Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. Automatic conversion shall occur upon the occurrence of a transfer of such share of Class B common stock or at the date and time, or the occurrence of an event, specified by a vote or written consent of the holders of a majority of the voting power of the then outstanding shares of Class B common stock. A transfer is described as a sale, assignment, transfer, conveyance, hypothecation or disposition of such share or any legal or beneficial interest in such share other than certain permitted transfers as described in the Restated Certificate of Incorporation, including a transfer to a holder of Preferred Stock. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
.
Commission File Number: 001-38549
 
 
EverQuote, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
26-3101161
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
210 Broadway
Cambridge, Massachusetts
 
02139
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (855) 522-3444
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading
 
Symbol(s)
  
Name of each exchange
on which registered
Class A Common Stock, $0.001 Par
Value Per Share
  
EVER
  
The Nasdaq Global Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
    
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  ☒
As of June 30, 2020, the registrant had 18,932,306 shares of Class A common stock, $0.001 par value per share, issued and outstanding and 8,430,585 shares of Class B common stock, $0.001 par value per share, issued and outstanding.
 
 
 

Table of Contents
 
 
 
 
  
Page
 
PART I.
 
  
 
4
 
Item 1.
 
  
 
4
 
 
 
  
 
4
 
 
 
  
 
5
 
 
 
  
 
6
 
 
 
  
 
7
 
 
 
  
 
8
 
Item 2.
 
  
 
17
 
Item 3.
 
  
 
26
 
Item 4.
 
  
 
26
 
PART II.
 
  
 
28
 
Item 1.
 
  
 
28
 
Item 1A.
 
  
 
29
 
Item 2.
 
  
 
52
 
Item 6.
 
  
 
53
 
  
 
54
 
 
2

Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form
10-Q
contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact contained in this Quarterly Report on Form
10-Q,
including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations and statements regarding the anticipated impact on our business of the outbreak of the novel strain of coronavirus
(COVID-19)
and related public health measures, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “might,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “seek,” “would” or “continue,” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on
Form 10-Q
are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. These forward-looking statements speak only as of the date of this Quarterly Report on Form
10-Q
and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this Quarterly Report on Form
10-Q.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:
 
 
 
our future financial performance, including our expectations regarding our revenue, cost of revenue, variable marketing margin, operating expenses, cash flows and ability to achieve, and maintain, future profitability;
 
 
 
the impact of the
COVID-19
pandemic;
 
 
 
our ability to attract and retain consumers and insurance providers using our marketplace;
 
 
 
our ability to develop new and enhanced products and services to attract and retain consumers and insurance providers, and our ability to successfully monetize them;
 
 
 
our anticipated growth and growth strategies and our ability to effectively manage that growth;
 
 
 
our ability to maintain and build our brand;
 
 
 
our reliance on our third-party service providers;
 
 
 
our ability to expand internationally;
 
 
 
the impact of competition in our industry and innovation by our competitors;
 
 
 
our ability to hire and retain necessary qualified employees to expand our operations;
 
 
 
our ability to adequately protect our intellectual property;
 
 
 
our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business;
 
 
 
the increased expenses and administrative workload associated with being a public company;
 
 
 
failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud;
 
 
 
the future trading prices of our Class A common stock; and
 
 
 
our use of proceeds from our initial public offering.
While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.
 
3

PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
EVERQUOTE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
 
    
June 30,
2020
   
December 31,
2019
 
Assets
    
Current assets:
    
Cash and cash equivalents
   $ 54,409     $ 46,054  
Accounts receivable
     36,489       32,214  
Prepaid expenses and other current assets
     3,429       7,065  
  
 
 
   
 
 
 
Total current assets
     94,327       85,333  
Property and equipment, net
     5,759       5,197  
Other assets
     745       691  
  
 
 
   
 
 
 
Total assets
   $ 100,831     $ 91,221  
  
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
    
Current liabilities:
    
Accounts payable
   $ 27,087     $ 23,663  
Accrued expenses and other current liabilities
     9,975       13,225  
Deferred revenue
     1,633       1,501  
  
 
 
   
 
 
 
Total current liabilities
     38,695       38,389  
Other long-term liabilities
     1,508       1,062  
  
 
 
   
 
 
 
Total liabilities
     40,203       39,451  
  
 
 
   
 
 
 
Commitments and contingencies (Note 7)
Stockholders’ equity:
    
Preferred stock, $0.001 par value; 10,000,000 shares authorized;

no shares issued and outstanding
     —         —    
Class A common stock, $0.001 par value; 220,000,000 shares authorized;
18,932,306 shares and 14,635,834 shares issued and outstanding
at
June 30, 2020 and December 31, 2019, respectively
     19       15  
Class B common stock, $0.001 par value; 30,000,000 shares authorized;

8,430,585 shares and 11,802,341 shares issued and outstanding at
June 30, 2020 and December 31, 2019, respectively
     8       12  
Additional
paid-in
capital
     171,860       158,752  
Accumulated deficit
     (111,259     (107,009
  
 
 
   
 
 
 
Total stockholders’ equity
     60,628       51,770  
  
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 100,831     $ 91,221  
  
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
4

EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share amounts)
 
    
Three Months Ended June 30,
   
Six Months Ended June 30,
 
    
    2020    
   
    2019    
   
    2020    
   
    2019    
 
Revenue
   $ 78,302     $ 55,667     $ 159,666     $ 107,900  
  
 
 
   
 
 
   
 
 
   
 
 
 
Cost and operating expenses:
        
Cost of revenue
     4,977       3,504       10,312       7,170  
Sales and marketing
     64,561       45,524       131,065       90,146  
Research and development
     6,966       4,404       13,425       9,089  
General and administrative
     4,754       4,481       9,473       8,307  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total cost and operating expenses
     81,258       57,913       164,275       114,712  
  
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
     (2,956     (2,246     (4,609     (6,812
  
 
 
   
 
 
   
 
 
   
 
 
 
Other income:
        
Interest income
     47       184       158       368  
Other income
     101       88       201       88  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total other income
     148       272       359       456  
  
 
 
   
 
 
   
 
 
   
 
 
 
Net loss and comprehensive loss
   $ (2,808   $ (1,974   $ (4,250   $ (6,356
  
 
 
   
 
 
   
 
 
   
 
 
 
Net loss per share, basic and diluted
   $ (0.10   $ (0.08   $ (0.16   $ (0.25
  
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average common shares outstanding,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
basic and diluted
     27,136       25,579       26,888       25,437  
  
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
5

EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share amounts)
 
   
Class A Common Stock
   
Class B Common Stock
   
Additional
Paid-in
   
Accumulated
   
Total
Stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
Balances December 31, 2019
     14,635,834      $ 15        11,802,341     $ 12     $ 158,752      $ (107,009   $ 51,770  
Issuance of common stock upon exercise
 
of stock options
     214,179        —          —         —         1,364        —         1,364  
Vesting of restricted stock units
     329,897        —          —         —         —          —         —    
Stock-based compensation expense
     —          —          —         —         4,540        —         4,540  
Transfer of Class B common stock to
 
Class A common stock
     1,388,536        2        (1,388,536     (2     —          —         —    
Net loss
     —          —          —         —         —          (1,442     (1,442
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balances at March 31, 2020
     16,568,446        17        10,413,805       10       164,656        (108,451     56,232  
Issuance of common stock upon exercise
 
of stock options
     126,375        —          —         —         954        —         954  
Vesting of restricted stock units
     254,265        —          —         —         —          —         —    
Stock-based compensation expense
     —          —          —         —         6,250        —         6,250  
Transfer of Class B common stock to
 
Class A common stock
     1,983,220        2        (1,983,220     (2     —          —         —    
Net loss
     —          —          —         —         —          (2,808     (2,808
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balances at June 30, 2020
     18,932,306      $ 19        8,430,585     $ 8     $ 171,860      $ (111,259   $ 60,628  
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
 
   
Class A Common Stock
   
Class B Common Stock
   
Additional
Paid-in
   
Accumulated
   
Total
Stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
Balances at December 31, 2018
     7,528,741      $ 8        17,696,414     $ 18     $ 143,050      $ (99,892   $ 43,184  
Issuance of common stock upon exercise
 
of stock options
     114,831        —          —         —         234        —         234  
Vesting of restricted stock units
     99,197        —          —         —         —          —         —    
Stock-based compensation expense
     —          —          —         —         2,750        —         2,750  
Transfer of Class B common stock to
 
Class A common stock
     1,032,231        1        (1,032,231     (1     —          —         —    
Net loss
     —          —          —         —         —          (4,382     (4,382
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balances at March 31, 2019
     8,775,000        9        16,664,183       17       146,034        (104,274     41,786  
Issuance of common stock upon exercise
 
of stock options
     132,770        —          —         —         649        —         649  
Vesting of restricted stock units
     182,764        —          —         —         —          —         —    
Stock-based compensation expense
     —          —          —         —         3,238        —         3,238  
Transfer of Class B common stock to
 
Class A common stock
     1,413,336        2        (1,413,336     (2     —          —         —    
Net loss
     —          —          —         —         —          (1,974     (1,974
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balances at June 30, 2019
     10,503,870      $ 11        15,250,847     $ 15     $ 149,921      $ (106,248   $ 43,699  
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
6

EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
    
Six Months Ended June 30,
 
    
            2020            
   
            2019            
 
Cash flows from operating activities:
    
Net loss
   $ (4,250   $ (6,356
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
    
Depreciation and amortization expense
     1,443       1,005  
Stock-based compensation expense
     10,790       5,988  
Provision for bad debt
     17       422  
Changes in operating assets and liabilities:
    
