What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-08 · 136 added, 216 removed, 207 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

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

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

for the year ended December 31, 2021, on file with the Securities and Exchange Commission.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.

The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs.

Our actual results could differ materially from those discussed in the forward-looking statements.

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Our mission is to empower insurance shoppers to better protect life’s most important assets—their family, property, and future.

Our vision is to become the largest online source of insurance policies by using data and technology to make insurance simpler, more affordable and personalized, ultimately reducing cost and

Our results-driven marketplace, powered by our proprietary data and technology platform, is reshaping the insurance shopping experience for consumers and improving the way insurance providers, which we view as including both carriers and agents, attract and connect with customers shopping for insurance.

Our vision is to become the largest online source of insurance policies by using data and technology to make insurance simpler, more affordable and personalized, ultimately reducing cost and risk.

Our results-driven marketplace, powered by our proprietary data and technology platform, is reshaping the insurance shopping experience for consumers and improving the way insurance providers attract and connect with consumers shopping for insurance.

Finding the right insurance product is often challenging for consumers, who face limited online options, complex, variable and opaque pricing, and myriad coverage configurations.

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Our marketplace reduces the time consumers spend searching across multiple sites by delivering broader and more relevant results than consumers may find on their own.

Our service is free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers and, in select verticals, directly from commissions on the sale of policies.

Insurance providers operate in a highly competitive and regulated industry and typically specialize on pre-determined subsets of

As a result, not every consumer is a good match for every provider, and some providers struggle to efficiently reach the segments that are most desirable for their business models.

In addition to our marketplace, we also operate a direct to consumer, or DTC, insurance agency.

Our DTC agents bind policies for consumers, further streamlining the consumer shopping experience.

Our services are free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers and directly from commissions on sales of policies.

Insurance providers, which we view as including carriers, our own DTC agents, and third-party agents, operate in a highly competitive and regulated industry and typically specialize in pre-determined

subsets of consumers.

As a result, not every consumer is a good match for every provider, and some providers can struggle to reach the segments that are most desirable for their business models.

Traditional offline and online advertising channels reach broad audiences but lack the fine-grained consumer acquisition capabilities needed for optimally matching consumers to specific insurance products.

We connect providers to a large volume of high-intent, pre-validated consumer referrals

that match the insurers’ specific requirements.

The transparency of our marketplace, as well as the campaign management tools we offer, make it easy for insurance providers to evaluate the performance of their marketing spend on our platform and manage their own return on investment.

We connect providers to a large volume of high-intent, pre-validated

consumer referrals that match the insurers’ specific requirements.

The transparency of our marketplace, as well as the campaign management tools we offer, make it easy for insurance carriers and third-party agents to evaluate the performance of their marketing spend on our platform and manage their own return on investment.

Since 2011, our core mission has been to make finding insurance easy and more personal, saving consumers and insurance providers time and money.

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In 2016, we added home and life insurance in our marketplace.

In 2018, we exceeded 46 million cumulative quote requests since launch of our marketplace.

In 2019, we added health, renters and commercial insurance in our marketplace.

In 2020, we launched our direct-to-consumer

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

In August 2021, we launched our direct-to-consumer

insurance offerings in our auto and home verticals via the acquisition of Policy Fuel LLC and its affiliates, or PolicyFuel.

In the three months ended September 30, 2021 and 2020, our total revenue was $107.6 million and $90.0 million, respectively, representing year-over-year growth of 19.5%.

We had net losses of $5.3 million and $3.2 million for the three months ended September 30, 2021 and 2020, respectively, and had $2.7 million and $5.2 million in adjusted EBITDA for the three months ended September 30, 2021 and 2020, respectively.

In the nine months ended September 30, 2021 and 2020, our total revenue was $316.4 million and $249.6 million, respectively, representing year-over-year growth of 26.8%.

We had net losses of $11.0 million and $7.4 million for the nine months ended September 30, 2021 and 2020, respectively, and had $14.1 million and $13.0 million in adjusted EBITDA for the nine months ended September 30, 2021 and 2020, respectively.

See the section titled “—Non-GAAP Financial

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

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

pandemic has continued to spread throughout the United States and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place

orders, and business limitations and shutdowns.

In 2019, we added health and renters insurance in our marketplace.

In 2020, we launched our DTC insurance offerings in our life vertical and in our health vertical via the acquisition of Crosspointe Insurance & Financial Services, LLC, or Crosspointe, which we later renamed Eversurance.

