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

Good morning, everyone. This John Wagner, EverQuote's CFO. I am also joined today by Joseph Sanborn, our VP of Corporate Development. Joining you today, we're going to ham and egg this a little bit because we do not have -- are we -- I'm not sure if we're live. I'm assuming we're live. We don't have our moderator today. So we're going to be joined -- so Joseph and I are simply going to talk about the business a little bit and give an overview of the business for those who have joined us this morning. Joseph, are you there?

I am, John. How are you?

Okay. So first, I guess we'll start by saying that this past week, we had some really terrible news for us personally as well as for the business. And that is we lost our CEO, Seth Birnbaum, last weekend. He died unexpectedly and tragically at his home last weekend, leaving behind a family, including 3 children. So we've had a lot of investors express condolences this past week, and we want to acknowledge that. We are certainly still very much feeling his loss, and Seth will be missed tremendously. Seth was our founder and CEO, who was someone that contributed our vision as well as really helped to build the foundation of both the business as well as the teams that operate the business today. His contributions, especially recently, have been really focused on building the team that is in place today, and that includes Jayme Mendal, who the Board of Directors named over this past weekend to be our CEO succeeding Seth. Jayme is somebody who has been with us for about 3 years. He was formerly our President, and before that our COO, and he was hired and recruited by Seth originally as our Chief Revenue Officer. So he has been with us for about 3 years. Investors don't know him, but they really know his work, that is because he has been the man behind the operations. For the last couple of years, he has been working side-by-side with Seth on the strategy as well as our long-term plan, and he has really been the man at the levers executing on that strategy for the better part of that past 2 years. So we're both very saddened by Seth's loss as well as very fortunate that Seth identified in his own succession planning Jayme as a very natural successor for Seth, and we don't anticipate that Seth's passing will be a disruption to our operations. He will be greatly missed, but we feel confident in both the team that we've assembled as well as Jayme's leadership, and we're expecting that we should not see any interruption in this coming year or even in this quarter. And so I guess I'll pause there. And then with that, we'll launch a little bit, I guess, maybe into just a discussion about the business. We can provide -- I'll provide a little overview of what EverQuote does. And then Joseph can talk a little bit about our addressable market. So EverQuote is a data...

I just wanted to say this is Hasan Ali. I am on. Sorry, I was having some video issues, but hopefully, you can hear me.

Sure. Okay. Sure, Hasan. So John Wagner here, and you've got Joseph Sanborn on the line. So we're happy to launch in. We were just talking about Seth's passing and Jayme succeeding him as CEO.

Yes. Look, I mean we, obviously, heard the news and are terribly sorry to hear that. Please accept our condolences, and I heard you partly sort of speaking about it. So thank you for joining, and thank you for sharing that.

Thank you.

Look, I mean, I think as you kick things off and -- sorry to interrupt again. But look, I think it would be helpful if we get an understanding of sort of the broad trends in the market and EverQuote's strategy around capitalizing on them. Maybe we could -- if you could start at that level and then we can go deeper.

Sure. So I was just going to start with an overview. So that dovetails well into that. So EverQuote is a data and tech powered marketplace, focused around insurance. Our mission is to empower insurance shoppers to better protect life's important assets: their families, their property and their future. We do this by connecting consumers who generally go online to shop for insurance, as most consumers do today, with a set of providers that is aligned with their profile to maximize or optimize the opportunity for consumers to get the right coverage at the right price. And so we do this with a data and tech powered marketplace. We have what we believe is the largest multi-carrier data set regarding individual consumer quotes and lines in their profile. And we use this both to find consumers who are intentfully shopping for insurance online, attract them to our marketplace and ultimately present them with a curated set of providers that best match their profile and get them to multiple quotes quickly. We operate today completely online, but we also make offline connections. Our consumers find us online with that value proposition of searching for insurance. And so most consumers today start shopping online in order to find providers and also to get quotes. And so we help both the consumer and the provider by connecting them.

Got it. Great. Thank you for that overview. So maybe transitioning into the market points and sort of how do you think about the opportunity and the strategy, if you could spend a few minutes on that?

