EVERQUOTE, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of
operations should be read together with our condensed consolidated financial
statements and related notes and other financial information included elsewhere
in this Quarterly Report on Form
10-Q
and our consolidated financial statements and the related notes and other
financial information included in our Annual Report on Form
10-K
for the year ended December 31, 2021, on file with the Securities and Exchange
Commission. The following discussion and analysis contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to these differences include those
discussed below and elsewhere in this Quarterly Report on Form
10-Q,
particularly in the section titled "Risk Factors."

EverQuote makes insurance shopping easy, efficient and personal, saving
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, property, and
future. Our vision is to become the largest online source of insurance policies
by using data and technology 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 also 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 EverQuote marketplace for auto insurance.

• 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 Crosspointe Insurance &

          Financial Services, LLC, or Crosspointe, which we later renamed
          Eversurance.

• In 2021, we launched our DTC insurance offerings in our auto and home and

renters verticals via the acquisition of Policy Fuel LLC and its

affiliates, or PolicyFuel.

In the three months ended June 30, 2022 and 2021, our total revenue was
$101.9 million and $105.1 million, respectively, representing year-over-year
decrease of 3.0%. We had net losses of $3.8 million and $1.9 million for the
three months ended June 30, 2022 and 2021, respectively, and had $1.4 million
and $6.6 million in adjusted EBITDA for the three months ended June 30, 2022 and
2021, respectively. In the six months ended June 30, 2022 and 2021, our total
revenue was $212.6 million and $208.9 million,

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respectively, representing year-over-year growth of 1.8%. We had net losses of
$9.5 million and $5.7 million for the six months ended June 30, 2022 and 2021,
respectively, and had $3.9 million and $11.4 million in adjusted EBITDA for the
six months ended June 30, 2022 and 2021, respectively. See the
section titled "-Non-GAAP Financial Measure"
for information regarding our use of adjusted EBITDA and its reconciliation to
net income (loss) determined in accordance with generally accepted accounting
principles in the United States, or GAAP.

COVID-19

The

COVID-19

pandemic has had a significant adverse impact on global commercial activity and
has created significant volatility in financial markets. Many governmental
authorities have implemented travel bans and restrictions, quarantines,
shelter-in-place
orders, business limitations and shutdowns and other measures to attempt to
contain the spread of the virus. Government recommendations and requirements are
continuing to change and there remains significant uncertainty as to the breadth
and duration of business disruptions related to
COVID-19,
as well as its impact on the global economy and consumer confidence. While we
are unable to accurately predict the full impact that
COVID-19
will have on our results from operations, financial condition, liquidity and
cash flows due to these uncertainties, our compliance with measures to contain
the spread of the virus has impacted our
day-to-day
operations and could disrupt our business and operations, as well as that of our
customers and consumer traffic to our marketplace for an indefinite period of
time. For example, we believe that immediately after
shelter-in-place
orders went into effect consumers performed fewer searches for insurance online.
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 such disruptions have not had a material adverse
impact on our financial results through June 30, 2022, such disruptions may
impact 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 U.S. commercial auto insurance industry experienced
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 premiums increases and reduce spending on new customer
acquisition. The reductions 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. We believe this trend will continue in
the near term and could be prolonged by further cost inflation 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.

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.

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Adjusted EBITDA

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

Variable Marketing Margin

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 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 commission fees for the sale of policies,
primarily in our health and automotive verticals. Commission revenue represented
approximately 13% of total revenue in the three and six months ended June 30,
2022 and less than 10% of total revenue in the three and six months ended
June 30, 2021. We recognize revenue from commission fees 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. Commission revenue is recognized
upon satisfaction of our performance obligation, which we consider to be
submission of the policy application.

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:

                    Three Months Ended June 30,           Six Months Ended June 30,
                     2022                 2021              2022               2021
                          (in thousands)                        (in thousands)
Automotive      $       81,375       $       86,358     $     169,050       $  170,839
Other                   20,540               18,705            43,546           38,046

Total Revenue   $      101,915       $      105,063     $     212,596       $  208,885



We expect revenue to remain relatively flat or decrease slightly in 2022 as we
anticipate increases in commission revenue to be offset by decreases in referral
revenue in our automotive vertical as a result of challenges in the automotive
insurance industry described above. We expect revenue to fluctuate from quarter
to quarter and, in particular, for our commission revenue to be impacted by the
open enrollment period and annual enrollment period in our health vertical.