Accounts receivable
     (4,292     (7,109
Prepaid expenses and other current assets
     3,636       27  
Other assets
     (57      
Accounts payable
     3,293       1,529  
Accrued expenses and other current liabilities
     (3,250     353  
Deferred revenue
     132       321  
Other long-term liabilities
     446       (22
  
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     7,908       (3,842
  
 
 
   
 
 
 
Cash flows from investing activities:
    
Acquisition of property and equipment, including costs capitalized
for development of
internal-use
software
     (1,871     (1,552
  
 
 
   
 
 
 
Net cash used in investing activities
     (1,871     (1,552
  
 
 
   
 
 
 
Cash flows from financing activities:
    
Proceeds from exercise of stock options
     2,318       883  
  
 
 
   
 
 
 
Net cash provided by financing activities
     2,318       883  
  
 
 
   
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
     8,355       (4,511
Cash, cash equivalents and restricted cash at beginning of period
     46,304       41,884  
  
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period
   $ 54,659     $ 37,373  
  
 
 
   
 
 
 
Reconciliation of cash, cash equivalents and restricted cash:
    
Cash and cash equivalents
   $ 54,409     $ 37,123  
Restricted cash (included in other assets)
     250       250  
  
 
 
   
 
 
 
Total cash, cash equivalents and restricted cash shown in the statement
of cash flows
   $ 54,659     $ 37,373  
  
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
7

EVERQUOTE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business and Basis of Presentation
EverQuote, Inc. (the “Company”) was incorporated in the state of Delaware in 2008. Through its internet websites, the Company operates an online marketplace for consumers shopping for auto, home and renters, life, health and commercial insurance. The Company generates revenue by selling consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States.
The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, protection of proprietary technology, customer concentration, patent litigation, the need to obtain additional financing to support growth and dependence on third parties and key individuals.
In addition, the Company is subject to risks and uncertainties relating to the ongoing outbreak of the novel strain of coronavirus
(“COVID-19”),
which the World Health Organization declared a pandemic in March 2020. The
COVID-19
pandemic has continued to spread throughout the United States and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines,
shelter-in-place
orders, and business limitations and shutdowns. Work-from-home and other measures have introduced additional operational risks, including cybersecurity risks, and may adversely affect the way the Company and its customers and insurance providers conduct business. The extent to which the
COVID-19 pandemic
impacts the Company’s workforce, business, financial condition, results of operations and the Company’s use of estimates in preparation of its consolidated financial statements will depend on future developments, which are highly uncertain and cannot be predicted at this time.
On July 2, 2018, the Company completed an initial public offering (“IPO”), in which it issued and sold 3,125,000 shares of Class A common stock at a public offering price of $18.00 per share, resulting in net proceeds to the Company of approximately $48.6 million after deducting underwriting discounts and commissions and other offering costs. Additionally, certain of the Company’s stockholders sold 1,562,500 shares of Class A common stock at the same public offering price of $18.00 per share. The Company did not receive any proceeds from the sale of shares by its stockholders.
The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has incurred operating losses, including net losses of $4.3 million for the six months ended June 30, 2020 and $7.1 million for the year ended December 31, 2019. As of June 30, 2020, the Company had an accumulated deficit of $111.3 million. The Company has primarily funded its operations through issuances of shares of redeemable convertible preferred stock and common stock, debt, including a revolving line of credit with Western Alliance Bank, which
was renewed in August 2020, cash flows from operations and proceeds from the Company’s IPO. As of the issuance date of these financial statements, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the issuance date of the financial statements.
The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, EverQuote NI Limited. All intercompany accounts and transactions have been eliminated in consolidation.
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or
non-public
entities, the Company has adopted the new or revised standard at the time
non-public
entities adopt the new or revised standard. 
Because the market value of the Company’s Class A common stock held by
non-affiliates
exceeded $700.0 million as of June 30, 2020, the Company will have been public for more than one year and it has filed at least one annual report, the Company will cease to be an emerging growth company as of December 31, 2020. As a result, beginning with the Company’s Annual Report on
 
Form
10-K
for the year ending December 31, 2020, the Company will be subject to certain requirements that apply to other public companies but did not previously apply to the Company due to its status as an emerging growth company, including the provisions of Section 404 of the Sarbanes-Oxley Act, which require that the Company’s independent registered public accounting firm provides an attestation report on the effectiveness of the Company’s internal control over financial reporting.
 
8

2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The condensed balance sheet at December 31, 2019 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form
10-K for
the year ended December 31, 2019 on file with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2020 and results of operations for the three and six months ended June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019 have been made. The Company’s results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020 or any other interim period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, revenue recognition and collectability of accounts receivable, the expensing and capitalization of website and software development costs, the valuation of stock-based awards and income taxes. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in periods in which they become known. Actual results may differ from those estimates or assumptions. Due to the
COVID-19
pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of August
7
,
2020, the date of issuance of these consolidated financial statements. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Concentrations of Credit Risk and of Significant Customers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains cash balances that may be in excess of federally insured limits at two accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company sells its consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States. For the three months ended June 30, 2020, one customer represented 19% of total revenue. For the six months ended June 30, 2020, one customer represented 21% of total revenue. For the three months ended June 30, 2019, two customers represented 20% and 13% of total revenue. For the six months ended June 30, 2019, two customers represented 20% and 12% of total revenue. As of June 30, 2020, one customer accounted for 16% of the accounts receivable balance. As of December 31, 2019, two customers accounted for 14% each of the accounts receivable balance.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
 
   
Level 1—Quoted prices in active markets for identical assets or liabilities.
 
9

 
 
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
 
 
 
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company’s cash equivalents of $23.3 million as of June 30, 2020, consisting of money market funds, are carried at fair value based on Level 1 inputs. The carrying values of the Company’s accounts receivable, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities.
Accounts Receivable
The Company provides credit to customers in the ordinary course of business and believes its credit policies are prudent and reflect industry practices and business risk. Management reviews accounts receivable on a periodic basis and reserves for receivables in the Company’s allowance for doubtful accounts on a specific identification basis when they are determined to be uncollectible. After the Company has exhausted all collection efforts, the outstanding receivable is written off against the allowance. The Company had no allowance for doubtful accounts as of June 30, 2020 and December 31, 2019, as the Company deemed all amounts to be collectible.
Revenue Recognition
The Company derives its revenue by selling consumer referrals to its insurance provider customers, including insurance carriers and agents. To determine revenue recognition for arrangements that the Company determines are within the scope of the revenue standard, the Company performs 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) the Company satisfies a performance obligation.
Revenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when collectability of the consideration to which the Company is entitled in exchange for the goods or services it transfers to the customer is determined to be probable. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does 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. The Company recognizes revenue when it satisfies its performance obligations by delivering the referrals to its customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those referrals.
The Company presents disaggregated revenue from contracts with customers by distribution channel as the distribution channel impacts the nature and amount of the Company’s revenue and by vertical market segment.
Total revenue is comprised of revenue from the following distribution channels:
 
    
Three Months Ended June 30,
   
Six Months Ended June 30,
 
    
        2020        
   
        2019    
   
        2020        
   
        2019        
 
Direct channels
     93     93     93     93
Indirect channels
     7     7     7     7
  
 
 
   
 
 
   
 
 
   
 
 
 
     100     100     100     100
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenue is comprised of revenue from the following insurance verticals (in thousands):
 
    
Three Months Ended June 30,
    
Six Months Ended June 30,
 
    
        2020        
    
        2019        
    
        2020        
    
        2019    
 
Automotive
   $ 64,594      $ 49,788      $ 132,235      $ 94,802  
Other
     13,708        5,879        27,431        13,098  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total Revenue
   $ 78,302      $ 55,667      $ 159,666      $ 107,900  
  
 
 
    
 
 
    
 
 
    
 
 
 
The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. At June 30, 2020, the Company had not capitalized any costs to obtain any of its contracts.
 
10

 
Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue. Deferred revenue was $1.6 million and $1.5 million as of June 30, 2020 and December 31, 2019, respectively.
 
During the six months ended June 30, 2020, the Company recognized revenue of $
1.1
million that was included in the contract liability balance (deferred revenue) at December 31, 2019. The Company recognizes deferred revenue by first allocating from the beginning deferred revenue balance to the extent that the beginning deferred revenue balance exceeds the revenue to be recognized. Billings during the period are added to the deferred revenue balance to be recognized in future periods.
Advertising Expense
Advertising expense consists of variable costs that are related to attracting consumers to the Company’s marketplace and generating consumer quote requests, promoting its marketplace to insurance carriers and agents, and increasing downloads of the Company’s social safe-driving mobile app EverDrive. In November 2019, the Company announced that it would no longer support EverDrive. The Company expenses advertising costs as incurred and such costs are included in sales and marketing expense in the accompanying statements of operations and comprehensive income (loss). During the three months ended June 30, 2020 and 2019, advertising expense totaled $54.8 million and $39.0 million, respectively. During the six months ended June 30, 2020 and 2019, advertising expense totaled $112.4 million and $77.3 million, respectively.
Net Income (Loss) per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted stock units. For periods in which the Company reported a net loss, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their affect is anti-dilutive.
The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
 
    
June 30,
 
    
        2020        
    
        2019        
 
Options to purchase common stock
     2,975,988        3,305,425  
Unvested restricted stock units
     3,619,167        3,050,834  
  
 
 
    
 
 
 
     6,595,155        6,356,259  
  
 
 
    
 
 
 
