What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-06 · 101 added, 58 removed, 278 unchanged (36% of the section changed)

1 unchanged sentence

The following discussion of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q

and our financial statements and the related notes and other financial information included in our Annual Report on Form 10-K

and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K

for the year ended December 31, 2020, on file with the Securities and Exchange Commission.

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insurance offerings in our life vertical and in our health vertical via the acquisition of Crosspointe Insurance & Financial Services, LLC, or Crosspointe.

In the three months ended March 31, 2021 and 2020, our total revenue was $103.8 million and $81.4 million, respectively, representing year-over-year growth of 28%.

We had net losses of $3.8 million and $1.4 million for the three months ended March 31, 2021 and 2020, respectively, and had $4.8 million and $3.8 million in adjusted EBITDA for the three months ended March 31, 2021 and 2020, respectively.

In the three months ended June 30, 2021 and 2020, our total revenue was $105.1 million and $78.3 million, respectively, representing year-over-year growth of 34.2%.

We had net losses of $1.9 million and $2.8 million for the three months ended June 30, 2021 and 2020, respectively, and had $6.6 million and $4.0 million in adjusted EBITDA for the three months ended Jun 30, 2021 and 2020, respectively.

In the six months ended June 30, 2021 and 2020, our total revenue was $208.9 million and $159.7 million, respectively, representing year-over-year growth of 30.8%.

We had net losses of $5.7 million and $4.3 million for the six months ended June 30, 2021 and 2020, respectively, and had $11.4 million and $7.8 million in adjusted EBITDA for the six months ended June 30, 2021 and 2020, respectively.

See the section titled “—Non-GAAP Financial

Measure” for information regarding our use of adjusted EBITDA and its reconciliation to net income (loss) determined in accordance with generally accepted accounting principles in the United States, or GAAP.

Measure” for information regarding our use of adjusted EBITDA and its reconciliation to net income (loss) determined in accordance with generally accepted accounting principles in the

United States, or GAAP.

In March 2020, the World Health Organization declared the outbreak of COVID-19

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orders went into effect consumers performed less searches for insurance online.

To support the health and well-being of our employees, customers, partners and communities, a majority of our employees continue to work remotely as of May 6, 2021.

While such disruptions have not had a material adverse impact on our financial results through March 31, 2021, such disruptions may impact consumer insurance shopping behavior.

To support the health and well-being of our employees, customers, partners and communities, a majority of our employees continue to work remotely, however our offices are open for use.

While such disruptions have not had a material adverse impact on our financial results through June 30, 2021, such disruptions may impact consumer insurance shopping behavior.

We continue to monitor and are managing our operations for the ongoing impact of COVID-19.

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Insurance provider bids are influenced by competition in our marketplace auctions, the performance of our consumer referrals for insurance providers relative to other consumer acquisition channels, as well as by market conditions, insurance provider budgets and insurance providers’ new customer acquisition targets.

Increases in revenue per quote request allow us to increase advertising and consumer traffic to our marketplace while

maintaining or increasing variable marketing margin.

Increases in revenue per quote request allow us to increase advertising and consumer traffic to our marketplace while maintaining or increasing variable marketing margin.

Cost per quote request

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Key Business Metrics

We regularly review a number of metrics, including United States generally accepted accounting principles, or GAAP, operating results and the key metrics listed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make operating and strategic decisions.

We regularly review a number of metrics, including GAAP operating results and the key metrics listed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make operating and strategic decisions.

Some of these metrics are non-financial metrics or

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Our revenue is comprised of consumer referral fees from the automotive and other insurance verticals, which includes home and renters, life, health and commercial insurance verticals, as follows:

Three Months Ended March 31,

Ended June 30,

(in thousands)

Total Revenue

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Sales and Marketing

Sales and marketing expense consists primarily of advertising and marketing expenditures as well as personnel-related costs for employees engaged in sales, marketing, data analytics and consumer acquisition functions and amortization of sales and marketing-related intangible assets.

