Q1 2020 Earnings Call
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Yes, good afternoon, and welcome to havoc with first quarter 2020 earnings call well be discussing results announced in our press release. If you today after the market close with me on the call. This afternoon, Jeff Birnbaum, Evercores, Chief Executive Officer, and co founder and John Wagner, Chief Financial Officer, I never 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 well your 2020, our growth strategy and our plans to execute on a gross strategy. He initiative our investment the business the growth type with me expected driver business, our ability to maintain anything in acquiring new customers.
Our interest their ability to acquire other company our goal for integration and other statements regarding our plans across that forward looking statements maybe identified with words and phrases such as we expect we believe me intent, we anticipate be plan may upcoming and similar words and phrases.
These statements reflect our views only as of today and should not be considered our views as of any subsequent date, we specifically disclaim any obligation to update every 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 statement as a result of various important factors, including uncertainties with respect to become a bit 19 pandemic 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 Exchange Commission and available on the Investor Relations section of our website.
And Investor Dot Evercore dotcom, none the Fccs website at <unk> Dot com.
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 a 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 really good afternoon, and thank you everyone for joining us today.
Our company much like most of the country has adopted to shelter in place brought upon by the Kelvin 19 pandemic.
Our thoughts are with all the individuals and businesses impacted around the world. We extend our heartfelt. Thanks for all of the healthcare workers first responders and other essential employees for their self will suffer.
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.
While we are vigilant in cautious during the rapidly shifting market dynamics brought about by Cobot 19, we are 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 and 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 assures showing strong financial performance, resulting in a number of our distribution partners, increasing bids and budget shelter in place together.
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 effects and the power of our marketplace for connecting insurance consumers in providers, resulting in strong financial performance and we are raising our full year guidance, which John will detail shortly.
Quickly touching on our first quarter results. 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 fourth by Coven 19 may benefit our business by accelerating the shift 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 focused on maintaining a highly engaged in collaborative genes dynamic through such efforts as daily operating stand ups.
Across our operating teams weekly companywide town halls, and daily one on one project team checking 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.
Based service architecture data and reporting infrastructure as well as established distributed communication tool and business processes.
During this period, we have had no layoffs, 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 businesses 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.
Savings onto a consumer.
Based on what we're seeing in our marketplace. Some carriers are now investing more in online customer acquisition as we believe there leading 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 premiums 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 forever quote after shifting for a remote operations. We are seeing increased demand for our consumer hurdle from agents in our mark.
Our place in many agents are leaning into the transition from offline to online customer acquisition with some growing spend and reporting increase productivity. Some captive agents are also receiving Tobin 19 relief packages from their cars, which can help support their marketing effort.
On the demand side in the marketplace, our offering provide consumers who are belt tightening in a weaker economy, an opportunity to shop 'n save on the largely nondiscretionary expensive insurer. We're proud of the feedback we receive from consumers such as one who recently shared with us that ever code 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. Then 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 surveys of India.
Digitals, who purchased insurance through our marketplace indicate that 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 intent consumers to 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 in growing consumer volume delivering an 80% year over year increase.
The 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're testing and implementing features that dramatically improved capabilities.
Variance increase conversion and lead to better partner outcome. While these improvements are consumer focused our provider partners are receiving even more accurate and precise data than ever before leading to you were rejected 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 cars and agent 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 started the year. An example of our successful partnership with our AG.
He agents is John he started his agency from scratch seven years ago, and turn to ever quote to achieve rapid profitable growth John shares at Evercore helps him grows business by 600 policies per year, a substantial percentage of which are more profitable multi line and longer term consumers.
At the beginning of the year I listed three primary initiatives for 2012, 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 for policy purchase rate.
Integrations create a more efficient marketplace with less friction for consumers and provided delivering better customer experience.
One of our top five carriers for example, recently launched a deep prefill integration where ever quote populated over 20 data feels onto their online poker flow. This prefill reduce the need for the consumer to reenter information to get a quote in the carrier reported that the integration directly improved 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.
And we continue to build their engineering and data science capabilities as we seek to better leverage our large and rapidly growing data set of consumer in 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 a customer's 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 lead boss view as head of insurance data services, who join from Amazon and.
