online source of insurance policies through data, technology, and advisors[82] - Revenue is generated from consumer inquiries sold as referrals and commissions from policy sales via its direct-to-consumer (DTC) insurance agency[83] - The company completed a restructuring in 2023, exiting the health insurance vertical and implementing a workforce reduction to improve operating efficiency[84] Factors Affecting Our Performance - 85% of Q1 2024 revenue (82% in Q1 2023) was derived from auto insurance, making the company highly dependent on the industry's performance[87] - Deteriorated underwriting performance in the auto insurance industry led to reduced carrier spending on customer acquisition in 2023, impacting referral pricing and demand[87] - Success depends on expanding consumer traffic through advertising and verified partner networks, and increasing insurance provider participation and spend in the marketplace[89][90] - Regulatory changes, particularly regarding telemarketing consent and data privacy, could impact marketing practices and incur compliance costs[91] Key Business Metrics - Adjusted EBITDA is a non-GAAP measure used by management to evaluate operating performance, excluding stock-based compensation, depreciation, amortization, restructuring, acquisition costs, interest income, and income taxes[93][105] - Variable Marketing Margin (VMM) is defined as revenue less advertising costs, used to measure advertising efficiency and manage return on advertising spend[94] Key Components of Our Results of Operations - Revenue is primarily from consumer referrals (clicks, data, calls) and commissions from policy sales, with commission revenue being less than 10% of total revenue[95] | Vertical (in millions) | Q1 2024 | Q1 2023 | | :-------------------- | :------ | :------ | | Automotive | $77.538 | $89.699 | | Home and Renters | $12.689 | $9.456 | | Other | $0.838 | $10.065 | - Cost of revenue includes technology service costs, third-party call center costs, depreciation, and personnel-related costs[99] - Sales and marketing expenses primarily consist of advertising and personnel-related costs, expected to increase with carrier spend but decrease in personnel due to the Reduction Plan[100] - Research and development expenses, mainly personnel-related, are expected to remain relatively flat in 2024[101] - General and administrative expenses are expected to decrease in 2024, partly due to the Reduction Plan[102] Non-GAAP Financial Measure - Adjusted EBITDA is presented as a non-GAAP measure to supplement GAAP financial information, providing insights into core operating performance by excluding specific non-cash and non-recurring items[104][105] | Reconciliation (in millions) | Q1 2024 | Q1 2023 | | :---------------------------- | :------ | :------ | | Net income (loss) | $1.907 | $(2.529)| | Stock-based compensation | $4.518 | $6.509 | | Depreciation and amortization | $1.263 | $1.407 | | Acquisition-related costs | — | $(0.113)| | Interest income | $(0.386)| $(0.187)| | Income tax expense | $0.286 | $0.286 | | Adjusted EBITDA | $7.588 | $5.373 | - Adjusted EBITDA increased by 41.2% year-over-year, from $5.373 million in Q1 2023 to $7.588 million in Q1 2024[111] Results of Operations | Metric (in millions) | Q1 2024 | Q1 2023 | Change Amount | Change % | | :-------------------- | :------ | :------ | :------------ | :------- | | Revenue | $91.065 | $109.220| $(18.155) | -16.6 % | | Cost of revenue | $5.041 | $5.770 | $(0.729) | -12.6 % | | Sales and marketing | $70.784 | $90.237 | $(19.453) | -21.6 % | | Research and development | $6.844 | $7.927 | $(1.083) | -13.7 % | | General and administrative | $6.630 | $7.830 | $(1.200) | -15.3 % | | Income (loss) from operations | $1.766 | $(2.431)| $4.197 | 172.6 % | | Net income (loss) | $1.907 | $(2.529)| $4.436 | 175.4 % | - Revenue decline was driven by a $12.2 million decrease in automotive insurance and a $9.2 million decrease in other insurance verticals (due to health exit), partially offset by a $3.2 million increase in home and renters insurance[115] - Sales and marketing expenses decreased by $19.5 million, primarily due to a $13.4 million reduction in advertising costs and a $5.2 million decrease in personnel-related costs[117] - Variable marketing margin decreased by 13.4% to $30.818 million, but as a percentage of revenue, it increased from 32.6% to 33.8%[125] Liquidity and Capital Resources - As of March 31, 2024, principal liquidity sources were $48.6 million in cash