In August 2021, we launched our DTC insurance offerings in our auto and home and renters verticals via the acquisition of Policy Fuel LLC and its affiliates, or PolicyFuel.

In the three months ended March 31, 2022 and 2021, our total revenue was $110.7 million and $103.8 million, respectively, representing year-over-year growth of 6.6%.

We had net losses of $5.7 million and $3.8 million for the three months ended March 31, 2022 and 2021, respectively, and had $2.4 million and $4.8 million in adjusted EBITDA for the three months ended March 31, 2022 and 2021, respectively.

See the section titled “—Non-GAAP Financial Measure”

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

pandemic has had a significant adverse impact on global commercial activity and has created significant volatility in financial markets.

Many governmental authorities have implemented travel bans and restrictions, quarantines, shelter-in-place

orders, business limitations and shutdowns and other measures to attempt to contain the spread of the virus.

Government recommendations and requirements are continuing to change and there remains significant uncertainty as to the breadth and duration of business disruptions related to COVID-19,

as well as its impact on the global economy and consumer confidence.

While we are unable to accurately predict the full impact that COVID-19

will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day

will have on our results from operations, financial condition, liquidity and cash flows due to these uncertainties, our compliance with measures to contain the spread of the virus has impacted our day-to-day

operations and could disrupt our business and operations, as well as that of our customers and consumer traffic to our marketplace for an indefinite period of time.

For example, we believe that immediately after shelter-in-place

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

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

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

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

While such disruptions have not had a material adverse impact on our financial results through March 31, 2022, such disruptions may impact consumer insurance shopping behavior.

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

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More recently, and specifically starting in the third quarter of 2021, the auto insurance industry has experienced similar challenges, which is impacting our revenue growth in the auto insurance vertical.

We believe this trend will continue into 2022.

We believe this trend will continue during 2022.

Expanding consumer traffic

Our success depends in part on the growth of our consumer traffic, as measured by quote requests.

We have historically increased consumer traffic to our marketplace by expanding existing advertising channels and adding new channels.

Our success depends in part on the growth of our consumer traffic.

We have historically increased consumer traffic to our marketplace by expanding existing advertising channels and adding new channels such as by engaging with consumers through our verified partner network.

We plan to continue to increase consumer traffic by leveraging the features and growing data assets of our platform.

While we plan to increase consumer traffic over the long term, we also have the ability to decrease advertising, which would likely result in a decrease in quote requests from consumers targeted by such advertising, if we believe the revenue associated with such consumer traffic does not result in incremental profit to our business.

While we plan to increase consumer traffic over the long term, we also have the ability to decrease advertising, if we believe the revenue associated with such consumer traffic does not result in incremental profit to our business.

We have also increased the number of quote requests acquired from our verified partner network.

While we plan to continue to increase the number of quote requests we acquire from our verified partner network, our ability to acquire quote requests in significant volume, at prices that are attractive, and that represent high-intent shoppers that insurance providers will purchase referrals for will impact our profitability.

Increasing the number of insurance providers and their respective spend in our marketplace

Our success also depends on our ability to retain and grow our insurance provider network.

We have expanded both the number of insurance providers and the spend per provider on our platform.

While not a factor in our historical increases in revenue per quote request, we believe we have an opportunity to increase the number of referrals per quote request while increasing the bind rate per quote request, which would allow us to increase our revenue at low incremental cost.

Revenue per quote request

We seek to increase our revenue per quote request by attaining higher insurance provider bids and by increasing the number of referrals per quote request.

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

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

We believe revenue per quote request will decrease in the near term as a result of reduced marketing spend from our auto insurance carrier customers.

Cost per quote request

We seek to efficiently acquire consumers by increasing the effectiveness of our consumer advertising and insurance marketplace.

Cost per quote request is influenced by the cost and mix of advertising and the conversion rate of marketplace visitors who request an insurance quote.

While we seek to minimize cost per quote request, we may incur increased cost per quote request in order to achieve profitability at relative volumes of quote requests and revenue per quote request.

We believe cost per quote request will decrease in the near term as a result of reduced marketing spend by the auto insurance industry.

Historically, we have generally expanded both the number of insurance providers and the spend per provider on our platform.

Key Business Metrics

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

Some of these metrics are non-financial metrics or

are financial metrics that are not defined by GAAP.

