DRS/A 1 filename1.htm DRS/A
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As confidentially submitted to the Securities and Exchange Commission on May 9, 2018 as Amendment No. 1 to the Confidential Submission dated

March 30, 2018, File No. 377-02001.

This draft registration statement has not been filed publicly with the Securities and Exchange Commission

and all information herein remains strictly confidential.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

EverQuote, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware   7370   26-3101161
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

210 Broadway

Cambridge, MA 02139

(855) 522-3444

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Seth Birnbaum

President and Chief Executive Officer

EverQuote, Inc.

210 Broadway

Cambridge, Massachusetts 02139

(855) 522-3444

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

David A. Westenberg, Esq.
Jason L. Kropp, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Telephone: (617) 526-6000
Telecopy: (617) 526-5000
  David Mason, Esq.
General Counsel and Secretary
EverQuote, Inc.
210 Broadway
Cambridge, Massachusetts 02139
Telephone: (855) 522-3444
 

Marc D. Jaffe, Esq.
Philip P. Rossetti, Esq.

Evan G. Smith, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
Telephone: (212) 906-1200
Telecopy: (212) 751-4864

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐   Accelerated filer  ☐    Non-accelerated filer  ☒   Smaller reporting company  ☐
     (Do not check if a smaller reporting company)   Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities To Be Registered   Proposed
Maximum Aggregate
Offering Price(1)
  Amount of
Registration Fee(2)

Class A common stock, $0.001 par value per share

  $                   $                

 

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion, dated             , 2018

Preliminary Prospectus

                shares

 

LOGO

Class A Common Stock

 

 

This is an initial public offering of Class A common stock by EverQuote, Inc. EverQuote is offering shares of Class A common stock. The selling stockholders identified in this prospectus are offering an additional             shares. EverQuote will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Prior to this offering, there has been no public market for our Class A common stock. The estimated initial public offering price is between $         and $         per share.

We have two classes of voting common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except for voting and conversion rights. Each share of Class A common stock is entitled to one vote, and each share of Class B common stock is entitled to ten votes. Each outstanding share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value and whether voluntary or involuntary or by operation of law, except for certain exceptions and permitted transfers described in our restated certificate of incorporation, and each outstanding share of Class B common stock held by a stockholder who is a natural person, or held by the permitted transferees of such stockholder, will convert automatically into one share of Class A common stock nine months after the death or incapacity of such stockholder. Upon the completion of this offering, the holders of the outstanding shares of Class B common stock will collectively hold approximately     % of the voting power of our outstanding capital stock, and entities affiliated with Link Ventures will hold in the aggregate approximately     % of the voting power of our outstanding capital stock. Upon completion of this offering, we will be a “controlled company” as defined under the New York Stock Exchange listing rules.

We intend to apply to list our Class A common stock on the New York Stock Exchange under the symbol “EVER”.

 

     Per share      Total  

Initial public offering price

   $                       $                   

Underwriting discounts and commissions

   $      $  

Proceeds to EverQuote, before expenses

   $      $  

Proceeds to selling stockholders, before expenses

   $      $  

EverQuote and the selling stockholders have granted the underwriters an option for a period of 30 days to purchase up to             and             additional shares of Class A common stock, respectively.

Investing in our Class A common stock involves a high degree of risk. See “Risk factors” beginning on page 15.

As an “emerging growth company,” we are eligible for reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares on or about             , 2018.

 

J.P. Morgan   BofA Merrill Lynch

            , 2018


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LOGO

In a 2017 survey, consumers who found insurance through EverQuote saved an average of $536. EVERQUOTE The Largest Online Insurance Marketplace in the U.S. Sherry S.Oregon Saved $600 Truman H. Maryland Saved $696 Randal G.Indiana Saved $425 Campbell M.Virgina Saved$540 Allen C. Florida Saved $432

 


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LOGO

Helping Consumers Project Their Most Valuable Assets EVERQUOTE Home Insurance Townhome Built 1919 1,400 Sqft 2 Bed/1 Berth Estimated value $733,000 EVERQUOTE Life Insurance Age 35 Personal Married 4-Yr Degree Self-Employed Health Non-Smoker BMI: 21 EVERQUOTE Auto Insurance 2017 Nissan Leaf 90210 2 Drivers Street Parking 6K miles/year Leased Typical Coverage $100k/$300k Injury

 


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LOGO

With a Comprehensive Networks of Insurance Providers Amber R. Agent, West Virginia “Everquote has enable us to connect With consumers who are truly intenful.” Ladson M. Agent, South Carolina “Everquote has given me The first start I needed, and currently my agency has Axceeded all company set goals and expectations.”

 


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

The Offering

     10  

Summary Financial and Other Data

     13  

Risk Factors

     15  

Cautionary Note Regarding Forward-Looking Statements

     44  

Use of Proceeds

     46  

Dividend Policy

     47  

Capitalization

     48  

Dilution

     50  

Selected Financial and Other Data

     53  

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

     57  

Business

     79  

Management

     100  

Executive Compensation

     106  

Related Person Transactions

     116  

Principal and Selling Stockholders

     120  

Description of Capital Stock

     124  

Shares Eligible for Future Sale

     130  

Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders of Class A Common Stock

     133  

Underwriting

     137  

Industry and Other Data

     144  

Legal Matters

     144  

Experts

     144  

Where You Can Find More Information

     144  

Index to Financial Statements

     F-1  

 

 

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus that we file with the Securities and Exchange Commission. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date regardless of the time of delivery of this prospectus or of any sale of our Class A common stock.

For investors outside the United States: Neither we, the selling stockholders nor the underwriters have done anything that would permit our initial public offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Class A common stock and the distribution of this prospectus outside of the United States.


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PROSPECTUS SUMMARY

This summary highlights information appearing elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing at the end of this prospectus, before making any investment decision. Unless the context otherwise requires, we use the terms “EverQuote” the “company,” “we,” “us” and “our” in this prospectus to refer to EverQuote, Inc.

Our Business

EverQuote makes insurance shopping easy, efficient and personal, saving consumers and insurance providers time and money.

We operate the largest online marketplace for insurance shopping in the United States. Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. With over 10 million consumer visits per month, our results-driven marketplace, powered by our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money. Our network includes more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests.

Consumers may view insurance as a simple commodity with standard pricing. However, finding the right insurance product is often challenging for consumers, who face limited online options, complex, variable and opaque pricing, and myriad coverage configurations. We present consumers with a single starting point for a comprehensive and cost-effective insurance shopping experience. Our marketplace reduces the time consumers spend searching across multiple sites by delivering broader and more relevant results than consumers may find on their own. Our service is free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers. A consumer survey we conducted in 2017 reported average annual premium savings of $536 for consumers purchasing auto insurance policies through our marketplace, and we estimate providers have sourced 4.2 million policies to date through EverQuote. Based on this data, we believe we have saved consumers more than $2 billion over the past seven years.

Insurance providers operate in a highly competitive and regulated industry and typically specialize on pre-determined subsets of consumers. As a result, not every consumer is a good match for every provider, and providers struggle to efficiently 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 are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback.

The EverQuote platform is powered by data science. Our rich data assets and proprietary algorithms efficiently attract consumers, match them with relevant insurance providers and drive our overall business model.



 

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These assets include more than 1 billion consumer-submitted data points, derived from over 35 million quote requests and 100 billion ad impressions acquired through $410 million in advertising spend over the seven years ended April 30, 2018. We utilize our data assets throughout our business, from advertising and consumer acquisition to the innovation of new consumer and provider experiences, as well as to guide our strategic direction. As our data assets grow, our algorithms become more powerful. We believe our data science capabilities give us a significant competitive advantage.

Our marketplace benefits from significant network effects. As we attract more consumers to our platform, we collect more data to improve personalization, which in turn improves conversion rates and consumer satisfaction. The combination of these factors increases consumer traffic while reducing acquisition costs, leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve providers’ advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data.

We rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business. Our revenue grew from $45.6 million in 2013 to $126.2 million in 2017, representing a compound annual growth rate of 29.0%. In 2016 and 2017, our total revenue was $122.8 million and $126.2 million, respectively, representing year-over-year growth of 2.8%. In the three months ended March 31, 2017 and 2018, our revenue was $31.8 million and $40.7 million, respectively, representing quarter-over-quarter growth of 28.3%. We had a net loss of $0.9 million in 2016 and a net loss of $5.1 million in 2017, and had $3.0 million and $(1.5) million in adjusted EBITDA in 2016 and 2017, respectively. We had net losses of $1.6 million and $1.3 million for the three months ended March 31, 2017 and 2018, respectively, and had $(0.7) million and $(0.4) million in adjusted EBITDA for the three months ended March 31, 2017 and 2018, respectively. See the section titled “Selected Financial and Other Data—Non-GAAP Financial Measures” 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.

Industry Overview

Insurance is one of the largest segments of the United States economy and plays a vital role in securing the well-being of consumers.

Insurance marketing spend is large and evolving. To capture new policies and retain existing customers, insurance providers advertise across a broad range of online and offline marketing channels, devoting significant resources to sales and distribution. Separately, the internet has become increasingly influential in consumer insurance shopping, with more than 70% of insurance consumers shopping online, according to a 2015 comScore survey. While insurance providers are reallocating marketing spend from traditional media sources to online media channels, we believe the shift of marketing budgets continues to lag the shift in consumer behavior. We estimate that we have an immediate opportunity in excess of $2.6 billion per year, with a total addressable market over the long term of $120 billion annually.

Insurance products are complex and highly regulated. While consumers may perceive insurance as a commodity, it is complex and must be configured to match each consumer’s particular circumstances. In the United States, regulatory requirements vary state by state, with each state having different actuarial standards, statutory requirements and regulations, and there are numerous types and levels of coverage, bundling and discounts available from each provider. These complexities make it challenging for consumers to compare and choose from among the hundreds of available insurance providers and coverage combinations.

Insurance shopping is being enabled by new digital tools. We expect that the ongoing shift to online insurance shopping by consumers and the increasing digitization of insurance risk assessment and workflows will enable more personal, end-to-end shopping experiences, products and services.



 

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Insurance agents are an essential and growing part of the industry landscape. Despite the trend toward online shopping, insurance agents play an essential role in the insurance buying process. According to a 2015 comScore survey, while more than 70% of insurance consumers shop online, 80% of policies purchased are closed offline by insurance agents, and consumers frequently cited the desire to speak to an agent as the top reason for not buying online. We estimate there are approximately 100,000 agencies in the United States who sell insurance products across the auto, home, life, commercial and renters insurance markets. The number of insurance agents continues to grow, with employment in the U.S. insurance sales agent and broker sector increasing from 318,000 to 385,000 between 2010 and 2016, as reported by the Bureau of Labor Statistics.

Market Opportunity

The challenges faced in the $120 billion non-health insurance sales, marketing and distribution market create a significant opportunity for companies that can efficiently align consumers and providers. These challenges include:

Misalignment of providers and consumers creates an inefficient match between supply and demand. Due to pricing and regulatory complexity, insurance providers typically specialize on pre-determined sub-sets of consumers. At the same time, consumers struggle to make informed buying decisions due to the large number of providers, breadth of insurance products and services available, and opaque pricing and coverage options. The inability for insurance providers to attract only those consumers who match their optimal risk profiles, combined with the lack of comprehensive information for consumers, creates a supply and demand misalignment.

Complex, fragmented and opaque market for consumers. Selecting the right insurance provider is challenging for consumers as there are more than 1,500 insurance carriers in the United States, each with different risk-assessment requirements, product offerings and pricing. Moreover, pricing for the same coverage can vary widely from one provider to another, and even across different sales channels within the same provider. Consumers have distinct attributes and insurance needs and historically have lacked access to comprehensive tools for identifying and connecting with the right providers.

Inefficient advertising channels for insurance providers. Traditional advertising channels, such as television, are inefficient for insurance providers and lack the fine-grained controls for consumer targeting and the ability to quickly and selectively adjust cost-per-acquisition and align advertising spend with loss tolerance. In addition, traditional channels lack the ability to identify and segment providers’ existing customers, limiting the utility of these channels for retention.

Our Solution

Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. Our results-driven marketplace, powered by our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money.

Proprietary, data-driven technology platform.

Our platform efficiently attracts consumers shopping for insurance to our websites and mobile applications and matches consumers with relevant providers for streamlined quoting.

 

    Bid: We advertise to consumers under the EverQuote brand across hundreds of online channels including internet search, email, social media and display advertising. Our algorithms efficiently manage over 175 million advertising impressions per day, utilizing insights from our proprietary data assets and A/B testing to optimize bids, advertising creatives and placements across channels.


 

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    Quote request: At quote request, consumers submit data required by providers for matching, quoting and binding. This information is securely exchanged with insurance providers at the moment of referral, enabling providers to produce quotes quickly, with minimal additional steps and information needs.

 

    Bind: We combine consumer-submitted information and our internal data with proprietary machine learning algorithms to optimize matching and bind rates for consumers and insurance providers.

 

    Retention: Our platform enables insurance providers to identify and run custom campaigns to help retain their existing customers.

We engage with consumers through user-friendly and easy-to-navigate websites that make shopping for insurance easy, fast and cost-effective. We also engage with consumers in innovative ways, such as through EverDrive, our social safe-driving mobile app.

Insurance carriers and agents connect with our marketplace through EverQuote Pro, our web-based provider portal. EverQuote Pro provides transparent, secure access to marketplace data regarding consumer type, volume and referral pricing, along with sophisticated campaign management tools for targeting consumers based on a wide array of attributes.

Key benefits for consumers

We offer consumers a streamlined and personalized insurance buying experience, providing the following key benefits:

 

    Saving time and money

 

    Single starting point for a comprehensive insurance shopping experience

 

    Results-driven insurance shopping destination efficiently matching consumers with relevant options

 

    Seamless online or offline handoff to quote or bind a policy

Key benefits for insurance providers

We are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback. We offer insurance providers the following key benefits:

 

    Access to a high volume of in-market online consumers

 

    Acquisition of consumers that match providers’ specific criteria

 

    High return on investment through efficient acquisition of desired consumers

 

    High quote and bind rates for referrals through broad data integration with providers

 

    Flexible advertising channel

Our Strengths

We believe that our competitive advantages are based on the following key strengths:

 

    Results-driven marketplace for consumers. We efficiently match and connect consumers with relevant insurance policy options for their specific circumstances and needs, decreasing the time needed to compare providers and increasing the chance of purchasing insurance. We believe that offering a personalized, comprehensive and provider-inclusive consumer experience has helped us to become the leading marketplace for online insurance shopping, as measured by online visits.


 

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    Disruptive data-driven approach. Our marketplace is powered by a proprietary data and technology platform that efficiently attracts insurance shoppers from a diverse and growing array of online sources, increases the bind rate for consumers and drives down the cost of acquisition for providers. As of April 30, 2018, we employed over 130 data scientists, analysts and engineers who continually leverage our growing data assets to improve our capabilities.

 

    Powerful network effects. As we attract more consumers to our platform, we collect more data to improve personalization, which in turn improves conversion rates and consumer satisfaction. The combination of these factors increases consumer traffic while reducing acquisition costs, leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data.

 

LOGO

 

    Ability to expand with significant operating leverage. We have leveraged our data assets, technology platform and engineering and data science capabilities, along with our growing audience of consumers and network of insurance providers, to expand our platform from the auto insurance market into the home and life insurance markets. We have entered these new verticals with only a modest increase in headcount, and we have already achieved attractive economics and high growth.

 

    Flexible cost structure. Our largest expense, advertising, is variable and can be quickly adjusted to market conditions, including economic and industry cycles.

 

    Founder-led management team with culture of innovation and performance. Led by our founders, we have built a team focused on data-driven innovation, which remains at the heart of our culture. We have also rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business.

Our Growth Strategies

Our core mission is to make finding insurance easy and more personal, saving consumers and insurance providers time and money. We leverage technology and data to empower consumers with better information and



 

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options, enabling them to identify and reduce risky behaviors, lower their insurance costs and lead safer lives. Ultimately, we seek to improve the way consumers understand and manage their personal risks. We are working to build the largest and most trusted online insurance marketplace in the world. To achieve this goal, we intend to continue to grow our business by pursuing the following strategies:

 

    Attract more consumers to our marketplace. We plan to expand the number of consumers reaching our marketplace through existing channels by leveraging the superior features and growing data assets of our platform. In addition, we plan to launch new marketing channels, such as online video.

 

    Add more insurance providers and increase revenue per provider. We plan to grow the number of insurance providers on our platform by demonstrating the value proposition of our marketplace as an efficient, scalable customer acquisition channel and adding new provider-facing features. We believe we can also increase the number of referrals per quote request while maintaining or increasing the bind rate per quote request, which would allow us to increase our revenue at limited marginal cost. We also plan to expand revenue per provider by increasing consumer traffic and quote request volume, adding verticals and innovating advertiser products and services.

 

    Expand and deepen consumer engagement. We plan to innovate with new consumer offerings and enhanced personalization to deepen consumer engagement. We plan to provide broader and more meaningful consumer experiences, leading to increased return visits, higher frequency of interaction and greater revenue per user.

 

    Invest in our technology platform and people. We plan to continue to invest in our data and technology platform by growing our data science and engineering team, enabling us to improve the breadth and efficiency of our marketplace for consumers and providers.

 

    Launch new verticals on our platform. We plan to expand into additional vertical markets such as renters and commercial insurance to become a leading end-to-end marketplace for consumers and providers. With our entry into the home and life insurance verticals, we have demonstrated our ability to efficiently expand into new markets by leveraging our platform.

 

    Enhance our brand awareness. We believe we have significant opportunities to increase our brand awareness. Historically, our marketing efforts have been focused on algorithmic consumer acquisition rather than brand marketing. We plan to further expand our marketing channels to drive greater brand recognition and attract a broader consumer audience. We believe a stronger brand may drive even greater efficiencies in our marketplace.

 

    Grow internationally. We plan to selectively launch our offerings in international markets over time. We expect to focus our efforts in international markets with dynamics similar to the United States. We believe we can expand into new geographies with limited additional development costs due to the operating leverage embedded in our business.

Risks Associated with Our Business

You should consider carefully the risks described under the “Risk Factors” section beginning on page 15 and elsewhere in this prospectus. These risks, which include the following, could materially and adversely affect our business, financial condition, operating results, cash flow and prospects, which could cause the trading price of our Class A common stock to decline and could result in a partial or total loss of your investment:

 

    Our business is dependent on our relationships with insurance providers with no long-term contractual commitments. If insurance providers stop purchasing consumer referrals from us, or if we are unable to establish and maintain new relationships with insurance providers, our business, results of operations and financial condition could be materially adversely affected.


 

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    We compete with other media for advertising spend from our insurance provider customers, and if we are unable to maintain or increase our share of the advertising spend of our insurance provider customers, our business could be harmed.

 

    If consumers do not find value in our services or do not like the consumer experience on our platform, the number of referrals in our marketplace may decline, and our business, results of operations and financial condition could be materially adversely affected.

 

    We rely on the data provided to us by consumers and insurance providers to improve our product and service offerings, and if we are unable to maintain or grow such data we may be unable to provide consumers with a shopping experience that is relevant, efficient and effective, which could adversely affect our business.

 

    A significant portion of our revenue in recent periods was derived from one customer, and our results of operations could be adversely affected and stockholder value harmed if we lose business from this customer.

 

    We depend on search engines, display advertising, social media, email, content-based online advertising and other online sources to attract consumers to our websites, and if we are unable to attract consumers and convert them into quote requests in a cost-effective manner, our business and financial results may be harmed.

 

    If our emails are not delivered and accepted or are routed by email providers less favorably than other emails, or if our sites are not accessible or treated disadvantageously by internet service providers, our business may be substantially harmed.

 

    If we are unable to develop new offerings, achieve increased consumer adoption of those offerings or penetrate new vertical markets, our business and financial results could be materially adversely affected.

 

    Our business is substantially dependent on revenue from automotive insurance providers and subject to risks related to automotive insurance and the larger automotive industry. Our business may also be adversely affected by downturns in the home and life insurance industries.

 

    We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.

 

    Insurance providers in our marketplace may not provide competitive levels of service to consumers, which could materially adversely affect our brand and business and our ability to attract consumers.

 

    We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

 

    We have incurred net losses in the past and we may generate losses in the future.

 

    We expect our results of operations to fluctuate on a quarterly and annual basis.

 

    Our past growth may not be indicative of our future growth, and our revenue growth rate may decline in the future.

 

    The dual-class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, including our directors, executive officers and entities affiliated with Link Ventures, which will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.


 

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Our Status as a Controlled Company

Upon completion of this offering, entities affiliated with Link Ventures will hold, in the aggregate, approximately     % of the voting power of our outstanding common stock (or     % if the underwriters’ option to purchase additional shares of our Class A common stock is exercised in full). Because more than 50% of our voting power will be held by entities affiliated with Link Ventures upon completion of this offering, we will be a “controlled company” as defined under the New York Stock Exchange listing rules and, as such, will be exempt from certain corporate governance requirements that would otherwise be applicable under New York Stock Exchange rules. Following this offering, we intend to initially avail ourselves of certain of these exemptions and, for so long as we qualify as a “controlled company,” we will maintain the option to utilize from time to time some or all of these exemptions.

Our Corporate Information

We were incorporated in Delaware on August 1, 2008, under the name AdHarmonics, Inc., and changed our name to EverQuote, Inc. on November 17, 2014. Our principal executive offices are located at 210 Broadway, Cambridge, Massachusetts 02139, and our telephone number at that address is (855) 522-3444. Our website address is www.everquote.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.

“EverQuote,” our logo, and other trademarks or trade names of EverQuote, Inc. appearing in this prospectus are our property. This prospectus also contains trademarks and trade names of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including:

 

    reduced disclosure about our executive compensation arrangements;

 

    exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments; and

 

    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1 billion of non-convertible debt securities over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting obligations in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.



 

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In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies.



 

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THE OFFERING

 

Class A common stock offered by us

                shares

 

Class A common stock offered by the selling stockholders

                shares

 

Class A common stock to be outstanding after this offering

                shares

 

Class B common stock to be outstanding after this offering

                shares

 

Total Class A common stock and Class B common stock to be outstanding after this offering

                shares

 

Underwriters’ option to purchase additional shares of Class A common stock from us

                shares

 

Underwriters’ option to purchase additional shares of Class A common stock from the selling stockholders

                shares

 

Use of proceeds

We estimate that our net proceeds from the sale of our Class A common stock in this offering will be approximately $            , assuming an initial public offering price of $             per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders.

 

  The principal purposes of this offering are to create a public market for the Class A common stock, facilitate access to the public equity markets, increase our visibility in the marketplace and obtain additional capital.

 

  We intend to use our net proceeds from the sale of shares in this offering for working capital, capital expenditures and general corporate purposes, which could include potential strategic transactions and international expansion. See “Use of Proceeds.”

 

Voting rights

We have two classes of voting common stock, Class A common stock and Class B common stock. Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled to ten votes.

 

 

Holders of Class A common stock and Class B common stock vote together as a single class on all matters (including the election of



 

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directors) submitted to a vote of stockholders, unless otherwise required by law. Upon the completion of this offering, the holders of the outstanding shares of Class B common stock will collectively hold approximately     % of the voting power of our outstanding capital stock, and entities affiliated with Link Ventures will hold in the aggregate approximately     % of the voting power of our outstanding capital stock. As a result, the holders of the outstanding shares of Class B common stock will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction.

 

Dividend policy

We do not anticipate declaring or paying any cash dividends on our capital stock in the foreseeable future. See “Dividend Policy.”

 

Risk factors

You should read the “Risk Factors” section beginning on page 15 and the other information included in this prospectus for a discussion of factors to consider before deciding to invest in shares of our Class A common stock.

 

Proposed New York Stock Exchange symbol

“EVER”

 

 

The number of shares of Class A common stock and Class B common stock to be outstanding after this offering is based on 20,550 shares of Class A common stock outstanding as of April 30, 2018 and                  shares of Class B common stock outstanding as of April 30, 2018 (assuming the automatic conversion of all outstanding shares of preferred stock into an aggregate of                  shares of Class B common stock upon the completion of this offering), and excludes:

 

    72,615 shares of Class A common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of April 30, 2018, at a weighted-average exercise price of $56.74 per share (which does not include options to purchase an aggregate of 106,500 shares of Class A common stock, at an exercise price of $83.34 per share, that were granted subsequent to April 30, 2018);

 

    343,841 shares of Class B common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of April 30, 2018, at a weighted-average exercise price of $39.18 per share;

 

    30,312 shares of Class B common stock issuable upon the vesting of restricted stock units outstanding under our 2008 Stock Incentive Plan as of April 30, 2018;

 

    182,703 shares of Class A common stock reserved for future issuance under our 2008 Stock Incentive Plan as of April 30, 2018 (which does not account for options to purchase an aggregate of 106,500 shares of Class A common stock and 12,998 shares of Class A common stock issuable upon the vesting of restricted stock units that were granted subsequent to April 30, 2018); and

 

                    shares of Class A common stock that will become available for issuance under our 2018 Equity Incentive Plan in connection with this offering.

In addition, the number of shares of Class A common stock available for issuance under the 2018 Equity Incentive Plan upon the closing of this offering will be subject to automatic annual increases through                  in accordance with the terms of such plan.



