EverQuote, Inc. 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have a credit agreement that provides us with a revolving line of credit of up to $25.0 million. Borrowings bear interest at a floating rate of the greater of 3.25% or the prime rate. As of December 31, 2021, we had no outstanding borrowings under our revolving line of credit and therefore no material exposure to fluctuations in interest rates. We contract with vendors in foreign countries and have foreign subsidiaries. As such, we have exposure to adverse changes in exchange rates of foreign currencies associated with our foreign transactions and our foreign subsidiaries. We believe this exposure to be immaterial. We do not hedge against this exposure to fluctuations in exchange rates. 64 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 (PCAOB ID 238 ) 66 Consolidated Balance Sheets 70 Consolidated Statements of Operations and Comprehensive Loss 71 Consolidated Statements of Stockholders’ Equity 72 Consolidated Statements of Cash Flows 73 Notes to Consolidated Financial Statements 74 65 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, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date as the Company did not design and maintain (i) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to certain revenue-related financial applications, programs, and data to appropriate company personnel; (ii) program change management controls for certain revenue-related financial applications to ensure that information technology (IT) program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; and (iii) controls over the completeness and accuracy of data relevant to certain automated revenue calculations. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. 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 referred to above. 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. 66 Table of Contents 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. As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Policy Fuel, LLC and its affiliated entities (PolicyFuel) from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Company in a purchase business combination during 2021. We have also excluded PolicyFuel from our audit of internal control over financial reporting. PolicyFuel 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 5% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021. 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. 67 Table of Contents Acquisition of Policy Fuel, LLC and its Affiliated Entities – Valuation of Contingent Consideration and Customer Relationships Intangible Asset As described in Notes 3 and 4 to the consolidated financial statements, the Company completed its acquisition of Policy Fuel, LLC and its Affiliated Entities (PolicyFuel) on August 13, 2021. The purchase consideration of $20.0 million reflected a cash payment of $16.0 million, net of cash acquired, settlement of an outstanding receivable from PolicyFuel of $0.2 million, and contingent consideration of $3.8 million, representing the estimated fair value as of the acquisition date of Class A common stock issuable to the former owners of PolicyFuel upon achievement of certain revenue targets over the next three years. The former owners of PolicyFuel are eligible to receive shares of Class A common stock upon the achievement (at varying levels) of each of three twelve-month revenue targets. As achievement of each of the three twelve-month targets will result in the issuance of a variable number of shares of Class A common stock, management has recorded the fair value of this contingent consideration within accrued expenses and other current liabilities (first annual target) and within other long-term liabilities (second and third annual targets). As of December 31, 2021, management estimated the fair value of the contingent consideration to be $5.3 million, and as a result recorded a $1.5 million charge to acquisition-related costs for the increase in fair value subsequent to the acquisition date. Management estimated the fair value of the contingent consideration as of the acquisition date, and remeasures the fair value of the contingent consideration 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, equity volatility, revenue volatility, and discount rate. Additionally, as part of the preliminary allocation of the purchase price for PolicyFuel, management recorded $6.6 million for the customer relationships intangible asset at fair value using the income approach. Management’s significant assumptions and estimates utilized in the model include the revenue and earnings growth rates, royalty rates, and the discount rate. The principal considerations for our determination that performing procedures relating to the valuation of contingent consideration and the customer relationships intangible asset in the PolicyFuel acquisition is a critical audit matter are (i) a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value of the contingent consideration and the customer relationships intangible asset due to the significant judgment by management when determining the fair values, (ii) the significant audit effort in evaluating management’s significant assumptions related to the forecasted revenue, equity volatility, and revenue volatility for the contingent consideration, and the revenue and earnings growth rates, royalty rates, and discount rate for the customer relationships 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 the contingent consideration, the customer relationships intangible asset, and changes in the fair value of the contingent consideration at subsequent reporting dates. 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, equity volatility, and revenue volatility for the contingent consideration as of the acquisition date and December 31, 2021, and the revenue and earnings growth rates, royalty rates, and discount rate for the customer relationships intangible asset. Evaluating the reasonableness of the forecasted revenue used in the determination of the fair value of the contingent consideration involved considering the consistency with external economic and market data. Evaluating the reasonableness of the revenue and earnings growth rates used in the determination of the fair value of the customer relationships intangible asset involved considering the consistency with historical data as well as consistency with external economic and market 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 relationships intangible asset, as well as evaluating the 68 Table of Contents reasonableness of the significant assumptions related to the equity volatility and revenue volatility for the contingent consideration and the royalty rates and discount rate for the customer relationships intangible asset. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 25, 2022 We have served as the Company’s auditor since 2014. 6 9 Table of Contents EVERQUOTE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 34,851 $ 42,870 Accounts receivable, net 35,659 46,079 Prepaid expenses and other current assets 14,184 8,452 Total current assets 84,694 97,401 Property and equipment, net 5,796 6,173 Goodwill 21,501 9,794 Acquired intangible assets, net 10,229 3,366 Operating lease right-of-use assets 7,291 9,621 Other assets 14,096 2,695 Total assets $ 143,607 $ 129,050 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 29,599 $ 32,964 Accrued expenses and other current liabilities 13,015 9,421 Deferred revenue 2,096 1,869 Operating lease liabilities 2,696 2,593 Total current liabilities 47,406 46,847 Operating lease liabilities, net of current portion 5,531 8,093 Other long-term liabilities 5,545 3,128 Total liabilities 58,482 58,068 Commitments and contingencies (Note 13) 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; 23,544,995 shares and 20,784,065 shares issued and outstanding at December 31, 2021 and 2020, respectively 24 21 Class B common stock, $ 0.001 par value; 30,000,000 shares authorized; 6,407,678 shares and 7,429,502 shares issued and outstanding at December 31, 2021 and 2020, respectively 6 7 Additional paid-in capital 222,730 189,172 Accumulated other comprehensive income (loss) 10 ( 7 ) Accumulated deficit ( 137,645 ) ( 118,211 ) Total stockholders’ equity 85,125 70,982 Total liabilities and stockholders’ equity $ 143,607 $ 129,050 The accompanying notes are an integral part of these consolidated financial statements. 