Quote Requests

Quote requests are consumer-initiated requests for an insurance quote that result from a website form, telephones calls with a consumer, or other interactions we have with consumers through third-party websites that result in a revenue generating transaction.

Variable Marketing Margin

We define variable marketing margin, or VMM, as revenue, as reported in our consolidated statements of operations and comprehensive loss, less advertising costs (a component of sales and marketing expense, as reported in our statements of operations and comprehensive loss).

We use VMM to measure the efficiency of individual advertising and consumer acquisition sources and to make trade-off decisions to

manage our return on advertising.

We do not use VMM as a measure of profitability.

Some of these metrics are non-financial

metrics or are financial metrics that are not defined by GAAP.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss), adjusted to exclude:

stock-based compensation expense, depreciation and amortization expense, acquisition-related costs, interest income and the provision for (benefit from) income taxes.

stock-based compensation expense, depreciation and amortization expense, acquisition-related costs, legal settlement expense, one-time

severance charges, interest income and the provision for (benefit from) income taxes.

Adjusted EBITDA is a non-GAAP financial measure

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the financial information we present on a GAAP basis.

We monitor and present adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business.

We monitor and present Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating

performance, to establish budgets and to develop operational goals for managing our business.

Adjusted EBITDA should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP.

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For further explanation of the uses and limitations of this measure and a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income (loss), please see “—Non GAAP Financial Measure”.

Variable Marketing Margin

We use VMM to measure the efficiency of individual advertising and consumer acquisition sources and to make trade-off

decisions to manage our return on advertising.

We do not use VMM as a measure of profitability.

Key Components of Our Results of Operations

We generate our revenue by selling consumer referrals to insurance provider customers, consisting of carriers and agents, as well as to indirect distributors.

We generate our revenue primarily by selling consumer referrals to insurance provider customers, consisting of carriers and agents, as well as to indirect distributors.

To simplify the quoting process for the consumer and improve performance for the provider, we are able to provide consumer-submitted quote request data along with each referral.

We recognize revenue from consumer referrals at the time of delivery.

We support three secure consumer referral formats:

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referral for inbound calls, with the consumer and provider connected by phone.

We recognize revenue from consumer referrals at the time of delivery.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

We also generate revenue from commission fees for the sale of policies, primarily in our health and automotive verticals.

Commission revenue represented approximately 13% of total revenue in the three months ended March 31, 2022 and less than 10% of total revenue in the three months ended March 31, 2021.

We recognize revenue from commission fees based on our constrained estimate of commission payments we expect to receive over the lifetime of the policies sold, which we refer to as constrained lifetime values, or constrained LTVs, of commission payments.

Commission revenue is recognized upon satisfaction of our performance obligation, which we consider to be submission of the policy application.

For the periods presented, our total revenue consisted of revenue generated from our automotive and other insurance verticals, which includes home and renters, life and health insurance verticals, as follows:

Three Months Ended March 31,

(in thousands)

Total Revenue

We expect revenue to remain relatively flat or decrease slightly in 2022 as we anticipate increases in commission revenue to be offset by decreases in referral revenue in our automotive vertical as a result of challenges in the automotive insurance industry described above.

We expect revenue to fluctuate from quarter to quarter and, in particular, for our commission revenue to be impacted by the open enrollment period and annual enrollment period in our health vertical.

Cost and Operating Expenses

Our cost and operating expenses consist of cost of revenue, sales and marketing, research and development, and general and administrative expenses.

Our cost and operating expenses consist of cost of revenue, sales and marketing, research and development, and general and administrative expenses and acquisition-related costs.

We allocate certain overhead expenses, such as rent, utilities, office supplies and depreciation and amortization of general office assets, to cost of revenue and operating expense categories based on headcount.

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

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

Advertising expenditures consist of variable costs that are related to attracting consumers to our marketplace, generating consumer quote requests, including the cost of quote requests we acquire from our verified partner network, and promoting our marketplace to carriers and agents.

Advertising costs are expensed as incurred.

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In order to continue to grow our business and brand awareness, we expect that we will continue to commit substantial resources to our sales and marketing efforts.

We expect our sales and marketing expense will increase in the near term, both as a percentage of revenue and in absolute dollars, but decrease in the longer term as a percentage of revenue due to efficiencies of scale and improvements in our marketplace technology.

We expect our sales and marketing expense will increase in the near term, both as a percentage of revenue and in absolute dollars, especially as we continue to expand our DTC agency.

