10-Q 1 d343994d10q.htm 10-Q 10-Q
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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 March 31, 2022
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 April 12, 2022, the registrant had 25,204,930 shares of Class A common stock, $0.001 par value per share, issued and outstanding and 6,169,774 shares of Class B common stock, $0.001 par value per share, issued and outstanding.
 
 
 

Table of Contents
 
 
  
 
  
Page
 
PART I.
  
  
 
5
 
Item 1.
  
  
 
5
 
  
  
 
5
 
  
  
 
6
 
  
  
 
7
 
  
  
 
8
 
  
  
 
9
 
Item 2.
  
  
 
21
 
Item 3.
  
  
 
30
 
Item 4.
  
  
 
30
 
PART II.
  
  
 
32
 
Item 1.
  
  
 
32
 
Item 1A.
  
  
 
32
 
Item 2.
  
  
 
56
 
Item 6.
  
  
 
57
 
  
 
58
 
 
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 coronavirus
(COVID-19)
pandemic 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 liquidity 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. 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.
Summary of Risk Factors
In addition to the other information in this Quarterly Report on Form
10-Q,
the following risk factors should be considered carefully in evaluating our company and our business. A summary of the principal factors that create risk in investing in our securities and might cause actual results to differ is set forth below:
 
   
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;
 
   
our ability to attract and retain consumers and insurance providers using our marketplace;
 
   
our dependence on our relationships with insurance providers with no long-term contracts;
 
   
our reliance on a small number of insurance providers for a significant portion of our revenue;
 
   
our dependence on revenue from automotive insurance providers for a significant portion of our revenue and exposure to risks related to the automotive insurance industry;
 
   
our ability to attract consumers searching for insurance, including through search engines, display advertising, email and social media;
 
   
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 ability to properly collect, process, store, share, disclose and use consumer information and other data;
 
   
our reliance on our third-party service providers;
 
   
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 increased reliance on acquiring quote requests from third-party sources;
 
   
our ability to stay abreast of and comply with new or modified laws and regulations that currently apply or become applicable to our business;
 
3

   
the material weaknesses in our internal control over financial reporting that we and our independent registered public accounting firm have identified which, if not remediated, may cause us to not be able to accurately or timely report our financial condition or results of operations;
 
   
failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud; and
 
   
the future trading prices of our Class A common stock.
 
4

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)

 
 
  
March 31, 2022
 
 
December 31, 2021
 
Assets
  
 
Current assets:
                
Cash and cash equivalents
  
$
46,128
 
 
$
34,851
 
Accounts receivable, net
  
 
46,557
 
 
 
35,659
 
Prepaid expenses and other current assets
  
 
14,319
 
 
 
14,184
 
    
 
 
   
 
 
 
Total current assets
  
 
107,004
 
 
 
84,694
 
Property and equipment, net
  
 
5,742
 
 
 
5,796
 
Goodwill
  
 
21,501
 
 
 
21,501
 
Acquired intangible assets, net
  
 
9,661
 
 
 
10,229
 
Operating lease
right-of-use
assets
  
 
7,213
 
 
 
7,291
 
Other assets
  
 
19,407
 
 
 
14,096
 
    
 
 
   
 
 
 
Total assets
  
$
170,528
 
 
$
143,607
 
    
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
                
Current liabilities:
                
Accounts payable
  
$
43,104
 
 
$
29,599
 
Accrued expenses and other current liabilities
  
 
10,246
 
 
 
13,015
 
Deferred revenue
  
 
1,984
 
 
 
2,096
 
Operating lease liabilities
  
 
2,852
 
 
 
2,696
 
    
 
 
   
 
 
 
Total current liabilities
  
 
58,186
 
 
 
47,406
 
Operating lease liabilities, net of current portion
  
 
5,279
 
 
 
5,531
 
Other long-term liabilities
  
 
4,621
 
 
 
5,545
 
  
 
 
 
 
 
 
 
Total liabilities
  
 
68,086
 
 
 
58,482
 
    
 
 
   
 
 
 
Commitments and contingencies (Note 9)
                
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; 24,949,939 shares and 23,544,995 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
  
 
25
 
 
 
24
 
Class B common stock, $0.001 par value; 30,000,000 shares authorized; 6,407,678 shares issued and outstanding at March 31, 2022 and December 31, 2021
  
 
6
 
 
 
6
 
Additional
paid-in
capital
  
 
245,751
 
 
 
222,730
 
Accumulated other comprehensive income
  
 
20
 
 
 
10
 
Accumulated deficit
  
 
(143,360
 
 
(137,645
    
 
 
   
 
 
 
Total stockholders’ equity
  
 
102,442
 
 
 
85,125
 
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
  
$
170,528
 
 
$
143,607
 
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
5

EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share amounts)

 
 
  
Three Months Ended March 31,
 
 
  
2022
 
 
2021
 
Revenue
  
$
110,681
 
 
$
103,822
 
    
 
 
   
 
 
 
Cost and operating expenses:
                
Cost of revenue
  
 
5,984
 
 
 
5,953
 
Sales and marketing
  
 
96,150
 
 
 
87,569
 
Research and development
  
 
8,196
 
 
 
8,573
 
General and administrative
  
 
6,941
 
 
 
5,596
 
Acquisition-related
  
 
(892
 
 
(79
    
 
 
   
 
 
 
Total cost and operating expenses
  
 
116,379
 
 
 
107,612
 
    
 
 
   
 
 
 
Loss from operations
  
 
(5,698
 
 
(3,790
    
 
 
   
 
 
 
Other income (expense):
                
Interest income
  
 
8
 
 
 
14
 
Other expense, net
  
 
(25
 
 
(25
    
 
 
   
 
 
 
Total other expense, net
  
 
(17
 
 
(11
    
 
 
   
 
 
 
Net loss
  
$
(5,715
 
$
(3,801
    
 
 
   
 
 
 
Net loss per share, basic and diluted
  
$
(0.19
 
$
(0.13
    
 
 
   
 
 
 
Weighted average common shares outstanding, basic and diluted
  
 
30,529
 
 
 
28,431
 
    
 
 
   
 
 
 
Comprehensive loss:
                
Net loss
  
$
(5,715
 
$
(3,801
Other comprehensive income:
                
Foreign currency translation adjustment
  
 
10
 
 
 
15
 
    
 
 
   
 
 
 
Comprehensive loss
  
$
(5,705
 
$
(3,786
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
6
EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share amounts)

 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
  
Accumulated
 
 
 
 
 
 
 
 
  
Class A
 
  
Class B
 
 
Additional
 
  
Other
 
 
 
 
 
Total
 
 
  
Common Stock
 
  
Common Stock
 
 
Paid-in
 
  
Comprehensive
 
 
Accumulated
 
 
Stockholders’
 
 
  
Shares
 
  
Amount
 
  
Shares
 
 
Amount
 
 
Capital
 
  
Income
 
 
Deficit
 
 
Equity
 
Balances at December 31, 2021
  
 
23,544,995
 
  
$
24
 
  
 
6,407,678
 
 
$
6
 
 
$
222,730
 
  
$
10
 
 
$
(137,645
 
$
85,125
 
Private placement of common stock
  
 
1,004,016
 
  
 
1
 
  
 
—  
 
 
 
—  
 
 
 
14,999
 
  
 
—  
 
 
 
—  
 
 
 
15,000
 
Issuance of common stock upon exercise of stock options
  
 
92,975
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
558
 
  
 
—  
 
 
 
—  
 
 
 