70 Table of Contents EVERQUOTE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share amounts) Year Ended December 31, 2021 2020 2019 Revenue $ 418,515 $ 346,935 $ 248,811 Cost and operating expenses: Cost of revenue 23,949 21,373 15,903 Sales and marketing 354,990 284,880 202,689 Research and development 35,732 29,662 20,214 General and administrative 24,703 20,444 16,827 Acquisition-related costs 1,065 2,258 — Legal settlement — — 1,227 Total cost and operating expenses 440,439 358,617 256,860 Loss from operations ( 21,924 ) ( 11,682 ) ( 8,049 ) Other income (expense): Interest income 37 189 669 Other income (expense), net ( 57 ) 291 263 Total other income (expense), net ( 20 ) 480 932 Loss before income taxes ( 21,944 ) ( 11,202 ) ( 7,117 ) Benefit from income taxes 2,510 — — Net loss $ ( 19,434 ) $ ( 11,202 ) $ ( 7,117 ) Net loss per share, basic and diluted $ ( 0.67 ) $ ( 0.41 ) $ ( 0.28 ) Weighted average common shares outstanding, basic and diluted 29,088 27,329 25,759 Comprehensive loss: Net loss $ ( 19,434 ) $ ( 11,202 ) $ ( 7,117 ) Other comprehensive loss: Foreign currency translation adjustment 17 ( 7 ) — Comprehensive loss $ ( 19,417 ) $ ( 11,209 ) $ ( 7,117 ) The accompanying notes are an integral part of these consolidated financial statements. 71 Table of Contents EVERQUOTE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Accumulated Other Comprehensive Income (Loss) Class A Class B Additional Paid-in Capital Total Stockholders’ Equity Common Stock Common Stock Accumulated Deficit 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 Issuance of common stock to settle contingent consideration liability 39,168 — — — — — — — Issuance of common stock upon exercise of stock options 572,429 1 — — 3,614 — — 3,615 Vesting of restricted stock units 1,127,509 1 — — — — — 1 Stock-based compensation expense — — — — 29,944 — — 29,944 Transfer of Class B common stock to Class A common stock 1,021,824 1 ( 1,021,824 ) ( 1 ) — — — — Foreign currency translation adjustment — — — — — 17 — 17 Net loss — — — — — — ( 19,434 ) ( 19,434 ) Balances at December 31, 2021 23,544,995 $ 24 6,407,678 $ 6 $ 222,730 $ 10 $ ( 137,645 ) $ 85,125 The accompanying notes are an integral part of these consolidated financial statements. 72 Table of Contents EVERQUOTE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net loss $ ( 19,434 ) $ ( 11,202 ) $ ( 7,117 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 5,072 3,350 2,186 Loss on disposal of property and equipment — — 98 Stock-based compensation expense 30,020 24,179 12,721 Change in fair value of contingent consideration 196 1,778 — Deferred taxes ( 2,510 ) — — Provision for (recovery of) bad debt ( 41 ) 105 478 Unrealized foreign currency transaction losses 24 — — Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable 10,511 ( 13,970 ) ( 15,232 ) Prepaid expenses and other current assets ( 3,642 ) 623 ( 5,609 ) Operating lease right-of-use assets 2,710 2,076 — Other assets ( 10,894 ) ( 554 ) ( 1 ) Accounts payable ( 3,968 ) 9,301 6,837 Accrued expenses and other current liabilities 2,692 ( 3,968 ) 10,126 Deferred revenue 227 368 61 Operating lease liabilities ( 2,840 ) ( 2,233 ) — Other long-term liabilities ( 934 ) 815 ( 135 ) Net cash provided by operating activities 7,189 10,668 4,413 Cash flows from investing activities: Acquisition of property and equipment, including costs capitalized for development of internal-use software ( 2,862 ) ( 3,822 ) ( 2,975 ) Acquisition of business ( 15,955 ) ( 14,930 ) — Net cash used in investing activities ( 18,817 ) ( 18,752 ) ( 2,975 ) Cash flows from financing activities: Proceeds from exercise of stock options 3,615 4,907 2,982 Net cash provided by financing activities 3,615 4,907 2,982 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 6 ) ( 7 ) — Net increase (decrease) in cash, cash equivalents and restricted cash ( 8,019 ) ( 3,184 ) 4,420 Cash, cash equivalents and restricted cash at beginning of period 43,120 46,304 41,884 Cash, cash equivalents and restricted cash at end of period $ 35,101 $ 43,120 $ 46,304 Supplemental disclosure of noncash investing and financing information: Acquisition of property and equipment included in accounts payable $ 100 $ — $ — 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 $ 3,784 $ 416 $ — Operating lease liabilities arising from obtaining right-of-use assets $ 383 $ 541 $ — Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 34,851 $ 42,870 $ 46,054 Restricted cash (included in other assets) 250 250 250 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 35,101 $ 43,120 $ 46,304 The accompanying notes are an integral part of these consolidated financial statements. 73 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 and health insurance. The Company generates revenue primarily by selling consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States. The Company also generates revenue from commission fees paid by insurance provider customers for insurance policies it sells to consumers. The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, protection of proprietary technology, customer concentration, patent litigation, the need to obtain additional financing to support growth and dependence on third parties and key individuals. In addition, the Company is subject to risks and uncertainties relating to the ongoing coronavirus (“COVID-19”) pandemic. The COVID-19 pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets. Many governmental authorities have implemented travel bans and restrictions, quarantines, shelter-in-place orders, business limitations and shutdowns and other measures to attempt to contain the spread of the virus. Government recommendations and requirements are continuing to change and there remains significant uncertainty as to the breadth and duration of business disruptions related to COVID-19, as well as its impact on the global economy and consumer confidence. Work-from-home and other measures have introduced additional operational risks, including cybersecurity risks, and may adversely affect the way the Company and its customers and insurance providers conduct business. The extent to which the COVID-19 pandemic impacts the Company’s workforce, business, financial condition, results of operations and the Company’s use of estimates in preparation of its consolidated financial statements will depend on future developments, which are highly uncertain and cannot be predicted at this time. The accompanying 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 a net loss of $ 19.4 million for the year ended December 31, 2021. As of December 31, 2021, the Company had an accumulated deficit of $ 137.6 million. In February 2022, the Company completed a private placement of shares of Class A common stock resulting in gross proceeds of $ 15.0 million (see Note 16). 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. 74 Table of Contents 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 expensing and capitalization of website and software development costs, goodwill and acquired intangible assets, commissions receivable, the contingent consideration liabilities, the valuation of stock-based awards and income taxes. The Company bases its estimates on historical experience, known trends and other market-specific or 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 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, 2021 and 2020, 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 and commissions receivable. The Company maintains its cash and cash equivalents at accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company sells its consumer referrals to insurance provider customers, consisting of carriers and agents, and indirect distributors in the United States. For the years ended December 31, 2021, 2020 and 2019, one customer represented 16 %, 22 % and 21 %, respectively, of total revenue. As of December 31, 2021, one customer accounted for 12 % of the total accounts and commissions receivable balance. As of December 31, 2020, one customer accounted for 10 % of the total accounts and commissions 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. As of December 31, 2021, the Company’s allowance for credit losses was less than $ 0.1 million. As of December 31, 2020, the Company’s allowance for credit losses was $ 0.1 million. During the years ended December 31, 2021 and 2020, the Company wrote off an insignificant amount of uncollectible accounts. During the year ended December 31, 2019, the Company wrote off $ 0.5 million of uncollectible accounts. 