 

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Except as otherwise noted, all information in this prospectus assumes:

 

    the automatic conversion of all outstanding shares of preferred stock into an aggregate of                  shares of Class B common stock upon the closing of this offering;

 

    the automatic conversion of                  shares of Class B common stock into an equivalent number of shares of Class A common stock upon their sale by the selling stockholders at the closing of this offering;

 

    no exercise of the outstanding options described above;

 

    no exercise by the underwriters of their option to purchase additional shares from us or the selling stockholders; and

 

    the filing and effectiveness of our restated certificate of incorporation and the adoption of our amended and restated bylaws upon the closing of this offering.


 

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SUMMARY FINANCIAL AND OTHER DATA

The following table presents summary financial and other data for our business for the periods indicated. The summary statements of operations data presented below for the years ended December 31, 2016 and 2017 have been derived from our audited financial statements appearing at the end of this prospectus. The summary statement of operations data presented below for the three months ended March 31, 2017 and 2018 and the summary balance sheet data as of March 31, 2018 have been derived from our unaudited condensed financial statements appearing at the end of this prospectus and have been prepared on a consistent basis with our audited financial statements. In the opinion of management, the unaudited data reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the financial information in those statements. Our historical results are not necessarily indicative of the results to be expected in the future. You should read this summary financial and other data in conjunction with the sections entitled “Selected Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing at the end of this prospectus.

 

     Year Ended December 31,     Three Months Ended March 31,  
         2016             2017               2017                 2018        
     (in thousands, except per share data)  

Statement of Operations Data:

        

Revenue

   $ 122,778     $ 126,242     $ 31,752     $ 40,730  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost and operating expenses:

        

Cost of revenue

     5,888       7,745       1,736       2,615  

Sales and marketing

     105,820       109,473       28,427       35,023  

Research and development

     6,585       9,194       2,131       2,614  

General and administrative

     4,894       4,519       1,009       1,713  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and operating expenses

     123,187       130,931       33,303       41,965  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (409     (4,689     (1,551     (1,235

Interest expense

     (506     (382     (67     (93
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (915     (5,071     (1,618     (1,328

Provision for income taxes

     18       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (933     (5,071     (1,618     (1,328

Accretion of redeemable convertible preferred stock to redemption value

     (656     (14,093     (11,784     (11,013
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (1,589   $ (19,164   $ (13,402   $ (12,341
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted(1)

   $ (1.30   $ (17.47   $ (11.57   $ (11.34
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common stock outstanding, basic and diluted(1)

     1,221       1,097       1,158       1,088  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)

     $                    $               
    

 

 

     

 

 

 

Pro forma weighted average common stock outstanding, basic and diluted (unaudited)(2)

        
    

 

 

     

 

 

 

Other Financial and Operational Data:

        

Quote requests

     9,508       12,123       2,961       3,457  

Variable marketing margin(3)

   $ 33,760     $ 37,551     $ 8,856     $ 11,694  

Adjusted EBITDA(3)

   $ 2,984     $ (1,469   $ (676   $ (374


 

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(1) See Note 11 to our audited financial statements and our unaudited condensed financial statements appearing at the end of this prospectus, for an explanation of the calculations of net loss per share attributable to common stockholders, basic and diluted.
(2) See Note 11 to our audited financial statements and our unaudited condensed financial statements appearing at the end of this prospectus, for an explanation of the calculations of pro forma net loss per share attributable to common stockholders, basic and diluted.
(3) These financial measures are not calculated in accordance with GAAP. See “Selected Financial and Other Data—Non-GAAP Financial Measures” for information regarding our use of these non-GAAP financial measures and a reconciliation of such measures to their nearest comparable financial measures calculated and presented in accordance with GAAP.

 

     As of March 31, 2018  
     Actual     Pro Forma(2)      Pro Forma As
Adjusted(3)
 
     (in thousands)  

Balance Sheet Data:

       

Cash

   $ 2,579     $                  

Working capital(1)

     2,421       

Total assets

     28,195       

Long-term debt

     5,774       

Total liabilities

     27,995       

Redeemable convertible preferred stock

     61,950       

Total stockholders’ equity (deficit)

     (61,750     

 

(1) We define working capital as current assets less current liabilities.
(2) The pro forma balance sheet data give effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of                  shares of Class B common stock upon the closing of this offering.
(3) The pro forma as adjusted balance sheet data give further effect to our issuance and sale of shares of Class A common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share of Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted amount of each of cash, working capital, total assets, and total stockholders’ equity (deficit) by $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted amount of each of cash, working capital, total assets, and total stockholders’ equity (deficit) by $             million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information included in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our Class A common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of may also become important factors that adversely affect our business. Our business, financial condition, operating results, cash flow and prospects could be materially and adversely affected by any of these risks or uncertainties. In that case, the trading price of our Class A common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

Our business is dependent on our relationships with insurance providers with no long-term contractual commitments. If insurance providers stop purchasing consumer referrals from us, or if we are unable to establish and maintain new relationships with insurance providers, our business, results of operations and financial condition could be materially adversely affected.

A substantial majority of our revenue is derived from sales of consumer referrals to insurance providers, including both insurance carriers and agents. Our relationships with insurance providers are dependent on our ability to deliver quality referrals at attractive volumes and prices. If insurance providers are not able to acquire their preferred referrals in our marketplace, they may stop buying referrals from us. Our agreements with insurance providers are short-term agreements, and insurance providers can stop participating in our marketplace at any time with no notice. As a result, we cannot guarantee that insurance providers will continue to work with us, or, if they do, the number of referrals they will purchase from us. In addition, we may not be able to attract new insurance providers to our marketplace or increase the amount of revenue we earn from insurance providers over time.

If we are unable to maintain existing relationships with insurance providers in our marketplace, or unable to add new insurance providers, we may be unable to offer our consumers the shopping experience they expect. This deficiency could reduce consumers’ confidence in our services, making us less popular with consumers. As a result, consumers could cease to use us, or use us at a decreasing rate.

In addition, our insurance carrier customers often provide subsidies to agents to offset agents’ costs in connection with selling insurance policies from our referrals. Our carrier customers have no obligation to provide such subsidies and may reduce the amount of such subsidies or cease providing them at any time. If our carrier customers were to reduce the amounts of or cease providing such subsidies, our insurance agent customers may terminate or reduce the extent of their relationships with us. Because our insurance provider customers can stop buying from us at any time and our insurance carrier customers may cease providing subsidies to our insurance agent customers at any time, our business, results of operations and financial condition could be materially adversely affected with little to no notice.

We compete with other media for advertising spend from our insurance provider customers, and if we are unable to maintain or increase our share of the advertising spend of our insurance provider customers, our business could be harmed.

We compete for insurance provider advertising spend with traditional offline media such as television, billboards, radio, magazines and newspapers, as well as online sources such as websites, social media and websites dedicated to providing multiple quote insurance information. Our ability to attract and retain insurance provider customers, and to generate advertising revenue from them, depends on a number of factors, including:

 

    the ability of our insurance provider customers to earn an attractive return on investment from their spending with us;

 

    our ability to increase the number of consumers using our marketplace;

 

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    our ability to compete effectively with other media for advertising spending; and

 

    our ability to keep pace with changes in technology and the practices and offerings of our competitors.

We may not succeed in retaining or capturing a greater share of our insurance provider customers’ advertising spending compared to alternative channels. If our current insurance provider customers reduce or end their advertising spending with us and we are unable to increase the spending of our other insurance provider customers or attract new insurance provider customers, our revenue and business and financial results would be materially adversely affected.

In addition, insurance provider advertising spend remains concentrated in traditional offline media channels. Some of our current or potential insurance provider customers have little or no experience using the internet for advertising and marketing purposes and have allocated only limited portions of their advertising and marketing budgets to the internet. The adoption of online marketing may require a cultural shift among insurance providers as well as their acceptance of a new way of conducting business, exchanging information and evaluating new advertising and marketing technologies and services. This shift may not happen at all or at the rate we expect, in which case our business could suffer. Furthermore, we cannot assure you that the market for online marketing services will continue to grow. If the market for online marketing services fails to continue to develop or develops more slowly than we anticipate, the success of our business may be limited, and our revenue may decrease.

If consumers do not find value in our services or do not like the consumer experience on our platform, the number of referrals in our marketplace may decline, and our business, results of operations and financial condition could be materially adversely affected.

If we fail to provide a compelling insurance shopping experience to our consumers both through our web and mobile platforms, the number of consumer referrals purchased from us will decline, and insurance providers may terminate their relationships with us or reduce their spending with us. If insurance providers stop offering insurance in our marketplace, we may not be able to maintain and grow our consumer traffic, which may cause other insurance providers to stop using our marketplace. We believe that our ability to provide a compelling insurance shopping experience, both on the web and through mobile devices, is subject to a number of factors, including:

 

    our ability to maintain a marketplace for consumers and insurance providers that efficiently captures user intent and effectively delivers relevant quotes to each individual insurance buyer;

 

    our ability to continue to innovate and improve our marketplace;

 

    our ability to launch new vertical offerings that are effective and have a high degree of consumer and insurance provider engagement;

 

    our ability to maintain the compatibility of our mobile applications with operating systems, such as iOS and Android, and with popular mobile devices running such operating systems; and

 

    our ability to access a sufficient amount of data to enable us to provide relevant quotes to consumers.

If the use of our marketplace declines or does not continue to grow, our business and operating results would be harmed.

We rely on the data provided to us by consumers and insurance providers to improve our product and service offerings, and if we are unable to maintain or grow such data we may be unable to provide consumers with a shopping experience that is relevant, efficient and effective, which could adversely affect our business.

Our business relies on the data provided to us by consumers and insurance providers using our marketplace. The large amount of information we use in operating our marketplace is critical to the insurance shopping

 

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experience we provide for consumers. If we are unable to maintain or grow the data provided to us, the value that we provide to consumers and insurance providers using our marketplace may be limited. In addition, the quality, accuracy and timeliness of this information may suffer, which may lead to a negative shopping experience for consumers using our marketplace and could materially adversely affect our business and financial results.

A significant portion of our revenue in recent periods was derived from one customer, and our results of operations could be adversely affected and stockholder value harmed if we lose business from this customer.

Sales to Progressive Casualty Insurance Company accounted for 23% and 20% of our revenue for the years ended December 31, 2016 and 2017, respectively, and for 25% and 16% of our revenue for the three months ended March 31, 2017 and 2018, respectively. This customer made purchases from us under short-term agreements and may cease doing business with us at any time with no notice. As a result, we have no assurances that this customer will continue to purchase from us at its historical levels or at all. If this customer were to reduce its levels of purchases from us or discontinue its relationship with us, the loss could have a material adverse effect on our results of operations in both the short and long term.

We depend on search engines, display advertising, social media, email, content-based online advertising and other online sources to attract consumers to our websites, and if we are unable to attract consumers and convert them into quote requests in a cost-effective manner, our business and financial results may be harmed.

Our success depends on our ability to attract online consumers to our websites and convert them into referrals in a cost-effective manner. We depend, in part, on search engines, display advertising, social media, email, content-based online advertising and other online sources for our website traffic. We are included in search results as a result of both paid search listings, where we purchase specific search terms that result in the inclusion of our advertisement, and, separately, organic searches that depend upon the content on our sites.

Search engines, social media platforms and other online sources often revise their algorithms and introduce new advertising products. If one or more of the search engines or other online sources on which we rely for website traffic were to modify its general methodology for how it displays our advertisements, resulting in fewer consumers clicking through to our websites, our business could suffer. In addition, if our online display advertisements are no longer effective or are not able to reach certain consumers due to consumers’ use of ad-blocking software, our business could suffer.

If one or more of the search engines or other online sources on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, we could lose consumers and traffic to our websites could decrease, any of which could have a material adverse effect on our business, financial condition and results of operations.

We currently compete with numerous other online marketing companies, and we expect that competition will intensify. Some of these existing competitors may have more capital or complementary products or services than we do, and they may leverage their greater capital or diversification in a manner that adversely affects our competitive position. In addition, other newcomers, including major search engines and content aggregators, may be able to leverage their existing products and services to our disadvantage. We may be forced to expend significant resources to remain competitive with current and potential competitors. If any of our competitors are more successful than we are at attracting and retaining consumers, our business, financial condition and results of operations could be materially adversely affected.

If our emails are not delivered and accepted or are routed by email providers less favorably than other emails, or if our sites are not accessible or treated disadvantageously by internet service providers, our business may be substantially harmed.

If email providers or internet service providers, or ISPs, implement new or more restrictive email or content delivery or accessibility policies, including with respect to net neutrality, it may become more difficult to deliver

 

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emails to consumers or for consumers to access our websites and services. For example, certain email providers, including Google, may categorize our emails as “promotional,” and these emails may be directed to an alternate, and less readily accessible, section of a consumer’s inbox. If email providers materially limit or halt the delivery of our emails, or if we fail to deliver emails to consumers in a manner compatible with email providers’ email handling or authentication technologies, our ability to contact consumers through email could be significantly restricted. In addition, if we are placed on “spam” lists or lists of entities that have been involved in sending unwanted, unsolicited emails, our operating results and financial condition could be substantially harmed. Further, if ISPs prioritize or provide superior access to our competitors’ content, our business and results of operations may be adversely affected.

Insurance providers who use our marketplace can offer products and services outside of our marketplace or obtain similar services from our competitors.

Because we do not have exclusive relationships with insurance providers, consumers may obtain quotes and purchase insurance policies from them without having to use our marketplace. Insurance providers can attract consumers directly through their own marketing campaigns or other traditional methods of distribution, such as referral arrangements, physical storefront operations or broker agreements. Insurance providers also may offer quotes to prospective customers online directly, through one or more online competitors of our business, or both. If our insurance provider customers determine to compete directly with us or choose to favor one or more of our competitors, they could cease providing us with quote information and terminate any direct interactions we have with their online workflows, customers relationship management systems and internal quoting platforms, which would reduce the breadth of the quoting information available to us and could put us at a competitive disadvantage against their direct marketing efforts or our competitors that retain such access. If consumers seek insurance policies directly from insurance providers or through our competitors, or if insurance providers cease providing us with access to their systems or information, the number of consumers searching for insurance on our marketplace may decline, and our business, financial condition and results of operations could be materially adversely affected.

If we are unable to develop new offerings, achieve increased consumer adoption of those offerings or penetrate new vertical markets, our business and financial results could be materially adversely affected.

Our success depends on our continued innovation to provide product and service offerings that make our marketplace, websites and mobile applications useful for consumers. These new offerings must be widely adopted by consumers in order for us to continue to attract insurance providers to our marketplace. Accordingly, we must continually invest resources in product, technology and development in order to improve the comprehensiveness and effectiveness of our marketplace and its related product and service offerings and effectively incorporate new internet and mobile technologies into them. These product, technology and development expenses may include costs of hiring additional personnel and of engaging third-party service providers and other research and development costs.

Without an innovative marketplace and related product and service offerings, we may be unable to attract additional consumers or retain current consumers, which could adversely affect our ability to attract and retain insurance providers who want to participate in our marketplace, which could, in turn, harm our business and financial results.

In addition, while we have historically concentrated our efforts on the automobile insurance market, we will need to penetrate additional vertical markets, such as home and life insurance, in order to achieve our long-term growth goals. Our success in the automobile insurance market depends on our deep understanding of this industry. In order to penetrate new vertical markets, we will need to develop a similar understanding of those new markets and the associated business challenges faced by participants in them. Developing this level of understanding may require substantial investments of time and resources and we may not be successful. In addition, these new vertical markets may have specific risks associated with them. For example, we are subject to

 

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risks related to the credit card and debit card payments we accept for our life insurance offerings, including reliance on one third-party payment processing provider and risk of fraud and theft. If we fail to penetrate new vertical markets successfully, our revenue may grow at a slower rate than we anticipate and our financial condition could suffer.

Our business is substantially dependent on revenue from automotive insurance providers and subject to risks related to automotive insurance and the larger automotive industry. Our business may also be adversely affected by downturns in the home and life insurance industries.

A substantial majority of the insurance purchased through our marketplace is automobile insurance and our financial prospects depend significantly on the larger automotive industry ecosystem. Revenue from automotive insurance providers accounted for 97.4% and 94.5% of our total revenue for the years ended December 31, 2016 and 2017, respectively, and for 96.9% and 88.2% of our total revenue for the three months ended March 31, 2017 and 2018, respectively. If insurance carriers experience large or unexpected losses through the offering of insurance, these carriers may choose to decrease the amount of money they spend with us. In addition, decreases in consumer demand in the automotive industry in general could adversely affect the demand for insurance and, in turn, the number of consumers using our marketplace to request insurance quotes. For example, trends in the automotive industry, such as from the effects of ride sharing applications, including Uber and Lyft, distracted driving and autonomous driving technologies, have the potential to adversely affect automobile purchases and to decrease the demand for auto insurance. In addition, consumer purchases of new and used automobiles generally decline during recessionary periods and other periods in which disposable income is adversely affected and may be affected by negative trends in the broader economy, including the cost of energy and gasoline, the availability and cost of credit, reductions in business and consumer confidence, stock market volatility and increased unemployment.

We are also dependent upon the economic success of the home and life insurance industries. Declines in demand for home and life insurance could cause fewer consumers to use our product offerings to shop for such policies. Downturns in either of these markets, which could be caused by a downturn in the economy at large, could materially adversely affect our business.

If we fail to build and maintain our brand, our ability to expand the use of our marketplace by consumers and insurance providers may be adversely affected.

Our future success depends upon our ability to create and maintain brand recognition and a reputation for delivering easy, efficient and personal insurance shopping. A failure by us to build our brand and deliver on these expectations could harm our reputation and damage our ability to attract and retain consumers, which could adversely affect our business. If consumers do not perceive our marketplace as a better insurance shopping experience, our reputation and the strength of our brand may be adversely affected.

Many of our competitors have more resources than we do and can spend more advertising their brands and services. As a result, we are required to spend considerable money and other resources to create brand awareness and build our reputation. Should the need or competition for top-of-mind awareness and brand preference increase, we may not be able to build brand awareness, and our efforts at building, maintain and enhancing our reputation could fail. Even if we are successful in our branding efforts, such efforts may not be cost-effective. If we are unable to maintain or enhance consumer awareness of our brand cost-effectively, our business, results of operations and financial condition could be materially adversely affected.

Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers, data privacy and security issues, and other aspects of our business, whether valid or not, could diminish confidence and participation in our marketplace and could adversely affect our reputation and business. There can be no

 

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assurance that we will be able to maintain or enhance our brand, and failure to do so would harm our business growth prospects and operating results.

Our marketing efforts may not be successful.

We currently rely on performance marketing channels that must deliver on metrics that are selected by our insurance provider customers and are subject to change at any time. We are unable to control how our insurance provider customers evaluate our performance. Certain of these metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and adversely affect our business. In addition, the metrics we provide may differ from estimates published by third parties or from similar metrics of our competitors due to differences in methodology. If our insurance provider customers do not perceive our metrics to be accurate, or if we discover material inaccuracies in our metrics, it could adversely affect our online marketing efforts and business.

In addition, we plan to expand our marketing efforts into offline channels such as television and radio. We face significant competition in marketing on offline channels, including from competitors and insurance carriers who may have significantly greater resources and brand recognition than we do. If we fail to expand our marketing efforts in offline channels or to market ourselves successfully on such channels, we may not experience increases in consumer traffic and increased referral and advertising revenue necessary to grow our business, which could have a material adverse effect on our results of operations and financial results.

If we fail to manage future growth effectively, our business could be materially adversely affected.

We have at times experienced rapid growth and anticipate further growth. This growth has placed significant demands on management and our operational infrastructure. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, while maintaining the beneficial aspects of our company culture. If we do not manage the growth of our business and operations effectively, the quality of our services and efficiency of our operations could suffer and we may not be able to execute on our business plan, which could harm our brand, results of operations and overall business.

Failure to increase our revenue or reduce our sales and marketing expense as a percentage of revenue would adversely affect our financial condition and profitability.

We expect to make significant future investments to support the further development and expansion of our business, and these investments may not result in increased revenue or growth on a timely basis or at all. Furthermore, these investments may not decrease as a percentage of revenue if our business grows. In particular, we intend to continue investing to market to our consumers including to increase awareness of our brand, including through television and radio advertisements. There can be no assurance that these investments will increase revenue or that we will eventually be able to decrease our sales and marketing expense as a percentage of revenue, and failure to do so would adversely affect our financial condition and profitability.

We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.

We face significant competition from companies that provide information and insurance-buying services designed to help consumers shop for insurance and to enable insurance providers to reach these consumers. Our competitors offer various products and services that compete with us. Some of these competitors include:

 

    companies that operate, or could develop, insurance search websites;

 

    media sites, including websites dedicated to providing multiple quote insurance information and financial services information generally;

 

    internet search engines; and

 

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    individual insurance providers, including through the operation of their own websites, physical storefront operations and broker arrangements.

We compete with these and other companies for a share of insurance providers’ overall budget for online and offline media marketing and referral spend. To the extent that insurance providers’ view alternative marketing and media strategies to be superior to our marketplace, we may not be able to maintain or grow the number of insurance providers using, and advertising on, our marketplace, and our business and financial results may be harmed.

We also expect that new competitors will enter the online insurance industry with competing marketplaces, products and services, which could have an adverse effect on our business and financial results.

Our competitors could significantly impede our ability to maintain or expand the number of consumers and insurance providers using our marketplace. Our competitors also may develop and market new technologies that render our marketplace less competitive, unmarketable or obsolete. In addition, if our competitors develop marketplaces with similar or superior functionality to ours, and our web traffic declines, we may need to decrease our referral and advertising fees. If we are unable to maintain our current pricing structure due to competitive pressures, our revenue would likely be reduced and our financial results would be adversely affected.

Our existing and potential competitors may have significantly more financial, technical, marketing and other resources than we have, and the ability to devote greater resources to the development, promotion and support of their marketplaces, products and services. In addition, they may have more extensive insurance industry relationships than we have, longer operating histories and greater name recognition. As a result, these competitors may be able to respond more quickly with new technologies and to undertake more extensive marketing or promotional campaigns than we can. In addition, to the extent that any of our competitors have existing relationships with insurance providers for marketing or data analytics solutions, those insurance providers may be unwilling to partner with us. If we are unable to compete with these competitors, the demand for our marketplace and related products and services could substantially decline.

In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our business and financial results.

Insurance providers on our marketplace may not provide competitive levels of service to consumers, which could materially adversely affect our brand and business and our ability to attract consumers.

Our ability to provide consumers with a high-quality and compelling insurance shopping experience depends, in part, on consumers receiving competitive prices, convenience, customer service and responsiveness from insurance providers with whom they are matched on our marketplace. If these providers do not meet or exceed consumer expectations with competitive levels of convenience, customer service, price and responsiveness, the value of our brand may be harmed, our ability to attract consumers to our marketplace may be limited and the number of consumers matched through our marketplace may decline, which could have a material adverse effect on our business, financial condition and results of operations.

Our business depends on our ability to maintain and improve the technology infrastructure necessary to send marketing emails and operate our websites, and any significant disruption in service on our email network infrastructure or websites could result in a loss of consumers, which could harm our business, brand, operating results and financial condition.

Our brand, reputation and ability to attract consumers and insurance providers depend on the reliable performance of our technology infrastructure and content delivery. We use emails to attract consumers to our

 

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marketplace. Our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be prolonged and harmful to our business. If our websites are unavailable when users attempt to access them, or if they do not load as quickly as expected, users may not return as often in the future, or at all. As our user base and the amount of information shared on our websites and mobile applications continue to grow, we will need an increasing amount of network capacity and computing power. We have spent and expect to continue to spend substantial amounts on data centers and equipment and related network infrastructure and services to handle the traffic on our websites and mobile applications and to help shorten the length of or prevent system interruptions. The operation of these systems is expensive and complex and we could experience operational failures. Interruptions, delays or failures in these systems, whether due to earthquakes, adverse weather conditions, other natural disasters, power loss, computer viruses, cybersecurity attacks, physical break-ins, terrorism, errors in our software or otherwise, could be prolonged and could affect the security or availability of our websites and applications, and prevent consumers from accessing our services. Such interruptions also could result in third parties accessing our confidential and proprietary information, including our intellectual property or consumer information. Problems with the reliability or security of our systems could harm our reputation, our ability to protect our confidential and proprietary information, result in a loss of users of our marketplace or result in additional costs. If we do not maintain or expand our network infrastructure successfully or if we experience operational failures or prolonged disruptions or delays in the availability of our systems or a significant search engine, we could lose current and potential consumers, which could harm our operating results and financial condition.

Substantially all of the communications, network and computer hardware used to operate our websites and mobile applications are located in the United States in Amazon Web Services and Google Cloud Platform data centers. Although we believe our systems are fully redundant, there may be exceptions for certain hardware. In addition, we do not own or control the operation of these facilities. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events. The occurrence of any of these events could result in damage to our systems and hardware or could cause them to fail. In addition, we may not have sufficient protection or recovery plans in certain circumstances.

Problems faced by our third-party web hosting providers could adversely affect the experience of users of our marketplace. Our third-party web hosting providers could close their facilities without adequate notice. Any financial difficulties, up to and including bankruptcy, faced by our third-party web hosting providers or any of the service providers with whom they contract may have adverse effects on our business, the nature and extent of which are difficult to predict. If our third-party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.

