EverQuote, Inc. (EVER) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, and thank you for standing by. Welcome to the EverQuote's Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I will now turn the call over to your first speaker, Brinlea Johnson of The Blueshirt Group. You may begin your conference.
Brinlea Johnson: Thank you. Good afternoon, and welcome to EverQuote's second quarter 2021 earnings call. We will be discussing the results announced in our press release issued today after the market closed. With me on the call this afternoon is Jayme Mendal, EverQuote's Chief Executive Officer; and John Wagner, Chief Financial Officer of EverQuote. 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 2021, our growth strategy and our plans to execute on our growth strategy, key initiatives, including our direct-to-consumer agencies, 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 and planned acquisitions, and interest or ability to acquire other companies, our goals for integrations, and other 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. It should not be considered our views as of any subsequent date. We specifically disclaim any 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 and our annual report on Form 10-K, 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. A reconciliation of GAAP to non-GAAP measures was included in the press release we issued after the market closed today, which is available on the Investor Relations section of our website at investors.everquote.com. With that, I'll turn it over to Jayme.
Jayme Mendal:
John Wagner: Thank you, Jayme, and good afternoon, everyone. I'll start by discussing our financial results for the second quarter, provide a brief overview of our recent agreement to acquire PolicyFuel and conclude with guidance for the third quarter and our updated guidance for the full-year. We are very pleased to report strong second quarter 2021 results with performance above our guidance range for revenue, VMM and adjusted EBITDA. Our revenue for the quarter was $105.1 million, an increase of 34% year-over-year and building on last year’s strong growth in the comparable period. Revenue in our auto insurance vertical increased to $86.4 million, a growth rate of 34% year-over-year, which reflected a healthy demand in our core vertical from both carriers and agents through the period of COVID reopening in Q2. Revenue from our other insurance verticals, which include home, renters, life, health and commercial insurance increased to $18.7 million, a growth rate of 36% year-over-year and representing 18% of revenue. We continue to attract high intent more valuable consumers, which fueled a 34% increase in revenue per quote request year-over-year, while quote request remain flat at 6.8 million. Looking ahead to Q3, we anticipate some moderation in carrier demand for acquisition of new insurance consumers, but we believe we will maintain much of the improvement we have made in monetization. We expect revenue per quote request to moderate slightly in Q3 from Q2’s record levels, while continuing to grow modestly on a year-over-year basis. We also expect the volume of consumers coming to our marketplace to emerge as a significant driver of revenue with an expected mid-teens year-over-year growth rate in quote requests in Q3. This is consistent with our expectations expressed in prior remarks that we believe consumer volume and monetization will both contribute to our year-over-year growth in the second half of 2021. We delivered second quarter variable marketing margin or VMM, which we define as revenue less advertising expense, of $32.8 million, an increase of 40% year-over-year, which exceeded the high-end of our guidance range provided last quarter. As a percentage of revenue, second quarter VMM expanded to 31% up from 30% in Q2 of last year. Notably, consumer acquisition costs captured in cost per quote request were significantly higher this quarter, reflecting a more competitive online advertising landscape, but we are outpaced by growth in revenue per quote request resulting in our margin improvement this quarter.
Operator: And your first question will come from the line of Ron Josey from JMP Securities. Your line is open.
Ronald Josey: Great. Thanks for taking the question. Jayme, I wanted to follow-up on your comments around the volume of quote request being less relevant here. And then John, we heard the guidance for mid-teens growth in 3Q. But specifically on being less relevant, can you talk about how EverQuote has succeeded in just focusing on high intent customers, I think was the commentary, which may lead to just call it, consistent QR growth going forward? And then following up from that, earlier in the year, we talked quite a bit about the verified partner network. And so Jayme, can you just talk a little bit more, how that's coming along and how that's impacting QR growth? Thank you.