7 5 Table of Contents Revenue Recognition The Company derives its revenue primarily by selling consumer referrals to its insurance provider customers, including insurance carriers, agents and indirect distributors. The Company also generates less than 10 % of its revenue from commission fees for the sale of policies, primarily in its health and automotive verticals. 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. Referral Revenue The Company recognizes referral revenue when it satisfies its performance obligations by delivering the referrals to its customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those referrals. Commission Revenue The Company’s commission revenue is primarily comprised of commissions from health insurance carriers and, to a lesser extent, auto insurance carriers. Commission revenue is comprised of the estimated constrained lifetime values (the “constrained LTVs”) of commission payments the Company expects to receive for selling an insurance policy. Commission revenue is recognized upon satisfaction of the Company’s performance obligation. The Company considers its performance obligation to be satisfied upon submission of the policy application. Commission revenue represents less than 10 % of total revenue in each of the years ended December 31 , 2021 , 2020 and 2019 . The Company estimates commission revenue for each health insurance product by using a portfolio approach to a group of policies by product type and the application submission date of the relevant policy, which are referred to as “cohorts.” The Company’s estimate of constrained LTVs is based on an analysis of historical commission payment trends for relevant policies to establish an expected lifetime value and incorporates management’s judgment in interpreting those trends to calculate LTVs and to apply constraints to such LTVs. Significant factors impacting historical trends include carrier mix, average policy duration and conversion rates of paying policies. Commission revenue from auto insurance carriers is comprised of constrained LTVs of commission payments the Company expects to receive for selling an insurance policy based on the effective date of the policy. The Company’s estimate of constrained LTVs is based on an analysis of historical commission payment trends for relevant policies to establish an expected lifetime value and incorporates management’s judgment in interpreting those trends to calculate LTVs and to apply constraints to such LTVs. The most significant factor impacting historical trends is average policy duration. The Company applies a constraint to its estimated LTVs to only recognize the amount of variable consideration that it believes is probable that it will be entitled to receive and will not be subject to a significant revenue reversal in the future. 7 6 Table of Contents To the extent that commission payment trends change or the underlying factors impacting commission payments change, the Company’s estimate of constrained LTVs could be materially impacted. To the extent the Company makes changes to its estimates of constrained LTVs, it recognizes any material impact of the change to commission revenue in the reporting period in which the change is made, including revisions of estimated lifetime commissions either below or in excess of previously estimated constrained LTVs recognized as an adjustment to revenue and the related contract asset. The Company recognizes revenue for new policies by applying the latest estimated constrained LTV for that product. Disaggregated Revenue The Company presents disaggregated revenue from contracts with customers by distribution channel, as the distribution channel impacts the nature and amount of the Company’s revenue, and by vertical market segment. Total revenue is comprised of revenue from the following distribution channels: Year Ended December 31, 2021 2020 2019 Direct channels 90 % 92 % 94 % Indirect channels 10 % 8 % 6 % 100 % 100 % 100 % Total revenue is comprised of revenue from the following insurance verticals (in thousands): Year Ended December 31, 2021 2020 2019 Automotive $ 330,928 $ 283,236 $ 212,300 Other 87,587 63,699 36,511 Total Revenue $ 418,515 $ 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, 2021 and 2020, the Company had not capitalized any costs to obtain any of its contracts. Deferred Revenue Amounts received for referrals prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue. Deferred revenue was $ 2.1 million and $ 1.9 million as of December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, the Company recognized revenue of $ 1.4 million that was included in the contract liability balance (deferred revenue) at December 31, 2020. The Company recognizes deferred revenue by first allocating from the beginning deferred revenue balance to the extent that the beginning deferred revenue balance exceeds the revenue to be recognized. Billings during the period are added to the deferred revenue balance to be recognized in future periods. Commissions Receivable Commissions receivable are contract assets that represent estimated variable consideration for commissions to be received from insurance carriers for performance obligations that have been satisfied. The current portion of commissions receivable (included within prepaid expenses and other current assets) are estimated commissions expected to be received within one year, while the non-current portion of commissions receivable (included within other assets (non-current)) are expected to be received beyond one year. 7 7 Table of Contents The current and non-current portions of commissions receivable are as follows (in thousands): December 31, 2021 2020 Commissions receivable, current portion (included in prepaid expenses and other current assets) $ 9,285 $ 3,842 Commissions receivable, non-current portion (included in other assets) 13,415 1,987 $ 22,700 $ 5,829 A portion of the Company’s commissions receivable contract asset was recorded as part of the purchase price allocation for the Company’s two acquisitions (see Note 3). The Company assesses impairment for uncollectible consideration when information available indicates it is probable that an asset has been impaired. There were no impairments recorded during the years ended December 31, 2021, 2020 or 2019. While the Company is exposed to credit losses due to the non-payment by insurance carriers, it considers the risk of this to be remote. 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 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 Company’s two acquisitions in 2021 and 2020 provided for shares of Class A common stock to be issued to former owners of the purchased entities upon the achievement of certain revenue targets (see Note 3). Achievement of revenue targets that will result in the issuance of a variable number of shares of Class A common stock are accounted for as a liability. The Company estimates the fair value of the shares of Class A common stock issuable upon achievement of the targets as of the acquisition date. The Company remeasures the fair value of the shares of Class A common stock issuable at each subsequent reporting date until the liability is fully settled. The Company uses Monte Carlo simulation models in its estimates. The estimated fair value of the contingent consideration is based upon available information and certain assumptions, known at the time of its estimates, which management believes are reasonable. Significant assumptions and estimates utilized in the model include the forecasted revenue, revenue volatility and discount rate. The fair value of the liability at each reporting date is comprised of the estimated number of Class A common stock to be earned multiplied by the market value of the Company’s Class A common stock as of the reporting date. 7 8 Table of Contents 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. 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 adopted ASC Topic 842, Leases (“ASC 842”), using the modified retrospective approach with no restatement of prior periods or cumulative adjustment to accumulated deficit. Therefore, 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 years ended December 31, 2021 and 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 12 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. 7 9 Table of Contents 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 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 not record any impairment losses on long-lived assets during the years ended December 31, 2021, 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 and contingent consideration liabilities are carried at fair value, determined according to the fair value hierarchy described above (see Note 4). The carrying values of the Company’s accounts receivable, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities. Commissions receivable are recorded at constrained lifetime values. 