Q3 2022 EverQuote Inc Earnings Call
Hello, Ladies and gentlemen, and thank you for your patience today's conference call will begin momentarily.
We'd like to ask a question on todays call. Please press star followed by one on your telephone keypad.
How'd you reminded the call will begin momentarily. Thank you.
[music].
Hello, and welcome to todays Evercore third quarter 2022 earnings Conference call. My name is Bailey and I'll be the moderator for todays call all lines will be muted during the presentation portion of the cool opportunity for question and answer at the end.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
I would now like to pass the conference over to our host Brittany Johnson. So please go ahead when you're ready. Thank you good afternoon, and welcome to Evercore third quarter 2022 earnings call, we'll be discussing results announced in our press release issued today. After the market closed with me on the call. This afternoon is Jamie Mendel Everquest, Chief Executive Officer, and John <unk>.
<unk> Chief financial Officer of Evercore.
During the call you'll 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 fourth quarter and full year 2022, our growth strategy and our plans to execute on our growth strategy key initiatives, including our direct to consumer agency our investment in the business the growth drivers we.
Back to drive our business, our ability to maintain existing and acquire new customers our expectations regarding recovery of the auto insurance industry, our recent acquisitions and our goals for integrations and other statements regarding our plans and prospects.
Statements, maybe identified with words and phrases such as we expect we believe we intend we anticipate we plan may upcoming and similar words and phrases.
Ms reflect our views only as of today and should not be considered our views as of any subsequent date.
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 cause our actual results to differ materially from our expectations. Please refer to those contained under the heading.
Risk factors in our most recent quarterly report on Form 10-Q, which is on file with the Securities and Exchange Commission and available on the Investor Relations section of our website, an investor Dot Evercore dot com and on the SEC's website at SEC Dot Gov. Finally during the course of today's call we refer to certain non-GAAP financial measures would you believe.
Italy are helpful to investors a reconciliation of GAAP to non-GAAP measures was included in the press release, we issued after the market close today, which is available on the Investor Relations section of our website at investors <unk> Evercore dot com and with that I'll turn it over to you Jamie.
Thank you Brendan and thank you all for joining us today.
Third quarter performance demonstrated our continued to Chile as we quickly adapted our operations to a changing environment and exceeded expectations across our three primary financial kpis, producing revenue of $103 $2 million variable marketing margin or Vietnam of $31 $8 million and adjusted EBITDA.
Of $2 million, despite ongoing headwinds in the auto insurance industry.
The state of the auto insurance market remains unsettled in August we began to see the first major carrier returned to more normalized historical spending patterns as they started to restore rates and profitability to their desired levels.
While this positive dynamic drove better than expected Q3 performance.
Hurricane and expect it to be among the largest loss events in history has put significant incremental downward pressure on the market and on carriers marketing spend through year end.
As a result, we continue to expect the bulk of the auto recovery to materialize in 2023.
Despite a challenging backdrop, we executed well in Q3 and continued to make progress on several fronts across our business.
On the consumer side of the marketplace, we grew consumer volume by 27% year on year through strong execution from our customer acquisition teams.
On the provider side of our marketplace.
Agent oriented distribution channels continued to demonstrate relative strength and resilience.
Feedback from multiple carrier partners indicates that Evercore is the largest and highest performing referral partner to their local agents.
In addition data suggests evercore has gained market share since the start of the downturn and we also continued to make strides on longer term strategic initiatives.
Our direct to consumer agency or <unk> continues to perform well.
However, we have moderated agent head count growth relative to earlier plans as part of tighter companywide operating expense management efforts and in order to prioritize improving our unit economics the fourth further scaling.
While these changes come at the expense of near term revenue growth, including our in our health vertical in Q4, we believe that it is the appropriate trade offs as we seek to build a durable long term model for our <unk> operations that delivers appropriate financial returns on our capital investment.
We have been able to navigate efficiently through this period by maintaining disciplined expense management.
