Q1 2020 Earnings Call
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I'd now like to hand, the conference over to your Speaker today really Johnson the Blueshirt group. Thank you. Please go ahead.
Yes, good afternoon, and welcome to Evercore first quarter 2020 earnings call well be discussing results announced in our press release issued today after the market close with me on the call. This afternoon, it's Jeff Birnbaum, Evercores, Chief Executive Officer, and co founder and John Wagner, Chief Financial Officer I've ever thought.
During the call we need statements related to our business that maybe considered forward looking statements under federal securities laws, including statements concerning our financial guidance for the second quarter and for your 2020, our growth strategy and our plans to execute on a gross strategy. He initiative our investment in the business the growth levers, we expected driver business, our ability to maintain existing in acquiring new customers.
Our interest their ability to acquire other companies our goal for integration and other statements regarding our plans across that we're looking statements maybe identified with words and phrases such as we expect we believe me intent, we anticipate the plan may upcoming and similar words and phrases.
These statements reflect our views only as of today it should not be considered I've used as any subsequent date, we specifically disclaim any obligation to update or were dies. 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 could differ materially from our expectation.
Actual results may differ materially front as indicated by these forward looking statements as a result of various important factors, including uncertainties with respect to become a 19 pendennis and the matters discussed under the heading risk factors in our most recent annual report on form 10-K, which is on file with the Securities and Exchange Commission now available on the Investor Relations section of our website and investor.
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Finally during the course of today's call, we refer to certain non-GAAP financial measures, which we believe are helpful. For investors a reconciliation of GAAP to non-GAAP measures. What's included in the press release issued after the close of market, which is available on the Investor Relations section of our website at investors that Evercore dotcom with that let me turn call over to Scott.
Thank you brinley. Good afternoon. Thank you everyone for joining us today.
Our company much like most of the country has adapted to shelter in place brought upon by the Kelvin 19 pandemic.
Hi, Foster with all the individuals and businesses impacted around the world and we extend our heartfelt. Thank all of the healthcare workers first responders and other essential employees for their self whatsoever.
Throughout this crisis, we have been and remain dedicated to the safety of our team our families and partners as well as our broader community.
We are vigilant in cautious during the rapidly shifting market dynamics brought about by Coven 19, we're fortunate that our company is in a strong position.
Our online insurance marketplaces, demonstrating flexibility and resilience as consumers continue to go online to shop 'n save on insurance, a non discretionary expense for the vast majority of auto home and health insurance consumers.
Insurance industry remains healthy with personal lines insurers showing strong financial performance, resulting in a number of our distribution partners, increasing bid and budget since shelter in place began.
Our employees were able to smoothly transition to work from home given that the foundation of our businesses. Our proprietary distributed data platform and extensive use of cloud based services for our products and systems.
Our resilient business model continues to benefit from the network effect and the power of our marketplace for connecting insurance consumers and provider, resulting in strong financial performance and we are raising our full year guidance, which John will detail shortly.
Quickly touching on our first quarter result, we're pleased to report we exceeded expectations across all of our key financial metrics year over year revenue increased 56% and variable marketing margin one of the primary metrics for managing our business was up 72% year on year.
And we continue to expand adjusted EBITDA on our path to profitability consistent with our model. We believe the changes forced by Coven 19 made benefit our business by accelerating the shifts online in insurance our business continues to be strong and we remain confident in our long term model before talking.
In more detail about the first quarter and progress on key initiatives I want to address the dynamics of our business and market in the face of the cobot 19 outbreak.
During this unprecedented period I've been humble and inspired countless times by a dedicated and talented employees, who smoothly transition to serving our customers and partners remotely we have adopted our business with a focus on maintaining a highly engaged in collaborative genes dynamic through such efforts as daily operating stand up.
Across our operating teams weekly companywide town halls, and daily one on one project team chicken, we're pleased to see our teams productivity remains strong eight weeks into shifting remote our business model and operational efficiency also benefit from our proprietary bid to buying data technology flexible cost structure cloud.
They service architecture data and reporting infrastructure as well as established distributed communication tool and business process.
During this period, we have had no layoff no furloughs and no reductions in our employee salaries, we continue to add to our talent base as we remotely onboard new team members.