The Company has two classes of common stock outstanding: Class A common stock and Class B common stock. As more fully described in Note 5, the rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. The Company allocates undistributed earnings attributable to common stock between the common stock classes on a
one-to-one
basis when computing net income (loss) per share. As a result, basic and diluted net income (loss) per share of Class A common stock and share of Class B common stock are equivalent.
Recently Issued Accounting Pronouncements
In
February 2016, the
FASB issued ASU No. 2016-02,
 Leases (Topic 842)
 (“ASU 2016-02”), which sets out
the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to
record a right-of-use asset and
a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those
fiscal years. For non-public
entities and emerging growth companies that choose to take advantage of the extended transition periods, the guidance is effective for annual reporting periods beginning after December 15, 2019. Early adoption is
permitted. ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presented in the financial statements would be prepared under the revised guidance. In July 2018, the FASB issued ASU
No. 2018-11,
 Leases (Topic 842)
, which added an optional transition method under which financial statements may be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will
recognize a cumulative catch-up adjustment to the
opening balance of retained earnings in the period of adoption. In November 2019, the FASB issued ASU
No. 2019-10,
which deferred the effective date for
non-public
entities and emerging growth companies that choose to take advantage of the extended transition periods to annual reporting periods beginning after December 15, 2020, and interim periods within fiscal years beginning
11

after December 15, 2021. Since the Company will cease to be an emerging growth company as of December 31, 2020, the Company is required to adopt the standard during the fourth quarter of 2020. The Company plans to adopt
ASU No. 2016-02 using
the modified retrospective approach transition method as of the date of adoption such that prior periods will not be restated. The Company expects that the adoption will result in the
recognition of material right-of-use assets and lease
liabilities on its consolidated balance sheet.
In June 2016, the FASB issued ASU
No. 2016-13,
Financial Instruments – Credit Losses (Topic 326)
. The new standard adjusts the accounting for assets held at amortized costs basis, including marketable securities accounted for as available for sale, and trade receivables. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years.
For non-public entities
and emerging growth companies that choose to take advantage of the extended transition periods, the guidance was effective for annual reporting periods beginning after December 15, 2020. Since the Company will cease to be an emerging growth company as of December 31, 2020, the Company is required to adopt the standard during the fourth quarter of 2020. The Company is currently assessing the impact of the adoption of this guidance on its financial statements.
In August 2018, the FASB issued ASU
No. 2018-15,
Customer’s
Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.
The objective of the standard is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years.
For non-public entities
and emerging growth companies that choose to take advantage of the extended transition periods, the guidance is effective for annual reporting periods beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. Since the Company will cease to be an emerging growth company as of December 31, 2020, the Company is required to adopt the standard during the fourth quarter of 2020. The Company is currently assessing the impact of the adoption of this guidance on its financial statements.
3. Balance Sheet Accounts
Accrued expenses and other current liabilities consisted of the following (in thousands):
 
    
June 30,
    
December 31,
 
    
2020
    
2019
 
Accrued employee compensation and benefits
   $ 1,986      $ 2,388  
Accrued advertising expenses
     5,313        4,119  
Accrued legal settlement (see Note 7)
     —          4,750  
Other current liabilities
     2,676        1,968  
  
 
 
    
 
 
 
   $ 9,975      $ 13,225  
  
 
 
    
 
 
 
4. Loan and Security Agreement
As of December 31, 2019, the Company had available borrowings of $11.0 million under its amended Loan and Security Agreement, as modified by the 2018 Loan and Modification Agreement (the “2018 Loan Modification”). Pursuant to the 2018 Loan Modification, borrowings under the revolving line of credit
could not exceed 80% of eligible accounts receivable balances and bore interest
at one-half percent
(0.5%) above the greater of 4.25% or the prime rate. The 2018 Loan Modification was amended during the three months ended March 31, 2020 to extend the availability of the line of credit to May 2020. The 2018 Loan Modification was amended and restated in August 2020 (the “2020 Loan Agreement”) to increase the available line of credit to $25.0 million, extend the maturity date to August 2022 and amend the interest rate. Pursuant to the 2020 Loan Agreement, borrowings under the revolving line of credit
cannot exceed 80% of eligible accounts receivable balances and bear interest a
t
the greater of 3.25% or the prime rate. Borrowings are collateralized by substantially all of the Company’s assets and property. 
Under the 2020 Loan Agreement, the Company is subject to specified affirmative and negative covenants until maturity. These covenants include limitations on the Company’s ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions. In addition, the Company is required to maintain a financial performance covenant: a minimum asset coverage ratio of 1.5 to 1, calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit. Events which would meet the criteria of a default under the 2020 Loan Agreement include failure to make payments when due, insolvency events, failure to comply with covenants or material adverse events with respect to the Company.
 
12

5. Equity
Each share of Class A common stock entitles the holder to one vote for each share on all matters submitted to a vote of the Company’s stockholders at all meetings of stockholders and written actions in lieu of meetings. Each share of Class B common stock entitles the holder to ten votes for each share on all matters submitted to a vote of the Company’s stockholders at all meetings of stockholders and written actions in lieu of meetings.
Holders of both classes of common stock are entitled to receive dividends, when and if declared by the board of directors.
Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. Automatic conversion shall occur upon the occurrence of a transfer of such share of Class B common stock or at the date and time, or the occurrence of an event, specified by a vote or written consent of the holders of a majority of the voting power of the then outstanding shares of Class B common stock. A transfer is described as a sale, assignment, transfer, conveyance, hypothecation or disposition of such share or any legal or beneficial interest in such share other than certain permitted transfers as described in the Restated Certificate of Incorporation, including a transfer to a holder of Preferred Stock. Each share of Class B common stock held by a stockholder shall automatically convert into one fully paid and
non-assessable
share of Class A common stock nine months after the death or incapacity of the holder of such Class B common stock.
 
6. Stock-Based Compensation
The Company has outstanding awards under its 2008 Stock Incentive Plan, as amended (the “2008 Plan”), but is no longer granting awards under this plan. Shares of common stock issued upon exercise of stock options granted prior to September 8, 2017 will be issued as either Class A common stock or Class B common stock. Shares of common stock issued upon exercise of stock options granted after September 8, 2017 will be issued as Class A common stock.
The Company’s 2018 Equity Incentive Plan (the “2018 Plan” and, together with the 2008 Plan, the “Plans”) provides for the grant of incentive stock
options, non-qualified stock
options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards. The number of shares initially reserved for issuance under the 2018 Plan is the sum of 2,149,480 shares of Class A common stock, plus the number of shares of Class A common stock (up to 5,028,832 shares) equal to the sum of (i) the 583,056 shares of Class A common stock and Class B common stock that were available for grant under the 2008 Plan upon the effectiveness of the 2018 Plan and (ii) the number of shares of Class A common stock and Class B common stock subject to outstanding awards under the 2008 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (subject, in the case of incentive stock options, to any limitations of the Internal Revenue Code). The number of shares of Class A common stock that may be issued under the 2018 Plan will automatically increase on the first day of each fiscal year until, and including, the fiscal year ending December 31, 2028, equal to the least of (i) 2,500,000 shares of Class A common stock; (ii) 5% of the sum of the number of shares of Class A common stock and Class B common stock outstanding on the first day of such fiscal year; and (iii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by the Company under the 2018 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan. The number of authorized shares reserved for issuance under the 2018 Plan was increased by 1,321,908 shares effective as of January 1, 2020 in accordance with the provisions of the 2018 Plan described above. As of June 30, 2020, 613,335 shares remain available for future grants under the 2018 Plan.
Options and restricted stock units (“RSUs”) granted under the Plans vest over periods determined by the board of directors. Options granted under the Plans expire no longer than ten years from the date of the grant. The exercise price for stock options granted is not less than the fair value of common shares based on quoted market prices.
Award Issuances
During the six months ended June 30, 2020, the Company granted 781,421 service-based RSUs with an aggregate grant date fair value of $31.9 million.
During the six months ended June 30, 2020, the Company granted 107,881 service- and performance-based RSUs with an aggregate grant date fair value of $4.3 million.
 
13

Option Issuances
During the six months ended June 30, 2020, the Company granted 531,108 options with service-based, market-based and performance-based vesting conditions. The fair value of these grants is estimated using a Monte Carlo simulation model. Assumptions and estimates utilized in the model include the risk-free interest rate, dividend yield, expected stock volatility and the estimated period to achievement of the performance and market condition. The following table presents the assumptions used in the Monte Carlo simulation model to determine the fair value of these stock-based awards:
 
    
Six Months Ended

June 30, 2020
 
Risk-free interest rate
     1.5
Expected volatility
     49.0
Expected dividend yield
     0
Derived service period (in years)
     4.1  
Stock-based compensation expense is recognized when the achievement of the performance-based vesting conditions is probable regardless of whether the market condition is achieved. The aggregate grant date fair value of these options was $8.1 million. As the Company has deemed achievement of the performance condition to be probable, the Company is recognizing stock-based compensation for these awards over the estimated service period using the graded-vesting method. During the three and six months ended June 30, 2020, the Company recognized stock-based compensation expense of $0.6 million and $0.8 million, respectively, related to these awards
.
Stock-Based Compensation
The Company recorded stock-based compensation expense in the following expense categories of its statements of operations and comprehensive loss (in thousands):
 
    
Three Months

Ended June 30,
    
Six Months

Ended June 30,
 
    
2020
    
2019
    
2020
    
2019
 
Cost of revenue
   $ 88      $ 87      $ 142      $ 87  
Sales and marketing
     2,547        891        4,242        1,685  
Research and development
     1,862        979        3,138        1,853  
General and administrative
     1,753        1,281        3,268        2,363  
  
 
 