And our AD spend customer acquisition teams and systems are continuously adjusting bids in real time to maximize margin as carrier demand shifts.
And our operating expenses, we continue to drive productivity enhancements and efficiencies across the entire organization.
We believe that these improvements have positioned us to maintain positive adjusted EBITDA for 2022.
In closing, we maintain conviction in our strategy and team and believe we are well positioned looking ahead to 2023.
Now in our second year of the auto downturn, we have leaned out operations advanced our strategy and gain market share.
We believe these factors bode well for our future as the auto carrier market recovers.
I grow more confident by the day and we are on the path to building an industry defining company.
Long term vision is to become the largest online source of insurance policies by combining data tech and knowledgeable advisers to make insurance simpler more affordable and personalized.
Now I'll turn the call over to John to provide more details on our financial results.
Thank you Jamie and good afternoon, everyone I'll start by discussing our financial results for the third quarter, and then provide guidance for the fourth quarter and updated guidance for the full year 2022.
I am pleased to report that we exceeded our prior guidance on all of our key metrics. This quarter didn't raise guidance for the full year 2022.
Total revenue for Q3 was $132 million declined 4% year over year and above our guidance range provided last quarter as strong growth in consumer volume nearly offset reductions in monetization that resulted from the auto insurance industry downturn.
Within the auto insurance vertical carrier demand remains at low levels due to the industry a pullback in carrier spending.
However, we experienced some stability in demand within the quarter and a notable increase in consumer acquisition activity by one major carrier.
Limited we were encouraged by the first instance of a carrier increasing spending on consumer acquisition after achieving adequate rate increases.
Consumer volumes increase significantly again, this quarter with year over year growth consistent with that of Q2.
These consumer volume gains largely offset lower monetization and resulted in revenue in our auto insurance vertical decreasing nearly 2% year over year to $88 $1 million.
We drove more volume at lower cost due to continued nimble consumer acquisition and an industry reported increase in consumer shopping behavior and reaction to premium increases.
Revenue from our other insurance verticals, which includes Poland renters life and health insurance decreased 16% year over year to $15 1 million for the third quarter and represented 15% of revenue. The decline was caused by a combination of lower demand in certain verticals and a proactive reduction in dedicated.
Good resources to align our cost structure with the current market conditions.
Within health DTC revenue growth slowed as expected based on planned moderation in agent growth.
And our emphasis on seeking to optimize unit economics and improve cash usage of <unk>.
Variable marketing margin or Vietnam defined as revenue less advertising expense was 31 $8 million for the third quarter above our guidance range provided last quarter <unk> improvement was due to the stabilization and targeted improvement in auto carrier demand combined with disciplined execution in a decreasing.
Costs insurance advertising landscape.
Turning to our bottom line GAAP net loss was $6 5 million during the third quarter and adjusted EBITDA was a positive $2 million.
Exceeding our guidance range provided last quarter.
Favorable BLM performance translated directly to adjusted EBITDA as we have continued to manage operating expenses tightly and look for opportunities to reduce expenses.
Last year, we were early and recognizing how the auto insurance downturn would affect demand within our marketplace and immediately took steps to reduce costs to align with the anticipated impact.
This has also been an ongoing process through 2022, and the result is most evident in achieving positive adjusted EBITDA this quarter each quarter. This year, despite the auto insurance downturn.
We ended the third quarter with cash and cash equivalents on the balance sheet of $36 $6 million during the quarter, we used $3 5 million in operating cash.
Primarily to fund Ptca operations, which we expect will continue to use cash in Q4 and at a slightly higher rate due to the annual enrollment season.
Turning to our outlook, we expect insurance losses caused by Hurricane Ian will further impact carrier demand in Q4, historically carriers react to hurricanes by pausing consumer acquisition efforts in our marketplace in the affected areas both immediately prior to and after landfall.
<unk> is having a more regional and prolonged effect due to the magnitude of losses, we expect the hurricane's impact on carrier demand in the auto insurance vertical to continue through Q4.