Sure. So we -- insurance today in the United States is a $146 billion market within the insurance distribution category. That's about $130 billion that is directly spent on agent commissions and about $16 billion in advertising. Of that advertising component, about 1/3 of that is spent online by the carriers and agents. And that's the component of the TAM that we touch most directly today, although we both tap into that as well as into agent commissions, both directly, now with our direct-to-consumer agency as well as indirectly because we have agents on our platform. So that $16 million in carrier advertising spend has been growing, is forecast to grow at around a 16% annual growth rate. And that's generally caused by the fact that consumers, by and large, start their shopping online, but carriers are still spending most of their advertising dollar offline. Over time, carriers have been shifting dollars to online sources. And therefore, the dollar amount that is spent online is growing at about 16% primarily due to that shift of offline dollars moving to online. And that certainly is -- has been borne out by COVID as well and probably also accelerated by COVID this past year. So we connect directly with that online advertising dollar and helping consumers find carriers and also helping carriers find online consumers.

Got it. That's very helpful. I mean, look, I think COVID obviously has played out and the theme that we've seen around e-commerce exploration and more digitization. Can you talk a bit more specifically on what has been the impact on your business? And how do you see things as we sort of march towards a vaccine and come out of this pandemic?

Sure. So today, our largest vertical within the insurance -- within our insurance verticals is the auto insurance vertical. So early on when COVID hit, we identified that this was likely to cause a drop in miles driven. And miles driven is a significant -- is the largest driver on claims losses for carriers. So we identified earlier that we thought we would see a decrease in claims losses for providers and, therefore, providers would not see any pressure on their marketing budgets. That's exactly how COVID played out, probably in a way larger than we even anticipated. We saw miles driven by drivers drop about 40% in the early days of COVID. And you, therefore, saw a spike in the profitability of the large carriers. What's that has meant for EverQuote is that the business has continued to have very strong demand from the carriers and agent side of the business all through COVID. And then, of course, due to our delivery model, we're an online marketplace, consumers continue to find us online. And then as you look at consumers with a little bit of -- some consumers focusing a little bit on economics due to the economy and the recession, you also have consumers who are driving more online to shop for insurance, to save money on what is generally a nondiscretionary purchase. So throughout COVID, we were fortunate that our business was largely resilient to the effects of COVID. We were able to continue to guide. And as we traveled through the year and built confidence, we were able to continue to increase our guidance throughout the year each quarter thereafter. So the business has largely been COVID-resistant. We've certainly seen some puts and takes on the consumer side. As some consumers have continued to shop, some have also responded to discounts and rebates coming from providers and, therefore, stayed with their existing carrier. But overall, the business has continued to perform well during COVID. And that has largely extended into Q4. We gave guidance for Q4 that was sequentially up from Q3, which is a departure from the normal seasonal trend where Q4 is often a softer quarter, and a lot of that is fueled by our new verticals but as well by the general strong market for insurance. And we're pleased to say at this point in the quarter with 2/3 of the quarter in the book that we are performing very well. We're very pleased with our performance against our guide so far in Q4.

No. Great. And look, we've been watching your metrics and congrats on the continued growth. I mean you touched on some of the non-auto pieces. How should we think about home, life, health, et cetera, and sort of the mix from a non-auto perspective and your thoughts around that?

Sure. If you go back to our founding back in 2012, we were launched focusing just on the autos vertical. Today, autos makes up about 83% of our revenue this past quarter. But several years ago, we launched home and life as our first new additional verticals. In this past year, we launched renters really as an adjunct to our home vertical. And we also launched health and small business commercial. So that makes up our kind of new other non-auto verticals. Those new verticals have historically grown faster than our autos vertical. We've been able to leverage much of our learnings within auto and leverage much of our teams and our approach from auto in order to apply those to the other verticals. And so they've historically grown faster, and we continue to anticipate that the other verticals will continue to grow faster than our core autos, which has also been growing at a healthy clip. So we're excited about our non-autos verticals both because they add additional growth to the model and they are levers for additional growth and also because they add diversity beyond autos to the marketplace. So today, we operate as truly a multi-vertical insurance marketplace.

Got it. No, it's super helpful. And how does the direct-to-consumer piece, specifically around life and health, sort of fit in, given sort of the extent and the breadth of the marketplace?