In the longer term, we expect sales and marketing expense to decrease as a percentage of revenue due to efficiencies of scale and improvements in our marketplace technology.

Research and Development

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Acquisition-related

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

Other income consists of interest income and other income.

Other Income (Expense)

Other income (expense) consists of interest income and other income (expense).

Interest income consists of interest earned on invested cash balances.

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

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

As of December 31, 2020, we had federal net operating loss carryforwards of $72.9 million, which may be available to offset future taxable income, of which $9.0 million of the total net operating loss carryforwards expire at various dates beginning in 2029, while the remaining $63.9 million do not expire but are limited in their usage to an annual deduction equal to 80% of annual taxable income.

As of December 31, 2020, we had state net operating loss carryforwards of $60.7 million, which may be available to offset future taxable income and expire at various dates beginning in 2027.

As of December 31, 2020, we also had federal and state research and development tax credit carryforwards of $4.5 million and $2.4 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2030 and 2029, respectively.

We had recorded a full valuation allowance against our net deferred tax assets at December 31, 2020.

During the three and nine months ended September 30, 2021, we released $2.5 million of our valuation allowance related to the net deferred tax liability recorded as a result of the PolicyFuel acquisition.

We maintain a valuation allowance on our overall net deferred tax asset as it is deemed more likely than not the net deferred tax asset will not be realized.

Other income (expense) consists of miscellaneous income (expense) unrelated to our core operations.

Non-GAAP Financial

To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we present in this Quarterly Report on Form 10-Q

To supplement our consolidated financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we present in this Quarterly Report on Form 10-Q

adjusted EBITDA as a non-GAAP financial

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acquisition-related costs;

legal settlement expense;

severance charges;

interest income;

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EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business.

In particular, we believe that excluding the impact of these expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons

In particular, we believe that excluding the impact of these items in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons

of our core operating performance.

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contingent consideration;

adjusted EBITDA excludes legal settlement expense that affected cash available to us;

adjusted EBITDA excludes severance charges incurred and paid in the fourth quarter of 2021 related to our reduction in non-marketing operating

expenses that affected cash available to us;

adjusted EBITDA does not reflect the cash received from interest income on our investments, which affects the cash available to us;

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Reconciliation of Net Loss to Adjusted EBITDA:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

Three Months Ended March 31,

(in thousands)

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Interest income

Benefit from income taxes

Adjusted EBITDA

Results of Operations

Comparison of the Three and Nine months ended September 30, 2021 and 2020

Comparison of the Three Months Ended March 31, 2022 and 2021

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Three Months Ended March 31,

(in thousands)

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Interest income

Other income (expense), net

Total other income (expense), net

Loss before income taxes

Benefit from income taxes

Other expense, net

Total other expense, net

Other Financial and Operational Data:

Quote requests

Variable marketing margin

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Comprised of revenue from the following distribution channels:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Direct channels

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Includes stock-based compensation expense as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

Three Months Ended March 31,

(in thousands)

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financial measure and a reconciliation of adjusted EBITDA to its comparable GAAP financial measure.

Three Months Ended

September 30,

Nine Months Ended

September 30,

(dollars in thousands)

Three Months Ended March 31,

(dollars in thousands)

Revenue increased by $17.6 million from $90.0 million for the three months ended September 30, 2020 to $107.6 million for the three months ended September 30, 2021.

The increase in revenue was due to increases of $14.9 million and $2.7 million from our automotive and other insurance marketplace verticals, respectively.

The increase in revenue from our automotive vertical was primarily due to an increase in the volume of quote requests resulting from increased advertising to attract consumers, partially offset by a decrease in revenue per quote request.

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

Revenue increased by $66.8 million from $249.6 million for the nine months ended September 30, 2020 to $316.4 million for the nine months ended September 30, 2021.

The increase in revenue was due to increases of $53.5 million and $13.3 million from our automotive and other insurance marketplace verticals, respectively.

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

The increase in revenue from our other marketplace verticals was primarily driven by an increase in revenue per quote request as a result of increased demand for consumer referrals by our insurance providers.

Revenue increased by $6.9 million from $103.8 million for the three months ended March 31, 2021 to $110.7 million for the three months ended March 31, 2022.

The increase in revenue was due to increases of $3.2 million and $3.7 million in revenue from our automotive and other insurance marketplace verticals, respectively.