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 and health insurance quotes. Significantly all of the Company’s tangible assets are held in the United States. 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 80 Table of Contents 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, including through its verified partner network, and promoting its marketplace to insurance carriers and agents. The Company expenses advertising costs as incurred and such costs are included in sales and marketing expense in the accompanying statements of operations and comprehensive loss. During the years ended December 31, 2021, 2020 and 2019, advertising expense totaled $ 289.0 million, $ 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 fair value of performance-based restricted stock units that are liability classified will be recorded as compensation expense based on the fair value of the number of shares issued at vesting. Prior to vesting, compensation expense is recognized over the period during which services are rendered, based on the performance conditions deemed probable of achievement. At the end of each financial reporting period prior to the vesting date, the fair value of these awards is remeasured using the then-current fair value of the Company’s Class A common stock (see Note 10). 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 subsidiaries is the currency of the local country. Assets and liabilities of the Company’s foreign subsidiaries are 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 have not been significant. 81 Table of Contents Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive loss is 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 effect 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 9, the rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. The Company allocates undistributed earnings attributable to common stock between the common stock classes on a one-to-one basis when computing net income (loss) per share. As a result, basic and diluted net income (loss) per share of Class A common stock and Class B common stock are equivalent. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect: December 31, 2021 2020 2019 Options to purchase common stock 1,539,573 2,188,919 2,827,868 Unvested restricted stock units 2,798,761 3,142,220 3,367,846 4,338,334 5,331,139 6,195,714 The table above does not include shares issuable upon settlement of contingent consideration for the Company’s two acquisitions (see Note 3). Such shares are also not included in the Company’s calculation of basic or diluted net loss per common share. 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 82 Table of Contents 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 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 adopted this guidance on a prospective basis as of January 1, 2021 and the adoption had no impact on the Company’s financial position, results of operations or cash flows. Recently Issued Accounting Pronouncements In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers , as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The amendments in this update are to be applied prospectively to business combinations occurring on or after the effective date. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements. 3. Acquisitions PolicyFuel On August 13 , 2021 , the Company completed the acquisition of Policy Fuel, LLC and its affiliated entities (“PolicyFuel”), a policy-sales-as-a-service provider, with principal offices in Austin and San Antonio, Texas. PolicyFuel operates in the property and casualty insurance industry providing services to enable carriers to complement their own call center operations with access to dedicated advisor teams that focus exclusively on selling that provider’s offerings. This acquisition enables the Company to expand the range of products the Company offers to carriers and expands the market of the Company’s direct-to-consumer offerings. The PolicyFuel acquisition was accounted for as a purchase of a business under ASC Topic 805 , Business Combinations. Under the acquisition method of accounting, the assets and liabilities of PolicyFuel were recorded at their respective fair values as of the acquisition date. The purchase consideration of $ 20.0 million reflected a cash payment of $ 16.0 million, net of cash acquired, settlement of an outstanding receivable from PolicyFuel of $ 0.2 million and contingent consideration of $ 3.8 million, representing the estimated fair value as of the acquisition date of Class A common stock issuable to the former owners of PolicyFuel upon achievement of certain revenue targets over the next three years . The former owners of PolicyFuel are eligible to receive shares of Class A common stock upon the achievement (at varying levels) of each of three twelve -month revenue targets. The number of shares that may be issued at maximum performance is based on a total dollar value of $ 12.9 million; 50 % of which would be calculated at the time of issuance by dividing the applicable dollar value by a volume weighted average price per share for a 20 -day period preceding the acquisition. These shares are referred to as the “Fixed Shares” and the maximum number of Fixed Shares that may be issued is 199,311 . The fair value of such shares to be recorded upon issuance will be based on the number of shares issued multiplied by the market value of the Company’s Class A common stock on the date of issuance. The remaining 50 %, or $ 6.5 million at maximum performance, may be issued as shares of Class A common stock calculated by dividing 83 Table of Contents the applicable dollar value earned by the volume weighted average price per share for a 20 -day period preceding each revenue target determination date. These shares are referred to as the “Fixed Dollar Shares” and there is no maximum to the number of shares that may be issued as Fixed Dollar Shares. The fair value of such shares to be recorded upon issuance will be based on the number of shares issued multiplied by the market value of the Company’s Class A common stock on the date of issuance. The Fixed Shares described above include 17,030 performance-based restricted stock units issued as an Inducement Award and the Fixed Dollar Shares described above include $ 0.6 million of performance-based restricted stock units issued as an Inducement Award (see Note 10) . As achievement of each of the three twelve -month targets will result in the issuance of a variable number of shares of Class A common stock, the Company has recorded the fair value of this contingent consideration within accrued expense and other current liabilities (first annual target) and within other long-term liabilities (second and third annual targets). The Company estimated the fair value of the contingent consideration as of the acquisition date using a Monte Carlo simulation model. The most significant assumptions and estimates utilized in the model include forecasted revenue (an acquisition specific input) and the market value of the Company’s Class A common stock (an observable input). Other assumptions utilized in the model include equity volatility, revenue volatility and discount rate. The Company remeasures the fair value of the contingent consideration at each subsequent reporting date until the liability is fully settled (see Note 4) . The Company’s consolidated financial statements reflect the preliminary allocation of the purchase price to the assets and liabilities assumed based on fair value as of the date of the acquisition. The Company’s preliminary estimate of the fair value of specifically identifiable assets acquired and liabilities assumed as of the date of acquisition including the related impact to the deferred tax liability is subject to change upon finalizing its valuation analysis. The final determination may result in changes in the fair value of certain assets and liabilities as compared to these preliminary estimates, which is expected to be finalized in the first half of 2022. The Company expects an adjustment to the release of the deferred tax asset valuation allowance corresponding to any potential measurement period adjustments that impact the net deferred tax liability. The