EverQuote, Inc. 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This Annual Report on Form 10-K includes scaled disclosures for smaller reporting companies, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, and, as such, this information is not required. 58 Table of Contents ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA EVERQUOTE, INC. Index to Consolidated Financial Statements Page(s) Report of Independent Registered Public Accounting Firm 60 Consolidated Balance Sheets 63 Consolidated Statements of Operations and Comprehensive Loss 64 Consolidated Statements of Stockholders’ Equity 65 Consolidated Statements of Cash Flows 66 Notes to Consolidated Financial Statements 67 59 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of EverQuote, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of EverQuote, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for each of the two years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2020. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 60 Table of Contents As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Crosspointe Insurance & Financial Services, LLC (“Crosspointe”) from its assessment of internal control over financial reporting as of December 31, 2020 because it was acquired by the Company in a purchase business combination during 2020. We have also excluded Crosspointe from our audit of internal control over financial reporting. Crosspointe is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 2% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2020. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Acquisition of Crosspointe Insurance & Financial Services, LLC – Valuation of Contingent Consideration and Customer Relationship Intangible Asset As described in Note 3 to the consolidated financial statements, the Company completed its acquisition of Crosspointe Insurance & Financial Services, LLC (“Crosspointe”) on September 1, 2020. 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 Crosspointe upon achievement of certain revenue targets over three years. These revenue targets are measured in annual intervals. Shares of Class A common stock issuable upon achievement of the first two annual targets are for a fixed number of shares of Class A common stock and, as such, management has recorded the fair value of these shares within stockholders’ equity based on the number of shares issuable and the fair market value of Class A common stock on the acquisition date. Achievement of the third annual target will result in the issuance of a variable number of shares of Class A common stock and, as such, management has recorded the fair value of these shares as a long-term liability. As of September 1, 2020, the acquisition date, the estimated fair value of the contingent consideration included in other long-term liabilities was $0.4 million. As of December 31, 2020, 61 Table of Contents management estimated the fair value of the contingent consideration included in other long-term liabilities to be $2.2 million, and as a result recorded a $1.8 million charge to acquisition-related costs for the increase in fair value subsequent to the acquisition date. Management estimated the fair value of the shares upon achievement of the three annual targets as of the acquisition date, and remeasures the fair value of the shares issuable upon the estimated achievement levels of the third annual target at each subsequent reporting date until the liability is fully settled, using a Monte Carlo simulation model. Management’s significant assumptions and estimates utilized in the model include the forecasted revenue, revenue volatility, and discount rate. Additionally, as part of the preliminary allocation of the purchase price for Crosspointe, management recorded $3.6 million for the customer relationship intangible asset at fair value using the income approach. Management’s significant assumptions and estimates utilized in the model include the customer attrition rate and discount rate. The principal considerations for our determination that performing procedures relating to the valuation of contingent consideration and the customer relationship intangible asset in the Crosspointe acquisition is a critical matter are (i) the high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the contingent consideration and the customer relationship intangible asset due to the significant judgment by management when developing the fair value estimates, (ii) significant audit effort in evaluating management’s significant assumptions related to the forecasted revenue, revenue volatility, and discount rate for the contingent consideration, and the customer attrition rate and discount rate for the customer relationship intangible asset, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s determination of the fair value of contingent consideration and the customer relationship intangible asset. These procedures also included, among others, (i) reading the purchase agreement, (ii) testing the completeness and accuracy of the underlying data used in the valuation models, and (iii) evaluating the appropriateness of the valuation models and reasonableness of the significant assumptions used by management related to the forecasted revenue, revenue volatility, and discount rate for the contingent consideration and the customer attrition rate and discount rate for the customer relationship intangible asset. Evaluating the reasonableness of the forecasted revenue used in developing the fair value of the contingent consideration involved considering the consistency with external economic and market data. Evaluating the reasonableness of the customer attrition rate used in the determination of the fair value of the customer relationship intangible asset involved considering the consistency with historical data. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Monte Carlo simulation model for the contingent consideration and the income approach for the customer relationship intangible asset, as well as evaluating the appropriateness of the significant assumptions related to the revenue volatility and discount rate for the contingent consideration, and the customer attrition rate and discount rate for the customer relationship intangible asset. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 1, 2021 We have served as the Company’s auditor since 2014. 62 Table of Contents EVERQUOTE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 42,870 $ 46,054 Accounts receivable, net 46,079 32,214 Prepaid expenses and other current assets 8,452 7,065 Total current assets 97,401 85,333 Property and equipment, net 6,173 5,197 Goodwill 9,794 — Acquired intangible assets, net 3,366 — Operating lease right-of-use assets 9,621 — Other assets 2,695 691 Total assets $ 129,050 $ 91,221 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 32,964 $ 23,663 Accrued expenses and other current liabilities 9,421 13,225 Deferred revenue 1,869 1,501 Operating lease liabilities 2,593 — Total current liabilities 46,847 38,389 Operating lease liabilities, net of current portion 8,093 — Other long-term liabilities 3,128 1,062 Total liabilities 58,068 39,451 Commitments and contingencies (Note 12) 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; 20,784,065 shares and 14,635,834 shares issued and outstanding at December 31, 2020 and 2019, respectively 21 15 Class B common stock, $ 0.001 par value; 30,000,000 shares authorized; 7,429,502 shares and 11,802,341 shares issued and outstanding at December 31, 2020 and 2019, respectively 7 12 Additional paid-in capital 189,172 158,752 Accumulated other comprehensive loss ( 7 ) — Accumulated deficit ( 118,211 ) ( 107,009 ) Total stockholders’ equity 70,982 51,770 Total liabilities and stockholders’ equity $ 129,050 $ 91,221 The accompanying notes are an integral part of these consolidated financial statements. 