I'm also impressed by and thankful for our agent and carrier partners, who have shifted to remote operations and continue to partner with us to grow their business as efficiently as we execute on our mission and work to deliver exceptional service to customers throughout this crisis truly. Thank you. It's an honor to work with all of you during these chat.
Plunging time.
From a market perspective, we are fortunate that the insurance industry remains healthy our largest verticals auto and home insurance are benefiting from fewer claims being filed as consumers are staying home and driving less due to nationwide stay at home order. This has resulted in many carriers publicly reporting strong profitability for Q1 and passing through.
Savings on to consumer.
Based on what we're seeing in our marketplace. Some carriers are now investing more in online customer acquisition as we believe they are leaning into incremental profitability in their business and driving up new premium volumes, which may have moderated in the second half of March in the immediate aftermath of the shelter in place decision. In addition, we continue to see.
Both consumer demand and provider budgets remain strong and our vertical both for auto and not auto early indications are that the impact from any moderation in premium in the personal lines insurance market are being outweighed by increased profitability, which we believe supports continued investment in acquiring consumers.
Particularly in large efficient online channels, such as ours, a similar dynamic is occurring on the agency side of our business, where we believe coven 19 is creating a relatively favorable environment for evercore. After shifting to remote operations. We are seeing increased demand for our consumer referral from agents in our mark.
Good place and many agents are leaning into the transition from offline to online customer acquisition with some growing spend and reporting increased productivity. Some captive agents are also receiving coven 19 release packages from their cars, which can help support their marketing effort.
On the demand side of the marketplace, our offering provide consumers who are belt tightening in a weaker economy, an opportunity to shop and save on the largely non discretionary expense of insurer. We are proud of the feedback we receive from consumers such as one who recently shared with us that ever quote has helped us narrowed down which ensures the.
Look for I like that it's a one stop shop you go to one place and put in what you're looking for this is more helpful than trying to navigate all the different insurance companies that are out there on our own which would have been very time consuming the same coverage a number of vehicles, we save $1400 per year our survey.
Agents, who purchased insurance through our marketplace indicate the consumers realized an average savings of $610, which we estimate has resulted in aggregate savings of billions of dollars for millions of consumers, who bought insurance through our marketplace, which is especially important now.
While we saw some moderation in consumer shopping volume in late March and early April.
We are seeing evidence the carrier support for consumers and agents as well as government stimulus efforts are positively benefit in consumer demand and that the performance of our channel for providers is reflected in increasing bids or pricing to evercore.
Based on initial indications, we expect that the impact from any moderation in consumer demand will be offset by the benefit of a relatively more favorable environment for advertising costs.
During Q1, we continue to invest and execute across our growth levels.
Growing provider coverage and budget, attracting more high and thank consumers through our marketplace and deepening consumer engagement, resulting in an increasing conversion rate, while also growing and expanding across insurance vertical our traffic teams are executing well and growing consumer volume delivering an 80% year over year increase.
And consumer quote request volume in Q1 year on year. We've also been successful focusing on channels that bring high intent consumers, who are marketplace and improving the workflows to enhance conversion.
Non auto verticals, which consist of home and renters life health and commercial insurance revenue increased 90% year over year as we benefited from the network effects of our marketplace and from our targeted investments in growth in our home vertical for example, we are testing and implementing features that dramatically improve the.
Areas increase conversion and lead to better partner outcome. While these improvements are consumer focus our provider partners are receiving even more accurate and precise data than ever before leading to you or projected referral and more accurate filtering through aligned with their desired consumer profile.
We also continue to add more providers and deepen our relationship with existing carriers and eight this quarter more than 95% of revenue from care came from those who have been on our platform for more than a year.
Our agency business grew its revenue by 62% over the prior year, adding over 1000, new agencies to the platform and increasing revenue from our accelerated growth program or AGP, which consists of our larger agents by more than 30% since the start of the year. An example of our successful partnership with our AG.
Agents is John he started his agency from scratch seven years ago, and turn to Evercore to achieve rapid profitable growth John shares at Evercore help them grow as business by 600 policies per year, a substantial percentage of which are for more profitable multi line and longer term consumer.
At the beginning of the year I listed three primary initiatives for 2020, let me provide an update on each one first we established the goal of completing deep integrations with 100% of our carrier by the end of 2020 to improve the customer experience and find rate port policy purchase rate.