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Cost and Operating Expenses

Our cost and operating expenses consist of cost of revenue, sales and marketing,
research and development, and 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 expenses consist 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, both as a percentage of revenue and in absolute
dollars, especially as we continue to expand our DTC agency. 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 expenses consist 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 expenses will increase as we continue to enhance and expand our
platform technology.

General and Administrative

General and administrative expenses consist 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 general
and administrative expenses to increase as we continue to incur the costs of
compliance associated with being a publicly traded company, including legal,
audit, insurance and consulting fees.

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.

Non-GAAP Financial
Measure

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

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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; legal settlement expense;
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 Quarterly Report on
Form 10-Q adjusted
EBITDA because it is a key measure used by our management and board of directors
to understand and evaluate our operating performance, to establish budgets and
to develop operational goals for managing our business. In particular, we
believe that excluding the impact of these items in calculating adjusted EBITDA
can provide a useful measure
for period-to-period comparisons
of our core operating performance.

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 legal settlement expense that affected cash

          available to us;



     •    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.

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

Reconciliation of Net Loss to Adjusted EBITDA:

                                              Three Months Ended June 30,             Six Months Ended June 30,
                                              2022                  2021               2022                2021

                                                    (in thousands)                          (in thousands)
Net loss                                  $      (3,756 )       $      (1,881 )    $     (9,471 )      $     (5,682 )
Stock-based compensation                          7,600                 7,089            15,130              14,609
Depreciation and amortization                     1,405                 1,136             2,916               2,310
Acquisition-related                              (3,779 )                 265            (4,671 )               186
Interest income                                     (37 )                 (10 )             (45 )               (24 )

Adjusted EBITDA                           $       1,433         $       6,599      $      3,859        $     11,399




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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2022 and 2021

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

                                           Three Months Ended June 30,            Six Months Ended June 30,
                                            2022                 2021               2022               2021

                                                  (in thousands)                        (in thousands)
Statement of Operations Data:
Revenue(1)                              $     101,915        $     105,063  

$ 212,596 $ 208,885

Cost and operating expenses(2):
Cost of revenue                                 6,059                5,811             12,043           11,764
Sales and marketing                            87,854               85,610            184,004          173,179
Research and development                        8,245                9,053             16,441           17,626
General and administrative                      7,357                6,200             14,298           11,796
Acquisition-related                            (3,779 )                265             (4,671 )            186

Total cost and operating expenses             105,736              106,939            222,115          214,551

Loss from operations                           (3,821 )             (1,876 )           (9,519 )         (5,666 )

Other income (expense):
Interest income                                    37                   10                 45               24
Other income (expense), net                        28                  (15 )                3              (40 )

Total other income (expense), net                  65                   (5 )               48              (16 )

Net loss                                $      (3,756 )      $      (1,881 )    $      (9,471 )      $  (5,682 )

Other Financial and Operational Data:
Variable marketing margin               $      33,091        $      32,830      $      67,355        $  64,268
Adjusted EBITDA(3)                      $       1,433        $       6,599      $       3,859        $  11,399

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

                      Three Months Ended June 30,           Six Months Ended June 30,
                         2022                2021             2022               2021

Direct channels                 86 %              91 %               87 %             90 %
Indirect channels               14 %               9 %               13 %             10 %

                               100 %             100 %              100 %            100 %

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

                                          Three Months Ended June 30,             Six Months Ended June 30,
                                           2022                2021               2022                2021

                                                (in thousands)                         (in thousands)
Cost of revenue                        $          95       $          83      $         154       $         174
Sales and marketing                            2,964               2,459              6,174               5,850
Research and development                       2,650               2,321              5,061               4,648
General and administrative                     1,891               2,226              3,741               3,937

                                       $       7,600       $       7,089      $      15,130       $      14,609




(3) See "
    -Non-GAAP

Financial Measure" for information regarding our use of adjusted EBITDA as a

non-GAAP

    financial measure and a reconciliation of adjusted EBITDA to its comparable
    GAAP financial measure.



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Revenue:

              Three Months Ended June 30,                Change               Six Months Ended June 30,             Change
               2022                 2021           Amount         %             2022               2021        Amount        %

                             (dollars in thousands)                                        (dollars in thousands)
Revenue   $      101,915       $      105,063     $ (3,148 )      -3.0 %    $     212,596       $  208,885     $ 3,711       1.8 %


Revenue decreased by $3.1 million from $105.1 million for the three months ended
June 30, 2021 to $101.9 million for the three months ended June 30, 2022. The
decrease in revenue was due to a decrease of $5.0 million in revenue from our
automotive vertical, partially offset by an increase of $1.8 million in our
other insurance verticals. The decrease in revenue from our automotive vertical
was primarily due to a decrease in carrier spend for referrals of $10.5 million,
partially offset by an increase of $5.5 million in commission revenue. The
increase in revenue from our other insurance verticals was due to an increase of
$4.7 million in commission revenue, partially offset by a decrease in carrier
spend for referrals of $2.8 million.