558
 
Vesting of restricted stock units
  
 
307,953
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
Stock-based compensation expense
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
7,464
 
  
 
—  
 
 
 
—  
 
 
 
7,464
 
Foreign currency translation adjustment
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
10
 
 
 
—  
 
 
 
10
 
Net loss
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
 
 
(5,715
 
 
(5,715
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balances at March 31, 2022
  
 
24,949,939
 
  
$
25
 
  
 
6,407,678
 
 
$
6
 
 
$
245,751
 
  
$
20
 
 
$
(143,360
 
$
102,442
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
                 
                                     
Accumulated
             
    
Class A
    
Class B
   
Additional
    
Other
         
Total
 
    
Common Stock
    
Common Stock
   
Paid-in
    
Comprehensive
   
Accumulated
   
Stockholders’
 
    
Shares
    
Amount
    
Shares
   
Amount
   
Capital
    
Income (Loss)
   
Deficit
   
Equity
 
Balances at December 31, 2020
  
 
20,784,065
 
  
$
21
 
  
 
7,429,502
 
 
$
7
 
 
$
189,172
 
  
$
(7
 
$
(118,211
 
$
70,982
 
Issuance of common stock upon exercise of stock options
  
 
213,317
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
1,272
 
  
 
—  
 
 
 
—  
 
 
 
1,272
 
Vesting of restricted stock units
  
 
332,311
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
Stock-based compensation expense
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
7,520
 
  
 
—  
 
 
 
—  
 
 
 
7,520
 
Transfer of Class B common stock to Class A common stock
  
 
1,021,824
 
  
 
1
 
  
 
(1,021,824
 
 
(1
 
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
Foreign currency translation adjustment
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
15
 
 
 
—  
 
 
 
15
 
Net loss
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
 
 
(3,801
 
 
(3,801
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balances at March 31, 2021
  
 
22,351,517
 
  
$
22
 
  
 
6,407,678
 
 
$
6
 
 
$
197,964
 
  
$
8
 
 
$
(122,012
 
$
75,988
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
7

EVERQUOTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

 
 
  
Three Months Ended March 31,
 
 
  
2022
 
 
2021
 
Cash flows from operating activities:
  
 
Net loss
  
$
(5,715
 
$
(3,801
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                
Depreciation and amortization expense
  
 
1,511
 
 
 
1,174
 
Stock-based compensation expense
  
 
7,530
 
 
 
7,520
 
Change in fair value of contingent consideration liabilities
  
 
(892
 
 
(79
Provision for (recovery of) bad debt
  
 
75
 
 
 
(46
Unrealized foreign currency transaction losses
  
 
7
 
 
 
15
 
Changes in operating assets and liabilities, net of effects from acquisitions:
                
Accounts receivable
  
 
(10,973
 
 
(2,942
Prepaid expenses and other current assets
  
 
(136
 
 
172
 
Operating lease
right-of-use
assets
  
 
645
 
 
 
791
 
Other assets
  
 
(5,561
 
 
(733
Accounts payable
  
 
13,296
 
 
 
(702
Accrued expenses and other current liabilities
  
 
(2,857
 
 
2,810
 
Deferred revenue
  
 
(112
 
 
(57
Operating lease liabilities
  
 
(663
 
 
(638
Other long-term liabilities
  
 
—  
 
 
 
36
 
    
 
 
   
 
 
 
Net cash provided by (used in) operating activities
  
 
(3,845
 
 
3,520
 
    
 
 
   
 
 
 
Cash flows from investing activities:
                
Acquisition of property and equipment, including costs capitalized for development of
internal-use
software
  
 
(681
 
 
(777
    
 
 
   
 
 
 
Net cash used in investing activities
  
 
(681
 
 
(777
    
 
 
   
 
 
 
Cash flows from financing activities:
                
Proceeds from exercise of stock options
  
 
558
 
 
 
1,272
 
Proceeds from private placement of common stock
  
 
15,000
 
 
 
—  
 
    
 
 
   
 
 
 
Net cash provided by financing activities
  
 
15,558
 
 
 
1,272
 
    
 
 
   
 
 
 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
  
 
(5
 
 
1
 
    
 
 
   
 
 
 
Net increase in cash, cash equivalents and restricted cash
  
 
11,027
 
 
 
4,016
 
Cash, cash equivalents and restricted cash at beginning of period
  
 
35,101
 
 
 
43,120
 
    
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period
  
$
46,128
 
 
$
47,136
 
    
 
 
   
 
 
 
Supplemental disclosure of
non-cash
investing and financing information:
                
Acquisition of property and equipment included in accounts payable
  
$
309
 
 
$
—  
 
Operating lease liabilities arising from obtaining
right-of-use
assets
  
$
567
 
 
$
240
 
Reconciliation of cash, cash equivalents and restricted cash:
                
Cash and cash equivalents
  
$
46,128
 
 
$
46,886
 
Restricted cash (included in other assets)
  
 
—  
 
 
 
250
 
    
 
 
   
 
 
 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
  
$
46,128
 
 
$
47,136
 
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
8
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 and health insurance. The Company generates revenue primarily by selling consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States. The Company also generates revenue from commission fees paid by insurance provider customers for insurance policies it sells to consumers.
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 coronavirus
(“COVID-19”)
pandemic. The
COVID-19
pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets. Many governmental authorities have implemented travel bans and restrictions, quarantines,
shelter-in-place
orders, business limitations and shutdowns and other measures to attempt to contain the spread of the virus. Government recommendations and requirements are continuing to change and there remains significant uncertainty as to the breadth and duration of business disruptions related to
COVID-19,
as well as its impact on the global economy and consumer confidence. 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.
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 $5.7 million for the three months ended March 31, 2022 and $19.4 million for the year ended December 31, 2021. As of March 31, 2022, the Company had an accumulated deficit of $143.4 million. As of the issuance date of these condensed consolidated 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 condensed consolidated financial statements, without considering borrowing availability of up to $25.0
 million under the Company’s revolving line of credit. 
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 condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The condensed consolidated balance sheet at December 31, 2021 was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 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 consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form
10-K for
the year ended December 31, 2021 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 March 31, 2022 and results of operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021 have been made. The Company’s results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022 or any other period.
 
9

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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these 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, goodwill and acquired intangible assets, commissions receivable, the contingent consideration liabilities, the valuation of stock-based awards and income taxes. The Company bases its estimates on historical experience, known trends and other market-specific or 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 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 and commissions receivable. The Company maintains its cash and cash equivalents at 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 and receives commissions from insurance provider customers for insurance policies sold. For the three months ended March 31, 2022, two customers represented 14% and 11%, respectively, of total revenue. For the three months ended March 31, 2021, one customer represented 20% of total revenue. As of March 31, 2022, one customer accounted for 15% of the accounts receivable and commissions receivable balance. As of December 31, 2021, one customer accounted for 12% of the total accounts and commissions 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.
 
 
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 and contingent consideration liabilities are carried at fair value, determined according to the fair value hierarchy described above (see Note 4). 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. Commissions receivable are recorded at constrained lifetime values.
Restricted Cash
As of December 31, 2021, restricted cash consisted of $0.3 million deposited in a separate restricted bank account as a security deposit for the Company’s corporate credit cards. Restricted cash was classified within other assets. During the three months ended March 31, 2022, the restricted cash was released to the Company and as a result, as of March 31, 2022, the Company no longer maintains a restricted cash balance.
 