63 Table of Contents EVERQUOTE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share amounts) Year Ended December 31, 2020 2019 Revenue $ 346,935 $ 248,811 Cost and operating expenses: Cost of revenue 21,373 15,903 Sales and marketing 284,880 202,689 Research and development 29,662 20,214 General and administrative 20,444 16,827 Acquisition-related costs 2,258 — Legal settlement — 1,227 Total cost and operating expenses 358,617 256,860 Loss from operations ( 11,682 ) ( 8,049 ) Other income: Interest income 189 669 Other income 291 263 Total other income 480 932 Net loss $ ( 11,202 ) $ ( 7,117 ) Net loss per share, basic and diluted $ ( 0.41 ) $ ( 0.28 ) Weighted average common shares outstanding, basic and diluted 27,329 25,759 Comprehensive loss: Net loss $ ( 11,202 ) $ ( 7,117 ) Other comprehensive income (loss): Foreign currency translation adjustment ( 7 ) — Comprehensive loss $ ( 11,209 ) $ ( 7,117 ) The accompanying notes are an integral part of these consolidated financial statements. 64 Table of Contents EVERQUOTE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Shares Amount Balances at December 31, 2018 7,528,741 $ 8 17,696,414 $ 18 $ 143,050 $ — $ ( 99,892 ) $ 43,184 Issuance of common stock upon exercise of stock options 645,920 1 — — 2,981 — — 2,982 Vesting of restricted stock units 567,100 — — — — — — — Stock-based compensation expense — — — — 12,721 — — 12,721 Transfer of Class B common stock to Class A common stock 5,894,073 6 ( 5,894,073 ) ( 6 ) — — — — Net loss — — — — — — ( 7,117 ) ( 7,117 ) Balances at December 31, 2019 14,635,834 15 11,802,341 12 158,752 — ( 107,009 ) 51,770 Contingent consideration to be settled in Class A common stock — — — — 1,335 — — 1,335 Issuance of common stock upon exercise of stock options 776,914 1 — — 4,906 — — 4,907 Vesting of restricted stock units 998,478 — — — — — — — Stock-based compensation expense — — — — 24,179 — — 24,179 Transfer of Class B common stock to Class A common stock 4,372,839 5 ( 4,372,839 ) ( 5 ) — — — — Foreign currency translation adjustment — — — — — ( 7 ) — ( 7 ) Net loss — — — — — — ( 11,202 ) ( 11,202 ) Balances at December 31, 2020 20,784,065 $ 21 7,429,502 $ 7 $ 189,172 $ ( 7 ) $ ( 118,211 ) $ 70,982 The accompanying notes are an integral part of these consolidated financial statements. 65 Table of Contents EVERQUOTE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ ( 11,202 ) $ ( 7,117 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 3,350 2,186 Loss on disposal of property and equipment — 98 Stock-based compensation expense 24,179 12,721 Change in fair value of contingent consideration 1,778 — Provision for bad debt 105 478 Changes in operating assets and liabilities, net of effects from acquisition: Accounts receivable ( 13,970 ) ( 15,232 ) Prepaid expenses and other current assets 623 ( 5,609 ) Operating lease right-of-use assets 2,076 — Other assets ( 554 ) ( 1 ) Accounts payable 9,301 6,837 Accrued expenses and other current liabilities ( 3,968 ) 10,126 Operating lease liabilities ( 2,233 ) — Deferred revenue 368 61 Other long-term liabilities 815 ( 135 ) Net cash provided by operating activities 10,668 4,413 Cash flows from investing activities: Acquisition of property and equipment, including costs capitalized for development of internal-use software ( 3,822 ) ( 2,975 ) Acquisition of business ( 14,930 ) — Net cash used in investing activities ( 18,752 ) ( 2,975 ) Cash flows from financing activities: Proceeds from exercise of stock options 4,907 2,982 Net cash provided by financing activities 4,907 2,982 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 7 ) — Net increase (decrease) in cash, cash equivalents and restricted cash ( 3,184 ) 4,420 Cash, cash equivalents and restricted cash at beginning of period 46,304 41,884 Cash, cash equivalents and restricted cash at end of period $ 43,120 $ 46,304 Supplemental disclosure of noncash investing and financing information: Fair value of contingent consideration in connection with acquisition included in stockholders’ equity $ 1,335 $ — Fair value of contingent consideration in connection with acquisition included in other long-term liabilities $ 416 $ — Operating lease liabilities arising from obtaining right-of-use assets $ 541 $ — Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 42,870 $ 46,054 Restricted cash (included in other assets) 250 250 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 43,120 $ 46,304 The accompanying notes are an integral part of these consolidated financial statements. 66 Table of Contents EVERQUOTE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business and Basis of Presentation EverQuote, Inc. (the “Company”) was incorporated in the state of Delaware in 2008. Through its internet websites, the Company operates an online marketplace for consumers shopping for auto, home and renters, life, health and commercial insurance. The Company generates revenue by selling consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States. The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, protection of proprietary technology, customer concentration, patent litigation, the need to obtain additional financing to support growth and dependence on third parties and key individuals. In addition, the Company is subject to risks and uncertainties relating to the ongoing outbreak of the novel strain of coronavirus (“COVID-19”), which the World Health Organization declared a pandemic in March 2020. The COVID-19 pandemic has continued to spread throughout the United States and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Work-from-home and other measures have introduced additional operational risks, including cybersecurity risks, and may adversely affect the way the Company and its customers and insurance providers conduct business. The extent to which the COVID-19 pandemic impacts the Company’s workforce, business, financial condition, results of operations and the Company’s use of estimates in preparation of its consolidated financial statements will depend on future developments, which are highly uncertain and cannot be predicted at this time. The accompanying 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 $ 11.2 million and $ 7.1 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the Company had an accumulated deficit of $ 118.2 million. As of the issuance date of these 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 consolidated financial statements, without considering borrowing availability of up to $ 25.0 million under the Company’s revolving line of credit. The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 2. Summary of Significant Accounting Policies 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 67 Table of Contents expensing and capitalization of website and software development costs, goodwill and acquired intangible assets, commissions receivable, the contingent consideration liability, the valuation of stock-based awards and income taxes. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in periods in which they become known. Actual results may differ from those estimates or assumptions. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of March 1, 2021, 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. Restricted Cash As of both December 31, 2020 and 2019, 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 accounts are classified within other assets. Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Concentrations of Credit Risk and of Significant Customers Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents at two accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company sells its consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States. For the years ended December 31, 2020 and 2019, one customer represented 22 % and 21 %, respectively, of total revenue. As of December 31, 2020, one customer accounted for 12 % of the accounts receivable balance. As of December 31, 2019, two customers accounted for 14 % each of the accounts receivable balance. 