Any errors, defects, disruptions or other performance or reliability problems with our network operations could cause interruptions in access to our marketplace as well as delays and additional expense in arranging new facilities and services and could harm our reputation, business, operating results and financial condition.

Although we carry business interruption insurance, it may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our service as a result of system failures.

We rely on third-party service providers for many aspects of our business, and any failure to maintain these relationships could harm our business.

Our success will depend upon our relationships with third parties, including those with our payment processor, our data center host, our customer relationship manager software provider and our general ledger provider. If these third parties experience difficulty meeting our requirements or standards, or if the license agreements we have entered into with such third parties are terminated or not renewed, it could make it difficult for us to operate some aspects of our business, which could damage our business and reputation. In addition, if

 

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such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruptions, increase their fees, or if our relationships with these providers deteriorate, we could suffer increased costs and delays in our ability to provide consumers with content or provide similar services until an equivalent provider could be found or we could develop replacement technology or operations. In addition, if we are unsuccessful in identifying or finding high-quality partners, if we fail to negotiate cost-effective relationships with them or if we ineffectively manage these relationships, it could adversely affect our business and financial results.

We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

We believe our success has depended, and continues to depend, on the efforts and talents of our executives and employees. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. Experienced information technology personnel, who are critical to the success of our business, are in particularly high demand. This demand is particularly acute in the greater Boston, Massachusetts area, where we are headquartered. Competition for their talents is intense, and retaining such individuals can be difficult. The loss of any of our executive officers or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our executive officers and other employees are at-will employees, which means they may terminate their employment relationships with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially adversely affected.

We are subject to risks associated with a corporate culture that promotes entrepreneurialism and decentralized decision making.

We have delegated considerable operational autonomy and responsibility to our employees, including by having flexible working hours. In addition, a central tenet of our culture is providing our employees with opportunities to grow, accept new challenges and take on new responsibilities.

As a consequence, we may have relatively inexperienced people in key positions, and we routinely rotate experienced employees to other jobs within our company. In addition, the autonomy we provide to our employees could result in poor decision making, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

If we are unable to successfully respond to changes in the market, our business could be harmed.

While our business has grown rapidly as consumers and insurance providers have increasingly accessed our marketplace, we expect that our business will evolve in ways that may be difficult to predict. For example, we anticipate that over time we may reach a point when investments in new user traffic are less productive and the continued growth of our revenue will require more focus on developing new product and service offerings for consumers and insurance providers, expanding our marketplaces into new international markets and new industries to attract new customers, and increasing our referral and advertising fees. It is also possible that consumers and insurance providers could broadly determine that they no longer believe in the efficiency and effectiveness of our marketplace. Our continued success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to do so, our business could be harmed and our results of operations and financial condition could be materially adversely affected.

 

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We have incurred net losses in the past and we may generate losses in the future.

We have incurred net losses in the past and have never generated net income on an annual basis. We anticipate that our operating expenses and capital expenditures will increase substantially in the foreseeable future as we continue to invest to expand into new verticals, enhance our brand awareness, hire additional employees, expand outside of the United States and improve our technology and infrastructure capabilities. Our expansion efforts may prove more expensive than we anticipate, and we may not succeed in increasing our revenue and margins sufficiently to offset these higher expenses. We incur significant expenses in acquiring consumers, developing our technology and marketing the products and services we offer. Our costs also may increase due to our continued new product development and general administrative expenses, such as legal and accounting expenses related to being a public company. If we fail to increase our revenue or manage these additional costs, we may continue to incur losses in the future.

We expect our results of operations to fluctuate on a quarterly and annual basis.

Our revenue and results of operations could vary significantly from period to period and may fail to match expectations as a result of a variety of factors, some of which are outside of our control. Our results may vary as a result of fluctuations in the number of consumers and insurance providers using our marketplace and the size and seasonal variability of the marketing budgets of our insurance provider customers. In addition, the auto, home and life insurance industries are each subject to their own cyclical trends and uncertainties. Fluctuations and variability across these different verticals may affect our revenue. As a result of the potential variations in our revenue and results of operations, period-to-period comparisons may not be meaningful and the results of any one period should not be relied on as an indication of future performance. In addition, our results of operations may not meet the expectations of investors or public market analysts who follow us, which may adversely affect our stock price.

Our past growth may not be indicative of our future growth, and our revenue growth rate may decline in the future.

Our revenue grew from $96.8 million in 2015 to $122.8 million in 2016 and to $126.2 million in 2017, increases of 26.8% and 2.8%, respectively, and from $31.8 million for the three months ended March 31, 2017 to $40.7 for the three months ended March 31, 2018, an increase of 28.3%. This growth may not be indicative of our future growth, if any, and we will not be able to grow as expected, or at all, if we do not accomplish the following:

 

    increase the number of consumers using our marketplace;

 

    maintain and expand the number of insurance providers that use our marketplace or our revenue per provider;

 

    further improve the quality of our marketplace, and introduce high-quality new products; and

 

    increase the number of insurance shoppers acquired by insurance providers on our marketplace.

Our revenue growth rates may also be limited if we are unable to achieve high market penetration rates as we experience increased competition. If our revenue or revenue growth rates decline, investors’ perceptions of our business may be adversely affected and the market price of our Class A common stock could decline.

Our dedication to making decisions based primarily on the best interests of our company and stockholders may cause us to forgo short-term gains in pursuit of potential but uncertain long-term growth.

Our guiding principle is to build our business by making decisions based primarily upon the best interests of our entire marketplace, including consumers and insurance providers, which we believe has been essential to our success in increasing our user growth rate and engagement and best serves the long-term interests of our

 

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company and our stockholders. In the past, we have forgone, and we will in the future continue to forgo, certain expansion or short-term revenue opportunities that we do not believe are in the best interests of our marketplace and its users, even if such decisions adversely affect our results of operations in the short term. However, this strategy may not result in the long-term benefits that we expect, in which case our user traffic and engagement, business and financial results could be harmed.

We collect, process, store, share, disclose and use consumer information and other data, and our actual or perceived failure to protect such information and data or respect users’ privacy could damage our reputation and brand and harm our business and operating results.

Use of our marketplace involves the storage and transmission of consumers’ information, including personal information, and security breaches could expose us to a risk of loss or exposure of this information, which could result in potential liability, litigation and remediation costs, as well as reputational harm, all of which could materially adversely affect our business and financial results. For example, unauthorized parties could steal our users’ names, email addresses, physical addresses, phone numbers and other information, including sensitive medical information, which we collect when providing life insurance quotes. While we use encryption and authentication technology licensed from third parties designed to effect secure transmission of such information, we cannot guarantee the security of the transfer and storage of the personal information we collect from customers.

Like all information systems and technology, our websites, mobile applications and information systems may be subject to computer viruses, break-ins, phishing impersonation attacks, attempts to overload our servers with denial-of-service or other attacks, ransomware and similar incidents or disruptions from unauthorized use of our computer systems, as well as unintentional incidents causing data leakage, any of which could lead to interruptions, delays or website shutdowns, or could cause loss of critical data or the unauthorized disclosure, access, acquisition, alteration or use of personal or other confidential information. Although we have a chief information officer who coordinates our cybersecurity measures, policies and procedures, and our chief information officer regularly reports to our board of directors regarding these matters, we cannot be certain that our efforts will be able to prevent breaches of the security of our information systems and technology. If we experience compromises to our security that result in websites or mobile application performance or availability problems, the complete shutdown of our websites or mobile applications or the loss or unauthorized disclosure, access, acquisition, alteration or use of confidential information, consumers and insurance providers may lose trust and confidence in us, and consumers and insurance providers may decrease the use of our website or stop using our website entirely. Further, outside parties may attempt to fraudulently induce employees, consumers or insurance providers to disclose sensitive information in order to gain access to our information or consumers’ or insurance providers’ information. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures.

Any or all of the issues above could adversely affect our ability to attract new users and increase engagement by existing users, cause existing users to curtail or stop use of our marketplace, cause existing insurance provider customers to cancel their contracts or subject us to governmental or third-party lawsuits, investigations, regulatory fines or other actions or liability, thereby harming our business, results of operations and financial condition. Although we are not aware of any material information security incidents to date, we have detected common types of attempts to attack our information systems and data using means that have included viruses and phishing.

There are numerous federal, state and local laws in the United States and around the world regarding privacy and the collection, processing, storing, sharing, disclosing, using, cross-border transfer and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which may be costly to comply with, may result in regulatory fines or penalties, and may be inconsistent between countries and jurisdictions or conflict with other rules.

 

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We are subject to the terms of our privacy policies and privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which could include personally identifiable information or other user data, may result in governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us by consumer advocacy groups or others, and could cause consumers and insurance providers to lose trust in us, all of which could be costly and have an adverse effect on our business. In addition, new and changed rules and regulations regarding privacy, data protection and cross-border transfers of consumer information could cause us to delay planned uses and disclosures of data to comply with applicable privacy and data protection requirements. Moreover, if third parties that we work with violate applicable laws or our policies, such violations also may put consumer or insurance provider information at risk and could in turn harm our reputation, business and operating results.

We may be unable to halt the operations of websites that aggregate or misappropriate our data.

From time to time, third parties may misappropriate our data through website scraping, robots or other means and aggregate this data on their websites with data from other companies. In addition, copycat websites may misappropriate data in our marketplace and attempt to imitate our brand or the functionality of our website. If we become aware of such websites, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against the effect of the operation of such websites. Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition. In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business could be harmed.

We are subject to a number of risks related to the credit card and debit card payments we accept.

We accept payments through credit and debit card transactions. For credit and debit card payments, we pay interchange and other fees, which may increase over time. An increase in those fees may require us to increase the prices we charge and would increase our operating expenses, either of which could harm our business, financial condition and results of operations.

We currently rely exclusively on one third-party vendor to provide payment processing services, including the processing of payments from credit cards and debit cards, and our business would be disrupted if this vendor becomes unwilling or unable to provide these services to us and we are unable to find a suitable replacement on a timely basis. If we or our processing vendor fails to maintain adequate systems for the authorization and processing of credit card transactions, it could cause one or more of the major credit card companies to disallow our continued use of their payment products. In addition, if these systems fail to work properly and, as a result, we do not charge our customers’ credit cards on a timely basis or at all, our business, revenue, results of operations and financial condition could be harmed.

The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data are compromised due to a breach of data, we may be liable for

 

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significant costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures, and significantly higher credit card-related costs, each of which could harm our business, results of operations and financial condition.

We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it more difficult for us to comply. We are required to comply with payment card industry security standards. Failing to comply with those standards may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors. Any failure to comply fully also may subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit and debit card payments. Further, there is no guarantee that such compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, card holders and transactions.

If we are unable to maintain our chargeback rate or refund rates at acceptable levels, our processing vendor may increase our transaction fees or terminate its relationship with us. Any increases in our credit and debit card fees could harm our results of operations, particularly if we elect not to raise our rates for our service to offset the increase. The termination of our ability to process payments on any major credit or debit card would significantly impair our ability to operate our business.

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.

Our success will depend, in part, on our ability to grow our business in response to the demands of consumers, insurance providers and other constituents within the insurance industry as well as competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:

 

    diversion of management time and focus from operating our business to addressing acquisition integration challenges;

 

    coordination of technology, research and development, and sales and marketing functions;

 

    transition of the acquired company’s consumers and data to our marketplace;

 

    retention of employees from the acquired company;

 

    cultural challenges associated with integrating employees from the acquired company into our organization;

 

    integration of the acquired company’s accounting, management information, human resources and other administrative systems;

 

    the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;

 

    potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results in a given period;

 

    potential liabilities for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and

 

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    litigation or other claims in connection with the acquired company, including claims from terminated employees, consumers, former stockholders or other third parties.

Our failure to address these risks or other problems encountered in connection with future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities and harm our business generally. Future acquisitions also could result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expense or impairment charges associated with acquired intangible assets or goodwill, any of which could harm our financial condition. Also, the anticipated benefits of any acquisitions may not be realized.

We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances. If capital is not available to us, our business, operating results and financial condition may be harmed.

We intend to continue to make investments to support our growth and may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, including to increase our marketing expenditures to improve our brand awareness, develop new product and service offerings or further improve our marketplace and existing product and service offerings, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Volatility in the credit markets also may have an adverse effect on our ability to obtain debt financing.

If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition and prospects could be materially adversely affected.

Litigation could distract management, increase our expenses or subject us to material money damages and other remedies.

Although we are not currently a party to any material legal proceedings, we may be involved from time to time in various legal proceedings, including, but not limited to, actions relating to breach of contract and intellectual property infringement that might necessitate changes to our business or operations. Regardless of whether any claims against us have merit, or whether we are ultimately held liable or subject to payment of damages, claims may be expensive to defend and may divert management’s time away from our operations. If any legal proceedings were to result in an unfavorable outcome, it could have a material adverse effect on our business, financial position and results of operations. Any adverse publicity resulting from actual or potential litigation may also materially and adversely affect our reputation, which in turn could adversely affect our results.

Companies in the internet, technology and media industries are frequently subject to allegations of infringement or other violations of intellectual property rights. While we are not currently subject to claims relating to intellectual property, as we grow our business and expand our operations we may become subject to intellectual property claims by third parties. We plan to vigorously defend our intellectual property rights and our freedom to operate our business; however, regardless of the merits of the claims, intellectual property claims are often time consuming and extremely expensive to litigate or settle and are likely to continue to divert managerial attention and resources from our business objectives. Successful infringement claims against us could result in significant monetary liability or prevent us from operating our business or portions of our business. Resolution of

 

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claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure, or we may be required to cease using intellectual property of third parties altogether. Many of our contracts require us to provide indemnification against third-party intellectual property infringement claims, which would increase our defense costs and may require that we pay damages if there were an adverse ruling in any such claims. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.

Our existing and any future indebtedness could adversely affect our ability to operate our business.

As of March 31, 2018, we had $5.8 million of outstanding borrowings under our loan and security agreement with Western Alliance Bank. We do not intend to use any of our proceeds from this offering to prepay any of these borrowings. We could in the future incur additional indebtedness beyond our borrowings from Western Alliance Bank.

Our outstanding indebtedness combined with our other financial obligations and contractual commitments, including any additional indebtedness beyond our borrowings from Western Alliance Bank, could have significant adverse consequences, including:

 

    requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes;

 

    increasing our vulnerability to adverse changes in general economic, industry and market conditions;

 

    subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;

 

    limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

 

    placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.

In addition, our indebtedness under the loan and security agreement bears interest at a variable rate, making us vulnerable to increases in the market rate of interest. If the market rate of interest increases substantially, we will have to pay additional interest on this indebtedness, which would reduce cash available for our other business needs.

We intend to satisfy our current and future debt service obligations with our existing cash and cash flows from operations. However, we may not have sufficient funds, and may be unable to generate sufficient cash flows from operations, to pay the amounts due under our existing debt instruments. Failure to make payments or comply with other covenants under our existing debt instruments could result in an event of default and acceleration of amounts due. Under our loan and security agreement with Western Alliance Bank, the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, assets or condition is an event of default. If an event of default occurs and the lender accelerates the amounts due, we may need to seek additional financing, which may not be available on acceptable terms, in a timely manner or at all. In such event, we may not be able to make accelerated payments, and the lender could seek to enforce security interests in the collateral securing such indebtedness, which includes substantially all of our assets. In addition, the covenants under our existing debt instruments, the pledge of our assets as collateral and the negative pledge with respect to our intellectual property could limit our ability to obtain additional debt financing. Any of these events could have a material adverse effect on our results of operations or financial condition.

 

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Risks Related to Our Intellectual Property

We may not be able to adequately protect our intellectual property rights.

Our business depends on our intellectual property, the protection of which is crucial to the success of our business. We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. In addition, we attempt to protect our intellectual property, technology and confidential information by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements as we deem appropriate. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website features, software and functionality or obtain and use information that we consider proprietary.

We may not be able to discover or determine the extent of any unauthorized use or infringement or violation of our intellectual property or proprietary rights. Third parties also may take actions that diminish the value of our proprietary rights or our reputation. The protection of our intellectual property may require the expenditure of significant financial and managerial resources. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation could be costly, time-consuming and distracting to management, result in a diversion of resources, the impairment or loss of portions of our intellectual property and could materially adversely affect our business, financial condition and operating results. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. These steps may be inadequate to protect our intellectual property. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to use information that we regard as proprietary to create product offerings that compete with ours. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights, which could materially adversely affect our business, financial condition and operating results.

Competitors may adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term “EverQuote.”

We currently hold the “everquote.com” internet domain name as well as various other related domain names. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the name EverQuote.

We currently operate only in the United States. To the extent that we determine to expand our business internationally, we will encounter additional risks, including different, uncertain or more stringent laws relating to intellectual property rights and protection.

We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.

We may from time to time face allegations or claims that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors or non-practicing entities. Such claims, regardless of their merit, could result in litigation or other proceedings and could require us to expend significant financial resources and attention by our management and other personnel that otherwise would be focused on our business operations, result in injunctions against us that prevent us from using material

 

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intellectual property rights, or require us to pay damages to third parties. Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may result in significant settlement costs or require us to stop offering some features, or purchase licenses or modify our products and features while we develop non-infringing substitutes, but such licenses may not be available on terms acceptable to us or at all, which would require us to develop alternative intellectual property.

Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results and our reputation.

As our business expands, we may be subject to intellectual property claims against us with increasing frequency, scope and magnitude. We may also be obligated to indemnify affiliates or other partners who are accused of violating third parties’ intellectual property rights by virtue of those affiliates or partners’ agreements with us, and this could increase our costs in defending such claims and our damages. For example, many of our agreements with insurance providers and other partners require us to indemnify these entities against third-party intellectual property infringement claims. Furthermore, such insurance providers and partners may discontinue their relationship with us either as a result of injunctions or otherwise. The occurrence of these results could harm our brand or materially adversely affect our business, financial position and operating results.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our technologies and processes, we rely in part on confidentiality agreements with our employees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in such cases we may not be able to assert our trade secret rights against such parties. To the extent that our employees, contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights to related or resulting know-how and inventions. The loss of confidential information or intellectual property rights, including trade secret protection, could make it easier for third parties to compete with our products. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations, reputation and competitive position.

Our use of “open source” software could adversely affect our ability to protect our proprietary software and subject us to possible litigation.

We use open source software in connection with our software development. From time to time, companies that use open source software have faced claims challenging the use of open source software and/or compliance with open source license terms. We could be subject to suits by parties claiming ownership of what we believe to be open source software, or claiming non-compliance with open source licensing terms. Some open source licenses require users who distribute software containing open source to make available all or part of such software, which in some circumstances could include valuable proprietary code of the user. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could be harmful to our business, results of operations or financial condition, and could help our competitors develop services that are similar to or better than ours.

 

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Risks Related to Government Regulation

Our businesses are heavily regulated. We are, and may in the future become, subject to a variety of international, federal, state, and local laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business.

Our activities are subject to extensive regulation under the laws of the United States and its various states and the other jurisdictions in which we operate. We are currently subject to a variety of, and may in the future become subject to additional, international, federal, state and local laws that are continuously evolving and developing, including laws regarding the insurance industry, mobile- and internet-based businesses and other businesses that rely on advertising, as well as privacy and consumer protection laws, including the Telephone Consumer Protection Act, or TCPA, the Telemarketing Sales Rule, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, the Fair Credit Reporting Act and employment laws, including those governing wage and hour requirements. Our insurance activities are subject to regulation by state insurance regulators in the United States. These laws are complex and can be costly to comply with, require significant management time and effort, and could subject us to claims, government enforcement actions, civil and criminal liability or other remedies, including suspension of business operations. These laws may conflict with each other, further complicating compliance efforts.

If we are unable to comply with these laws or regulations in a cost-effective manner, we may be required to modify affected products and services, which could require a substantial investment and loss of revenue, or cease providing the affected product or service altogether. If we are found to have violated laws or regulations, we may be subject to significant fines, penalties and other losses.

We assess customer insurance needs, collect customer contact information and provide other product offerings, which results in us receiving personally identifiable information. This information is increasingly subject to legislation and regulation in the United States. This legislation and regulation is generally intended to protect individual privacy and the privacy and security of personal information. We could be adversely affected if government regulations require us to significantly change our business practices with respect to this type of information or if the insurance providers who use our marketplace violate applicable laws and regulations.

Changes in applicable laws and regulations may materially increase our direct and indirect compliance and other expenses of doing business, having a material adverse effect on our business, financial condition and results of operations. If there were to be changes to statutory or regulatory requirements, we may be unable to comply fully with or maintain all required insurance licenses and approvals. Regulatory authorities have relatively broad discretion to grant, renew and revoke licenses and approvals. If we do not have all requisite licenses and approvals, or do not comply with applicable statutory and regulatory requirements, the regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us, which could have a material adverse effect on our business, results of operations and financial condition.

We cannot predict whether any proposed legislation or regulatory changes will be adopted, or what impact, if any, such proposals or, if enacted, such laws could have on our business, results of operations and financial condition. If we fail to comply with applicable laws and regulations, we may be subject to investigations, criminal penalties or civil remedies, including fines, injunctions, loss of an operating license or approval, increased scrutiny or oversight by regulatory authorities, the suspension of individual employees, limitations on engaging in a particular business or redress to customers. The cost of compliance and the consequences of non-compliance could have a material adverse effect on our business, results of operations and financial condition. In addition, a failure to comply with applicable laws and regulations could have a material adverse effect on our business, results of operations and financial condition by exposing us to negative publicity and reputational damage or by harming our customer or employee relationships.

In most jurisdictions, government regulatory authorities have the power to interpret and amend applicable laws and regulations, and have discretion to grant, renew and revoke the various licenses and approvals we need

 

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to conduct our activities. Such authorities may require us to incur substantial costs in order to comply with such laws and regulations. Regulatory statutes are broad in scope and subject to differing interpretation. In some areas of our businesses, we act on the basis of our own or the industry’s interpretations of applicable laws or regulations, which may conflict from jurisdiction to jurisdiction. In the event those interpretations eventually prove different from the interpretations of regulatory authorities, we may be penalized or precluded from carrying on our previous activities.

Federal, state and international laws and regulations regulating insurance activities are complex and could have a material adverse effect on our business, may reduce our profitability and potentially limit our growth.

The insurance regulatory system in the United States is generally designed to protect the interests of consumers or policyholders, and not necessarily the interests of insurance producers, insurers, their stockholders and other investors. This system addresses, among other things: licensing companies and agents to transact business and authorizing lines of business; and regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements. In some cases, these insurance and other laws and regulations may impose operational limitations on our business, including on the products and services we may offer or on the amount or type of compensation we may collect. While we attempt to comply with applicable laws and regulations, there can be no assurance that we, our employees, consultants, contractors and other agents are in full compliance with such laws and regulations or interpretations at all times, or that we will be able to comply with any future laws or regulations.

In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and some state legislatures have considered or enacted laws that may alter or increase state authority to regulate insurance entities. Further, the National Association of Insurance Commissioners and state insurance regulators continually reexamine existing laws and regulations, interpretations of existing laws and the development of new laws and regulations. With limited exceptions, the U.S. federal government does not directly regulate the business of insurance. However, federal legislation and administrative policies in several areas can significantly and adversely affect insurance entities. These areas include financial services regulation, securities regulation, privacy and taxation. In the future, additional federal regulation may be enacted, which could affect the way we conduct our business and could result in higher compliance costs.

Insurance laws or regulations that are adopted or amended, in addition to changes in federal statutes, including the Gramm-Leach-Bliley Act and the McCarran-Ferguson Act, financial services regulations and federal taxation laws or regulation, may be more restrictive than current laws or regulations and may result in lower revenues or higher costs of compliance and thus could have a material adverse effect on our results of operations and limit our growth.

Federal, state and international laws regulating telephone and email marketing practices impose certain obligations on marketers, which could reduce our ability to expand our business.

We, and the insurance providers using our marketplace, make telephone calls and send emails to consumers who request insurance quotes through our marketplace. The United States regulates marketing by telephone and email. The TCPA prohibits companies from making telemarketing calls to numbers listed in the Federal Do-Not-Call Registry and imposes other obligations and limitations on making phone calls and sending text messages to consumers. The CAN-SPAM Act regulates commercial email messages and specifies penalties for the transmission of commercial email messages that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from senders. We and the insurance providers who use our marketplace may need to comply with such laws and any associated rules and regulations. States and other countries have similar laws related to telemarketing and commercial emails. Additional or modified laws and regulations, or interpretations of existing, modified or new laws, regulations and rules, could prohibit or increase the cost of engaging with consumers and impair our ability to expand the use of our products, including our demand response solution, to more users. Failure to comply with obligations and restrictions related to telephone,

 

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text message and email marketing could subject us to lawsuits, fines, statutory damages, consent decrees, injunctions, adverse publicity and other losses that could harm our business. Moreover, over the past several years there has been a sustained increase in litigation alleging violations of laws relating to telemarketing, which has increased the exposure of companies that operate telephone and text messaging campaigns to class action litigation alleging violations of the TCPA. If we or the insurance providers who use our marketplace become subject to such litigation, it could result in substantial costs to and materially adversely affect our business.

Changes in the regulation of the internet could adversely affect our business.