Revenue increased by $3.7 million from $208.9 million for the six months ended
June 30, 2021 to $212.6 million for the six months ended June 30, 2022. The
increase in revenue was due to an increase of $5.5 million in revenue from our
other insurance verticals, partially offset by a decrease of $1.8 million in
revenue from our automotive vertical. The increase in revenue from our other
verticals was primarily due to an increase of $11.1 million in commission
revenue, partially offset by a decrease in carrier spend for referrals of
$5.6 million. The decrease in revenue from our automotive vertical was primarily
due to decrease in carrier spend for referrals of $12.7 million, partially
offset by an increase in commission revenue of $10.9 million.

Cost of Revenue

                                            Three Months Ended June 30,               Change               Six Months Ended June 30,                Change
                                             2022                 2021           Amount        %            2022                2021           Amount        %

                                                          (dollars in thousands)                                         (dollars in thousands)
Cost of revenue                          $      6,059         $      5,811      $    248       4.3 %    $     12,043        $     11,764      $    279       2.4 %
Percentage of revenue                             5.9 %                5.5 %                                     5.7 %               5.6 %


Cost of revenue increased by $0.2 million from $5.8 million for the three months
ended June 30, 2021 to $6.1 million for the three months ended June 30, 2022.
Cost of revenue increased primarily due to increased personnel-related costs of
$0.4 million, increased third-party call center costs of $0.2 million related to
volume increases of call referrals and increased amortization of intangible
assets of $0.1 million, partially offset by a decrease in hosting costs of
$0.3 million and a decrease in technical service costs of $0.2 million.

Cost of revenue increased by $0.3 million from $11.8 million for the six months
ended June 30, 2021 to $12.0 million for the six months ended June 30, 2022.
Cost of revenue increased primarily due to increased third-party call center
costs of $0.5 million related to volume increases of call referrals, increased
personnel-related costs of $0.4 million and increased amortization of intangible
assets of $0.3 million, partially offset by a decrease in technical service
costs of $0.7 million and a decrease in hosting costs of $0.3 million.

Sales and Marketing

                                               Three Months Ended June 30,               Change              Six Months Ended June 30,               Change
                                               2022                  2021           Amount        %            2022               2021          Amount        %

                                                             (dollars in thousands)                                        (dollars in thousands)
Sales and marketing expense                $      87,854         $      85,610      $ 2,244       2.6 %    $     184,004        $ 173,179      $ 10,825       6.3 %
Percentage of revenue                               86.2 %                81.5 %                                    86.6 %           82.9 %


Sales and marketing expenses increased by $2.2 million from $85.6 million for
the three months ended June 30, 2021 to $87.9 million for the three months ended
June 30, 2022. The increase in sales and marketing expense was primarily due to
an increase in personnel-related costs of $4.4 million, an increase in referral
verification services of $0.3 million, an increase in office and occupancy costs
of $0.3 million, and an increase of $0.2 million in licensing fees related to
DTC, partially offset by a decrease in advertising costs of $3.4 million. The
increase in personnel-related costs was primarily due to an increase in
headcount, a significant portion of which was in DTC agency. Personnel-related
costs for the three months ended June 30, 2022, and 2022 included stock-based
compensation expense of $3.0 million and $2.5 million, respectively. The
increase in office and occupancy costs was primarily due to additional DTC sales
offices.

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Sales and marketing expenses increased by $10.8 million from $173.2 million for
the six months ended June 30, 2021 to $184.0 million for the six months ended
June 30, 2022. The increase in sales and marketing expense was primarily due to
an increase in personnel-related costs of $8.1 million, an increase in referral
verification services of $0.6 million, an increase in advertising costs of
$0.6 million, an increase of $0.5 million in licensing fees related to DTC, an
increase in office and occupancy costs of $0.4 million and an increase in
amortization of intangible assets of $0.2 million. The increase in
personnel-related costs was primarily due to an increase in headcount, a
significant portion of which was in DTC agency. Personnel-related costs for the
six months ended June 30, 2022 and 2021 included stock-based compensation
expense of $6.2 million and $5.9 million, respectively. The increase in office
and occupancy costs was primarily due to additional DTC sales offices.