Company’s consolidated financial statements as of December 31, 2021 reflect the preliminary allocation of the preliminary purchase price to the assets and liabilities assumed based on fair value as of the date of the acquisition. The following tables summarize the preliminary purchase price for PolicyFuel and the preliminary allocation of the purchase price (in thousands): Cash paid, net of cash acquired $ 15,955 Fair value of contingent consideration to be settled in stock 3,784 Settlement of existing relationship 233 Total purchase price consideration, net of cash acquired $ 19,972 Assets Acquired and Liabilities Assumed: Accounts receivable $ 283 Commissions receivable (current and long-term) 2,761 Prepaid expenses and other current assets 12 Customer relationships 6,600 Developed technology 1,700 Other identifiable intangible assets 300 Goodwill 11,532 Total assets acquired 23,188 Accounts payable and accrued expenses (current) ( 706 ) Deferred tax liability ( 2,510 ) Total allocation of purchase price consideration, net of cash acquired $ 19,972 84 Table of Contents Customer relationships were valued using the income approach and are being amortized to sales and marketing expense over their estimated useful life of nine years . Significant assumptions and estimates utilized in the model include revenue and earnings growth rates, royalty rates and the discount rate. Developed technology was valued using the relief from royalty method and is being amortized to cost of revenue over its estimated useful life of three years . Significant assumptions and estimates utilized in this model include the royalty rate, the discount rate and the obsolescence curve. Commissions receivable were recorded at constrained LTVs and are included in prepaid expenses and other current assets and other assets on the Company’s consolidated balance sheet. Goodwill was recognized for the excess purchase price over the fair value of the net assets acquired. Goodwill is primarily attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and future growth. Goodwill resulting from the acquisition of PolicyFuel is not deductible for tax purposes. The Company incurred costs of $ 0.9 million for the year ended December 31, 2021, for third-party professional services utilized for the acquisition, which were expensed as incurred within acquisition-related costs on the Company’s consolidated statements of operations and comprehensive loss. The operating results of the acquired entity have been included in the consolidated financial statements beginning on the acquisition date but have not been disclosed as the Company does not account for the results of the acquired entity separate from its own results. Pro forma results of operations for the acquisition have not been presented as they are not material to the Company’s consolidated results of operations. The Company recorded an income tax benefit for the year ended December 31, 2021 of $ 2.5 million related to the release of a portion of its valuation allowance as a result of the acquisition of PolicyFuel. The net deferred tax liability recorded for PolicyFuel relates to the intangible assets recognized in purchase accounting, which are non-deductible for tax purposes and result in a deferred tax liability. The net deferred tax liability is a source of income to support the recognition of a portion of the Company’s existing deferred tax assets. Therefore, the Company has recorded a tax benefit for the release of a portion of its valuation allowance related to the net deferred tax liability recorded in purchase accounting. The Company maintains a valuation allowance on its overall net deferred tax asset as it is deemed more likely than not the net deferred tax asset will not be realized. Eversurance On September 1 , 2020 , the Company completed the acquisition of Crosspointe Insurance & Financial Services, LLC, a health insurance agency headquartered in Evansville, Indiana. In the third quarter 2021 , the Company changed the name of Cross pointe Insurance & Financial Services, LLC to Eversurance, LLC (“Eversurance”). Eversurance is a sales and decision support contact center that connects consumers to high quality health insurance in a customer-centric environment and serves the individual and family health, Medicare, and ancillary health product markets. This acquisition enables the Company to accelerate and expand its opportunity in the health insurance market, by providing insurance shoppers with a broader range of health insurance products through access to a greater number of carrier partners, and an improved and more personalized customer buying experience. The Eversurance acquisition was accounted for as a purchase of a business under ASC Topic 805, Business Combinations. Under the acquisition method of accounting, the assets and liabilities of Eversurance were recorded as of the acquisition date, at their respective fair values. The purchase consideration of $ 16.7 million reflected a cash payment of $ 14.9 million and contingent consideration of $ 1.8 million representing the fair value of Class A common stock issuable to the former owners of Eversurance upon achievement of certain revenue targets over three years . The former owners of Eversurance 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 85 Table of Contents fixed number of shares of Class A common stock of 39,168 shares 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 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 of up to 58,754 shares and, as such, the Company has recorded the fair value of these shares as a long-term liability. The Company’s consolidated financial statements as of December 31, 2020 reflected 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 was subject to change upon finalizing its valuation analysis. During the three months ended March 31, 2021, the Company recorded an adjustment to goodwill of $ 0.2 million, representing an adjustment to its estimate of the fair value of commissions receivable as of the acquisition date. As of December 31, 2021, the preliminary estimates have been finalized, with no further changes to the allocation of the purchase price to the assets and liabilities assumed. 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 used a Monte Carlo simulation model in its estimates. Significant assumptions and estimates utilized in the model included 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 remeasures the fair value of the shares of Class A common stock issuable upon the estimated achievement levels of the third annual target at each subsequent reporting date until the liability is fully settled (see Note 4) . The following tables summarize the preliminary purchase price for Eversurance and the 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: Commissions receivable (current and long-term) $ 3,285 Customer relationships 3,600 Other identifiable intangible assets 270 Operating lease right-of-use assets 1,469 Goodwill 9,969 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 and are being amortized to sales and marketing expense over their estimated useful life of five years . Significant assumptions and estimates utilized in the model include the customer attrition rate and discount rate. Commissions receivable were recorded at constrained LTVs and are included in prepaid expenses and other current assets and other assets on the Company’s consolidated balance sheet. Goodwill was recognized for the excess purchase price over the fair value of the net assets acquired. Goodwill is primarily attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and future growth. Goodwill resulting from the acquisition of Eversurance is deductible for tax purposes. 86 Table of Contents 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 in 2020. The operating results of the acquired entity have been included in the consolidated financial statements beginning on the acquisition date but have not been disclosed as the Company does not account for the results of the acquired entity separate from its own results. Pro forma results of operations for the acquisition have not been presented as they are not material to the Company’s consolidated results of operations. 