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

Yes. It's been about -- the 5-year CAGR is 29%. Our long-term model is that we believe we can grow the business 20% or more well into the future. We have growth levers, not only in building the marketplace the way we have primarily organically. All of our growth is organic until this past year where we did a small acquisition. We recently announced another acquisition. But by and large, all of our growth has been organic. And that's been really 2 ways, either just blocking and tackling and building a two-side marketplace, attracting more consumers and adding more carriers and agents on the other side is our distribution. And also by growing these new verticals, being able to take the approach that we did in auto and expand out to home and life, health, small business, commercial, that's been very successful in adding growth as well. So multiple growth levers that give us confidence to be able to maintain that 20% or more growth rate.

And maybe, John, while you're on the topic, maybe talk a little bit about profitability and that trajectory?

Yes. So that really dovetails well into our long-term model. What we talk about is growing top line 20% or more, but also adding profitability over time into the business. We went public with a negative adjusted EBITDA. Today, we operate around 6%. We have a long-term model that says, as we grow top line, we will also grow profitability, adding at least 1 to 2 points to adjusted EBITDA over the long haul. And we've been largely successful doing that. We've made some incremental investments this year that will make our EBITDA just slightly up over last year. But if you look at our period since being public, we've performed at the high end of that range or above in terms of adding profitability, but also investing in the business for top line growth. So for us, it is a balanced growth. It's growing top line, not making sure that we don't miss a large opportunity with insurance and that movement of advertising from off-line to online, but also we show a path to profitability and ultimately to our long-term margins, which we believe are adjusted EBITDA in the mid-20s that the business is capable of.

Any other key metrics that you might want to touch on kind of puts you...

So yes, so I would say we have a north star in the business. If you really break down how we manage the business, that is around Variable Marketing Margin. Variable Marketing Margin is revenue plus advertising expense. And it really represents our first-level return on our advertising dollar. This business is -- we attract consumers to our marketplace primarily through paid online means. And so tracking the efficiency of our advertising is very important. And then it's really how we manage the business. So we manage the business for incremental variable marketing dollars. And that means that we will spend money on growing revenue provided we can do so profitably. So providing -- provided that when we spend on advertising, we are doing it in a way that incrementally gives us contribution toward our other expenses. So we are committed to growing revenue top line, but doing so with incremental profitability. And for advertising, that comes down to Variable Marketing Margin. And we manage that, although we've seen that go up in terms of a percentage of revenue over the last 5-plus years, we manage that for -- in absolute dollars. So we -- the governor for growth of this business is, can we grow the business, but can we grow it profitably on an incremental advertising basis. And that's why VMM is our key metric in how we manage the business.

And where is the VMM now and maybe where was it a couple of years ago?

Yes, it was -- it is -- now we operate in the low 30s. If you go back to our pre-public days, we were in the late teens. So again, we manage for BMM in absolute dollars. So we don't manage to a margin percentage. But generally, as we've managed for efficiency and for incremental contribution dollars, we've seen that margin move upward over time. And that's what we expect to happen. We think there's leverage within our advertising line and that ultimately, that growth of VMM as a percentage of revenue is part of how we get to adjusted EBITDA in the mid-20s, and we have the track record of showing that growth over the last -- over the -- about 8 or 9 years since our inception.

And last key numbers metric that I'm interested in. So how big is the company in terms of staffing? And how big does it get over the next few years? Or are you kind of a stable point? Or does the staffing need to grow a lot?

Well, we are just now making investments within a new distribution source category or channel for us. And that is the direct-to-consumer agency where we have first-person agents that can take a consumer all the way from their initial inquiry all the way to a bound policy. So that means that we are adding employees and adding agents. We are approximately 500 employees today. And many of the ads that we have talked about this year, some of our incremental resources we've invested in the business, have been focused around direct-to-consumer agencies, specifically within our health vertical and adding employees, licensed agents that will represent EverQuote through the open enrollment period for the annual health shopping period. And so that's been a source. So we are adding employees. Right now, traditionally, that's been on the data and technology engineers side. We've got a focus right now on investments in direct-to-consumer agency as well.

And do you think this kind of base G&A could actually give you some leverage as well?

Against -- leverage against G&A or spend?

Yes, its revenue. Yes. So it sounds like your G&A will kind of be pretty stable as well. I mean, go down as a percent of revenue pretty regularly as well.

Yes. We believe there's a couple of sources. When you talk about getting to that long-term adjusted EBITDA and how we've been able to grow our adjusted EBITDA while we've been public, really been 2 sources. One is that leverage against advertising expressed in VMM, but the other is leverage across all of our operating categories, and that has included G&A. Our investment within the operating categories is largely a decision as to where we are making investments for future growth. So when we talk about a steady path to profitability, that's because we are making trade-off decisions between where we make investments and how much of the leverage that we are seeing in the business, we allow to flow to adjusted EBITDA directly. So we do believe there's leverage against all of the operating categories in a digital marketplace like ours. And we're just being careful to make sure that we're also investing for future growth and showing profitability.

Got it. And just to kind of wrap up the TAM part of the equation. What about international? Is there -- what is EverQuote thinking about internationally at this point in time? And what are you doing?

