EverQuote, Inc. (EVER) Earnings Call Transcript & Summary

Great. We're going to go ahead and get started. Thanks, everyone, for joining us virtually today as we wrap up day 1 of our conference. Before we get started, I just want to mention that we'll also be taking questions from the audience be assumed. So please go to the Q&A button to submit there. So I'm Doug Anmuth, JPMorgan's Internet analyst. We're pleased to have with us Seth Birnbaum, Co-Founder and CEO of EverQuote. So EverQuote is a leading online marketplace for insurance, saving time and money for consumers while providing carriers and agents with an efficient customer acquisition channel. The company has processed more than 73 million quote requests since inception, saving consumers more than $4 billion cumulatively. Seth cofounded EverQuote in 2011. He leads the business strategy and growth at the company. Prior to EverQuote, he served as the CEO and co-founder of Verdasys and he holds a number of patents in chemistry, drug discovery techniques and computing systems. So thanks for joining us today, Seth.

Thank you for having me, Doug. It's a pleasure.

All right. So let's kick it off. We'll start a little bit high level. But just if you could talk about EverQuote's business model and the service you provide for carriers and the agents on one side and then consumers on the other?

Sure. Maybe just to start at a real high level, Doug, framing the market a bit. And approximately 100 million American consumers go online each year looking for insurance. At the same time, the insurance industry spends roughly more than $140 billion advertising and selling. So those -- to consumers, in general. What EverQuote does is we use proprietary data and technology to -- as well as accumulating data about insurers preferences, both from consumers and providers to attract, match and connect consumers online to both online and offline, to relevant insurance options for them. And obviously, what we believe to be today in the largest online marketplace for insurance in the U.S. And so for consumers, we're a one-stop shop. You can come in, get matched with a range of insurance options that fit your needs and in a way you go. Our most recent consumer surveys sort of indicates that we save consumers more than $600. So it's saving time, it's saving money for a consumer who's purchasing a policy through the marketplace. Obviously, for providers, we are a very high volume, a high ROI channel for them. And obviously, one of the key strengths of the insurance marketplace model, which is a sort of incredibly valuable aspect of what we do is insurance is almost sort of structurally fragmented. There's this alignment problem. So if you and I go online, and we want to buy a couch, we're going to see roughly the same price for that couch. But if you and I go online and when we want insurance, even though we may appear to be similar to consumers but there's a very differentiated price and coverage. And so whatever our book can do is both for consumers and providers is provide that alignment function and help match consumers and providers, and it's really valuable, especially in the online context.

Okay. So you hit on some of this a little bit, but insurance advertising is only about 1/3 online today. If you look at industries like financial services and autos, both north of 50% online. What explains the gap here in your view? And what will accelerate that transition in insurance further to digital?

Yes. I mean, so just some numbers, right? When you talk about the online ad spend now as sort of $5 billion out of $15 billion, which is where I believe you get the 1/3. But there's a much bigger distribution pie, which also includes the commissions which we sort of believe, and we have published research on this also pivoting online and is accumulating. So why hasn't the industry moved sooner, right? From our perspective, the insurance business hasn't been or wasn't threatened or encroached by the Internet, right. Insurance companies are definitely rewarded for steady growth, right? They're not just selling products, they're actually acquiring risk. So they're relatively conservative in terms of how they grow. Obviously, they've fully awakened to the opportunity to connect with their customers online. And especially through, EverQuote, they want to be more innovative. They want to create more innovative customer experiences. So the online shift also gives them that experience. But what's most exciting, Doug, about sort of the shift to us is that it's not simply say taking that advertising spend, that $5 billion up to $7.5 billion or $8 billion over the next few years. It's that entire distribution spend, the ad dollars and the $130 billion-plus of commission dollars which are also coming online in EverQuote's direction. So vast market opportunity in the shift online. The pressure, I think, will be more of a competitive pressure, right, the benchmark -- as the insurers start to move online, they'll have to sort of -- it depends on swings, if you will, from why should we do that to why aren't we doing that? Why aren't we doing more in the channel. And so I believe that's what we're seeing now. That dynamic of that how do we do more in the online channel? How do we better connect with consumers? So there's a growing demand. And again, we believe there's actually an acceleration in terms of the shift online.