The increase in revenue from our automotive vertical was primarily due to an increase in commission revenue of $5.2 million, partially offset by a decrease in carrier spend for referrals.

The increase in revenue from our other marketplace verticals was primarily due to an increase of $6.6 million in commission revenue, partially offset by a decrease in number of referrals sold.

Cost of Revenue

Three Months Ended

September 30,

Nine Months Ended

September 30,

(dollars in thousands)

Three Months Ended March 31,

(dollars in thousands)

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Percentage of revenue

Cost of revenue increased by $0.6 million from $5.4 million for the three months ended September 30, 2020 to $6.0 million for the three months ended September 30, 2021.

The increase in cost of revenue was primarily due to increased third-party call center costs of $0.8 million related to volume increases of call referrals and increased depreciation and amortization expense of $0.2 million, partially offset by a decrease in hosting costs of $0.3 million.

Cost of revenue increased by $2.1 million from $15.7 million for the nine months ended September 30, 2020 to $17.8 million for the nine months ended September 30, 2021.

The increase in cost of revenue was primarily due to increased third-party call center costs of $1.3 million related to volume increases of call referrals, increased depreciation and amortization expense of $0.5 million, increased hosting costs of $0.2 million and increased technical service costs of $0.2 million.

Cost of revenue was relatively consistent for the three months ended March 31, 2022 and 2021.

Cost of revenue increased due primarily to increased third-party call center costs of $0.4 million, which were primarily related to increased volume of call referrals and to increased amortization expense of $0.2 million.

These increases were partially offset by a decrease in hosting costs of $0.5 million.

Sales and Marketing

Three Months Ended

September 30,

Nine Months Ended

September 30,

(dollars in thousands)

Three Months Ended March 31,

(dollars in thousands)

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Percentage of revenue

Sales and marketing expenses increased by $18.9 million from $73.6 million for the three months ended September 30, 2020 to $92.5 million for the three months ended September 30, 2021.

The increase in sales and marketing expense was primarily due to an increase in advertising expenditures of $14.6 million and an increase in personnel-related costs of $3.7 million.

Sales and marketing expenses increased by $61.1 million from $204.7 million for the nine months ended September 30, 2020 to $265.7 million for the nine months ended September 30, 2021.

Sales and marketing expenses increased by $8.6 million from $87.6 million for the three months ended March 31, 2021 to $96.2 million for the three months ended March 31, 2022.

The increase in sales and marketing expense was primarily due to an increase in advertising expenditures of $4.0 million and an increase in personnel-related costs of $4.0 million.

Personnel-related costs for the nine months ended September 30, 2021 and 2020 included stock-based compensation expense of $9.2 million and $7.3 million, respectively.

The increase in personnel-related costs was primarily due to an increase in headcount, a significant portion of which was in DTC agency.

Research and Development

Three Months Ended

September 30,

Nine Months Ended

September 30,

(dollars in thousands)

Three Months Ended March 31,

(dollars in thousands)

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Percentage of revenue

Research and development expenses increased by $1.1 million from $8.1 million for the three months ended September 30, 2020 to $9.3 million for the three months ended September 30, 2021.

The increase in research and development expense was primarily due to an increase in personnel-related costs of $0.6 million as a result of our continued hiring of research and development employees and a shift towards hiring more senior personnel, to further develop and enhance our marketplace websites and technology.

Personnel-related costs for the three months ended September 30, 2021 and 2020 included stock-based compensation expense of $2.7 million and $2.2 million, respectively.

Technical service costs also increased by $0.4 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Research and development expenses increased by $5.3 million from $21.6 million for the nine months ended September 30, 2020 to $26.9 million for the nine months ended September 30, 2021.

The increase in research and development expense was primarily due to an increase in personnel-related costs of $4.4 million as a result of our continued hiring of research and development employees and a shift towards hiring more senior personnel, to further develop and enhance our marketplace websites and technology.

Personnel-related costs for the nine months ended September 30, 2021 and 2020 included stock-based compensation expense of $7.3 million and $5.4 million, respectively.

Technical service costs also increased by $0.9 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Research and development expenses decreased by $0.4 million from $8.6 million for the three months ended March 31, 2021 to $8.2 million for the three months ended March 31, 2022.

The decrease in research and development expense was primarily due to a decrease in personnel-related costs of $0.5 million.