Sure. So this past year, we announced our 2 new initiatives related to DTC agency, direct-to-consumer agency. Effectively, what we did was start offering a direct agent experience within our life and health verticals. We started our life verticals through an organic effort. And this meant that we effectively are taking 1 additional step with the consumer down the consumer funnel. So rather than simply connect consumers with a curated set of providers, we can take that next additional step and connect them directly to the product and actually be the agent of record and collect a sales commission on the sale of the product. It's still mostly an asset-light model because we're not becoming either an underwriter or a full-service agency. We're just becoming the sales agent of record. And we launched this within life and also within health. Within the health vertical, we launched it through our own organic efforts. We launched the DTC agency effort early in the year. Within the health vertical, we acquired -- this past September, we acquired a health agency that we have started to integrate into our health vertical. So we've done this both organically and inorganically. It really gives us the benefit of taking 1 additional step in improving consumer experience within those verticals and also aiding us in increasing the amount of personalization within those verticals. So we think there's benefit both to the consumer, and for us, it allows us to tap directly into the commission dollars, that $130 billion TAM that is still spent by the carriers in commission spend.

Got it. No, that's super helpful. And from a consumer's perspective, I mean, as they go through the journey of picking the right quote, I mean how is their user experience different when they go through sort of the agency model versus they go direct?

Yes. So we -- it was no coincidence that we launched this new DTC agency within health and life. Those are 2 verticals that are mostly -- the distribution mostly takes place through independent agents that work with a set of carriers. And so for a consumer to come through, we're able to offer that consumer more product choice. In many cases, we're focusing on consumers that are underserved or not well served by our current coverage within our marketplace. It's consumers that are coming through and requesting quotes and either not getting quotes on the products they're looking for or not getting a full set of quotes. And we're able -- we're always targeting coverage within our marketplace and trying to add additional coverage by adding additional carriers and agents in order to give consumers the broadest array of products. But this allows us really a lever to directly influence what products are offered to consumers because we can design products, work with carriers to directly address consumers that are underserved. So for consumers coming through, it really just broadens the amount of choice and the number of quotes that they would get coming through our marketplace. And it also allows us to increase the amount of personalization and control the consumer experience right down to the policy bind. So again, we think it's really advantageous for both us as well as for the consumer as we take that consumer a little further down the funnel getting to the purchase.

Very helpful. And I mean, look, I think, as we think about sort of the integration with the carrier universe, I think one of the goals was to get back to 100% over the course of the year. Can you share any updates on that progress?

Sure. So what we've talked about is a goal within our data integrations with carriers. And just to step back for a minute and talk about what data integrations are and why we think they're important, data integrations are the amount of data that we pass to carriers when we hand a consumer off for quoting and the amount of data that the carriers actually use in quoting that consumer. So what we set as a goal is that in 100% of the cases, we'd like to see the carriers take the data handoff, the information that we've collected about the consumer, and that they can use in quoting that consumer. They take that data handoff and they use that to get to the consumer -- get the consumer to a set -- to their quote in a more seamless, more frictionless fashion. So we set an aggressive goal of getting to 100% of carriers integrated on our platform. We were pleased last quarter, we announced that we had reached 72% of carriers integrated on our platform, and that also equated to 92% of our referrals going out through, what we define is, a deep integration, meaning at least 8 data fields that the consumer is -- that the carrier is accepting and prepopulating into the consumers' quoting experience. So in many ways, we think we've already met the spirit of that goal, which is to improve the consumer experience. When we increase the amount of data that's passed with the consumer, we're getting the consumer to the quote more quickly that also has the benefit of improving the close rate, anywhere from 10% to 40% based on the level of integration for the carrier. And generally, when carriers see an improved close rate, based on the consumers that we refer, we also benefit because carriers generally set their referral bids within our real-time auction based on their expected close rate. So when we improve their close rate, they are bidding to a cost per sale, and we generally see that benefit in them being able to pay more for a referral based on the expected performance of that referral. So we think integrations are really virtuous for all parties in the marketplace. And that 92% now of our referrals going out through a deep integration, we think we've moved the ball significantly on the consumer experience. But we would also say that it continues -- we're going to make -- we're going to continue to make improvement through the end of the year, and we'll announce the final year-end number on our next call. But we also look at data integrations really on a longer horizon because, ultimately, our goal is to get the consumer 1 click or 1 call away from their quote by using the data that we already collect today that allows carriers and agents to target on consumers, but also use that in the quoting process to get consumers that much closer to their quotes and deliver really value for the consumer that gets reflected on both the referral pricing as well as on the bind rate for the carriers.