Jayme Mendal: Sure. Thanks Ron. So the way that we're evolving our thinking on traffic and quote request in general is really optimizing increasingly for the outcome for the thing that we get paid for, which is the placement auto policy with carriers. And to the extent that we can drive higher quality and more favorable outcomes with less arrivals and fewer quote requests, those are trade-offs that we're willing to make. And so examples of actions that we've taken that might result in this were increasing the granularity with which carriers can bid on traffic to target for certain new characteristics and intent levels that they weren't able to target for previously. The net result of this has been for them to increase their bids or pricing on certain subsets of our traffic and decreased pricing on other subsets. And as that flows through our bidding into the traffic landscape, the net result is meaningfully higher monetization, but on lower growth in quote request volumes, and those are trades we're comfortable making because it improves the ROI for the carriers and improves their performance, and improves – and it drives our overall growth and wins us more and more budget as a result. So that's one example. Another example is with increasing attention on an investments in the data and the technology that matches each individual consumer to the right set of options for them and through the tightening of that routing, again, we're able to drive up performance and downstream bind rate, which improves the provider performance. And so that's our ability to improve modernization on a given quote request level. But the general thrust is towards focusing on the policy sale, the outcome, which is what the customer cares about on both sides of the marketplace, and as a result, focusing less on the raw volume of quote request or referrals. To the second part of your question, Ron, the verified partner network, it continues to grow. We launched the new products into that program in the first part of the year. And so the first part of the year was focused very much on building and launching a product. Those are in market now. We've had some good reception from both sides of the marketplace. And as we begin to now operationalize and scale, we expect that to account for some of the increased growth rate in volume in the second half of the year.
Ronald Josey: Got it. Thank you.
Operator: And your next question will come from the line of Cory Carpenter from JPMorgan. Your line is open.
Cory Carpenter: Hey. Thanks for the question. I had two. I wanted to circle back to a comment you made, I believe, on anticipating some moderation in carrier demand for customer acquisition spin. I think that was more of a general industry comment. Hoping you could talk a bit more about some of the drivers on what you're seeing there? And then maybe secondly, last quarter you talked a bit about unifying the health and life DTCA kind of under one leadership team. Just curious any lessons learned there and how you're thinking about integrating PolicyFuel with those two existing businesses? Thanks.
John Wagner: Sure, Cory. I'll kick that off with regard to what we're seeing around pricing and monetization. We're certainly coming off of the very strong quarter for monetization in Q2. We saw record levels of revenue per quote request and strong demand coming from carriers and agents even as we went through reopening. That said, we're coming off of a year of an increases in modernization. We do anticipate some moderation in monetization and in revenue per quote request. And we think that as we return to kind of a more of a normal scenario in terms of our autos vertical, we've certainly been the beneficiary of some surplus profit in the past year through COVID. We expect that we will start to see some normalization and some moderation in monetization. But certainly, we're going to maintain much of the monetization that we've gained over the past year. So what we've really reflected is some slight moderation and against a still a fairly competitive traffic backdrop landscape within the traffic side of the business.
Jayme Mendal: And Cory, I can address your second question. So yes, we made the decision to unify the health and life direct-to-consumer agency platforms and operations earlier this year. As we integrate PolicyFuel, I think the view right now is that there are certain sort of platform elements that will accrue efficiency to any agency operation within EverQuote that will migrate to shared infrastructure that may include things like data systems, technology recruiting and other sort of elements of the operation. And so where we don't see a benefit of having the vertical or market-specific expertise, I think you’ll see us move in a direction of building a more scalable platform that can be leveraged across any type of insurance product. But where we do perceive benefit and specialization, whether that's in carrier relations or into sort of agent and sales operations themselves, we'll continue to maintain a separate management for those parts of the business. And so the going-in view is through the integration, certainly PolicyFuel will continue to operate largely uninterrupted and then we'll begin looking at the different platform elements that we'd pull in to the more unified structure.
Cory Carpenter: Thank you both. Very helpful.
Operator: And your next question will come from the line of Jed Kelly from Oppenheimer. Your line is open.
Jed Kelly: Hey. Great. Thanks for taking my question. Just a couple – just one on the competition that you're seeing for traffic. Can you talk what's driving that? Is that more companies receiving more investments? And then just on PolicyFuel, can you provide like an example, in checks or some context on how that'll benefit some of your larger agency carrier or larger carrier partners?