    
 
 
    
 
 
    
 
 
 
   $ 6,250      $ 3,238      $ 10,790      $ 5,988  
  
 
 
    
 
 
    
 
 
    
 
 
 
Stock-based compensation expense for the three and six months ended June 30, 2020 included a total of $0.8 million and $1.2 million, respectively, related to unvested RSUs and option awards with performance-based vesting conditions, including options with performance- and market-based vesting conditions, for which the performance-based condition has not yet been achieved but has been deemed probable of being achieved.
As of June 30, 2020, unrecognized compensation expense for RSUs and option awards with service-based vesting conditions and RSUs and option awards with performance-based vesting conditions either achieved or deemed probable of being achieved was $60.5 million, which is expected to be recognized over a weighted average period of 4.0 years. Additionally, the Company had unrecognized compensation expense of $5.5 million related to unvested awards with performance-based vesting conditions, which have not been deemed probable.
7. Commitments and Contingencies
Operating Leases
The Company leases office space in Cambridge, Massachusetts under
a non-cancelable operating
lease that expires in September 2024. The Company also leases office space in Woburn, Massachusetts under
a non-cancelable operating
lease that expires in January 2022.
In the first quarter of 2020, the Company entered into a three-year
non-cancelable
operating lease in Seattle, Washington under which lease payments commenced in the second quarter of 2020.
Lease incentives, payment escalations and rent holidays specified in the lease agreements are accrued or deferred as appropriate such that rent expense per square foot is recognized on a straight-line basis over the terms of occupancy. As of June 30, 2020 and December 31, 2019, the Company had a deferred rent liability of $1.2 million.
 
14

During the three months ended June 30, 2020 and 2019, the Company recorded rent expense of $0.6 million and $0.7 million, respectively. During
each of
the six months ended June 30, 2020 and 2019, the Company recorded rent expense of $1.2 million
.
As of June 30, 2020 and December 31, 2019, the Company maintained security deposits of $0.5 million
and $0.4 million, respectively, with the landlords of its leases, which amounts are included in other assets on the Company’s balance sheet.
Future minimum lease payments under the operating leases as of June 30, 2020 are as follows (in thousands):
 
Year Ending December 31,
      
2020 (Remaining six months)
   $ 1,412  
2021
     2,848  
2022
     2,696  
2023
     2,608  
2024
     1,922  
Thereafter
     —    
  
 
 
 
   $ 11,486  
  
 
 
 
Indemnification Agreements
In the normal course of business, the Company may provide indemnification of varying scope and terms to third parties and enter into commitments and guarantees (“Agreements”) under which it may be required to make payments. The duration of these Agreements varies, and in certain cases, is indefinite. Furthermore, many of these Agreements do not limit the Company’s maximum potential payment exposure.
In addition, the Company has entered into indemnification agreements with members of its board of directors and executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.
Through June 30, 2020 and December 31, 2019, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its financial statements as of June 30, 2020 and December 31, 2019.
Legal Proceedings
On February 15, 2019, Sean F. Townsend, a purported holder of the Company’s common stock, filed a civil action in the Supreme Court for the State of New York against the Company, the Company’s chief executive officer, chief financial officer, general counsel, the Company’s directors, and the Company’s underwriters for its IPO, captioned
Townsend v. EverQuote, Inc. et al.
, Index No. 650997-2019. On February 26, 2019, Mark Townsend, a second purported holder of the Company’s common stock, filed an identical civil action in the Supreme Court for the State of New York against the same defendants, captioned
Townsend v. EverQuote, Inc. et al.
, Index No. 651177-2019. The plaintiffs alleged claims for violations of Sections 11, 12(a), and 15 of the Securities Act of 1933, on behalf of a purported class of all persons or entities who purchased or otherwise acquired the Company’s common stock pursuant or traceable to the Registration Statement issued in connection with its IPO. Those claims generally challenged as false or misleading certain of the Company’s disclosures about its quote request volume. The plaintiffs sought, on behalf of themselves and the purported class, damages, costs and expenses of litigation, and rescission, disgorgement, or other equitable relief. After filing a motion to dismiss the plaintiffs’ consolidated amended complaint, the Company participated in a mediation and agreed to pay $4.8 million in settlement of all of plaintiffs’ purported class claims,
of which
$3.6 million
was reimbursed by the Company’s insurance provider. The parties thereafter on February 6, 2020 filed a Stipulation of Settlement settling the litigation in principle, subject to final approval of the Court. On June 11, 2020, the Court entered a final order approving the settlement and terminating the case.
The Company was contacted by a representative from a state tax assessor’s office requesting remittance of uncollected sales taxes. The Company does not believe its services are taxable in this state and is investigating this request and intends to vigorously defend this position. If the Company does not prevail in its position, uncollected sales taxes due for the period could amount to approximately $1.5 million, including interest and penalties. The Company has not recorded any liabilities related to this matter as the loss has not been deemed probable.
On April 29, 2020, EverQuote was named as a defendant in a putative, statewide (Colorado) class action lawsuit filed in U.S. District Court for the District of Colorado captioned Scott M. Runyon v EverQuote, Inc. The
 
c
omplaint alleges that the Company violated the Telephone Consumer Protection Act by making unsolicited marketing calls to his cellphone and those of other Colorado residents using an automatic telephone dialing system without prior express consent. Plaintiff seeks, among other forms of relief, statutory damages of $500 to $1,500 for each alleged violation and an order enjoining future violations. Plaintiff also asserts an individual claim against the Company for invasion of privacy arising out of the same calls to his cellphone and a claim for unspecified 
 
15

damages. On July 23, 2020, the U.S. District Court granted a stay pending the Supreme Court’s decision in Facebook Inc. v. Duguid, Case
No. 19-511. The
Supreme Court’s decision in that case is not expected for
8-12
months and may moot Plaintiff’s Telephone Consumer Protection Act claim and putative class action. The Company believes these claims lack merit, and intends to vigorously defend the Company against them.
On July 30, 2020, EverQuote was named as a defendant in a putative, nationwide class action lawsuit filed in U.S. District Court for the Western District of Pennsylvania captioned Carol Scavo v. EverQuote, Inc. The complaint alleges that the Company violated the Telephone Consumer Protection Act by sending unsolicited text message advertisements to her cellphone and those of other United States residents using an automatic telephone dialing system without prior express consent. Plaintiff seeks, among other forms of relief, statutory damages of $500 to $1,500 for each alleged violation and an order enjoining future violations. No substantive proceedings have occurred in the case to date. The Company believes these claims lack merit, and intends to vigorously defend the Company against them.
The Company is from time to time subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of its business. While the outcome of these other claims cannot be predicted with certainty, management does not believe that the outcome of any of these other legal matters will have a material adverse effect on the Company’s results of operations or financial condition.
8. Retirement Plan
The Company has established a defined-contribution plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a
pre-tax
basis. As currently established, the Company is not required to make any contributions to the 401(k) Plan. The Company contributed $0.1 million during
each of
the three months ended June 30, 2020 and 2019, and contributed $0.3 million and $0.2 million during the six months ended June 30, 2020 and 2019, respectively.
9. Related Party Transactions
The Company has, in the ordinary course of business, entered into arrangements with other companies who have shareholders in common with the Company. Pursuant to these arrangements, related-party affiliates receive payments for providing website visitor referrals and to a lesser extent a small amount of office space. During the three months ended June 30, 2020 and 2019, the Company recorded expense of $0.6 million and $1.1 million, respectively, related to these arrangements. During the three months ended June 30, 2020 and 2019, the Company paid $0.9 million and $1.5 million, respectively, related to these arrangements. During the six months ended June 30, 2020 and 2019, the Company recorded expense of $1.5 million and $2.6 million, respectively, related to these arrangements. During the six months ended June 30, 2020 and 2019, the Company paid $1.9 and $2.9 million, respectively, related to these arrangements. As of June 30, 2020 and December 31, 2019, amounts due to related-party affiliates totaled $0.2 million and $1.1 million, respectively, which were included in accounts payable on the balance sheets.
The Company subleases a portion of its office space to one of its related-party affiliates. During each of the three months ended June 30, 2020 and 2019, the Company recorded other income of $0.1 million related to this arrangement and received $0.1 million in payments. During the six months ended June 30, 2020 and 2019, the Company recorded other income of $0.2 million and $0.1 million, respectively, related to this arrangement and received $0.2 million and $0.1 million, respectively, in payments. As of June 30, 2020 and December 31 2019, there were no amounts due from related-party affiliates.
10. Subsequent Events
On August
3
, 2020, the Company signed a definitive agreement to acquire Crosspointe Insurance & Financial Services, LLC, a health insurance agency headquartered in Evansville, Indiana. The acquisition is expected to close by the end of the third quarter of 2020 subject to customary closing conditions.
 
16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion 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 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, 2019, on file with the Securities and Exchange Commission. The following discussion 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.”
Overview
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. Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers shopping for insurance. With over 11 million consumer visits per month, our results-driven marketplace, powered by our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money.
Consumers may view insurance as a simple commodity with standard pricing. However, 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. Our service is free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers.
Insurance providers operate in a highly competitive and regulated industry and typically
specialize on pre-determined subsets of
consumers. As a result, not every consumer is a good match for every provider, and some providers struggle to efficiently 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 providers to evaluate the performance of their marketing spend on our platform and manage their own return on investment.
Since our founding in 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 2018, we exceeded 46 million cumulative quote requests since launch of our marketplace.
 
   
In 2019, we added health and renters insurance in our marketplace.
 