Integrations create a more efficient marketplace, the less friction for consumers and provided delivering better customer experience.
One of our top five carriers for example, recently launched a deep prefill integration wherever quote populated over 20 data fields onto their online outflow. This prefill reduced the need for the consumer to reenter information to get a quote in the carrier reported that the integration directly improve performance on the.
Applicable campaign CPI by 28%, we understand that this leads to greater efficiency for the carrier a better consumer experience and higher performance for Evercore at the ended the first quarter. We're over halfway to our 2020 goal was 56% of our carrier partners deeply integrated and we continue to me.
Make steady progress.
Second we continue to build our engineering and data science capabilities as we seek to better leverage our large and rapidly growing data set of consumer and carrier preferences to drive consumer satisfaction and operating leverage we're creating unique experiences for each consumer profile and cost effectively testing, which approach best improves relative performance.
This past quarter, we added a number of great higher to our talented and growing data Sciences and machine learning engineering team and with these resources, we have launched significant ml automation to customize and improve many aspects of the customers journey.
Which brings us to the third key initiatives team building, we have been successful hiring new talent, while developing current talent to support growth scale and innovate during Q1, we expanded our team and hired a record number of new engineers in the quarter, we have experienced minimal attrition and are attracting onboarding developing.
And retaining employees successfully as we scale, we continue to higher and we have seen tailwinds in our engineering Tech and data talent recruited some of our recent senior hires include David Brainerd as head of engineering, who joined from Wayfair Lipar IPO as head of insurance data services, who joined from Amazon and.
Hey, good Munich as head of performance marketing from trip advisor.
Given our large and growing market, we believe a major lever for continued growth is building our team.
In summary, we delivered a strong first quarter with solid execution across our verticals are key revenue growth drivers coupled with our disciplined approach to managing our operations led to strong financial results and cautious optimism even in the light as the macro environment as our country is that so what we expect to be for long periods of social distancing.
We believe that the pandemic will accelerate digital transformation any insurance industry, which has been a laggard moving online.
We feel very lucky and are grateful to be in a strong sector and in the opportunity for ever quote to be in a dominant position as insurance continues to shift online.
Evercore, we will continue to evolve refine and weve the elements of our growth in strategy together and work to increase value for customers expand our business and maximize shareholder value over the long term will be smart data driven and flexible cognizant of how challenging this crisis is but we remain.
And optimistic on the year and beyond.
I would like to thank our customers our partners and our shareholders for believing in our vision for your ongoing support I'm honored to work with his team that we continue to bill and have the deepest gratitude for their dedication and hard work in these unprecedented times I'm, especially appreciative of our people off.
Team, who have been our unsung heroes in this period there countless efforts have enabled each employees to remain productive and supported we believe we will ultimately emerge a stronger company and have set the stage for future growth and profitability now I'll turn the call over to John to provide more details on our financial results.
Thank you set and good afternoon, everyone I Echo sentiments wish everyone to divest during these unusual tax.
I'll start by discussing our financial results for the first quarter of 2020 provide some additional explanation as to how cobot 19 is impacting our financial performance and then provide guidance.
We're pleased to report strong first quarter 2020 results across all of our key financial metrics exceeding our revenue variable marketing margin and adjusted EBITDA guidance provided last quarter.
We delivered first quarter revenue was $81.4 million up 56% year over year.
We continue to achieve strong growth auto insurance vertical and even greater growth in our newer other insurance vertical which includes home Enrichers life health and commercial insurance.
First quarter revenue auto insurance vertical increased to $67.6 million a growth rate of 50% year over year.
First quarter revenue from our other insurance vertical increased to $13.7 million, our growth rate of 90% year over year and this represents 17% of revenue.
We delivered first quarter variable marketing margin or VMM, which we define as revenue less advertising expense of $23.8 million, an increase of 72% year over year, which exceeded our guidance provided last quarter.
As a percentage of revenue first quarter VMM expanded to 29.3% up from 26.5% in Q1 last year, an increase of nearly three percentage points.
The VMM expansion this quarter resulted from attracting more consumers to our marketplace lower acquisition costs and with better unit economics.
Once again in Q1, our growth was driven by a significant increase in the volume of consumer shopping for insurance in our marketplace.