Laws, rules and regulations governing internet communications, advertising and e-commerce are dynamic and the extent of future government regulation is uncertain. Federal and state regulations govern various aspects of our online business, including intellectual property ownership and infringement, trade secrets, the distribution of electronic communications, marketing and advertising, user privacy and data security, search engines and internet tracking technologies. In addition, changes in laws or regulations that adversely affect the growth, popularity or use of the internet, including potentially the recent repeal in the United States of net neutrality, could decrease the demand for our offerings and increase our cost of doing business. Future taxation on the use of the internet or e-commerce transactions could also be imposed. Future taxation on the use of the internet or e-commerce transactions could also be imposed. Existing or future regulation or taxation could hinder growth in or adversely affect the use of the internet generally, including the viability of internet e-commerce, which could reduce our revenue, increase our operating expenses and expose us to significant liabilities.

Risks from third-party products could adversely affect our businesses.

We offer third-party products, including life insurance products, and we provide marketing services with respect to other insurance products. Insurance, by its nature, involves a transfer of risk. If risk is not transferred in the way the customer expects, our reputation may be harmed and we may become a target for litigation. In addition, if these products do not generate competitive risk-adjusted returns that satisfy clients in a variety of asset classes, we will have difficulty maintaining existing business and attracting new business. This risk may be heightened during periods when credit, equity or other financial markets are deteriorating in value or are particularly volatile, or when clients or investors are experiencing losses. Significant declines in the performance of these third-party products could subject us to reputational damage and litigation risk.

Risks Related to Our Class A Common Stock and this Offering

An active trading market for our Class A common stock may not develop, and you may not be able to resell your shares of our Class A common stock at or above the initial offering price.

Before this offering, there was no public trading market for our Class A common stock. If a market for our Class A common stock does not develop or is not sustained, it may be difficult for you to sell your shares of Class A common stock at an attractive price, at the time that you would like to sell them, or at all. The initial public offering price of our Class A common stock will be determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our Class A common stock after the offering. We cannot predict the prices at which our Class A common stock will trade. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and investors and, as a result of these and other factors, the price of our Class A common stock may fall.

The market price of our Class A common stock may be volatile, which could result in substantial losses for investors purchasing shares in this offering and could subject us to securities class action litigation.

The market price of our Class A common stock could be subject to significant fluctuations after this offering, and it may decline below the initial public offering price. Some of the factors that may cause the market price of our Class A common stock to fluctuate include:

 

    price and volume fluctuations in the overall stock market from time to time;

 

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    volatility in the market price and trading volume of comparable companies;

 

    actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of securities analysts;

 

    announcements of new service offerings, strategic alliances or significant agreements by us or by our competitors;

 

    departure of key personnel;

 

    litigation involving us or that may be perceived as having an adverse effect on our business;

 

    changes in general economic, industry and market conditions and trends;

 

    investors’ general perception of us;

 

    sales of large blocks of our stock; and

 

    announcements regarding industry consolidation.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

Our quarterly operating results or other operating metrics may fluctuate significantly, which could cause the trading price of our Class A common stock to decline.

Our quarterly operating results and other operating metrics have fluctuated in the past and may in the future fluctuate as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:

 

    the level of demand for our product and service offerings and our ability to maintain and increase our customer base;

 

    the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our market;

 

    bind rates by consumers;

 

    pricing pressure as a result of competition or otherwise;

 

    our ability to reduce costs;

 

    errors in our forecasting of the demand for our product and service offerings, which could lead to lower revenue or increased costs;

 

    seasonal or other variations in purchasing patterns by customers;

 

    increases in and timing of sales and marketing and other operating expenses that we may incur to grow and expand our operations and to remain competitive;

 

    adverse litigation judgments, settlements or other litigation-related costs;

 

    regulatory proceedings or other adverse publicity about us or our product and service offerings;

 

    costs related to the acquisition of businesses, talent, technologies or intellectual property, including potentially significant amortization costs and possible write-downs; and

 

    general economic conditions.

Any one of the factors above or the cumulative effect of some of the factors above may result in significant fluctuations in our operating results.

 

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The variability and unpredictability of our quarterly operating results or other operating metrics could result in our failure to meet our expectations or those of any analysts that cover us or investors with respect to revenue or other operating results for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.

We will have broad discretion in the use of our net proceeds from this offering and may not use them effectively.

Our management will have broad discretion to use our net proceeds from our sale of shares in this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. We expect to use our net proceeds from this offering for working capital, capital expenditures and general corporate purposes, which could include potential strategic transactions and international expansion. See “Use of Proceeds.” Because we will have broad discretion in the application of our net proceeds from this offering, our management may fail to apply these funds effectively, which could materially adversely affect our ability to operate and grow our business. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they publish negative evaluations of our stock or the stock of other companies in our industry, the price of our stock and trading volume could decline.

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not currently have and may never obtain research coverage by industry or financial analysts. If no analysts or few analysts commence coverage of us, the trading price of our Class A common stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our Class A common stock or the stock of other companies in our industry, the price of our Class A common stock could decline. If one or more of these analysts cease to cover our Class A common stock, we could lose visibility in the market for our Class A common stock, which in turn could cause our stock price to decline.

Purchasers in this offering will incur immediate and substantial dilution in the book value of their investment as a result of this offering.

If you purchase Class A common stock in this offering, you will incur immediate and substantial dilution of $         per share, representing the difference between the initial public offering price of $         per share, which is the midpoint of the range listed on the cover page of this prospectus, and our pro forma as adjusted net tangible book value per share after giving effect to sales of shares by us in this offering and the automatic conversion of all outstanding shares of preferred stock into Class B common stock upon the closing of this offering. Moreover, to the extent outstanding options are exercised and outstanding restricted stock units vest, you will incur further dilution. See the “Dilution” section of this prospectus.

Because we do not expect to pay any dividends on our Class A common stock for the foreseeable future, investors in this offering may never receive a return on their investment.

You should not rely on an investment in our Class A common stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our Class A common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our Class A common stock.

 

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The dual-class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, including our directors, executive officers and entities affiliated with Link Ventures and other significant stockholders who will hold in the aggregate     % of the voting power of our capital stock following the completion of this offering. This will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.

Our Class B common stock has 10 votes per share, and our Class A common stock, which is the stock we are offering in this offering, has one vote per share. Following this offering, our directors, executive officers and holders of more than 5% of our common stock, and their respective affiliates, will hold in the aggregate     % of the voting power of our capital stock; and entities affiliated with Link Ventures will hold in the aggregate     % of the voting power of our capital stock. Because of the 10-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. This may also prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders. In addition, major stock index providers have begun to exclude from their indices non-voting securities or the securities of companies with unequal voting rights. Exclusion from stock indices could make it more difficult, or impossible, for some fund managers to buy our Class A common stock, particularly in the case of index tracking mutual funds and exchange traded funds, which could adversely affect the trading liquidity and market price of our Class A common stock.

Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers to trusts and individual retirement accounts. In addition, all shares of Class B common stock will be required to convert to Class A common stock upon the election of a majority by voting power of the outstanding Class B common stock. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. See the section titled “Description of Capital Stock—Anti-Takeover Provisions” for additional information.

Our status as a “controlled company” could make our Class A common stock less attractive to some investors or otherwise harm our stock price.

Upon the closing of this offering, more than 50% of our voting power will be held by entities affiliated with Link Ventures. As a result, we will be a “controlled company” under the rules of the New York Stock Exchange. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and, as such, will be exempt from certain corporate governance requirements, including:

 

    a majority of the board of directors consist of independent directors;

 

    the nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

    the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    there be an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following the closing of this offering, we may elect to rely on certain of these exemptions. Accordingly, should the interests of Link Ventures differ from those of other stockholders, the other stockholders may not have

 

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the same protections afforded to stockholders of companies that are subject to all of the New York Stock Exchange corporate governance standards. Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price.

A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our Class A common stock to drop significantly, even if our business is doing well.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and legal restrictions on resale discussed in this prospectus lapse, the trading price of our Class A common stock could substantially decline. Based on shares outstanding as of April 30, 2018, on the closing of this offering, we will have outstanding a total of                 shares of Class A common stock and                 shares of Class B common stock, assuming no exercise of outstanding options, and after giving effect to the automatic conversion of all of our outstanding shares of preferred stock into shares of Class B common stock (excluding the underwriters’ option to purchase additional shares of Class A common stock). This includes the                 shares of Class A common stock that we are selling in this offering, which may be resold in the public market immediately. The remaining                 shares of our Class A common stock and                 shares of our Class B common stock, which together represent     % of our outstanding shares after this offering, are currently, and will be following the closing of this offering, restricted as a result of securities laws or lock-up agreements but will be able to be sold, subject to any applicable volume limitations, under federal securities laws with respect to affiliate sales. Each of our directors, executive officers and other holders of substantially all our outstanding shares have entered into lock-up agreements with the underwriters under which the holders of such securities have agreed that, subject to certain exceptions, without the prior written consent of J.P. Morgan Securities LLC, they will not dispose of or hedge any of their capital stock or securities convertible into or exchangeable for shares of capital stock for 180 days following the date of this prospectus. Upon each release of the foregoing restrictions, our securityholders subject to a lock-up agreement will be able to sell our shares in the public market. In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements prior to a release of the foregoing restrictions. For a description of the lock-up agreements, see the “Shares Eligible for Future Sale” and “Underwriting” sections of this prospectus.

In addition, as of April 30, 2018, there were 343,841 shares of Class B common stock subject to outstanding options, 72,615 shares of Class A common stock subject to outstanding options and an additional 182,703 shares of Class A common stock reserved for issuance under our equity incentive plans that will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements, lock-up agreements and Rules 144 and 701 under the Securities Act of 1933, as amended, or the Securities Act. Moreover, after this offering, holders of an aggregate of                  shares of our Class B common stock as of April 30, 2018, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of Class A common stock that we may issue under our employee benefit plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements and the restrictions imposed on our affiliates under Rule 144.

 

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Anti-takeover provisions in our restated certificate of incorporation and our amended and restated bylaws, as well as provisions of Delaware law, might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our Class A common stock.

Our restated certificate of incorporation and amended and restated bylaws and Delaware law contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our Class A common stock. These provisions may also prevent or delay attempts by our stockholders to replace or remove our management or directors. Our corporate governance documents include provisions:

 

    providing that directors may be removed by stockholders only for cause and only with a vote of the holders of shares representing at least                 of the voting power of all shares that stockholders would be entitled to vote for the election of directors;

 

    limiting the ability of our stockholders to call and bring business before special meetings of stockholders and to take action by written consent in lieu of a meeting;

 

    requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

 

    authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our Class A common stock; and

 

    limiting the liability of, and providing indemnification to, our directors and officers.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders holding shares representing more than 15% of the voting power of our outstanding voting stock from engaging in certain business combinations with us. Any provision of our restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Class A common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Class A common stock in an acquisition.

Our restated certificate provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders. Our restated certificate further provides that the federal district courts of the United States of America are the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions could limit the ability of stockholders to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of our company, (2) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee or stockholder of our company to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery or (4) any action asserting a claim governed by the internal affairs doctrine. Our restated certificate of incorporation further provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and

 

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exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and operating results.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our management team and could divert their attention away from the day-to-day management of our business, which could materially adversely affect our business, financial condition and operating results.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the listing requirements of the New York Stock Exchange and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly after we are no longer an emerging growth company. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and operating results and maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.

We are currently evaluating our internal controls, identifying and remediating any deficiencies in those internal controls and documenting the results of our evaluation, testing and remediation. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting that we are unable to remediate before the end of the same fiscal year in which the material weakness is identified, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to attest to management’s report on the effectiveness of our internal controls, which will be required after we are no longer an emerging growth company, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty

 

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regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

We have elected to rely on certain phase-in provisions of the New York Stock Exchange rules, and, as a result, we will not immediately be subject to certain corporate governance requirements otherwise required of New York Stock Exchange-listed companies.

We are currently relying on the phase-in provisions of the New York Stock Exchange rules applicable to audit committees, which allow us to have only one independent member on the audit committee upon the listing date of our Class A common stock, a majority of independent members on our audit committee within 90 days of the listing date and a fully independent committee within one year of the listing date. As of the date of this offering, only                 member of our audit committee has been determined to be independent.

To the extent we elect not to rely on applicable exemptions from corporate governance requirements available to us as a “controlled company”, we also intend to rely on the phase-in provisions of the New York Stock Exchange rules with respect to the requirements that we have a majority of independent directors on our board of directors and compensation and nominating and corporate governance committees that are composed entirely of independent directors. Under these phase-in provisions, a majority of the members of our board of directors must be independent within one year of the date of this offering, and our compensation and nominating and corporate governance committees must each have one independent member at the time of this offering, a majority of independent members within 90 days of the date of this offering and all independent members within one year of the date of this offering. As of the date of this offering, only                 members of our board of directors have been determined to be independent. Upon the closing of this offering, we will not have a compensation committee or a nominating and corporate governance committee.

During the phase-in periods, our stockholders will not have the same protections afforded to stockholders of companies that comply with the New York Stock Exchange’s independence requirements without reliance on the phase-in periods. We will be required to recruit new directors in order to comply with the New York Stock Exchange’s independence requirements, and the resultant changes in our board and committee membership may influence our future corporate strategy and operating philosophies and may result in deviations from our current strategy. Moreover, if, during the phase-in periods, we are unable to recruit a sufficient number of new directors who qualify as independent or otherwise comply with New York Stock Exchange rules, we may be subject to delisting by the New York Stock Exchange.

Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

We are not currently required to comply with the rules of the Securities and Exchange Commission, or SEC, implementing Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other

 

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information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. As an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. In addition, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be materially adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of this offering, subject to specified conditions. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1 billion of non-convertible debt securities over a three-year period. These exemptions include reduced disclosure obligations regarding executive compensation and exemptions from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, not being required to comply with certain requirements of Auditing Standard 3101 relating to providing a supplement to the auditor’s report regarding critical audit matters and not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation. In this prospectus, we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our Class A common stock less attractive if we rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to

 

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private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. Accordingly, we will incur additional costs in connection with complying with the accounting standards applicable to public companies at such time or times as they become applicable to us.

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial condition and results of operations.

Accounting principles and related pronouncements, implementation guidelines and interpretations we apply to a wide range of matters that are relevant to our business, including, but not limited to, revenue recognition, stock-based compensation, the redemption value of our redeemable convertible preferred stock, income taxes and capitalization of web-site development costs are complex and involve subjective assumptions, estimates and judgments by our management. Changes in these accounting pronouncements or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Accounting principles generally accepted in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

In particular, in May 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act with respect to ASU 2014-09, which will result in ASU 2014-09 becoming applicable to us on January 1, 2019. We are evaluating ASU 2014-09 and have not determined the impact it may have on our financial reporting.

Changes in lease accounting standards may materially and adversely affect us.

The FASB recently adopted new accounting rules, to be effective for our fiscal year beginning after December 2019, that will require companies to capitalize most leases on their balance sheets by recognizing a lessee’s rights and obligations. When the rules are effective, we will be required to account for the leases for our office space as assets and liabilities on our balance sheet, while previously we accounted for such leases on an “off balance sheet” basis. As a result, lease-related assets and liabilities will be recorded on our balance sheet, and we may be required to make other changes to the recording and classification of our lease-related expenses. Though these changes will not have any direct effect on our overall financial condition, these changes will cause the total amount of assets and liabilities we report to increase.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other than statements of historical fact contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expects,” “might,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “seek,” “would” or “continue,” or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we belive that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

 

    our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, cash flows and ability to achieve, and maintain, future profitability;

 

    our ability to attract and retain consumers and insurance providers using our marketplace;

 

    our ability to develop new and enhanced products and services to attract and retain consumers and insurance providers, and our ability to successfully monetize them;

 

    our anticipated growth and growth strategies and our ability to effectively manage that growth;

 

    our ability to maintain and build our brand;

 

    our reliance on our third-party service providers;

 

    our ability to expand internationally;

 

    the impact of competition in our industry and innovation by our competitors;

 

    our ability to hire and retain necessary qualified employees to expand our operations;

 

    our ability to adequately protect our intellectual property;

 

    our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business;

 

    the increased expenses and administrative workload associated with being a public company;

 

    failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud; and

 

    the future trading prices of our Class A common stock.

 

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While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, levels of activity, performance, events and circumstances may be materially different from what we expect.

 

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USE OF PROCEEDS

We estimate that our net proceeds from the sale of our Class A common stock by us in this offering will be approximately $            million, assuming an initial public offering price of $             per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters fully exercise their option to purchase additional shares from us in this offering, we estimate that our net proceeds from this offering will be approximately $            million. We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders.

A $1.00 increase (decrease) in the assumed initial public offering price of $            per share would increase (decrease) the net proceeds to us from this offering by approximately $            million, assuming that the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares of Class A common stock offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $            million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions, estimated placement agent fees and estimated offering expenses payable by us.

The principal purposes of this offering are to create a public market for our Class A common stock, facilitate access to the public equity markets, increase our visibility in the marketplace and obtain additional capital.

We intend to use the net proceeds we receive from this offering for working capital, capital expenditures and general corporate purposes. In addition, we believe that opportunities may exist from time to time to expand our current business through acquisitions of or investments in complementary products, technologies or businesses. While we have no current agreements, commitments or understandings for any specific acquisitions at this time, we may use a portion of our net proceeds for these purposes.

Based on our current plans, we believe our net proceeds received from this offering, our existing cash, anticipated cash flows from future operations and liquidity available from our revolving line of credit will be sufficient to meet our working capital and capital expenditure needs and debt service obligations for at least the next              months. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner that we currently expect.

Our management will have broad discretion in the application of the net proceeds we receive from this offering, and investors will be relying on the judgment of our management regarding the application of our net proceeds. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations, the anticipated growth of our business, and the availability and terms of alternative financing sources to fund our growth. Pending their use as described above, we intend to invest the net proceeds we receive from this offering in saving, certificate of deposit and money market accounts as well as short-term and intermediate investment-grade interest-bearing securities and obligations, such as money market funds, commercial paper and obligations of the United States government and its agencies.

 

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DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We do not anticipate declaring or paying any cash dividends on our capital stock in the foreseeable future. Any future determination to declare and pay cash dividends, if any, will be made at the discretion of our board of directors and will depend on a variety of factors, including applicable laws, our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, general business or financial market conditions, and other factors our board of directors may deem relevant. In addition, our revolving line of credit contains covenants that could restrict our ability to pay cash dividends. Investors should not purchase our Class A common stock with the expectation of receiving cash dividends.

 

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CAPITALIZATION

The following table sets forth our cash and our capitalization as of March 31, 2018:

 

    on an actual basis;

 

    on a pro forma basis to give effect to:

 

    the automatic conversion of all outstanding shares of our preferred stock into shares of Class B common stock upon the closing of this offering; and

 

    the filing and effectiveness of our restated certificate of incorporation, which provides for, among other things, the elimination of our Series A preferred stock, Series B preferred stock and Series B-1 preferred stock; and

 

    on a pro forma as adjusted basis to give further effect to our issuance and sale of                 shares of Class A common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information set forth in the table below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read the following table in conjunction with our financial statements and related notes appearing at the end of this prospectus and the sections of the prospectus titled “Selected and Other Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock.”

 

     As of March 31, 2018  
     Actual     Pro
Forma
     Pro Forma
As Adjusted
 
     (in thousands, except share and per share
amounts)
 

Cash

   $ 2,579     $                   $       
  

 

 

   

 

 

    

 

 

 

Long-term debt(1)

     5,774       

Redeemable convertible preferred stock (Series A, B and B-1), $0.001 par value, 1,867,886 shares authorized, 1,574,508 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted

     61,950       

Stockholders’ equity (deficit):

       

Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual;                  shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

     —         

Class A common stock, $0.001 par value; 3,750,595 shares authorized, 20,550 shares issued and outstanding, actual;                 shares authorized, 20,550 shares issued and outstanding, pro forma;                 shares authorized,                 shares issued and outstanding, pro forma as adjusted

     —         

Class B common stock, $0.001 par value; 3,445,762 shares authorized, 1,114,688 shares issued and outstanding, actual;                 shares authorized,                  shares issued and outstanding, pro forma;                  shares authorized,                  shares issued and outstanding, pro forma as adjusted

     1       

Additional paid-in capital

           

Accumulated deficit

     (61,751     
  

 

 

   

 

 

    

 

 

 

Total stockholders’ equity (deficit)

     (61,750     
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 5,974     $      $       
  

 

 

   

 

 

    

 

 

 

 

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  (1) As of March 31, 2018, our revolving line of credit provided for up to $11.0 million of borrowings to fund our working capital needs.

Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share of Class A common stock, which is the midpoint of the price range listed on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $            million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $            million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions, estimated placement agent fees and estimated offering expenses payable by us.

The foregoing table excludes:

 

    72,615 shares of Class A common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of March 31, 2018, with a weighted-average exercise price of $56.74 per share (which does not include options to purchase an aggregate of 106,500 shares of Class A common stock, at an exercise price of $83.34 per share, that were granted subsequent to March 31, 2018);

 

    346,891 shares of Class B common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of March 31, 2018, with a weighted-average exercise price of $39.20 per share;

 

    30,312 shares of Class B common stock issuable upon the vesting of restricted stock units outstanding under our 2008 Stock Incentive Plan as of March 31, 2018;

 

    179,653 shares of Class A common stock reserved for future issuance under our 2008 Stock Incentive Plan as of March 31, 2018 (which does not account for options to purchase an aggregate of 106,500 shares of Class A common stock and 12,998 shares of Class A common stock issuable upon the vesting of restricted stock units that were granted subsequent to March 31, 2018); and

 

                 additional shares of Class A common stock that will become available for issuance in connection with this offering under our 2018 Equity Incentive Plan.

In addition, the number of shares of Class A common stock available for issuance under the 2018 Equity Incentive Plan upon the closing of this offering will be subject to automatic annual increases through                 in accordance with the terms of such plan.

 

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DILUTION

If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share immediately after this offering.

Our historical net tangible book deficit as of March 31, 2018 was $(63.1) million, or $(55.57) per share of common stock. Our historical net tangible book deficit represents our total tangible assets less our total liabilities and preferred stock, which is not included within our stockholders’ equity (deficit). Historical net tangible book deficit per share represents historical net tangible book deficit divided by the 1,135,238 shares of common stock outstanding as of March 31, 2018.

Our pro forma net tangible book value as of March 31, 2018 was $                , or $         per share of common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to the automatic conversion of all outstanding shares of preferred stock into an aggregate of                  shares of Class B common stock upon the closing of this offering. Pro forma net tangible book value per share represents our pro forma net tangible book value divided by                 , the total number of shares of common stock outstanding as of March 31, 2018, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into Class B common stock upon the closing of this offering.

After giving further effect to our issuance and sale of                  shares of Class A common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 would have been $                  million, or approximately $            per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $            per share to our existing stockholders and immediate dilution of $            per share to new investors purchasing our shares of Class A common stock in this offering. Dilution per share to new investors is determined by subtracting the pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share of our Class A common stock paid by new investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $                   

Historical net tangible book deficit per share as of March 31, 2018

   $ (55.57  

Increase per share attributable to the pro forma adjustment described above

    
  

 

 

   

Pro forma net tangible book value per share as of March 31, 2018

   $    

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing our Class A common stock in this offering

    
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

    
    

 

 

 

Dilution per share to new investors purchasing shares of our Class A common stock in this offering

     $  
    

 

 

 

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share of Class A common stock offered by us, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $                 and the dilution per share to new investors by $            , assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Each increase of 1,000,000 shares in the number of shares of

 

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Class A common stock offered by us would increase our pro forma as adjusted net tangible book value per share after this offering by $             and decrease the dilution per share to new investors by $            , assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions. Each decrease of 1,000,000 shares in the number of shares of Class A common stock offered by us would decrease our pro forma as adjusted net tangible book value per share after this offering by $            and increase the dilution per share to new investors by $            , assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions.

If the underwriters exercise in full their option to purchase additional shares of Class A common stock from us in this offering, our pro forma as adjusted net tangible book value per share after the offering would be $            , and the dilution per share to new investors would be $            , in each case assuming an initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions.

The following table summarizes, as of March 31, 2018, on the pro forma as adjusted basis as described above, the total number of shares of common stock purchased from us, the total consideration paid and the average price per share paid or to be paid by existing stockholders and new investors acquiring shares of Class A common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average
Price

Per Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

                           $                                            $           

New investors

             $  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

The table above assumes no exercise of the underwriters’ option to purchase additional shares of our Class A common stock. If the underwriters exercise in full their option to purchase additional shares of Class A common stock, the percentage of shares of our common stock held by existing stockholders would be decreased to             % of the total number of our common stock outstanding after our this offering, and the number of shares held by new investors participating in this offering would be increased to     % of the total number of shares of our common stock outstanding after this offering.

The foregoing table excludes:

 

    72,615 shares of Class A common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of March 31, 2018, with a weighted-average exercise price of $56.74 per share (which does not include options to purchase an aggregate of 106,500 shares of Class A common stock, at an exercise price of $83.34 per share, that were granted subsequent to March 31, 2018);

 

    346,891 shares of Class B common stock issuable upon the exercise of options outstanding under our 2008 Stock Incentive Plan as of March 31, 2018, with a weighted-average exercise price of $39.20 per share;

 

    30,312 shares of Class B common stock issuable upon the vesting of restricted stock units outstanding under our 2008 Stock Incentive Plan as of March 31, 2018;

 

    179,653 shares of Class A common stock reserved for future issuance under our 2008 Stock Incentive Plan as of March 31, 2018 (which does not account for options to purchase an aggregate of 106,500 shares of Class A common stock and 12,998 shares of Class A common stock issuable upon the vesting of restricted stock units that were granted subsequent to March 31, 2018); and

 

                 additional shares of Class A common stock that will become available for issuance in connection with this offering under our 2018 Equity Incentive Plan.