Yes. That makes sense. I mean, look, if we -- look, obviously, great initiatives and great successes here. As we take a step back, I mean, how should we think about the competitive environment and how that has changed your perspectives on how 2021 is going to shape out?

Yes. So 2020 has really been marked, especially within our autos verticals, by very good demand. And so generally we've seen everyone who plays in the online space with insurance do very well in 2020. And obviously, we're no exception. Also in 2020, we saw a lot of new entrants to the public markets that come through -- that represent kind of the new wave of insurtechs, folks like Root or SelectQuote or even someone like Lemonade, folks that all worked with us on our platform. And so in many cases, we welcome these new entrants that are coming often with a differentiated and new approach to insurance often as a carrier and often as a carrier who is very targeted on a certain type of consumer that they serve. And so these type of insurtechs -- many of them are already on our platform by the time they get noticed by the larger market and really are -- really good examples of the value proposition that we offer to carriers and that is a lot of these new models are looking for new customer acquisition. They're very focused on a specific type of consumer. And the primary benefit for our carriers is we allow them not only acquire consumers, but also acquire consumers in a very targeted fashion. We let them target on all of the data that we collect from a consumer that's necessary to quote the consumer, but also it plays into the pricing and underwriting preferences for that carrier. So for those carriers who are looking for a very specific type of consumers, which many of these new insurtechs are, we allow them to target very specifically on that type of consumer. And therefore, they're often very efficient and strong users within our platform. So we've seen a lot of buzz within insurtech this year, including the launch of several new public companies. Generally, we've seen this as a very nice positive for our marketplace and helping both consumers and carriers and connecting them.

No, it's a great validation for the industry. Look, being cognizant of time, I mean, the folks who want to send their questions through the portal, please feel free. And just sort of quickly transitioning to -- on the more -- on the financial side of the house. I mean, clearly, great initiatives. You guys have done an acquisition. You're pushing on all cylinders. How should we think about the balance of growth and profitability, especially in light of all the great things that you're doing?

Sure. So we have a long-term model that sets out our goal, which is to grow the business 20% more -- 20% or more on the top line, and that's a number that we've exceeded. Recently, our CAGR is well into the 30s in most recent periods. And at the same time, we also are looking to expand our adjusted EBITDA margin at least 1 to 2 points per year. So really the way we think about our financial profile is as both a growth and expanded profitability story. We will continue to grow the business on the top line basically as quickly as we can, provided we do so profitably. And for us, that really means managing to Variable Marketing Margin. Variable Marketing Margin is our margin of revenue less advertising dollars, and we'll spend on advertising up to the point of marginal efficiency. So if we can spend $1 on advertising, we'll do so provided it returns more than $1 in revenue. And that's really our greatest governor to growth because we want to grow the marketplace in a profitable fashion. So we've talked about growing the business 20% or more on the top line. Today, we operate on that VMM margin at something approaching 33%. We've said that we expect to grow that Variable Marketing Margin approximately 1% per year. And then with regard to adjusted EBITDA, that 1 to 2 points or more in expansion per year really comes from efficiencies within our operating categories that's balanced with new investment that we're making across those operating categories as well. So probably the best example of that this year is DTC agency. That's the agency that we launched within life, internal agency that we launched within life or even that we're expanding through our purchase of Crosspointe. In both cases, we're doing that and funding those kind of operational investments, while at the same time meeting our goal to expand adjusted EBITDA. Last year, we were approximately 3% in adjusted EBITDA. This year, we've guided for approximately 5%. So just at the higher end of our long-term range of guiding -- of performing at least 1 to 2 points of additional adjusted EBITDA per year. So we think we can deliver both profitability, increased profitability as well as growth, and we think we can do that and make sure that we're not leaving anything on the table in terms of a really large market opportunity as well. So we think it's the right profile for us. And ultimately, in the long term, we think that profitability on an adjusted EBITDA basis can be in the mid-20s, and we're providing a consistent path -- an incremental and consistent path to prove that out.

Awesome. And I mean -- look, I mean, I think building on the Crosspointe acquisition, is there any perspectives on sort of how you think about any areas where there could be opportunities for M&A?

For M&A, I'm sorry?

Yes.

Sure. Joseph, do you want to talk about M&A?