4. Fair Value of Financial Instruments The following tables present the Company’s fair value hierarchy for its assets and liabilities which are measured at fair value on a recurring basis as of December 31, 2021 and December 31, 2020 (in thousands): Fair Value Measurements at December 31, 2021 Using: Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 20,502 $ — $ — $ 20,502 Liabilities: Contingent consideration liability associated with acquisition of Eversurance included in other long-term liabilities $ — $ — $ 920 $ 920 Contingent consideration liability associated with acquisition of PolicyFuel included in accrued expense and other current liabilities — — 629 629 Contingent consideration liability associated with acquisition of PolicyFuel included in other long-term liabilities — — 4,625 4,625 $ — $ — $ 6,174 $ 6,174 Fair Value Measurements at December 31, 2020 Using: Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 15,777 $ — $ — $ 15,777 Liabilities: Contingent consideration liability associated with acquisition of Eversurance included in other long-term liabilities $ — $ — $ 2,194 $ 2,194 There were no transfers into or out of Level 3 during the years ended December 31, 2021, 2020 or 2019. Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. Contingent consideration liabilities are valued by the Company using significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions and estimates to forecast a range of outcomes for the contingent consideration. The Company assesses these assumptions and estimates on a quarterly basis as additional data impacting the 87 Table of Contents assumptions is obtained. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized as acquisition-related costs within the consolidated statements of operations and comprehensive loss. The Company estimates the fair value of the maximum 58,754 shares of Class A common stock issuable as contingent consideration upon achievement of certain Eversurance revenue targets (see Note 3) using probability of achievement of the revenue target (acquisition specific input) and the market value of the Company’s Class A common stock (observable input). The change in fair value of the contingent consideration liability for the years ended December 31, 2021 and 2020 was due to the decrease in the market value of the Company’s Class A common stock during the periods. The Company uses a Monte Carlo simulation model in its estimates of the fair value of the contingent consideration related to the PolicyFuel acquisition (see Note 3). The most significant assumptions and estimates utilized in the model include forecasted revenue (an acquisition specific input) and the market value of the Company’s Class A common stock (an observable input). Other assumptions utilized in the model include equity volatility, revenue volatility and discount rate. The increase in fair value of contingent consideration related to the Class A common stock issuable upon achievement of revenue targets was primarily due to a change in estimate of forecasted revenue, partially offset by the decrease in the market value of the Company’s Class A common stock during the period. The following table provides a roll-forward of the aggregate fair values of the Company’s contingent consideration liabilities for which fair value is determined by Level 3 inputs (in thousands): Contingent Consideration Liabilities Fair value at December 31, 2020 $ 2,194 Acquisition of PolicyFuel 3,784 Change in fair value of contingent consideration related to Eversurance acquisition ( 1,274 ) Change in fair value of contingent consideration related t o PolicyFuel acquisition 1,470 Fair value at December 31, 2021 $ 6,174 5. Goodwill and Acquired Intangible Assets Goodwill is not amortized, but instead is reviewed for impairment at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company considers its business to be one reporting unit for purposes of performing its goodwill impairment analysis. To date, the Company has had no impairments to goodwill. Changes in goodwill for the year ended December 31, 2021 were as follows (in thousands): Balance January 1, 2021 $ 9,794 Final adjustment to Eversurance purchase price allocation 175 Goodwill resulting from PolicyFuel acquisition 11,532 Balance December 31, 2021 $ 21,501 88 Table of Contents Acquired intangible assets consisted of the following (in thousands): December 31, 2021 Weighted Average Useful Life Gross Amount Accumulated Amortization Carrying Value (in years) Customer relationships 7.6 $ 10,200 $ ( 1,830 ) $ 8,370 Developed technology 3 1,700 ( 217 ) 1,483 Other identifiable intangible assets 2.8 570 ( 194 ) 376 $ 12,470 $ ( 2,241 ) $ 10,229 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 Amortization expense for intangible assets for the years ended December 31, 2021, 2020 and 2019 was $ 1.7 million, $ 0.5 million and less than $ 0.1 million, respectively. Future amortization expense of the intangible assets as of December 31, 2021, is expected to be as follows (in thousands): Year Ending December 31, 2022 $ 2,277 2023 2,001 2024 1,715 2025 960 2026 685 Thereafter 2,591 $ 10,229 6. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2021 2020 Computer equipment $ 2,755 $ 2,183 Software 12,888 11,113 Furniture and fixtures 1,127 1,127 Leasehold improvements 906 921 17,676 15,344 Less: Accumulated depreciation and amortization ( 11,880 ) ( 9,171 ) $ 5,796 $ 6,173 Depreciation and amortization expense was $ 3.3 million, $ 2.8 million and $ 2.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company capitalized costs associated with the development of internal use software of $ 2.2 million, $ 3.0 million and $ 2.7 million included in the Software line 89 Table of Contents item above and recorded related amortization expense of $ 2.6 million, $ 2.2 million and $ 1.4 million (included in depreciation and amortization expense) during the years ended December 31 , 2021 , 2020 and 2019 , respectively. The remaining net book value of capitalized software costs was $ 4.4 million and $ 4.8 million as of December 31 , 2021 and 2020 , respectively. 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2021 2020 Accrued employee compensation and benefits $ 4,115 $ 4,105 Accrued advertising expenses 5,669 2,596 Other current liabilities 3,231 2,720 $ 13,015 $ 9,421 8. Loan and Security Agreement The Company has available borrowings of $ 25.0 million under its amended Loan and Security Agreement (the “ 2020 Loan Agreement”). Pursuant to the 2020 Loan Agreement, borrowings under the revolving line of credit cannot exceed 80 % of eligible accounts receivable balances, bear interest at the greater of 3.25 % or the prime rate and mature in August 2022 . Borrowings are collateralized by substantially all of the Company’s assets and property. Under the 2020 Loan Agreement, the Company is subject to specified affirmative and negative covenants until maturity. These covenants include limitations on the Company’s ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions. In addition, the Company is required to maintain a financial performance covenant: a minimum asset coverage ratio of 1.5 to 1, calculated as the sum of unrestricted cash and qualified accounts receivable divided by borrowings outstanding under the revolving line of credit. As of December 31, 2021, the Company was in compliance with these covenants. Events which would meet the criteria of a default under the 2020 Loan Agreement include failure to make payments when due, insolvency events, failure to comply with covenants or material adverse events with respect to the Company. As of December 31 , 2021 , the Company had no amounts outstanding on the revolving line of credit. 9. Equity Each share of Class A common stock entitles the holder to one vote for each share on all matters submitted to a vote of the Company’s stockholders at all meetings of stockholders and written actions in lieu of meetings. Each share of Class B common stock entitles the holder to ten votes for each share on all matters submitted to a vote of the Company’s stockholders at all meetings of stockholders and written actions in lieu of meetings. Holders of both classes of common stock are entitled to receive dividends, when and if declared by the board of directors. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. Automatic conversion shall occur upon the occurrence of a transfer of such share of Class B common stock or at the date and time, or the occurrence of an event, specified by a vote or written consent of the holders of a majority of the voting power of the then outstanding shares of Class B common stock. A transfer is described as a sale, assignment, transfer, conveyance, hypothecation or disposition of such share or 90 Table of Contents 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. During the year ended December 31 , 2021 , the Company issued 39,168 shares of Clas s A common stock to the former owners of Eversurance upon achievement of the first two targets of the contingent consideration arrangement (see Note 3) . 