General and Administrative

Three Months Ended

September 30,

Nine Months Ended

September 30,

(dollars in thousands)

Three Months Ended March 31,

(dollars in thousands)

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Percentage of revenue

General and administrative expenses increased by $1.1 million from $5.7 million for the three months ended September 30, 2020 to $6.7 million for the three months ended September 30, 2021.

General and administrative expenses increased by $1.3 million from $5.6 million for the three months ended March 31, 2021 to $6.9 million for the three months ended March 31, 2022.

The increase in general and administrative expenses was primarily due to an increase in personnel-related costs of $0.7 million.

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

General and administrative expenses increased by $3.4 million from $15.1 million for the nine months ended September 30, 2020 to $18.5 million for the nine months ended September 30, 2021.

The increase in general and administrative expenses was primarily due to an increase in personnel-related costs of $2.1 million, an increase in professional and accounting fees of $0.5 million and an increase in insurance costs of $0.4 million.

Personnel-related costs for the nine months ended September 30, 2021 and 2020 included stock-based compensation expense of $6.1 million and $5.0 million, respectively.

Other increases included legal fees of $0.2 million and hosting, insurance and credit card fees of $0.1 million each.

Acquisition-related

Acquisition-related costs for the three and nine months ended September 30, 2021 include expenses associated with third-party professional services we utilized for the evaluation of our anticipated acquisition of PolicyFuel of $0.4 million and $0.9 million, respectively, as well as changes in the fair value of our contingent consideration liabilities related to our acquisitions of $0.4 million and $0.1 million, respectively.

The change in the fair value of our contingent consideration liabilities was primarily due to a change in estimate of our forecasted revenue related to PolicyFuel, partially offset by a decrease in the market value of our Class A common stock during the periods.

Acquisition-related costs for each of the three and nine months ended September 30, 2020 were $0.5 million consisting of expenses associated with third-party professional services we utilized for our acquisition of Crosspointe.

Acquisition-related costs for the three months ended March 31, 2022 and 2021 consisted solely of the change in fair value of our contingent consideration liabilities recorded as the result of our acquisitions, which were comprised of income of $0.9 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.

The decrease in our contingent consideration liability for the three months ended March 31, 2022 related primarily to our future revenue forecasts.

Other Income (Expense)

Other income (expense), net was not significant for the three and nine months ended September 30, 2021.

Other income (expense), net included sublease income of $0.1 million and $0.3 million in the three and nine months ended September 30, 2020, respectively.

Benefit from income taxes

We recorded an income tax benefit of $2.5 million for the three and nine months ended September 30, 2021 due to the release of a portion of our valuation allowance as a result of the PolicyFuel acquisition.

The net deferred tax liability recorded for PolicyFuel primarily 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 our existing deferred tax assets.

Therefore, we recorded a discrete tax benefit for the release of a portion of our valuation allowance related to the net deferred tax liability recorded in purchase accounting.

We maintain a valuation allowance on our overall net deferred tax asset as it is deemed more likely than not the net deferred tax asset will not be realized.

Quote Requests

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands except percentages)

Quote requests

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

Other expense, net was not significant for either of the three months ended March 31, 2022 or 2021.

Variable Marketing Margin

Three Months Ended

September 30,

Nine Months Ended

September 30,

(dollars in thousands)

Three Months Ended March 31,

(dollars in thousands)

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Percentage of revenue

The increase in variable marketing margin was due primarily to increased quote requests.

The increase in variable marketing margin was due primarily to growth in commissions revenue.

Liquidity and Capital Resources

At September 30, 2021, our principal sources of liquidity were cash and cash equivalents of $41.8 million and availability of $25.0 million under our revolving line of credit.

At March 31, 2022, our principal sources of liquidity were cash and cash equivalents of $46.1 million and availability of $25.0 million under our revolving line of credit, which availability expires in August 2022.

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

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These covenants include limitations on our ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses.

As of March 31, 2022, we were in compliance with these covenants.

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

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

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

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Since our inception, we have incurred operating losses and may continue to incur losses in the foreseeable future.

We anticipate that our operating expenses and capital expenditures will increase substantially in the near term as we continue to expand our DTC agency, hire additional employees and improve our technology and infrastructure capabilities.

Additionally, a significant portion of the commission revenue we record will be collected over a multi-year time frame as policyholders renew their policies, and we are paid commissions on those renewals.

As of March 31, 2022, $18.9 million of our $28.1 million commissions receivable contract asset was classified as long-term.