 

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To the extent any of the outstanding options are exercised or any of the outstanding restricted stock units vest, you will experience further dilution as a new investor in this offering. If all outstanding options had been exercised and all outstanding restricted stock units had vested as of March 31, 2018, our pro forma as adjusted net tangible book value per share after this offering would be $            per share, and the total dilution per share to new investors would be $            per share. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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SELECTED FINANCIAL AND OTHER DATA

The following tables present selected financial and other data for our business. The selected statement of operations data presented below for the years ended December 31, 2016 and 2017 and the selected balance sheet data as of December 31, 2016 and 2017 have been derived from our audited financial statements appearing at the end of this prospectus. The selected statement of operations data presented below for the years ended December 31, 2013, 2014 and 2015 and the selected balance sheet data as of December 31, 2013, 2014 and 2015 have been derived from our unaudited financial statements not included in this prospectus. The selected statement of operations data presented below for the three months ended March 31, 2017 and 2018 and the selected balance sheet data as of March 31, 2018 have been derived from our unaudited condensed financial statements included elsewhere in this prospectus and have been prepared on a consistent basis as our audited financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the financial information in those statements. Our historical results are not necessarily indicative of the results to be expected in any future period. You should read the following selected financial data in conjunction with the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing at the end of this prospectus.

 

    Year Ended December 31,     Three Months Ended
March 31,
 
    2013     2014     2015     2016     2017     2017     2018  
    (in thousands, except per share data)  

Statement of Operations Data:

             

Revenue(1)

  $ 45,581     $ 61,901     $ 96,798     $ 122,778     $ 126,242     $ 31,752     $ 40,730  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost and operating expenses(2):

             

Cost of revenue

    393       2,083       3,971       5,888       7,745       1,736       2,615  

Sales and marketing

    42,584       56,104       87,158       105,820       109,473       28,427       35,023  

Research and development

    3,758       4,999       4,826       6,585       9,194       2,131       2,614  

General and administrative

    1,064       3,086       3,475       4,894       4,519       1,009       1,713  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and operating expenses

    47,799       66,272       99,430       123,187       130,931       33,303       41,965  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (2,218     (4,371     (2,632     (409     (4,689     (1,551     (1,235

Interest expense

    (344     (895     (804     (506     (382     (67     (93
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (2,562     (5,266     (3,436     (915     (5,071     (1,618     (1,328

Provision for (benefit from) income taxes

    (106     (282     —         18       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (2,456     (4,984     (3,436     (933     (5,071     (1,618     (1,328

Accretion of redeemable convertible preferred stock to redemption value

    —         —         —         (656     (14,093     (11,784     (11,013
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (2,456   $ (4,984   $ (3,436   $ (1,589   $ (19,164   $ (13,402   $ (12,341
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted(3)

  $ (2.02   $ (3.80   $ (2.85   $ (1.30   $ (17.47   $ (11.57   $ (11.34
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted(3)

    1,213       1,310       1,207       1,221       1,097       1,158       1,088  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial and Operational Data:

             

Quote requests

    1,832       2,363       5,352       9,508       12,123       2,961       3,457  

Variable marketing margin(4)

  $ 6,913     $ 11,915     $ 23,384     $ 33,760     $ 37,551     $ 8,856     $ 11,694  

Adjusted EBITDA(4)

  $ (1,539   $ (1,216   $ (218   $ 2,984     $ (1,469   $ (676   $ (374

 

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(1) Comprised of revenue from the following distribution channels (as a percentage of total revenue):

 

     Year Ended December 31,     Three Months Ended March 31,  
     2013        2014           2015           2016           2017            2017             2018      

Direct channel

     26     58     65     81     85     86     86

Indirect channel

     74       42       35       19       15       14       14  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     100     100     100     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(2) Includes stock-based compensation expense as follows:

 

     Year Ended December 31,      Three Months Ended March 31,  
     2013      2014      2015      2016      2017          2017              2018      
     (in thousands)  

Cost of revenue

   $ —        $ 7      $ 28      $ 32      $ 27      $ 6      $ 7  

Sales and marketing

     156        285        536        762        789        210        270  

Research and development

     109        807        160        429        467        103        124  

General and administrative

     78        1,184        453        733        577        152        166  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 343      $ 2,283      $ 1,177      $ 1,956      $ 1,860      $ 471      $ 567  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(3) See Note 11 to our audited financial statements and our unaudited condensed financial statements appearing at the end of this prospectus for an explanation of the calculations of net loss per share attributable to common stockholders, basic and diluted.
(4) See “—Non-GAAP Financial Measures” for information regarding our use of these non-GAAP financial measures and a reconciliation of such measures to comparable GAAP financial measures.

 

     As of December 31,     As of March 31,
2018
 
     2013     2014     2015     2016     2017    
     (in thousands)  

Balance Sheet Data:

            

Cash

   $ 20     $ 1,950     $ 1,187     $ 12,400     $ 2,363     $ 2,579  

Working capital (deficit)(1)

     (5,049     (3,818     (7,422     11,147       2,634       2,421  

Total assets

     9,487       12,700       16,335       28,250       20,519       28,195  

Current and long-term debt, net of discount

     10,442       13,838       13,546       4,091       4,611       5,774  

Total liabilities

     13,481       18,847       22,793       16,966       20,126       27,995  

Redeemable convertible preferred stock

     981       981       981       36,942       50,937       61,950  

Total stockholders’ deficit

     (4,975     (7,128     (7,439     (25,658     (50,544     (61,750

 

(1) We define working capital (deficit) as current assets less current liabilities.

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we have presented in this prospectus our variable marketing margin and adjusted EBITDA as non-GAAP financial measures. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies.

Variable Marketing Margin. We define variable marketing margin, or VMM, as revenue as reported in our statements of operations and comprehensive loss, less online advertising costs related to attracting consumers to our marketplace (which are a component of total advertising expense, which is a component of sales and

 

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marketing expense). The most directly comparable GAAP measure for VMM is revenue less advertising expense. We utilize VMM to measure the financial return on our online advertising, specifically to measure the degree by which the revenue generated from consumer quote requests exceeds the cost to attract those consumers to our marketplace through online advertising. We also use VMM to measure the efficiency of individual online advertising and consumer acquisition sources and to make trade-off decisions to manage our return on advertising. We do not utilize VMM as a measure of our overall profitability. We present VMM because it is used extensively by our management and board of directors to manage our operating performance, including evaluating our operational performance against budgeted VMM and understanding the efficiency of our online advertising spend.

Adjusted EBITDA. We define adjusted EBITDA as our net loss, excluding the impact of stock-based compensation expense; depreciation and amortization expense; interest expense; and our provision for (benefit from) income taxes. The most directly comparable GAAP measure is net income (loss). We monitor and have presented in this prospectus adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. In particular, we believe that excluding the impact of these expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance.

We use these non-GAAP financial measures to evaluate our operating performance and trends and make planning decisions. We believe that each of these non-GAAP financial measures helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of each non-GAAP financial measure. Accordingly, we believe that these financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.

Our non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures rather than revenue less advertising expense and net income (loss), which are the most directly comparable financial measures calculated and presented in accordance with GAAP. Some of these limitations are:

 

    VMM excludes general advertising costs that are designed to promote our business, attract insurance providers or produce results other than generating online marketplace traffic, which costs can represent significant cash expenditures;

 

    adjusted EBITDA excludes stock-based compensation expense as it has recently been, and will continue to be for the foreseeable future, a significant recurring non-cash expense for our business;

 

    adjusted EBITDA excludes depreciation and amortization expense and, although this is a non-cash expense, the assets being depreciated and amortized may have to be replaced in the future;

 

    adjusted EBITDA does not reflect the cash requirements necessary to service interest on our debt which affects the cash available to us;

 

    adjusted EBITDA does not reflect income tax expense (benefit) that affects cash available to us; and

 

    the expenses and other items that we exclude in our calculations of VMM and adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from VMM and adjusted EBITDA when they report their operating results.

In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.

The following tables reconcile VMM and adjusted EBITDA to revenue less advertising expense and net income (loss), respectively, the most directly comparable financial measures calculated and presented in accordance with GAAP.

 

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Reconciliation of revenue less advertising expense to variable marketing margin:

    Year Ended December 31,     Three Months Ended
March 31,
 
    2013     2014     2015     2016     2017     2017     2018  
    (in thousands)  

Revenue

  $ 45,581     $ 61,901     $ 96,798     $ 122,778     $ 126,242     $ 31,752     $ 40,730  

Less: total advertising expense1

    (38,668     (49,986     (73,414     (89,197     (90,471     (23,161     (29,592
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue less advertising expense

    6,913       11,915       23,381       33,553       35,771       8,591       11,138  

Add: other advertising expense2

    —         —         —         179       1,780       265       556  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Variable marketing margin

  $ 6,913     $ 11,915     $ 23,384     $ 33,760     $ 37,551     $ 8,856     $ 11,694  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) See Note 2 to our audited financial statements and our unaudited condensed financial statements included at the end of this prospectus.
(2) Other advertising expenses consist of general advertising costs that are designed to promote the business, attract insurance providers or produce results other than generating online marketplace traffic, such as increasing downloads of our EverDrive safe driver app. They are not directly related to generating online marketplace traffic, and as such are excluded by management from the calculation of VMM.

Reconciliation of Net Loss to Adjusted EBITDA:

 

     Year Ended December 31,     Three Months Ended
March 31,
 
     2013     2014     2015     2016     2017     2017     2018  
     (in thousands)  

Net loss

   $ (2,456   $ (4,984   $ (3,436   $ (933   $ (5,071   $ (1,618   $ (1,328

Stock-based compensation

     343       2,283       1,177       1,956       1,860       471       567  

Depreciation and amortization

     336       872       1,237       1,437       1,360       404       294  

Interest expense

     344       895       804       506       382       67       93  

Provision for (benefit from) income taxes

     (106     (282     —         18       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (1,539   $ (1,216   $ (218   $ 2,984     $ (1,469   $ (676   $ (374
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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 financial statements and related notes and other financial information included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the section titled “Risk Factors.” In this discussion, we use financial measures that are considered non-GAAP financial measures under Securities and Exchange Commission rules. These rules require supplemental explanation and reconciliation, which is included elsewhere in this prospectus. Investors should not consider non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP.

Company Overview

EverQuote makes insurance shopping easy, efficient and personal, saving consumers and insurance providers time and money.

We operate the largest online marketplace for insurance shopping in the United States. Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. With over 10 million consumer visits per month, our results-driven marketplace, powered by our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money. Our network includes more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests.

Consumers may view insurance as a simple commodity with standard pricing. However, finding the right insurance product is often challenging for consumers, who face limited online options, complex, variable and opaque pricing, and myriad coverage configurations. We present consumers with a single starting point for a comprehensive and cost-effective insurance shopping experience. Our marketplace reduces the time consumers spend searching across multiple sites by delivering broader and more relevant results than consumers may find on their own. Our service is free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers. A consumer survey we conducted in 2017 reported average annual premium savings of $536 for consumers purchasing auto insurance policies through our marketplace, and we estimate providers have sourced 4.2 million policies to date through EverQuote. Based on this data, we believe we have saved consumers more than $2 billion over the past seven years.

Insurance providers operate in a highly competitive and regulated industry and typically specialize on pre-determined subsets of consumers. As a result, not every consumer is a good match for every provider, and providers struggle to efficiently 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 are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback.

Since our founding in 2011, our core mission has been to make finding insurance easy and more personal, saving consumers and insurance providers time and money. We are working to build the largest and most trusted

 

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online insurance marketplace in the world. In pursuing this goal, we have consistently innovated through our disruptive data driven approach. Highlights of our history of innovation include:

 

    In 2011, we launched the EverQuote marketplace for auto insurance.

 

    In 2013, we launched EverQuote Pro, our provider portal, for carriers.

 

    In 2015, we launched EverQuote Pro for agents.

 

    In 2016, we added home and life insurance in our marketplace and launched EverDrive, our social safe-driving mobile app.

 

    In 2017, we reached 500,000 downloads of EverDrive.

 

    In 2018, we exceeded 35 million cumulative quote requests since launch of our marketplace.

We rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business. Our revenue grew from $45.6 million in 2013 to $126.2 million in 2017, representing a compound annual growth rate of 29.0%. In 2016 and 2017, our total revenue was $122.8 million and $126.2 million, respectively, representing year-over-year growth of 2.8%. In the three months ended March 31, 2017 and 2018, our revenue was $31.8 million and $40.7 million, respectively, representing quarter-over-quarter growth of 28.3%. We had a net loss of $0.9 million in 2016 and a net loss of $5.1 million in 2017, and had $3.0 million and $(1.5) million in adjusted EBITDA in 2016 and 2017, respectively. We had net losses of $1.6 million and $1.3 million for the three months ended March 31, 2017 and 2018, respectively, and had $(0.7) million and $(0.4) million in adjusted EBITDA for the three months ended March 31, 2017 and 2018, respectively. See the section titled “Selected Financial and Other Data—Non-GAAP Financial Measures” 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.

Factors Affecting Our Performance

We believe that our performance and future growth depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled “Risk Factors.”

Auto Insurance Industry Risk

We derive a significant portion of our revenue from auto insurance providers and our financial results depend on the performance of the auto insurance industry. In 2016, the U.S. commercial auto insurance industry experienced its worst underwriting performance in 15 years, with higher loss ratios that were driven by both adverse claim severity and frequency trends. Factors contributing to these trends include increased miles driven, greater incidence of distracted driving-related accidents, higher physical damage losses and repair costs due to more complex and sophisticated automobile parts and higher bodily injury costs from more serious accidents. As a result, our auto insurance carrier customers reduced marketing spend and cost per sale targets the following year, ultimately impacting our revenue growth in the auto insurance vertical in 2017. Despite these industry headwinds, we were able to grow our overall revenue by 2.8% in 2017. Following this industry downturn, loss ratios decreased in 2017, and in 2018, we are seeing an increase in auto insurance provider marketing spend and spend per referral in our marketplace.

Shift from indirect to direct distribution channels

Over the past five years we have shifted the majority of our revenue from our indirect channel, consisting of aggregators and media networks, to our direct channel, consisting of carriers and agents. This shift has been an important part of our maturity and evolution. The benefits of direct distribution include improved consumer

 

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experience, higher pricing per referral, improved pricing stability, greater revenue predictability, richer data feedback, better performance and stronger relationships with providers and consumers. In 2017, direct distribution accounted for 85% of total revenue, as compared to 8% in 2012.

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

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. We believe we can 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.

The chart below illustrates the increases in annual revenue generated from our existing insurance carrier customers over time, with our carrier customers divided into cohorts based on the years in which they first became customers of ours. For example, the 2011 cohort consists of all carriers that first became customers between January 1, 2011 and December 31, 2011 and, as shown in the chart below, revenue from this cohort increased from $3.8 million in the year ended December 31, 2013 to $17.8 million in the year ended December 31, 2017, representing a compound annual growth rate of 47.4%.

 

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Cost per quote request

We have been able to significantly increase quote request volume while decreasing cost per quote request. This has enabled us to expand our variable marketing margin, while driving efficient return on investment for our insurance provider customers.

 

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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-submitted website forms that contain the data required to provide an insurance quote. As we attract more consumers to our platform and they complete quote requests, we are able to refer them to our insurance provider customers, selling more referrals while also collecting data, which we use to improve personalization, conversion rates and consumer satisfaction. As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests. Our quote request volume grew from 1.8 million quote requests in 2013 to 12.1 million quote requests in 2017, representing a compound annual growth rate of 60.4%.

Variable Marketing Margin

We define variable marketing margin, or VMM, as revenue as reported in our statements of operations and comprehensive loss, less variable online advertising costs (which are a component of sales and marketing costs) that are related to attracting consumers to our marketplace. We utilize VMM to evaluate the efficiency and effectiveness of our online consumer acquisition efforts and to direct advertising spend to maximize our return on investment. We also use VMM to evaluate the financial performance of our marketplace. VMM is a non-GAAP financial measure that we present in this prospectus to supplement the financial information we provide on a GAAP basis. We have presented VMM 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. VMM, as a non-GAAP financial measure, should not be considered in isolation from, or as an alternative to, measures prepared in accordance with GAAP. VMM should be considered together with other operating and financial performance measures presented in accordance with GAAP. Also, VMM may not necessarily be comparable to similarly titled measures presented by other companies. Our VMM grew from $6.9 million in 2013 to $37.6 million in 2017, representing a compound annual growth rate of 52.7%. For further explanation of the uses and limitations of this measure and a reconciliation of our VMM to the most directly comparable GAAP measure, revenue less advertising expense, please see “Selected Financial and Other Data—Variable Marketing Margin.”

Adjusted EBITDA

We define adjusted EBITDA as net loss, adjusted to exclude: stock-based compensation expense, depreciation and amortization expense, interest expense and the provision for (benefit from) income taxes. Adjusted EBITDA is a non-GAAP financial measure that we present in this prospectus to supplement the financial information we present on a GAAP basis. We monitor and have presented in this prospectus 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. Adjusted EBITDA should be considered together with other operating and financial performance measures presented in accordance with GAAP. Also, adjusted EBITDA may not necessarily be comparable to similarly titled measures presented by other companies. For further explanation of the uses and limitations of this measure and a reconciliation of our adjusted EBITDA to the most directly comparable GAAP measure, net income (loss), please see “Selected Financial and Other Data — Adjusted EBITDA.”

 

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Key Components of Our Results of Operations

Revenue

We generate our revenue 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 support three secure consumer referral formats:

 

    Clicks: An online-to-online referral, with a handoff of the consumer to the provider’s website.

 

    Data: An online-to-offline referral, with quote request data transmitted to the provider for follow-up.

 

    Calls: An online-to-offline referral, 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 home and life insurance verticals as follows:

 

     Year Ended December 31,      Three Months Ended
March 31,
 
     2016      2017      2017      2018  
     (in thousands)  

Automotive

   $ 119,640      $ 119,313      $ 30,768      $ 35,925  

Home and Life

     3,138        6,929        984        4,805  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Revenue

   $ 122,778      $ 126,242      $ 31,752      $ 40,730  
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

We allocate certain overhead expenses, such as rent, utilities, office supplies and depreciation and amortization of general office assets to cost of revenue and operating expense categories based on headcount. As a result, an overhead expense allocation is reflected in cost of revenue and each operating expense category. Personnel-related costs included in cost of revenue and each operating expense category include wages, fringe benefit costs and stock-based compensation expense.

Cost of Revenue

Cost of revenue is comprised primarily of the costs of operating our marketplace and delivering consumer referrals to our customers. These costs consist primarily of technology service costs including hosting, software, data services, and third-party call center costs. In addition, cost of revenue includes depreciation and amortization of our platform technology assets and personnel-related costs.

Sales and Marketing

Sales and marketing expense consists primarily of advertising and marketing expenditures as well as personnel-related costs for employees engaged in sales, marketing, data analytics and consumer acquisition functions. Advertising consists of variable costs that are related to attracting consumers to our marketplace, increasing downloads of our social safe-driving mobile app EverDrive and promoting our marketplace to carriers and agents. Our advertising costs consist of online ad spend, including search, display and social media advertisements, as well as the costs to create and produce these advertisements. Advertising costs are expensed as incurred. Marketing costs consist primarily of content development, public relations, memberships, and event costs. In order to continue to grow our business and brand awareness, we expect that we will continue to commit

 

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substantial resources to our sales and marketing efforts. From 2013 to 2017, our sales and marketing expense as a percentage of revenue decreased from 93.4% to 86.7%, and we expect this trend to continue over the long term as we scale our business.

Research and Development

Research and development expenses consist primarily of personnel-related costs for software development, product management and data analytics. We have focused our research and development efforts on improving ease of use and functionality of our existing marketplace platform and developing new offerings and internal tools. We primarily expense research and development costs. Direct development costs related to software enhancements that add functionality are capitalized and depreciated as a component of cost of revenue. We expect that research and development expenses will increase as we continue to enhance and expand our platform technology.

General and Administrative

General and administrative expenses consist of personnel-related costs and related expenses for executive, finance, legal, human resources, technical support and administrative personnel as well as the costs associated with professional fees for external legal, accounting and other consulting services, insurance premiums and payment processing and billing costs. We expect general and administrative expenses to increase as we incur the costs of compliance associated with being a publicly traded company, including legal, audit and consulting fees.

Interest Expense

Interest expense consists of interest expense associated with outstanding borrowings under our loan and security agreements and the amortization of deferred financing costs and debt discount associated with such arrangements. See “—Liquidity and Capital Resources—Loan and Security Agreement.” In 2016, we also incurred interest on our related party note payable that was outstanding for a portion of 2016, all of which was repaid in the second half of 2016.

Income Taxes

We have not recorded income tax benefits for the net losses we have incurred in the years ended December 31, 2016 and 2017 or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. As of December 31, 2017, we had U.S. federal and state net operating loss carryforwards of $9.1 million and $7.1 million, respectively, which may be available to offset future taxable income and begin to expire in 2027. As of December 31, 2017, we also had U.S. federal and state research and development tax credit carryforwards of $1.8 million and $0.9 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2029. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date. In 2016, we recorded less than $0.1 million of current federal and state income tax expense.

On December 22, 2017, the Tax Cuts and Jobs Act, or the TCJA, was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018, as well as a limitation of the deduction for net operating losses to 80% of annual taxable income and the elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The federal tax rate change resulted in a reduction in our deferred tax assets and liabilities, and a corresponding reduction of our valuation allowance. As a result, no income tax expense or benefit was recognized as of the enactment date of the TCJA. The other provisions of the TCJA did not have a material impact on the December 31, 2017 financial statements.

 

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Results of Operations

Comparison of the Three Months Ended March 31, 2017 and 2018

The following tables set forth our results of operations in dollar amounts and as percentage of revenue for the periods shown:

 

     Three Months Ended March 31,         
         2017              2018          Change  
     (in thousands)  

Revenue

   $ 31,752      $ 40,730      $ 8,978  
  

 

 

    

 

 

    

 

 

 

Cost and operating expenses:

        

Cost of revenue

     1,736        2,615        879  

Sales and marketing

     28,427        35,023        6,596  

Research and development

     2,131        2,614        483  

General and administrative

     1,009        1,713        704  
  

 

 

    

 

 

    

 

 

 

Total cost and operating expenses

     33,303        41,965        8,662  
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (1,551      (1,235      316  

Interest expense

     (67      (93      (26
  

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (1,618      (1,328      290  

Provision for income taxes

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (1,618    $ (1,328    $ 290  
  

 

 

    

 

 

    

 

 

 

Other Financial Data:

        

Quote requests

     2,961        3,457        496  

Variable marketing margin

   $ 8,856      $ 11,694      $ 2,838  

 

     Three Months Ended
March 31,
 
         2017             2018      

Revenue

     100.0     100.0
  

 

 

   

 

 

 

Cost and operating expenses:

    

Cost of revenue

     5.5       6.4  

Sales and marketing

     89.5       86.0  

Research and development

     6.7       6.4  

General and administrative

     3.2       4.2  
  

 

 

   

 

 

 

Total cost and operating expenses

     104.9       103.0  
  

 

 

   

 

 

 

Loss from operations

     (4.9     (3.0

Interest expense

     (0.2     (0.2
  

 

 

   

 

 

 

Loss before income taxes

     (5.1     (3.2

Provision for income taxes

     —         —    
  

 

 

   

 

 

 

Net loss

     (5.1     (3.2
  

 

 

   

 

 

 

Other Financial Data:

    

Variable marketing margin

     27.9     28.7

 

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Revenue:

 

     Three Months Ended
March 31,
     Change  
     2017      2018      Amount      %  
     (dollars in thousands)  

Revenue

   $ 31,752      $ 40,730      $ 8,978        28.3

Revenue increased by $9.0 million from $31.8 million for the three months ended March 31, 2017 to $40.7 million for the three months ended March 31, 2018. The increase was due to an increase in revenue of $5.2 million and $3.8 million from our automotive and home and life 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 consumer referrals by our insurance providers and to a lesser extent an increase in the volume of quote requests resulting from increased advertising to attract consumers. The increase in revenue from our home and life vertical was primarily driven by an increase in the volume of quote requests resulting from increased advertising to attract consumers.

Cost of Revenue

 

     Three Months
Ended March 31,
    Change  
     2017     2018     Amount      %  
     (dollars in thousands)  

Cost of revenue

   $ 1,736     $ 2,615     $ 879        50.6

Percentage of revenue

     5.5     6.4     

Cost of revenue increased by $0.9 million from $1.7 million for the three months ended March 31, 2017 to $2.6 million for the three months ended March 31, 2018. Cost of revenue increased in both dollars and as a percentage of revenue due primarily to increased software and data services costs of $0.6 million and increased hosting costs of $0.3 million.