In the first quarter, we delivered an 80% year over year, increasing consumer quote request to 7.4 million.
As we had anticipated and discussed last call. This substantial increase in the volume quote request was accompanied by a 14% year over year decline in revenue per quarter request to $11, a one cents per quarter.
Although there are various contributing factors to revenue per quarter request the volume of request to Austin, the most influential as our insurance providers for volume in our marketplace auction.
Large increases in consumer volume in a given quarter outpaced insurance provider coverage and or budget, resulting in our marketplace monetizing less referrals purported class, which is what we saw in Q1.
While revenue and cost per call requests are metrics that provides insight into the dynamics of the evercore marketplace. It's important to recognize that we think of them as outputs of our efforts, which are primarily focused on growing variable marketing margin dollars said another way success in consumer traffic.
Temporary outpaced marketplace distribution, resulting in lower monetization of individual quote requests on average this is not a concern as we also realizing greater proportionate reduction advertising cost per foot request with the 17% reduction year over year $7 of 78.
Sense in Q1, our increased volume yield additional variable marketing margin dollars again result that we primarily target as well as an expansion of variable marketing margin as a percentage of revenue.
It's important to note that our reduction in cost per quarter request was largely driven by our efficiency performance and the market for online advertising and less by the influence of coded 19 in Q1.
First quarter GAAP net loss was $1.4 million for a loss of five cents per share based on approximately 26.6 million weighted average shares outstanding.
First quarters net loss was an improvement of $2.9 million as compared to the prior year period.
We delivered positive adjusted EBITDA of $3.8 million or 4.7% of revenue for the first quarter favorable to our guidance range.
With non advertising operating expenses consistent with our expectations, our adjusted EBITDA as a direct result of are better than expected VMM performance.
On the balance sheet, we ended the quarter with 50.5 million in cash and cash equivalents, a 4.4 million dollar improvement from the previous quarter end and the result of 3.9 million in cash provided by operating activities in the quarter.
Before I dive into guidance I'd like to address the impact of Cobot 19 on Q1, our business today and how it's factored into our guidance.
Opened 19 had a minimal impact on our Q1.
The time the National Emergency was declared on March 13 through the ended the quarter. The volume of course request remain largely consistent with the immediately preceding period, while the revenue per quota for us declined approximately 5% and the cost per click request declined approximately 7%.
So we did have some insurance providers temporarily pause or alter their marketplace participation at the beginning of the crisis as they dealt with shifting their workforce to remote operations. These changes were fairly limited and we've seen most of these providers resumed their prior marketplace operations.
As we progressed into Q2, our marketplace has continued to perform well, while we have seen modest reductions in consumer traffic volume is largely consistent with the normal seasonal pattern, we would expect in Q2.
We also are experiencing some expansion in VMM as a percentage of revenue due to a combination of benefits from lower advertising costs year over year and sequential growth in revenue for the quote request over Q1 levels.
We consider these early trends in our guidance for the quarter every year with revenue and VMM guidance that imply an increase to our VMM operating point from strong year over year quote request growth and sequential improvement in monetization.
Now turning to the specifics of Q2 guidance.
We expect revenue to be between 77 and $80 million a year over year increase of 41% at the midpoint.
We expect variable marketing margin to be between 23.5 and $25 million a year over year increase of 45% at the midpoint.
And we expect positive adjusted EBITDA to be between three and $4.3 million a year over year improvement of more than 100% at the midpoint.
For the full year 2020, we're pleased to reflect our strong Q1 performance and increase all aspects of our full year guidance as follows.
We expect revenue to be between 318 and $327 million an increase from our prior guidance of between 350 $325 million, we expect variable marketing margin to be between 96 and $102 million an increase from our prior guidance of between 90.
To $98 million and we expect positive adjusted EBITDA between 12, and a half and 17 in a half million dollars an increase from our prior guidance of between 10 and $15 million.
In summary, we delivered strong first quarter financial results and while we are being thoughtful of the uncertainties related to cope with 19, we continue to feel confident in our outlook, we are particularly grateful to the efforts of our employees. We have rallied during this time of the diversity to deliver solid operating performance.
Yes, and I look forward to answering your questions.
Yes.
