PART IIOTHER INFORMATION
Item 1. Legal Proceedings.
On February 15, 2019, Sean F. Townsend, a purported holder of our common stock, filed a civil action in the Supreme Court for the State of
New York against us, our chief executive officer, our chief financial officer, our general counsel, our directors, and the underwriters for our IPO, captioned Townsend v. EverQuote, Inc. et al.,
Index No. 650997-2019. On February 26, 2019, Mark Townsend, a second purported holder of our common stock, filed an identical civil action in the Supreme Court for the State of New York against the same defendants,
captioned Townsend v. EverQuote, Inc. et al., Index No. 651177-2019. The plaintiffs alleged claims for violations of Sections 11, 12(a), and 15 of the Securities Act of 1933, on behalf of a purported class of
all persons or entities who purchased or otherwise acquired our common stock pursuant or traceable to the Registration Statement issued for our IPO. Those claims generally challenged as false or misleading certain of our disclosures about our quote
request volume. The plaintiffs sought, on behalf of themselves and the purported class, damages, costs and expenses of litigation, and rescission, disgorgement, or other equitable relief.
The cases were both later assigned to the Commercial Division, and the court consolidated them on May 23, 2019 in a case captioned In
re EverQuote Securities Litigation, Index No. 651177-2019.
On June 24, 2019, the plaintiffs filed a consolidated amended
complaint (the amended complaint). The amended complaint again asserts claims for violations of Sections 11, 12(a) and 15 of the Securities Act of 1933, on behalf of a purported class of all those who purchased our common stock pursuant
and/or traceable to the Registration Statement for our IPO. Those claims generally challenge as false or misleading certain of our disclosures about our quote request volume and the relationship between quote requests and payments from insurance
providers; plaintiffs also claim that our disclosures omitted material information relating to these same topics. The plaintiffs seek, on behalf of themselves and the purported class, damages, costs and expenses of litigation, rescission, and other
On August 5, 2019, we filed a motion to dismiss the amended complaint. Plaintiffs filed a memorandum in opposition
to our motion to dismiss on September 23, 2019 and we filed a reply memorandum on October 23, 2019.
After filing the motion to
dismiss the plaintiffs consolidated amended complaint, we participated in a mediation and agreed to pay $4,750,000 in settlement of all of plaintiffs purported class claims. The parties thereafter on February 6, 2020 filed a
Stipulation of Settlement settling the litigation in principle, subject to final approval of the Court. The Court has scheduled a final approval hearing for the settlement on June 11, 2020.
On April 29, 2020, EverQuote was named as a defendant in a putative, statewide (Colorado) class action lawsuit filed in U.S. District Court
for the District of Colorado captioned Scott M. Runyon v EverQuote, Inc. The Complaint alleges that the Company violated the Telephone Consumer Protection Act by making unsolicited marketing calls to his cellphone and those of other Colorado
residents using an automatic telephone dialing system without prior express consent. Plaintiff seeks, among other forms of relief, statutory damages of $500 to $1,500 for each alleged violation and an order enjoining future
violations. Plaintiff also asserts an individual claim against the Company for invasion of privacy arising out of the same calls to his cellphone and a claim for unspecified damages. No substantive proceedings have occurred in the case to
date. We believe these claims lack merit, and we intend to vigorously defend the Company against them.
From time to time, we may be
subject to additional 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.
Item 1A. Risk Factors.
Investing in our Class A common stock involves a high degree of risk. Certain factors may have a material adverse effect on our business, financial
condition and results of operation. You should carefully consider the risks and uncertainties described below, together with all of the other information included in this Quarterly Report on Form 10-Q,
including our condensed consolidated financial statements and the related notes, and in our other filings with the SEC. 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
business is dependent on our relationships with insurance providers with no long-term contractual commitments. If insurance providers stop purchasing consumer referrals from us, decrease the amount they are willing to spend per referral, 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, or may decrease the amount they are willing to spend for referrals. 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, the price they will pay per referral or their total spend with 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.