   
In 2019, we announced our partnership with Bold Penguin to add commercial insurance in our marketplace.
In the three months ended June 30, 2020 and 2019, our total revenue was $78.3 million and $55.7 million, respectively, representing year-over-year growth of 41%. We had net losses of $2.8 million and $2.0 million for the three months ended June 30, 2020 and 2019, respectively, and had $4.0 million and $1.6 million in adjusted EBITDA for the three months ended June 30, 2020 and 2019, respectively. In the six months ended June 30, 2020 and 2019, our total revenue was $159.7 million and $107.9 million, respectively, representing year-over-year growth of 48.0%. We had net losses of $4.3 million and $6.4 million for the six months ended June 30, 2020 and 2019, respectively, and had $7.8 million and $0.3 million in adjusted EBITDA for the six months ended June 30, 2020 and 2019, 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.
 
17

COVID-19
In March 2020, the World Health Organization declared the outbreak of
COVID-19
a pandemic. The
COVID-19
pandemic has continued to spread throughout the United States and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines,
shelter-in-place
orders, and business limitations and shutdowns. 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 numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures 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. To support the health and well-being of our employees, customers, partners and communities, our employees are working remotely as of August 7, 2020. While such disruptions have not had a material adverse impact on our financial results in the first half of 2020, such disruptions may impact consumer insurance shopping behavior. We are monitoring and managing our operations for the ongoing impact of
COVID-19.
In addition, with many insurance carriers reporting strong profitability as a result of the
COVID-19
pandemic, we believe that carriers will further invest in online customer acquisition to increase their volume of new premiums and that the
COVID-19
pandemic may accelerate the transition from offline to online customer acquisition in the insurance industry.
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.
Shift from indirect to direct distribution channels
We have shifted the majority of our revenue from our indirect channel, consisting of aggregators and media networks, to our direct channel, consisting of carriers and agents. This shift has been an important part of our maturity and evolution. The benefits of direct distribution include improved consumer experience, higher pricing per referral, improved pricing stability, greater revenue predictability, richer data feedback, better performance and stronger relationships with providers and consumers. In 2018, direct distribution accounted for 90% of total revenue. In 2019, direct distribution accounted for 94% of total revenue. In the three and six months ended June 30, 2020, direct distribution accounted for 93% of total revenue.
Expanding consumer traffic
Our success depends in part on the growth of our consumer traffic, as measured by quote requests. We have historically increased consumer traffic to our marketplace by expanding existing advertising channels and adding new channels. 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, which would likely result in a decrease in quote requests from consumers targeted by such advertising, if we believe the revenue associated with such consumer traffic does not result in incremental profit to our business.
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. We have expanded both the number of insurance providers and the spend per provider on our platform. While not a factor in our historical increases in revenue per quote request, we believe we have an opportunity to increase the number of referrals per quote request while increasing the bind rate per quote request, which would allow us to increase our revenue at low incremental cost.
Revenue per quote request
We seek to increase our revenue per quote request by attaining higher insurance provider bids and by increasing the number of referrals per quote request. Insurance provider bids are influenced by competition in our marketplace auctions, the performance of our consumer referrals for insurance providers relative to other consumer acquisition channels, as well as by market conditions, insurance provider budgets and insurance providers’ new customer acquisition targets. Increases in revenue per quote request allow us to increase advertising and consumer traffic to our marketplace while maintaining or increasing profitability. We believe revenue per quote request will increase in the long term, but decrease in the near term.
 
18

Cost per quote request
We seek to efficiently acquire consumers by increasing the effectiveness of our consumer advertising and insurance marketplace. Cost per quote request is influenced by the cost of advertising and the conversion rate of marketplace visitors who request an insurance quote. While we expect to minimize cost per quote request over the long term, we may incur increased cost per quote request in order to achieve profitability at relative volumes of quote requests and revenue per quote request.
Key Business Metrics
We regularly review a number of metrics, including United States generally accepted accounting principles, or 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.
Quote Requests
Quote requests are consumer-submitted website forms that contain the data required to provide an insurance quote, quote requests we receive through offline channels such as telephone calls and quote requests submitted directly to third-party partners. As we attract more consumers to our platform and they complete quote requests, we are able to refer them to our insurance provider customers, selling more referrals while also collecting data, which we use to improve user experience, conversion rates and, we believe, consumer satisfaction.
Variable Marketing Margin
We define variable marketing margin, or VMM, as revenue, as reported in our consolidated statements of operations and comprehensive income (loss), less advertising costs (a component of sales and marketing expense, as reported in our statements of operations and comprehensive income (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.
Adjusted EBITDA
We define adjusted EBITDA as net income (loss), adjusted to exclude: stock-based compensation expense, depreciation and amortization expense, 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”.
Key Components of Our Results of Operations
Revenue
We generate our revenue 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 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.
 
19

We recognize revenue from consumer referrals at the time of delivery. Our revenue is comprised of consumer referral fees from the automotive and other insurance verticals, which includes home and renters, life, health and commercial insurance verticals, as follows:
 
    
Three Months Ended

June 30,
    
Six Months Ended

June 30,
 
    
2020
    
2019
    
2020
    
2019
 
     (in thousands)      (in thousands)  
Automotive
   $ 64,594        49,788      $ 132,235      $ 94,802  
Other
     13,708        5,879        27,431        13,098  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total Revenue
   $ 78,302      $ 55,667      $ 159,666      $ 107,900  
  
 
 
    
 
 
    
 
 
    
 
 
 
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.
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. Advertising expenditures consist of variable costs that are related to attracting consumers to our marketplace, generating consumer quote requests, promoting our marketplace to carriers and agents, and increasing downloads of our social safe-driving mobile app EverDrive. In November 2019, we announced that we would no longer support EverDrive. 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, but decrease in the longer term 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 incur the costs of compliance associated with being a publicly traded company, including legal, audit, insurance and consulting fees.
Other Income
Other income consists of interest income and other income. Interest income consists of interest earned on invested cash balances. Other income consists of miscellaneous income unrelated to our core operations.
 
20

Income Taxes
We have not recorded income tax benefits for the net losses we have incurred in the three or six months ended June 30, 2020 and 2019 or for our research and development tax credits generated, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. As of December 31, 2019, we had federal net operating loss carryforwards of $31.1 million, which may be available to offset future taxable income, of which $9.0 million of the total net operating loss carryforwards expire at various dates beginning in 2029, while the remaining $22.1 million do not expire but may be limited in their usage to an annual deduction equal to 80% of annual taxable income. As of December 31, 2019, we had state net operating loss carryforwards of $25.8 million, which may be available to offset future taxable income and expire at various dates beginning in 2027. As of December 31, 2019, we also had federal and state research and development tax credit carryforwards of $3.5 million and $1.9 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2030 and 2029, respectively. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
Non-GAAP Financial
Measure
To supplement our 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.
Adjusted EBITDA
. We define adjusted EBITDA as our net income (loss), excluding the impact of stock-based compensation expense; depreciation and amortization expense; 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 items 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 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.
 
21

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,
 
    
2020
    
2019
    
2020
   
2019
 
     (in thousands)      (in thousands)  
Net loss
   $ (2,808    $ (1,974    $ (4,250   $ (6,356
Stock-based compensation
     6,250        3,238        10,790       5,988  
Depreciation and amortization
     594        524        1,443       1,005  
Interest income
     (47      (184      (158     (368
  
 
 
    
 
 
    
 
 
   
 
 
 
Adjusted EBITDA
   $ 3,989      $ 1,604      $ 7,825     $ 269  
  
 
 
    
 
 
    
 
 
   
 
 
 
Results of Operations
Comparison of the Three and Six Months Ended June 30, 2020 and 2019
The following table sets forth our results of operations for the periods shown:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
        2020        
   
        2019        
   
        2020        
   
        2019        
 
    (in thousands)     (in thousands)  
Statement of Operations Data:
       
Revenue(1)
  $ 78,302     $ 55,667     $ 159,666     $ 107,900  
 
 
 
   
 
 
   
 
 
   
 
 
 
Cost and operating expenses(2):
       
Cost of revenue
    4,977       3,504       10,312       7,170  
Sales and marketing
    64,561       45,524       131,065       90,146  
Research and development
    6,966       4,404       13,425       9,089  
General and administrative
    4,754       4,481       9,473       8,307  
 
 
 
   
 
 
   
 
 
   
 
 
 
Total cost and operating expenses
    81,258       57,913       164,275       114,712  
 
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
    (2,956     (2,246     (4,609     (6,812
 
 
 
   
 
 
   
 
 
   
 
 
 
Other income:
       
Interest income
    47       184       158       368  
Other income
    101       88       201       88  
 
 
 
   
 
 
   
 
 
   
 
 
 
Total other income
    148       272       359       456  
 
 
 
   
 
 
   
 
 
   
 
 
 
Net loss
  $ (2,808   $ (1,974   $ (4,250   $ (6,356
 
 
 
   
 
 
   
 
 
   
 
 
 
Other Financial and Operational Data:
       
Quote requests
    6,777       4,519       14,169       8,632  
Variable marketing margin
  $ 23,478     $ 16,702     $ 47,293     $ 30,568  
Adjusted EBITDA(3)
  $ 3,989     $ 1,604     $ 7,825     $ 269  
 
(1)
Comprised of revenue from the following distribution channels:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
        2020        
   
        2019        
   
        2020        
   
        2019        
 
Direct channels
    93     93     93     93
Indirect channels
    7     7     7     7
 
 
 
   
 
 
   
 
 
   
 
 
 
    100     100     100     100
 
 
 
   
 
 
   
 
 
   
 
 
 
 
22

(2)
Includes stock-based compensation expense as follows:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
        2020        
   