As a reminder to ask a question really depressed star one on your telephone to withdraw your question press the pound or Husky. Please standby only compiled the Q any ross.
Your first question comes from Ralph Schackart with William Blair. Your line is open.
Great. Good evening and thanks for taking my questions I'd love to hear that everyone's doing well businesses as well so maybe.
Go back to some of the comments you made about.
With the unfortunate cobot situation.
The dollar laggards in the ship to budgets online to insurance.
Maybe benefiting from the unfortunate situation now in perspective, you could share more color about your expectation of that shift in 2020 and perhaps in the 2021.
And then going forward and then John just on Q2 guidance I know you had talked about some demand reduction being seasonal and though Q1's, a big renewal cycle quarter for you in the industry. Just curious as we think about the guide was there any sort of pull through in Q1 or just some perhaps conservatism. When you set the guide or some of that sort of paused active.
The anymore color might be helpful. Thank you.
Sure. So maybe two examples what we've seen.
In the near term Ralph and we believe will carry certainly.
For the near term for a year or so is incremental profitability from the providers from the carriers specifically the PNC insurers will lead them to lean and Thats, what sort of were confident and we're comfortable that fell lean in on the back of incremental profitability. We have seen certain carriers actually opened up entire states that were.
Sort of bid down or had their budgets moderated because of loss ratios and those have obviously the loss ratios have reversed out and they've turned on entire geo. So we'd expect that kind of throttle open position from the carriers to benefit us in sort of increment up the online marketing spend.
For the near term, which again is a year to two years from our perspective of the second kind of sign that I think would give you. Some color on it is we've seen agents insurance agents essentially increment up their online budgets with US specifically, we've now seen if in the past.
Six weeks, the highest level of demand from our agent.
Based on our platform than we've seen our entire history. So again, we believe that bodes well for for the immediate term for the next year or two at a significantly above where we expected it to be certainly can at times of pressure, but it's above even the sort of normal range, we would've expected for Q1 and flowing into Q.
Into the beginning of the quarter. So optimistic that these kinds of demands from both agents and carriers persists as we move forward and it is in fact of pulling forward or acceleration of the shift to digital.
And Ralph with regard to the guidance I'll give you a little color the methodology that we use this quarter. The same as his past methodologies. This idea of high providing high confidence.
Scenarios and high confidence guidance, we probably did widen the scenarios a little bit this quarter, you thought about those different scenarios.
But in general we're proud and happy that we can produce guidance at at the midpoint for DMD is a 45% growth.
Great for Q2 on revenue still.
In Q2 strong growth at 41%, So we think of it as strong guidance.
And it's and has been colored by part of what we're seeing already in Q2, which is really a testament to the resiliency of the model.
And so even a testament to the resilience that we can provide quarter and full year guidance because the model really has been fairly consistent so it's.
Is surprisingly consistent in terms of the guidance methodology as compared to prior quarters.
Great. Thank you so thanks.
Thanks Ralph.
Your next question comes from May in tandem with Nina Your line is open.
Thank you good evening, congrats southern John I'll looking for too many beaten raise quarter. So we'll take this one so great job.
First question would be set and John in terms of.
The trends in the market.
So one would think that would drivers driving less than the carriers offering all kinds of discounts and rebates what would have seen a sharper decline in may be consumer traffic, but you haven't seen that yet is that partly reflected now into Twoq guide in terms of maybe slower trends on the consumer traffic fronts.
So at that time I think this assess thanks again, and we're excited as well by the progress so yes, well we've seen even with.
Say modest moderation in consumer demand that's outweighed by two other factors that we've seen early on one is some increasing demand from the provider side of the business in the form of increased bids increased budgets from agents and carriers. The other way we're seeing it is reduced costs in several of our.
A large online marketing channels, such as display or social where there is still very strong consumer demand volume and the AD costs have gone down because folks into travel industry in the E. Commerce industry has exited so those two trends kind of wash out any moderation in consumer demand for us at these times and so.
All right into the guide.
Thank you remember that Q2 is traditionally a time, where we see a quarter that is usually flat to slightly down that's just the normal trend, especially within auto.
Say, what's different from this quarter than other Q twos is we're seeing a little bit of.
Sequential increase in monetization revenue per quote request as well as that boot tick up in March and VMM operating point as well, so a little bit better margin this quarter as well.