Sales and marketing expenses consist primarily of advertising and marketing expenditures as well as personnel-related costs for employees engaged in sales, marketing, data analytics and consumer acquisition functions and amortization of sales and marketing-related intangible assets.

Advertising expenditures consist of variable costs that are related to attracting consumers to our marketplace, generating consumer quote requests, and promoting our marketplace to carriers and agents.

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Acquisition-related

Acquisition-related costs include expenses associated with third-party professional services we utilize for the evaluation and execution of successful acquisitions as well as changes in the fair value of our contingent consideration liability recorded as the result of the Crosspointe acquisition.

Acquisition-related costs include expenses associated with third-party professional services we utilize for the evaluation and execution of acquisitions as well as changes in the fair value of our contingent consideration liability recorded as the result of the Crosspointe acquisition.

Other income consists of interest income and other income.

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Other income consists of miscellaneous income unrelated to our core operations.

We have not recorded income tax benefits for the net losses we have incurred in the three months ended March 31, 2021 and 2020 or for our research and development tax credits generated, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized.

We have not recorded income tax benefits for the net losses we have incurred in the six months ended June 30, 2021 and 2020 or for our research and development tax credits generated, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized.

As of December 31, 2020, we 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.

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Reconciliation of Net Loss to Adjusted EBITDA:

Three Months Ended March 31,

Ended June 30,

(in thousands)

Stock-based compensation

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Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020

Comparison of the Three and Six Months Ended June 30, 2021 and 2020

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

Three Months Ended March 31,

Ended June 30,

(in thousands)

Statement of Operations Data:

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Comprised of revenue from the following distribution channels:

Three Months Ended March 31,

Ended June 30,

Direct channels

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Includes stock-based compensation expense as follows:

Three Months Ended

Ended June 30,

(in thousands)

Cost of revenue

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Three Months Ended

Six Months Ended

(dollars in thousands)

Revenue increased by $22.5 million from $81.4 million for the three months ended March 31, 2020 to $103.8 million for the three months ended March 31, 2021.

(dollars in thousands)

Revenue increased by $26.8 million from $78.3 million for the three months ended June 30, 2020 to $105.1 million for the three months ended June 30, 2021.

The increase in revenue was due to increases of $21.8 million and $5.0 million from our automotive and other insurance marketplace verticals, respectively.

The increase in revenue from our automotive vertical was primarily due to an increase in revenue per quote request as a result of increased demand for higher performing consumer referrals by our insurance providers.

The increase in revenue from our other marketplace verticals was primarily driven by an increase in the volume of quote requests resulting from increased advertising to attract consumers and an increase in revenue per quote request as a result of increased demand for higher performing consumer referrals by our insurance providers.

The increase in revenue from our other marketplace verticals was driven by an increase in revenue per quote request as a result of increased demand for consumer referrals by our insurance providers, partially offset by a decrease in the volume of quote requests.

Revenue increased by $49.2 million from $159.7 million for the six months ended June 30, 2020 to $208.9 million for the six months ended June 30, 2021.

The increase in revenue was due to increases of $38.6 million and $10.6 million from our automotive and other insurance marketplace verticals, respectively.

The increase in revenue from our other marketplace verticals was primarily driven by an increase in revenue per quote request as a result of increased demand for consumer referrals by our insurance providers and to a lesser extent, an increase in the volume of quote requests resulting from increased advertising to attract consumers.

Cost of Revenue

Three Months Ended March 31,

Ended June 30,

(dollars in thousands)

Cost of revenue

Percentage of revenue

Cost of revenue increased by $0.6 million from $5.3 million for the three months ended March 31, 2020 to $6.0 million for the three months ended March 31, 2021.

Cost of revenue increased due primarily to increased hosting costs of $0.3 million and to increased third-party call center costs of $0.2 million related to volume increases.

Cost of revenue increased by $0.8 million from $5.0 million for the three months ended June 30, 2020 to $5.8 million for the three months ended June 30, 2021.