Got it. Okay. So let's hit on some of those competitive dynamics a little bit just because you're framing a pretty attractive marketplace, especially when you think about the commission dollars potentially moving over, but how do you view the competitive dynamics in the online insurance marketing space? And I guess, kind of your top key competitive advantages?

Right. So maybe we'll take it out of order. From a key competitive advantage, definitively early days still, but a lot of data scale. We have more -- we believe, the largest data set essentially of carrier, multi-carrier and consumer preferences, which we use to bear on sort of attracting marketing to consumers, bringing them to the marketplace, matching them with providers. And there's a set of network effects that have been driving not just incremental growth for us, but incremental profitability in our unit economics and variable marketing margin as we scale. We'll get into that as well deeper in the discussion. So really being got and tech focus for us is a key differentiator, and it's playing out in our results. I would say the other -- sort of the other benefit or key advantages that we have is that what EverQuote has done is sort of we basically can take almost any consumer who comes to our marketplace and connect them with a relevant sort of product for them. So by not being sort of an agency-only distribution in play or a marketplace-only, but by essentially being able to connect consumers with a very broad range of products in any given vertical, that means that for 100% of the consumers who may come to our marketplace, we will be able to -- we believe we are better able than many others to get to the right or a great destination for you. So that's -- so we sort of say that's inclusive. It's -- so we've been not just consumer inclusive or a provider inclusive. And that gives a lot of strength to our model as well.

Okay. So let's just kind of walk down the funnel a little bit here. So I think you currently get about 11 million monthly website visits to the marketplace, about 16% conversion to a quote request. And I think about 20% of those who are matched with the provider ultimately buy insurance. So can you just talk to us about how that funnel has trended over time? And what you can do going forward to move these rates higher?

Sure. So our view has been that the conversion rate, sort of broadly speaking, has increased over time. There are several big levers that we push on. Obviously, using targeted advertising. What do I mean by targeted is really the current bid for the correct conversion rates, so it's the Internet data that you're targeting. So what query you bid for and how that particular consumer query or ad converts downstream is a lot of what our sort of consumer tech or the advertising facing technology is able to do is to bring to bear the downstream value of that, the consumer conversion to the provider in the bid. So when we do that, what ends up happening is we can drive higher converting rates traffic in almost any channel that we work in. So again, that tends to increase conversion rate. The next is sort of that deepening consumer provider engagement and probably the best example. We'll talk a bit about that is integration. So being able to securely pass the consumer quote request downstream so that the consumer can get closer and closer to either landing to a quote that they can purchase or getting right on the phone with an agent to buy and in a way they go. And when you do that, that also increases conversion rate. And finally, having all the provider and consumer preferences at scale enables us to better match the providers in the distribution side of the marketplace, which also increases downstream conversion rate. So those are sort of the 3 big levers. We -- sort of targeted acquisition, good on-site performance through things like integration, A/B testing, machine learning and having the downstream matching capability to get the consumer to the right provider.

So I do want to get to the integrations in a minute, but let's just go back and hit the first one that you talked about just in terms of targeted acquisitions. How has that -- how has your capability there improved over the years? What's really driven that? And I guess how does that vary kind of market by market? And obviously, we're in a unique time now. How has that changed over these last couple of months as well?