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. The Company’s allowance for doubtful accounts was $ 0.1 million as of December 31, 2020. The Company had no allowance for doubtful accounts as of December 31, 2019 . During the year ended December 31, 2020, the Company wrote off less than $ 0.1 million of uncollectible accounts. During the year ended December 31, 2019, the Company wrote off $ 0.5 million of uncollectible accounts. 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 68 Table of Contents 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 year ended December 31, 2020.​​​​​​​ Commissions Payable Commissions payable represent the estimated share of policy commissions earned by the Company’s agents. The current portion of commissions payable (included within accrued expenses and other current liabilities) are estimated commissions expected to be paid within one year, while the non-current portion of commissions payable (included within other long-term liabilities) are expected to be paid beyond one year. Goodwill and Acquired Intangible Assets The Company records goodwill when consideration paid in a business acquisition exceeds the value of the net assets acquired. The Company’s estimates of fair value are based upon assumptions believed to be reasonable at that time but that are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events or circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual results. During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the consolidated statements of operations and comprehensive loss as operating expenses or income. Goodwill is not amortized, but rather is tested for impairment annually, or more frequently if facts and circumstances warrant a review, such as significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. The Company has determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. The Company assesses both the existence of potential impairment and the amount of impairment loss by comparing the fair value of the reporting unit with its carrying amount, including goodwill. Intangible assets are recorded at their estimated fair values at the date of acquisition. The Company amortizes acquired intangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis. Valuation of Contingent Consideration The Crosspointe acquisition provides for shares of Class A common stock to be issued to the former owners of Crosspointe upon achievement of certain revenue targets over three years . Shares of Class A common stock issuable upon achievement of the first two annual targets are for a fixed number of shares of Class A common stock and, as such the Company has recorded the fair value of these shares within stockholders’ equity based on the number of shares issuable and the fair market value of Class A common stock on the acquisition date. Achievement of the third annual target will result in the issuance of a variable number of shares of Class A common stock and, as such, the Company has recorded the fair value of these shares as a long-term liability. The Company estimated the fair value of the shares of Class A common stock issuable upon achievement of the three annual targets as of the acquisition date. 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. The Company uses a Monte Carlo simulation model in its estimates. Significant assumptions and estimates utilized in the model include the forecasted revenue, revenue volatility and discount rate. Deferred Financing Costs The Company capitalizes lender, legal and other third-party fees that are directly associated with obtaining access to capital under credit facilities. Deferred financing costs incurred in connection with obtaining access to capital are recorded in prepaid expenses and other current assets and are amortized over the availability period or term of the credit facility. Deferred financing costs related to a recognized debt liability are recorded as a direct reduction of the carrying amount of the debt liability and amortized to interest expense on an effective interest basis over the repayment term. 69 Table of Contents Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows: ​​​​​​​ Estimated Useful Life Computer equipment 3 years Software 3 years Furniture and fixtures 5 years Leasehold improvements Shorter of lease term or estimated useful life Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations on the statements of operations and comprehensive loss. Expenditures for repairs and maintenance are charged to expense as incurred.​​​​​​​ Leases Prior to January 1, 2020, the Company accounted for leases under ASC 840, Leases (“ASC 840”). Effective January 1, 2020, the Company accounts for leases under ASC 842, Leases (“ASC 842”). Therefore, as of and for the year ended December 31, 2019, the Company’s financial statements continue to be presented in accordance with ASC 840, the accounting standard originally in effect for such period. As of and for the year ended December 31, 2020 the Company’s consolidated financial statements are presented in accordance with ASC 842. In accordance with ASC 842, the Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines if an arrangement is a lease or contains an embedded lease at inception. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its right-of-use asset and lease liability at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its estimated secured incremental borrowing rate for that lease term. The Company’s policy is to not record leases with an original term of twelve months or less on its consolidated balance sheets and recognizes those lease payments in the income statement on a straight-line basis over the lease term. The Company’s existing leases are for office space. In addition to rent, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components. The Company has elected to not separate lease and non-lease components. Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a right-of-use asset and lease liability. Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in operating expense in the consolidated statements of operations and comprehensive loss. Impairment of Long-Lived Assets Long-lived assets consist primarily of property and equipment, right-of-use assets and intangible assets with finite lives. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An 70 Table of Contents impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. The Company did no t record any impairment losses on long-lived assets during the years ended December 31, 2020 or 2019. 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 of $ 15.8 million as of December 31, 2020, consisting of money market funds, are carried at fair value based on Level 1 inputs. The carrying values of the Company’s accounts receivable, commissions receivable and commissions payable, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities. The Company’s contingent consideration included in other long-term liabilities is carried at fair value based on Level 3 inputs (see Note 3). Segment Information The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company operates an online marketplace for consumers shopping for auto, home and renters, life, health and commercial insurance quotes. Significantly all of the Company’s tangible assets are held in the United States. Revenue Recognition The Company derives its revenue by selling consumer referrals to its insurance provider customers, including insurance carriers and agents. On January 1, 2019, the Company adopted the new revenue standard ASC 606, which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries. To determine revenue recognition for arrangements that the Company determines are within the scope of the revenue standard, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when collectability of the consideration to which the Company is entitled in exchange for the goods or services it transfers to the customer is determined to be probable. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. The Company recognizes revenue when it 71 Table of Contents satisfies its performance obligations by delivering the referrals to its customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those referrals. The Company presents disaggregated revenue from contracts with customers by distribution channel as the distribution channel impacts the nature and amount of the Company’s revenue and by vertical market segment. Total revenue is comprised of revenue from the following distribution channels: Year Ended December 31, 2020 2019 Direct channels 92 % 94 % Indirect channels 8 % 6 % 100 % 100 % Total revenue is comprised of revenue from the following insurance verticals (in thousands): Year Ended December 31, 2020 2019 Automotive $ 283,236 $ 212,300 Other 63,699 36,511 Total Revenue $ 346,935 $ 248,811 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 December 31, 2020 and 2019, the Company had not capitalized any costs to obtain any of its contracts. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue. Deferred revenue was $ 1.9 million and $ 1.5 million as of December 31, 2020 and 2019, respectively. During the year ended December 31, 2020, the Company recognized revenue of $ 1.1 million that was included in the contract liability balance (deferred revenue) at December 31, 2019. The Company recognizes deferred revenue by first allocating from the beginning deferred revenue balance to the extent that the beginning deferred revenue balance exceeds the revenue to be recognized. Billings during the period are added to the deferred revenue balance to be recognized in future periods. Research and Development Research and development expenses consist primarily of personnel-related expenses (wages, fringe benefit costs and stock-based compensation expense) for product management and software development. Research and development costs are expensed as incurred, except for certain costs which are capitalized in connection with the development of the Company’s website and internal-use software. Costs incurred in the preliminary and post-implementation stages of development are expensed as incurred. Once an application has reached the development stage, internal costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing performed to ensure the product is ready for its intended use. The Company also capitalizes costs related to specific upgrades and enhancements of its website and internal-use software when it is probable that the expenditures will result in additional functionality. Maintenance and training costs are expensed as incurred. Capitalized software costs are recorded as part of property and equipment and are amortized on a straight-line basis over an estimated useful life of three years . Advertising Expense Advertising expense consists of variable costs that are related to attracting consumers to the Company’s marketplace and generating consumer quote requests and promoting its marketplace to insurance carriers and 72 Table of Contents 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 income (loss). During the years ended December 31, 2020 and 2019, advertising expense totaled $ 238.3 million and $ 175.5 million, respectively. Stock-Based Compensation The Company measures stock options with service-based vesting or performance-based vesting granted to employees, non-employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model. The Company measures stock options with market-based vesting based on the fair value on the date of grant using a Monte Carlo simulation model. The Company measures restricted common stock units based on the fair value on the date of grant using the market value of the Company’s common stock. Compensation expense for employee awards is recognized over the requisite service period, which is generally the vesting period of the respective award. The Company uses the straight-line method to record the expense of employee awards with only service-based vesting conditions. The Company uses the graded-vesting method to record the expense of employee awards with both service-based and performance-based vesting conditions, commencing once achievement of the performance condition becomes probable. Compensation expense for nonemployee awards is recognized in the same manner as if the Company had paid cash for the goods or services received. The Company classifies stock-based compensation expense in its statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. Foreign Currency Translation The functional currency of the Company’s foreign subsidiary is the currency of the local country. Assets and liabilities of the Company’s foreign subsidiary is translated into U.S. dollars using the period-end exchange rates, and income and expense items are translated into U.S. dollars using average exchange rates in effect during each period. The effects of these foreign currency translation adjustments are included in accumulated other comprehensive loss, a separate component of stockholders’ equity. The Company also incurs transaction gains and losses resulting from intercompany transactions as well as transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded. Foreign currency transaction gains (losses) are included in the consolidated statements of operations and comprehensive loss as a component of other income (expense) and has not been significant. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive loss are foreign currency translation adjustments. Net Income (Loss) per Share Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted stock units. For periods in which the Company reported a net loss, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their affect is anti-dilutive. The Company has two classes of common stock outstanding: Class A common stock and Class B common stock. As more fully described in Note 8, the rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. The Company allocates undistributed earnings attributable to common stock between the common stock classes on a one-to-one basis when computing net income (loss) per share. As a result, basic and diluted net income (loss) per share of Class A common stock and share of Class B common stock are equivalent. 73 Table of Contents 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: December 31, 2020 2019 Options to purchase common stock 2,188,919 2,827,868 Unvested restricted stock units 3,142,220 3,367,846 5,331,139 6,195,714 The Company may also issue up to 97,922 shares of common stock to the former owners of Crosspointe Insurance & Financial Services, LLC, upon the achievement of certain revenue targets (see Note 3). These shares were not included in the Company’s calculation of basic or diluted net income (loss) per common share or in the table above. Income Taxes The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. The Company’s policy is to record interest and penalties related to income taxes as part of the tax provision. Recently Adopted Accounting Pronouncements The Company adopted ASU No. 2016-02, Leases (Topic 842), effective January 1, 2020, using the modified retrospective method under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. Since the C omp any ceased to be an emerging growth company as of December 31, 2020, the C ompan y adopted the standard during the fourth quarter of 2020 effective as of January 1, 2020. The modified retrospective transition method allows entities to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented. The Company’s reporting for comparative periods is presented in accordance with ASC 840. Adoption of the new standard resulted in the recording of right-of-use (“ROU”) assets and lease liabilities of $ 9.7 million and $ 10.9 million, respectively. The adoption of the standard did not have a material impact on the Company’s results of operations or cash flows. The Company elected to use the transition package of three practical expedients, which among other things, allowed the Company to carry forward the historical lease classification. The Company has elected, under AS C 842, the further practical expedient not to separate non-lease components from the lease components to which they relate and instead to combine them and account for them as a single lease component. The Company also elected the accounting policy election to keep leases with a term of twelve months or less off the balance sheet and to recognize payments for those leases on a 74 Table of Contents straight-line basis over the lease term. The underlying assets of the Company’s leases as of the adoption date consisted of office space. The Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) for the year ended December 31, 2020. This standard requires entities to estimate an expected lifetime credit loss on financial assets and report credit losses using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks. The adoption of this standard did not have a material impact on the consolidated financial statements and related disclosures. The Company adopted ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (Subtopic 350-40) for the year ended December 31, 2020. The objective of the standard is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this standard did not have a material impact on the consolidated financial statements and related disclosures. Recently Issued Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740) . The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles as well as clarifying and amending existing guidance to improve consistent application. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements. 3. Acquisition On September 1, 2020, the Company completed the acquisition of Crosspointe Insurance & Financial Services, LLC (“Crosspointe”), a health insurance agency headquartered in Evansville, Indiana. Crosspointe 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 Crosspointe 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 Crosspointe 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 Crosspointe upon achievement of certain revenue targets over three years . The former owners of Crosspointe are eligible to receive up to 97,922 shares of Class A common stock upon achievement of certain revenue targets. These revenue targets are measured in annual intervals. Shares of Class A common stock issuable upon achievement of the first two annual targets are for a fixed number of shares of Class A common stock and , as such, the Company has recorded the fair value of these shares within stockholders’ equity based on the number of shares issuable and the fair market value of Class A common stock on the acquisition date. Achievement of the third annual target will result in the issuance of a variable number of shares of Class A common stock and , as such, the Company has recorded the fair value of these shares as a long-term liability. The Company’s 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 is subject to change upon finalizing its valuation analysis. The 75 Table of Contents 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 first half of 2021. The Company estimated the fair value of the shares of Class A common stock issuable upon achievement of the three annual targets as of the acquisition date. 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. The Company uses a Monte Carlo simulation model in its estimates. Significant assumptions and estimates utilized in the model include the forecasted revenue, revenue volatility and discount rate. As of September 1, 2020, the acquisition date, the estimated fair value of the contingent consideration included in other long-term liabilities was $ 0.4 million. The Company recognizes changes in the fair value of the liability in earnings until the liability is fully settled. As of December 31, 2020, the Company estimated the fair value of the contingent consideration included in other long-term liabilities to be $ 2.2 million, and as a result recorded a $ 1.8 million charge to acquisition-related costs for the increase in fair value subsequent to the acquisition date. The following tables summarize the preliminary purchase price for Crosspointe and the preliminary allocation of the purchase price (in thousands): Cash paid $ 14,930 Fair value of contingent consideration to be settled in stock 1,751 Total purchase price consideration $ 16,681 Assets acquired and liabilities assumed: Commission receivable (current and long-term) $ 3,460 Customer relationships 3,600 Other identifiable intangible assets 270 Operating lease right-of-use assets 1,469 Goodwill 9,794 Total assets acquired 18,593 Accounts payable and accrued expenses (current and long-term) ( 443 ) Operating lease liabilities ( 1,469 ) Total allocation of purchase price consideration $ 16,681 Customer relationships were valued using the income approach. Significant assumptions and estimates utilized in the model include the customer attrition rate and discount rate. Acquired intangible assets are amortized over their estimated useful lives of three to five years based on the pattern of consumption of the economic benefits of the intangible asset. Commissions receivable were recorded at constrained lifetime values. 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 from the Crosspointe acquisition is included within the Company’s one reporting unit and is included in the Company’s enterprise-level annual review for impairment. Goodwill resulting from the acquisition of Crosspointe is deductible for tax purposes. The Company incurred costs of $ 0.5 million 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 76 Table of Contents of operations for the acquisition have not been presented as they are not material to the Company’s consolidated results of operations.​​​​​​​ 4. Goodwill and Acquired Intangible Assets The carrying amount of goodwill was $ 9.8 million as of December 31, 2020 related to goodwill from the Company’s acquisition of Crosspointe. 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. Acquired intangible assets consisted of the following (in thousands): December 31, 2020 Weighted Average Useful Life Gross Amount Accumulated Amortization Carrying Value (in years) Customer relationships 5 $ 3,600 $ ( 464 ) $ 3,136 Other identifiable intangible assets 3.7 270 ( 40 ) 230 $ 3,870 $ ( 504 ) $ 3,366 Future amortization expense of the intangible assets as of December 31, 2020, is expected to be as follows (in thousands): Year Ending December 31, 2021 $ 1,182 2022 826 2023 609 2024 440 2025 309 $ 3,366 5. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2020 2019 Computer equipment $ 2,183 $ 1,940 Software 11,113 8,829 Furniture and fixtures 1,127 1,032 Leasehold improvements 921 850 15,344 12,651 Less: Accumulated depreciation and amortization ( 9,171 ) ( 7,454 ) $ 6,173 $ 5,197 Depreciation and amortization expense was $ 2.8 million and $ 2.2 million for the years ended December 31, 2020 and 2019, respectively. The Company capitalized costs associated with the development of internal use software of $ 3.0 million and $ 2.7 million included in the Software line item above and recorded related amortization expense of $ 2.2 million and $ 1.4 million (included in depreciation and amortization expense) during the years ended December 31, 2020 and 2019, respectively. The remaining net book value of capitalized software costs was $ 4.8 million and $ 4.0 million as of December 31, 2020 and 2019, respectively. 77 Table of Contents 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2020 2019 Accrued employee compensation and benefits $ 4,105 $ 2,388 Accrued advertising expenses 2,596 4,119 Accrued legal settlement — 4,750 Other current liabilities 2,720 1,968 $ 9,421 $ 13,225 7. Loan and Security Agreement As of December 31, 2019, the Company had available borrowings of $ 11.0 million under its amended Loan and Security Agreement, as modified by the 2018 Loan and Modification Agreement (the “2018 Loan Modification”). Pursuant to the 2018 Loan Modification, borrowings under the revolving line of credit could not exceed 80 % of eligible accounts receivable balances and bore interest at one-half percent ( 0.5 %) above the greater of 4.25 % or the prime rate. The 2018 Loan Modification was amended during the three months ended March 31, 2020 to extend the availability of the line of credit to May 2020 . The 2018 Loan Modification was amended and restated in August 2020 (the “2020 Loan Agreement”) to increase the available line of credit to $ 25.0 million, extend the maturity date to August 2022 and amend the interest rate. Pursuant to the 2020 Loan Agreement, borrowings under the revolving line of credit cannot exceed 80 % of eligible accounts receivable balances and bear interest at the greater of 3.25 % or the prime rate . Borrowings are collateralized by substantially all of the Company’s assets and property. As of December 31, 2020, the Company had available borrowings of $ 25.0 million under the 2020 Loan Agreement. 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. As of December 31, 2020, the Company was in compliance with these covenants. In addition, the Company is required to maintain a financial performance covenant: a minimum asset coverage ratio of 1.5 to 1, calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit. Events which would meet the criteria of a default under the 2020 Loan Agreement include failure to make payments when due, insolvency events, failure to comply with covenants or material adverse events with respect to the Company. As of December 31, 2020, the Company had no amounts outstanding on the revolving line of credit. 8. Equity Each share of Class A common stock entitles the holder to one vote for each share on all matters submitted to a vote of the Company’s stockholders at all meetings of stockholders and written actions in lieu of meetings. Each share of Class B common stock entitles the holder to ten votes for each share on all matters submitted to a vote of the Company’s stockholders at all meetings of stockholders and written actions in lieu of meetings. Holders of both classes of common stock are entitled to receive dividends, when and if declared by the board of directors. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. Automatic conversion shall occur upon the occurrence of a transfer of such share of Class B common stock or at the date and time, or the occurrence of an event, specified by a vote or written consent of the holders of a majority of the voting power of the then outstanding shares of Class B common stock.​​​​​​​ 78 Table of Contents A transfer is described as a sale, assignment, transfer, conveyance, hypothecation or disposition of such share or any legal or beneficial interest in such share other than certain permitted transfers as described in the Restated Certificate of Incorporation, including a transfer to a holder of Preferred Stock. Each share of Class B common stock held by a stockholder shall automatically convert into one fully paid and non-assessable share of Class A common stock nine months after the death or incapacity of the holder of such Class B common stock.​​​​​​​ 9. Stock-Based Compensation The Company has outstanding awards under its 2008 Stock Incentive Plan, as amended (the “2008 Plan”), but is no longer granting awards under this plan. Shares of common stock issued upon exercise of stock options granted prior to September 8, 2017 will be issued as either Class A common stock or Class B common stock. Shares of common stock issued upon exercise of stock options granted after September 8, 2017 will be issued as Class A common stock. The Company’s 2018 Equity Incentive Plan (the “2018 Plan” and, together with the 2008 Plan, the “Plans”) provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards. The number of shares initially reserved for issuance under the 2018 Plan is the sum of 2,149,480 shares of Class A common stock, plus the number of shares (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. As of December 31, 2020, 1,026,673 shares remain available for future grants under the 2018 Plan. The number of authorized shares reserved for issuance under the 2018 Plan was increased by 1,410,678 shares effective as of January 1, 2021 in accordance with the provisions of the 2018 Plan described above. Options and restricted stock units 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. Stock Option Valuation During the year ended December 31, 2020, the Company granted 531,108 options with service-based, market-based and performance-based vesting conditions. The fair value of these grants is estimated using a Monte Carlo simulation model. Assumptions and estimates utilized in the model include the risk-free interest rate, dividend yield, expected stock volatility and the estimated period to achievement of the performance and market condition. 79 Table of Contents The following table presents the assumptions used in the Monte Carlo simulation model to determine the fair value of these stock-based awards on their issuance date: Risk-free interest rate 1.5 % Expected volatility 49.0 % Expected dividend yield 0 % Derived service period (in years) 4.1 Stock-based compensation expense is recognized when the achievement of the performance-based vesting conditions is probable regardless of whether the market condition is achieved. The aggregate grant date fair value of these options was $ 8.1 million. As the Company has deemed achievement of the performance condition to be probable, the Company is recognizing stock-based compensation for these awards over the estimated service period using the graded-vesting method. The Company did not grant stock options in the year ended December 31, 2019. Stock Option Activity The following table summarizes the Company’s option activity since December 31, 2019: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in years) (in thousands) Outstanding as of December 31, 2019 2,827,868 $ 7.17 6.5 $ 76,850 Granted 531,108 45.17 Exercised ( 776,914 ) 6.32 Forfeited ( 393,143 ) 33.26 Outstanding as of December 31, 2020 2,188,919 $ 12.01 5.72 $ 57,538 Vested and expected to vest as of December 31, 2020 2,121,884 $ 12.12 5.71 $ 55,616 Options exercisable as of December 31, 2020 1,370,762 $ 6.94 4.84 $ 41,689 As of December 31, 2020, outstanding options of 1,032,613 were for the purchase of Class A common stock and outstanding options of 1,156,306 were for the purchase of either Class A common stock or Class B common stock. The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had strike prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of options exercised during the years ended December 31, 2020 and 2019 was $ 26.6 million and $ 8.8 million, respectively. Restricted Stock Units The Company has granted restricted stock units (“RSUs”) with service-based vesting conditions and with both service-based and performance-based vesting conditions. RSUs with service-based and both service-based and performance-based vesting conditions are valued on the grant date using the grant date market price of the underlying shares. 80 Table of Contents The following table summarizes the Company’s RSU activity since December 31, 2019: Number of Shares Weighted Average Grant- Date Fair Value Unvested balance December 31, 2019 3,367,846 $ 14.84 Granted 1,331,417 42.35 Vested ( 998,478 ) 16.30 Forfeited ( 558,565 ) 19.02 Unvested balance December 31, 2020 3,142,220 $ 25.29 As of December 31, 2020, the Company had outstanding 270,131 unvested RSUs with performance-based vesting conditions for which achievement of the performance condition has not been deemed probable. 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): Year Ended December 31, 2020 2019 Cost of revenue $ 361 $ 193 Sales and marketing 10,246 3,805 Research and development 7,751 3,967 General and administrative 5,821 4,756 $ 24,179 $ 12,721 Stock-based compensation expense for the year ended December 31, 2020 included a total of $ 2.0 million 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 December 31, 2020, unrecognized compensation expense for RSUs and option awards with service-based vesting conditions and RSUs and option awards with performance-based vesting conditions either achieved or deemed probable of being achieved was $ 50.1 million, which is expected to be recognized over a weighted average period of 3.6 years. Additionally, the Company had unrecognized compensation expense of $ 5.8 million related to unvested awards with performance-based vesting conditions, which have not been deemed probable. 81 Table of Contents 10. Income Taxes The Company had no income tax expense for the years ended December 31, 20 20 or 20 19 . The Company’s foreign operations have not been significant and therefore, the Company has no t provided for any foreign taxes. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended December 31, 2020 2019 Federal statutory income tax rate 21.0 % 21.0 % State taxes, net of federal benefit 4.2 5.5 Federal and state research and development tax credits 12.4 19.4 Nondeductible items ( 0.7 ) ( 1.6 ) Stock-based compensation 97.2 13.3 Other 2.2 ( 0.9 ) Change in valuation allowance ( 136.3 ) ( 56.7 ) Effective income tax rate — % — % Net deferred tax assets as of December 31, 2020 and 2019 consisted of the following (in thousands): December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 19,197 $ 8,165 Research and development tax credit carryforwards 6,470 5,040 Accrued expenses and other current liabilities 566 671 Intangible assets 1,598 33 Property and equipment 220 215 Stock-based compensation 3,092 1,463 Operating lease liability 2,829 — Other 221 725 Total deferred tax assets 34,193 16,312 Valuation allowance ( 30,558 ) ( 15,292 ) Net deferred tax assets 3,635 1,020 Deferred tax liabilities: Capitalized software development costs ( 1,088 ) ( 1,020 ) Operating lease right-of-use assets ( 2,547 ) — Deferred tax liabilities ( 3,635 ) ( 1,020 ) Net deferred tax assets and liabilities $ — $ — As of December 31, 2020, the Company had federal net operating loss carryforwards of $ 72.9 million, which may be available to offset future taxable income, of which $ 9.0 million of the total net operating loss carryforwards expire at various dates beginning in 2029 , while the remaining $ 63.9 million do not expire but are limited in their usage to an annual deduction equal to 80 % of annual taxable income. As of December 31, 2020, the Company had state net operating loss carryforwards of $ 60.7 million, which may be available to offset future taxable income and expire at various dates beginning in 2027 . As of December 31, 2020, the Company also had federal and state research and development tax credit carryforwards of $ 4.5 million and $ 2.4 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2030 and 2029 , respectively. 82 Table of Contents Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 and Section 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income and tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. In 2019, the Company performed an analysis of the ownership changes as defined within IRC §382(g) during the period beginning with the first issuance of the Company’s stock on August 8, 2008 through June 30, 2019. It was determined that it is more likely than not that the Company did not undergo an ownership change within the meaning of IRC §382(g) during the analysis period. Therefore net operating losses for that period are not limited and will be available to cover future taxable income. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets, which are comprised primarily of net operating loss carryforwards and research and development tax credit carryforwards. Management has considered the Company’s history of cumulative net losses incurred since inception, estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2020 and 2019. The Company reevaluates the positive and negative evidence at each reporting period. The change in the valuation allowance for deferred tax assets during the years ended December 31, 2020 and 2019 related primarily to an increase in net operating loss carryforwards and research, development tax credit carryforwards and stock-based compensation expense. The changes in the valuation allowance were as follows (in thousands): ​​​​​​​ Year Ended December 31, 2020 2019 Valuation allowance as of beginning of year $ 15,292 $ 11,257 Increases recorded to tax provision 15,266 4,035 Valuation allowance as of end of year $ 30,558 $ 15,292 The Company assesses the uncertainty in its income tax positions to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more-likely-than-not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. No reserve for uncertain tax positions or related interest and penalties has been recorded at December 31, 2020 and 2019. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company is open to future tax examination under statute from 2017 to the present, however, carryforward attributes that were generated prior to January 1, 2017 may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in a future period. 11. Leases The Company leases office space in Cambridge, Massachusetts under a non-cancelable operating lease that expires in September 2024 . The Company also leases office space in Woburn, Massachusetts under a 83 Table of Contents non-cancelable operating lease that expires in January 2022 . In the first quarter of 2020, the Company entered into a three-year non-cancelable operating lease in Seattle, Washington under which lease payments commenced in the second quarter of 2020. In connection with the acquisition of Crosspointe, the Company acquired a ten-year non-cancelable operating lease in Evansville, Indiana that expires in August 2030 . As of December 31, 2020 and 2019, the Company maintained security deposits of $ 0.5 million and $ 0.4 million, respectively, with the landlords of its leases, which amounts are included in other assets on the Company’s consolidated balance sheet. The components of lease cost under ASC 842 were as follows (in thousands): Year Ended December 31, 2020 Operating lease cost $ 2,590 Short-term lease cost — Variable lease cost 387 $ 2,977 Supplemental disclosure of cash flow information related to leases was as follows (in thousands): Year Ended December 31, 2020 Cash paid for amounts included in the measurement of operating lease liabilities $ 2,747 Operating lease liabilities arising from obtaining right-of-use assets $ 541 The weighted-average remaining lease term and discount rate were as follows: December 31, 2020 Weighted-average remaining lease term - operating leases (in years) 4.44 Weighted-average discount rate - operating leases 4.67 % Because the interest rate implicit in the lease was not readily determinable, the Company’s incremental borrowing rate was used to calculate the present value of the leases. In determining its incremental borrowing rate, the Company considered its credit quality and assessed interest rates available in the market for similar borrowings, adjusted for the impact of collateral over the term of the lease. Future annual lease payments under the Company’s leases as of December 31, 2020 were as follows (in thousands): Year Ending December 31, 2021 $ 3,025 2022 2,872 2023 2,785 2024 2,099 2025 177 Thereafter 826 Total future minimum lease payments 11,784 Less: imputed interest ( 1,098 ) Total operating lease liabilities $ 10,686 84 Table of Contents The following table presents lease assets and liabilities and their classification on the consolidated balance sheet (in thousands): Included in the balance sheet (in thousands): December 31, 2020 Current operating lease liabilities $ 2,593 Operating lease liabilities, net of current portion 8,093 Total operating lease liabilities $ 10,686 Disclosures under ASC 840 The following table summarizes the future minimum lease payments due under the Company’s operating leases as of December 31, 2019 (in thousands), presented in accordance with ASC 840, the relevant accounting standard at that time: Year Ending December 31, 2020 $ 2,573 2021 2,659 2022 2,502 2023 2,534 2024 1,922 Thereafter — $ 12,190 12. Commitments and Contingencies Leases The Company’s commitments under its leases are described in Note 11. 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 December 31, 2020 and 2019, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2020 and 2019, respectively. Legal Proceedings and Other Contingencies On February 15, 2019, Sean F. Townsend, a purported holder of the Company’s common stock, filed a civil action in the Supreme Court for the State of New York against the Company, the Company’s chief executive officer, chief financial officer, general counsel, the Company’s directors, and the Company’s 85 Table of Contents underwriters for its IPO, captioned Townsend v. EverQuote, Inc. et al. , Index No. 650997-2019. On February 26, 2019, Mark Townsend, a second purported holder of the Company’s common stock, filed an identical civil action in the Supreme Court for the State of New York against the same defendants, captioned Townsend v. EverQuote, Inc. et al. , Index No. 651177-2019. The plaintiffs alleged claims for violations of Sections 11, 12(a), and 15 of the Securities Act of 1933, on behalf of a purported class of all persons or entities who purchased or otherwise acquired the Company’s common stock pursuant or traceable to the Registration Statement issued in connection with its IPO. Those claims generally challenged as false or misleading certain of the Company’s disclosures about its quote request volume. The plaintiffs sought, on behalf of themselves and the purported class, damages, costs and expenses of litigation, and rescission, disgorgement, or other equitable relief. After filing a motion to dismiss the plaintiffs’ consolidated amended complaint, the Company participated in a mediation and agreed to pay $ 4.8 million in settlement of all of plaintiffs’ purported class claims, of which $ 3.6 million was reimbursed by the Company’s insurance provider. The parties thereafter on February 6, 2020 filed a Stipulation of Settlement settling the litigation in principle, subject to final approval of the Court. On June 11, 2020, the Court entered a final order approving the settlement and terminating the case. The Company was contacted by a representative from a state tax assessor’s office requesting remittance of uncollected sales taxes. The Company does not believe its services are taxable in this state and is investigating this request and intends to vigorously defend this position. If the Company does not prevail in its position, uncollected sales taxes due for the period could amount to approximately $ 1.5 million, including interest and penalties. The Company has not recorded any liabilities related to this matter as the loss has not been deemed probable. On April 29, 2020, EverQuote was named as a defendant in a putative, statewide (Colorado) class action lawsuit filed in U.S. District Court for the District of Colorado captioned Scott M. Runyon v EverQuote, Inc. The complaint alleged that the Company violated the Telephone Consumer Protection Act by making unsolicited marketing calls to his cellphone and those of other Colorado residents using an automatic telephone dialing system without prior express consent. Plaintiff sought, among other forms of relief, statutory damages of $ 500 to $ 1,500 for each alleged violation and an order enjoining future violations. Plaintiff also asserted an individual claim against the Company for invasion of privacy arising out of the same calls to his cellphone and a claim for unspecified damages. The Company believed Plaintiff’s claims lacked merit. On July 23, 2020, the U.S. District Court granted a stay pending the Supreme Court’s decision in Facebook Inc. v. Duguid, Case No. 19-511. In October 2020 the case was resolved on an individual basis for an immaterial amount, with EverQuote denying any wrongdoing, and was dismissed pursuant to settlement in November 2020. On July 30, 2020, EverQuote was named as a defendant in a putative, nationwide class action lawsuit filed in U.S. District Court for the Western District of Pennsylvania captioned Carol Scavo v. EverQuote, Inc. The complaint alleged that the Company violated the Telephone Consumer Protection Act by sending unsolicited text message advertisements to her cellphone and those of other United States residents using an automatic telephone dialing system without prior express consent. Plaintiff sought, among other forms of relief, statutory damages of $ 500 to $ 1,500 for each alleged violation and an order enjoining future violations. The Company believed Plaintiff’s claims lacked merit. The case was resolved on an individual basis for an immaterial amount, with EverQuote denying any wrongdoing, and was dismissed pursuant to settlement in October 2020. 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. 13. 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 86 Table of Contents 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 $ 0.7 million and $ 0.5 million during the years ended December 31, 2020 and 2019, respectively.​​​​​​​ 14. Related Party Transactions The Company has, in the ordinary course of business, entered into arrangements with other companies who have shareholders in common with the Company. Pursuant to these arrangements, related-party affiliates receive payments for providing website visitor referrals and to a lesser extent a small amount of office space. During the years ended December 31, 2020 and 2019, the Company recorded expense of $ 3.1 million and $ 5.2 million, respectively, related to these arrangements. During the years ended December 31, 2020 and 2019, the Company paid $ 3.1 million and $ 5.7 million, respectively, related to these arrangements. As of December 31, 2020 and 2019, amounts due to related-party affiliates totaled $ 0.5 million and $ 0.6 million, respectively, which were included in accounts payable and accrued expenses on the balance sheets. 15. Selected Quarterly Financial Data (Unaudited) The following information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments necessary for a fair statement of such information (in thousands except per share data): Three Months Ended Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019 Jun 30, 2019 Mar 31, 2019 Statements of Operations Data: Revenue $ 97,292 $ 89,977 $ 78,302 $ 81,364 $ 73,799 $ 67,112 $ 55,667 $ 52,233 Cost of revenue 5,683 5,378 4,977 5,335 4,681 4,052 3,504 3,666 Loss from operations ( 3,784 ) ( 3,289 ) ( 2,956 ) ( 1,653 ) ( 1,155 ) ( 82 ) ( 2,246 ) ( 4,566 ) Net income (loss) ( 3,768 ) ( 3,184 ) ( 2,808 ) ( 1,442 ) ( 934 ) 173 ( 1,974 ) ( 4,382 ) Basic and diluted net income (loss) per share available (attributable) to common stockholders: $ ( 0.13 ) $ ( 0.12 ) $ ( 0.10 ) $ ( 0.05 ) $ ( 0.04 ) $ 0.01 $ ( 0.08 ) $ ( 0.17 ) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.