10

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. The Company monitors economic conditions to identify facts or circumstances that may indicate that its receivables are at risk of collection. The Company provides reserves against accounts receivable for estimated losses, if any, that may result from a customer’s inability to pay based on the composition of its accounts receivable, current economic conditions, and historical credit loss activity. Amounts determined to be uncollectible are charged or
written-off
against the reserve. As of March 31, 2022 and December 31, 2021, the Company’s allowance for credit losses was $0.1 million and less than $0.1 million, respectively. During the three months ended March 31, 2022 and 2021, the Company wrote off an insignificant amount of uncollectible accounts.
Revenue Recognition
The Company derives its revenue primarily by selling consumer referrals to its insurance provider customers, including insurance carriers, agents and indirect distributors. The Company also generates revenue from commission fees for the sale of policies, primarily in its health and automotive verticals. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, 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.
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.
Referral Revenue
The Company recognizes referral 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.
Commission Revenue
The Company’s commission revenue is primarily comprised of commissions from health insurance carriers and auto insurance carriers. Commission revenue consists of the estimated constrained lifetime values (the “constrained LTVs”) of commission payments the Company expects to receive for selling an insurance policy. Commission revenue is recognized upon satisfaction of the Company’s performance obligation. The Company considers its performance obligation to be satisfied upon submission of the policy application. Commission revenue represented approximately 13% of total revenue in the three months ended March 31, 2022 and less than 10% of total revenue in the three months ended March 31, 2021.
The Company estimates commission revenue for each health insurance product by using a portfolio approach to a group of policies by product type and the application submission date of the relevant policy, which are referred to as “cohorts.” The Company’s estimate of constrained LTVs is based on an analysis of historical commission payment trends for relevant policies to establish an expected lifetime value and incorporates management’s judgment in interpreting those trends to calculate LTVs and to apply constraints to such LTVs. Significant factors impacting historical trends include carrier mix, average policy duration and conversion rates of paying policies.
Commission revenue from auto insurance carriers consists of constrained LTVs of commission payments the Company expects to receive for selling an insurance policy based on the effective date of the policy. The Company’s estimate of constrained LTVs is based on an analysis of historical commission payment trends for relevant policies to establish an expected lifetime value and incorporates management’s judgment in interpreting those trends to calculate LTVs and to apply constraints to such LTVs. The most significant factor impacting historical trends is average policy duration.
The Company applies a constraint to its estimated LTVs to only recognize the amount of variable consideration that it believes is probable that it will be entitled to receive and will not be subject to a significant revenue reversal in the future.
To the extent that commission payment trends change or the underlying factors impacting commission payments change, the Company’s estimate of constrained LTVs could be materially impacted. To the extent the Company makes changes to its estimates of constrained LTVs, it recognizes any material impact of the change to commission revenue in the reporting period in which the change is made, including revisions of estimated lifetime commissions either below or in excess of previously estimated constrained LTVs recognized as an adjustment to revenue and the related contract asset. The Company recognizes revenue for new policies by applying the latest estimated constrained LTV for that product.
Disaggregated Revenue
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.

11

Total revenue is comprised of revenue from the following distribution channels:

 
 
  
Three Months Ended March 31,
 
 
  
2022
 
 
2021
 
Direct channels
     88     90
Indirect channels
     12     10
    
 
 
   
 
 
 
       100     100
    
 
 
   
 
 
 
Total revenue is comprised of revenue from the following insurance verticals (in thousands):
 
 
  
Three Months Ended March 31,
 
 
  
2022
 
  
2021
 
Automotive
   $ 87,675     $ 84,481  
Other
     23,006       19,341  
    
 
 
   
 
 
 
Total Revenue
   $ 110,681     $ 103,822  
    
 
 
   
 
 
 
The Company has elected to apply the practical expedient in ASC 606 to expense incremental direct costs of obtaining a contract, consisting of sales commissions, as incurred as the expected period of benefit of the sales commissions is one year or less. At March 31, 2022 and December 31, 2021, the Company had not capitalized any costs to obtain any of its contracts.
Deferred Revenue
Amounts received for referrals 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 $2.1 million as of December 31, 2021. During the three months ended March 31, 2022, the Company recognized revenue of $1.4
million that was included in the contract liability balance (deferred revenue) at December 31, 2021. 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.
Commissions Receivable
Commissions receivable are contract assets that represent estimated variable consideration for commissions to be received from insurance carriers for performance obligations that have been satisfied. The current portion of commissions receivable (included within prepaid expenses and other current assets) are estimated commissions expected to be received within one year, while the
non-current
portion of commissions receivable (included within other assets
(non-current))
are expected to be received beyond one year.
The current and
non-current
portions of commissions receivable are as follows (in thousands):
 
 
  
March 31,
2022
 
  
December 31,
2021
 
Commissions receivable, current portion (included in prepaid expenses and other current assets)
  
$
9,134
 
  
$
9,285
 
Commissions receivable,
non-current
portion (included in other assets)
  
 
18,947
 
  
 
13,415
 
    
 
 
    
 
 
 
    
$
28,081
 
  
$
22,700
 
    
 
 
    
 
 
 
A portion of the Company’s commissions receivable contract asset was recorded as part of the purchase price allocation for the Company’s two acquisitions (see Note 3). The Company assesses impairment for uncollectible consideration when information available indicates it is probable that an asset has been impaired. There were no impairments recorded during the three months ended March 31, 2022 or 2021. While the Company is exposed to credit losses due to the
non-payment
by insurance carriers, it considers the risk of this to be remote.
Advertising Expense
Advertising expense consists of variable costs that are related to attracting consumers to the Company’s marketplace and generating consumer quote requests, including through its verified partner network, and promoting its marketplace to insurance carriers
and
agents. 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 loss. During the three months ended March 31, 2022 and 2021,
advertising expense totaled 
$76.4
million and 
$72.4
million, respectively.
 
12

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 effect is anti-dilutive.
The Company has two classes of common stock outstanding: Class A common stock and Class B common stock. 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 Class B common stock are equivalent.
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:
 
 
  
March 31,
 
 
  
2022
 
  
2021
 
Options to purchase common stock
  
 
1,569,865
 
    
 
1,965,185
 
Unvested restricted stock units
  
 
3,234,894
 
    
 
2,842,867
 
    
 
 
      
 
 
 
    
 
4,804,759
 
    
 
4,808,052
 
    
 
 
      
 
 
 
The table above does not include shares issuable upon settlement of contingent consideration for the Company’s two acquisitions (see Note 3). Such shares are also not included in the Company’s calculation of basic or diluted net loss per common share.
Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU
No. 2021-08,
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606,
Revenue from Contracts with Customers
, as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The amendments in this update are to be applied prospectively to business combinations occurring on or after the effective date. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements.
3. Acquisitions
PolicyFuel
On August 13, 2021, the Company completed the acquisition of Policy Fuel, LLC and its affiliated entities (“PolicyFuel”), a
policy-sales-as-a-service provider, with principal offices in Austin and San Antonio, Texas. PolicyFuel operates in the property and casualty insurance industry providing services to enable carriers to complement their own call center operations with access to dedicated advisor teams that focus exclusively on selling that provider’s offerings. This acquisition enables the Company to expand the range of products the Company offers to carriers and expands the market of the Company’s direct-to-consumer offerings.
The PolicyFuel acquisition was accounted for as a purchase of a business under ASC Topic 805, Business Combinations. Under the acquisition method of accounting, the assets and liabilities of PolicyFuel were recorded at their respective fair values as of the acquisition date. The purchase consideration of $20.0 million reflected a cash payment of $16.0 million, net of cash acquired, settlement of an outstanding receivable from PolicyFuel of $0.2 million and contingent consideration of $3.8 million, representing the estimated fair value as of the acquisition date of Class A common stock issuable to the former owners of PolicyFuel upon achievement of certain revenue targets over the next three years. The former owners of PolicyFuel are eligible to receive shares of Class A common stock upon the achievement (at varying levels) of each of three twelve-month revenue targets. The number of shares that may be issued at maximum performance is based on a total dollar value of $12.9 million; 50% of which would be calculated at the time of
 
issuance by dividing the applicable dollar value by a
 
volume
weighted average price per share for a
20-day
period preceding the acquisition. These shares are referred to as the “Fixed Shares” and the maximum number of Fixed Shares that may be issued is 199,311. The fair value of such shares to be recorded upon issuance will be based on the number of shares issued multiplied by the market value of the Company’s Class A common stock on the date of issuance. The remaining 50%, or $6.5 million at maximum performance, may be issued as shares of Class A common stock calculated by dividing the applicable dollar value earned by the
 