Research and Development

                                            Three Months Ended June 30,               Change                Six Months Ended June 30,                 Change
                                             2022                 2021          Amount         %             2022                2021           Amount         %

                                                           (dollars in thousands)                                          (dollars in thousands)

Research and development expense $ 8,245 $ 9,053

    $  (808 )      -8.9 %    $     16,441        $     17,626      $ (1,185 )      -6.7 %
Percentage of revenue                             8.1 %                8.6 %                                      7.7 %               8.4 %


Research and development expenses decreased by $0.8 million from $9.1 million
for the three months ended June 30, 2021 to $8.2 million for the three months
ended June 30, 2022. The decrease in research and development expense was
primarily due to a decrease in personnel-related costs of $0.7 million and a
decrease in consulting costs of $0.2 million, partially offset by an increase in
technology services of $0.2 million. Personnel-related costs for the three
months ended June 30, 2022 and 2021 included stock-based compensation expense of
$2.6 million and $2.3 million, respectively.

Research and development expenses decreased by $1.2 million from $17.6 million
for the six months ended June 30, 2021 to $16.4 million for the six months ended
June 30, 2022. The decrease in research and development expense was primarily
due to a decrease in personnel-related costs of $1.3 million and a decrease in
consulting costs of $0.3 million, partially offset by an increase in technology
services of $0.6 million. Personnel-related costs for the six months ended
June 30, 2022 and 2021 included stock-based compensation expense of $5.1 million
and $4.6 million, respectively.

General and Administrative

                                            Three Months Ended June 30,               Change               Six Months Ended June 30,                Change
                                             2022                 2021          Amount        %             2022                2021          Amount        %

                                                          (dollars in thousands)                                         (dollars in thousands)

General and administrative expense $ 7,357 $ 6,200

    $ 1,157       18.7 %    $     14,298        $     11,796      $ 2,502       21.2 %
Percentage of revenue                             7.2 %                5.9 %                                     6.7 %               5.6 %


General and administrative expenses increased by $1.2 million from $6.2 million
for the three months ended June 30, 2021 to $7.4 million for the three months
ended June 30, 2022. The increase in general and administrative expenses was
primarily due to an increase in personnel-related costs of $0.4 million and an
increase in consulting costs of $0.3 million. Other increases included
recruiting fees, insurance and credit card fees of $0.1 million each, partially
offset by a decrease in legal fees of $0.1 million.

General and administrative expenses increased by $2.5 million from $11.8 million
for the six months ended June 30, 2021 to $14.3 million for the six months ended
June 30, 2022. The increase in general and administrative expenses was primarily
due to an increase in personnel-related costs of $1.1 million, an increase in
consulting fees of $0.4 million and an increase in liability insurance costs and
credit card fees of $0.2 million each. Technology services and recruiter fees
also increased by $0.1 million each.

Acquisition-related

Acquisition-related costs for the three and six months ended June 30, 2022
solely consisted of the change in fair value of our contingent consideration
liabilities recorded as the result of our acquisitions. We recorded a credit to
acquisition-related costs for the three and six months ended June 30, 2022 of
$3.8 million and $4.7 million, respectively, related to the decrease in the fair
value of our

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contingent consideration liability. The decrease was related to our future
revenue forecasts and to a lesser extent, change in market value of our Class A
common stock. Acquisition-related costs for the three and six months ended
June 30, 2021 included expenses associated with third-party professional
services utilized of $0.5 million and the change in fair value of our contingent
consideration liabilities, which resulted in a credit to acquisition-related
costs of $0.2 million and $0.3 million, respectively.

Other Income (Expense)

Other expense, net was not significant for either of the three and six months
ended June 30, 2022 or 2021.

Variable Marketing Margin

                                              Three Months Ended June 30,                 Change               Six Months Ended June 30,              Change
                                               2022                 2021            Amount         %             2022               2021         Amount        %

                                                              (dollars in thousands)                                        (dollars in thousands)
Revenue                                    $     101,915        $     105,063      $ (3,148 )      -3.0 %    $     212,596        $ 208,885      $ 3,711       1.8 %
Less: total advertising expense (a
component of sales and marketing
expense)                                          68,824               72,233                                      145,241          144,617

Variable marketing margin                  $      33,091        $      32,830      $    261         0.8 %    $      67,355        $  64,268      $ 3,087       4.8 %

Percentage of revenue                               32.5 %               31.2 %                                       31.7 %           30.8 %

The increase in variable marketing margin was due primarily to growth in
commissions revenue and decreased advertising spend.