So were excited about the up yeah. We're excited about the operating momentum I can I would say one last thing with regard to the rebates to the pricing.
We're seeing from the carriers again, it's our belief and understanding that essentially the reduction in losses will stay ahead of any of these rebates are prices. So in fact, there will be realizing incremental profitability and some of the benefits for our provider partners, an office will be incremental marketing lean in or demand.
Right that makes sense. So thank you for that just one quick follow up in terms of the non auto could you maybe parse that a little bit more in terms of what trends you saw between healthcare Coleman life and some of the other verticals and maybe your expectations for the remaining of the your as these newer verticals ramp. Thank you.
So again, it's sort of the secular dominant trend. We expect just given that those verticals are relatively new and even smaller than autos as we continue to see them grow as from an operating momentum perspective, we haven't seen much if any difference at all in the non autos verticals and we expect them to continue to grow more quick.
Only then autos through the year that having been said, we do sort of keep an eye on commercial now happily for us small commercial insurance is exceptionally tiny reasonable price Leo very very small amount of revenue. So it's not just not.
Very material for us, but well be thoughtful about how we invest in terms of head count on small commercial just given that you're likely to see some disruption in the small business market no matter, what what anybody does or says.
Great. Thank you so much.
Your next question comes from Michael Graham with Canaccord. Your line is open.
Okay. Thanks, guys congrats on the on the performance.
A couple of questions one on.
You just remind us.
When you think about Q2 and the rest of the year like how do you factor in.
Consumers Shocker for new cars and associated insurance versus sort of switchers I think.
Four years ago, you've talked about how some of the European markets have a lot more switching behavior and one of the thing that could help you in the U.S. was sort of picked up so.
Just want to kind of asked that question and then asked I wanted to ask specifically on the health vertical can you just remind us sort of where we are in the Arca that rollout.
What are some of the important milestones on the calendar ahead.
Just wondering if you have to do anything.
Additional to the product.
As we as we get through the year here like what are some of the key things you're working on thanks a lot.
Sure. So so recall hi, Michael Thank you again, thanks for joining us and I appreciate the time comments.
You'll recall that we don't have much if any connective tissue with car shopping.
98% 97 vast majority of the consumer demand is renewals is folk shopping to look for discounts coverage, perhaps they've had a claim so again, there's very little to no connective tissue for us with car shopping in addition, switching.
Obviously, maybe a net positive for us, but we're not reliant on it in our Mark if the consumer comes through and find that hey, I'm with a great provider and renewing with them as a good match, that's perfectly fine by us Theres, a number of carriers and agents who in fact, the vast majority I believe run some kind of retention campaign with us.
To retain consumers, which we support for both the consumer end the provider. So again, we don't expect much.
Impact at all from any changes to car shopping or switching behavior, which is part of whats resilient about our marketplace model for insurance right. So so thats a benefit for us as well as our partners and customers on the health care side I mean, it's just going to be continued investment in engineering and data head count recall that as we scale. These.
Verticals, they're able to leverage the investments we've made and data platforms products system. So it's a very high leverage activities scaling the health vertical from from an operating leverage perspective, we will continue and do continue to add headcount and talent, particularly tech talent to the healthcare vertical team.
Okay. Thanks, so much.
Thanks, Michael.
Your next question comes from Ron Josey with JMP Securities. Your line is open.
Great. Thanks for taking the question I mean, the comments quite everybody is safe and sound in operating very well. So I wanted to ask just.
Following up on the comments around the moderation in consumer shopping I, just want to make sure I understand the dynamics here to Q seasonally is a little bit lower than one Q. So with this moderation in line with what with what was expected to certain extent has it sort of stabilized off here.
I would be question number one and then as we think about.
The insurance carriers, and the give backs and everything but they're also advertising less and so I'm wondering if you're seeing any impact from lower AD spend by the carriers on demand for insurance and renewals overall.
And then lastly, John can you just give us an update we're thinking about overall M&A strategy with the dislocation in the market has any change there anything that you that you might be thinking about.
As you think about being strategic.
Grow the business overall, thank you.
Great. Thank you again, thanks for the kind comments, Ron if it's good to hear from you as well.
