EVERQUOTE, INC. – 10-K – 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 in conjunction with our consolidated financial
statements and related notes appearing in Part II, Item 8 of this Annual Report
on Form 10-K. Some of the information contained in this discussion and analysis
or set forth elsewhere in this Annual Report on Form 10-K, including information
with respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties. As a result of
many factors, including those factors set forth in the ''Risk Factors'' section
of this Annual Report on Form 10-K, our actual results could differ materially
from the results described in, or implied by, the forward-looking statements
contained in the following discussion and analysis.
Overview
consumers and insurance providers time and money.
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, health, 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:
•
In 2011, we launched the
•
In 2013, we launched EverQuote Pro, our provider portal, for carriers.
•
In 2015, we launched EverQuote Pro for agents.
•
In 2016, we added home and life insurance in our marketplace.
•
In 2019, we added health and renters insurance in our marketplace.
•
In 2020, we launched our DTC insurance offerings in our life vertical and in our
health vertical via the acquisition of
Services, LLC
•
In 2021, we launched our DTC insurance offerings in our auto and home and
renters verticals via the acquisition of
PolicyFuel.
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In the years ended
year-over-year decrease of 3.4% from 2021 to 2022 and a year-over-year increase
of 20.6% from 2020 to 2021. We had net losses of
and
respectively, and had
EBITDA for these same periods, 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
COVID-19
Uncertainty remains as to the duration and severity of business disruptions
related to the COVID-19 pandemic, as well as with respect to the full impact of
the pandemic on the global economy and consumer confidence. As a result, we are
unable to accurately predict the full impact that COVID-19 will have on our
insurance provider customers or our users, or on our operating results,
financial condition, liquidity and cash flows. To support the health and
well-being of our employees, customers, partners and communities, a majority of
our employees continue to work remotely, however our offices are open for use.
While disruptions related to COVID-19 have not had a material adverse impact on
our financial results through
consumer insurance shopping behavior. We continue to monitor and are managing
our operations for the ongoing impact of COVID-19.
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 and in the section titled "Risk
Factors."
Auto insurance industry risk
We derive a significant portion of our revenue from auto insurance providers and
our financial results depend on the performance of the auto insurance industry.
For example, in 2016, the
its worst underwriting performance in 15 years, with higher loss ratios that
were driven by both adverse claim severity and frequency trends. As a result,
our auto insurance carrier customers reduced marketing spend and cost per sale
targets the following year, ultimately impacting our revenue growth in the auto
insurance vertical in 2017. More recently, and specifically starting in the
third quarter of 2021, the auto insurance industry has experienced similar
challenges, which is impacting our financial performance in the auto insurance
vertical. Auto insurance carriers experienced a sudden rise in the severity of
claims caused by inflationary increases in the cost to repair and replace
vehicles and settle medical and injury claims. The increase in claims severity
has reduced underwriting performance for auto insurance carriers, causing them
to implement policy premium increases and reduce spending on new customer
acquisition. The reduction in new customer acquisition spending by auto
insurance carriers has had a negative impact on the pricing and demand for
consumer referrals in our marketplace.
The state of the auto insurance market remains dynamic. In
to see the first major carrier return to more normalized historical spending
patterns. However, Hurricane Ian, which made landfall in
2022
believe we have started to see some improvement in spending patterns, a recovery
could be prolonged by further cost inflation, increased claim severity and
frequency, or insufficient policy premium increases.
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. We plan to continue to increase consumer
traffic by leveraging the features and growing data assets of our platform.
While we plan to increase consumer traffic over the long term, we also have the
ability to decrease advertising, if we believe 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 ability to acquire quote requests
in significant volume, at prices that are attractive, and that represent
high-intent shoppers that insurance providers will purchase referrals for will
impact our profitability.
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.
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Table of Contents 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, acquisition-related
costs, one-time severance charges, interest income and the provision for
(benefit from) income taxes. Adjusted EBITDA is a non-GAAP financial measure
that we present in this Annual Report on Form 10-K 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
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 our 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:
•
Clicks: An online-to-online referral, with a handoff of the consumer to the
provider's website.
•
Data: An online-to-offline referral, with quote request data transmitted to the
provider for follow-up.
•
Calls: An online-to-offline referral for outbound calls and an
offline-to-offline referral for inbound calls, with the consumer and provider
connected by phone.
We also generate revenue from commissions paid to us by insurance carriers for
the sale of policies, primarily in our health and automotive verticals.