Sure. I mean -- so maybe I get what you're talking about. In Q1, what we really saw is in just about all of our major marketing channels so that's search, display, social, partnerships, what I'd call return visits, retargeting, remarketing, just about every one of our marketing channels was very strong. And for the predominant portion, a vast majority of the quarter, that was the ability to ever more accurately target bid levels and targeted ad levels for profitable conversions, for good conversion downstream. So that was really just very efficient traffic operations, really strong marketing execution. At the tail end of the quarter, when we mentioned it on the call, we did see some decline in marketing costs from sort of the shelter from home, the COVID-19. But predominantly, in Q1, it was continued execution in our marketing and operations that really drove very high consumer demand growth year-on-year at a lower cost per request or cost per conversion. The underlying sort of technical sort of advantage is data accumulation. As we get more data literally on -- does a consumer from this particular ad placement convert downstream. And if so, at what rate, as we build out data scale, we get more accurate, really at the bid levels, right? So it's not where we place an ad, it's how much we spend on an ad, and that drives incremental efficiency as we scale. So there is an enduring advantage in having all this marketing campaign data at scale. And then when you couple that with the continuous innovation of A/B testing for conversion on-site with downstream being inclusive with providers, over time, it trends up the conversion rate as well as the performance for customers.

Got it. Okay. All right. That's helpful. We'll kind of circle back a little bit more on kind of 1Q and 2Q. Let's talk about those deep integrations. So one of your primary initiatives this year, and you kind of targeted 100% of carriers by year-end. Can you just help us understand the key benefits how deep integration impacts both the user experience and then also conversion?

Sure. I mean it's very simple -- straight ahead, it's simple to understand, it's harder to do, but basically, it's -- you take -- consumer comes to EverQuote's website, fills out the quote request form to get some quotes. The data is securely passed the users discretion to the providers so that the consumer can basically land as close as possible to a bindable rate. When you do that, it doesn't just increase the core rate, it actually increases the policy purchase or buying rate. And so we have the goal of doing -- getting to 100% deep integration by Q1 of next year. And essentially, what a deep integration means is we're passing 8 or more fields from that consumer forward request to the provider. And in Q1, we had a one carrier, for example, who did a deep integration with us and saw a 28% increase in their relevant campaign KPI. And so there's basically 2 major benefits: one, for the consumer customer, less friction, higher conversion rate, consumers who purchase a policy through the marketplace, our data indicates are highly satisfied. So there's an incremental consumer customer satisfaction where the providers, you get significant lift through these deep integrations in the form of policy purchases downstream, and that enables them essentially to spend more in the marketplace. They can basically bid up while holding their cost per sale flat. So they can see incremental volume from the incremental performance. So it's a win for them as well. Obviously, for EverQuote as they're reflected as increased bids and budgets.

So I know it's still kind of early here, but you talked about the 56% at the end of 1Q. So are you already seeing some of this translate into bigger budgets, more spending? Or how does that time frame kind of play out?

Well, we believe as you go through these integrations, we believe we're seeing the benefit of the ones that are already completed and in place, absolutely.

Okay. So it seems pretty real time, okay.

Yes. I mean I would say, you can see the impact from these in weeks, not months or years. And it's really about progressing through these deep integrations over the next 3 or 4 quarters.

Okay. Good. All right. So let's shift gears a little bit, talk about insurance industry, overall. So you may have a more recent stat, but I think the most recent thing I've seen is kind of miles driven down at least 50% in a COVID-19 world. The auto insurance industry has obviously become extremely profitable during this time. And when we've seen, obviously, not a dip like this, but when we have seen dips in the past, it's been followed by higher marketing spending from carriers. So how does this play out in your view, kind of the rest of the year and into 2021? And how does that impact EverQuote?

So we believe that we're going to see miles driven slowly come back. It's not going to be a flip of a light switch. It will be more sort of cranking up on different switch. And you may see some big jumps sort of state, the big state opens up but overall, it will be sort of a dimmer turning back on. We don't expect miles driven to come back fully to pre-pandemic levels in 2020. And again, we didn't expect that to sort of pour over into 2021. And it's hard to say how long, but we do expect to see sort of lower miles driven for a year or more.

Got it. Cranking up the dimmer switch. I like that. Okay. All right. So auto is clearly the core competence. I mean that's 83% of your revenue currently, but your other verticals are growing very fast. You saw 90% growth in 1Q. If you could talk more about those. You've had home and life on the marketplace for a few years now, but added health and renters and commercial last year. Maybe if you could just walk us through those and talk about where you think the biggest potential is in terms of adding value in the business and driving growth over the next few years?