Sales and Marketing

 

     Three Months Ended
March 31,
    Change  
     2017     2018     Amount      %  
     (dollars in thousands)  

Sales and marketing expense

   $ 28,427     $ 35,023     $ 6,596        23.2

Percentage of revenue

     89.5     86.0     

Sales and marketing expenses increased by $6.6 million from $28.4 million for the three months ended March 31, 2017 to $35.0 million for the three months ended March 31, 2018. As a percentage of revenue, sales and marketing expenses decreased from 89.5% for the three months ended March 31, 2017 to 86.0% for the three months ended March 31, 2018. The $6.6 million increase in sales and marketing expense was primarily due to an increase in advertising and marketing expenditures relating to our insurance marketplace of $6.1 million and, to a lesser extent, a $0.3 million increase in advertising and marketing expenditures relating to our social safe-driving app, EverDrive, and a $0.2 million increase in personnel-related costs.

Research and Development

 

     Three Months
Ended March 31,
    Change  
     2017     2018     Amount      %  
     (dollars in thousands)  

Research and development expense

   $ 2,131     $ 2,614     $ 483        22.7

Percentage of revenue

     6.7     6.4     

 

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Research and development expenses increased by $0.5 million from $2.1 million for the three months ended March 31, 2017 to $2.6 million for the three months ended March 31, 2018. As a percentage of revenue, research and development expenses decreased from 6.7% for the three months ended March 31, 2017 to 6.4% for the three months ended March 31, 2018. The increase in research and development expense was primarily due to an increase in personnel-related costs of $0.3 million and increased office and occupancy costs of $0.1 million as a result of our continued hiring of research and development employees to further develop and enhance our marketplace websites and technology.

General and Administrative

 

     Three Months
Ended March 31,
    Change  
     2017     2018     Amount      %  
     (dollars in thousands)  

General and administrative expense

   $ 1,009     $ 1,713     $ 704        69.8

Percentage of revenue

     3.2     4.2     

General and administrative expenses increased by $0.7 million from $1.0 million for the three months ended March 31, 2017 to $1.7 million for the three months ended March 31, 2018. The increase was primarily due to increases in audit and tax-related fees and, to a lesser extent, an increase in travel-related expenses. The increase in audit and tax-related fees was primarily due to our preparation to operate as a public company.

Interest Expense

Interest expense remained consistent at $0.1 million for the three months ended March 31, 2017 and 2018 primarily due to consistent average outstanding borrowings for the comparative periods.

Quote requests

 

     Three Months
Ended March 31,
     Change  
     2017      2018      Amount      %  
     (in thousands except percentage)  

Quote requests

     2,961        3,457        496        16.8

Quote requests increased by 0.5 million from 3.0 million quote requests for the three months ended March 31, 2017 to 3.5 million quote requests for the three months ended March 31, 2018. Quote requests increased due to increased spending on online marketplace advertising.

Variable Marketing Margin

 

     Three Months Ended
March 31,
    Change  
     2017     2018     Amount      %  
     (dollars in thousands)  

Variable marketing margin

   $ 8,856     $ 11,694     $ 2,838        32.0

Percentage of revenue

     27.9     28.7     

Variable marketing margin increased by $2.8 million from $8.9 million for the three months ended March 31, 2017 to $11.7 million for the three months ended March 31, 2018. Variable marketing margin increased in both absolute dollars and as a percentage of revenue due primarily to increased revenue per quote request as a result of increased volume and demand for consumer referrals by our insurance providers, partially offset by increased cost per quote request.

 

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Comparison of the Years Ended December 31, 2016 and 2017

The following tables set forth our results of operations in dollar amounts and as percentage of total revenue for the periods shown:

 

     Year Ended December 31,         
     2016      2017      Change  
     (in thousands)  

Revenue

   $ 122,778      $ 126,242      $ 3,464  
  

 

 

    

 

 

    

 

 

 

Cost and operating expenses:

        

Cost of revenue

     5,888        7,745        1,857  

Sales and marketing

     105,820        109,473        3,653  

Research and development

     6,585        9,194        2,609  

General and administrative

     4,894        4,519        (375
  

 

 

    

 

 

    

 

 

 

Total cost and operating expenses

     123,187        130,931        7,744  
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (409      (4,689      (4,280

Interest expense

     (506      (382      124  
  

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (915      (5,071      (4,156

Provision for income taxes

     18        —          (18
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (933    $ (5,071    $ (4,138
  

 

 

    

 

 

    

 

 

 

Other Financial Data:

        

Quote requests

     9,508        12,123        2,615  

Variable marketing margin

   $ 33,760      $ 37,551      $ 3,791  

 

     Year Ended
December 31,
 
     2016     2017  

Revenue

     100.0     100.0
  

 

 

   

 

 

 

Cost and operating expenses:

    

Cost of revenue

     4.8       6.1  

Sales and marketing

     86.2       86.7  

Research and development

     5.4       7.3  

General and administrative

     4.0       3.6  
  

 

 

   

 

 

 

Total cost and operating expenses

     100.4       103.7  
  

 

 

   

 

 

 

Loss from operations

     (0.4     (3.7

Interest expense

     (0.4     (0.3
  

 

 

   

 

 

 

Loss before income taxes

     (0.8     (4.0

Provision for income taxes

     —         —    
  

 

 

   

 

 

 

Net loss

     (0.8 )%      (4.0 )% 
  

 

 

   

 

 

 

Other Financial Data:

    

Variable marketing margin

     27.5     29.7

Revenue:

 

     Year Ended December 31,      Change  
     2016      2017      Amount      %  
     (dollars in thousands)  

Revenue

   $ 122,778      $ 126,242      $ 3,464        2.8

 

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Our revenue increased by $3.5 million from $122.8 million in 2016 to $126.2 million in 2017. The increase was due to an increase in revenue from our direct customers, partially offset by a decrease in revenue from our indirect distributors. Revenue from our direct channel increased by $7.3 million as a result of increased agency enrollments and increased revenue per agent. Revenue from our indirect channel decreased by $3.8 million as we continued to shift revenue to direct customers.

Cost of Revenue

 

     Year Ended December 31,     Change  
         2016             2017         Amount      %  
     (dollars in thousands)  

Cost of revenue

   $ 5,888     $ 7,745     $ 1,857        31.5

Percentage of revenue

     4.8     6.1     

Cost of revenue increased by $1.9 million from $5.9 million in 2016 to $7.7 million in 2017. Cost of revenue increased in both dollars and as a percentage of revenue due primarily to increased software and data services costs of $0.9 million and increased hosting costs of $0.7 million.

Sales and Marketing

 

     Year Ended December 31,     Change  
     2016     2017     Amount      %  
     (dollars in thousands)  

Sales and marketing expense

   $ 105,820     $ 109,473     $ 3,653        3.5

Percentage of revenue

     86.2     86.7     

Sales and marketing expenses increased by $3.7 million from $105.8 million in 2016 to $109.5 million in 2017. The increase was primarily due to increased personnel-related costs of $1.9 million and office and increased occupancy costs of $0.7 million as we expanded headcount in our sales, marketing and customer acquisition functions. Office and occupancy costs also increased in 2017 due to the addition of a sales office in late 2016. In addition, advertising and marketing expenditures related to our social safe-driving app, EverDrive, increased by $1.7 million, while advertising expenditures related to our insurance marketplace decreased by $0.3 million due to increased consumer acquisition efficiency. These increases were partially offset by a decrease in travel expenditures of $0.3 million as inside sales personnel played a greater role in our sales strategy.

Research and Development

 

     Year Ended December 31,     Change  
         2016             2017         Amount      %  
     (dollars in thousands)  

Research and development expense

   $ 6,585     $ 9,194     $ 2,609        39.6

Percentage of revenue

     5.4     7.3     

Research and development expenses increased by $2.6 million from $6.6 million in 2016 to $9.2 million in 2017. The increase was primarily due to increased personnel-related costs of $2.2 million and increased office and occupancy costs of $0.5 million as a result of our continued hiring of research and development employees to further develop and enhance our marketplace and technology.

 

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General and Administrative

 

     Year Ended December 31,     Change  
         2016             2017         Amount      %  
     (dollars in thousands)  

General and administrative expense

   $ 4,894     $ 4,519     $ (375      (7.7 )% 

Percentage of revenue

     4.0     3.6     

General and administrative expenses decreased by $0.4 million from $4.9 million in 2016 to $4.5 million in 2017. The decrease was primarily due to reductions in travel expense and stock-based compensation expense included in personnel-related costs.

Interest Expense

Interest expense decreased by $0.1 million from $0.5 million in 2016 to $0.4 million in 2017 primarily as a result of the repayment of $5.1 million of principal on our note payable from a related party in 2016, partially offset by increased interest expense due to borrowings under our term loan facility.

Quote requests

 

     Year Ended December 31,      Change  
         2016              2017          Amount      %  
     (in thousands except percentage)  

Quote requests

     9,508        12,123        2,615        27.5

Quote requests increased by 2.6 million from 9.5 million quote requests for the year ended December 31, 2016 to 12.1 million quote requests for the year ended December 31, 2017. We generated an increased number of quote requests in 2017 with decreased spending on our online marketplace advertising due to increased efficiency of our online marketplace advertising.

Variable Marketing Margin

 

     Year Ended December 31,     Change  
         2016             2017         Amount      %  
     (dollars in thousands)  

Variable marketing margin

   $ 33,760     $ 37,551     $ 3,791        11.2

Percentage of revenue

     27.5     29.7     

Variable marketing margin increased by $3.8 million from $33.8 million in 2016 to $37.6 million in 2017 and from 27.5% to 29.7% as a percentage of revenue. Our variable marketing margin grew as we increased the efficiency and scale of our marketplace. This was primarily related to reductions in cost per quote request and an increasing volume of quote requests resulting from continued improvement in our consumer acquisition operations.

Quarterly Results of Operations

The following table sets forth our unaudited quarterly statement of operations data, in both dollar amounts and as a percentage of total revenue, for each of the nine quarters in the period ended March 31, 2018. In management’s opinion, the quarterly statement of operations data has been prepared on the same basis as the audited financial statements included in this prospectus and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this data. This information should be read together with our financial statements and related notes appearing at the end of this prospectus. Our operating results may fluctuate due to a variety of factors. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

 

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Seasonality

Our revenue typically increases significantly in the first quarter of each year and modestly in the third quarter of each year. Our revenue typically remains flat or decreases modestly in the second and fourth quarter of each year. Factors affecting seasonality include traditional insurance renewal patterns, budgeting and spending patterns of our insurance carrier customers, and the impact of the holiday season on consumer insurance shopping behavior. The impacts of these seasonality trends are reflected in our quarterly operating results.

 

    Three Months Ended  
    Mar 31,
2016
    Jun 30,
2016
    Sep 30,
2016
    Dec 31,
2016
    Mar 31,
2017
    Jun 30,
2017
    Sep 30,
2017
    Dec 31,
2017
    Mar 31,
2018
 
    (in thousands)  

Revenue

  $ 30,852     $ 29,309     $ 31,937     $ 30,680     $ 31,752     $ 30,017     $ 32,096     $ 32,377     $ 40,730  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost and operating expenses:

                 

Cost of revenue

    1,290       1,301       1,582       1,715       1,736       1,884       1,889       2,236       2,615  

Sales and marketing

    25,156       25,494       27,745       27,425       28,427       26,354       27,604       27,088       35,023  

Research and development

    1,454       1,477       1,708       1,946       2,131       2,100       2,441       2,522       2,614  

General and administrative

    1,150       1,284       1,247       1,213       1,009       1,259       1,181       1,070       1,713  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and operating expenses

    29,050       29,556       32,282       32,299       33,303       31,597       33,115       32,916       41,965  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    1,802       (247     (345     (1,619     (1,551     (1,580     (1,019     (539     (1,235

Interest expense

    (173     (160     (115     (58     (67     (85     (116     (114     (93
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    1,629       (407     (460     (1,677     (1,618     (1,665     (1,135     (653     (1,328

Provision for income taxes

    —         —         —         18       —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 1,629     $ (407   $ (460   $ (1,695   $ (1,618   $ (1,665   $ (1,135   $ (653   $ (1,328
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial and Operational Data:

 

             

Quote requests

    2,004       2,011       2,728       2,765       2,961       2,950       3,228       2,984       3,457  

Variable marketing margin(1)

  $ 9,541     $ 7,899     $ 8,656     $ 7,664     $ 8,856     $ 9,108     $ 9,498     $ 10,089     $ 11,694  

Adjusted EBITDA(1)

  $ 2,637     $ 604     $ 514     $ (771   $ (676   $ (785   $ (268   $ 260     $ (374

 

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(1) See “Selected Financial and Other Data—Non-GAAP Financial Measures” for information regarding our use of these non-GAAP financial measures.

 

 

     Three Months Ended  
     Mar 31,
2016
    Jun 30,
2016
    Sep 30,
2016
    Dec 31,
2016
    Mar 31,
2017
    Jun 30,
2017
    Sep 30,
2017
    Dec 31,
2017
    Mar 31,
2018
 

Revenue

     100.0     100.0     100.0     100.0     100.0     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost and operating expenses:

                  

Cost of revenue

     4.2       4.4       5.0       5.6       5.5       6.3       5.9       6.9       6.4  

Sales and marketing

     81.5       87.0       86.9       89.4       89.5       87.8       86.0       83.7       86.0  

Research and development

     4.7       5.0       5.3       6.3       6.7       7.0       7.6       7.8       6.4  

General and administrative

     3.7       4.4       3.9       4.0       3.2       4.2       3.7       3.3       4.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and operating expenses

     94.1       100.8       101.1       105.3       104.9       105.3       103.2       101.7       103.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     5.9       (0.8     (1.1     (5.3     (4.9     (5.3     (3.2     (1.7     (3.0

Interest expense

     (0.6     (0.5     (0.4     (0.2     (0.2     (0.3     (0.4     (0.4     (0.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     5.3       (1.3     (1.5     (5.5     (5.1     (5.6     (3.6     (2.1     (3.2

Provision for income taxes

     —         —         —         0.1       —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     5.3     (1.3 )%      (1.5 )%      (5.6 )%      (5.1 )%      (5.6 )%      (3.6 )%      (2.1 )%      (3.2 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of revenue less advertising expense to variable marketing margin:

 

    Three Months Ended  
    Mar 31,
2016
    Jun 30,
2016
    Sep 30,
2016
    Dec 31,
2016
    Mar 31,
2017
    Jun 30,
2017
    Sep 30,
2017
    Dec 31,
2017
    Mar 31,
2018
 
    (in thousands)  

Revenue

  $ 30,852     $ 29,309     $ 31,937     $ 30,680     $ 31,752     $ 30,017     $ 32,096     $ 32,377     $ 40,730  

Less: total advertising expense

    (21,320     (21,489     (23,328     (23,060     (23,161     (21,429     (23,043     (22,838     (29,592
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue less advertising expense

    9,532       7,820       8,609       7,620       8,591       8,588       9,053       9,539       11,138  

Add: other advertising expense1

    9       79       47       44       265       520       445       550       556  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Variable marketing margin

  $ 9,541     $ 7,899     $ 8,656     $ 7,664     $ 8,856     $ 9,108     $ 9,498     $ 10,089     $ 11,694  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Other advertising expenses consist of general advertising costs that are designed to promote the business, attract insurance providers or produce results other than generating online marketplace traffic, such as increasing downloads of our EverDrive safe driver app. They are not directly related to generating online marketplace traffic, and as such are excluded by management from the calculation of VMM.

 

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Reconciliation of Net Income (Loss) to Adjusted EBITDA:

 

     Three Months Ended  
     Mar 31,      Jun 30,     Sep 30,     Dec 31,     Mar 31,     Jun 30,     Sep 30,     Dec 31,     Mar 31,  
     2016      2016     2016     2016     2017     2017     2017     2017     2018  
     (in thousands)  

Net income (loss)

   $ 1,629      $ (407   $ (460   $ (1,695   $ (1,618   $ (1,665   $ (1,135   $ (653   $ (1,328

Stock-based compensation

     495        503       508       450       471       468       433       488       567  

Depreciation and amortization

     340        348       351       398       404       327       318       311       294  

Interest expense

     173        160       115       58       67       85       116       114       93  

Provision for income taxes

     —          —         —         18       —         —         —         —         —    
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 2,637      $ 604     $ 514     $ (771   $ (676   $ (785   $ (268   $ 260     $ (374
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liquidity and Capital Resources

Since our inception, we have primarily funded our operations through issuances of shares of our convertible preferred stock and common stock, debt and cash flows from operations. As of March 31, 2018, we had cash of $2.6 million and availability of $5.2 million on a revolving line of credit under our amended Loan and Security Agreement.

As of December 31, 2017, we had a term loan with an outstanding principal balance of $2.6 million and a $6.0 million revolving line of credit with an outstanding balance of $2.0 million under our amended Loan and Security Agreement. Borrowings under the revolving line of credit could not exceed 80% of eligible accounts receivable balances and bore interest at an annual rate of 0.5% above the greater of 3.5% or the prime rate (5.0% as of December 31, 2017). The term loan was repayable in 36 equal monthly installments through August 2019 and accrued interest at an annual rate of 2.0% above the greater of 3.5% or the prime rate (6.50% as of December 31, 2017). Borrowings under the amended Loan and Security Agreement were collateralized by substantially all of our assets and property. Under the amended Loan and Security Agreement, we agreed to affirmative and negative covenants to which we will remain subject until maturity. These covenants included limitations on our ability to incur additional indebtedness and engage in certain fundamental business transactions, such as mergers or acquisitions. The amended Loan and Security Agreement required us to maintain two financial covenants: a minimum asset coverage ratio of 1.35 to 1 and an actual-to-plan performance metric of at least 65%. Events of default under the amended Loan and Security Agreement included failure to make payments when due, insolvency events, failure to comply with covenants and material adverse events with respect to us.

On March 16, 2018, we entered into a Loan and Security Modification Agreement, or the 2018 Loan Modification, to modify our amended Loan and Security Agreement. This agreement increased the revolving line of credit to $11.0 million, extended the maturity date of the revolving line of credit to March 2020 and eliminated the term loan. Borrowings under the revolving line of credit cannot exceed 80% of eligible accounts receivable balances and bear interest at 0.5% above the greater of 4.25% or the prime rate (5.25% as of March 31, 2018). Borrowings are collateralized by substantially all of our assets and property. We are still subject to affirmative and negative covenants to which we will remain subject until maturity. 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. 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. Events of default under the 2018 Loan Modification include failure to make payments when due, insolvency events, failure to comply with covenants and material adverse events with respect to us. In the event of a default, the lender may declare all borrowings immediately due and payable.

 

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The terms of the 2018 Loan Modification required that the existing outstanding term loan under the Loan and Security Agreement be repaid. Accordingly, on March 27, 2018, we used $2.3 million of proceeds from the revolving line of credit to repay the outstanding principal balance. As of March 31, 2018, $5.2 million remained available for borrowing under the revolving line of credit.

Since our inception, we have incurred recurring losses and may continue to incur losses in the foreseeable future. We believe our existing cash, together with liquidity available from our revolving line of credit will be sufficient to fund our operating expenses and capital expenditure requirements through at least March 2019. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on business initiatives, purchases of capital equipment to support our growth, the expansion of sales and marketing activities, expansion of our business through acquisitions or our investments in complementary offerings, technologies or businesses, market acceptance of our platform and overall economic conditions. If we do not achieve our revenue goals as planned or if the debt becomes immediately due and payable, we believe that we can reduce our operating costs, pay down our outstanding debt and achieve positive cash flow from operations. 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.

Cash Flows

The following table shows a summary of our cash flows for each of the years ended December 31, 2016 and 2017 and for each of the three months ended March 31, 2017 and 2018:

 

     Year Ended December 31,     Three Months Ended March 31,  
           2016                 2017                 2017                 2018        
     (in thousands)  

Net cash provided by (used in) operating activities

   $ 5,485     $ (1,672   $ (548   $ (843

Net cash used in investing activities

     (1,083     (1,185     (394     (654

Net cash provided by (used in) financing activities

     6,811       (7,180     (9,224     1,713  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

   $ 11,213     $ (10,037   $ (10,166   $ 216  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

During the three months ended March 31, 2017, operating activities used $0.5 million of cash, primarily resulting from our net loss of $1.6 million. This was offset by cash provided by changes in our operating assets and liabilities of $0.1 million and net non-cash charges of $0.9 million. Net cash provided by changes in our operating assets and liabilities for the three months ended March 31, 2017 consisted of an aggregate $0.4 million net increase in accounts payable, accrued expenses and other current liabilities and deferred revenue, partially offset by an aggregate increase of $0.3 million in accounts receivable, prepaid expenses and other current assets. Changes in accounts receivable, accounts payable and accrued expenses, and prepaid expenses and other current assets were generally due to growth in our business, timing of customer and vendor invoicing and payments.

During the three months ended March 31, 2018, operating activities used $0.8 million of cash, primarily resulting from our net loss of $1.3 million and net cash used by changes in our operating assets and liabilities of $0.5 million, partially offset by net non-cash charges of $1.0 million. Net cash used by changes in our operating assets and liabilities for three months ended March 31, 2018 consisted primarily of a $5.5 million increase in accounts receivable and a $0.3 million increase in prepaid and other current assets, partially offset by an aggregate $5.1 million increase in accounts payable and accrued expenses and other current liabilities and a $0.1 million increase in deferred revenue. Changes in accounts receivable, accounts payable and accrued expenses were generally due to growth in our business, timing of customer and vendor invoicing and payments.

During the year ended December 31, 2016, operating activities provided $5.5 million of cash, primarily resulting from net cash provided by changes in our operating assets and liabilities of $2.9 million and non-

 

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cash charges of $3.5 million, partially offset by our net loss of $0.9 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2016 consisted of an aggregate $3.8 million increase in accounts payable and accrued expenses and other current liabilities, partially offset by increases of $0.5 million in each of accounts receivable and other assets. The increase in other assets was due to increases in restricted cash for our credit cards and increased security deposits for our office leases. Changes in accounts receivable, accounts payable and accrued expenses, and prepaid expenses were generally due to growth in our business, timing of customer and vendor invoicing and payments.

During the year ended December 31, 2017, operating activities used $1.7 million of cash, primarily resulting from our net loss of $5.1 million and net cash used by changes in our operating assets and liabilities of $0.4 million, partially offset by net non-cash charges of $3.8 million. Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2017 consisted primarily of a $2.5 million increase in accounts receivable, partially offset by an aggregate $2.0 million increase in accounts payable and accrued expenses and other current liabilities. Changes in accounts receivable and accounts payable and accrued expenses were generally due to growth in our business, timing of customer and vendor invoicing and payments.

Net cash used in investing activities

Net cash used in investing activities was $0.4 million and $0.7 million for the three months ended March 31, 2017 and 2018, respectively. In the three months ended March 31, 2017, we used $0.4 million to acquire property and equipment, which included the capitalization of $0.1 million of software development costs. In the three months ended March 31, 2018, we used $0.7 million to acquire property and equipment, which included the capitalization of $0.5 million of software development costs. Acquisitions of property and equipment generally include the purchase of computer equipment for our operations and employees, equipment, furniture and leasehold improvements and the capitalization of certain software development costs.

Net cash used in investing activities was $1.1 million and $1.2 million for the years ended December 31, 2016 and 2017, respectively. In 2016, we used $1.1 million to acquire property and equipment, which included the capitalization of $0.5 million of software development costs. In 2017, we used $1.2 million to acquire property and equipment, which included the capitalization of $0.7 million of software development costs. Acquisitions of property and equipment generally include the purchase of computer equipment for our operations and employees, equipment, furniture and leasehold improvements and the capitalization of certain software development costs.

Net cash provided by (used in) financing activities

During the three months ended March 31, 2017, net cash used in financing activities was $9.2 million, consisting primarily of cash used to repurchase common stock of $9.2 million and principal payments made on our term loan of $0.4 million, partially offset by proceeds received from the exercise of common stock options of $0.4 million.

During the three months ended March 31, 2018, net cash provided by financing activities was $1.7 million, consisting primarily of $3.8 million of net borrowings from our revolving line of credit and $0.6 million of proceeds received from the exercise of stock options, partially offset by a $2.6 million repayment of our previous outstanding term loan.

During the year ended December 31, 2016, net cash provided by financing activities was $6.8 million, consisting primarily of net proceeds from the sales of preferred stock of $35.5 million, net proceeds received from borrowings under our term loan of $1.2 million and exercise of common stock options of $0.6 million, all partially offset by cash used to repurchase common stock of $19.4 million, repayment of an outstanding note payable to a related party of $5.1 million and net repayments on our revolving line of credit of $6.0 million.

 

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During the year ended December 31, 2017, net cash used in financing activities was $7.2 million, consisting primarily of cash used to repurchase common stock of $9.2 million and principal payments made on our term loan of $1.5 million, partially offset by proceeds received from net draw downs on our revolving line of credit of $2.0 million and exercise of common stock options of $1.5 million.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2017:

 

     Payments Due By Period  
     Total      Less Than 1
Year
     1 to 3 Years      4 to
5 Years
     More Than
5 Years
 
     (in thousands)  

Operating lease commitments(1)

   $ 12,762      $ 1,514      $ 3,857      $ 3,986      $ 3,405  

Debt obligations(2)

     4,831        3,682        1,149        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,593      $ 5,196      $ 5,006      $ 3,986      $ 3,405  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Amounts in table reflect payments due for our office leases in Cambridge, Massachusetts and Woburn, Massachusetts under operating lease agreements that expire at various dates through 2024.
(2) Amounts in table reflect the contractually required principal and interest payments payable pursuant to our outstanding term loan as of December 31, 2017. For purposes of this table, the interest due under the term loan and revolving line of credit was calculated using an assumed interest rate of 6.5% and 5.0% per annum, respectively, which were the interest rates in effect as of December 31, 2017.