Commission revenue represented approximately 13% of total revenue in the year
ended
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 from
our automotive and other insurance verticals, which includes home and renters,
life and health insurance verticals, as follows:
Year Ended December 31,
2022 2021 2020
(in thousands)
Automotive $ 324,417 $ 330,928 $ 283,236
Other 79,710 87,587 63,699
Total Revenue $ 404,127 $ 418,515 $ 346,935
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We expect an overall increase in revenue in 2023 as we anticipate increased
spending from our carrier partners. We expect revenue to fluctuate from quarter
to quarter and, in particular, for our commission revenue to be positively
impacted during the open and annual enrollment periods in our health 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 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 each operating expense
category. Personnel-related costs included in cost of revenue and each operating
expense category 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.
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 continue 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 increase in the near term. In the longer term, we expect sales and
marketing expense to decrease as a percentage of revenue due to efficiencies of
scale and improvements in our marketplace technology.
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 increase as we continue to enhance and expand our
platform technology.
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 increase in the near term due primarily
to increases in personnel-related costs.
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 Eversurance and
PolicyFuel acquisitions.
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.
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Table of Contents 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 Annual Report on Form 10-K 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; acquisition-related costs; one-time severance charges; 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 Annual Report on Form 10-K 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 expenses in calculating adjusted EBITDA can provide a useful measure for
period-to-period comparisons of our core operating performance.
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:
•
adjusted EBITDA excludes stock-based compensation expense as it has recently
been, and will continue to be for the foreseeable future, a significant
recurring non-cash expense for our business;
•
adjusted EBITDA excludes depreciation and amortization expense and, although
this is a non-cash expense, the assets being depreciated and amortized may have
to be replaced in the future;
•
adjusted EBITDA excludes acquisition-related costs that affect cash available to
us and the change in fair value of non-cash contingent consideration;
•
adjusted EBITDA excludes severance charges incurred and paid in the fourth
quarter of 2021 related to our reduction in non-marketing operating expenses
that affected cash available to us;
•
adjusted EBITDA does not reflect the cash received from interest income on our
investments, which affects the cash available to us;
•
adjusted EBITDA does not reflect income tax expense (benefit) that affects cash
available to us; and
•
the expenses and other items that we exclude in our calculation of adjusted
EBITDA may differ from the expenses and other items, if any, that other
companies may exclude from adjusted EBITDA when they report their operating
results.
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.
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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:
Year Ended December 31,
2022 2021 2020
(in thousands)
Net loss $ (24,416 ) $ (19,434 ) $ (11,202 )
Stock-based compensation 28,986 30,020 24,179
Depreciation and amortization 5,848 5,072 3,350
Acquisition-related costs (4,135 ) 1,065 2,258
Severance under a plan - 440 -
Interest income (349 ) (37 ) (189 )
Benefit from income taxes - (2,510 ) -
Adjusted EBITDA $ 5,934 $ 14,616 $ 18,396
Results of Operations
The following tables set forth our results of operations for the periods shown:
Year Ended December 31,
2022 2021 2020
(in thousands)
Statement of Operations Data:
Revenue(1) $ 404,127 $ 418,515 $ 346,935
Cost and operating expenses(2):
Cost of revenue 23,980 23,949 21,373
Sales and marketing 349,255 354,990 284,880
Research and development 31,713 35,732 29,662
General and administrative 28,102 24,703 20,444
Acquisition-related costs (4,135 ) 1,065 2,258
Total cost and operating expenses 428,915 440,439 358,617
Loss from operations
(24,788 ) (21,924 ) (11,682 ) Other income (expense): Interest income 349 37 189 Other income (expense), net 23 (57 ) 291 Total other income (expense), net 372 (20 ) 480 Loss before income taxes (24,416 ) (21,944 ) (11,202 ) Benefit from income taxes - 2,510 - Net loss$ (24,416 ) $ (19,434 ) $ (11,202 ) Other Financial and Operational Data: Variable marketing margin$ 128,258 $ 129,553 $ 108,642 Adjusted EBITDA(3)$ 5,934 $ 14,616 $ 18,396 (1)
Comprised of revenue from the following distribution channels:
Year Ended December 31,
2022 2021 2020
Direct channels 86 % 90 % 92 %
Indirect channels 14 % 10 % 8 %
100 % 100 % 100 %
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Includes stock-based compensation expense as follows:
Year Ended December 31,
2022 2021 2020
(in thousands)
Cost of revenue $ 281 $ 363 $ 361
Sales and marketing 11,018 12,405 10,246
Research and development 10,328 9,551 7,751
General and administrative 7,359 7,701 5,821
$ 28,986 $ 30,020 $ 24,179
(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.