The increase in cost of revenue was primarily due to increased third-party call center costs of $0.2 million related to volume increases of call referrals, increased hosting costs of $0.2 million, increased technical service costs of $0.2 million and increased depreciation and amortization expense of $0.2 million

Cost of revenue increased by $1.5 million from $10.3 million for the six months ended June 30, 2020 to $11.8 million for the six months ended June 30, 2021.

The increase in cost of revenue was primarily due to increased third-party call center costs of $0.6 million related to volume increases of call referrals, increased hosting costs of $0.5 million, increased technical service costs of $0.3 million and increased depreciation and amortization expense of $0.2 million.

Sales and Marketing

Three Months Ended March 31,

Ended June 30,

(dollars in thousands)

Sales and marketing expense

Percentage of revenue

Sales and marketing expenses increased by $21.1 million from $66.5 million for the three months ended March 31, 2020 to $87.6 million for the three months ended March 31, 2021.

Sales and marketing expenses increased by $21.0 million from $64.6 million for the three months ended June 30, 2020 to $85.6 million for the three months ended June 30, 2021.

The increase in sales and marketing expense was primarily due to an increase in advertising expenditures of $17.4 million and an increase in personnel-related costs of $3.2 million.

Personnel-related costs for the three months ended March 31, 2021 and 2020 included stock-based compensation expense of $3.4 million and $1.7 million, respectively.

Sales and marketing expenses increased by $42.1 million from $131.1 million for the six months ended June 30, 2020 to $173.2 million for the six months ended June 30, 2021.The increase in sales and marketing expense was primarily due to an increase in advertising expenditures of $32.2 million and an increase in personnel-related costs of $8.5 million.

Personnel-related costs for the six months ended June 30, 2021 and 2020 included stock-based compensation expense of $5.9 million and $4.2 million, respectively.

Research and Development

Three Months Ended March 31,

Ended June 30,

(dollars in thousands)

Research and development expense

Percentage of revenue

Research and development expenses increased by $2.1 million from $6.5 million for the three months ended March 31, 2020 to $8.6 million for the three months ended March 31, 2021.

Research and development expenses increased by $2.1 million from $7.0 million for the three months ended June 30, 2020 to $9.1 million for the three months ended June 30, 2021.

The increase in research and development expense was primarily due to an increase in personnel-related costs of $1.6 million as a result of our continued hiring of research and development employees and a shift towards hiring more senior personnel, to further develop and enhance our marketplace websites and technology.

Personnel-related costs for the three months ended March 31, 2021 and 2020 included stock-based compensation expense of $2.3 million and $1.3 million, respectively.

Personnel-related costs for the three months ended June 30, 2021 and 2020 included stock-based compensation expense of $2.3 million and $1.9 million, respectively.

Research and development expenses increased by $4.2 million from $13.4 million for the six months ended June 30, 2020 to $17.6 million for the six months ended June 30, 2021.

The increase in research and development expense was primarily due to an increase in personnel-related costs of $3.8 million as a result of our continued hiring of research and development employees and a shift towards hiring more senior personnel, to further develop and enhance our marketplace websites and technology.

Personnel-related costs for the six months ended June 30, 2021 and 2020 included stock-based compensation expense of $4.6 million and $3.1 million, respectively.

General and Administrative

Three Months Ended March 31,

Ended June 30,

(dollars in thousands)

General and administrative expense

Percentage of revenue

General and administrative expenses increased by $0.9 million from $4.7 million for the three months ended March 31, 2020 to $5.6 million for the three months ended March 31, 2021.

General and administrative expenses increased by $1.4 million from $4.8 million for the three months ended June 30, 2020 to $6.2 million for the three months ended June 30, 2021.

The increase in general and administrative expenses was primarily due to an increase in personnel-related costs of $1.0 million and an increase in insurance costs of $0.2 million.

Personnel-related costs for the three months ended June 30, 2021 and 2020 included stock-based compensation expense of $2.2 million and $1.8 million, respectively.

General and administrative expenses increased by $2.3 million from $9.5 million for the six months ended June 30, 2020 to $11.8 million for the six months ended June 30, 2021.