In connection with the refinancing of the outstanding borrowings under the Loan and Security Agreement, or the 2018 Loan Modification, that was executed on March 16, 2018, we extended the due date of the revolving line of credit to March 2020. As a result, principal and interest payments under the 2018 Loan Modification will be $0.6 million in 2018, $0.2 million in 2019 and $4.3 million in 2020 based on the amounts outstanding as of December 31, 2017. See “—Liquidity and Capital Resources”

Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements are prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our audited financial statements and Note 2 to our unaudited condensed financial statements, both appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

Our revenue is derived from sales of consumer referrals. We recognize revenue in accordance with Accounting Standards Codification Topic 605 Revenue Recognition, or ASC 605. Accordingly, revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured. We recognize revenue from the sale of consumer referrals upon the delivery of the referral to our insurance provider customer.

 

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We record revenue from sales of consumer referrals net of credits and other applicable allowances in the same period in which the related sales are recorded, based on the underlying contract terms.

Effective January 1, 2019, we will be required to adopt Accounting Standard Codification Topic 606, Revenue from Contracts with Customers, or ASC 606. We are currently evaluating the method of adoption and the potential impact to our financial statements.

Stock-Based Compensation

We measure stock options and other stock-based awards granted to employees and directors based on their fair value on the date of the grant and recognize compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. We apply the straight-line method of expense recognition to all awards with only service-based vesting conditions and apply the graded-vesting method to all awards with both service-based and performance-based vesting conditions.

We measure the fair value of stock-based awards granted to non-employees on the date at which the related service is complete. Compensation expense is recognized over the period during which services are rendered by such non-employee consultants until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model for options.

We estimate the fair value of stock options using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, and our expected dividend yield. We estimate the fair value of each restricted stock unit, or RSU, using the fair value of common stock.

Determination of the Fair Value of Common Stock

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each award grant, with input from management, considering our most recently available third-party valuations of our common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuations were prepared using a hybrid method, which used market approaches to estimate our total enterprise value. The hybrid method is a probability-weighted expected return method, or PWERM, where the equity value in one or more of the scenarios is calculated using an option pricing method, or OPM. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to shareholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for our company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. These third-party valuations were performed at various dates, which resulted in valuations of our common stock of $55.70 per share as of March 31, 2017, $58.01 per share as of December 31, 2017 and $83.34

 

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per share as of March 31, 2018. In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, which may be a date later than the most recent third-party valuation date, including:

 

    our historical operating and financial performance;

 

    the market performance of comparable publicly traded companies within our industry;

 

    secondary transactions in our common stock;

 

    external market conditions affecting our industry, and trends within our industry;

 

    the identification and analysis of mergers and acquisitions of comparable companies;

 

    the prices, rights, preferences and privileges of our convertible preferred stock relative to the common stock;

 

    the likelihood of achieving a liquidity event such as an initial public offering or sale given prevailing market conditions and the nature and history of our business;

 

    any adjustments necessary to recognize a lack of marketability for our common stock;

 

    our financial position, including cash on hand, and our historical and forecasted performance and operating results; and

 

    U.S. economic market conditions.

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different.

Once a public trading market for our common stock has been established in connection with the closing of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for stock-based awards, as the fair value of our common stock will be its trading price in the public market.

Grants of Share-Based Awards

The following table sets forth by grant date the number of common stock subject to options and RSUs granted since January 1, 2017, the per share exercise price of the options, the fair value per common share on each grant date, and the per share estimated fair value of the award:

 

Grant Date

   Award Type    Number of
Shares
Subject to
Grants
     Per Share
Exercise
Price of
Options
     Per Share
Fair Value
of Common
Stock on
Grant Date
     Per Share
Estimated
Fair Value
of Award
 

April 26, 2017

   Stock option      50,500      $ 55.70      $ 55.70      $ 26.33  

July 19, 2017

   Stock option      19,300      $ 55.70      $ 55.70      $ 26.11  

July 19, 2017

   RSU      9,000        —        $ 55.70      $ 55.70  

October 18, 2017

   Stock option      40,860      $ 55.70      $ 55.70      $ 26.10  

January 24, 2018

   Stock option      33,505      $ 58.01      $ 58.01      $ 30.65  

May 1, 2018

   Stock option      106,500      $ 83.34      $ 83.34      $ 40.15  

May 1, 2018

   RSU      12,998        —        $ 83.34      $ 83.34  

Fair Value of Redeemable Convertible Preferred Stock

We carry our redeemable convertible preferred stock at its redemption value on our balance sheet. We record changes in redemption value at the end of each reporting period as an increase or decrease to net loss attributable to common stockholders.

 

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After June 30, 2028, shares of our Series B and Series B-1 preferred stock (if then outstanding) are redeemable in an amount per share equal to the greater of the original issue price or the adjusted fair market value, as defined in our certificate of incorporation, plus all accrued but unpaid dividends thereon. As there has been no public market for our preferred stock to date, the adjusted fair market value of our preferred stock has been determined by management as of each reporting date based, in part, on the results of third-party valuations of our preferred stock performed as of each reporting date as well as management’s assessment of additional objective and subjective factors that it believed were relevant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our preferred stock valuations at each reporting date were prepared using a PWERM, which used a combination of market and income approaches to estimate our enterprise value.

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, the estimated fair values of our preferred stock could be materially different.

Upon the closing of this offering, all of our preferred stock will convert into shares of our Class B common stock and it will no longer be necessary for us to estimate or account for changes in the redemption value of our preferred stock.

Capitalization of Website and Software Development Costs

We capitalize certain costs associated with the development of our websites and internal-use software after the preliminary project stage is complete and until the software is ready for its intended use. Research and development costs incurred during the preliminary project stage or costs incurred for data conversion activities, training, maintenance, and administration or overhead costs are expensed as incurred. Capitalization begins when the preliminary project stage is complete, management, with the relevant authority, authorizes and commits to the funding of the software project, it is probable the project will be completed, the software will be used to perform the functions intended and certain functional and quality standards have been met. Qualified costs incurred during the operating stage of our software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs that cannot be separated between maintenance of, and minor upgrades and enhancements to, internal-use software are expensed as incurred.

Capitalized software development costs are amortized on a straight-line basis over their estimated useful life of three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

During the years ended December 31, 2016 and 2017, we capitalized $0.5 million and $0.7 million of website and internal-use software development costs, respectively. During the three months ended March 31, 2017 and 2018, we capitalized $0.1 million and $0.5 million of website and internal-use software development costs, respectively. We recorded amortization expense associated with our capitalized website and internal-use software development costs of $0.4 million and $0.5 million, for the years ended December 31, 2016 and 2017, respectively. We recorded amortization expense associated with our capitalized website and internal-use software development costs of $0.1 million for the three months ended March 31, 2017 and 2018.

Income Taxes

We account 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 temporary differences between the financial statement and tax basis of assets and liabilities, as measured by enacted tax rates anticipated to be in effect when these differences reverse. This method also requires the recognition of future tax benefits to the extent that

 

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realization of such benefits is more likely than not. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe, 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, we establish a valuation allowance through a charge to income tax expense. We evaluate the potential for recovery of deferred tax assets by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

Off-Balance 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.

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 audited financial statements and Note 2 to our unaudited condensed financial statements, both appearing at the end of this prospectus.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.

Inflation Risk

During the last two years, 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.

Quantitative and Qualitative Disclosures about Market Risks

We have a credit agreement that provides us with a revolving line of credit of up to $11.0 million. Borrowings bear interest at a floating rate, which is 0.5% above the greater of 4.25% or the prime rate.

As of March 31, 2018, we had outstanding borrowings under our revolving line of credit of $5.8 million bearing interest at a rate of 5.25%. Changes in interest rates could cause interest charges on our revolving line of credit to fluctuate. Based on the amount of total borrowings outstanding as of March 31, 2018, an increase or decrease of 10% in the prime rate as of March 31, 2018 would cause a corresponding increase or decrease to our net loss and cash flows of less than $0.1 million, assuming that such rate were to remain in effect for a year.

 

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BUSINESS

Company Overview

EverQuote makes insurance shopping easy, efficient and personal, saving consumers and insurance providers time and money.

We operate the largest online marketplace for insurance shopping in the United States. Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. With over 10 million consumer visits per month, our results-driven marketplace, powered by our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money. Our network includes more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests.

Consumers may view insurance as a simple commodity with standard pricing. However, finding the right insurance product is often challenging for consumers, who face limited online options, complex, variable and opaque pricing, and myriad coverage configurations. We present consumers with a single starting point for a comprehensive and cost-effective insurance shopping experience. Our marketplace reduces the time consumers spend searching across multiple sites by delivering broader and more relevant results than consumers may find on their own. Our service is free for consumers, and we derive our revenue from sales of consumer referrals to insurance providers. A consumer survey we conducted in 2017 reported average annual premium savings of $536 for consumers purchasing auto insurance policies through our marketplace, and we estimate providers have sourced 4.2 million policies to date through EverQuote. Based on this data, we believe we have saved consumers more than $2 billion over the past seven years.

Insurance providers operate in a highly competitive and regulated industry and typically specialize on pre-determined subsets of consumers. As a result, not every consumer is a good match for every provider, and providers 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 are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback.

The EverQuote platform is powered by data science. Our rich data assets and proprietary algorithms efficiently attract consumers, match them with relevant insurance providers and drive our overall business model. These assets include more than 1 billion consumer-submitted data points, derived from over 35 million quote requests and 100 billion ad impressions acquired through $410 million in advertising spend over the seven years ended April 30, 2018. We utilize our data assets throughout our business, from advertising and consumer acquisition to the innovation of new consumer and provider experiences, as well as to guide our strategic direction. As our data assets grow, our algorithms become more powerful. We believe our data science capabilities give us a significant competitive advantage.

Our marketplace benefits from significant network effects. As we attract more consumers to our platform, we collect more data to improve personalization, which in turn improves conversion rates and consumer satisfaction. The combination of these factors increases consumer traffic while reducing acquisition costs,

 

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leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve providers’ advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data.

We rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business. Our revenue grew from $45.6 million in 2013 to $126.2 million in 2017, representing a compound annual growth rate of 29.0%. In 2016 and 2017, our total revenue was $122.8 million and $126.2 million, respectively, representing year-over-year growth of 2.8%. In the three months ended March 31, 2017 and 2018, our revenue was $31.8 million and $40.7 million, respectively, representing quarter-over-quarter growth of 28.3%. We had a net loss of $0.9 million in 2016 and a net loss of $5.1 million in 2017, and had $3.0 million and $(1.5) million in adjusted EBITDA in 2016 and 2017, respectively. We had net losses of $1.6 million and $1.3 million for the three months ended March 31, 2017 and 2018, respectively, and had $(0.7) million and $(0.4) million in adjusted EBITDA for the three months ended March 31, 2017 and 2018, respectively. See the section titled “Selected Financial and Other Data—Non-GAAP Financial Measures” 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.

Industry Overview

Insurance is one of the largest segments of the United States economy, with non-health insurance premiums over $1.2 trillion in 2016. Based on data from S&P Global Market Intelligence; SNL Insurance Data, we estimate that automotive, home, life, commercial, renters insurance policies accounted for $991 billion of premiums in 2016.

The insurance industry is highly competitive and diverse. There are over 1,500 carriers operating in non-health insurance markets in the United States, but the largest carrier accounted for less than 6% of total premiums in 2016, according to data from S&P Global Market Intelligence; SNL Insurance Data. In addition, we estimate there are approximately 100,000 agencies in the United States who sell insurance products across the auto, home, life, commercial and renters insurance markets.

Insurance marketing spend is large and evolving

To capture new policies and retain existing customers, insurance providers advertise across a broad range of online and offline marketing channels, devoting significant resources to sales and distribution. Separately, the internet has become increasingly influential in consumer insurance shopping, with more than 70% of insurance consumers shopping online according to a 2015 comScore survey. While insurance providers are reallocating marketing spend from traditional media sources to online media channels, we believe the shift of marketing budgets online continues to lag the shift in consumer behavior.

Based on carrier online advertising and agent marketing spend, we estimate that we have an immediate opportunity in excess of $2.6 billion per year, with a total addressable market over the long term of $120 billion annually. Given the continued shift toward online channels over traditional media and the ongoing growth in agents, we expect our immediate opportunity to expand in the future:

 

    U.S. non-health insurance carriers spent $121 billion in marketing and distribution in 2016, consisting of $112 billion in commissions to agents and $9 billion in direct advertising, according to data from S&P Global Market Intelligence; SNL Insurance Data. Online insurance advertising spend of North American insurance carriers was $1.3 billion in 2016, up 16% from 2015, according to eMarketer and Kantar Media. We believe that carriers will continue to shift advertising dollars online in order to capitalize on the superior marketing characteristics of digital channels.

 

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    According to the Independent Insurance Agents & Brokers of America, or the IIABA, U.S. insurance agencies spent, on average, $13,200 on marketing in 2015, up from $10,600 in 2014. Based on 2015 average spend and our estimate of approximately 100,000 active insurance agencies, we believe that insurance agencies alone spent over $1.3 billion in 2015 on marketing. In addition, the IIABA data show that online activities were the highest ranked priorities for agencies’ marketing budgets.

 

    Online advertising represents only 2% of total marketing spend in the insurance industry, compared to 27%, 37% and 57% in the travel, lodging and automobile marketing industries, according to IDC, Phocuswright and Borrell Associates.

Insurance products are complex and highly regulated

While insurance may be perceived by consumers as a commodity, it is complex and must be configured to match each consumer’s particular circumstances. In the United States, regulatory requirements vary state by state, with each state having different actuarial standards, statutory requirements and regulations, and there are numerous types and levels of coverage, bundling and discounts available from each provider. These complexities make it challenging for consumers to compare and choose from among the hundreds of available insurance providers and coverage combinations.

The modification of insurance rates and policy forms is an onerous and cumbersome state-by-state process that, in many states, can take months and require document submissions consisting of thousands of pages, and limits the consumer attributes that may be considered in setting rates. As a result, insurance providers have limited ability to quickly adjust their pricing in response to losses or changes in market conditions and lack the ability to price policies dynamically to match expected customer value, attributes and behavior.

Insurance products are not priced in a uniform manner. Pricing strategies vary across providers and assessment of individual consumer risk is based on pre-set consumer attributes, such as vehicle type and location. Each consumer-to-product pairing yields a specific rate based on static rate tables filed semi-annually or annually with state regulators, with pricing that may vary widely across insurance providers and consumer profiles. Consumers seeking insurance are often unaware of any given insurance provider’s product strategies, strengths or offerings, which may lead to suboptimal shopping and significant inefficiencies for consumers and providers.

Insurance shopping is being enabled by new digital tools

We expect that the ongoing shift to online insurance shopping by consumers and the increasing digitization of insurance risk assessment and workflows will enable more personal, end-to-end shopping experiences, products and services. Moreover, emerging online agencies and digital carriers launched to take advantage of these trends are typically directed towards niche audiences and have limited marketing budgets, making capturing the right consumers challenging for them. We believe that the confluence of these factors favors business models that efficiently match supply and demand, allowing insurance providers to capture consumers’ purchase intent online while taking advantage of the benefits of targeted digital advertising.

Insurance agents are an essential and growing part of the industry landscape

Despite the trend toward online shopping, insurance agents play an essential role in the insurance buying process. According to a 2015 comScore survey, while more than 70% of insurance consumers shop online, 80% of policies purchased are closed offline by insurance agents, and consumers frequently cited the desire to speak to an agent as the top reason for not buying online.

We estimate there are approximately 100,000 agencies in the United States who sell insurance products across the auto, home, life, commercial and renters insurance markets. The number of insurance agents continues to grow, with employment in the U.S. insurance sales agent and broker sector increasing from 318,000 to 385,000 between 2010 and 2016, as reported by the Bureau of Labor Statistics. Non-health insurance agents earned over $112 billion in commissions from carriers in 2016, growing from $94 billion in 2010, according to data from S&P Global Market Intelligence; SNL Insurance Data.

 

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Market Opportunity

The challenges faced in the $120 billion non-health insurance sales, marketing and distribution market create a significant opportunity for companies that can efficiently align consumers and providers. These challenges include:

Misalignment of providers and consumers creates an inefficient match between supply and demand

As a result of pricing and regulatory complexity, insurance providers typically specialize on pre-determined sub-sets of consumers across products, sales, claims processing and support functions to optimize their business models for profitability and expected loss ratios. At the same time, consumers struggle to make informed buying decisions due to the large number of providers, breadth of insurance products and services available, and opaque pricing and coverage options. The inability for insurance providers to attract only those consumers who match their optimal risk profiles, combined with the lack of comprehensive information for consumers, creates a supply and demand misalignment.

Complex, fragmented and opaque market for consumers

Selecting the right insurance provider is challenging for consumers as there are more than 1,500 insurance carriers in the United States, each with different risk-assessment requirements, product offerings and pricing. Consumers have distinct attributes and insurance needs and historically have lacked access to comprehensive tools for identifying and connecting with the right providers. Moreover, pricing for the same coverage can vary widely from one provider to another, and even across different sales channels within the same provider. While consumers seek competitive pricing, they are often unaware of pricing differences, the level of coverage needed for their particular circumstances, and any given insurance provider’s product strategies, strengths or offerings. These market conditions may lead to suboptimal shopping, significant inefficiencies for consumers and the need for expert advice and support to make informed decisions.

Inefficient advertising channels for insurance providers

Advertising for insurance providers is challenging and its effectiveness is limited by several factors:

 

    Insurance providers require extensive information about demographic and behavioral attributes in order to determine pricing and the policy value of a given consumer. This information is either unavailable or unreliable for targeting through traditional online and offline channels. In addition, traditional channels lack the ability to identify and segment providers’ existing customers, limiting the utility of these channels for retention.

 

    Due to regulatory constraints, providers require long lead times to reprice their products. As a result, carriers may find their products mispriced to risk of loss across large consumer segments for extended periods of time. Traditional channels, and in particular television, lack the fine-grained controls to quickly and selectively adjust consumer acquisition strategies and align advertising spend with loss tolerance.

 

    Providers are constrained in their ability to tailor premiums to individuals due to the regulatory environment and, as a result, cannot price competitively for every consumer. With traditional online and offline advertising, providers often pay to attract consumers who are unlikely to convert due to pricing mismatches.

Due to these factors, traditional advertising channels are inefficient for insurance providers.

Our Solution

Our goal is to reshape insurance shopping for consumers and improve the way insurance providers attract and connect with customers as insurance shopping continues to shift online. Our results-driven marketplace, powered by

 

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our proprietary data and technology platform, matches and connects consumers seeking to purchase insurance with relevant options from our broad direct network of insurance providers, saving consumers and providers time and money.

Proprietary, data-driven technology platform

Our platform efficiently attracts consumers shopping for insurance to our websites and mobile applications and matches them with relevant providers for streamlined quoting. This enables us to maintain high levels of quality control and refer real-time quote requests to our insurance provider customers at the moment of the consumer’s purchase intent.

Bid

We advertise to consumers under the EverQuote brand across hundreds of online channels including internet search, email, social media and display advertising. Our algorithms efficiently manage over 175 million advertising impressions per day, utilizing insights from our proprietary data assets and A/B testing to optimize bids, advertising creatives and placements across channels. In order to attract high-quality consumers to our websites and mobile applications at optimal cost, we continuously analyze and test the effectiveness of our advertising and use automated dynamic adjustments to our traffic acquisition efforts. We store all of our advertising placement data in our central data warehouse and provide our data scientists, analysts and engineers with broad access to optimize our consumer acquisition activities.

Quote request

At quote request, consumers submit approximately 20 to 50 items of data, depending on the type of insurance, representing the majority of data required by providers for matching, quoting and binding. This information is securely exchanged with insurance providers at the moment of referral, enabling providers to produce quotes quickly, with minimal additional steps and information needs. In April 2018, we matched and referred over 1 million quote requests to insurance providers’ quoting and binding workflows.

Bind

We combine consumer-submitted information and our internal data with proprietary machine learning algorithms to optimize matching and bind rates for consumers and insurance providers. Based on insurance provider feedback, we are consistently one of their largest, high-quality sources for efficient acquisition of insurance customers.

Retention

Our platform enables insurance providers to identify and run campaigns for their existing customers and provide retention-oriented offers alongside the other options being presented.

How we engage with consumers

We engage with consumers through user-friendly and easy-to-navigate websites that make shopping for insurance easy, cost-effective and more personal. We guide consumers through the process of submitting a quote request with simple instructions and helpful information about how their profile and choices may affect their results. Upon completing their quote requests, consumers are connected with relevant options from our comprehensive provider network, allowing them to quickly and easily compare coverage options. We aim to make the end-to-end shopping experience seamless by enabling consumers to securely share their data with matched providers, accelerating quoting and reducing repetition in the shopping process.

 

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We also engage consumers through EverDrive, our social safe-driving mobile app, which monitors driving behavior and provides useful information, coaching and encouragement to help users become safer drivers. Our driver score feature gives users a simple rating system and allows them to compete with friends, family and their local community.

In addition, we provide consumers with rich content through our Safe Driving and Insurance blog. We cover complex topics, such as deductibles, coverage levels and distracted driving in simple, approachable ways to help consumers better understand and navigate the complexities of insurance coverage.

How we engage with insurance providers

Insurance carriers and agents connect with our marketplace through EverQuote Pro, our web-based provider portal. EverQuote Pro matches insurance carriers and agents with consumers who complete quote requests on our websites. Our portal provides transparent, secure access to marketplace data regarding consumer type, volume and referral pricing, along with sophisticated campaign management tools for targeting consumers based on a wide array of attributes.

Providers in our marketplace bid for consumer referrals based on either pre-defined segments or dynamic profiles. Bids may be static or dynamically adjusted based on specified criteria, such as consumer attributes, time of day and geographic location. Regardless of bidding mechanism, insurance providers in our marketplace participate in a unified, real-time auction that matches consumers with the most relevant providers on our platform based on bid, preferred consumer profile, predicted bind rate and other factors. Through this auction process, we align provider economics with consumer demand.

Our tools are designed to integrate with insurance providers’ internal workflows to minimize administrative burden and incorporate quote, bind and lifetime value feedback, enabling providers to evaluate and optimize their acquisition and retention campaigns through a single interface. We support the industry-standard web-based marketing, customer relationship management and referral management systems commonly used by insurance providers, allowing easy adoption of our platform.

Key benefits for consumers

We offer consumers a streamlined and personalized insurance buying experience, providing the following key benefits.

Saving time and money

We provide consumers with multiple relevant insurance product options based upon the information submitted by them at quote request, enabling them to save both time and money. A consumer survey we conducted in 2017 reported average annual premium savings of $536 for consumers purchasing auto insurance policies through our marketplace, and we estimate providers have sourced 4.2 million policies to date through EverQuote. Based on this data, we believe we have saved consumers more than $2 billion over the past seven years.

Single starting point for a comprehensive insurance shopping experience

Our marketplace provides a single starting point to access a range of relevant insurance options beyond what consumers might otherwise find on their own. We believe we operate the largest directly connected network of insurance providers, with more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. The depth and breadth of our insurance provider network allows us to present a comprehensive set of options to consumers.

 

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Results-driven insurance shopping destination efficiently matching consumers with relevant options

Our platform empowers consumers to make better and more informed insurance decisions. Our proprietary algorithms are designed to maximize consumer bind rate, which our research shows also maximizes consumer satisfaction. We match and connect consumers, based on consumer attributes and a number of other factors, with relevant options from the broad range of insurance providers on our platform.

Seamless online or offline handoff to quote or bind a policy

Our seamless consumer handoff integrations minimize additional information required to provide a quote or bind a policy either online or offline. This reduces consumer shopping time, improves the consumer experience and increases the likelihood of completing a purchase.

Key benefits for insurance providers

We are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback. We offer insurance providers the following key benefits:

Access to a high volume of in-market online consumers

We attract consumers seeking insurance to our websites from hundreds of online sources. We further validate purchase intent by requiring consumers to submit approximately 20 to 50 items of data in order to submit a quote request. From 2014 to 2017, our annual quote requests grew from 2 million to 12 million. As a result, we are able to refer a high volume of insurance shoppers to our customers.

Acquisition of consumers that match providers’ specific criteria

We offer insurance providers fine-grained controls to select specific consumer profiles relevant to their underwriting practices and preferences, enabling them to target rational cost-per-sale relative to long-term value for each referral.

High return on investment through efficient acquisition of desired consumers

As a result of the purchase intent of consumers in our marketplace and the efficiency of our matching algorithms, our referrals are more likely to result in bound policies compared to referrals obtained through other marketing channels. We estimate our quote and bind rates to be up to double the industry average for advertising channels of comparable scale. In addition, 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.