        2019        
   
        2020        
   
        2019        
 
    (in thousands)     (in thousands)  
Cost of revenue
  $ 88     $ 87     $ 142     $ 87  
Sales and marketing
    2,547       891       4,242       1,685  
Research and development
    1,862       979       3,138       1,853  
General and administrative
    1,753       1,281       3,268       2,363  
 
 
 
   
 
 
   
 
 
   
 
 
 
  $ 6,250     $ 3,238     $ 10,790     $ 5,988  
 
 
 
   
 
 
   
 
 
   
 
 
 
 
(3)
See
“—Non-GAAP
Financial Measure” for information regarding our use of adjusted EBITDA and a reconciliation of such measure to the comparable GAAP financial measure.
Revenue:
 
    
Three Months Ended June 30,
    
Change
   
Six Months Ended June 30,
    
Change
 
    
        2020        
    
        2019        
    
Amount
    
%
   
        2020        
    
        2019        
    
Amount
    
%
 
     (dollars in thousands)     (dollars in thousands)  
Revenue
   $ 78,302      $ 55,667      $ 22,635        40.7   $ 159,666      $ 107,900      $ 51,766        48.0
The increase in revenue in the three months ended June 30, 2020 was due to an increase of $14.8 million and $7.8 million from our automotive and other insurance marketplace verticals, respectively. The increase in revenue in the six months ended June 30, 2020 was due to an increase of $37.4 million and $14.3 million from our automotive and other insurance marketplace verticals, respectively. The increase in revenue from our verticals was primarily due to an increase in quote requests resulting from increased advertising to attract consumers, partially offset by a decline in revenue per quote request in our other insurance marketplace verticals.
Cost of Revenue
 
    
Three Months Ended June 30,
   
Change
   
Six Months Ended June 30,
   
Change
 
    
        2020        
   
        2019        
   
Amount
    
%
   
        2020        
   
        2019        
   
Amount
    
%
 
     (dollars in thousands)     (dollars in thousands)  
Cost of revenue
   $ 4,977     $ 3,504     $ 1,473        42.0   $ 10,312     $ 7,170     $ 3,142        43.8
Percentage of revenue
     6.4     6.3          6.5     6.6     
 
Cost of revenue increased in the three and six months ended June 30, 2020 primarily due to increased third-party call center costs of $0.5 million and $1.2 million, respectively, due primarily to increased volume of call referrals and to increased hosting costs of $0.5 million and $0.6 million, respectively. Technical services also increased by $0.6 million in the six months ended June 30, 2020 due primarily to increased volume of consumer referrals. Depreciation and amortization expense also increased by $0.1 million and $0.5 million, respectively, in the three and six months ended June 30, 2020.
Sales and Marketing
 
    
Three Months Ended June 30,
   
Change
   
Six Months Ended June 30,
   
Change
 
    
        2020        
   
        2019        
   
Amount
    
%
   
        2020        
   
        2019        
   
Amount
    
%
 
     (dollars in thousands)     (dollars in thousands)  
Sales and marketing expense
   $ 64,561     $ 45,524     $ 19,037        41.8   $ 131,065     $ 90,146     $ 40,919        45.4
Percentage of revenue
     82.5     81.8          82.1     83.5     
 
23

Sales and marketing expenses increased in the three and six months ended June 30, 2020 primarily due to an increase in advertising expenditures of $15.9 million and $35.0 million, respectively, and an increase in personnel-related costs of $2.6 million and $4.5 million, respectively. Personnel-related costs for the three months ended June 30, 2020 and 2019 included stock-based compensation expense of $2.5 million and $0.9 million, respectively. Personnel-related costs for the six months ended June 30, 2020 and 2019 included stock-based compensation expense of $4.2 million and $1.7 million, respectively.
Research and Development
 
    
Three Months Ended June 30,
   
Change
   
Six Months Ended June 30,
   
Change
 
    
        2020        
   
        2019        
   
Amount
    
%
   
        2020        
   
        2019        
   
Amount
    
%
 
     (dollars in thousands)     (dollars in thousands)  
Research and development expense
   $ 6,966     $ 4,404     $ 2,562        58.2   $ 13,425     $ 9,089     $ 4,336        47.7
Percentage of revenue
     8.9     7.9          8.4     8.4     
Research and development expenses in the three and six months ended June 30, 2020 increased primarily due to an increase in personnel-related costs as a result of our continued hiring of research and development employees and a shift towards hiring more senior personnel, to further develop and enhance our marketplace websites and technology. Personnel-related costs for the three months ended June 30, 2020 and 2019 included stock-based compensation expense of $1.9 million and $1.0 million, respectively. Personnel-related costs for the six months ended June 30, 2020 and 2019 included stock-based compensation expense of $3.1 million and $1.9 million, respectively.
General and Administrative
 
    
Three Months Ended June 30,
   
Change
   
Six Months Ended June 30,
   
Change
 
    
        2020        
   
        2019        
   
Amount
    
%
   
        2020        
   
        2019        
   
Amount
    
%
 
     (dollars in thousands)     (dollars in thousands)  
General and administrative expense
   $ 4,754     $ 4,481     $ 273        6.1   $ 9,473     $ 8,307     $ 1,166        14.0
Percentage of revenue
     6.1     8.0          5.9     7.7     
General and administrative expenses increased in the three and six months ended June 30, 2020 primarily due to an increase in personnel-related costs of $0.5 million and $1.4 million, respectively, partially offset by a decrease in our provision for bad debt of $0.4 million in each period. Personnel-related costs for the three months ended June 30, 2020 and 2019 included stock-based compensation expense of $1.8 million and $1.3 million, respectively. Personnel-related costs for the six months ended June 30, 2020 and 2019 included stock-based compensation expense of $3.3 million and $2.4 million, respectively.
Other Income
Interest income was less than $0.1 million in the three months ended June 30, 2020, compared to $0.2 million in the three months ended June 30, 2019 and was $0.2 million in the six months ended June 30, 2020 compared to $0.4 million in the six months ended June 30, 2019. Other income included sublease income of $0.1 million in each of the three months ended June 30, 2020 and 2019 and $0.2 million and $0.1 million in the six months ended June 30, 2020 and 2019, respectively.
Quote Requests
 
    
Three Months Ended June 30,
    
Change
   
Six Months Ended June 30,
    
Change
 
    
        2020        
    
        2019        
    
Amount
    
%
   
        2020        
    
        2019        
    
Amount
    
%
 
     (in thousands except percentages)     (dollars in thousands)  
Quote requests
     6,777        4,519        2,258        50.0     14,169        8,632        5,537        64.1
Quote requests increased for the three and six months ended June 30, 2020 due to increased spending on advertising and improvements in our traffic acquisition.
 
24

Variable Marketing Margin
 
   
Three Months Ended

June 30,
   
Change
   
Six Months Ended

June 30,
   
Change
 
   
        2020        
   
        2019        
   
Amount
   
%
   
        2020        
   
        2019        
   
Amount
   
%
 
    (dollars in thousands)     (dollars in thousands)  
Revenue
  $ 78,302     $ 55,667     $ 22,635       40.7   $ 159,666     $ 107,900     $ 51,766       48.0
Less: total advertising expense (a component of sales and marketing expense)
    54,824       38,965           112,373       77,332      
 
 
 
   
 
 
       
 
 
   
 
 
     
Variable marketing margin
  $ 23,478     $ 16,702     $ 6,776       40.6   $ 47,293     $ 30,568     $ 16,725       54.7
 
 
 
   
 
 
       
 
 
   
 
 
     
Percentage of revenue
    30.0     30.0         29.6     28.3    
The increase in variable marketing margin was due primarily to an increased volume of quote requests.
Liquidity and Capital Resources
Since our inception, we have primarily funded our operations through issuances of shares of redeemable convertible preferred stock and common stock, debt, including a revolving line of credit with Western Alliance Bank, which we renewed in August 2020, cash flows from operations and proceeds from our IPO. As of June 30, 2020, we had cash and cash equivalents of $54.4 million.
Borrowings under our revolving line of credit are collateralized by substantially all of our assets and property. Additionally, we are subject under our revolving line of credit to affirmative and negative covenants to which we will remain subject until maturity. These 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, we are required to maintain a minimum asset coverage ratio of 1.5 to 1 calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit. Events of default under our revolving line of credit include failure to make payments when due, insolvency events, failure to comply with covenants and material adverse events with respect to us. In the event of a default, the lender may declare all borrowings immediately due and payable.
Since our inception, we have incurred operating losses and may continue to incur losses in the foreseeable future. We believe our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months. 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, 2020 and 2019:
 
    
Six Months Ended June 30,
 
    
        2020        
    
        2019        
 
     (in thousands)  
Net cash provided by (used in) operating activities
   $ 7,908      $ (3,842
Net cash used in investing activities
     (1,871      (1,552
Net cash provided by financing activities
     2,318        883  
  
 
 
    
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
   $ 8,355      $ (4,511
  
 
 
    
 
 
 
Net cash provided by (used in) operating activities
During the six months ended June 30, 2020, operating activities provided $7.9 million of cash, which primarily resulted from the offset of net
non-cash
charges of $12.3 million, which more than offset our net loss of $4.3 million. Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2020 was $0.1 million and consisted primarily of a $4.3 million increase in accounts receivable, partially offset by a $3.6 million decrease in prepaid expenses and other current assets and a $0.4 million increase in other long-term liabilities.
 