Sure. I mean so we want to be -- ultimately, our mission is to be the largest source of insurance policies online. We feel we have significant leverage in these newer verticals. And the other thing that we absolutely are confident in, Doug, is that these newer verticals, each can be as big or bigger than auto. So we don't think of them as sort of favorite children, if you will. They're all -- I believe they'll all be substantial as we continue to build the business. Obviously, home and life have a significant head start over health and small commercial. So they have -- they're bigger and have more momentum today or they're larger today. But health has grown quite quickly, I guess, and we're confident we'll be very big over time as well. So home and life taking the lead really because they're a couple of years older, all the verticals, we expect to be very large as we grow.

And what are the -- what kind of structural differences are there between these industries that we would need to keep in mind and that perhaps impact your go-to-market strategy or just how you approach them?

Sure. I mean they're very similar in terms of infrastructure, data, technology, there's a lot of operating leverage in launching and building up these verticals within insurance. There's also a fair bit of overlap between, say, auto and home and then separately health and life in terms of the carrier space. Now on the agent side of the marketplace, you have a lot of distribution overlaps. So there are a lot of agents that are going to sell auto, home, certainly life, maybe even small commercial, some of them might even also sell health. That was one of the surprising findings we had last year was a lot of the agents already in our marketplace were raising their hand for health consumers. So on the agent side of the business, there's a lot of cross-selling opportunity. On the carrier side, there is some sort of incremental or different carriers as you cut across verticals. But the data and technology approach, all the platform investments, the way we've organized the teams is it's all leverageable across the insurance verticals. There's a lot of operating leverage in these.

Got it. Okay. Let's shift gears a little bit, talk about hiring. You made a number of key hires, executive hires last year. I think you also talked about 1Q hiring a record number of new engineers. Just curious how you're thinking about allocating headcount across the business and then perhaps across the verticals? And then also, what are you seeing in the labor market now for tech talent?

Yes. So we allocated by -- literally by project. So we have the distinct growth projects in the vertical. These are dedicated vertical teams. And based on these forecast, if you will, for the growth by vertical and project, we allocate headcount. We did see on this substantial tailwind in Q1 and a lot of success in recruiting, especially recruiting engineers. So we simply had -- in the quarter, we hired more engineers that was sort of the peak than ever before in our history. And obviously, that's exciting because for us, today, the major constraint isn't competition, right. There's nearly $1 billion a year now, we believe, pouring in from the offline sort of insurance industry distribution to online and insurance industry distribution. So for us, it's really that team building is what generates or what we believe is one of the key sort of ways to grow the business. So just seeing a lot of success there.

One of the things we've heard today from some other CEOs and CFOs is just that the market out there for engineering talent, literally over the last couple of months has changed and you do have some much better talent out there that's readily available. And to be fair, these were probably a little bit more West Coast comments, but you're obviously in Boston and a ton of tech talent there. Is that something where you're actually seeing more of a real-time change?

Yes. We saw a significant tailwind. In engineering, data analyst, data scientists pretty much across the board. And remember, the work for talent in a lot of these companies, right? So it's not -- we don't compete with other insurers. We compete with Google and Facebook and just about everybody. So we have definitely seen a significant tailwind in talent availability, being competitive for great engineering and data analytics. And again, we expect that -- sort of that gives us a lot of confidence in the growth, right? Because that's for us, one of the big levers for growing the business. So we have the exact same thing. And remember, it's not regionally constrained, right. So I think the Boston market got less competitive, but you can hire from anywhere now, especially since we're largely just distributed, no matter what we do.

Right. Exactly. Okay. So a lot of that engineering talent is obviously going toward better leveraging your data capabilities on both sides of the marketplace. Just curious how you're using all of that to build a more personalized experience. What does that really mean for a user? And how are you using machine learning to kind of improve the customer journey?