13

volume weighted average price per share for
 
a
20-day
period preceding each revenue target determination date. These shares are referred to as the “Fixed Dollar Shares” and there is no maximum to the number of shares that may be issued as Fixed Dollar Shares. The fair value of such shares to be recorded upon issuance will be based on the number of shares issued multiplied by the market value of the Company’s Class A common stock on the date of issuance.
The Fixed Shares described above include 17,030 performance-based restricted stock units issued as an Inducement Award and the Fixed Dollar Shares described above include $0.6 million of performance-based restricted stock units issued as an Inducement Award (see Note 8).
As achievement of each of the three twelve-month targets will result in the issuance of a variable number of shares of Class A common stock, the Company recorded the fair value of this contingent consideration within accrued expense and other current liabilities (first annual target) and within other long-term liabilities (second and third annual targets). The Company estimated the fair value of the contingent consideration as of the acquisition date using a Monte Carlo simulation model. The most significant assumptions and estimates utilized in the model include forecasted revenue (an acquisition specific input) and the market value of the Company’s Class A common stock (an observable input). Other assumptions utilized in the model include equity volatility, revenue volatility and discount rate. The Company remeasures the fair value of the contingent consideration at each subsequent reporting date until the liability is fully settled (see Note 4).
The Company’s condensed consolidated financial statements reflect the preliminary allocation of the purchase price to the assets and liabilities assumed based on fair value as of the date of the acquisition. The Company’s preliminary estimate of the fair value of specifically identifiable assets acquired and liabilities assumed as of the date of acquisition including the related impact to the deferred tax liability is subject to change upon finalizing its valuation analysis. The final determination may result in changes in the fair value of certain assets and liabilities as compared to these preliminary estimates, which is expected to be finalized in the second quarter of 2022. The Company expects an adjustment to the release of the deferred tax asset valuation allowance corresponding to any potential measurement period adjustments that impact the net deferred tax liability. The Company’s condensed consolidated financial statements as of March 31, 2022 reflect the preliminary allocation of the preliminary purchase price to the assets and liabilities assumed based on fair value as of the date of the acquisition.
The following tables summarize the preliminary purchase price for PolicyFuel and the preliminary allocation of the purchase price (in thousands):
 
Cash paid, net of cash acquired
  
$
15,955
 
Fair value of contingent consideration to be settled in stock
  
 
3,784
 
Settlement of existing relationship
  
 
233
 
    
 
 
 
Total purchase price consideration, net of cash acquired
  
$
19,972
 
    
 
 
 
Assets Acquired and Liabilities Assumed:
        
Accounts receivable
  
$
283
 
Commissions receivable (current and long-term)
  
 
2,761
 
Prepaid expenses and other current assets
  
 
12
 
Customer relationships
  
 
6,600
 
Developed technology
  
 
1,700
 
Other identifiable intangible assets
  
 
300
 
Goodwill
  
 
11,532
 
    
 
 
 
Total assets acquired
  
 
23,188
 
Accounts payable and accrued expenses (current)
  
 
(706
Deferred tax liability
  
 
(2,510
    
 
 
 
Total allocation of purchase price consideration, net of cash acquired
  
$
19,972
 
    
 
 
 
Customer relationships were valued using the income approach and are being amortized to sales and marketing expense over their estimated useful life of nine years. Significant assumptions and estimates utilized in the model include revenue and earnings growth rates, royalty rates and the discount rate.
Developed technology was valued using the relief from royalty method and is being amortized to cost of revenue over its estimated useful life of three years. Significant assumptions and estimates utilized in this model include the royalty rate, the discount rate and the obsolescence curve.
Commissions receivable were recorded at constrained LTVs and are included in prepaid expenses and other current assets and other assets on the Company’s consolidated balance sheet.
 
14

Goodwill was recognized for the excess purchase price over the fair value of the net assets acquired. Goodwill is primarily attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and future growth. Goodwill resulting from the acquisition of PolicyFuel is not deductible for tax purposes.
The Company incurred costs of $0.9 million for the year ended December 31, 2021, for third-party professional services utilized for the acquisition, which were expensed as incurred within acquisition-related costs on the Company’s consolidated statements of operations and comprehensive loss. The operating results of the acquired entity have been included in the consolidated financial statements beginning on the acquisition date but have not been disclosed as the Company does not account for the results of the acquired entity separate from its own results. Pro forma results of operations for the acquisition have not been presented as they are not material to the Company’s consolidated results of operations.
The Company recorded an income tax benefit for the year ended December 31, 2021 of $2.5 million related to the release of a portion of its valuation allowance as a result of the acquisition of PolicyFuel. The net deferred tax liability recorded for PolicyFuel relates to the intangible assets recognized in purchase accounting, which are
non-deductible
for tax purposes and result in a deferred tax liability. The net deferred tax liability is a source of income to support the recognition of a portion of the Company’s existing deferred tax assets. Therefore, the Company recorded a tax benefit for the release of a portion of its valuation allowance related to the net deferred tax liability recorded in purchase accounting. The Company maintains a valuation allowance on its overall net deferred tax asset as it is deemed more likely than not the net deferred tax asset will not be realized.
Eversurance
On September 1, 2020, the Company completed the acquisition of Crosspointe Insurance & Financial Services, LLC, a health insurance agency headquartered in Evansville, Indiana. In the third quarter 2021, the Company changed the name of Crosspointe Insurance & Financial Services, LLC to Eversurance, LLC (“Eversurance”). Eversurance is a sales and decision support contact center that connects consumers to high quality health insurance in a customer-centric environment and serves the individual and family health, Medicare, and ancillary health product markets. This acquisition enables the Company to accelerate and expand its opportunity in the health insurance market, by providing insurance shoppers with a broader range of health insurance products through access to a greater number of carrier partners, and an improved and more personalized customer buying experience.
The Eversurance acquisition was accounted for as a purchase of a business under ASC Topic 805, Business Combinations. Under the acquisition method of accounting, the assets and liabilities of Eversurance were recorded as of the acquisition date, at their respective fair values. The purchase consideration of $16.7 million reflected a cash payment of $14.9 million and contingent consideration of $1.8 million representing the fair value of Class A common stock issuable to the former owners of Eversurance upon achievement of certain revenue targets over three years. The former owners of Eversurance were eligible to receive up to 97,922 shares of Class A common stock upon achievement of certain revenue targets measured in annual intervals. Shares of Class A common stock issuable upon achievement of the first two annual targets were for a fixed number of shares of Class A common stock of 39,168 shares and, as such, the Company recorded the fair value of these shares within stockholders’ equity based on the number of shares issuable and the market value of Class A common stock on the acquisition date. These shares were issued to the former owners of Eversurance during 2021. Achievement of the third annual target will result in the issuance of a variable number of shares of Class A common stock of up to 58,754 shares and, as such, the Company recorded the fair value of these shares as a long-term liability. The Company remeasures the fair value of the shares of Class A common stock issuable upon the estimated achievement levels of the third annual target at each subsequent reporting date until the liability is fully settled (see Note 4).
 