Comparison of the Years Ended
Revenue
Year Ended December 31, Change
2022 2021 Amount %
(dollars in thousands)
Revenue $ 404,127 $ 418,515 $ (14,388 ) -3.4 %
Revenue decreased by
decrease in revenue was due to decreases of
other insurance and automotive verticals, respectively. The decrease in revenue
from our other insurance verticals was due to a decrease of
carrier spend for referrals, partially offset by an increase in commission
revenue of
was primarily due to a decrease of
partially offset by an increase in commission revenue of
Cost of Revenue
Year Ended December 31, Change
2022 2021 Amount %
(dollars in thousands)
Cost of revenue $ 23,980 $ 23,949 $ 31 0.1 %
Percentage of revenue 5.9 % 5.7 %
Cost of revenue increased slightly from
revenue increased primarily due to increased personnel-related costs of
million
employees and to increased amortization of intangible assets of
partially offset by decreases in technology service costs of
primarily due to decreased hosting costs, third-party call center costs and
other technology service costs.
Sales and Marketing
Year Ended December 31, Change
2022 2021 Amount %
(dollars in thousands)
Sales and marketing expense
Percentage of revenue
86.4 % 84.8 %
Sales and marketing expenses decreased by
the year ended
31, 2022
decrease in advertising expenditures of
increase in personnel-related costs of
expenditures primarily related to decreased carrier spend for referrals, which
impacted our advertising expenditures. The
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increase in personnel-related costs was primarily due to an increase in headcount, a significant portion of which was in DTC agency. Agent license fees and office and occupancy costs related to DTC also increased by$0.8 million and$0.5 million , respectively. Research and Development Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands)
Research and development expense
Percentage of revenue
7.8 % 8.5 %
Research and development expenses decreased by
for the year ended
primarily due to a decrease in personnel-related costs of
decrease in consulting costs of
technology service costs of
General and Administrative
Year Ended December 31, Change
2022 2021 Amount %
(dollars in thousands)
General and administrative expense
Percentage of revenue
7.0 % 5.9 %
General and administrative expenses increased by
for the year ended
primarily due to an increase in personnel-related costs of
increase in consulting fees of
of
Acquisition-related Costs
Acquisition-related costs for the years ended
acquisition-related costs for the year ended
related to the decrease in the fair value of our contingent consideration
liabilities. The decrease was related to our future revenue forecasts and to a
lesser extent, changes in market value of our Class A common stock.
Acquisition-related costs for the year ended
for third-party professional services we utilized for the evaluation and
execution of our completed acquisitions of
value of our contingent consideration liabilities recorded as the result of our
acquisitions.
Other Income (Expense)
Other income (expense) included interest income of
ended
not significant for either of the years ended
Income Taxes
We generated taxable income during the year ended
primarily to capitalized research and development costs due to the new
requirement to capitalize research and development costs under Section 174 of
the Internal Revenue Code of 1986. We offset our taxable income with net
operating loss carryforwards and therefore did not record income tax expense for
the year ended
million
our valuation allowance as a result of the PolicyFuel acquisition. The net
deferred tax liability recorded for the PolicyFuel acquisition primarily relates
to the intangible assets recognized in purchase accounting which are
non-deductible for tax purposes and result in a deferred tax liability.
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Variable Marketing Margin
Year Ended December 31, Change
2022 2021 Amount %
(dollars in thousands)
Revenue $ 404,127 $ 418,515 $ (14,388 ) -3.4 %
Less: total advertising expense (a
component of sales and marketing
expense) 275,869 288,962 Variable marketing margin$ 128,258 $ 129,553 $ (1,295 ) -1.0 % Percentage of revenue 31.7 % 31.0 %
The decrease in variable marketing margin was due primarily to decreases in
referral revenue, partially offset by increases in commission revenue.
Comparison of the Years Ended
For a discussion of our results of operations for the year ended
2021
Discussion and Analysis of Financial Condition and Results of Operations-Results
of Operations-Comparison of the Years Ended
in our Annual Report on Form 10-K for the fiscal year ended
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents of
million
our revolving line of credit and term loan, each of which were amended in
2022
Agreement, which amended our existing Loan and Security Agreement, or the 2020
Loan Agreement, with
maturity date of the revolving line of credit to
revolving line of credit available thereunder from
million
refer to the 2020 Loan Agreement, as amended by the Loan and Security
Modification Agreement, as the Amended Loan Agreement.
Pursuant to the Amended Loan Agreement, borrowings under the revolving line of
credit cannot exceed 85% of eligible accounts receivable balances, bear interest
at the greater of 4.25% or the prime rate as published in the
Journal
31, 2023
prime rate as published in the
loan of the Amended Loan Agreement are repayable in monthly interest-only
payments through
is payable in 42 equal monthly installments of the then outstanding principal
and accrued interest through
all, of any outstanding principal with respect to advances made under the term
loan provided that such outstanding principal is paid in full along with any
accrued but unpaid interest to date plus any fees that become payable under the
Amended Loan Agreement. In an event of default, as defined in the 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 Amended Loan Agreement plus 5.00%.
Borrowings are collateralized by substantially all of our assets and property.
Under the Amended Loan Agreement, we agreed to 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 Amended Loan Agreement and through
1.5 to 1 calculated as the sum of unrestricted cash held at the Lender and
eligible accounts receivable divided by all borrowings outstanding under the
Amended Loan Agreement. Commencing
maintain, and test on a quarterly basis, a fixed charge coverage ratio and a
leverage ratio. The fixed charge coverage ratio is measured as the ratio of (i)
our trailing twelve-month adjusted "EBITDA" (as defined in the Amended Loan
Agreement) less capital expenditures, less cash taxes, to (ii) our trailing
twelve-month interest and principal payments to the Lender, of at least 1.25 to
1.00. The leverage ratio is measured as the ratio of (i) our outstanding
obligations owing to the Lender, to (ii) our trailing twelve-month adjusted
EBITDA (as defined in the Amended Loan Agreement), of not more than 3.00 to
1.00. As of
Since our inception, we have incurred operating losses and may continue to incur
losses in the foreseeable future. We anticipate that our operating expenses and
capital expenditures will increase in the near term as we hire additional
employees and improve our technology and infrastructure capabilities.
Additionally, a significant portion of the commission revenue we record will be
collected over a multi-year time frame as policyholders renew their policies,
and we are paid commissions on those renewals. As of
million
classified as long-term. We believe our
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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 credit facility. Our
future capital requirements may vary materially from those currently planned and
will depend on many factors, including our rate of revenue growth, the timing
and extent of spending on business initiatives, purchases of capital equipment
to support our growth, the expansion of sales and marketing activities,
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:
Year Ended December 31,
2022 2021 2020
(in thousands)
Net cash provided by (used in) operating
activities $ (15,791 ) $ 7,189 $ 10,668
Net cash used in investing activities (4,290 ) (18,817 ) (18,752 )
Net cash provided by financing activities 15,842 3,615 4,907
Effect of exchange rate changes on cash,
cash equivalents and restricted cash (27 ) (6 ) (7 )
Net decrease in cash, cash equivalents
and restricted cash$ (4,266 ) $ (8,019 ) $ (3,184 )
Net cash provided by operating activities
Operating activities used
31, 2022
2021
resulted from our net loss of
operating assets and liabilities of
non-cash charges of
assets and liabilities consisted primarily of a
commissions receivable, a
current assets and a
expenses and other current liabilities, partially offset by a
decrease in accounts receivable.
Cash provided by operating activities in the year ended
primarily resulted from the offset of net non-cash charges of
our net loss of
our operating assets and liabilities of
in our operating assets and liabilities consisted primarily of a
increase in commissions receivable and a
payable and accrued expenses and other current liabilities, partially offset by
a
prepaid expenses and other current assets.
Changes in accounts receivable, accounts payable and accrued expenses and other
current liabilities were generally due to growth in our business, 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 asset is
classified as long term.
Net cash used in investing activities
Net cash used in investing activities was
years ended
activities for the years ended
to acquire property and equipment, which included the capitalization of software
development costs. During the years ended
capitalized
costs. Net cash used in investing activities for the year ended
2021
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Net cash provided by financing activities
During the years ended
financing activities was
provided by financing activities during the year ended
consisted primarily of
shares of common stock in a private placement with
entity which is owned and controlled by
Directors and co-founder of the Company, and
common stock options. Net cash provided by financing activities during the year
ended
exercise of common stock options.
For a discussion of our cash flows for the year ended
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources-Cash Flows included in our Annual
Report on Form 10-K for the fiscal year ended
Contractual Obligations and Commitments
Our cash flows are dependent on a number of factors in addition to our
operational expenditures, including our contractual and other obligations. As a
result, our liquidity and capital resources in future periods should be analyzed
in conjunction with such factors.
We lease office space in
operating lease that expires in
other locations under non-cancelable operating leases that expire at varying
dates through 2030. As of
minimum lease payments of
is payable in 2023.
We have outstanding agreements with various vendors for hosting and other
technical services. We believe that we will be able to fund these obligations
through our existing cash and cash equivalents.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The
preparation of our 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 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.
While our significant accounting policies are described in more detail in Note 2
to our audited consolidated financial statements, appearing in Part II of Item 8
of this Annual Report on Form 10-K, we believe that the following accounting
policies are those most critical to the judgments and estimates used in the
preparation of our consolidated financial statements.
We record goodwill when consideration paid in a business acquisition exceeds the
value of the net assets acquired. Our estimates of fair value are based upon
assumptions believed to be reasonable at that time but that are inherently
uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and
unanticipated events or circumstances may occur, which may affect the accuracy
or validity of such assumptions, estimates or actual results. During the
measurement period, which extends no later than one year from the acquisition
date, we may record certain adjustments to the carrying value of the assets
acquired and liabilities assumed with the corresponding offset to goodwill.
After the measurement period, all adjustments are recorded in the consolidated
statements of operations and comprehensive loss as operating expenses or income.
frequently if facts and circumstances warrant a review, such as significant
underperformance of the business in relation to expectations, significant
negative industry or economic trends and significant changes or planned changes
in the use of the assets. We have determined that there is a single reporting
unit for the purpose of conducting our goodwill impairment assessment. We assess
both the existence of potential impairment and the amount of impairment loss by
comparing the fair value of the reporting unit with its carrying amount,
including goodwill. Intangible assets are recorded at their estimated fair
values at the date of acquisition. We amortize acquired intangible assets over
their estimated useful lives based on the pattern of consumption of the economic
benefits or, if that pattern cannot be readily determined, on a straight-line
basis. To date, we have not recorded any impairments of goodwill or acquired
intangible assets.
Valuation of Contingent Consideration
In connection with our acquisitions of Eversurance and PolicyFuel we agreed to
issue shares of Class A common stock to the former owners upon the achievement
of certain revenue targets. Achievement of revenue targets that will result in
the issuance of a variable number of shares of Class A common stock are
accounted for as a liability. We estimated the fair value of the shares of Class
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A common stock issuable upon achievement of the targets as of the acquisition
date. We remeasure the fair value of the shares of Class A common stock issuable
at each subsequent reporting date until the liability is fully settled. We use
Monte Carlo simulation models in our estimates. The estimated fair value of the
contingent consideration is based upon available information and certain
assumptions, known at the time of our estimates, which management believes are
reasonable. Changes in the fair value of contingent consideration related to
updated assumptions and estimates are recognized as acquisition-related costs.
We used a Monte Carlo simulation model in our estimates of the fair value of the
contingent consideration related to the PolicyFuel acquisition that will be
settled based on achievement at varying levels of three annual targets. The most
significant assumptions and estimates utilized in the model include forecasted
revenue (an acquisition specific input) and the market value of our Class A
common stock (an observable input). Other assumptions utilized in the model
include equity volatility, revenue volatility and discount rate. In
2022
Eversurance upon achievement of the third and final target of the contingent
consideration arrangement. We issued 62,671 shares of our Class A common stock
in
contingent consideration. The fair value of our contingent consideration
liability for the PolicyFuel shares for the second and third milestones was
million
the number of shares of our Class A common stock to be released upon achievement
of the revenue targets or the market value of Class A common stock, would not be
material.
Revenue Recognition
We derive our revenue primarily by selling consumer referrals to our insurance
provider customers, including insurance carriers, agents and indirect
distributors. We also generate revenue from commission fees for the sale of
policies, primarily in our health and automotive verticals. To determine revenue
recognition for arrangements that we determine are within the scope of the
revenue standard, we perform the following five steps: (i) identify the
contract(s) with a customer; (ii) identify the performance obligations in the
contract; (iii) determine the transaction price; (iv) allocate the transaction
price to the performance obligations in the contract; and (v) recognize revenue
when (or as) we satisfy a performance obligation.
We only apply the five-step model to contracts when collectability of the
consideration to which we are entitled in exchange for the goods or services we
transfer to the customer is determined to be probable. Amounts are recorded as
accounts receivable when our right to consideration is unconditional. We do not
assess whether a contract has a significant financing component if the
expectation at contract inception is that the period between payment by the
customer and the transfer of the promised goods or services to the customer will
be one year or less.