Magna 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 life of 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 in the 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 being a dominant position as insurance continues to shift online at Evercore, We will continue to evolve refine and weve the elements of our growth and 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 optimistic on the year and beyond I.
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 this team that we continue to build and have the deepest gratitude for their dedication and hard work in these unprecedented times I'm, especially appreciative of our people.
Ops team, who have been our unsung heroes in this period there countless efforts have enabled each employee 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 detail on our financial results.
Thank you Sarah and good afternoon, everyone I Echo sentiments wish everyone. The best during these unusual tax.
I'll start by discussing our financial results for the first quarter 2020.
Right. 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, 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 represented 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 of last year, an increase nearly three percentage points.
The VMM expansion this quarter resulted from attracting more consumers to our marketplace at 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.
The first quarter, we delivered 80% year over year, increasing consumer quote request to 7.4 million.
As we had anticipated in discussed last call. This substantial increase in the volume of quote request was accompanied by a 14% year over year decline in revenue per quote request to $11, a one cents per quarter.
Although there are various contributing factors to revenue per quote request the volume of quote request in Austin be most influential as our insurance providers bid for volume in our marketplace auction.
A large increases in consumer volume in a given quarter outpaced insurance provider coverage and or budget, resulting in our marketplace monetizing less referrals prequel request, which is what we saw in Q1.
While revenue and cost per call requests are metrics that provide 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 focus on average.
This is not a concern as we also realizing greater proportionate reduction advertising cost per quarter request with a 17% reduction year over year $7 of 78 cents in Q1.
<unk> increased volume yielded 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 coated 19 in Q1.
First quarter GAAP net loss was $1.4 million for 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 or $3.8 million, 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 results 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 coated 19 on Q1, our business today and how it's factored into our guidance.
Cobot 19 had a minimal impact on our Q1 from the time the National Emergency was declared on March 13 through the end of the quarter. The volume of quote 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 quote request over Q1 levels.
We've considered 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 revenues 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.
Billion dollars.
Expect variable marketing margin to be between 96 and $102 million an increase from our prior guidance of between $90 million to $98 million and we expect positive adjusted EBITDA of between 12, and a half and 17 and 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 stand by Lilly compiled acuity Ross.
Your first question comes from Ralph Schackart with William Blair. Your line is open.
Great Good evening and thanks for taking my question.
The here that everyone's doing well businesses as well so maybe.
Go back to some of the comments you made about you know with the unfortunate cobot situation that.
With dollar laggards in the ship to budgets online to insurance.
Be benefiting from the unfortunate situation now we perspective, you could share more color about your expectation of that shifts in 2020 and perhaps in the 2021.
And going forward and then John just on Q2 guidance are you had talked about some demand reduction being seasonal until 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 pause that.
Typically more color might be helpful. Thank you.
Sure. So maybe two examples with 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 that's what sort of were confident in and we're comfortable that fell lean in on the back of incremental profitability. We have seen certain carriers actually open up entire states that were.
Sort of bid down or had there.
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.
Less than 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.
Space in 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 and a significantly above where we expected it to be certainly in the 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 persist 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's same as his past methodologies. This idea of high providing high confidence.
Scenarios and I confidence guidance, we probably did widen the scenarios a little bit this quarter, we 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 Steve It are testament to the resilience that we can provide quarterly and full year guidance because the model really has been fairly consistent. So it's some 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 enhanced your line is open.
Thank you good evening, congrats southern John I'm looking for too many beaten raise quarter. So we'll take this one so great job.
First question would be a set and John in terms of or just the trends in the market. One would think that with your drivers driving less than the carriers offering all kinds of discounts and rebates, but we've 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 baby.
Slower trends on the consumer traffic front.
So at that time I think this assessed thanks again, and we're excited as well by the progress so yeah, well, we've seen even with.
I'd 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 are seeing it is reduced costs and several other.
Our 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.
Hello, 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. It's just the normal trend, especially within auto I'd 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 Bu tick up in Mont in 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, Mike and I would say one last thing I've with regard to the rebates for the pricing. So that 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 out a little bit more in terms of what trends you saw between healthcare Pullman life and some of the other verticals and maybe your expectations for the remaining up 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 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.
Quickly 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.
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.
Hey, Thanks, guys.
Congrats on the performance just a couple of questions. One on can you just remind us.
