EverQuote Inc

Comparison of the Three Months Ended March 31, 2024 and 2023

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

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

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

(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.

Revenue

Revenue decreased by $18.2 million from $109.2 million for the three months ended March 31, 2023 to $91.1 million for the three months ended March 31, 2024. The decrease in revenue was due to a decrease of $12.2 million in revenue from our automotive insurance vertical and a decrease of $9.2 million in our other insurance verticals, partially offset by an increase in revenue from our home and renters insurance vertical of $3.2 million. The decrease in revenue from our automotive insurance vertical was primarily due to a decrease in carrier spend for referrals of $9.8 million, including a decrease in subsidies from one of our carrier customers, and a decrease in commission revenue of $2.4 million. The decrease in revenue from our other insurance verticals was primarily due to a decrease in commission revenue of $7.2 million and a decrease in carrier spend for referrals of $2.1 million, both due primarily to our exit from health insurance.

Cost of Revenue

Cost of revenue decreased by $0.7 million from $5.8 million for the three months ended March 31, 2023 to $5.0 million for the three months ended March 31, 2024. Cost of revenue decreased primarily due to a decrease in third-party call center costs of $0.4 million due primarily to a decrease in calls related to our health insurance vertical. Personnel-related costs also decreased by $0.1 million, primarily as a result of the Reduction Plan. Depreciation, hosting costs and lead verification costs also decreased by $0.1 million each, primarily as a result of the Reduction Plan.

Sales and Marketing

Sales and marketing expense decreased by $19.5 million from $90.2 million for the three months ended March 31, 2023 to $70.8 million for the three months ended March 31, 2024. The decrease in sales and marketing expense was primarily due to a decrease in advertising costs of $13.4 million due to a decrease in carrier spend and a decrease in personnel-related costs of $5.2 million, primarily in our DTC agency. Personnel-related costs included stock-based compensation expense of $1.6 million and $2.3 million for the three months ended March 31, 2024 and 2023, respectively. Technology services and agent license fees also decreased by $0.4 million and $0.3 million, respectively, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, due primarily to our exit from the health insurance vertical and the reduction in personnel.

Research and Development

Research and development expense decreased by $1.1 million from $7.9 million for the three months ended March 31, 2023 to $6.8 million for the three months ended March 31, 2024. The decrease in research and development expense was due to a decrease in personnel-related costs primarily due to a decrease in stock-based compensation expense. Personnel-related costs included stock-based compensation expense of $1.3 million and $2.4 million for the three months ended March 31, 2024 and 2023, respectively.

General and Administrative

General and administrative expenses decreased by $1.2 million from $7.8 million for the three months ended March 31, 2023 to $6.6 million for the three months ended March 31, 2024. The decrease in general and administrative expenses was primarily due to a decrease in personnel-related costs of $0.5 million and decreases in legal fees of $0.3 million and bad debt expense of $0.2 million.

Acquisition-related

Acquisition-related costs for the three months ended March 31, 2023 solely consisted of the change in fair value of our contingent consideration liabilities recorded as the result of our 2021 acquisition of PolicyFuel. We recorded a credit to acquisition-related costs for the three months ended March 31, 2023 of $0.1 million, related to the decrease in the fair value of our contingent consideration liability.

Other Income (Expense)

Interest income increased by $0.2 million in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to an increase in interest earned on our cash balances. Other income (expense), net was not significant for any periods presented.

Income Tax Expense

We recorded income tax expense of $0.3 million in each of the three months ended March 31, 2024 and 2023. 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

The decrease in variable marketing margin in the three and three months ended March 31, 2024 was due primarily to decreased carrier spend.

Liquidity and Capital Resources

As of March 31, 2024, our principal sources of liquidity were cash and cash equivalents of $48.6 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).

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 1.30 to 1.00 for two consecutive months. As of March 31, 2024, 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 on an annual basis 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 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 three months ended March 31, 2024 and 2023:

Net cash provided by (used in) operating activities

Operating activities provided $10.4 million in cash during the three months ended March 31, 2024, primarily resulting from our net income of $1.9 million, net cash provided by changes in our operating assets and liabilities of $2.7 million and net non-cash charges of $5.8 million. Net cash provided by changes in our operating assets and liabilities consisted primarily of a $17.7 million increase in accounts payable and accrued expenses and other current liabilities and a $1.3 million and $1.0 million decrease in commissions receivable and prepaid expenses and other current assets, respectively, partially offset by an increase in accounts receivable of $17.1 million. Operating activities used $1.2 million during the three months ended March 31, 2023, primarily resulting from our net loss of $2.5 million and net cash used by changes in our operating assets and liabilities of $6.8 million, partially offset by net non-cash charges of $8.1 million. Net cash used by changes in our operating assets and liabilities consisted primarily of a $9.8 million increase in accounts receivable, partially offset by decreases of $1.7 million in prepaid expenses and other current assets and $0.6 million in commissions receivable and an increase in accounts payable and accrued expenses and other current liabilities of $0.9 million.

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 used in investing activities

Net cash used in investing activities was $0.8 million and $1.0 million for the three months ended March 31, 2024 and 2023, respectively. Net cash used in investing activities for three months ended March 31, 2024 and 2023 included the acquisition of property and equipment, which included the capitalization of certain software development costs. During the three months ended March 31, 2024 and 2023, we capitalized $0.8 million and $0.9 million, respectively, of software development costs.

Net cash provided by financing activities

During the three months ended March 31, 2024 and 2023, net cash provided by financing activities was $1.0 million and $0.2 million, respectively. Net cash provided by financing activities during the three months ended March 31, 2024 and 2023 consisted of proceeds received from the exercise of common stock options, partially offset by tax withholding payments relating to net share settlements.

Contractual Obligations and Commitments

In April 2024, we entered into two agreements to lease office space in Cambridge, Massachusetts through December 2027 for payments totaling $3.2 million through 2027. There have been no other material changes to the contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2023.

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.

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, 2023, 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.