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

Good afternoon, everybody. Thank you for sticking with us with our virtual tech conference this year. This is Nat Schindler, mid-cap Internet Analyst here at Bank of America Merrill Lynch, and I'm very happy to welcome the EverQuote management team. And I'm going to pass it over to Seth Birnbaum, who is CEO of EverQuote, who's going to jump through an investor presentation. And please bear with us because I have control of the slides, and he's the one talking. So hopefully, I won't mess up. Seth? Over to you.

Sure. Terrific. Thank you so much, Nat. Thank you, everybody, for joining, especially at this, perhaps, unique time in history. And through this unique format. Anyway, it's a delight to talk to everyone today. Thanks again, Nat. So just a quick look at our safe harbor disclaimer statements. I have to do this, GC told me to do it. So I'm doing it. Everybody take a good look at this. I'm not going to read it, and then we'll jump right into the presentation, starting with who we are. All right. So EverQuote is today, we believe the largest online marketplace for insurance shopping in the United States. We literally connect millions of consumers each month with great providers. We use data and technology to attract, match and connect insurance customers with literally more than 100 carriers, over 8,000 insurance agents in our marketplace and ultimately, our mission is to, as a company, be the largest online source of insurance policies, but as importantly, make insurance decisions simpler, more affordable and personalized for consumers. And to date, obviously, we have grown quickly, but we are taking advantage of a very significant market shift of insurance from offline to online, and I'll get into the details of that. But just as excitingly, we save the average consumer more than $600 when they shop auto insurance through us, and that's sort of what our data indicates. And for providers, we represent one of the largest, most efficient places for an insurance provider, an agent or a carrier to grow their business. So let's jump into some of the investment highlights. Again, we believe we're the largest online insurance marketplace by consumer volume. We measure consumer volume by quote request. And we believe strongly that we provide compelling benefits, both for consumers and insurance providers, and I'll dive in a bit on that. One of the most exciting aspects of the business of EverQuote and the business is, again, we use data and technology to bring consumers to our marketplace. Then match them with the relevant insurance options for them and connect them with providers who are also coming into our marketplace to connect with the online consumer. But what's really interesting about insurance, it's almost the sort of the -- one of the last largest verticals to move online in the United States. Insofar as we're confident 70%, 80% of consumers actually start their shopping journey online, at the same time, the insurance industry spends $146 billion, that's with the B, distributing insurance products that's advertising and commissions. Over 95% of that are, or more, is actually still spent offline, even though all the consumers or vast majority of the consumers have shifted online. So we believe that we have the opportunity, and we're confident of building a really big, valuable business, as the insurance business shifts online. Competitive advantages, right? We -- again, our focus has been on maximizing consumer choice, provider inclusion and building up a really unique set of data around provider and consumer preferences that we use across our marketplace to attract match and connect consumers. And when you combine our growing data set with machine learning, scale, integrations with our provider partners, we believe and we're confident that we're consistently driving our flywheel of more consumers, more providers, more choice, better matches around and around, and you see these fly wheeler network effects in not just strong growth, but also increasing unit economics and a strong competitive moat as we grow. Obviously, one of the sort of proudest things that we've executed on in the last few years is, we started in autos. That's sort of our longest tenured vertical, if you will. But today, we've also subsequently, we've launched home, health, life, renters and most recently, small commercial. So really, we leveraged our marketplace platform to rapidly expand into new verticals, and we have a strong financial profile. So historical CAGR of 32%, strong reoccurring revenue model. So for example, 95% of our carrier partners, which is, again, the majority of our revenue, who've been on the platform for a year more. We saw 95% of our revenue reoccur from really strong operating discipline, meaning that again, for us, it is a balance between growth into this huge market opportunity, as the insurance industry shifts online, and it's steadily occurring, and we'll detail that. But also it's building out our path to profitability, and we've seen expanding adjusted EBITDA year-on-year as we grow the business. And so we're really excited about disciplined execution. And really part of our history is as a bootstrap. So very efficient business model and method or mode of operation for us. Some of those are just details of the company, we're headquartered out of Cambridge, Massachusetts. Back in sort of mid-March, we did all shift to work from home. Today, we continued hiring throughout. And today, we have over 300 just fantastic employees. We are genuinely grateful that the business, the team, the insurance industry, specifically, P&C and especially auto and home have remained strong, the providers, budgets and consumers are all still coming into the marketplace, shopping and connecting through us as the business remains strong. And we've been able to, or we've seen, accelerating growth more recently. So in Q1, we saw a strong growth even above our historical CAGR, while we continue to make that progress on that path to profitability. And obviously, we continue to drive increasing consumer volume as we expand the marketplace. So let's talk a little bit, for me, but one of the reasons why we're confident that we're able to grow a really big business over time in insurance. If we just break down our TAM. So if you look at the sort of Slide 6, we're going to cover some of the elements of TAM. Today, or roughly $5.5 billion is spent online. And we view the sort of 2 primary buckets. There's about $15.5 billion of advertising spend, and there's another $130 billion plus of commission spend. And what's really unique about EverQuote is that as consumers continue to shift their attention online, we actually address both buckets. So we address the digital spend of carriers and providers, and we also address the commission spend by basically connecting with agents who want to grow their business online, they can come in and spend their commission dollars to grow their business directly with us. So we both -- we access both buckets and sort of our perspective on this is -- what we see is that, that $5.5 billion is growing at 16% per year. It's nearly $750 million per year, shifting in our direction from offline to online. So we're very comfortable that we have the TAM to grow a really significant and valuable business. And this year's guidance at the midpoint is roughly $322 million. Compelling benefits. We talked about consumers coming into EverQuote's marketplace and saving time and money, average savings for an auto shopper, who purchases a policy through our marketplace, according to our survey data, saves more than $600 per year, but our view is that it's especially important at this time as the -- as we face a recessionary period in the economy and consumers want to tighten their belt that we can actually find them savings. Just as importantly, for providers coming into our marketplace it's a more efficient acquisition space for them. And one of the more interesting things that we've learned about insurance is that there is this misalignment in the distribution landscape, insofar as any particular insurer only has good price, good fit, good product for its subset of the shopping population. And what EverQuote is able to do is to provide that alignment between the consumer and the correct provider for them, the provider and the consumer, they have good product pricing and coverage fit for, and that's a really valuable function in the insurance market because insurance is inherently fragmented. And another big lever in the business, obviously, is the number of distribution partners we have in the marketplace. So today, we have over 100 carriers, 19 of the top 20 auto carriers. And just as importantly and growing quickly over 8,000 insurance agents on the platform. What we had sort of said back in Q1, we actually saw the agent demand for consumer marketing, consumer referrals from our marketplace was at our historical high level in the company's history, basically. And one of the more interesting levers in the business for us and one of our goals for both consumers and providers is to get every consumer one click or one call away from their quotes. So in order to do that, the company has embarked on what we call deep technology integrations. What that means is consumer comes to EverQuote, fills out a quote request with the 20 to 50 questions they need to get a rate call, to get -- basically to get a rate from our provider partners. And then we'll pass that data at the user's submission securely to the provider so that we can bring them closer to a quote, that reduces friction for consumer, it's a more satisfying experience and it increases the provider conversion rate. And just as importantly, what that enables providers to do is actually spend more with us, invest more either as bids or budgets and keep their cost per sale flat as they do that. So today, 56% of our carriers have these deep integrations, which is where we pass 8 or more fields securely to the provider partner. 56% of our carriers have these deep integrations. And our goal is for Q1, next year, to have 100% of our carrier partners deeply integrated. And again, let's talk a little bit about the moat, the data assets that we have, again, what we believe is the largest data set of consumer and provider, multi-carrier consumer and provider preferences. And so more than 2 billion consumer submitted data points. We leverage this with machine learning, automated infrastructure for everything from marketing to consumers, bringing them through our funnel, matching them with providers and connecting providers efficiently to our marketplace so they can grow their businesses. And so it's really a significant investment we've made and as we grow, it enables us to run more A/B tests to more -- to increase conversion rate, to increase advertising efficiency and to increase monetization. So we literally use the data assets across the marketplace in marketing, product and distribution to increase leverage and to grow margins in the business, while we scale. We've been successful at doing that. And obviously, there are a number of levers in the business. So underlying in this all is the shift of literally over the next 10 to 20 years billions and billions of dollars from the offline channel to the online channel. And EverQuote is really well positioned for that. But our primary levers of growth are more consumers, increasing provider budget and the number of providers in the marketplace, both carriers and agents as well, expanding consumer and carrier engagement through integrations, predominantly is the one that we mentioned that this emphasis on and launching new verticals, which we've done consistently. And so now our view is that over time, the new verticals can be as big or bigger than the auto insurance vertical. So there's multiple levers driving our growth. And we intend to execute and work against these levers over time to grow the business. And I'm proud, exceptionally proud of the team we've built. Some of the highlights of it. We are a tech company, software and data. Building out the larger marketplace in insurance. In the U.S., we have over 150 folks now who are either engineers, mathematics, analysts, data scientists. And what we've done over time is, especially as we've been maybe emboldened or energized by the scale of the opportunity as we've continued to recruit fantastic talent into the company from the names that we know and love, a lot of the scaled up tech mains in the business. We have great folks who joined more recently out of Amazon, Wayfair, TripAdvisor, who've really seen marketplaces operating at scale, join with a team that was in place, and we've really seen that energized operations, and they've contributed to the acceleration of business that we're seeing as well. Real quick, we'll do a financial overview and then get to questions. So in Q1, revenue increased 56% year-on-year. And you'll recall, this is up from our historic CAGR of just about 32%. So we have seen increase -- and are seeing increased momentum in the business from our historical. Just as importantly, we run the business for variable marketing margin. That's our North Star metric. It's revenue minus ad spend. And we really sort of focus on maximizing variable marketing margin over the long term. What we've seen in Q1 is variable marketing margin grew even faster than revenue at 72%. At the same time, we have a disciplined operation that enables us to flow through that increasing margin to adjusted EBIT. And we've seen the company sort of move or shift to positive adjusted EBIT, and we expect to continue to make progress against both strong growth and increasing profitability to the tune of 1% to 2% adjusted EBIT per year. And in terms of Q1, the sort of outperformance of Q1 versus our expectations was largely driven by success in consumer marketing, where we see our year-on-year quote requests increase over 80%. We have been successful with these deep integrations. And again, one of the highlights from that, which is worth sharing is we integrated one provider partner in Q1, did a deep integration. And in that quarter, they saw the -- a 28% increase in their sort of key performance metric. And then we believe we've seen increased bid in budget from that carrier, literally, within the same quarter. So these integrations work, again, they're a win for the consumer, they can significantly increase the performance of our provider partner in the marketplace. And obviously, significantly impact the budget that EverQuote sees from those partners. And obviously, it is a unique time. And everybody -- we basically transitioned in order to keep ourselves, our employees and our teams safe. We've smoothly transitioned to working from home. And again, we believe that the productivity has been consistent. So it really was a great transition. Kudos, obviously, to the team, and we have raised our full-year guidance. So a strong track record of growth year-on-year. Slide 14 for folks following along, we have seen growth accelerate more recently as we execute across these levers. And we see that consistent shifting of insurance industry from offline to online in our direction. So it is an exciting time to be in the business. And obviously, a unique time, given the disruption and what's going on in the wider world. However, we believe, again, that the dominant dynamic for our business will be the continued shift of insurance online. And if anything, working from home and the pandemic is likely to accelerate the digital transformation in insurance. And as we've grown, even with the acceleration, we've seen even faster acceleration in variable marketing margin. And so again, what's important to note for shareholders is that, for us, we don't drive variable marketing margin percentage. We focus on variable marketing margin dollars and growing those over time and maximizing those over the long term. But we have seen that operating point climb consistently over time, and we do expect that to go up, and it is a point of leverage in our business. The new verticals, so autos is growing quickly. I would say that the new vertical is growing even more quickly, and they grow with really good operating leverage because we're able to use the same investments or sort of the -- overlap the investments in website, technology, data, infrastructure, to across the vertical. So we get a lot of operating leverage. The new verticals, while building from a much smaller base than autos, are still growing much more quickly. And in fact, in Q1 for our non-autos vertical, we saw a growth of 90% year-on-year. So really strong growth there. And again, for us, what's exciting about the new verticals outside of the revenue diversification, some partnership diversification and the operating leverage is that, we believe, over time, the new verticals like home and renters, life, health and small commercial can be as big or even bigger than our autos vertical for EverQuote. So we're consistently investing in that growth lever and building out these new verticals. And again, that path to profitability. So as we grow the business, I guess, last year, we sort of shifted to or overall grew to adjusted EBIT positive. We've seen that progress continue, and we expect to put up 1 to 2 points of adjusted EBIT increase each year. That's our model while we continue to grow strongly, diversify the business and execute across our growth levers in the shift of insurance from offline to online. I'm almost on time, Nat.

That's great. It was very helpful. So let's -- I'm going to go a little bit broad, but first start with the auto industry, which is your key. That's always been seen as a slight bit of a challenge, largely because it's almost oligopolistic with 7 major carriers controlling that market. How are you getting skeptical carriers to be excited about an internet marketplace that -- as a way to market their services?

Well, I mean, I think it is -- they do have great products for a lot of consumers. So we want to include them. I do think having -- supporting things like integrations at scale with them, which improves their performance. It also improves the consumer experience, is something that they've been really supportive of. And ultimately, for all carriers, big and small, they want high ROI on their distribution spend. So what we've worked really hard is being a very good, if not, one of the largest partner with consistently high ROI and enable them to come in and target for their underwriting preferences and businesses. And by the way, Nat, that's something that's interestingly, they can't do that, in they can't do it in Google and Facebook. And so they can't do it in the open platforms because if you and I show up at a large carrier, we may get a very different price. And those rates are all static, they're filed with the state level DOIs. So in providing that consumer alignment function, we really can deliver a lot of value even to the big carriers, and that's an area of focus and investment, and we really value those relationships. And for consumers, they have great product for a lot of consumers. You want to be able to include them in the marketplace.

Okay, great. And can you tell us a little bit about how the other markets -- the other verticals, how they look [ online ]. Do they have -- versus some of the similar concentration with large carriers? Or are they more diversified?

So one thing to note, right, there is still -- the insurance industry is so big, even in autos, there's -- in any given state, for any given consumer, there literally may be anywhere from 10 to 40 relevant carriers. Now when you get outside of autos, the carrier diversification, it can be even more fragmented. And of course, there's fewer sort of direct carriers in the other verticals. So I think it's just different types of fragmentation. Interestingly, in autos, average premiums may be very similar. But what you can see again is that URI, and we may consider ourselves, we look similar from a risk perspective, we can see incredible pricing dispersion. And so that's -- the fragmentation in autos is on price. And in the other verticals, the fragmentation can be coverage, price, providers. So they both have different sort of, I would say, characteristics to the fragmentation, but we believe that insurance across all the different verticals is exceptionally fragmented. And then you get into things like health, where you're looking at, for example, supplemental Medicare policies or in small commercial. And those, I mean, there it's just a challenge to find a match for any policy for a given consumer. For small commercial, there's 20,000 different sort of NAIC codes, and you've got to bring the consumer or the small commercial customer to the correct policy, right? If you're a gardener up here in New England, then you work on trees, you're going to land with a different carrier than if you don't need insurance for tree work. So it's really the structural fragmentation of insurance varies from big price dispersion in autos to, hey, can I literally get a customer to some coverage they need. And that's what's really exciting about insurance for us. From a marketplace perspective it's unlike travel, where a lot of the customers look the same to the providers, Delta doesn't care who's flying as long as we fill a seat. To insurers the customers look very different, and vice versa.

Great. And that actually brings up an interesting point. When you look at different verticals, what are the real cross-sell opportunities? Do people who think about getting new auto insurance, thinking, are they in the mindset of other insurance products? Or is that not really a near-term thing for you and you're just going to be able to keep on marketing out on each products separately?