Referral Revenue
We recognize referral revenue when we satisfy our performance obligations by
delivering the referrals to our customers in an amount that reflects the
consideration to which we expect to be entitled in exchange for those referrals.
Commission Revenue
Commission revenue consists of the estimated constrained lifetime values, or
constrained LTVs, of commission payments we expect to receive from health
insurance carriers and auto insurance carriers on the sale of insurance policies
to consumers and renewals of such policies. Commission revenue is recognized
upon satisfaction of our performance obligation. We consider our performance
obligation related to commissions for both the initial policy sale and future
renewals of the policy to be satisfied upon submission of the policy
application. Therefore, a significant portion of the commission revenue we
record upon satisfaction of our performance obligation is paid by our insurance
provider customer over a multi-year time frame as policyholders renew and pay
the insurance provider for their policies. The current portion of commissions
receivable consists of estimated commissions on new policies sold and estimated
renewal commissions on policies expected to be renewed within one year, while
the non-current portion of commissions receivable are commissions for estimated
renewals expected to be renewed beyond one year. Commission revenue represented
approximately 13% of total revenue for the year ended
than 10% of total revenue for each of the years ended
2020.
We estimate commission revenue for each health insurance product by using a
portfolio approach to a group of policies by product type and the application
submission date of the relevant policy, which are referred to as "cohorts." Our
estimate of constrained LTVs is based on an analysis of historical commission
payment trends for relevant policies to establish an expected lifetime value and
incorporates our judgment in interpreting those trends to calculate LTVs and to
apply constraints to such LTVs. Significant factors impacting historical trends
include carrier mix, average policy duration and conversion rates of paying
policies.
Commission revenue from auto insurance carriers consists of constrained LTVs of
commission payments we expect to receive for selling an insurance policy based
on the effective date of the policy. Our estimate of constrained LTVs is based
on an analysis of historical commission payment trends for relevant policies to
establish an expected lifetime value and incorporates our judgment in
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interpreting those trends to calculate LTVs and to apply constraints to such
LTVs. The most significant factor impacting historical trends is average policy
duration.
We apply a constraint to estimated LTVs to only recognize the amount of variable
consideration that we believe is probable that we will be entitled to receive
and will not be subject to a significant revenue reversal in the future.
To the extent that commission payment trends change or the underlying factors
impacting commission payments change, our estimates of constrained LTVs could be
materially impacted. To the extent we make changes to our estimates of
constrained LTVs, we recognize any material impact of the change to commission
revenue in the reporting period in which the change is made, including revisions
of estimated lifetime commissions either below or in excess of previously
estimated constrained LTVs recognized as an adjustment to revenue and the
related contract asset. We recognize revenue for new policies by applying the
latest estimated constrained LTV for that product.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees,
non-employees and directors based on their fair value on the date of the grant.
We recognize compensation expense of employee awards, net of estimated
forfeitures, over the requisite service period, which is generally the vesting
period of the respective award. We apply the straight-line method of expense
recognition to all employee awards with only service-based vesting conditions
and apply the graded-vesting method to all employee awards with both
service-based and performance-based vesting conditions, commencing when
achievement of the performance condition becomes probable. Compensation expense
for nonemployee awards is recognized in the same manner as if we had paid cash
for the goods or services received.
We estimate the fair value of stock options with service-based vesting or
performance-based vesting granted to employees, non-employees and directors
using the Black-Scholes option-pricing model, which uses as inputs the fair
value of our common stock and assumptions we make for the volatility of our
common stock, the expected term of our common stock options, the risk-free
interest rate for a period that approximates the expected term of our common
stock options, and our expected dividend yield. We measure stock options with
market-based vesting based on the fair value on the date of grant using a Monte
Carlo simulation model. We estimate the fair value of each restricted stock
unit, or RSU, based on the market value of our common stock.
The fair value of performance-based RSUs that are liability classified will be
recorded as compensation expense based on the fair value of the number of shares
issued at vesting. Prior to vesting, compensation expense is recognized over the
period during which services are rendered, based on the performance conditions
deemed to be probable of achievement. At the end of each financial reporting
period prior to the vesting date, the fair value of these awards is remeasured
using the then-current fair value of our Class A common stock. For a description
of liability-classified performance-based RSUs refer to Note 10 of the Notes to
Consolidated Financial Statements.
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 audited consolidated financial statements appearing in Part II, Item 8 of
this Annual Report on Form 10-K.
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