15

4. Fair Value of Financial Instruments
The following tables present the Company’s fair value hierarchy for its assets and liabilities which are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 (in thousands):
 
 
  
Fair Value Measurements at March 31, 2022 Using:
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
Assets:
                                   
Cash equivalents:
                                   
Money market funds
   $ 20,503      $         $         $ 20,503  
    
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
                                   
Contingent consideration liability associated with acquisition of Eversurance included in other long-term liabilities
   $         $         $ 951      $ 951  
Contingent consideration liability associated with acquisition of PolicyFuel included in accrued expense
s
and other current liabilities
                         661        661  
Contingent consideration liability associated with acquisition of PolicyFuel included in other long-term liabilities
                         3,670        3,670  
    
 
 
    
 
 
    
 
 
    
 
 
 
     $         $         $ 5,282      $ 5,282  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
  
Fair Value Measurements at December 31, 2021 Using:
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
Assets:
                                   
Cash equivalents:
                                   
Money market funds
   $ 20,502      $         $         $ 20,502  
    
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
                                   
Contingent consideration liability associated with acquisition of Eversurance included in other long-term liabilities
   $         $         $ 920      $ 920  
Contingent consideration liability associated with acquisition of PolicyFuel included in accrued expense
s
and other current liabilities
                         629        629  
Contingent consideration liability associated with acquisition of PolicyFuel included in other long-term liabilities
                         4,625        4,625  
    
 
 
    
 
 
    
 
 
    
 
 
 
     $         $         $ 6,174      $ 6,174  
    
 
 
    
 
 
    
 
 
    
 
 
 
There were no transfers into or out of Level 3 during the three months ended March 31, 2022 or 2021.
Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.
Contingent consideration liabilities are valued by the Company using significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions and estimates to forecast a range of outcomes for the contingent consideration. The Company assesses these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized as acquisition-related costs within the consolidated statements of operations and comprehensive loss.
The Company estimates the fair value of the maximum 58,754 shares of Class A common stock issuable as contingent consideration upon achievement of certain Eversurance revenue targets (see Note 3) using probability of achievement of the revenue target (acquisition specific input) and the market value of the Company’s Class A common stock (observable input). The change in fair value of the contingent consideration liability for the three months ended March 31, 2022 was due to the change in market value of the Company’s Class A common stock.
The Company uses a Monte Carlo simulation model in its estimates of the fair value of the contingent consideration related to the PolicyFuel acquisition. The most significant assumptions and estimates utilized in the model include forecasted revenue (an acquisition specific input) and the market value of the Company’s Class A common stock (an observable input). Other assumptions utilized in the model include equity volatility, revenue volatility and discount rate. The decrease in fair value of contingent consideration related to the Class A common stock issuable upon achievement of revenue targets was primarily due to a change in estimate of forecasted revenue.
 
16
The following table provides a roll-forward of the aggregate fair values of the Company’s contingent consideration liabilities for which fair value is determined by Level 3 inputs (in thousands):
 
 
  
Contingent
Consideration
Liabilities
 
Fair value at December 31, 2021
  
$
6,174
 
Change in fair value of contingent consideration related to Eversurance acquisition
  
 
31
 
Change in fair value of contingent consideration related to PolicyFuel acquisition
  
 
(923
 
  
 
 
 
Fair value at March 31, 2022
  
$
5,282
 
 
  
 
 
 
5. Goodwill and Acquired Intangible Assets
Goodwill is not amortized, but instead is reviewed for impairment at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company considers its business to be one reporting unit for purposes of performing its goodwill impairment analysis. To date, the Company has had no impairments to goodwill.
There were no changes to goodwill for the three months ended March 31, 2022.
Acquired intangible assets consisted of the following (in thousands):
 
 
  
 
 
  
March 31, 2022
 
 
  
Weighted
Average Useful
Life
 
  
Gross
Amount
 
  
Accumulated
Amortization
 
  
Carrying
Value
 
 
  
(in years)
 
  
 
 
  
 
 
  
 
 
Customer relationships
     7.6      $ 10,200      $ (2,211   $ 7,989  
Developed technology
     3        1,700        (359     1,341  
Other identifiable intangible assets
     2.8        570        (239     331  
             
 
 
    
 
 
   
 
 
 
              $ 12,470      $ (2,809   $ 9,661  
             
 
 
    
 
 
   
 
 
 
 
 
  
 
 
  
December 31, 2021
 
 
  
Weighted
Average Useful
Life
 
  
Gross
Amount
 
  
Accumulated
Amortization
 
  
Carrying
Value
 
 
  
(in years)
 
  
 
 
  
 
 
  
 
 
Customer relationships
     7.6      $ 10,200      $ (1,830   $ 8,370  
Developed technology
     3        1,700        (217     1,483  
Other identifiable intangible assets
     2.8        570        (194     376  
             
 
 
    
 
 
   
 
 
 
              $ 12,470      $ (2,241   $ 10,229  
             
 
 
    
 
 
   
 
 
 
Future amortization expense of intangible assets as of March 31, 2022 is expected to be as follows (in thousands):
 
Year Ending December 31,
  
 
 
2022 (remaining nine months)
  
$
1,709
 
2023
  
 
2,001
 
2024
  
 
1,715
 
2025
  
 
960
 
2026
  
 
685
 
Thereafter
  
 
2,591
 
 
  
 
 
 
 
  
$
9,661
 
 
  
 
 
 
6. Balance Sheet Detail
Prepaid expenses and other current assets consisted of the following (in thousands):
 
 
  
March 31,
 
  
December 31,
 
 
  
2022
 
  
2021
 
Commissions receivable, current portion
   $ 9,134      $ 9,285  
Prepaid expenses and other current assets
     5,185        4,899  
    
 
 
    
 
 
 
     $ 14,319      $ 14,184  
    
 
 
    
 
 
 
 
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Other assets consisted of the following (in thousands):
 
 
  
March 31,
2022
 
  
December 31,
2021
 
Commissions receivable,
non-current
portion
   $ 18,947      $ 13,415  
Other assets
     460        681  
    
 
 
    
 
 
 
     $ 19,407      $ 14,096  
    
 
 
    
 
 
 
Accrued expenses and other current liabilities consisted of the following (in thousands):
 
 
  
March 31,
2022
 
  
December 31,
2021
 
Accrued employee compensation and benefits
   $ 3,695      $ 4,115  
Accrued advertising expenses
     2,674        5,669  
Other current liabilities
     3,877        3,231  
    
 
 
    
 
 
 
     $ 10,246      $ 13,015  
    
 
 
    
 
 
 
7. Loan and Security Agreement
The Company has available borrowings of $25.0 million under its amended Loan and Security Agreement (the “2020 Loan Agreement”). Pursuant to the 2020 Loan Agreement, borrowings under the revolving line of credit cannot exceed 80% of eligible accounts receivable balances, bear interest at the greater of 3.25% or the prime rate and mature in August 2022. 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. As of March 31, 2022, the Company was in compliance with these covenants. 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.
As of March 31, 2022, the Company had no amounts outstanding on the revolving line of credit.
8. Stock-Based Compensation
2008 and 2018 Plans
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 (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 1,497,633 shares effective as of January 1, 2022 in accordance with the provisions of the 2018 Plan described above. As of March 31, 2022, 2,705,526 shares remain available for future grant under the 2018 Plan.
18