10. Stock-Based Compensation 2008 and 2018 Plans The Company has outstanding awards under its 2008 Stock Incentive Plan, as amended (the “2008 Plan”), but is no longer granting awards under this plan. Shares of common stock issued upon exercise of stock options granted prior to September 8, 2017 will be issued as either Class A common stock or Class B common stock. Shares of common stock issued upon exercise of stock options granted after September 8, 2017 will be issued as Class A common stock. The Company’s 2018 Equity Incentive Plan (the “ 2018 Plan” and, together with the 2008 Plan, the “Plans”) provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards. The number of shares initially reserved for issuance under the 2018 Plan is the sum of 2,149,480 shares of Class A common stock, plus the number of shares (up to 5,028,832 shares) equal to the sum of (i) the 583,056 shares of Class A common stock and Class B common stock that were available for grant under the 2008 Plan upon the effectiveness of the 2018 Plan and (ii) the number of shares of Class A common stock and Class B common stock subject to outstanding awards under the 2008 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (subject, in the case of incentive stock options, to any limitations of the Internal Revenue Code). The number of shares of Class A common stock that may be issued under the 2018 Plan will automatically increase on the first day of each fiscal year until, and including, the fiscal year ending December 31 , 2028 , equal to the least of (i) 2,500,000 shares of Class A common stock; (ii) 5 % of the sum of the number of shares of Class A common stock and Class B common stock outstanding on the first day of such fiscal year; and (iii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by the Company under the 2018 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan. As of December 31 , 2021 , 1,730,218 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 1,497,633 shares effective as of January 1 , 2022 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 was 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. 91 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, 2021 or the year ended December 31, 2019. Stock Option Activity The following table summarizes the Company’s option activity since December 31, 2020: Weighted Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Number of Shares Price Term Value (in years) (in thousands) Outstanding as of December 31, 2020 2,188,919 $ 12.01 5.72 $ 57,538 Granted — — Exercised ( 572,429 ) 6.32 Forfeited ( 76,917 ) 7.20 Outstanding as of December 31, 2021 1,539,573 $ 14.37 5.36 $ 9,820 Vested and expected to vest as of December 31, 2021 1,523,410 $ 14.44 5.36 $ 9,694 Options exercisable as of December 31, 2021 1,126,220 $ 7.78 4.70 $ 8,876 As of December 31, 2021, outstanding options of 884,111 were for the purchase of Class A common stock and outstanding options of 655,462 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, 2021, 2020 and 2019 was $ 12.9 million, $ 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. 92 Table of Contents The following table summarizes the Company’s RSU activity since December 31, 2020: Weighted Average Number of Shares Grant-Date Fair Value Unvested balance December 31, 2020 3,142,220 $ 25.29 Granted 1,774,545 26.26 Vested ( 1,127,509 ) 26.00 Forfeited ( 990,495 ) 30.06 Unvested balance December 31, 2021 2,798,761 $ 23.93 As of December 31, 2021, the Company had outstanding 164,183 unvested RSUs with performance-based vesting conditions for which achievement of the performance condition has not been deemed probable. Inducement Awards In connection with the acquisition of PolicyFuel, the Company granted RSUs to newly hired employees. The RSUs were approved by the Company’s board of directors and were granted as an inducement material to the new employees entering into employment with the Company in accordance with Nasdaq Rule 5635(c)(4) (the “Inducement Awards”). The Inducement Awards were granted outside of the 2018 Plan. During the year ended December 31, 2021, the Company granted 52,529 service-based RSUs as Inducement Awards with an aggregate grant date fair value of $ 1.1 million. During the year ended December 31, 2021, the Company granted 86,518 service- and performance-based RSUs as Inducement Awards with an aggregate grant date fair value of $ 1.9 million. During year ended December 31, 2021, the Company granted service- and performance-based RSUs as Inducement Awards that will vest for a variable number of shares of the Company’s Class A common stock upon the achievement (at varying levels) of certain revenue targets measured at twelve-month intervals over the next three years . The number of shares to be issued upon achievement of each of the revenue targets will be based on a fixed dollar value divided by the volume weighted average price per share of the Company’s Class A common stock for a 20 -day period preceding each revenue achievement determination date. The number of shares of Class A common stock that may be issued in settlement of such awards is capped at 173,042 , with any remainder being settleable in cash or unregistered shares solely at the Company’s option. Because a variable number of shares will be issued for a fixed dollar amount, the Company has accounted for the obligation to issue such shares as a liability. As of December 31, 2021, the balance of the liability included in accrued expenses and other current liabilities was $ 0.1 million. During the year ended December 31, 2021, the Company granted 17,030 performance-based RSUs as Inducement Awards with no service requirement as PolicyFuel contingent consideration. The fair value of this issuance has been included in the fair value of contingent consideration (see Notes 3 and 4). During the year ended December 31, 2021, the Company granted performance-based RSUs as Inducement Awards as PolicyFuel contingent consideration that will vest for a variable number of shares of the Company’s Class A common stock upon the achievement (at varying levels) of certain revenue targets measured at twelve-month intervals over the next three years , but which have no service conditions. The number of shares to be issued upon achievement of each of the revenue targets is based on a fixed dollar amount divided by the volume weighted average price per share of the Company’s Class A common stock for a 20 -day period preceding each revenue target determination date. The maximum number of shares of Class A common stock that may be issued as Inducement Awards in settlement of the contingent consideration obligation is capped at 34,060 , with any remainder being settleable in cash or unregistered shares solely at the Company’s option. The fair value of such awards has been included in the fair value of contingent consideration (see Notes 3 and 4). 9 3 Table of Contents 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, 2021 2020 2019 Cost of revenue $ 363 $ 361 $ 193 Sales and marketing 12,405 10,246 3,805 Research and development 9,551 7,751 3,967 General and administrative 7,701 5,821 4,756 $ 30,020 $ 24,179 $ 12,721 Stock-based compensation expense for the year ended December 31 , 2021 included a total of $ 1.2 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 , 2021 , unrecognized compensation expense for RSUs and option awards with service-based vesting conditions and RSUs and option awards with performance-based vesting conditions either achieved or deemed probable of being achieved was $ 45.3 million, which is expected to be recognized over a weighted average period of 2.9 years. Additionally, the Company had unrecognized compensation expense of $ 1.8 million related to unvested awards with performance-based vesting conditions, which have not been deemed probable. 11. Income Taxes The Company has no t recorded income tax benefits for the net operating losses incurred or the research and development tax credits generated in the years ended December 31, 2021, 2020 or 2019, as the Company believed, based upon the weight of available evidence, that it is more likely than not that all of its net operating loss and tax credit carryforwards will not be realized. The Company’s foreign operations have not been significant and therefore, the Company has no t provided for any foreign taxes. During the year ended December 31, 2021, the Company released $ 2.5 million of its valuation allowance related to the net deferred tax liability recorded as a result of the PolicyFuel acquisition. The Company maintains a valuation allowance on its overall net deferred tax asset as it is deemed more likely than not the net deferred tax asset will not be realized. 