No. So this is not particularly atypical from what we see as a seasonal traffic patterns in the insurance markets going shifting from Q1 Q2 at did over advertiser demand. So one thing to think about in terms of what we've seen Ron and his particularly interesting a lot of a lot of the large personal lines the auto and home.
Carriers are massive advertisers on things like sports on TV right, there that perhaps the top one two or three spot or all of them for football and baseball and basketball and so as these providers sort of hot that channels no longer available to them. What we've seen has actually increased.
Not just demand from those providers, but we then have increased capacity to advertise ourselves and the online channel to bring in incremental consumers because we've seen some fade in things like display and social display marketing campaign cost. So we have capacity to increase consumer demand or bid into the consumer demand.
At the same time as providers are actually seeking to grow the online channel, especially with the absence of some of the big offline channels for them and again recall that we run the business for variable marketing margin. So one of one of the aspect of our business model being an online insurance marketplace as we have this flexibility and.
The resilience if we can decrease add costs, while maintaining volume while increasing the revenue we're seeing from providers variable marketing margin can grow and in fact, that's what we believe we're seeing as we head into Q2.
So we're running on the M&A side, you'll remember that this business has been grown completely organically until now and.
And we have in the last couple of quarters started to build out kind of that M&A muscle in order to be able to look at opportunities at least opportunistically.
I'd say, we're starting to get a little more disciplined around that and to your point. This certainly is a time in which we think not just in the near future, but over a number of quarters here we may see.
Some opportunities.
That wouldn't have been present.
Covert 19, and what what it might do in terms of Riffling through smaller businesses. So we do think it could present some opportunities for us.
In an avenue that we have not explored yet.
Got it thank you very much.
Thanks, Ron.
Again, if you might ask the question Press Star one on your telephone. Our next question comes from Jed Kelly with Oppenheimer. Your line is open.
Great. Thanks for taking my question just given the current dynamic.
In terms of some of the advertising campaigns you are starting to Ron can you talk about the ability sort of.
On to stimulate demand at some of the campaigns, giving that that consumers now we're tightening their budgets.
Sure I mean again I.
I want to emphasize.
We still see.
Typical operations and the consumer demand side of our business and what that means jet is that as advertising costs and these are some some very big channels. These are great ways to reach consumers, who might be looking for discounts or renewals or price shopping, especially now I'm. So again, the resident demand will be there because folks are.
Going to be seeking incremental ways to save money. That's the belt tightening we referred to in the call, but as folks do that remember our AD cost can some of these channels will be reduced because there's simply less competition and I don't mean intra insurance I mean things like E. Commerce travel there is other verticals.
Who are basically paused out of the online landscape and that enables us to lean into the resident consumer demand that's out there and market our services to consumers to save money and shop for insurance.
And then.
Given what's gone on target.
Technology sector in Boston.
There is going to be quite a bit of tax talent may be working to get to a platform. That's a little more insulated from this so can you just talk about where you kind of see your capital structure and how you want a.
Sort of be aggressive in hiring like tech talent.
Well, maybe I'll, let wag take the cap structure question I'll just talk about the tech talent, we've seen Jed, perhaps the biggest tailwind we've had in tech recruiting since we started the company. We had this past quarter. The most successful quarter, we've had in recruiting engineers and data analysts.
And that's to add to it already great team.
Fully committed and developing but in terms of hiring for us it's been a very successful period, we do to your point.
Expect that to continue.
The business operations and momentum in the business. We believe remained strong. So we're in a position to continue hiring great Tech talent and that tailwind was certainly observable through Q1 and up until very recently I'll, let quiet wags John comment on.
The.
Capital structure, yet, Jeff when you say capital structure, your meaning, particularly with regard to hiring because there is an aspect that decision as the stock. The company has continued to perform well through this period of time and it does position the company as a kind of stable consistent grower even in the Boston market. So we've seen some.
One of the other Boston technology companies that have been really aggressive high Flyers and that we've competed with more talent. Some of those are contracting not hiring.
So even when you look at the capital so even though you're looking at our stock performance I think it reflects the fact the business has continued.
And then certainly as one as kind of one of the legged stool in terms of compensation the equity that we're able to attract folks with is real.
And it has performed consistently so I think we're starting to get benefited from that and starting to compete very well in the Boston.
Some of the larger.
In town.
Thank you.
Your next question comes from Aaron Kessler with Raymond James Your line is open.