Sure. So may be 2 different ways. So think of being able to engineer all the integration and putting together customer experiences where you get to 100% of the time, you get one click or one call away from a quote, right? So that's one of our stated goals. It's not just business development exercise. There's engineering that goes along with that. And then there's engineering that goes along with creating online experiences. As far as leveraging machine learning, when we talk about the consumer journey from the creative to the experience on the site to which providers we match the consumer with, we're able to customize using ML that -- sort of that journey, right? So which set of experience does the consumer gets to essentially maximize the probability that they get to purchase a policy, right? So it's not about maximizing on-site conversion. It's literally about using ML from the bid from where we actually bid on an ad creative, all the way through the product to what we match a consumer with to maximize that purchase to buying rate. That's better for consumers, it's better for providers, ultimately better for us. And we're literally beginning to leverage ML across the stack. And so that's -- there's a lot of engineering and great work that went into that. And then think about putting engineers into the verticals to create health shopping experiences and different life shopping experiences for different products, whether it's term or final expense, so you basically have different shopping experiences for each of the different insurance segments. So folks are also building that out. So we are still hiring engineers. We had a lot of success in Q1. As we mentioned on the call, we're still hiring and there's still plenty more that we need as we grow.

Okay. Great. Let's see, we'll jump to a couple of audience questions in a minute that have come through Zoom. And if there's others, feel free to send them through. But just hitting on kind of near term, you had a strong 1Q. You raised your outlook, provided guidance for the full year, which is something that we haven't really seen a whole lot of recently. So part of that strength came from agents increasing their budget. Could you just talk more about the drivers here? And how you're thinking about how that will play out as you go through 2Q and through 2020?

Sure. And I think, Doug, just to clarify, you mean the drivers for the agents ramping budget, providers, in general?

Drivers -- yes, drivers for the agents, sure. Agents. Yes.

Yes. So and again, what we saw late in Q1, early in Q2 and had discussed was a lot of the agents shifted remote reasonably seamlessly. What some of the carriers reported was they were actually seeing incremental agent productivity when the agents shifted from home. I don't know if that's related to remote work or just conditions in the consumer demand -- sorry, the consumer demand dynamics. So I don't know how to attribute it exactly. But a lot of carriers basically were saying, look, the agents are more productive. Some of our traditional marketing channels like sports and TV and even local sports, right? You got local agents would go to a little A game and say, "Hey, Doug, what are you doing for life insurance?" That's all cut out right now. And so basically, the agents and their companies sort of turn to EverQuote for incremental demand. On the provider side, we actually saw the highest level of agent demand for consumer referrals from us than we've ever had in our agency side of the marketplace, and agents are basically leaning in to Internet marketing, Internet distribution channels because we believe because some of these other channels are also deprecated. And what we'd expect coming out of this is some of that incremental spend, incremental demand from the agents to actually stick.

Got it. Okay. Let's also just hit on -- in 1Q. And I know you talked about ad spending a little bit, but your ad spend per quote request was down about 17% in the quarter. Your revenue per quote request was down to less, down about 13%. So your VMM increased about 300 basis points year-over-year. How much of that was about gaining efficiency on traffic acquisition versus just kind of lower pricing broadly in the digital ad market?

Again, and we didn't -- there wasn't much impact from COVID. We didn't see or measure much impact, if any, from COVID until March 15. So that was predominantly the efficiency, the continued scale and the network effect of the insurance marketing place, basically taking efficiency, bringing up variable marketing margin. So predominantly, in most, if not all of it. And then what we reported on is towards the end of the quarter, literally, the last 2 weeks, we saw some reduction in ad cost.

And what kind of channels would you say are giving you the best kind of payoff now as you're thinking about ad spend? And how -- and I know you're kind of constantly adjusting this through the day, minute by minute. But how much are those channels kind of changing as you go?