Options and restricted stock units (“RSU”s) 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.
During
the three months ended March 31, 2022, the Company granted 125,033 service-based options under the 2018 Plan with an aggregate grant date fair value of $2.0 million.
During the three months ended March 31, 2022, the Company granted 575,883 service-based RSUs under the 2018 Plan with an aggregate grant date fair value of $9.0 million.
Inducement Grants
In connection with the acquisition of PolicyFuel in 2021, the Company granted service- and service- and performance-based RSUs to newly hired employees. The RSUs were approved by the Company’s board of directors and were granted as an inducement material to the new employees entering into employment with the Company in accordance with Nasdaq Rule 5635(c)(4) (the “Inducement Awards”). The Inducement Awards were granted outside of the 2018 Plan.
The Company also has outstanding service- and performance-based RSUs granted as Inducement Awards in 2021 that will vest for a variable number of shares of the Company’s Class A common stock upon the achievement (at varying levels) of certain revenue targets measured at twelve-month intervals over the next three years. The number of shares to be issued upon achievement of each of the revenue targets will be based on a fixed dollar value divided by the volume weighted average price per share of the Company’s Class A common stock for a
20-day
period preceding each revenue achievement determination date. The number of shares of Class A common stock that may be issued in settlement of such awards is capped at 173,042, with any remainder being settleable in cash or unregistered shares solely at the Company’s option. Because a variable number of shares will be issued for a fixed dollar amount, the Company has accounted for the obligation to issue such shares as a liability. As of March 31, 2022, the balance of the liability included in accrued expenses and other current liabilities was $0.1 million. The Company has 17,030 performance-based RSUs granted in 2021 as Inducement Awards with no service requirement as PolicyFuel contingent consideration. The fair value of this issuance has been included in the fair value of contingent consideration (see Notes 3 and 4). The Company also has outstanding performance-based RSUs issued in 2021 as Inducement Awards as PolicyFuel contingent consideration that will vest for a variable number of shares of the Company’s Class A common stock upon the achievement (at varying levels) of certain revenue targets measured at twelve-month intervals over the next three years, but which have no service conditions. The number of shares to be issued upon achievement of each of the revenue targets is based on a fixed dollar amount divided by the volume weighted average price per share of the Company’s Class A common stock for a
20-day
period preceding each revenue target determination date. The maximum number of shares of Class A common stock that may be issued as Inducement Awards in settlement of the contingent consideration obligation is capped at 34,060, with any remainder being settleable in cash or unregistered shares solely at the Company’s option. The fair value of such awards has been included in the fair value of contingent consideration (see Notes 3 and 4).
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 March 31,
 
 
  
2022
 
  
2021
 
Cost of revenue
   $ 59      $ 91  
Sales and marketing
     3,210        3,391  
Research and development
     2,411        2,327  
General and administrative
     1,850        1,711  
    
 
 
    
 
 
 
     $ 7,530      $ 7,520  
    
 
 
    
 
 
 
Stock-based compensation expense for the three months ended March 31, 2022 and 2021 included a total of $0.4 million and $0.6 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 March 31, 2022, 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 $45.5 million, which is expected to be recognized over a weighted average period of 2.9 years. Additionally, the Company had unrecognized compensation expense of $1.5 million related to unvested awards with performance-based vesting conditions, which have not been deemed probable and unrecognized compensation expense of $2.3 million related to the fixed dollar, variable number of shares portion of the Inducement Awards with performance-based vesting conditions that have not been deemed probable.
 
19

9. Commitments and Contingencies
Leases
The Company leases office space under various
non-cancelable
operating leases. There have been no material changes to the Company’s leases during the three months ended March 31 2022. For additional information, please read Note 12,
 Leases,
 to the consolidated financial statements in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2021.
Indemnification Agreements
In the normal course of business, the Company may provide indemnification of varying scope and terms to third parties and enters 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 March 31, 2022, 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 March 31, 2022 and December 31, 2021.
Legal Proceedings and Other Contingencies
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.
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.
10. 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 $0.2 million for each of the three months ended March 31, 2022 and 2021, respectively.
11. 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. During the three months ended March 31, 2022 and 2021, the Company recorded expense of $1.2 million and $1.0 million, respectively, related to these arrangements. During the three months ended March 31, 2022 and 2021, the Company paid $0.7 million and $0.8 million, respectively, related to these arrangements. As of March 31, 2022 and December 31, 2021, amounts due to related-party affiliates totaled $0.8 million and $0.3 million, respectively, which were included in accounts payable on the balance sheets.
On February 23, 2022, the Company sold 1,004,016 shares of Class A common stock at a purchase price of $14.94 per share for gross proceeds of $15.0 million in a private placement to Recognition Capital, LLC, an entity which is owned and controlled by David Blundin, Chairman of the board of directors and co-founder of the Company.
 
20

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form
10-Q
and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form
10-K
for the year ended December 31, 2021, on file with the Securities and Exchange Commission. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form
10-Q,
particularly in the section titled “Risk Factors.”
EverQuote makes insurance shopping easy, efficient and personal, saving consumers and insurance providers time and money.
We operate a leading online marketplace for insurance shopping, connecting consumers with insurance providers. Our mission is to empower insurance shoppers to better protect life’s most important assets—their family, property, and future. Our vision is to become the largest online source of insurance policies by using data and technology to make insurance simpler, more affordable and personalized, ultimately reducing cost and risk. Our results-driven marketplace, powered by our proprietary data and technology platform, is reshaping the insurance shopping experience for consumers and improving the way insurance providers attract and connect with consumers shopping for insurance.
Finding the right insurance product is often challenging for consumers, who face limited online options, complex, variable and opaque pricing, and myriad coverage configurations. We present consumers with a single starting point for a comprehensive and cost-effective insurance shopping experience. Our marketplace reduces the time consumers spend searching across multiple sites by delivering broader and more relevant results than consumers may find on their own. In addition to our marketplace, we also operate a direct to consumer, or DTC, insurance agency. Our DTC agents bind policies for consumers, further streamlining the consumer shopping experience. Our services are free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers and directly from commissions on sales of policies.
Insurance providers, which we view as including carriers, our own DTC agents, and third-party agents, operate in a highly competitive and regulated industry and typically specialize in
pre-determined
subsets of consumers. As a result, not every consumer is a good match for every provider, and some providers can struggle to reach the segments that are most desirable for their business models. Traditional offline and online advertising channels reach broad audiences but lack the fine-grained consumer acquisition capabilities needed for optimally matching consumers to specific insurance products. We connect providers to a large volume of high-intent,
pre-validated
consumer referrals that match the insurers’ specific requirements. The transparency of our marketplace, as well as the campaign management tools we offer, make it easy for insurance carriers and third-party agents to evaluate the performance of their marketing spend on our platform and manage their own return on investment.
Since 2011, our core mission has been to make finding insurance easy and more personal, saving consumers and insurance providers time and money. We are working to build the largest and most trusted online insurance marketplace in the world. In pursuing this goal, we have consistently innovated through our disruptive data driven approach. Highlights of our history of innovation include:
 
   
In 2011, we launched the EverQuote marketplace for auto insurance.
 
   
In 2013, we launched EverQuote Pro, our provider portal, for carriers.
 
   
In 2015, we launched EverQuote Pro for agents.
 