Within our health vertical we expect lower revenue from this annual enrollment season as compared to last year, our focus on optimizing the economics of our DTC operations will lead to fewer agents year over year.
Lastly, we anticipate that maintaining cost efficiencies in both AD spend and operating expenses will benefit adjusted EBITDA and we've reflected this in our guide as follows.
For Q4, we expect revenue to be between 87, and <unk> $92 million a year over year decrease of 12% at the midpoint we.
We expect Vietnam in the quarter to be between 27 and $30 million a year over year decrease of 13% at the midpoint and we expect adjusted EBITDA to be between negative $1 $5 million and positive $1 $5 million with the midpoint similar to the prior year period.
For the full year, we are raising our guidance for <unk> and adjusted EBITDA as a result of our stronger than expected Q3 performance and our focus on operating efficiencies.
We expect revenue to be between 403 $408 million, a slight increase at the midpoint from our previous guidance of between 400 and $410 million.
We expect <unk> to be between 102006 and $129 million at.
A 7% increase at the midpoint.
From our previous guidance of between 116 and $122 million.
We expect positive adjusted EBITDA of between four and $7 million up from our previous guidance of between negative seven and negative $1 million in summary.
Although we remain in a challenging period, we delivered results better than our guidance for the third quarter raised expectations for the full year 2022, and reestablished our target a full year positive adjusted EBITDA.
We believe we haven't reacted to extraordinary market conditions by taking aggressive actions that balanced revenue generation cost control and balance sheet management positioning us well for an expected market recovery in 2023.
Next year, we look forward to more favorable auto insurance industry conditions are returned to revenue growth and improving positive adjusted EBITDA, Jamie and I will now answer your questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to repeat that question. Please press star followed by two again to ask a question. Please press star followed by one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question today comes from the line of Ralph <unk> from William Blair. Please go ahead. Your line is now open.
Great. Thanks, two if I could please jamie in the call. It sounded like you had one major carrier customer that came in and unfortunately with hurricane and the carriers are off for Q4, but maybe if you could provide some perspective.
So the nature of your conversations as you think through 2023 and how the carrier conversations are going.
We would expect them to come back at least on some level in 2023, it sounds like the guidance or I'm sorry <unk>.
You discussed 2023, returning to growth here, but just love your perspective on that then I have a follow up.
Sure. Thanks, Ralph so.
Yeah, the leading edge of the recovery, but somewhat beginning to take shape as expected in Q3. So if you recall we had this earlier moving cohort.
<unk>.
Immediately race race pullback on ads bad and then the expectation was that as they got rate adequacy, there would return to more normalized spending patterns on customer acquisition.
And then you have this later moving cohort of carriers that sort of going through the same process Budd, but several quarters removed.
What we saw in Q3 was signs up.
The sort of leading carrier begin to recover as we would have expected and so we saw rates.
Increased profitability return to target levels, and subsequently spending returned to more normalized historical pattern.
And then of course.
Hurricane hit and it's likely it's thrown off.
Of course for the balance of the year, but the recovery beginning to materialize as we had expected with respect to the balance of the carriers.
The majority of them have not yet achieved rate adequacy and have not yet begun to.
<unk> begun to lean in the same way and so consistent with our expectations. We would expect anticipate seeing the balance of the carriers recovering into 2023, and what we're planning for right now and the data that we have would suggest.
A gradual recovery over the course of 2023.
So a step up from Q4 into Q1 and then.
Gradual recovery over the course of the year, where you see 2024 getting back to more normalized historical levels in aggregate.
Okay, that's really helpful and maybe a follow up for John John I think in the prepared remarks, you talked about 2023 positive EBITDA or some commentary around that just sort of confirming that as well.
I heard a and then B just maybe philosophically how are you thinking about opex in this environment would you protect profitability.
Going into 2023, if there's any sort of further.
Definitely macro headwinds or for their carrier headwinds. Thanks.
Sure.
So I guess I guess looking back on Q3, I think that's a demonstration that we are focused on operating expenses and efficiency and making sure that when we see upside in <unk>.