Sure. Thanks, Hasan. So when we think about our M&A strategy, it's similar to how we thought about Crosspointe, which is really a way to accelerate our organic efforts. And so as we -- very much our approach on M&A is the idea of, think about our current strategy in ways where it may be faster to do it through an acquisition as opposed to just building internal as we did with life. So you'll see us continue to look at opportunities and we're active doing so.

Yes. And I'd just add that as we think about our growth levers, we think about the core blocking and tackling, building the marketplace, which is adding more providers and more coverage and also adding more consumers, growing the number of quote requests, which is the metric that we disclose about consumer -- intentful consumer traffic. And then we also think about adding new verticals and new products. And so I think just to echo what Joseph said, which is when you look at our M&A strategy, with Crosspointe being our first acquisition, you can look for us to very much focus on those same organic growth levers and potentially look at jump-starting those efforts through M&A. And that's really what we did with Crosspointe. Our acquisition of Crosspointe, we're very excited about because we thought we found a health agency that was albeit smaller in scale was fully formed. It had relationships with the carriers. It had a sales process. It had strong execution. And most of all, it had a leadership team that was a good cultural fit. And to date, we've been very pleased. Even though we only closed on that acquisition in September, we're very pleased with how the integration has gone to date. Very much Crosspointe is becoming simply an extension of our health vertical and an additional level of monetization within that health vertical and additional choices for our consumers, additional carriers on our platform. So I think that's a really good example for our first acquisition.

I appreciate it. Look, just in the last minute here, 1 last question for me. I mean this is something that I'd like to ask management team, especially in the environment that we're living. Any management principles that have helped you sort of guide the business in this pandemic from a culture standpoint, from a hiring standpoint as more and more folks are working offline and have less of the human connection that we had a year ago.

Yes. So we've been very fortunate through COVID. Again, our business has been resilient to COVID, but also our operations have been resilient to COVID. This is a company that really launched in 2012. So our technical backbone is all built on SaaS products and based on the cloud. So our transition to going remote was largely seamless. I think we've all been impressed by what our teams have done, especially our people ops team in terms of transitioning to onboarding folks remotely. We've had the benefit -- again, because of the -- our business operations in this past year, we've been able to stay on our hiring plan. And if anything, our hiring landscape has improved tremendously because many of the companies in our area that we compete with for talent are not hiring the way they are. So we're finding a lot of success in hiring technical folks and engineers, which are often the hardest folks to target because we're able to continue to hire through this time as well as our kind of new remote posture allows us to open the aperture a little bit on the geographies that we look at. So we're able to look across the country in terms of finding new talent. So I think we've been both fortunate on the business side as well as on the team side. And our team has done a great job. I think, again, if you have to give credit where credit is due, a lot of that came from Seth's focus really on building the foundation and the management team. I think he understood early on that great companies really only scale with great management teams. And so he built -- he did an awful a lot of work in the last couple of years, and you'd see that through our press releases in adding leadership. And I think that's really paid off for us this year. So we've done a lot of things internally to help folks with the transition to remote. And that's really been quite successful for us.

Well, good. John and Joseph, thank you again for your time and really sharing all the highlights and dealing with the situation. So thank you again. Unless there's any closing remarks, we would be happy to assist you later.

Yes. Sure. Thanks, Hasan. I appreciate that. I guess we would just say in closing, again, we're going to touch on the fact that we did lose Seth. We are very much mourning his loss, and our heart goes out to his family as well as his kids. At the same time, I think Seth has left us with an incredible foundation in the business. We're very fortunate to have Jayme, who is really a seamless transition to CEO, having worked the last 3 years side by side with Seth and really been in charge of our operations for the last couple of years. So I really go back to that point and say that we're feeling confident about the transition. We are feeling confident, both in the long-term and Seth and Jayme having worked together on the strategy. And really, Jayme being the guy that's been in charge of implementing that strategy in our operations, and that is both in the long-term and right down to the current period in which we feel very confident in our results this quarter and very confident in the guidance we gave at our last earnings call. So we are mourning Seth, but also looking forward to continuing his legacy within the business.

Yes. No, we're terribly sorry, but we're eager to see all the great things that are ahead to carry on Seth's legacy. Thank you, again. Really appreciate it.

Thank you, Hasan. Appreciate it.

Thank you, Hasan.

Thanks.