   
In 2016, we added home and life insurance in our marketplace.
 
   
In 2019, we added health and renters insurance in our marketplace.
 
   
In 2020, we launched our DTC insurance offerings in our life vertical and in our health vertical via the acquisition of Crosspointe Insurance & Financial Services, LLC, or Crosspointe, which we later renamed Eversurance.
 
   
In August 2021, we launched our DTC insurance offerings in our auto and home and renters verticals via the acquisition of Policy Fuel LLC and its affiliates, or PolicyFuel.
In the three months ended March 31, 2022 and 2021, our total revenue was $110.7 million and $103.8 million, respectively, representing year-over-year growth of 6.6%. We had net losses of $5.7 million and $3.8 million for the three months ended March 31, 2022 and 2021, respectively, and had $2.4 million and $4.8 million in adjusted EBITDA for the three months ended March 31, 2022 and 2021, respectively. See the section titled
“—Non-GAAP Financial Measure”
for information regarding our use of adjusted EBITDA and its reconciliation to net income (loss) determined in accordance with generally accepted accounting principles in the United States, or GAAP.
 
21

COVID-19
The
COVID-19
pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets. Many governmental authorities have implemented travel bans and restrictions, quarantines,
shelter-in-place
orders, business limitations and shutdowns and other measures to attempt to contain the spread of the virus. Government recommendations and requirements are continuing to change and there remains significant uncertainty as to the breadth and duration of business disruptions related to
COVID-19,
as well as its impact on the global economy and consumer confidence. While we are unable to accurately predict the full impact that
COVID-19
will have on our results from operations, financial condition, liquidity and cash flows due to these uncertainties, our compliance with measures to contain the spread of the virus has impacted our
day-to-day
operations and could disrupt our business and operations, as well as that of our customers and consumer traffic to our marketplace for an indefinite period of time. For example, we believe that immediately after
shelter-in-place
orders went into effect consumers performed fewer searches for insurance online. To support the health and well-being of our employees, customers, partners and communities, a majority of our employees continue to work remotely, however our offices are open for use. While such disruptions have not had a material adverse impact on our financial results through March 31, 2022, such disruptions may impact consumer insurance shopping behavior. We continue to monitor and are managing our operations for the ongoing impact of
COVID-19.
Factors Affecting Our Performance
We believe that our performance and future growth depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled “Risk Factors.”
Auto insurance industry risk
We derive a significant portion of our revenue from auto insurance providers and our financial results depend on the performance of the auto insurance industry. For example, in 2016, the U.S. commercial auto insurance industry experienced its worst underwriting performance in 15 years, with higher loss ratios that were driven by both adverse claim severity and frequency trends. As a result, our auto insurance carrier customers reduced marketing spend and cost per sale targets the following year, ultimately impacting our revenue growth in the auto insurance vertical in 2017. More recently, and specifically starting in the third quarter of 2021, the auto insurance industry has experienced similar challenges, which is impacting our revenue growth in the auto insurance vertical. We believe this trend will continue during 2022.
Expanding consumer traffic
Our success depends in part on the growth of our consumer traffic. We have historically increased consumer traffic to our marketplace by expanding existing advertising channels and adding new channels such as by engaging with consumers through our verified partner network. We plan to continue to increase consumer traffic by leveraging the features and growing data assets of our platform. While we plan to increase consumer traffic over the long term, we also have the ability to decrease advertising, if we believe the revenue associated with such consumer traffic does not result in incremental profit to our business. We have also increased the number of quote requests acquired from our verified partner network. While we plan to continue to increase the number of quote requests we acquire from our verified partner network, our ability to acquire quote requests in significant volume, at prices that are attractive, and that represent high-intent shoppers that insurance providers will purchase referrals for will impact our profitability.
Increasing the number of insurance providers and their respective spend in our marketplace
Our success also depends on our ability to retain and grow our insurance provider network. Historically, we have generally expanded both the number of insurance providers and the spend per provider on our platform.
Key Business Metrics
We regularly review a number of metrics, including GAAP operating results and the key metrics listed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make operating and strategic decisions. Some of these metrics are
non-financial
metrics or are financial metrics that are not defined by GAAP.
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss), adjusted to exclude: stock-based compensation expense, depreciation and amortization expense, acquisition-related costs, legal settlement expense,
one-time
severance charges, interest income and the provision for (benefit from) income taxes. Adjusted EBITDA
is a non-GAAP financial measure
that we present in this Quarterly Report
on Form 10-Q to supplement
the financial information we present on a GAAP basis. We monitor and present Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating
 
22

performance, to establish budgets and to develop operational goals for managing our business. Adjusted EBITDA should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP. Adjusted EBITDA should be considered together with other operating and financial performance measures presented in accordance with GAAP. Also, Adjusted EBITDA may not necessarily be comparable to similarly titled measures presented by other companies. For further explanation of the uses and limitations of this measure and a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income (loss), please see “—Non GAAP Financial Measure”.
Variable Marketing Margin
We define variable marketing margin, or VMM, as revenue, as reported in our consolidated statements of operations and comprehensive loss, less advertising costs (a component of sales and marketing expense, as reported in our statements of operations and comprehensive loss). We use VMM to measure the efficiency of individual advertising and consumer acquisition sources and to make
trade-off
decisions to manage our return on advertising. We do not use VMM as a measure of profitability.
Key Components of Our Results of Operations
Revenue
We generate our revenue primarily by selling consumer referrals to insurance provider customers, consisting of carriers and agents, as well as to indirect distributors. To simplify the quoting process for the consumer and improve performance for the provider, we are able to provide consumer-submitted quote request data along with each referral. We recognize revenue from consumer referrals at the time of delivery. We support three secure consumer referral formats:
 
   
Clicks: An
online-to-online
referral, with a handoff of the consumer to the provider’s website.
 
   
Data: An
online-to-offline
referral, with quote request data transmitted to the provider for
follow-up.
 
   
Calls: An
online-to-offline
referral for outbound calls and an
offline-to-offline
referral for inbound calls, with the consumer and provider connected by phone.
We also generate revenue from commission fees for the sale of policies, primarily in our health and automotive verticals. Commission revenue represented approximately 13% of total revenue in the three months ended March 31, 2022 and less than 10% of total revenue in the three months ended March 31, 2021. We recognize revenue from commission fees based on our constrained estimate of commission payments we expect to receive over the lifetime of the policies sold, which we refer to as constrained lifetime values, or constrained LTVs, of commission payments. Commission revenue is recognized upon satisfaction of our performance obligation, which we consider to be submission of the policy application.
For the periods presented, our total revenue consisted of revenue generated from our automotive and other insurance verticals, which includes home and renters, life and health insurance verticals, as follows:
 
    
Three Months Ended March 31,
 
    
2022
    
2021
 
               
     (in thousands)  
Automotive
   $ 87,675      $ 84,481  
Other
     23,006        19,341  
    
 
 
    
 
 
 
Total Revenue
   $ 110,681      $ 103,822  
    
 
 
    
 
 
 
We expect revenue to remain relatively flat or decrease slightly in 2022 as we anticipate increases in commission revenue to be offset by decreases in referral revenue in our automotive vertical as a result of challenges in the automotive insurance industry described above. We expect revenue to fluctuate from quarter to quarter and, in particular, for our commission revenue to be impacted by the open enrollment period and annual enrollment period in our health vertical.
Cost and Operating Expenses
Our cost and operating expenses consist of cost of revenue, sales and marketing, research and development, and general and administrative expenses and acquisition-related costs.
We allocate certain overhead expenses, such as rent, utilities, office supplies and depreciation and amortization of general office assets, to cost of revenue and operating expense categories based on headcount. As a result, an overhead expense allocation is reflected in cost of revenue and each operating expense category. Personnel-related costs included in cost of revenue and each operating expense category include wages, fringe benefit costs and stock-based compensation expense.
 