Great Congrats on a quarter and then just a couple of questions first we've got them a question from a few investors kind of how important is new auto purchases.
As a percentage on how do you have maybe I'd just a slower car sales right now and obviously as rates have been declining maybe just talk about have you seen add research tick back up in April or kind of what's going to recent trend there. Thank you.
Yes net of seasonal so regular seasonal patterns consumer demand remains we see consumer demand remaining and has remained strong in Q2 and I would say that.
Incrementally there is likely again, we believed to be some shopping as people really do need savings and are looking to basically tighten their belt at this time I would say this as far as being connected to car sales.
Small fraction I mean.
Mike. He again this is truly like it just an estimate it single digit percentage of vast majority of our consumer demand, our folks who already have insurance and our shopping already have a car.
Sure the need to get it on the road. So there is little to no connective tissue between car shopping and auto insurance shopping it's often intuitive to think of those two things together car shopping and.
In churn shopping, but if you think that utilize vehicle usually when you're purchasing a car you're focused on just transferring over insurance. It's later when you get the renewal in the mail that you think about it actually shopping the price when it goes up.
Or else, you're answering just a broad based call to shop for insurance all the providers, usually have shop shop with us and you'll save money in their messaging. So that is much more the catalyst for someone to coming to ever quote to shop for insurance.
Generally about saving money on coverage or getting the right coverage.
And much much less connected with the new auto sale.
With regards to consumer demand beyond the typical seasonality, perhaps what's most dramatic in the advertising landscape is the not big online Noninsurance advertisers.
E Commerce travel auto or the actual autocar sales have largely exited the online market. So we have seen and expect to continue to see reduce costs for things like display and social display which are large marketing channels for us are so ultimately we can lean in on those Chad.
Either for volume or.
More primarily for us variable marketing margin and that's reflected in our guidance.
Okay, great. Thank you.
Your next question comes from Doug Aron with Jpmorgan. Your line is open.
Hey, this is they on for Doug. Thank you for taking our questions. The first one is on court requests.
Coloration in one Q. I'll just wondering if you could talk a little bit about the drivers behind our growth and the particular channels that may be working well for you and has not changed early into Q and how should we think about the trajectory of quote request growth as they go through 2020 and comps get tougher.
And then in terms of.
Lower pricing that you're seeing in the traffic acquisition channel are you factoring and the.
Your competitors or Noninsurance competitors coming back into these advertising channels in second quarter.
Sure.
So yes, let's let's break it up so let's let's let's start with Q1 day. So in Q1, we drove incremental volume.
And or incremental variable marketing margin and literally every one of our major marketing channels search display social partnerships reengagement remarketing retargeting that entire bucket to re engaging consumers.
Literally across the spectrum of our traffic operation, we saw either increased volume and or increased variable marketing margin through incremental volume or cost reduction.
That largely continued into Q2, there is incremental opportunities in display and social now you will recall Q2 is seasonally typically a lower volume.
Period of the year for us and so we're seeing that naturally but underlying that the cost for display and social which as you know are big advertising channels for Noninsurance.
Competitors right folks like travel and ecommerce have gone down substantially and we'd expect those two continued certainly through Q2 and perhaps through the end of the year for the near term until the market really begins to turn on all of that having been set I would say, we've been thoughtful about the ins and outs around.
Advertising costs as we project out.
Yes, I think certainly within the year you have very different story in terms of comps in the second half of the year I think we've said before that as we look out.
The gross numbers will get harder in the back half of the year. We're confident we can continue to maintain growth along at least at that on long term growth level of 20% and do that while increasing profitability.
And also expanding variable marketing dollar so thats really what we've reflected in the full year guide as well, which is expanding VM the dollars as well as.
Adjusted EBITDA, increasing both of those in the back end.
Okay. Thank you.
There are no further questions at this time I'll now turn the call back over to management for closing remark.
Thank you so much.
So we delivered a strong quarter capitalizing on the insurance shift online we remain vigilant. During this current market environment and we feel very very fortunate that our company is in a strong position and believe we've set the stage for future growth and profitability I want to thank you all thank you all.
For joining us today I. Thank you sincerely for all your support stay safe can be well. Thanks, so much.
This concludes today's conference call you may now disconnect.
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