and cash equivalents and $25.0 million available under a revolving line of credit[126] - The company believes existing cash and cash equivalents are sufficient for at least the next 12 months, without using the credit line[129] | Cash Flow (in millions) | Q1 2024 | Q1 2023 | | :----------------------- | :------ | :------ | | Operating activities | $10.440 | $(1.237)| | Investing activities | $(0.770)| $(1.007)| | Financing activities | $0.999 | $0.157 | | Net increase (decrease) | $10.664 | $(2.082)| - Operating activities provided $10.4 million in cash in Q1 2024, a significant improvement from cash used in Q1 2023, driven by net income and changes in operating assets/liabilities[131] - Capitalized software development costs were $0.8 million in Q1 2024 and $0.9 million in Q1 2023[133] Item 3. Quantitative and Qualitative Disclosures About Market Risk EverQuote's market risk exposure from interest rates and foreign currency is limited by no outstanding borrowings and immaterial foreign currency exposure - No material exposure to interest rate fluctuations as of March 31, 2024, due to no outstanding borrowings under the revolving line of credit[139] - Exposure to foreign currency exchange rates from foreign vendors and subsidiaries is considered immaterial, and the company does not hedge against this exposure[140] Item 4. Controls and Procedures Management confirmed EverQuote's disclosure controls were effective as of March 31, 2024, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of March 31, 2024[141][142] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2024[143] PART II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings are referenced from Note 8, with no material adverse effect expected on the company's financial position or results - Legal proceedings information is referenced from Note 8 of the financial statements[145] - Management does not believe the outcome of any legal matters will have a material adverse effect on the company's consolidated results or financial condition[72] Item 1A. Risk Factors Risk factors are referenced from the Annual Report on Form 10-K, with no material changes reported in the current period - No material changes to the risk factors reported in the Annual Report on Form 10-K for the year ended December 31, 2023[146] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds EverQuote reported no unregistered equity sales, unreported option grants, or registered equity repurchases during Q1 2024 - No unregistered equity securities were sold or issued, nor were options granted, during Q1 2024 that were not previously reported[147] - The company did not purchase any of its registered equity securities during Q1 2024[148] Item 5. Other Information This section details the adoption of Rule 10b5-1 trading plans by Section 16 officers and directors for company securities sales during Q1 2024 | Name (Title) | Action Taken (Date) | Type of Trading Arrangement | Nature of Trading | Duration of Trading Arrangement | | :----------------------- | :------------------ | :-------------------------- | :---------------- | :------------------------------ | | John Shields (Board Member) | Adoption (March 13, 2024) | Rule 10b5-1 trading arrangement | Sale | Until March 6, 2026, or earlier | | Jon Ayotte (Chief Accounting Officer) | Adoption (March 12, 2024) | Rule 10b5-1 trading arrangement | Sale | Until March 12, 2025, or earlier | | Mira Wilczek (Board Member) | Adoption (March 15, 2024) | Rule 10b5-1 trading arrangement | Sale | Until March 1, 2025, or earlier | | Julia Brncic (General Counsel) | Adoption (March 12, 2024) | Rule 10b5-1 trading arrangement | Sale | Until March 12, 2025, or earlier | - Julia Brncic's Rule 10b5-1 plan provides for the sale of an indeterminable number of shares from RSU settlements, varying based on vesting conditions, market price, and tax withholding[149] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including offer letters, CEO/CFO certifications, and Inline XBRL documents - Exhibits include Offer Letters for Joseph Sanborn and Jon Ayotte, CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906), and Inline XBRL documents[151] - Certifications under 18 U.S.C. Section 1350 (Exhibits 32.1 and 32.2) are not deemed filed with the SEC and are not incorporated by reference into other filings[152] SIGNATURES - The report was signed by Jayme Mendal, Chief Executive Officer and President, and Joseph Sanborn, Chief Financial Officer and Treasurer, on May 6, 2024[157]