23

Cost of Revenue
Cost of revenue is comprised primarily of the costs of operating our marketplace and delivering consumer referrals to our customers. These costs consist primarily of technology service costs including hosting, software, data services, and third-party call center costs. In addition, cost of revenue includes depreciation and amortization of our platform technology assets and personnel-related costs.
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and marketing expenditures as well as personnel-related costs for employees engaged in sales, marketing, data analytics and consumer acquisition functions and amortization of sales and marketing-related intangible assets. Advertising expenditures consist of variable costs that are related to attracting consumers to our marketplace, generating consumer quote requests, including the cost of quote requests we acquire from our verified partner network, and promoting our marketplace to carriers and agents. Advertising costs are expensed as incurred. Marketing costs consist primarily of content and creative development, public relations, memberships, and event costs. In order to continue to grow our business and brand awareness, we expect that we will continue to commit substantial resources to our sales and marketing efforts. We expect our sales and marketing expense will increase in the near term, both as a percentage of revenue and in absolute dollars, especially as we continue to expand our DTC agency. In the longer term, we expect sales and marketing expense to decrease as a percentage of revenue due to efficiencies of scale and improvements in our marketplace technology.
Research and Development
Research and development expenses consist primarily of personnel-related costs for software development and product management. We have focused our research and development efforts on improving ease of use and functionality of our existing marketplace platform and developing new offerings and internal tools. We primarily expense research and development costs. Direct development costs related to software enhancements that add functionality are capitalized and amortized as a component of cost of revenue. We expect that research and development expenses will increase as we continue to enhance and expand our platform technology.
General and Administrative
General and administrative expenses consist of personnel-related costs and related expenses for executive, finance, legal, human resources, technical support and administrative personnel as well as the costs associated with professional fees for external legal, accounting and other consulting services, insurance premiums and payment processing and billing costs. We expect general and administrative expenses to increase as we continue to incur the costs of compliance associated with being a publicly traded company, including legal, audit, insurance and consulting fees.
Acquisition-related
Acquisition-related costs include expenses associated with third-party professional services we utilize for the evaluation and execution of acquisitions as well as changes in the fair value of our contingent consideration liabilities recorded as the result of our Eversurance and PolicyFuel acquisitions.
Other Income (Expense)
Other income (expense) consists of interest income and other income (expense). Interest income consists of interest earned on invested cash balances. Other income (expense) consists of miscellaneous income (expense) unrelated to our core operations.
Non-GAAP Financial
Measure
To supplement our consolidated financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we present in this Quarterly Report on
Form 10-Q
adjusted EBITDA as a
non-GAAP financial
measure. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similarly titled measures presented by other companies.
Adjusted EBITDA
. We define adjusted EBITDA as our net income (loss), excluding the impact of stock-based compensation expense; depreciation and amortization expense; acquisition-related costs; legal settlement expense;
one-time
severance charges; interest income; and our provision for (benefit from) income taxes. The most directly comparable GAAP measure to adjusted EBITDA is net income (loss). We monitor and present in this Quarterly Report on
Form 10-Q adjusted
EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. In particular, we believe that excluding the impact of these items in calculating adjusted EBITDA can provide a useful measure
for period-to-period comparisons
of our core operating performance.
 
24

We use adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. We believe adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculation of adjusted EBITDA. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.
Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the most directly comparable financial measure calculated and presented in accordance with GAAP. Some of these limitations are:
 
   
adjusted EBITDA excludes stock-based compensation expense as it has recently been, and will continue to be for the foreseeable future, a significant
recurring non-cash expense
for our business;
 
   
adjusted EBITDA excludes depreciation and amortization expense and, although this is
a non-cash expense,
the assets being depreciated and amortized may have to be replaced in the future;
 
   
adjusted EBITDA excludes acquisition-related costs that affect cash available to us and the change in fair value of
non-cash
contingent consideration;
 
   
adjusted EBITDA excludes legal settlement expense that affected cash available to us;
 
   
adjusted EBITDA excludes severance charges incurred and paid in the fourth quarter of 2021 related to our reduction in
non-marketing operating
expenses that affected cash available to us;
 
   
adjusted EBITDA does not reflect the cash received from interest income on our investments, which affects the cash available to us;
 
   
adjusted EBITDA does not reflect income tax expense (benefit) that affects cash available to us; and
 
   
the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results.
In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of adjusted EBITDA as a tool for comparison.
The following table reconciles adjusted EBITDA to net income (loss), the most directly comparable financial measures calculated and presented in accordance with GAAP.
Reconciliation of Net Loss to Adjusted EBITDA:
 
    
Three Months Ended March 31,
 
    
2022
    
2021
 
               
     (in thousands)  
Net loss
   $ (5,715    $ (3,801
Stock-based compensation
     7,530        7,520  
Depreciation and amortization
     1,511        1,174  
Acquisition-related
     (892      (79
Interest income
     (8      (14
    
 
 
    
 
 
 
Adjusted EBITDA
   $ 2,426      $ 4,800  
    
 
 
    
 
 
 
 
25

Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following tables set forth our results of operations for the periods shown:
 
    
Three Months Ended March 31,
 
    
2022
    
2021
 
               
     (in thousands)  
Statement of Operations Data:
     
Revenue(1)
   $ 110,681      $ 103,822  
  
 
 
    
 
 
 
Cost and operating expenses(2):
     
Cost of revenue
     5,984        5,953  
Sales and marketing
     96,150        87,569  
Research and development
     8,196        8,573  
General and administrative
     6,941        5,596  
Acquisition-related
     (892      (79
  
 
 
    
 
 
 
Total cost and operating expenses
     116,379        107,612  
  
 
 
    
 
 
 
Loss from operations
     (5,698      (3,790
  
 
 
    
 
 
 
Other income (expense):
     
Interest income
     8        14  
Other expense, net
     (25      (25
  
 
 
    
 
 
 
Total other expense, net
     (17      (11
  
 
 
    
 
 
 
Net loss
   $ (5,715    $ (3,801
  
 
 
    
 
 
 
Other Financial and Operational Data:
     
Variable marketing margin
   $ 34,264      $ 31,438  
Adjusted EBITDA(3)
   $ 2,426      $ 4,800  
 
(1)
Comprised of revenue from the following distribution channels:
 
    
Three Months Ended March 31,
 
    
2022
   
2021
 
Direct channels
     88     90
Indirect channels
     12     10
  
 
 
   
 
 
 
     100     100
  
 
 
   
 
 
 
 
(2)
Includes stock-based compensation expense as follows:
 
    
Three Months Ended March 31,
 
    
2022
    
2021
 
               
     (in thousands)  
Cost of revenue
   $ 59      $ 91  
Sales and marketing
     3,210        3,391  
Research and development
     2,411        2,327  
General and administrative
     1,850        1,711  
  
 
 
    
 
 
 
   $ 7,530      $ 7,520  
  
 
 
    
 
 
 
 
(3)
See
“—Non-GAAP
Financial Measure” for information regarding our use of adjusted EBITDA as a
non-GAAP
financial measure and a reconciliation of adjusted EBITDA to its comparable GAAP financial measure.
Revenue:
 
    
Three Months Ended March 31,
    
Change
 
    
2022
    
2021
    
Amount