Liquidity and Capital Resources

Our principal sources of liquidity are cash and cash equivalents of
$41.3 million as of June 30, 2022 and availability of up to $45.0 million under
our revolving line of credit and term loan, each of which were amended in July
2022. On July 15, 2022, we entered into the Loan and Security Modification
Agreement, which amended our existing Loan and Security Agreement, or the 2020
Loan Agreement, with Western Alliance Bank, or the Lender, to extend the
maturity date of the revolving line of credit to July 15, 2025, increase the
revolving line of credit from $25.0 million to $35.0 million, and provide us
with access to a term loan of up to $10.0 million. We 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 Wall Street
Journal and mature on July 15, 2025. The term loan may be drawn through
December 31, 2023 and borrowings bear interest at 0.25% plus the greater of
4.25% or the prime rate as published in the Wall Street Journal. Borrowings
under the term loan of the Amended Loan Agreement are repayable in monthly
interest-only payments through December 31, 2023. Commencing on January 1, 2024,
the term loan is payable in 42 equal monthly installments of the then
outstanding principal and accrued interest through June 2027. We may prepay all,
but not less than 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
December 31, 2023, we are required to maintain a minimum asset coverage ratio of
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 December 31, 2023, we are required to
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. Previously, under the 2020 Loan Agreement, we were subject to specified
affirmative and negative covenants and were in compliance with these covenants
as of June 30, 2022.

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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 substantially in the near term as we continue
to expand our DTC agency, 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 June 30, 2022, $24.6 million of our $34.1 million commissions
receivable contract asset was classified as long-term. 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 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 for the six months ended
June 30, 2022 and 2021:

                                                            Six Months Ended June 30,
                                                             2022                2021

                                                                  (in thousands)

Net cash provided by (used in) operating activities $ (7,373 )

  $     11,235
Net cash used in investing activities                          (1,989 )            (1,310 )
Net cash provided by financing activities                      15,557       

1,724

Effect of exchange rate changes on cash, cash
equivalents and restricted cash                                   (27 )                 1

Net increase in cash, cash equivalents and restricted
cash                                                     $      6,168        $     11,650

Net cash provided by operating activities

Operating activities used $7.4 million during the six months ended June 30, 2022
primarily resulting from our net loss of $9.5 million and net cash used by
operating activities of $11.3 million, partially offset by net
non-cash
charges of $13.4 million. Net cash used by changes in our operating assets and
liabilities consisted primarily of an $11.3 million increase in other assets and
a $1.0 million increase in accounts receivable, partially offset by a net
$1.4 million increase in accounts payable and accrued expenses and other current
liabilities. Operating activities provided $11.2 million during the six months
ended June 30, 2021 primarily resulting from the offset of net
non-cash
charges of $16.6 million to our net loss of $5.7 million and net cash provided
by changes in our operating assets and liabilities of $0.3 million. Net cash
provided by changes in our operating assets and liabilities consisted primarily
of an aggregate $0.4 million increase in accounts payable and accrued expenses
and other current liabilities and a $0.3 million decrease in accounts
receivable, partially offset by a $0.3 million increase in other assets.

Changes in accounts receivable, accounts payable and accrued expenses and other
current liabilities were generally due to growth in our business and timing of
customer and vendor invoicing and payments. Collection of commissions
receivable, which are included in prepaid expenses and other current assets and
other assets 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 $2.0 million and $1.3 million for the
six months ended June 30, 2022 and 2021, respectively. Net cash used in
investing activities for the six months ended June 30, 2022 and 2021 included
the acquisition of property and equipment, which included the capitalization of
certain software development costs. During the six months ended June 30, 2022
and 2021, we capitalized $1.3 million and $1.1 million, respectively, of
software development costs.

Net cash provided by financing activities

During the six months ended June 30, 2022 and 2021, net cash provided by
financing activities was $15.6 million and $1.7 million, respectively. Net cash
provided by financing activities during the six months ended June 30, 2022
consisted of $15.0 million of proceeds from the issuance and sale of shares of
common stock in a private placement with Recognition Capital, LLC, an entity
which is owned and controlled by David Blundin, Chairman of the Board of
Directors and
co-founder
of the Company, and $0.6 million from the exercise of common stock options. Net
cash provided by financing activities during the six months ended June 30, 2021
consisted of proceeds received from the exercise of common stock options.

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Contractual Obligations and Commitments

There have been no material changes to the contractual obligations reported in
our Annual Report on Form
10-K
for the year ended December 31, 2021.

Critical Accounting Policies and Significant Judgments and Estimates

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

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

  •   goodwill and acquired intangible assets;



  •   valuation of contingent consideration;



  •   revenue recognition; and



  •   stock-based compensation expense.


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, 2021, 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.