We believe our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months, without considering the borrowing availability under our revolving line of credit.

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

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

Nine Months Ended

September 30,

The following table shows a summary of our cash flows for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Net cash used in investing activities

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

Net decrease in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Net cash provided by operating activities

Operating activities provided $14.0 million and $13.9 million of cash during the nine months ended September 30, 2021 and 2020, respectively.

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

charges of $24.2 million to our net loss of $11.0 million and net cash provided by changes in our operating assets and liabilities of $0.8 million.

Net cash provided by changes in our operating assets and liabilities consisted primarily of a $1.7 million decrease in accounts receivable and an aggregate $1.2 million increase in accounts payable and accrued expenses and other

current liabilities, partially offset by a $0.9 million increase in prepaid expenses and other current assets and a $1.1 million increase in other assets.

During the nine months ended September 30, 2020, operating activities provided $13.9 million of cash, which primarily resulted from the offset of net non-cash

charges of $20.2 million to our net loss of $7.4 million and net cash provided by changes in our operating assets and liabilities of $1.2 million.

Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2020 consisted primarily of a $7.7 million increase in accounts payable and accrued expenses and other current liabilities and a $2.0 million decrease in prepaid expenses and other current assets, partially offset by a $9.3 million increase in accounts receivable.

Other long-term liabilities also increased by $0.8 million primarily due to the deferred payment of employer tax remittances.

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

Operating activities used $3.8 million during the three months ended March 31, 2022 primarily resulting from our net loss of $5.7 million and net cash used by operating activities of $6.4 million, partially offset by net non-cash

charges of $8.2 million.

Net cash used by changes in our operating assets and liabilities consisted primarily of an $11.0 million decrease in accounts receivable and a $5.6 million increase in other assets, partially offset by a $10.4 million increase in accounts payable and accrued expenses and other current liabilities.

Operating activities provided $3.5 million during the three months ended March 31, 2021 primarily resulting from the offset of net non-cash

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

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

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

Collection of commissions receivable, which are included in prepaid expenses and other current assets and other assets depends upon the timing of our receipt of commission payments from insurance carriers.

A significant portion of our commissions receivable is classified as long-term.

Net cash used in investing activities

Net cash used in investing activities was $18.2 million and $17.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Net cash used in investing activities for the nine months ended September 30, 2021 and 2020 included cash paid of $16.0 million and $14.9 million to purchase PolicyFuel and Crosspointe, respectively.

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

During the nine months ended September 30, 2021 and 2020, we capitalized $1.7 million and $2.1 million of software development costs, respectively.

Net cash used in investing activities was $0.7 million and $0.8 million for the three months ended March 31, 2022 and 2021, respectively.

Net cash used in investing activities for the three months ended March 31, 2022 and 2021 included the acquisition of property and equipment, which included the capitalization of certain software development costs.

During the three months ended March 31, 2022 and 2021, we capitalized $0.5 million and $0.7 million, respectively, of software development costs.

Net cash provided by financing activities

During the nine months ended September 30, 2021 and 2020, net cash provided by financing activities was $3.1 million and $3.6 million, respectively, and consisted of proceeds received from the exercise of common stock options.

During the three months ended March 31, 2022 and 2021, net cash provided by financing activities was $15.6 million and $1.3 million, respectively.

Net cash provided by financing activities during the three months ended March 31, 2022 consisted of $15.0 million of proceeds from the issuance and sale of shares of common stock in a private placement with 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, and $0.6 million from the exercise of common stock options.

Net cash provided by financing activities during the three months ended March 31, 2021 consisted of proceeds received from the exercise of common stock options.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2020:

Payments Due By Period

(in thousands)

Operating lease commitments(1)

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

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

There have been no material changes to the contractual obligations reported in our Annual Report on Form 10-K

for the year ended December 31, 2021.

Critical Accounting Policies and Significant Judgments and Estimates

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Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

The following critical accounting policies reflect significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

goodwill and acquired intangible assets;

valuation of contingent consideration;

revenue recognition;

stock-based compensation expense.

There have been no material changes to our critical accounting policies from those disclosed in our financial statements and the related notes and other financial information included in our Annual Report on Form 10-K

for the year ended December 31, 2021, on file with the Securities and Exchange Commission.

Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance

sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

For further disclosure, refer to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q

and our audited consolidated financial statements included in our Annual Report on Form 10-K.

Recently Issued Accounting Pronouncements

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

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis