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

Ladies and gentlemen, thank you for standing by, and welcome to the EverQuote JMP fireside chat. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ronald Josey at JMP Securities. You may begin.

Great. Thank you, Lindsay, and welcome, everybody. So I'm Ron Josey, I cover the Internet sector here at JMP Securities. I'm happy to have on with us this morning, EverQuote's Co-founder and CEO, Seth Birnbaum; and CFO, John Wagner. I'm going to read a few compliance disclosures off first. Actually, we're going to start with Brinlea reading the disclosure, then I'll read one, and then we'll get into some questions. So Brinlea, I'll hand it off to you.

Good morning, everyone. During the call, we will make statements related to our business that may be considered forward-looking statements under federal securities laws, including statements concerning our financial guidance for the third quarter and full year 2020, our growth strategy and our plans to execute on our growth strategy, key initiatives, our investments in the business the growth levers we expect to drive our business, our ability to maintain existing and acquire new customers, our recent acquisition and our interest or ability to acquire other companies, our goals for integrations and our statements regarding our plans and prospects. Forward-looking statements may be identified with words and phrases such as we expect, we believe, we intend, we anticipate, we plan, may, upcoming and similar words and phrases. These statements reflect our views only as of today and should not be considered our views as of any subsequent date. We specifically disclaim our obligation to update or revise these forward-looking statements, except as required by law. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained under the heading Risk Factors in our most recent quarterly report on Form 10-Q, which is on file with the Securities and Exchange Commission and available on the Investor Relations section of our website at investor.everquote.com and on the SEC's website at sec.gov. Finally, during the course of today's call, we refer to certain non-GAAP financial measures, which we believe are helpful to investors. Reconciliation of GAAP to non-GAAP measures is available on the Investor Relation section of our website at investors.everquote. With that, I'll turn it back to Ron. Thanks, guys.

Great. Thanks, Brinlea. And I've got 2 more for more compliance just to read the disclaimer. JMP Securities currently makes some market in the security of EverQuote, Inc., and JPM Securities expects to receive or intends to receive compensation for investment banking services from Everquote, Inc. in the next 3 months, I guess. So 1 more housekeeping note. We'll open up the call for questions here in a bit, but always feel free to e-mail questions if that's easier and Lindsay will tell us and ask over the phone. But if it's easier, feel free to e-mail me at r.josey@jmpsecurities.com. So okay, with that, Seth and John, welcome. Thank you for joining the call today. I wanted to start this call off with some word associations. But first off, you know, Seth, how are you? John, how are you?

Great, Ron, thanks for having us, and we keep trucking during these extraordinary times, and I appreciate you and everybody joining us from wherever they are in these days. So appreciate it.

Great. So we'll get into some more detailed questions. But just to break the ice. Word association Seth, John, first thing that comes to mind. Auto and home insurance is, and if you can just fill in the blank first thing that comes to mind.

Some resilience for sure -- oh.

[indiscernible] You go ahead, Seth.

Yes. I might go first. I would say that it's been resilient largely because it's not discretionary purchases, continuing to trend strongly, and we'll get into some of those details and just really beginning to pick up steam and the shift of sort of insurance shopping, for sure from offline to online. And now I'll let John go.

And I would just add that it is still an area that is unlike shopping for other things online is still somewhat complex and in consultative in nature, and that's why it does lend itself well to kind of online exploration as well as being supported by offline agents and experts as well as people shop for that.

Right. Okay. That's a lot of 1 word, but very helpful for a backdrop, that's going to help save time later on to. Okay. Newer products launched. So direct-to-consumer, DTC is: blank, 1 word, Seth.

One word. Well, choice, choice. Improved or increasing consumer choice.

Good. Okay. And then...

Ron, I would say, if I'm playing by the rules now, I would say, I'll give you 2 words, an exciting opportunity.

Yes. Great. Okay. Tech integrations are?

Progressing well, let me just say this, increasing monetization.

Got it. Okay. Bundling is an opportunity that?

Improves customer experience.

Got it. Okay. And now this maybe more fun one. Peloton?

Fantastic product.

Yes. Okay. John, anything there?

Never been on one, surprisingly.

All right, it's helpful. Okay. And then last one, and listen, we'll get into some questions here. Just profitability?

Increasing.

Okay. Perfect. Okay. So that's really helpful to this broader understanding and setting the stage here.

So we have a bunch of questions set up, and I definitely want again to get into direct-to-consumer and bundling and the core business. But Seth, I wanted to kick off just starting about -- when you ended the quarter, well, last we heard with 2Q results, QR growth was impacted a little bit with some social unrest. July, I think you said rebounded. Can you talk about what you're seeing sort of thus far? Not just in QR growth, but if possible, anything overall in the business, that would be great?

Sure, Ron, happy to. So July's momentum continued through August. So we've seen sequential consumer volume growth as well as year-on-year growth in consumer quote request volume. And that's actually been combined with sequential and year-on-year increase in monetization or revenue per quote request, which has also been quite strong. And so now, even though we're performing well against some strong prior year comps, we are also growing in excess of our long-term model. We continue to gain share versus the overall shift of the insurance spend online. And it's important to remember for our business that we're focused on driving both revenue and VMM and that our marketplace drives top line growth through volume and monetization. And that monetization is a combination of both provider coverage and pricing, and this will play out, I think, in our discussions today around DTC. As expected and as we said, into Q3, certainly through August, we've seen a more balance between consumer quote request growth as well as expanding monetization or RPQR this quarter. And we've also been successful at continuing to drive higher converting traffic, which we expect will further increase our provider coverage and support that reoccurring revenue we see from carriers as well as the overall efficiency of our advertising spend. And again, so for us, what's exciting, while the comps are significantly higher in the back half of the year, the prior year comps, Q3, I think, last year was up nearly 80%. We are seeing both a strong increase in consumer volume and monetization through July and August this year. And that balanced combination isn't just driving strong revenue, it's also driving strong variable marketing margin dollar growth and delivering strong unit economics which is reflected in our VMM percent operating point, which is trending above both Q1 and Q2 of this year through July and August of Q3. And we do expect monetization to continue to stay strong, driven by elevated provider demand, progress with integration, which, again, we'll dive in to, I'm sure in the next few questions, and show what our growth initiatives that we've discussed, like the agent calls and increased targeting services like smart campaigns and enhanced bids. So the team continues to execute well and despite a sort of difficult external environment. We're making good progress in both quote request and monetization, giving us a lot of confidence in our guidance and a strong back half despite not just the external environment, but also elevated ad spend in an election year. And finally, for us, right, what's exciting is from an investment-shareholder perspective, our market data and research indicates that we're really at the early days for both consumer demand and provider budget and coverage with multiple -- with basically a multiple of upside for consumer volume. In autos, which, as you know, it's sort of our longest tenured vertical as well as our newer verticals from where we operate today. So a lot of upside, it's going to continue for us to be an execution story and really excited about continued progress we've made since our last call.

Got it. So there's a lot to unpack there and great to see the momentum continue. I think you -- so I think you said July's momentum continues into August. And let's talk about consumer volumes up sequentially and year-over-year. Maybe can you talk about seasonality? And is that something -- I feel like 3Q should all -- has, at least the last several years have been up sequentially. So maybe if you could provide just a little more detail, just given the magnitude of the comp here on just the QR side of it, in terms of, okay, you saw a little bit of dip in end of May, early June, you said July and August better. Should it be better anyway sequentially or like how should we think about that relative to sort of what is has been historically?

Sure, and that's why -- historically, sure, and that's why I think the year-on-year comp is also important. So typically, we see, especially in autos, historical seasonality dips a bit in Q2 and then Q3 is stronger in Q4, at least for auto is more modest. That being said, we have bucked those trends from year-to-year just based on secular growth and execution in the industry. And I think, again, what's exciting for us is we've seen sequential growth in volume and monetization and also year-on-year increase in volume and monetization for July and August.

I'm sorry, so year-over-year increase in revenue per quote request as well?

Yes. Exactly.

Okay. And just maybe, John, on the guidance, I think the guidance for revenue per quote request was up sequentially. Is that a fair comment? So maybe a little bit better? Because up sequentially, you didn't necessarily need to grow that year-over-year. Is that a fair comment?

Yes. I think we gave commentary that the quarter we expect it to be kind of a blend between increases in revenue per quote request and as well as volume. I'd say revenue per quote request has continued to expand going through August. So I would say, given a little extra time, that's where we're seeing a little strength in the business revenue per quote quest. Some of those -- some of that increase can be -- you can start to link that to some of the work we've done on integrations as well as the strong carrier backdrop that we're operating in, but we are seeing that play through. So we have good confidence in the quarter, and we're gaining confidence on the year and the out-year as well.

Okay. That's helpful. So I was going to go in and talk about DTC and Crosspointe and bundling. I want to stick on just sort of the core business that that's okay for now. And I guess I'm getting some questions here. We definitely have a guidance range that you provide. We're not -- are you updating guidance here? Or just the trends are continuing to be positive, I think. Is that a fair comment?

Yes. Just giving a little -- we gave some view into the quarter at the time we gave guidance that we've seen good momentum in July. Really, we're just continuing to see that really play out in August. And I would say, consistent with that is really -- we've seen it really on the revenue per quote request side, which we expected, but it's -- that's trended a little better than even we expected. So that's where we are really on the quarter.

Okay. That's very helpful. So Seth and John, you mentioned quite a bit just what are things that are driving this improvement really throughout the year, but here, specifically in the shorter term, or at least more recent history. So integration was one that was mentioned several times, and we've been tracking that. And I think in 2Q, the comment was 66% of partners are now deeply integrated. Just any insights on conversion rates, maybe carrier receptivity of just these deep integrations that you -- that have now been learned were, call it, 9 months, 8 months into this 66% penetrated. Tell us about what you've learned and how the carriers are adapting?

Sure. So our data indicates that for a deeply integrated partner, we will expect to see, call it, if you want, monetization improve anywhere from 5% to 10%. What's just as important, right, you're also improving that customer experience. And we have seen, certainly, on-site conversion rate trend upwards over time as well. And so one of the more exciting things we have to report, Ron, probably the first time we've shared it is we've consistently focused on deep integrations, obviously, by carrier volume, by the higher volume of referrals we're making to particular partners. And as a result, what we're seeing now is roughly 80% of our referrals by volume are going to carry us via deep integration and getting that incremental lift in conversion rate and thus, monetization and bid rate, right? If that conversion rate flows through, you'd expect to see a proportional increase in RPQR. And again, we believe that's what's contributing, that 80% referral by volume that are roughly 80% that are going out through these deep integrations are contributing to that strong RPQR, that continued strength in monetization.

Got it. So we're seeing better conversion as deeply integrated. And talk about the hurdles historically you've been seeing with integration. I'm assuming you're well on your way of getting that 100% bogey that you talked about earlier in the year, but are there any barriers to getting that 100%? I mean, now you have full on data saying how things are going with integration. Is there tech -- anything that could sort of interrupt this progress?

No. It's just -- I mean, for us, it's just a matter of timing and it's a foregone conclusion. These are IT projects. I mean, again, because of our scale, I mean, I think over time, it does become a competitive moat because literally, every provider we work with is either integrating with us or wants to and that's relatively rare. I don't know that there's many companies that are getting this level and depth and breadth of integration, and again, right? So we do have some smaller carriers who are stragglers, but they want to do it, and it's really about just giving them the tech support, the engineering and integration support to get it done. But what we have achieved is that 80% by volume. So by sequencing and prioritizing the larger referral volume partners and making sure we shepherd them through the process, we basically have been able to maximize the benefits of customers and the benefit to EverQuote to cover us over time or maximally, if you will.

Got it. Okay. That's very helpful. We'll come back to integrations. Maybe...

But so [indiscernible] we can here, Ron, every single carrier on the platform is wants to do it, working through it and is in our queue and plan to execute again.

Yes. That makes a lot -- I mean, it makes a lot of intuitive sense and great to see the progress here. Let's see. So I wanted -- we'll come back to carriers and definitely quote requests and whatnot as we go on. I wanted to make sure that we touched earlier on in this call, if you will, on just the direct-to-consumer opportunity and Crosspointe. And specifically, maybe talk to us higher level about why EverQuote is focused on D2C? And then secondly, on the acquisition, what are you getting with Crosspointe? I know it's on the health side, but why does an acquisition make sense versus building up organically, which is I think the team has done with the life. So maybe just talk bigger picture, what is the DTC opportunity now that Crosspointe has closed -- insights on what the business is and how you view it going forward?

Sure. [indiscernible]. I sort of feel like I have to hew a little bit to word association. So ultimately, for us, DTC is about consumer choice. We bring all these consumers, we attract and we have a ton of technology and expertise to do that to attract consumers to our marketplace. But we don't have enough products for them to choose them. Basically, it compresses monetization, right, because they're not able to purchase a policy through us. So there's a benefit to the consumer from DTC in so far as for certain segments like health and such as life, you can actually increase choice by being appointed directly with carriers. And then you can still provide -- by the way, a bulk of our agents will remain, and we expect to remain partnered agents, contracting agents, right, won't be employees of EverQuote, but still be IAs and partners through our marketplace. We still will be an asset like that and tech company. But by increasing product selection with the DTC areas, think of it, Ron, as it's just putting products into our shelves for folks who are already coming through and increasing provider participation. We actually drive a better customer experience, right? So there's more selection, more choice, higher probability of the consumer being able to buy a policy, we drive higher monetization. I'll give you a couple of data highlights on this, but I think are just incredibly exciting for the initiatives. And in the vertical and vertical segments where we have DTCA, we, by nature, support this very same integration you were talking about. We support full click-to-quote or bind or policy purchase both online or offline in these DTCA experiences. And so what we've seen in our life data, which you've mentioned, we built out organically is a 3x increase. So a 3x increase in RPQR for the segments that the DTCA life products basically represent. So when we have a consumer that matches to 1 of these DTCA products, we derived 3x RPQR essentially from the DTCA experience versus just the referral experience. And we do expect similar performance via our integration of Crosspointe. So the acquisition includes, for example, direct relationship, just as the Crosspointe had built over years. And these carrier relationships do take time as we demonstrate with autos, where we knew we have 19 of the top 20, but that took us years to develop. So the acquisition of Crosspointe and the integration includes direct relationships with UnitedHealthcare, Anthem and Humana and essentially expands our direct health carrier coverage by more than 10x. And so again, in our life vertical, we saw RPQR expand dramatically for the direct-to-consumer agency segments we're serving. We do expect or we believe that the Crosspointe integration will give us that same monetization improvement in the health vertical. And so we do -- we think that we're very well positioned with an improved experience, higher RPQR going into open enrollment and we will also diversify and grow the company's revenues by accessing the commission, another access point for that $130 billion of commission that is a component of our TAM.

This is -- yes, very helpful as we get more information. Maybe, Seth, if you can logistically just walk us through how this might work. I love the comment around we have enough product to choose. We don't have enough product to choose from DTCA, I guess, helps to bridge that gap. So I thought this might be more for underserved or unserved folks, but maybe talk about just the logistics of how this might work if you're from a consumer perspective.

Sure. Consumer comes in -- and I'll use the sort of maybe the simplest example from health care. A consumer comes in looking for Medicare supplemental or similar. Consumer comes in looking for a simplified issue, final expense product or a guaranteed term. Those are both life insurance products that have lower face value, great products, a lot of consumer demand. And essentially, we will be able to connect the consumer with agents in our platform who represent the product. We'll be able to quote, and in some cases, bind online or off-line with that agent assist. And those partner agents connect with us seamlessly. That as the consumer is handed off through an EverQuote interface, they have all the product training to provide to sort of represent those Medicare or life products, and they can close those products basically in our platform, and we will derive the commission revenue. Now we will still partner, by and large, with agents to do this, sort of what we're calling an on-demand agency network. But we will have very tight integration with the product. We'll be able to quote and perhaps find online. The offline handoff to the agent will be seamless. They'll be well, sort of, versed in the product to assist customers to complete their purchase. And yes, ultimately, right, we're covering segments like life simplified issue, guaranteed issue products that are very underserved in a lot of markets.