<unk> as we did in Q3 that we're being pretty disciplined about operating expenses and allowing that to flow down to adjusted EBITDA.
In terms of as we move forward. We continue to think we'll hold that stance going into 2023, we think.
A period of increased.
<unk> adjusted EBITDA, we're very pleased that we're able to move kind of the full year target for 'twenty two to overall positive EBITDA for the year as we go into 2023, we think will expand on that with the gradual recovery.
Jamie spoke of it within the auto insurance industry.
Great. Thanks, Jamie Thanks, John .
Yes.
Thanks, Rob.
Thank you.
Next question today comes from the line of Michael Graham from Canaccord. Please go ahead. Your line is now open.
Thanks, a lot guys I have two questions for you.
First one is just at a high level I know youre not guiding for next year, but there are two things that could impact the way you're thinking about next year. One is the possibility of a recession.
Just wondering how you would expect in generic terms your business to respond to that if it were to come to pass.
Similarly.
I think there is.
Dynamic where carriers like to set budgets for the new year.
Before it starts and we're sort of not yet at that rate adequacy milestone Jamie that you mentioned, so I just wonder how youre thinking about those two dynamics and then I have a quick follow up.
Sure.
So with respect to.
Our expectations in the event of a recession.
I think historic historically you would.
Look at.
This business is being somewhat insulated from recessionary pressures for a number of reasons.
The first would be as consumers are.
Looking for savings insurance tends to be a top three to five line item and the personal income statement and so they've been conditioned to shop and seek insurance savings as.
One.
One tactic Ted to address any shortfalls in income.
So we expect to see shopping behavior elevated in the event that.
There is continued economic pressure out there. The second is if you think about what is.
Causing a lot of the rate the loss issues for the carriers in the first place it is severity.
Of.
Claims so the cost to repair and replace vehicles.
And one of the big drivers of that is the cost of <unk>.
So used in new car prices factor in as significantly to the loss pressures that carriers are experiencing.
The event of a recession and the prolonged period of higher interest rates, we would expect to see demand for vehicles come down and therefore subsequently pricing.
New and used cars coming down which could alleviate some of the loss pressures on carriers, and therefore stimulated carrier demand and monetization in the marketplace and so.
Yes, I think if you will.
Looking for.
Relatively safe bet in the event of a.
Recession.
The business is relatively well insulated from that.
And Michael on the second part of that great.
<unk>, we do generally see carriers set budgets on an annual basis.
We often see them.
Managing to combined ratios on a full year basis.
So I think even in this past year, we saw some some increase in demand coming into Q1 and again as Jamie had mentioned we expect that.
There's no difference this year, we expect.
The sequential increase going into Q1, not only in revenue, but also in demand coming out of auto.
That is partially because of the earlier movers in terms of the carriers and in setting rates and part of that is over the course of the year they will manage to that combined ratio.
Considering the full year and I think even the other carriers that are not on the vanguard of rates I think.
All carriers at this point have taken a fair amount of rate and so I think as much as we saw an early mover come back to acquiring within the quarter I think youre starting to see all carriers.
Vance rates to a point, where they are anticipating.
What the loss what the losses are they're seeing so there is a possibility that that will see all carriers gradually returned to a more normalized more normalized acquisition behavior over the course of 'twenty three.
Yes that was going to be thank you for that John and I was going to be kind of a follow up was just that you've got this.
Unfortunate Ian impact, but while that's happening I think you've got a lot of carriers trying to get closer to rate adequacy and I was just going to ask.
If you could characterize sort of how close some of the other ones were but you basically just did and said they were pretty far along so I'm not sure. If you want to amplify that or not but that's all for me. Thanks guys.
I guess, the only amplification I would add would be that we were encouraged by signs of a carrier that Ed.
Gotten to rate adequacy, and then behaved in a way that we had anticipated which is returned to acquisition mode and returned to the marketplace and so as much as hurricane Ian has interrupted that we're encouraged by the kind of the behavior of that carrier as representative of what happens in a recovery.