25

During the six months ended June 30, 2019, operating activities used $3.8 million of cash, primarily resulting from our net loss of $6.4 million and net cash used by changes in our operating assets and liabilities of $4.9 million, partially offset by
net non-cash charges
of $7.4 million. Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2019 consisted primarily of a $7.1 million increase in accounts receivable, partially offset by a $1.9 million increase in accounts payable and accrued expenses and other current liabilities and a $0.3 million increase in deferred revenue.
Changes in accounts receivable, accounts payable and accrued expenses and other current liabilities in both periods were generally due to growth in our business, timing of customer and vendor invoicing and payments.
Net cash used in investing activities
Net cash used in investing activities was $1.9 million and $1.6 million for the six months ended June 30, 2020 and 2019, respectively, due to the acquisition of property and equipment, which included the purchase of computer equipment for our operations and employees, equipment, furniture and leasehold improvements and the capitalization of certain software development costs.
Net cash provided by financing activities
During the six months ended June 30, 2020 and 2019, net cash provided by financing activities was $2.3 million and $0.9 million, respectively, consisting of proceeds received from the exercise of common stock options.
Critical Accounting Policies and Significant Judgments and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Significant estimates and assumptions reflected in our condensed consolidated financial statements include, but are not limited to, revenue recognition and collectability of accounts receivable, the expensing and capitalization of website and software development costs, the valuation of stock-based awards and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. Due to the
COVID-19
pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of August 7, 2020, the date of issuance of these consolidated financial statements. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
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, 2019, on file with the Securities and Exchange Commission.
Off-Balance
Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance
sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company, as defined in
Rule 12b-2 under
the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form
10-Q.
The term “disclosure controls and procedures,” as defined in Rules
13a-15(e)
and
15d-15(e)
under the Exchange Act, means controls and other
 
26

procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form
10-Q,
our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
27

PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
On February 15, 2019, Sean F. Townsend, a purported holder of our common stock, filed a civil action in the Supreme Court for the State of New York against us, our chief executive officer, our chief financial officer, our general counsel, our directors, and the underwriters for our IPO, captioned
 Townsend v. EverQuote, Inc. et
 al.
, Index No. 650997-2019. On February 26, 2019, Mark Townsend, a second purported holder of our common stock, filed an identical civil action in the Supreme Court for the State of New York against the same defendants, captioned
 Townsend v. EverQuote, Inc. et al.
, Index No. 651177-2019. The plaintiffs alleged claims for violations of Sections 11, 12(a), and 15 of the Securities Act of 1933, on behalf of a purported class of all persons or entities who purchased or otherwise acquired our common stock pursuant or traceable to the Registration Statement issued for our IPO. Those claims generally challenged as false or misleading certain of our disclosures about our quote request volume. The plaintiffs sought, on behalf of themselves and the purported class, damages, costs and expenses of litigation, and rescission, disgorgement, or other equitable relief.
The cases were both later assigned to the Commercial Division, and the court consolidated them on May 23, 2019 in a case captioned
In re EverQuote Securities Litigation
, Index No. 651177-2019.
On June 24, 2019, the plaintiffs filed a consolidated amended complaint (the “amended complaint”). The amended complaint again asserts claims for violations of Sections 11, 12(a) and 15 of the Securities Act of 1933, on behalf of a purported class of all those who purchased our common stock pursuant and/or traceable to the Registration Statement for our IPO. Those claims generally challenge as false or misleading certain of our disclosures about our quote request volume and the relationship between quote requests and payments from insurance providers; plaintiffs also claim that our disclosures omitted material information relating to these same topics. The plaintiffs seek, on behalf of themselves and the purported class, damages, costs and expenses of litigation, rescission, and other equitable relief.
On August 5, 2019, we filed a motion to dismiss the amended complaint. Plaintiffs filed a memorandum in opposition to our motion to dismiss on September 23, 2019 and we filed a reply memorandum on October 23, 2019.
After filing the motion to dismiss the plaintiffs’ consolidated amended complaint, we participated in a mediation and agreed to pay $4,750,000 in settlement of all of plaintiffs’ purported class claims. The parties thereafter on February 6, 2020 filed a Stipulation of Settlement settling the litigation in principle, subject to final approval of the Court. On June 11, 2020, the Court entered a final order approving the settlement and terminating the case.
On April 29, 2020, EverQuote was named as a defendant in a putative, statewide (Colorado) class action lawsuit filed in U.S. District Court for the District of Colorado captioned Scott M. Runyon v EverQuote, Inc. The complaint alleges that the Company violated the Telephone Consumer Protection Act by making unsolicited marketing calls to his cellphone and those of other Colorado residents using an automatic telephone dialing system without prior express consent. Plaintiff seeks, among other forms of relief, statutory damages of $500 to $1,500 for each alleged violation and an order enjoining future violations. Plaintiff also asserts an individual claim against the Company for invasion of privacy arising out of the same calls to his cellphone and a claim for unspecified damages. On July 23, 2020, the U.S. District Court granted a stay pending the Supreme Court’s decision in Facebook Inc. v. Duguid, Case
No. 19-511. The
Supreme Court’s decision in that case is not expected for
8-12
months and may moot Plaintiff’s Telephone Consumer Protection Act claim and putative class action. We believe these claims lack merit, and we intend to vigorously defend the Company against them.
On July 30, 2020, EverQuote was named as a defendant in a putative, nationwide class action lawsuit filed in U.S. District Court for the Western District of Pennsylvania captioned Carol Scavo v. EverQuote, Inc. The complaint alleges that the Company violated the Telephone Consumer Protection Act by sending unsolicited text message advertisements to her cellphone and those of other United States residents using an automatic telephone dialing system without prior express consent. Plaintiff seeks, among other forms of relief, statutory damages of $500 to $1,500 for each alleged violation and an order enjoining future violations. No substantive proceedings have occurred in the case to date. We believe these claims lack merit, and we intend to vigorously defend the Company against them.
From time to time, we may be subject to additional legal proceedings and claims that arise in the ordinary course of our business activities. Regardless of the outcome, litigation can have a material adverse effect on us because of defense and settlement costs, diversion of management resources, and other factors.
 
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Item 1A. Risk Factors.
Investing in our Class A common stock involves a high degree of risk. Certain factors may have a material adverse effect on our business, financial condition and results of operation. You should carefully consider the risks and uncertainties described below, together with all of the other information included in this Quarterly Report on Form
10-Q,
including our condensed consolidated financial statements and the related notes, and in our other filings with the SEC. Our business, financial condition, operating results, cash flow and prospects could be materially and adversely affected by any of these risks or uncertainties. In that case, the trading price of our Class A common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
Our business is dependent on our relationships with insurance providers with no long-term contractual commitments. If insurance providers stop purchasing consumer referrals from us, decrease the amount they are willing to spend per referral, or if we are unable to establish and maintain new relationships with insurance providers, our business, results of operations and financial condition could be materially adversely affected.
A substantial majority of our revenue is derived from sales of consumer referrals to insurance providers, including both insurance carriers and agents. Our relationships with insurance providers are dependent on our ability to deliver quality referrals at attractive volumes and prices. If insurance providers are not able to acquire their preferred referrals in our marketplace, they may stop buying referrals from us, or may decrease the amount they are willing to spend for referrals. Our agreements with insurance providers are short-term agreements, and insurance providers can stop participating in our marketplace at any time with no notice. As a result, we cannot guarantee that insurance providers will continue to work with us, or, if they do, the number of referrals they will purchase from us, the price they will pay per referral or their total spend with us. In addition, we may not be able to attract new insurance providers to our marketplace or increase the amount of revenue we earn from insurance providers over time.
If we are unable to maintain existing relationships with insurance providers in our marketplace, or unable to add new insurance providers, we may be unable to offer our consumers the shopping experience they expect. This deficiency could reduce consumers’ confidence in our services, making us less popular with consumers. As a result, consumers could cease to use us, or use us at a decreasing rate.
In addition, we derive revenue as a result of subsidy payments made by carriers to us on behalf of their agents. Our insurance carrier customers often provide subsidies for the benefit of agents to offset agents’ costs in connection with selling insurance policies from our referrals. Our carrier customers have no obligation to provide such subsidies and may reduce the amount of such subsidies or cease providing them at any time. If our carrier customers were to reduce the amounts of or cease providing such subsidies, our insurance agent customers may terminate or reduce the extent of their relationships with us. Because our insurance provider customers can stop buying from us, or spend less with us, at any time and our insurance carrier customers may cease providing subsidies to our insurance agent customers at any time, our business, results of operations and financial condition could be materially adversely affected with little to no notice.
We depend on search engines, display advertising, social media, email, content-based online advertising and other online sources to attract consumers to our websites or marketplace, and if we are unable to cost-effectively attract consumers and convert them into quote requests that we can sell to our insurance provider customers, our business and financial results may be harmed.
Our success depends on our ability to attract online consumers to our websites or marketplace and convert those consumers into quote requests that we can sell to our insurance provider customers. We depend, in part, on search engines, display advertising, social media, email, content-based online advertising and other online sources for our website traffic. We are included in search results as a result of both paid search listings, where we purchase specific search terms that result in the inclusion of our advertisement, and, separately, organic searches that depend upon the content on our sites.
Search engines, social media platforms and other online sources often revise their algorithms and introduce new advertising products. If one or more of the search engines or other online sources on which we rely for website traffic were to modify its general methodology for how it displays our advertisements, resulting in fewer consumers clicking through to our websites, our business could suffer. In addition, if our online display advertisements are no longer effective or are not able to reach certain consumers due to consumers’
use of ad-blocking software, our
business could suffer.
If one or more of the search engines or other online sources on which we rely for purchased listings or visitor traffic modifies or terminates its relationship with us, our expenses could rise, we could lose consumer traffic to our websites, and a decrease in consumer traffic to our websites, for any reason, could have a material adverse effect on our business, financial condition and results of operations. Consumer traffic to our websites and the volume of quote requests generated by consumer traffic varies and can decline from to time. For example, quote requests decreased from 3,457,000 in the three months ended March 31, 2018 to 3,018,000 in the three months ended June 30, 2018, increased to 3,044,000 in the three months ended September 30, 2018, increased to 3,284,000 in the three months ended December 31, 2018, increased to 4,113,000 in the three months ended March 31, 2019, increased to 4,519,000 in the three months ended June 30, 2019, increased to 5,516,000 in the three months ended September 30, 2019 and increased to
 