So large diversified marketing channel. So we have a lot of different channels. And I would say the sort of -- the simple view is they're all set to positive unit economics. They're adjusted for their conversion rate and their performance. And so that means that, over time, we can lean on to different channels. We have a lot of flexibility and diversity in marketing. That having been said, and I sort of understand your question, what we've really seen in the marketing channels is largely all still performing, but there's almost a sort of 2 tails, right? There's the industry-specific channels like search, have largely remained the same throughout the pandemic, whereas you have a very broad nonindustry-specific channels, so display, social display would be just 2 examples, where we've seen costs come down. There was a step down in -- towards the end of Q1, beginning of Q2 in cost because you have entire industries like the online and travel guys have just stepped out of those caps. That having been said, again, we have very strong monetization, where we can bring a consumer from nearly any channel and get positive unit economics on them, and we're always adjusting and expanding our channels, sort of managing our channels dynamically based on the advertising environment. So we have the capacity to move month to month in terms of which channels are performing well.

Okay. A question from the audience through Zoom. The question is, how do you think about -- what EverQuote does, how much of it is irreplicable? And how do you keep the carriers loyal to EverQuote over time?

Well, maybe we would start with the loyalty rate. But the business, especially with the carriers, it is extremely sticky, in my view, you're right. I think in Q1, we saw 95% of our carrier revenue was from carriers, we call existing customers. So they've been on the marketplace, on our marketplace platform for a year or more. So it's really sort of sticky, reoccurring revenue that we see from the providers. And that's really based on the ROI that we're delivering to them. Now that ROI is basically -- the moat for that is the data at scale. So certainly, we have a technical advantage. We work continuously to build an advantage in the great team that we have. But really, the data we have on consumer and provider preferences as we leverage that enables us to drive more consumers, which drives more providers into our marketplace, which enables us to drive up integrations and conversion rate, which enables us to get more consumers. And so that network effect ultimately from a provider perspective, we're talking about provider loyalty, enables us to drive more traffic at higher ROI than other channels, and that's why they stick. And so it's a really virtuous cycle. We're starting to see that flywheel really crank. And the scale we're at, even though it's early days, we believe we're going to get much bigger, but gives us a significant moat and a growing advantage consumer provider preferences.

And just when you think about the opportunity to move dollars over, I mean it seems like you have still, I guess, lots of room on both sides. But how do you think about kind of current penetration levels with carriers versus agents? Where do you get kind of bigger growth in spending over these next few years?

What's great? I don't know that I can sort of give you my thoughts. I'm not sure that what's really great about EverQuote and our business model is if agents grow, or the commission side of the business -- the commission distribution dollars grows faster through agents, we're great. If carriers grows faster, we're great. So we don't have to sort of predict where that puck is going to be confident that both sides of the business will be bigger. I believe the agency side of the business has a ton of upside, right? So the carriers, and especially the auto carriers are sort of further along in the journey of online. That's not the same. I mean again, I believe that there'll be a multiple growth opportunity with even the sort of the longest-standing auto carriers. But the agency side of the business just has a ton of upside. I think in Q1, it ran just under 25% of the business and a ton of room to grow, given that there are nearly $130 billion of commissions that are flowing to insurance agents in the U.S. But I believe both -- so I mean we don't have to sort of call that ball a priority, Doug.

Sure. Got it. Okay. All right. So maybe one last one. If we're here at our conference and hopefully in person, let's call it, 3 to 5 years, what does EverQuote like? What are kind of the biggest changes that would have taken place in the business at that point?

Well, again, I would say we're very confident in our mission, right? We want to be the largest online source of insurance policy. So keep growing, you'd expect to see us push more scale and growth in autos, but also in our new verticals, should be much, much bigger. And we will just keep focused on our growth levers, right, more consumers, more providers, a deeper provider consumer engagement, so better customer experiences. And maybe in 3 to 5 years, a few new verticals as well. So right now, we're focused on our current verticals, including auto and tons of growth, but we do see opportunities to expand that -- the number of verticals in insurance as we grow.

Okay. Great. We are going to leave it there. Thank you, Seth. I appreciate your time. Thanks for joining us virtually today.

It's my pleasure. Thanks, Doug. Thanks, everybody.

Thanks, everybody. Take care. Have a good night.