Jayme Mendal: Sure. Hi, Jed. Thanks for the question. I guess, I'll take the first part and talk about what we're seeing on the traffic landscape. We're continuing to see the competitive landscape for insurance-related traffic and advertising. I’d say, we're also seeing probably some influence on some of the general sources of traffic that are less insurance specific from other industries as they pivot back into digital advertising. So even something like travel, I think, has some effect on the overall kind of CAC landscape for us. So we're seeing a bit of a combination. Insurance stayed strong through the pandemic, insurance-related advertising, and I think we're seeing some uplift from just the general online digital advertising now that we're fully into reopening.
John Wagner: And Jed, I can take the second question. So PolicyFuel operates – we're referring to as a policy-sales-as-a-service model, where they have dedicated thoughts of advisors or agents that compliments our marketplace and provide the value added service of taking the referral and actually binding the policy on behalf of the carrier. And so for existing carriers, the benefit would be two-fold. The first is one-off performance. So in many cases, EverQuote through and with PolicyFuel will be able to apply our technology, our process, our data to sell more effectively and drive improved performance on the referrals that we're sending them. And then secondly, capacity, so when carriers are running into capacity constraints, this can be a relief valve for them to enable them to scale beyond whatever their capacity will allow internally. The net result is going to be more profitable policies coming from EverQuote going to the carrier. The other sort of category of a carrier that will benefit though is even in addition to our existing carriers, you've got a whole bunch of carriers in the market today that have not yet really cracked the nut on acquiring customers through digital channels, right. They're carriers, they maybe regional carriers that distribute through local independent agents. And that's what their business model is set up to do from a distribution standpoint. However, they have great insurance products for a ton of people, but historically, we have had less success with those carriers because they're not set up operationally and with the technology to get performance out of the referrals we send them. And so by extending the service to carriers like that, we feel we're going to be able to unlock a sort of an incremental segment of the market that has historically not participated in a meaningful way in the digital marketplaces.
Jed Kelly: Got it. And then as a follow-up, I think, John, you mentioned or Jayme, you mentioned, during open enrollment for healthcare, you want to be up 3x. Is that on revenue and how much revenue was from open enrollment last year? And then as you build out your DTC capabilities with more agents, do you plan to provide total bookings or total policies written and the total commissions you're generating?
John Wagner: Sure. So what we said with regard to our expectations around open enrollment in Q4, we expect our health DTCA revenue to be up at least 3x, that's our plan as well as our agents servicing that as well. So it’s significant, and that speaks to a little bit what we've talked about in the past, which is a bit of a new seasonal pattern that we see emerging, which is a strong Q4, where Q4 is traditionally weaker on the auto side of the business. We think that our investment in health makes Q4 a seasonally strong quarter for the business on the whole. And we are considering kind of what metrics we provide in order to give some insight into this open enrollment. So I'd say, stay tuned on that, we expect to update you.
Jed Kelly: Thank you.
Jayme Mendal: Thanks, Jed.
Operator: And your next question will come from the line of Michael Graham from Canaccord. Your line is open.
Michael Graham: Thank you. Could you just maybe talk about the sort of growth rates that you expect to see between auto and your other verticals? We've seen the growth rate sort of coalesce here over the last few quarters. And just wondering do you expect that to persist or just maybe any comment on the general health of the auto vertical? And then kind of building on what Jed was asking, can you just talk a little bit about the investments you're making in DTC into open enrollment are mostly agents and sort of hiring ahead of some of that volume? Can you talk about how you think about the payback or the return on investment for an agent and how good are you at sort of bringing those folks on and gain in productive?
Jayme Mendal: So there are a few questions in there, Mike, I'll try to do my best to cover everything. But let me know if we missed anything. In terms of the auto, non-auto split, historically non-auto has outpaced auto. You sort of mentioned that the coalescence in this most recent quarter. Our expectation is that over the long-term, non-auto will continue to outpace auto. Right now our focus are sort of near-term high as confidence path to drive non-auto growth back up to levels that we've seen historically is through the health and Medicare markets, so therefore, we're really focused on investing and preparing for, and then executing through the Q4 open enrollment period. And we do expect that that will have a meaningful impact in restoring the growth rates that we're accustomed to seeing. With respect to that investment, I'll skip to what I think was kind of your third question there. We obviously have data on the performance of the agents that we hired to date. And so if we go back and just kind of walk through the arc of our health and Medicare direct-to-consumer agency, we launched the health and Medicare marketplace in 2019, we acquired Crosspointe in September of 2020 and we had about a month to integrate and kind of ramp for OEP last year and we did so successfully and profitably. And then that build some confidence that the market opportunity could support much more aggressive growth this year, it also build confidence in the leadership team to execute into that opportunity. And we've since complimented that leadership team with some experience from places where they're accustomed to the level of scale to which we aspire, which is thousands of agents over time. And so we hired Garett Kitch from eHealth, who managed a big part of their sales operation. As he's onboarded, we pulled forward some of the investment and growth there. And I think we have a high confidence that the scale will come and the profitability will come based on both the experience we had last year as well as the experience of the team, the Crosspointe team and Garett and the rest of the leadership team.
John Wagner: Mike, I want to add a little detail on the first part of that as well, just to add with Jayme’s comments. So we expect non-autos to continue to grow faster than autos certainly in the second half of the year, but obviously in Q3, the growth rates will be closer between autos and non-autos, and then going into Q4 where we put the investment and where we believe that the growth engine for non-autos this year is around health. We'll see growth rate significantly outpaced auto in the fourth quarter versus the third.
Michael Graham: Great. That makes a lot of sense. Thanks for the extra color there, John. Thanks, Jayme.
Jayme Mendal: Thanks Mike.
Operator: Our next question will be coming from the line of Ralph Schackart with William Blair. Your line is open.
Ralph Schackart: Good evening and thanks for taking the question. Two questions, if I could. First on the open enrollment reinvestment. Do you have any associated incremental revenues associated with that contemplated in the revised 2021 outlook? Doesn't really look like it on our end, but just wanted to ask that. And then secondly, how should we think about these reinvestments? Are they, one – is it one-time in nature? We're just really trying to staff up more agents here in 2021, or could it be something that you'll contemplate on a yearly basis given the performance of how you assess this current reinvestment? Thank you.
John Wagner: So I'll take that Ralph. So with regard – maybe the second part first. I would say if you think about the expense that we've added it really in two buckets. One is the pulling forward of resources into Q3 to make sure that we are ready for Q4 and that we are ready for open enrollment. I'd say the other component of expense is the foundational expenses associated with the health DTCA. I'd say neither one of them really are ones that that scale as revenue scale. So there are more foundational expenses to either pulling expenses forward or foundational expenses. And then I would say the first part of that is what has happened as we've moved through the year and as we've refined our plan around health as we've really added to our conviction around what we believe is possible with a health DTCA. So I'd say what we've ratcheted up is our confidence around health DTCA contribution in Q3. And as we've outlined, we've said now that is a tripling of revenue over Q4 of 2020.
Ralph Schackart: Okay. That's helpful. Thank you.
Operator: Our next question will be coming from the line of Mayank Tandon with Needham. Your line is open.
Mayank Tandon: Thank you. Good evening. Jayme, maybe just to start with the policy-as-a-service. Is there a way to parse out how big that opportunity is versus say your core lead gen model, if there's a way to do that? And then what is sort of the growth dynamic within that segment of the market relative to, again, your sort of core lead gen revenue model?
Jayme Mendal: So Mayank, thanks for the question. One way to think about it is the policy-sales-as-a-service, while it is a value-added service, it does enable us for the – really for the first time in P&C to tap directly into the $135 billion of commission in the total addressable market. And so I think to the extent that policy-sales-as-a-service, as we expect it will deliver high performance at or above what the carriers can do themselves. We expect it'll unlock quite a bit more budget. It's really hard to quantify, but the vast majority of the dollars in the value chain lives in that slice of the pie, lives in the commissions, which we are now tapping directly into.
Mayank Tandon: Got it. That’s helpful.