Got it. Okay. That's very helpful. And then on Crosspointe. And by the way, we'll open this up to questions here shortly. I think maybe, Lindsay, can you remind everyone how to ask the question, is it start one? And Seth, we'll get back into the flow here in a second. I just realized, I don't think we gave instructions first.

[Operator Instructions]

Great. And so we'll break for question in a second. Just as a quick follow-up Seth. Very helpful to understand the consumer flow a little bit more. Talk about Crosspointe, if you will, now that the acquisition is closed. Why Crosspointe? Maybe talk about just the headcount here. The feedback we get all the time is does this a pivot on asset-light versus not? Just talk a little bit more about why the acquisition and how you see it playing out?

Well, first of all, these are -- it's a data-driven agency. They cover a broad range of health care products for -- we had, I would say, a fair portion of -- we were able to successfully drive health traffic in our last OEP. And we saw again that we had a lot of underserved or what we call sort a non-service segments of our health traffic and Crosspointe breadth of product coverage was really dramatic, right? That's how come they're bringing so many carriers to bear as we connect them up in our marketplace, right? Again, that 10x expansion of health care coverage was really dramatic. The other thing is they're high integrity, they have good cultural fit, data-driven. They are tenacious, they largely built their agency bootstrap, and we fully expect to remain asset light. I mean one of the nice things is the DTCA initiative we built out in life supports largely IA and partner agents, right? We expect to have more independent agents, independent contractors on the platform over time as it scales than employees, and it's a tech and data platform that enables that flow of, hey, you're a particular type of consumer that matches with these specific products, let's hand you off seamlessly to a partnered agent even if it's under EverQuote's agency of record, right, even it's under our appointment. And the agents can really come in and we can increase that provider inclusion. It is not some -- we're not pivoting the model or transitioning to -- we're not thousands of employee agents. It really is using the technology, and we believe we can actually bring that same platform we're using in life agency to bear on the health agents as we scale Crosspointe. So what they really did was pull forward our access to great products, industry know-how, they're incredibly high integrity representatives for the health care industry. We knew them because they were a long-term customer of ours, built that relationship over time. And I think, ultimately, that cultural fit, that resonance between data-driven, tenacious, bootstrapping team plugged into our marketplace platform with our traffic, accelerating that revenue per quote request, allowing us to build these more integrated experiences in health with full integration to purchase a policy and create that agency support with all the carrier appointments, I think will be a game changer, at least for -- we'll significantly accelerate our health care vertical, and it was a really nice fit. Everything they did we didn't do and vice versa. And finally, I do want to emphasize, Ron, because it's important. We fully expect to be asset-light and use the same or on-demand agency technology that we used in life insurance to scale the health vertical, not just at employees.

That's really helpful. And maybe one last comment. We'll move on and open the floor to questions. Did you expect more acquisitions like Crosspointe as you go through different verticals? Or is this something that's let's see this and then figure it out as we move on?

Well, I think we're going to be very consistent. What's important for us, right, is that we are confident we can achieve our long-term business model growth to organic and M&A, we'll continue or we'll look to it to accelerate our opportunities. So from that perspective, again, Crosspointe was perfect. And so far it takes n amount of years to build these deep relationships with health carriers. They've built them and now together, we can scale the health vertical in the marketplace. We're not going to give again any specific detail on what our plans on it. We will stay disciplined. We'll learn as much as we can through this acquisition and work on making it as successful as possible, but we will look to M&A to accelerate our growth levels, right? So we'll look for traffic or consumer demand, deepening consumer provider engagement, certainly, Crosspointe help us doing that and distribution, expanding distribution, which Crosspointe also did. It certainly hit 2 of our 3 levers, and we will continue to look for M&A opportunities to accelerate any one of those 3 levers for sure.

Got it. Okay. That's very helpful. Lindsay, is there -- are there any questions on the line?

We do have a question from the line of Andrew Boone, and please state your company.

This is Andrew at JMP. I just had a question just in terms of -- you guys talked about 80% of volumes now having deep integration. I'm just hoping to kind of isolate autos as we think through that. And can you talk about kind of the monetization level on auto specifically? And kind of how that's trended, to help us better understand kind of the benefit of increased integrations kind of on the platform. Does that make sense?