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5,863,000 in the three months ended December 31, 2019. Quote requests increased to 7,392,000 in the three months ended March 31, 2020 and decreased to 6,777,000 in the three months ended June 30, 2020. Additionally, even if we are successful in generating traffic to our websites, we may not be able to convert these visits into consumer quote requests.
We currently compete with numerous other online marketing companies, and we expect that competition will intensify. Some of these existing competitors may have more capital or complementary products or services than we do, and they may leverage their greater capital or diversification in a manner that adversely affects our competitive position. In addition, other newcomers, including major search engines and content aggregators, may be able to leverage their existing products and services to our disadvantage. We may be forced to expend significant resources to remain competitive with current and potential competitors. If any of our competitors are more successful than we are at attracting and retaining consumers, or if we are unable to effectively convert visits into consumers quote requests, our business, financial condition and results of operations could be materially adversely affected.
The ongoing
COVID-19
pandemic could adversely affect our business, results of operations and financial condition.
In March 2020, the World Health Organization declared the outbreak of
COVID-19
a pandemic. The
COVID-19
pandemic has continued to spread throughout the United States and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines,
shelter-in-place
orders, and business limitations and shutdowns. As a result, 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 numerous uncertainties, including the duration and severity of the pandemic, containment measures and the potential economic impact on our insurance provider customers and our users.
To support the health and well-being of our employees and communities, our employees began working remotely starting in March 2020. Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our product and business development efforts as well as other activities, which could have an adverse effect on our operations. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions. The disruptions to our operations caused by
COVID-19
may result in inefficiencies, delays and additional costs in our sales and marketing efforts that we cannot fully mitigate through remote or other alternative work arrangements. We are also unsure what additional actions our carrier and agent customers, as well as our users, may take in response to coronavirus
(COVID-19).
For example, as carriers and agents shifted their workforces from offices to remote locations, we saw a decrease in demand while they relocated these operations. In addition, we are unable to predict how user behavior will change in response to
COVID-19. For
example, we believe that since
shelter-in-place
orders went into effect that consumers are performing less searches for insurance online.
The degree to
which COVID-19 impacts
our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, other actions taken by governments, businesses, and individuals in response to the virus and resulting economic disruption, and how quickly and to what extent normal economic and operating conditions can resume. We are similarly unable to predict the degree to which the pandemic will impact our users, insurance provider customers, suppliers, vendors, and other partners, and their financial conditions, but a material effect on these parties could also adversely affect us. The impact of
COVID-19
could also exacerbate other risks discussed in this Risk Factors section and this report, which could in turn have a material adverse effect on us. Developments related to
COVID-19
have been rapidly changing, and additional impacts and risks may arise that we are not currently aware of or to which we may not be able to appropriately respond.
Although we expect that current cash and cash equivalent balances and cash flows generated from operations will be sufficient to meet our working capital needs and other capital and liquidity requirements for at least the next 12 months, if our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted.
We compete with other media for advertising spend from our insurance provider customers, and if we are unable to maintain or increase our share of the advertising spend of our insurance provider customers, our business could be harmed.
We compete for insurance provider advertising spend with traditional offline media such as television, billboards, radio, magazines and newspapers, as well as online sources such as websites, social media and websites dedicated to providing multiple quote insurance information. Our ability to attract and retain insurance provider customers, and to generate advertising revenue from them, depends on a number of factors, including:
 
   
the ability of our insurance provider customers to earn an attractive return on investment from their spending with us;
 
   
our ability to increase the number of consumers using our marketplace;
 
   
our ability to compete effectively with other media for advertising spending; and
 
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our ability to keep pace with changes in technology and the practices and offerings of our competitors.
We may not succeed in retaining or capturing a greater share of our insurance provider customers’ advertising spending compared to alternative channels. If our current insurance provider customers reduce or end their advertising spending with us and we are unable to increase the spending of our other insurance provider customers or attract new insurance provider customers, our revenue and business and financial results would be materially adversely affected.
In addition, insurance provider advertising spend remains concentrated in traditional offline media channels. Some of our current or potential insurance provider customers have little or no experience using the internet for advertising and marketing purposes and have allocated only limited portions of their advertising and marketing budgets to the internet. The adoption of online marketing may require a cultural shift among insurance providers as well as their acceptance of a new way of conducting business, exchanging information and evaluating new advertising and marketing technologies and services. This shift may not happen at all or at the rate we expect, in which case our business could suffer. Furthermore, we cannot assure you that the market for online marketing services will continue to grow. If the market for online marketing services fails to continue to develop or develops more slowly than we anticipate, the success of our business may be limited, and our revenue may decrease.
If consumers do not find value in our services or do not like the consumer experience on our platform, the number of referrals in our marketplace may decline, and our business, results of operations and financial condition could be materially adversely affected.
If we fail to provide a compelling insurance shopping experience to our consumers both through our web and mobile platforms, the number of consumer referrals purchased from us will decline, and insurance providers may terminate their relationships with us or reduce their spending with us. If insurance providers stop offering insurance in our marketplace, we may not be able to maintain and grow our consumer traffic, which may cause other insurance providers to stop using our marketplace. We believe that our ability to provide a compelling insurance shopping experience, both on the web and through mobile devices, is subject to a number of factors, including:
 
   
our ability to maintain a marketplace for consumers and insurance providers that efficiently captures user intent and effectively delivers relevant quotes to each individual insurance buyer;
 
   
our ability to continue to innovate and improve our marketplace;
 
   
our ability to launch new vertical offerings that are effective and have a high degree of consumer and insurance provider engagement;
 
   
our ability to maintain the compatibility of our mobile applications with operating systems, such as iOS and Android, and with popular mobile devices running such operating systems; and
 
   
our ability to access a sufficient amount of data to enable us to provide relevant quotes to consumers.
If the use of our marketplace declines or does not continue to grow, our business and operating results would be harmed.
We rely on the data provided to us by consumers and insurance providers to improve our product and service offerings, and if we are unable to maintain or grow such data we may be unable to provide consumers with a shopping experience that is relevant, efficient and effective, which could adversely affect our business.
Our business relies on the data provided to us by consumers and insurance providers using our marketplace. The large amount of information we use in operating our marketplace is critical to the insurance shopping experience we provide for consumers. If we are unable to maintain or grow the data provided to us, the value that we provide to consumers and insurance providers using our marketplace may be limited. In addition, the quality, accuracy and timeliness of this information may suffer, which may lead to a negative shopping experience for consumers using our marketplace and could materially adversely affect our business and financial results.
A significant portion of our revenue in recent periods was derived from one customer, and our results of operations could be adversely affected and stockholder value harmed if we lose business from this customer.
Sales to Progressive Casualty Insurance Company accounted for 21% of our revenue for the year ended December 31, 2019 and 21% of our revenue for the six months ended June 30, 2020. In addition, sales to Government Employees Insurance Company accounted for just under 10% of revenue for the year ended December 31, 2019. These customers made purchases from us under short-term agreements and may decrease or cease doing business with us at any time with no notice. As a result, we have no assurances that these customers will continue to purchase from us at their historical levels or at all. If either or both of these customers were to reduce its level of purchases from us or discontinue its relationships with us, the loss could have a material adverse effect on our results of operations in both the short and long term.
 
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If our emails are not delivered and accepted or are routed by email providers less favorably than other emails, or if our sites are not accessible or treated disadvantageously by internet service providers, our business may be substantially harmed.
If email providers or internet service providers, or ISPs, implement new or more restrictive email or content delivery or accessibility policies, including with respect to net neutrality, it may become more difficult to deliver emails to consumers or for consumers to access our websites and services. For example, certain email providers, including Google, may categorize our emails as “promotional,” and these emails may be directed to an alternate, and less readily accessible, section of a consumer’s inbox. If email providers materially limit or halt the delivery of our emails, or if we fail to deliver emails to consumers in a manner compatible with email providers’ email handling or authentication technologies, our ability to contact consumers through email could be significantly restricted. In addition, if we are placed on “spam” lists or lists of entities that have been involved in sending unwanted, unsolicited emails, our operating results and financial condition could be substantially harmed. Further, if ISPs prioritize or provide superior access to our competitors’ content, our business and results of operations may be adversely affected.
Insurance providers who use our marketplace can offer products and services outside of our marketplace or obtain similar services from our competitors.
Because we do not have exclusive relationships with insurance providers, consumers may obtain quotes and purchase insurance policies from them without having to use our marketplace. Insurance providers can attract consumers directly through their own marketing campaigns or other traditional methods of distribution, such as referral arrangements, physical storefront operations or broker agreements. Insurance providers also may offer quotes to prospective customers online directly, through one or more online competitors of our business, or both. If our insurance provider customers determine to compete directly with us or choose to favor one or more of our competitors, they could cease providing us with quote information and terminate any direct interactions we have with their online workflows, customers relationship management systems and internal quoting platforms, which would reduce the breadt