Jayme Mendal: The only other thing I'll add Mayank is, and the – what I mentioned earlier that we believe policy-sales-as-a-service will make participation in the marketplace possible and performance for many carriers that really can’t drive performance today. So they have great insurance products that we want to connect with our consumers, but because they can't get performance out of an Internet-originated referral, they don't participate. So in addition to getting more wallet share and deepening partnerships with our existing carriers, we have an expectation that we'll be able to unlock a new segment of the market and begin building relationships where they don't exist today.
Mayank Tandon: Okay. Got it. Thank you for that. And then just as a follow-up, I wanted to ask about just M&A in general, and maybe more broadly capital allocation. John, you did Crosspointe, that seems to have been a successful deal. And then, I know you're going to focus on digesting PolicyFuel for now. But how are you thinking about M&A in general? Are you seeing more attractive opportunities in the market? Or is it just way too expensive right now to kind of buy something in insurtech? Maybe broader comments around M&A approach and then capital allocation in general? Thank you.
John Wagner: So I think we’ve been pretty consistent in terms of how we've talked about M&A and how we've executed on M&A. And that is, we've seen M&A as really an opportunity for us to grow along our stated growth levers and potentially to do that faster than we would organically. I think you definitely saw that with Crosspointe. You’re again seeing that with PolicyFuel as well. So it really is an opportunity to look at things that we were planning on doing anyway and see whether or not we can accelerate our growth or entering into a new area through M&A. So I think you would expect it for us to continue to look for opportunities along that line. And I think you've got two good representative acquisitions in Crosspointe and PolicyFuel.
Mayank Tandon: Great. Thank you.
Jayme Mendal: Thanks Mayank.
Operator: And your next question will come from the line of Ben Rose from Battle Road Research. Your line is open.
Ben Rose: Thank you and good evening. Jayme and John, as part of the open enrollment initiative going on in the third quarter, how many agents do you plan to bring onboard in the quarter in order to execute on that?
John Wagner: So what we've said is we're more than tripling agents in Q4 as compared to last open enrollment season. And that puts us over 100 agents.
Ben Rose: Okay. And in general in looking at the margin structure of the PolicyFuel business, how does it differ if at all with EverQuote in general?
John Wagner: Yes. So one of the reasons we're excited about DTCA in general is that it's not just a growth lever, we think of it as a margin lever as well. It is, we expect higher VMM margin as we go deeper with the consumer in terms of the value of the transaction, and then over time as well, we expect it to be a higher EBITDA business as well. So we think it's both unlocking growth as well as margin potential.
Ben Rose: Okay. Great. And if I may, just going back to the comment earlier, fully understand why you would want to be optimizing for revenue per quote request based on the outcome. Are there – but in speaking about the third quarter, it does look like you're looking to increase the number of quote requests. Is that from an execution standpoint? Is that simply a matter of optimizing in your model to increase the number of quote requests that are being given out to the different agencies? Or is there something more?
Jayme Mendal: It's a function of a couple of things. I'd say the primary one is in Ron's question about the verified partner network. We have launched new products into that market. We've enrolled some new partners into the program and I think we're moving from piloting into operationalizing and scaling with a number of these partners. And we think we have confidence that as a result that we’ll start to drive up the volume through those partnerships.
Ben Rose: Okay. Thanks. That's very helpful.
Operator: And that concludes our Q&A. I would now like to turn it back to the management for closing remarks.
Jayme Mendal: Thank you. Well, thank you all for joining us today. We're pleased with our strong Q2 performance and we're excited by the steps we're taking to accelerate progress against the strategy, most notably building the foundation for a multi-vertical tech and data-enabled direct-to-consumer agency platform. We're confident in the outlook for the remainder of 2021, and we're laser-focused on our vision to become the largest online source of insurance policies by using data and technology to make insurance simpler, more affordable and personalized. With continued execution, strength of our team and increasing clarity of focus in our strategy, we are energized to continue building EverQuote into an industry-defining company as the $2 trillion insurance industry moves into the digital age. Thank you all so much and have a great evening.
Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.