High bind rates for referrals through broad data integration with providers

Our seamless consumer handoff technology integrates with insurance providers to reduce the number of steps required from referral to bind, increasing transparency and consumer satisfaction. We securely provide quote request data, allowing insurance providers to adjust their quoting workflows in ways that are compatible with their existing infrastructure and business requirements. This data handoff provides carriers and agents with the core information needed to bind a policy in a maximum of two steps after quote request.

Flexible advertising channel

Our marketplace allows providers to rapidly align cost-per-acquisition and distribution of advertising dollars with preferred consumer profiles. With granular budgeting and bidding tools, providers have extensive, near real-time control over the distribution and utilization of their advertising spend on our platform.

 

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Our Strengths

We believe that our competitive advantages are based on the following key strengths:

Results-driven marketplace for consumers

We efficiently match and connect consumers with relevant insurance policy options for their specific circumstances and needs, decreasing the time needed to compare providers and increasing the chance of purchasing insurance. Consumers receive comprehensive, robust and inclusive information, enabling them to select the right insurance policy for their needs from our broad direct network of insurance providers. Our network includes more than 160 insurance carriers, including the 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups, as well as more than 7,000 insurance agencies. We believe that offering a personalized, comprehensive and provider-inclusive consumer experience has helped us to become the leading marketplace for online insurance shopping, as measured by online visits.

Disruptive data-driven approach

Our marketplace is powered by a proprietary data and technology platform that efficiently attracts insurance shoppers from a diverse and growing array of online sources, increases the bind rate for consumers and drives down the cost of acquisition for providers. As of April 30, 2018, we employed over 130 data scientists, analysts and engineers who continually leverage our growing data assets to improve our capabilities. Our data assets include more than 1 billion consumer-submitted data points, derived from over 35 million quote requests and 100 billion ad impressions acquired through $410 million in advertising spend over the seven years ended April 30, 2018. We leverage our data assets to further improve the conversion rate of our referrals and our matching efficiency, and to innovate new products for consumers and providers through rapid, test-driven development.

Powerful network effects

Our insurance marketplace benefits from significant network effects. As we attract more consumers to our platform, we collect more data to improve personalization, which in turn improves conversion rates and consumer satisfaction. The combination of these factors increases consumer traffic while reducing acquisition costs, leading to more quote requests for our insurance provider customers. Increased quote requests, combined with quote and bind feedback, improve providers’ advertising and marketing efficiency in our marketplace, resulting in more providers and provider spend. More providers and provider spend enable us to attract more consumers, generating more data.

 

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LOGO

Through these characteristics of our platform, we increased the volume of quote requests referred to our insurance provider customers over the past four years, as illustrated in the chart below, while decreasing our cost per quote request by 65% over the same period.

 

LOGO

Ability to expand with significant operating leverage

We have leveraged our data assets, technology platform and engineering and data science capabilities, along with our growing audience of consumers and network of insurance providers, to expand our platform from the auto insurance market into the home and life insurance markets. We have entered these new verticals with only a modest increase in headcount, and we have already achieved attractive economics and high growth.

Our cost structure provides us with the flexibility to react to changes in the business cycle. Our largest expense, advertising, is variable and can be quickly adjusted to market conditions. During economic downturns, advertising expenses can be rapidly reduced. Conversely, during periods of economic expansion we can increase advertising spend to attract consumers to our platform and further enhance the strength of our marketplace.

 

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Founder-led management team with culture of innovation and track record of capital efficiency

Our co-founders are Seth Birnbaum, Chief Executive Officer, and Tomas Revesz, Chief Technology Officer. Seth, a co-founder and chief executive officer of Digital Guardian, Inc., brings to EverQuote a broad range of management and start-up experience, complemented with engineering skills and information technology expertise. Tomas, a co-founder and an executive vice president of Digital Guardian, Inc., brings to EverQuote extensive knowledge in IT systems development and management. Since our inception, we have built a team focused on data-driven innovation, which remains at the heart of our culture.

In addition, our management team has a track record of being good stewards of capital. We rapidly scaled our business in a capital-efficient manner, having grown our company to revenue of over $125 million in 2017 with less than $10 million of equity raised to finance our business.

Our Growth Strategies

Our core mission is to make finding insurance easy and more personal, saving consumers and insurance providers time and money. We leverage technology and data to empower consumers with better information and options, enabling them to identify and reduce risky behaviors, lower their insurance costs and lead safer lives. Ultimately, we seek to improve the way consumers understand and manage their personal risks.

Data-driven innovation remains at the heart of our strategy, culture and operating focus. With our diverse team of analysts, engineers and business development employees, as well as our partnerships with leading insurance providers, we are working to build the largest and most trusted online insurance marketplace in the world. To achieve this goal, we intend to continue to grow our business by pursuing the following strategies:

Attract more consumers to our marketplace

We plan to expand the number of consumers reaching our marketplace through existing channels by leveraging the superior features and growing data assets of our platform. In addition, we plan to launch new marketing channels, such as online video. In 2017, we had, on average, over 300,000 daily visits to our websites, resulting in more than 30,000 daily quote requests. We believe that there is an opportunity to attract substantially more traffic to our current marketplace and that there are further expansion opportunities in adjacent verticals.

Add more insurance providers and increase revenue per provider

We plan to grow the number of insurance providers on our platform by demonstrating the value proposition of our marketplace as an efficient, scalable customer acquisition channel and adding new provider-facing features. We believe we can also increase the number of referrals per quote request while maintaining or increasing the bind rate per quote request, which would allow us to increase our revenue at limited marginal cost. We also plan to expand revenue per provider by increasing consumer traffic and quote request volume, adding verticals and innovating advertiser products and services.

Despite the high costs, saturation and lower overall conversion rates associated with traditional advertising channels, such as television, radio and billboards, insurance carriers still allocate a significant portion of their advertising budgets towards these channels. We have achieved over $125 million in annual revenue while capturing only a small fraction of insurance marketing spend in aggregate and at an individual provider level.

Expand and deepen consumer engagement

We continuously leverage our data assets and growing consumer volume to conduct test-driven product development. We plan to innovate with new consumer offerings and enhanced personalization to deepen consumer engagement. Our goal is to provide broader and more meaningful consumer experiences, leading to

 

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increased return visits, higher frequency of interaction and greater revenue per user. For example, in 2016, we launched EverDrive, a free social safe-driving mobile app that enables users to improve their driving behavior along various dimensions. EverDrive has achieved rapid growth with over 500,000 unique user downloads since launch and over 100,000 active drivers per month.

Invest in our technology platform and people

Historically, we have increased the size of our engineering and data science team every year, enabling us to increase our consumer traffic and conduct more A/B testing, improve conversion rates in our marketplace and lower cost per quote request. We plan to continue to invest in our data and technology platform by growing our data science and engineering team, enabling us to improve the breadth and efficiency of our marketplace for consumers and providers. In the future, we may also expand our capabilities and team through selective acquisitions.

Launch new verticals on our platform

We plan to introduce new offerings in order to become a leading end-to-end provider for consumers seeking personal risk management solutions. We have demonstrated the ability to efficiently expand into new markets by leveraging our data, technology, partner relationships, consumer audience and talent. In 2016, we entered into the home and life insurance market, and from 2016 to 2017, we saw a more than three-fold increase in the number of quote requests for home insurance and two-fold increase in the number of quote requests for life insurance, with only a modest increase in headcount. As the shift towards digital continues to accelerate in the personal risk marketplace, we believe we are well positioned to expand into new verticals such as renters and commercial insurance.

Enhance our brand awareness

We believe we have significant opportunities to increase our brand awareness. Historically, our marketing efforts have been focused on algorithmic consumer acquisition rather than brand marketing. We plan to further expand our marketing channels to drive greater brand recognition and attract a broader consumer audience. We believe a stronger brand may drive even greater efficiencies in our marketplace.

Grow internationally

While today we operate solely in the United States, we believe there are significant opportunities for us to expand into other countries. We plan to selectively launch our offerings in international markets over time. We expect to focus our efforts in international markets with dynamics similar to the United States. We believe we can expand into new geographies with limited additional development costs due to the operating leverage embedded in our business.

Proprietary Data Assets and Algorithms

Our data assets

We leverage our data assets throughout our business to enhance our competitive position. Our data assets include more than 1 billion consumer-submitted data points, derived from over 35 million quote requests and 100 billion ad impressions acquired through $410 million in advertising spend over the seven years ended April 30, 2018.

Our data assets are comprised of:

 

    granular bid and impression-level performance data across a diverse landscape of advertising channels and platforms;

 

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    consumer-provided geographic, demographic, preference and behavioral data obtained through our websites and mobile applications;

 

    consumer insights derived from third-party tools, including phone number and address validations and IP address geolocation; and

 

    insurance carrier and agent bid, quote, bind and lifetime value feedback.

We use our data assets to:

 

    inform decision-making throughout our business;

 

    optimize and scale our algorithmic advertising and consumer acquisition efforts;

 

    conduct continuous A/B testing-driven to develop our consumer experiences and insurance provider tools and services; and

 

    make decisions regarding our company’s strategic direction, including entry into new markets and verticals.

We invest in making these assets accessible to our data scientists through a centralized warehouse, custom reporting and business intelligence tools and application programming interfaces.

Our algorithms

Our business model leverages proprietary algorithms across our marketplace, including in our advertising campaigns and consumer acquisition efforts, and for optimizing consumer-provider alignment. As our data assets grow, our algorithms become more powerful.

Multi-channel bid automation algorithms

Our data assets power our purpose-built, multi-channel bid automation and machine learning models. These tools enable granular decision-making by our consumer acquisition teams across complex, large-scale advertising campaigns.

Consumer alignment algorithms

Our consumer alignment algorithms implement a multi-step process for matching consumers with the insurance providers most likely to provide the right coverage at a competitive price. These algorithms factor in consumer input data, insurance provider bid preferences and economics, as well as quote, bind and lifetime value feedback. These algorithms are designed to optimize for the likelihood of a policy sale, maximize consumer satisfaction and insurance provider return on investment. We believe that the accuracy of the matches provided by our consumer alignment algorithms will improve over time as we accumulate additional data across the insurance landscape and expand provider coverage in our marketplace.

Products and Services

Consumer products

EverQuote.com

We evolve our mobile and desktop consumer websites through continuous, iterative testing and optimization. Every change is tested and evaluated against our goal to make insurance shopping easier while saving consumers time and money. Through this rigorous process, we introduce new features to enhance ease-of-use and improve messaging, clarity and personalization.

 

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LOGO

Capabilities such as pre-fill and partial quote retrieval help reduce consumer burden and ultimately enable higher conversion rates and data quality for our insurance provider customers. By integrating our platform with providers’ online workflows, we extend this ease of use throughout the shopping experience; providers receive all or nearly all the data required to quote a consumer, allowing them to shorten or eliminate steps in their workflows. As the level of integration increases, we believe consumer satisfaction in our marketplace will continue to improve.

 

 

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Immediately upon submitting a quote request, we match the consumer with insurance providers and present personalized listings determined by our consumer alignment algorithms. These listings provide access to quotes through a variety of referral formats, both online and offline. This approach helps unify the fragmented insurance landscape for the consumer and provides a single entry point to request and compare quotes.

 

 

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As of April 30, 2018, our marketplace has converted more than 240 million consumer visits into over 35 million auto, home and life insurance quote requests and, we estimate, more than 4.2 million policies.

Products and services for insurance providers

We provide insurance carriers and agents with industry-leading products and services to grow their businesses. Our ability to deliver a large volume of high-intent consumer referrals that are aligned with providers’ desired consumer attributes makes us an effective channel for providers to grow efficiently. We are consistently one of the largest and most efficient consumer acquisition and retention channels for our insurance provider customers based on their feedback. Our products and services include:

EverQuote Pro for carriers

Carriers access our marketplace through EverQuote Pro for carriers, a web interface that enables them to manage campaigns efficiently at scale. EverQuote Pro allows for granular targeting of consumers based on insurance-related attributes including geography, demographics, behavioral characteristics and coverage needs. These tools enable carriers to acquire their ideal customers efficiently and at scale, delivering better return on investment than traditional channels.

 

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LOGO

EverQuote Pro for agents

Agents access our marketplace through EverQuote Pro for agents, a web interface that enables them to specify their desired consumer profiles, geographic areas, hours of operation, budgets and product types across auto, home and life insurance through a single interface. This self-service platform allows agents to access our marketplace with minimal effort.

 

 

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Intuitive tools simplify campaign management for agents.

SmartCampaigns

Our SmartCampaigns offering provides automated bidding strategies for participating insurance providers. SmartCampaigns optimizes spend to maximize quote and bind volume while meeting providers’ return-on-

 

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investment targets. Participating providers integrate with SmartCampaigns by providing real-time performance feedback, including quote, bind and policy-value information for every referral, allowing our proprietary algorithms to continuously align and adjust providers’ bids and budgets across consumer segments. SmartCampaigns enables providers to acquire a higher volume of policies at better return on investment than they might be able to achieve operating independently in our marketplace.

 

 

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Seamless consumer handoff

Carriers require a rich set of consumer attributes in order to render an accurate quote. Providing this information multiple times in order to compare quotes is a cumbersome process for consumers, and can lead to lower conversion rates and lost sales for providers. As a result of our scale and history as a trusted partner, we integrate directly into many providers’ online workflows, customer relationship management systems and internal quoting platforms. These integrations minimize the steps between a quote request in our marketplace and the delivery of accurate, bindable quotes across online and offline channels.

We have observed that increasing the depth of integration results in higher conversion rates, enhancing the value of our consumer referrals. Basic integrations, called ‘prefill’, allow carriers to populate their workflows with data from our platform, such that consumers are required only to confirm the data they have already provided. Full click-to-quote integration removes all intermediate steps, allowing the consumer to receive a quote immediately upon arrival on the provider website. In tests with carriers, conversion rates for our referrals increased by 11% to as much as 41% depending on the depth of integration.

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Insurance Agency Academy

Our Insurance Agency Academy delivers free content and services to further our vision of being the industry-leading resource for agencies to grow their businesses. This includes a wide range of educational materials, including e-books, webinars, training sessions and live events.

EverDrive

EverDrive, our free social safe-driving mobile app, provides users with comprehensive information about their driving behavior along various dimensions, such as harsh braking, speeding and distracted phone use. Through self-measurement and competition with friends, family and community leaderboards, EverDrive users may ultimately decrease risky driving behaviors and reduce provider losses.

In addition, EverDrive addresses key challenges currently limiting the pace of adoption of telematics-based insurance products. For consumers, EverDrive provides control over when and with whom their driving data is shared, unlike carrier telematics programs. For carriers, it provides access to an audience of pre-qualified drivers and driving data, removing the administrative burden created by the multi-week onboarding and assessment periods required for direct offerings.

We believe the fast-growing scale of the EverDrive community, with more than 500,000 unique user downloads since launch and over 100,000 active drivers per month, positions us to play a strong role in the growth of new usage-based insurance products.

 

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Technology and Infrastructure

Our technology platform combines internally developed, third-party and open source software. This combination allows for rapid development and release of high-performance technology solutions in a cost-effective and scalable manner.

 

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Our websites, mobile applications and supporting services, as well as our development and test environments, are hosted across industry-standard cloud providers such as Amazon Web Services and Google Cloud Platform. Additional internal data and analysis tools are hosted at a third-party data center in Boston, Massachusetts. We use content delivery network solutions for fast, local access to our products. We use network, website, service and hardware-level monitoring, coupled with remote-content monitoring, to maintain a high level of uptime and availability for our systems with high-performance delivery.

Marketing

Our marketing efforts are designed to increase engagement by both consumers and insurance providers and enhance their awareness of our company. Our marketing spend across channels is fundamentally algorithmic and performance-based. Over time, we believe we will increase our brand equity and recognition as we serve more ad impressions.

Consumer marketing

Our marketplace relies on consumer acquisition from our online marketing efforts. Our consumer marketing strategies are algorithmic and performance-based, leveraging our team of data scientists, analysts and engineers, along with our data assets and technology.

We have built technology to automate our algorithmic traffic acquisition across multiple online advertising platforms. As of April 30, 2018, our technology serves, on average, over 175 million advertising impressions per day across hundreds of acquisition sources in a diversified strategy including search, display, social, email and video, with no single source accounting for more than 21% of quote requests.

We believe the combination of our talent, data and technology provides us with competitive advantages in acquiring more consumers as we continue to scale our business.

Agent marketing

Our agent marketing initiatives are designed to reach, educate and acquire insurance agents not yet participating in our marketplace. Our agent marketing focuses on:

 

    Digital marketplace trends: We educate agents on how consumer buying behavior is changing and increasingly moving online and how they can better acquire and serve consumers in the digital world.

 

    Educating agents on how to leverage the EverQuote platform: We educate agents on marketplace participation, providing best practices, case studies and strategies for account growth and optimization.

We reach new agents online through email, search, social media, display and content marketing; according to Google Analytics, our agency resource pages received 27,000 visits per month between June 2017 and December 2017. In addition, we reach agents in person at tradeshows and conferences on a weekly basis. For our current agent customers, we communicate the value of our platform and educate them on its use through our onboarding process, ongoing outreach and account performance reports.

Carrier marketing

Our carrier marketing initiatives are designed to reach and educate insurance carrier marketing professionals and executives. We deliver high-value content on how carriers can increase efficiency in their customer acquisition efforts by capitalizing on the increasing targetability and personalization enabled by our marketplace. We focus on building deep relationships and establishing thought leadership among carriers through our presence at industry tradeshows, targeted delivery of whitepapers and other materials, and personal outreach to key decision makers and marketing teams.

 

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Sales

We have built an efficient, consultative 60-person sales and customer success organization, which sells our marketplace referrals and services to insurance providers. Our sales organization consists of two major components: our carrier team, which focuses on the more than 1,500 carriers operating in non-health insurance markets in the United States, and our agency team, which focuses on enrolling the approximately 100,000 insurance agencies who operate in the auto, home and life insurance markets.

 

    Carrier sales and campaign management: Our carrier team is responsible for bringing carriers into our marketplace. This team takes a data-driven approach to helping insurance carriers bind more policies with their target consumers at lower cost per sale than other channels. Our campaign management team develops a deep understanding of our carrier customers’ objectives to optimize their campaign performance and grow their budgets in our marketplace.

 

    Agency sales and customer success: Our agency team is responsible for bringing new agents into our marketplace, growing existing agent accounts and driving agent satisfaction and retention. Our agency sales team focuses on onboarding new agents and selling new products, such as home and life insurance referrals, to existing accounts. Our customer success team analyzes account performance and consults with agents to optimize their participation in our marketplace, help them achieve their growth and return-on-investment objectives, expand volume and add products.

Our Customers

Our insurance provider customers include:

 

    Carriers: Insurance carriers write auto, home and/or life insurance policies for consumers either directly and/or through agents. The 20 largest property and casualty carriers by premium volume, over 100 leading regional carriers and technology-enabled insurance startups participated in our marketplace as of April 30, 2018. We plan to continue to grow both the number of carriers participating in our marketplace and the level of participation from each carrier.

 

    Agents: Insurance agents deliver auto, home and/or life insurance to consumers on behalf of one or more carriers. As of April 30, 2018, we had over 7,000 enrolled insurance agencies on the EverQuote Pro platform. We are focused on further penetrating the large base of approximately 100,000 insurance agencies in the United States.

 

    Financial advisors: With the launch of our life insurance offerings, we have expanded our target customers to include financial advisers, of which there were more than 300,000 operating in the United States in 2017 according to Cerulli Associates. We expect this channel to serve as an important avenue of growth if we decide to expand into other financial products.

 

    Indirect distributors and aggregators: Indirect distributors, such as aggregators and media buyers, purchase consumer referrals and resell them to insurance providers. Indirect distributors typically provide lower revenue and less data feedback per referral.

A key element of our marketplace strategy has been to build a direct network of insurance provider customers. We increased the percentage of our total revenue derived from direct distribution from 8% to 85% for the years ended December 31, 2012 and 2017, respectively. The benefits of this shift include higher pricing per referral, improved pricing stability, greater revenue predictability, richer data feedback, better performance and stronger relationships with providers and consumers.

Competition

We face competition to attract consumers to our websites and mobile applications, as well as for insurance provider advertising and marketing spend.

 

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Competition for consumers

The competition for consumer traffic and advertising space online is broad and diverse. Our competitors offer various marketplaces, products and services that compete with us. Some of these competitors include:

 

    internet search engines and social media platforms;

 

    brand advertisers and brand agencies across a spectrum of industries;

 

    sites operated by individual insurance providers;

 

    finance and credit savings sites, such as LendingTree;

 

    insurance lead-generation, affiliate and aggregator networks; and

 

    marketing services providers for insurers and general marketing services providers.

We believe we compete favorably in attracting insurance shoppers due to our superior data assets, consumer acquisition technology, team and data sciences management infrastructure. We believe we also compete favorably in converting consumer traffic into referrals and, ultimately, purchased policies due to the depth of our provider network, our consumer matching algorithms and our intuitive and streamlined consumer interface. Furthermore, we believe the breadth of the insurance provider options in our marketplace gives us an inherent advantage over single-brand insurance providers with respect to conversion and bind rates for consumers.

Competition for insurance provider advertising and marketing spend

We compete for insurance providers’ advertising and marketing spend with other internet sites, performance marketers and online marketing service providers. We also compete with offline media, such as television, radio and direct mail. We believe we compete favorably on the basis of the scale and quality of our consumer referrals, our seamless handoff capability, our ability to align consumers with our providers’ preferences and business strategies and the targeting capabilities of our platform.

Culture and Employees

Our company culture is data-driven, entrepreneurial, diverse, innovative and capital efficient. We are focused on delivering superb results for our consumers, insurance providers and partners. As of April 30, 2018, we had more than 230 employees, the majority of which are based in Cambridge, Massachusetts, with more than 130 data scientists, analysts and engineers, along with more than 60 employees in sales, sales operations and customer support.

Data is at the core of our culture. Our data scientists have access to operational data and metrics about our business through our proprietary internal business data management system, known as Goat. Decisions we make as a company, from marketing and sales to product and engineering, are expected to be A/B tested and data-driven. We emphasize original thought and testing over opinion and reward the commitment, excellence and achievement of our collective team. We believe this has yielded an innovative approach that delivers results, efficiency and benefits for consumers and providers in our marketplace.

Regulation

Our business operates in a heavily regulated industry. Various aspects of our business are, may become, or may be viewed by regulators from time to time as subject, directly or indirectly, to U.S. federal, state and foreign laws and regulations. We are affected by laws and regulations that apply to businesses in general and the insurance industry, as well as to businesses operating on the internet and through mobile applications. This includes a continually expanding and evolving range of laws, regulations and standards that address financial services, information security, data protection, privacy and data collection, among other things. We are also

 

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subject to laws governing marketing and advertising activities conducted by telephone, email, mobile devices and the Internet, including the Telephone Consumer Protection Act, the Telemarketing Sales Rule, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 and similar state laws. In addition, we are a licensed insurance producer in most U.S. states. Insurance is highly regulated by the states in which we do business, and we are required to comply with and maintain various licenses and approvals.

Because the laws and regulations governing insurance, financial services, privacy, data security and marketing are constantly evolving and striving to keep pace with innovations in technology and media, it is possible that we may need to materially alter the way we conduct some parts of our business activities or be prohibited from conducting such activities altogether at some point in the future.

Intellectual Property

We seek to protect our intellectual property through a combination of patent protection, copyrights, trademarks, service marks, domain names, trade secret laws, confidentiality procedures and contractual restrictions.

As of April 30, 2018, we had two pending U.S. patent applications, including one provisional patent application. We intend to pursue additional patent protection to the extent we believe it would be beneficial to our competitive position.

We have a number of registered and unregistered trademarks. We own federal registrations for trademarks including EVERQUOTE and EVERDRIVE, as well as multiple pending applications. We will pursue additional trademark registrations to the extent we believe doing so would be beneficial to our competitive position.

We are the registered holder of a variety of domestic and international domain names that include “EverQuote” and similar variations.

In addition to relying on the protection provided by these intellectual property rights, we enter into confidentiality and proprietary rights agreements with our employees, consultants, contractors and business partners. Our employees and contractors are also subject to invention assignment agreements. We further control the use of our proprietary technology and intellectual property through provisions in both our general and specific terms of use on our website.

Facilities

Our principal executive offices are located in Cambridge, Massachusetts, where we lease approximately 25,000 square feet of space pursuant to a lease that expires in September 2024, of which we have sublet 7,735 square feet until June 2018. Upon the expiration of this sublease, we intend to occupy the space.

Additional executive and administrative offices and our call center are located in Woburn, Massachusetts, where we lease approximately 6,000 square feet of space pursuant to a lease that expires January 2022.

We believe that our current facilities are adequate to meet our immediate needs.

Legal Proceedings

We are not currently a party to any material legal proceedings. From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Regardless of the outcome, litigation can have a material adverse effect on us because of defense and settlement costs, diversion of management resources, and other factors.

 

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MANAGEMENT

Executive Officers and Directors

The following table sets forth information regarding our executive officers and directors as of May 1, 2018:

 

Name

   Age     

Position

Seth Birnbaum

     44      President, Chief Executive Officer and Director

Tomas Revesz

     44      Chief Technology Officer

John Wagner

     44      Chief Financial Officer and Treasurer

Jayme Mendal

     32      Chief Revenue Officer

David Mason

     42      General Counsel and Secretary

Eugene Suzuki

     43      Chief Information Officer