Thank you.
Thank you.
The next question today comes from the line of Dan Day from B Riley Securities. Please go ahead. Your line is now open.
Yes afternoon, guys. Appreciate you taking the questions. So just curious what kind of trends youre seeing as far as actual I know you started stopped providing the quote request.
Number every quarter just actual traffic was in the marketplace would be great just directionally.
You hit on it already but you would think in a softening economic environment.
Maybe insurance shopping activity would pick up and just wondering if you guys are starting to see that and more people landing in the marketplace any commentary on that would be great.
Sure Dan So certainly the biggest driver.
And this past quarter was volume increases so Jamie mentioned, we saw about a 27% increase I think it was in quota question that and that's pretty consistent with Q2.
This year as well so we've seen an uptick in volume.
Ponant of that uptick is the fact that we are doing a good job of executing into a more favorable advertising environment within insurance and then I think there's probably a component of that which is as expected consumers starting to shop for insurance, we know that many carriers have taken 15% to 20%.
Rate increases in the rearview mirror, leading up to now and so I think you've got consumers who are opening their renewal envelope and seeing those rate increases and looking to shop. So we are seeing.
Good traction in terms of consumer volume.
That's now been a couple of quarters in a row and we expect that to continue and that I think is exciting for us because we think it positions us well going into 2023, as we're picking up volume and share with consumers. We think we carry that into 'twenty, three where the demand returns gradually from the carriers.
And the consumers are already in the marketplace.
Thanks, Thats, great most of my the.
The other question I had mostly revolved around like Opex below the Vietnam line, and it's mostly been answered.
I guess just.
If I look at your last 10-Q, you had around 670 full time employees can you just comment on whether that numbers materially different today or just given the different strategy with the DTA.
Thanks.
Yes, I would probably break things into two components certainly outside of DTC.
We are continuing to look for efficiencies and we've and that's really been an ongoing process for the past year for us.
Within DTC, specifically with our first party agents.
Especially within health, we're seeing lower numbers of agents in Q4 of this year and so that's kind of why we gave some color into what we expect out of the health.
Vertical specifically, because we do expect to have.
A fewer number of agents in Q4, so it's modest.
Modest declines really in both categories.
Got it that's all I had thanks guys.
Thank you.
Yeah.
Our next question today comes from the line of Aaron Kessler from Raymond James. Please go ahead. Your line is now open.
Hey, guys. This is Alex Bolton on for Aaron Kessler.
Just had a question on <unk>.
I guess going higher there.
Can you break out how much.
Efficiency, you're seeing in advertising and as a result of the favorable kind of AD environment versus maybe a pullback in DTC.
Yes.
I'll take that Alex I would say if I contrast, Q3 against Q to Q2, we talked about.
Our performance, there, mostly being driven by ad spend.
Efficiencies within our own AD spend as well as overall kind of a more favorable environment I'd say as you get to Q3, our Vms achievement there was a combination of <unk>.
Slightly stronger revenue per quote request than than we anticipated. So some return of demand in Q3 and in addition.
Good execution against that more favorable.
Advertising landscape. So really in Q3, it was a combination of factors with a little more improvement in demand.
Okay, and then one other question I guess.
I guess there was one carrier that came out recently, saying that they were.
Making cuts there to their marketing team and putting their agency under review I guess seen any impacts.
From from that carrier.
The.
So.
Yes.
The carrier that I.
Thank you are characterizing as.
As in the later moving cohort and sort of I would separate.
The two cohorts and so as a result, they have been.
Meaningfully drawn back over the course of the year and therefore, the changes that they.
They announced if im thinking of the same one as you.
Haven't affected us materially relative to our expectations.
Okay that makes sense I appreciate it.
Thanks, Alex.
Thank you.
The next question today comes from the line of Cory Carpenter from J P. Morgan. Please go ahead. Your line is now open.
Hi, this is danny backgrounds, or Cory Carpenter I just have one question.
After Q4 can you maybe frame the longer term growth rate you're targeting for DTC.
Any of your longer term objectives.
<unk> has changed after this quarter. Thanks.
Sure.
As we look forward DTC is still something that we're very excited about in the business. We think it's.
It is a big driver of growth for our other verticals as well as even within auto.
Thank you.
Things have changed an awful lot for D. TCA I think what we've made clear is our growth expectations for DTC.
We will be with them, providing with DTC operations, providing kind of the economics that we require that business.
We expect that that business ultimately contributes more to Vietnam, and ultimately to adjusted EBITDA and so I think you would expect us to scale that business, but but first assuring that we're achieving those economics and that's been what we've been focused on this year and going into Q4.
Thanks.
Thank you.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
The next question today comes from the line of <unk> Tandon from Needham <unk> Company. Please go ahead. Your line is now open.
Hey, guys. This is Sam so all of a sudden for Miami Tonight. Thanks for taking the questions and nice results here.
Most of my questions have already been asked but.
I've got a couple of quick ones. So I wanted to touch on the other verticals that dipped this quarter.
Could you guys talk a little bit more about what's going on here.
And maybe how we should think about this segment in the in the coming quarters or is this really mostly a head count issue or is there anything else going on here. Thanks.
Yeah. Thanks, Sam.
So to put into context, the non auto verticals.
Significantly over the last few years.
Throw it to reach 15%, 20% or so of revenue recently.
This year, we are we are managing the business holistically with an eye towards towards profitability and towards unit economics and as a result that has it had an impact on non auto.
A couple of fronts. The first is you mentioned is we have moderated agent head count growth relative to earlier plans as part of companywide operating expense management efforts.
And that that impact will be most pronounced in Q4.
And we have diverted some investment away from active management of.
Non auto verticals, particularly in life insurance.
Just as we flow our resources to the areas, where we see the highest near term opportunity.
That's been compounded by.
Some headwinds in the home insurance market. So the home insurance market is not impervious to the inflationary pressures on losses that we're seeing in auto and as a result, we've seen some softening in demand there.
The combination of all those things is what has really driven the recent results and the non auto verticals.
As we look ahead in Q4, we would expect this to persist.
But long term, we continue to believe that non autos will be an important growth lever for the business and.
Moreover, it's really core to our value proposition.
Becoming the one stop shop for insurance and so we see them as a big part of our future, but there are some near term headwinds.
Got it that's super helpful. Thank.
Thank you for that and then just a quick follow up you kind of mentioned that they're answering that question, but.
Could you guys give any color on how we should think about some of these operating expenses going into 2023, given you guys have tightened the belt over the past few quarters in <unk>.
And we'll next quarter as well.
So I think you could expect that we will continue to make sure that that.
Our performance first goes to returning us to adjusted EBITDA, So as we see.
As we see carriers come back into the marketplace. We've said that we are committed to getting back to previous levels of adjusted EBITDA.
The sooner rather than later and so I think you would expect us to continue to manage operating expenses quite tightly as we do that we will then also as we always have make decisions around investing for growth, but first I think you'd expect us to get back to those previous levels of adjusted EBITDA and then have this.
A combination of managing the business.
For growth and growing incremental profitability.
Great. Thanks, guys.
There are no further questions registered so I'd like to pass the conference.
Back over to Jamie mental for closing remarks. Please go ahead when you're ready.
Alright, Thank you and thanks, everyone for joining us today.
We continue making progress towards our long term vision to become the largest online source of insurance policies by combining data technology knowledgeable advisers to make insurance simpler more affordable and personalized.
I think this quarter our team continued demonstrating agility, we're adapting to a changing environment, maintaining disciplined expense management and gaining market share. During this period and consequently, we expect to exit this year quite well positioned to emerge from the auto industry downturn as a stronger company. Thank.
Thank you.
This concludes today's conference call. Thank you will feel participation you may now disconnect your lines.
Yeah.
Okay.
Okay.
[music].
Yes.
Yes.