So today, it's more of the latter. But I think -- I believe, we think there's a lot of upside, in, for example, cross-selling through the auto and home bundling as an example, or auto and renters. So I think there's upside opportunity there, and ditto, by the way, across health and life. And perhaps we'll see some of that as well in auto, home and small commercial. So I think there -- we believe there's upside in cross-selling. The amount of cross-selling we do today is very modest. Longer term, we think there's an opportunity for a logged in user experience and sort of to help consumers across the insurance journey. Where even though there's not an immediacy of, "Oh, I'm going to bundle together auto and home", we will be able to assist the consumer across multiple verticals. I do think, Nat, what's interesting, and it's worth mentioning, on the distribution side of our marketplace, we see consistently agents. They'll cross-sell in the most -- most insurance agents, especially IAS, but even the captives, they'll sell auto, home, small commercial, life insurance. So they'll sell across the products. So on the distribution side of the marketplace, there's quite a bit of leverage in having multiple verticals.

Sorry about that. I want to go back a little bit on your history. And as you came public in '18, you had a little bit of a blip early on in your growth. And then you really fixed something in 3Q of '19 and that you are definitely riding the great wave of acceleration right now. Can you walk us through the history of what happened? And how are you going to -- as you come into the harder comps on year-over-year in Q3, how -- what's your next lever that you can pull?

Sure. We had seen, I think, thinking back to that time, some weakness in the display or at least in our display volume specifically around the general election. And we talk about continually diversifying. So we have very diverse marketing channels. So search, display, social, remarketing, retargeting, partnerships. I mean we really continue to diversify the marketplace from a consumer demand side, and that's been successful. And so we're seeing some of that, and we've seen very strong consumer demand growth, and we expect that to continue. Now why has that changed consistently for us is, we have also, in terms of -- in addition to diversifying our marketplace, Nat, we've also brought in a lot of very scalable senior tech and engineering talent to really help complement our existing teams, to help build out our existing teams, and we've seen really great execution. And so we've talked about some of these folks who joined recently like Maya Gumennik from TripAdvisor. We just recently actually added David Brainard out of Wayfair in engineering. But those are just some great examples of how folks come in. They've added to our great team, but they've really -- these are folks who've built scaled-up marketplace businesses, can help us build our rate teams out. And what we've seen, kudos, we promoted Jayme Mendal to Chief Operating Officer. That was sort of the beginning of that cadence. He had been running all distribution at that time. He's done a fantastic job, but it's really these folks who bring operating experience, scale and the ability to build out our teams into the opportunity that I believe have helped this unconstrained growth. And we've said it quite a bit that one of the key constraints to our organic growth path is really just building out the team and execution. There's so many dollars flowing in our direction. It's how do you, in a disciplined way, build out the team so that you can increment up growth and profitability as you do that. And that's what we've done.

Great. And one thing we're wondering, given your nuanced view of what's happening, as we move through shelter-in-place orders and the like. There was a lot less driving going on there for a little bit of time. How did that affect -- did your auto insurance business? I would expect more people are at home might be willing to search for better deals, but at the same time, they're not really going in cars. On the other hand, there might be a little bit of change in home and life and fear factor. Have you noticed any real COVID-related impact?

So I don't know if you want me to express any industry stuff, but why don't we just start what we've seen. So in Q1, we highlighted what we believe was a brief impact of providers shifting to work from home. So after providers shifted remote, we saw an increase in monetization headed into Q2. And what we've seen is consumer traffic is largely consistent with our historical seasonal patterns, right? Q2 is typically in the insurance business, a more modest consumer demand or more modest quarter in general. What we've seen, though, is quote requests are up year-on-year, monetization has increased sequentially. And as of early April, we saw a drop in cost for display and social media, across the non industry-specific marketing channels, right? So which we've reflected in our guidance is higher variable marketing margin. So we do expect cost to increase, as some on the consumer marketing side, as some of these other industries reenter the market. And what we've said is that it will be a gradual crank up, more a dimmer turning back up than a flip of the switch. But regardless, for us, Nat, it is important to highlight that we manage the business with the goal of maximizing variable marketing dollars, over time, across a diverse array of marketing channels. So metrics like cost per quote request and revenue per quote request are outputs of the model. And while they provide some short-term insights, our focus is always going to be growing variable marketing margin dollars over the long-term and growing operating margins, which we are confident of our ability to do and expand over the long term, even in this environment.