Sure. So international would certainly be an opportunity for us. And there are certainly countries that have insurance industries that look a lot like the U.S. where I think our model would be applicable. In fact, there are countries where their insurance industries are already more online than they are in the U.S., where online pricing, online binding is more available in markets like the U.K. So there's -- there are opportunities for us. They're a little more -- they're probably more in our future given the size of the U.S. market, given the fact that, as Jayme mentioned, over $150 billion within insurance in both advertising and distribution spend, commissions and advertising. And those dollars largely off-line and shifting online, we think that opportunity is significant for the business and enough for us to focus on in the medium term. But ultimately, international is an additional opportunity and additional level of growth. But right now, I think our plate is full and well served by the U.S. market with the dynamics and its growth.

Who do you consider to be EverQuote's key competitors? And how does the value proposition differ, EverQuote versus the competition?

So you can look at competition a couple of different ways. I mean, we get a lot of questions about competition for consumers. And for -- competition for consumers, believe it or not, the folks that we see on the advertising landscape are generally our customers, their marketplace, participants, all of our carriers generally run their own online advertising, marketing campaigns for the carrier. So you'll often see them on paid word searches, you'll see them online. Really for the carriers, EverQuote represents a more granular targeting and a more specific ROI cost per sale than carriers can get through their own general online advertising. As a marketplace, we can make sure that they get only the type of consumers at the cost per sale or the efficiency or the ROI that they're looking for. But surprisingly enough, it's really -- the competitive landscape for consumers is really dominated by the carriers themselves. And EverQuote tends to see consumers who are more interested in a shopping experience rather than answering a specific brand message, they're looking to get multiple quotes on an insurance shopping experience. If you look at the other side of the marketplace, the distribution side, there are other distribution players, some of which were public, like a MediaAlpha or LendingTree with an insurance vertical. I'd say we each have different approaches to insurance distribution. And we certainly don't feel that we are competitively constrained. We feel like not only this is a massive market, but it's a mass market that is moving online. Auto insurance digital spend is growing 16% per year, probably by one of the lower estimates. And that is not a reflection of just advertising growing. That's dollars shifting from off-line to online where the consumers are already shopping for insurance. So there is basically the industry shifting to online somewhat late to the party, but that's where the consumers are, and that's where the dollars are shifting. So we don't feel like we are competitively constrained because it is such a large and growing market. We feel we make the analogy to -- we are fishing boats on a very large ocean and it has more to do with how we execute against the opportunity, how we fish from our boat versus how they are fishing. It's just a very large market and a growing market. And I think no doubt, there will be many players that do well.

Interesting. I mean, it does seem to me that EverQuote is on a very unique fishing boat. Are any of the other digital players similar to EverQuote or is this something very unique to EverQuote?

The unique aspect for EverQuote really goes back to our founding story. We were founded by a couple of MIT guys and that was not by chance. This has always been a very data and technology-centric business. So if -- we are an insurance marketplace, but when you peel back that onion, you find really this is a data and tech company that happens to be aimed at a very large market within insurance. And that has always been our differentiator, which is using data and technology throughout our marketplace to make acquisition of consumers more efficient and to also optimize how those consumers find the right insurance with the right providers, how we basically align those consumers to the providers on our marketplace. We use data throughout that process, everything from how we find consumers to how we value the consumers in our advertising, how we bid against them for advertising placements, all the way to where consumer, we believe, is going to most likely to find the right insurance based on their profile and based on our data, based on profiles similar to theirs that have been through our marketplace in the past. So we know not only what your behavior is going to be. We also know where you're most likely to find the best deal on insurance for the best coverage for your profile. And so that's always been the idea of running a consumer marketplace that is fueled by data and technology has always been our -- it's our founding story to tell to our differentiator.

Awesome. I know we're coming up on the hour, but I was just very curious about this recent acquisition of Policy Fuel. And if you plan to do any further M&A as you move forward?

Sure. So Policy Fuel is a -- operates in property and casualty, some in P&C insurance verticals. They provide policy sales as a service offerings that enables carriers to basically complement their own call center operations with access to dedicated adviser teams that exclusively sell their products. So Policy Fuel earns revenue based on policy sold. And for us, it gives us access to that $135 billion commission pool more directly. The way this fits into our strategy is, last year, we really kicked off a set of initiatives to enable us to capture more of the economic value of these transactions. And we launched our direct-to-consumer agency platform to do that, again in health and life insurance. This is now the extension into P&C and sort of completes our process of developing a multi-vertical, data and technology-enabled agency that complements our marketplace and helps fill in some gaps in that marketplace. So we think it's ultimately going to allow us to deliver better buying experiences for consumers and improve performance for providers. And for us, it's going to -- that will manifest in higher monetization, higher value and higher margin for the business over time. So we're very excited about it. I do believe -- I think the second part of your question was around M&A plans. John mentioned we did our first acquisition in 2020. That was a health and Medicare-focused agency. This is now our second. Again, we view M&A as basically just a tool to accelerate progress against our strategy. I think given the success of our first acquisition and what I'm sure will be a successful second one, we are increasingly viewing this as an important tool to do just that, to accelerate our strategy. So where we find opportunities that fit the bill, and we believe will meaningfully accelerate us a year, 2 years, 3 years down an important vector of the growth plan, we remain open to further M&A.

I took you 2 minutes over the hour, but you certainly seem like you've got an amazing team, strategy and business model. And it's been a pleasure talking to you and hopeful we'll keep the dialogue going.

Thank you.

Thanks, Andrew. Andrew has already gone. Take care, everybody. Thank you.