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, 2021 2020 2019 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 5.2 4.2 5.5 Federal and state research and development tax credits 5.6 12.4 19.4 Nondeductible items ( 2.0 ) ( 0.7 ) ( 1.6 ) Stock-based compensation 10.9 97.2 13.3 Deferred taxes on acquisition 11.4 — — Other 0.4 2.2 ( 0.9 ) Change in valuation allowance ( 41.1 ) ( 136.3 ) ( 56.7 ) Effective income tax rate 11.4 % — % — % 9 4 Table of Contents Net deferred tax assets as of December 31, 2021 and 2020 consisted of the following (in thousands): December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 27,364 $ 19,197 Research and development tax credit carryforwards 7,559 6,470 Accrued expenses and other current liabilities 280 566 Intangible assets — 1,598 Property and equipment 225 220 Stock-based compensation 2,896 3,092 Operating lease liability 2,167 2,829 Other — 221 Total deferred tax assets 40,491 34,193 Valuation allowance ( 36,921 ) ( 30,558 ) Net deferred tax assets 3,570 3,635 Deferred tax liabilities: Capitalized software development costs ( 1,095 ) ( 1,088 ) Operating lease right-of-use assets ( 1,911 ) ( 2,547 ) Intangible assets ( 528 ) — Other ( 36 ) — Deferred tax liabilities ( 3,570 ) ( 3,635 ) Net deferred tax assets and liabilities $ — $ — As of December 31, 2021, the Company had federal net operating loss carryforwards of $ 104.1 million, which may be available to offset future taxable income, of which $ 9.0 million of the total net operating loss carryforwards expire at various dates beginning in 2029 , while the remaining $ 95.1 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, 2021, the Company had state net operating loss carryforwards of $ 87.5 million, which may be available to offset future taxable income and expire at various dates beginning in 2027 . As of December 31, 2021, the Company also had federal and state research and development tax credit carryforwards of $ 5.1 million and $ 3.1 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2030 and 2029 , respectively. 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 95 Table of Contents development tax credit carryforwards. Management has considered the Company’s history of cumulative net losses incurred since inception and estimated future taxable income 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 , 2021 and 2020 . 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, 2021, 2020 and 2019 related primarily to an increase in net operating loss carryforwards and research and development tax credit carryforwards and stock-based compensation expense. The changes in the valuation allowance were as follows (in thousands): Year Ended December 31, 2021 2020 2019 Valuation allowance as of beginning of year $ 30,558 $ 15,292 $ 11,257 Decreases recorded to accumulated deficit ( 159 ) — — Decreases recorded as a benefit to income tax provision ( 2,510 ) — — Increases recorded to tax provision 9,032 15,266 4,035 Valuation allowance as of end of year $ 36,921 $ 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 , 2021 and 2020 . 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 2018 to the present, however, carryforward attributes that were generated prior to January 1, 2018 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. 12. Leases The Company leases office space in Cambridge, Massachusetts under a non-cancelable operating lease that expires in September 2024 . In connection with the acquisition of Eversurance, the Company acquired a ten-year non-cancelable operating lease in Evansville, Indiana that expires in August 2030 . The Company also leases office space in various locations under non-cancelable operating leases that expire at various dates through May 2023. As of December 31, 2021 and 2020, the Company maintained security deposits of $ 0.5 million with the landlords of its leases, which amounts are included in other assets on the Company’s consolidated balance sheet. 9 6 Table of Contents The components of lease cost under ASC 842 were as follows (in thousands): Year Ended December 31, 2021 2020 Operating lease cost $ 3,174 $ 2,590 Short-term lease cost 39 — Variable lease cost 596 387 $ 3,809 $ 2,977 Supplemental disclosure of cash flow information related to leases was as follows (in thousands): Year Ended December 31, 2021 2020 Cash paid for amounts included in the measurement of operating lease liabilities $ 3,271 $ 2,747 Operating lease liabilities arising from obtaining right-of-use assets $ 383 $ 541 The weighted-average remaining lease term and discount rate were as follows: December 31, 2021 2020 Weighted-average remaining lease term - operating leases (in years) 3.60 4.44 Weighted-average discount rate - operating leases 4.62 % 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, 2021 were as follows (in thousands): Years ending December 31, 2022 $ 3,007 2023 2,785 2024 2,099 2025 177 2026 177 Thereafter 649 Total future minimum lease payments 8,894 Less: imputed interest ( 667 ) Total operating lease liabilities $ 8,227 The following table presents lease liabilities and their classification on the consolidated balance sheet (in thousands): December 31, 2021 Current operating lease liabilities $ 2,696 Operating lease liabilities, net of current portion 5,531 Total operating lease liabilities $ 8,227 9 7 Table of Contents Disclosures under ASC 840 As of and for the year ended December 31, 2019, leases were accounted for under ASC 840, the relevant accounting standard at the time. During the year ended December 31, 2019, the Company recorded rent expense of $ 2.5 million. 13. Commitments and Contingencies Leases The Company’s commitments under its leases are described in Note 12. 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, 2021, 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, 2021 and 2020. Legal Proceedings and Other Contingencies The Company was contacted by a representative from a state tax assessor’s office requesting remittance of uncollected sales taxes. The Company does not believe its services are taxable in this state and is investigating this request and intends to vigorously defend this position. If the Company does not prevail in its position, uncollected sales taxes due for the period could amount to approximately $ 1.5 million, including interest and penalties. The Company has not recorded any liabilities related to this matter as the loss has not been deemed probable. The Company is from time to time subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of its business. While the outcome of these other claims cannot be predicted with certainty, management does not believe that the outcome of any of these other legal matters will have a material adverse effect on the Company’s results of operations or financial condition. 14. Retirement Plan The Company has established a defined-contribution plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. As currently established, the Company is not required to make any contributions to the 401(k) Plan. The Company contributed $ 0.9 million, $ 0.7 million and $ 0.5 million during the years ended December 31, 2021, 2020 and 2019, respectively. 15. 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, 2021, 2020 and 2019, the Company recorded expense of $ 3.5 million, $ 3.1 million 9 8 Table of Contents and $ 5.2 million, respectively, related to these arrangements. During the years ended December 31, 2021, 2020 and 2019, the Company paid $ 3.8 million, $ 3.1 million and $ 5.7 million, respectively, related to these arrangements. As of December 31, 2021 and 2020, amounts due to related-party affiliates totaled $ 0.3 million and $ 0.5 million, respectively, which were included in accounts payable and accrued expenses on the balance sheets. 16. Subsequent Events On February 23, 2022, the Company sold 1,004,016 shares of Class A common stock at a purchase price of $ 14.94 per share for gross proceeds of $ 15.0 million in a private placement to Recognition Capital, LLC, an entity which is owned and controlled by David Blundin, Chairman of the board of directors and co-founder of the Company. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.