The increase in general and administrative expenses was primarily due to an increase in personnel-related costs of $1.4 million, an increase in professional fees of $0.4 million and an increase in insurance costs of $0.4 million.

Personnel-related costs for the three months ended March 31, 2021 and 2020 included stock-based compensation expense of $1.7 million and $1.5 million, respectively.

Personnel-related costs for the six months ended June 30, 2021 and 2020 included stock-based compensation expense of $3.9 million and $3.3 million, respectively.

Acquisition-related Costs

Acquisition-related costs for the three months ended March 31, 2021 included a decrease in the fair value of our contingent consideration liability related to the Crosspointe acquisition of $0.1 million.

Interest income was less than $0.1 million for the three months ended March 31, 2021 and was $0.1 million for the three months ended March 31, 2020.

Other income (expense), net included net foreign transaction losses of less than $0.1 million for the three months ended March 31, 2021 and included sublease income of $0.1 million for the three months ended March 31, 2020.

Acquisition-related costs for the three and six months ended June 30, 2021 include expenses associated with third-party professional services we utilized for the evaluation of our anticipated acquisition of PolicyFuel, LLC of $0.5 million as well as changes in the fair value of our contingent consideration liability related to the Crosspointe acquisition of $(0.2) million and $(0.3) million, respectively.

Other Income (Expense)

Interest income was less than $0.1 million in both the three months ended June 30, 2021 and 2020.

Interest income was less than $0.1 million in the six months ended June 30, 2021 compared to $0.2 million in the six months ended June 30, 2020.

Other income (expense), net included net foreign transaction losses of less than $0.1 million for the three and six months ended June 30, 2021.

Other income (expense), net included sublease income of $0.1 million and $0.2 million in the three and six months ended June 30, 2020, respectively.

Quote Requests

Three Months Ended March 31,

Ended June 30,

(in thousands except percentages)

Quote requests

Quote requests increased for the three months ended March 31, 2021 due to increased spending on advertising.

Quote requests increased for the three and six months ended June 30, 2021 as compared to prior year periods due to increased spending on advertising.

Variable Marketing Margin

Three Months Ended March 31,

Ended June 30,

(dollars in thousands)

total advertising expense (a component of sales and marketing expense)

(dollars in thousands)

total advertising expense (a

component of sales and marketing

Variable marketing margin

Percentage of revenue

The increase in variable marketing margin was due primarily to increased revenue per quote request, partially offset by increased cost per quote request.

The increase in variable marketing margin was due primarily to increased revenue per quote request.

Liquidity and Capital Resources

At March 31, 2021, our principal sources of liquidity were cash and cash equivalents of $46.9 million and availability of $25.0 million under our revolving line of credit.

At June 30, 2021, our principal sources of liquidity were cash and cash equivalents of $54.5 million and availability of $25.0 million under our revolving line of credit.

Borrowings under our revolving line of credit are collateralized by substantially all of our assets and property.

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In addition, we are required to maintain a minimum asset coverage ratio of 1.5 to 1 calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit.

As of March 31, 2021, we were in compliance with these covenants.

As of June 30, 2021, we were in compliance with these covenants.

Events of default under our revolving line of credit include failure to make payments when due, insolvency events, failure to comply with covenants and material adverse events with respect to us.

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If we need additional funds and are unable to obtain funding on a timely basis, we may need to significantly curtail our operations in an effort to provide sufficient funds to continue our operations, which could adversely affect our business prospects.

The following table shows a summary of our cash flows for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

The following table shows a summary of our cash flows for the six months ended June 30, 2021 and 2020:

Ended June 30,

(in thousands)

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Net cash provided by financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Effect of exchange rate changes on cash, cash equivalents

and restricted cash

Net increase in cash, cash equivalents and restricted cash

Net cash provided by operating activities

Operating activities provided $3.5 million and $3.9 million of cash during the three months ended March 31, 2021 and 2020, respectively.