When you think about Q2 and the rest of the year like how do you factor in.
Schumer's Shocker for new cars and associated insurance versus sort of switchers and I think.
Couple of years ago, you had talked about how some of the European markets have a lot more switching behavior and what's going to think that could help you in the U.S. was sort of picked up so I'm just want to kind of asked that question and then I also wanted to ask specifically on the health vertical can you just remind us sort of where we.
On the Arca that roll out what are some of the important milestones on the calendar ahead and.
Just wondering if you have to do anything.
Additional to the product you know sort of 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 kind 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, you know switching up.
Obviously, maybe a net positive for us, but we're not reliant on it in our market you know if a 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 there's a number of carriers and agents who in fact, the vast majority I believe run some kind of retention campaign with us to reach.
Okay, and consumers, which we support for both the consumer end the provider. So again, we don't expect much.
Impact at all from you know any changes to car shopping or switching behavior, which is part of whats resilient about our marketplace model for insurance right. So so that's 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 is 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 commend 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 you know twoq was seasonally is a little bit lower than one Q. So was this moderation in line with what with what was expected to certain extent, how does it sort of stabilized off your 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 you know we're thinking about overall M&A strategy with the dislocation in the markets you know as any change there or anything.
That you that we did 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 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, I 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.
Cars 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 is actually increased.
Not just demand from those providers, but we then have increased capacity to advertise ourselves and the online channel to bring an incremental consumers because we've seen some fade in things like display and social display marketing campaign costs. 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.
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. There's 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.
I wouldn't have been present.
Without the 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 a question that star one on your telephone or 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're starting to Ron can you talk about the ability sort of.
Stimulate demand at some of the campaigns, giving that their 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 the renewals or price shopping, especially now I'm. So 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.
We'll be reduced because there's simply less.
Competition, and I don't mean intra insurance I mean things like E. Commerce traveled there's 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 you know just given what's going on in the technology sector and Boston.
There is going to be quite a bit of tax parent maybe 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 worn out.
Sort of be aggressive in hiring like tech talent.
Well, maybe I'll, let wag take the cap structure question, Paul I'll, just talk about the tech talent, we've seen Jed, perhaps the biggest tell when we've had in tech recruiting since we started the company I'm. We had this past quarter. The most successful quarter, we've had in recruiting engineers in data analysts and.
To add to it already great team, that's fully committed and developing but in terms of hiring for us it's been.
A very successful period, we do to your point.
We expect that to continue.
The business operations and momentum in the business. We believe that remains 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 class a wagner.
John comment on.
The.
Capital structure, yet, Jeff when you say capital structure, you mean, particularly with regard to hiring because there is an aspect to that says you know this 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 grow or even in the Boston market. So we've seen so.
One of the other Boston technology companies that have been really aggressive high fliers in that we've competed with more talent.
Some of those are contracting not hiring.
So even when you look at the capital so even if you're looking at our stock performance I think it reflects the fact the business has continued.
And then certainly as one that's 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 but we've got them a quick from a few investors kind of how important is new auto purchases.
As a percentage on how do you maybe I'd just the 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.
Yeah net of seasonal so regular seasonal patterns consumer demand remains for 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.
Some small fraction I mean.
Mike. He again. This is this is truly like it just an estimate at 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.
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 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, <unk> 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 sales.
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 cost for things like display and social display which are large marketing channels for us and 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 JP Morgan Your line is open.
Hi, This is day on for Doug. Thank you for taking our questions. The first one is on court requests acceleration in one Q. I was wondering if you could talk a little bit of up the drivers behind the growth in particular time. Okay. Maybe you are working well for you and has not changed early into two and how should we think about the trajectory of.
Request growth as they go through 2020 comps get tougher.
And then in terms of.
Lower pricing that you're seeing in the traffic acquisition channel are you factoring in any of your competitors or noninsurance competitors coming back into these advertising channels in second quarter.
So.
So yeah, 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 a re engaging consumers.
Literally across the spectrum of our traffic operations, 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 to continue 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 and the second half for the year.
You know, 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 that on long term growth level of 20% and do that while increasing profitability.
We're also expanding variable marketing dollar so thats really what we've reflected in the full year guide as well, which is expanding VM the doors 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 yeah, 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.
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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