Great. And you talked a lot about increasing your integrations with carriers, and you've made a lot of progress since the IPO and calling for almost 100% within the year. Do you -- what's the sales cycle like in an integration or the integration cycle for that? What gets those guys over the top? And how hard is it for them to come and agree to this? And how hard is it to implement it?

Sure. And the one important note because I don't want to get pinned to the wrong -- what we have stated is at 100% Q1 of next year, and we are tracking to that goal.

Close.

Yes, close enough, feeling like, it is what it is, not at all. But also -- it's not -- so I would say 2 or 3 years ago, it was why should we do it? And I think the pendulum has swung from why should we do it to, gee, well, when can we do it? One thing is that our scale is up a multiple from where we are, where we were in terms of quote request volume. So we're a much bigger, if not one of the biggest partners that they're going to have online. And so that provides some motivation. But I think a lot of providers understand it's better for consumers. It's sort of less friction in the experience. It's going to -- it's essentially free money, right? Again, that provider in Q1 saw a 28% increase in their relevant campaign metric. That's -- if you're running a large campaign, that is a significant amount of money you can reinvest into either bids or budgets in the marketplace at flat cost per sale. So that discussion, that, to your question, which is great. It has really evolved from, oh, why should we do it with you EverQuote to, gee, like let's start getting these projects put in place. I believe or I'm confident, literally all or nearly all of our provider partners are working on a path of integration with us. Obviously, that's sets -- obviously given us confidence in setting that goal of having 100% in Q1. And it's really a lot of just IT blocking and tackling, getting project priorities. These are huge businesses. They have a ton of different priorities. So it's getting that priority. And then it's just an execution, but the entire project typically from start to finish for a deep integration can get executed within a quarter, and we can even start to see some of the returns from that integration in the quarter in a business sense.

All right. And now given that a lot of your other categories right now are still so small, but this, it might be hard to answer. But the auto vertical obviously spent a lot of money in brand awareness for the big carriers with lizards and Fran (sic) [ Flo ] at Progressive and the like. But some of -- a lot of the other categories do not, and they don't have any much brand awareness. Is it easier to get them to sell them on the idea of a marketplace approach? And have they come across faster in doing that?

No, I haven't seen -- I mean, I think what you're getting at is, is there really a different -- do the providers across the verticals approach us differently. And really, no, we haven't seen it. I mean the auto providers embrace us because we provide alignment. And remember, even with all the brands, there is a shopping consumer who's going to want to originate in a marketplace, like we are increasingly being conditioned by the big marketplaces in travel, in e-commerce, Amazon, to go online to do stuff and to go to a marketplace. I don't go directly to -- I don't even know -- to Duracell, I go to Amazon to buy batteries. And so that kind of consumer conditioning is creating entire cohorts that if branded insurance in any vertical branded insurers want to address the shopping consumer, EverQuote is an excellent opportunity to do that. So that, combined with this alignment opportunity, the fact that not all providers want all consumers and not all consumers are going to actually find like even a remotely good price or right coverage with a provider, makes EverQuote versus perhaps some of the folks in travel enduringly valuable. We can bring together consumers and providers in what is a structurally fragmented market, from our perspective. And that's consistent whether you're in autos or wherever, and there is increasingly a growing consumer demographic that wants that shopping experience.

I think we really only have like one minute left, but I want to open it up to the audience for questions. [Operator Instructions] And operator, do we have any questions in the queue? Anyone? Might not using the system? Well, I think -- I don't -- actually, I don't think we have any questions from the audience right now. But then again, this is still a virtual conferences early...

No questions.

We -- no questions at the time. Okay. I -- yes, well, it's also still getting everybody up and understanding that, me included. But hey, Seth, thank you very much for doing this with us today. And...

You're welcome and thank you for having me.

Yes. I hope we'll be able to do this, again, in person sometime in the future.

Look, I'm sure we will -- I'm looking forward to it. Nat, thank you, and everybody, for having me. Truly, it's a pleasure. Be well.

You too.