Cash provided by operating activities in the three months ended March 31, 2021 primarily resulted from the offset of net non-cash

charges of $8.6 million to our net loss of $3.8 million and net cash used by changes in our operating assets and liabilities of $1.3 million.

Net cash used by changes in our operating assets and liabilities consisted primarily of a $2.9 million increase in accounts receivable and a $0.7 million increase in other assets, partially offset by an aggregate $2.1 million increase in accounts payable and accrued expenses and other current liabilities.

Cash provided by operating activities in the three months ended March 31, 2020 primarily resulted from the offset of net non-cash

Operating activities provided $11.2 million and $7.9 million of cash during the six months ended June 30, 2021 and 2020, respectively.

Cash provided by operating activities in the six months ended June 30, 2021 primarily resulted from the offset of net non-cash

charges of $16.6 million to our net loss of $5.7 million and net cash provided by changes in our operating assets and liabilities of $0.3 million.

Net cash provided by changes in our operating assets and liabilities consisted primarily of an aggregate $0.4 million increase in accounts payable and accrued expenses and other current liabilities and a $0.3 million decrease in accounts receivable, partially offset by a $0.3 million increase in other assets.

Cash provided by operating activities in the six months ended June 30, 2020 primarily resulted from the offset of net non-cash

charges of $12.3 million to our net loss of $4.3 million.

Net cash provided by changes in our operating assets and liabilities for the three months ended March 31, 2020 was less than $0.1 million and consisted primarily of a $3.5 million net increase in accounts payable and accrued expenses and other current liabilities, partially offset by an increase of $3.5 million in accounts receivable.

Changes in accounts receivable, accounts payable and accrued expenses and other current liabilities in both periods were generally due to growth in our business, timing of customer and vendor invoicing and payments.

Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2020 was $0.1 million and consisted primarily of a $4.3 million increase in accounts receivable, partially offset by a $3.6 million decrease in prepaid expenses and other current assets and a $0.4 million increase in other long-term liabilities.

Changes in accounts receivable, accounts payable and accrued expenses and other current liabilities in both periods were generally due to growth in our business and timing of customer and vendor invoicing and payments.

Net cash used in investing activities

Net cash used in investing activities was $0.8 million and $0.9 million for the three months ended March 31, 2021 and 2020, respectively.

Net cash used in investing activities for the three months ended March 31, 2021 and 2020 included the acquisition of property and equipment, which included the purchase of computer equipment for our operations and employees, equipment, furniture and leasehold improvements and the capitalization of certain software development costs.

During each of the three months ended March 31, 2021 and 2020, we capitalized $0.7 million of software development costs.

Net cash used in investing activities was $1.3 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively.

Net cash used in investing activities for the six months ended June 30, 2021 and 2020 included the acquisition of property and equipment, which included the purchase of computer equipment for our operations and employees, equipment, furniture, leasehold improvements and the capitalization of certain software development costs.

During the six months ended June 31, 2021, and 2020, we capitalized $1.1 million and $1.5 million of software development costs, respectively.

Net cash provided by financing activities

During the three months ended March 31, 2021 and 2020, net cash provided by financing activities was $1.3 million and $1.4 million, respectively, and consisted of proceeds received from the exercise of common stock options.

During the six months ended June 30, 2021 and 2020, net cash provided by financing activities was $1.7 million and $2.3 million, respectively, and consisted of proceeds received from the exercise of common stock options.

Contractual Obligations and Commitments

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Operating lease commitments(1)

Amounts in table reflect payments due for our office leases under operating lease agreements that expire at various dates through 2030.

Amounts in the table reflect payments due for our office leases under operating lease agreements that expire at various dates through 2030.

There have been no material changes to our contractual obligations and commitments from those disclosed in the table above as of December 31, 2020.

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A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

During the three months ended March 31, 2021 and 2020, inflation and changing prices have not had a material effect on our business.

During the six months ended June 30, 2021 and 2020, inflation and changing prices have not had a material effect on our business.

We are unable to predict whether inflation or changing prices will materially affect our business in the foreseeable future.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis