Q4 2022 EverQuote Inc Earnings Call

Speaker 1: That to.

Speaker 1: That.

Speaker 2: Call lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

Speaker 2: I would now like to pass the conference over to Brinley Johnson of Blue Shirt Group. Brinley, please go ahead.

Speaker 3: Thank you. Good afternoon and welcome to Evercoats' fourth quarter's 2022 earnings call. We will be discussing results announcing our press release issue today after the market close. With me and the call this afternoon is Jamie Mendel, Evercoats' chief executive officer and John Whitener, chief financial officer of Evercoats.

Speaker 3: During the call, we will make statements related to our business that may be considered forward-looking statements under federal securities laws, including statements concerning our financial guidance for the first quarter and full year 2023, our growth strategy and our plans to execute on our growth strategy, key initiatives including our direct-to-consumer agency, our investments in the business, the growth levers we expect to drive our business.

Speaker 3: ability to maintain existing and acquire new customers, our expectations regarding recovery of the auto insurance industry, and other statements regarding our plans and prospects. Our looking statements may be identified with words and phrases such as we expect, we believe, we intend, we anticipate, we plan, may, upcoming, and similar words and phrases.

Speaker 3: 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 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 maturely from our expectations.

Speaker 3: For 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 10Q or annual report on Form 10K that are in our file with the Securities and Exchange Commission and available on the investor relations section of our website.

Speaker 3: at investor.everclose.com and on the SEC's website at sec.gov. Finally, during the course of today's call, we will refer to certain non-GAAP financial measures which we believe are helpful to investors. A reconciliation of GAAP to non-GAAP measures was included in the press release we issued after the close of market today, which is available on the investor relations section of our website at investors.everclose.com. And with that, I'll turn it over to Jamie.

Speaker 4: Thank you, Brindley, and thank you all for joining us today. 2022 proved to be a formidable year as our teams resolved and our business models' resilience were tested by the difficult auto insurance market, which caused carriers to dramatically pull back customer acquisition spend while they worked to increase rates.

Speaker 4: Against this backdrop, we delivered full year revenue and variable marketing margin, or VMM, of $404.1 million.

Speaker 4: and $128.3 million, respectively. And we generated adjusted EBITDA of $5.9 million. Throughout the year, our team continued to demonstrate its agility and strength by adjusting operations to a rapidly changing environment to deliver solid financial results.

Speaker 4: We implemented disciplined expense management to deliver adjusted EBITDA profitability for 2022, exceeding the high end of our original adjusted EBITDA guidance despite significantly lower revenue as carriers pulled back on marketing spend more than initially expected. Our customer acquisition team swiftly recalibrated to frequent and large reductions in the EBITDA.

Speaker 4: as inflationary loss pressures persist.

Speaker 4: In Q1, thus far we have seen a significant sequential increase in auto enterprise demand driven by a limited subset of carriers. While we remain optimistic about demand improving over the course of the year, the exact timing and shape of recovery remains uncertain. We miss the continued volatility.

Speaker 4: In 2023, we will work to restore revenue growth, bring profitability back to pre-down-turn levels, and generate positive cash flow.

Speaker 4: Despite the unsettled nature of the past 18 months, Everquote enters 2023 in a stronger position than ever before. We continue to make steady progress in a market opportunity that remains enormous.

Speaker 4: Insurance distribution and advertising is a $170 billion market. Unlike nearly any other vertical market of scale, insurance distribution still lacks a clear digital category leader.

Speaker 4: At the same time, data continues to point to a more digital future. Internet shopping is still growing, insurance carriers are steadily building digital competencies and shifting distribution spend online, with upstart digital first carriers advancing that curve more quickly. And applications to deploy new technology, machine learning, and AI to solve industry challenges are becoming more accessible.

Speaker 4: Insurance distribution is ripe for disruption. As a market leader, Everquote continues working to redefine the category of insurance distribution for the digital age. Our mission is to make it easy for customers to protect life's most important assets.

Speaker 4: their family, health, property, and future. In pursuit of this mission, our vision has become the largest online source of insurance policies by using data, technology, and knowledgeable advisors to make insurance simpler, more affordable, and personalized.

Speaker 4: What makes us uniquely positioned to define this category? I would point to two important competitive differentiators. First, Everquo continues to be a data and technology company first.

Speaker 4: This element of our DNA has enabled us to scale our customer acquisition platform into one of the largest sources of online insurance policies in the US.

Speaker 4: Our strength continues to build and compound as we amass more data and deploy machine learning across more aspects of our business over time, ranging from traffic bidding to experience personalization to product recommendations. This will make our marketplace both more effective for consumers and providers and more efficient forever.

Speaker 4: Second, Evercourt has assembled a one-of-a-kind combination of insurance distribution assets, which enables access to a comprehensive set of insurance products across major personal lines. Careers provide access to their insurance products through different channels.

Speaker 4: Second, Ebercote has assembled a one-of-a-kind combination of insurance distribution assets, which enables access to a comprehensive set of insurance products across major personal lines. Carriers provide access to their insurance products through different channels. Some distribute directly to consumers.

Speaker 4: Others, through captive agents, and others through independent agents. Some carriers use multiple channels, depending on their preference for a digital sales funnel or a telephonic one. Evercoat has built a hybrid marketplace which supports all carriers in their pursuit of profitable growth. Those who distribute digitally and direct to consumer can participate in our digital marketplace. Those who distribute exclusively through captive agents can plug into our local agent offerings.

Speaker 4: And carriers who distribute through independent agents can appoint our direct-to-consumer agency, Eversurance, to access our shoppers. From the consumer's perspective, this hybrid marketplace enables Everquote to offer a comprehensive set of insurance options.

Speaker 4: resulting in each consumer being more likely to find the right product for them delivered in their preferred manner. We will focus increasingly on leveraging these distribution assets to build a unique and differentiated insurance shopping destination for consumers, through which they can access the industry's widest set of insurance products across major personal lines, receive personalized recommendations on the right products for them, and use them to improve their quality of life.

Speaker 4: and easily access advice from knowledgeable experts as needed. Success will set the stage for deeper and more enduring customer relationships, through which we will manage consumers' insurance needs across multiple products and over time. To be clear, we are still in the early stages of this journey, but we have now cleared a challenging and important milestone of assembling and integrating requisite foundational assets. We still have much work to do to achieve our vision. That said, we believe that Everquote is the only company with the assets...

Speaker 4: team, and conviction to deliver the type of insurance shopping experience that we believe the industry, including its carriers, agents, and consumers, ultimately needs to bring the full potential of the digital age to insurance buying and selling. Our team is energized by the opportunity ahead, and we look forward to sharing our progress this year as we continue to build the industry's preeminent one-stop insurance destination. Now I'll turn the call over to John to discuss our financial results.

Speaker 5: Thank you, Jamie, and good afternoon everyone. I'll start by discussing our financial results for the fourth quarter and the full year 2022 and then provide guidance from the first quarter and full year of 2023. Total revenue for Q4 was $88.3 million, a decline of 13% year over year and within our guidance range provided last quarter.

Speaker 5: For the full year, revenues decreased 3% to $404.1 million. Revenue from our auto insurance vertical decreased 5% year-over-year to $67.2 million in Q4 and 2% to $324.4 million for the full year of 2022.

Speaker 5: The decline in revenue in Q4 was attributable to a 21% decrease in consumer monetization year over year, reflecting the impact of lower carrier demand as the result of the industry-wide auto insurance downturn and a further pullback in reaction to hurricane Ian losses.

Speaker 5: partially offset by a 9% increase in consumer volume. Revenue from our other insurance verticals, which includes home and renters, life and health insurance.

Speaker 5: decreased 33% year-over-year to $21.1 million for the fourth quarter and represented 24% of revenue. For the full year, revenue from our other insurance verticals decreased 9% year-over-year to $79.7 million. While down on a year-over-year basis, Q4 revenue from our other insurance verticals decreased by 3.5% year-over-year.

Speaker 5: increased 40% sequentially from Q3, reflecting the seasonal contribution from our health insurance vertical during the annual open enrollment period. Within Health DTCA, revenue exceeded our internal forecast due to higher sales conversion inefficiency and improved consumer targeting.

Speaker 5: but declined from the prior year as expected due to a lower number of agents as part of our plan moderation and agent growth and emphasis on optimizing unit economics and cash usage.

Speaker 5: Variable marketing margin, or VMM, defined as revenue-less advertising expense, was $29.1 million for the fourth quarter, on the high end of our guidance range provided last quarter. Full year VMM decreased only slightly to $128.3 million. Despite lower monetization, variable marketing margin as a percentage of revenue increased

Speaker 5: was a record 32.9% for the fourth quarter and 31.7% for the fourth year. Though lower monetization generally places pressure on advertising margin during this period, we have been able to realize margin expansion, a direct result of refinements in our use of data and technology to bid competitively.

Speaker 5: advertising in a less competitive advertising environment. Turning to our bottom line, GapNet loss was $8.5 million for the fourth quarter and $24.4 million for the full year. The next quarter, GapNet lost $8.5 million for the fourth quarter and $24.4 million for the full year.

Speaker 5: Adjusted EBITDA was a positive $92,000 in the fourth quarter and $5.9 million for the full year. The result was within our guidance range provided last quarter and reflects our ability to manage our business for positive Adjusted EBITDA even during the auto insurance downturn.

Speaker 5: Operating cash flow was a use of cash of $4.9 million for the fourth quarter, reflecting the offset of positive cash flow from our referral marketplace against the higher seasonal revenue contribution of our DTC agency.

Speaker 5: with its associated multi-year collection of policy sales commission revenue. We ended the year with cash and cash prevalence on the balance sheet of $30.8 million and no debt outstanding on our $45 million debt facility.

Speaker 5: Coinciding with the filing of our 2022-10K today, we've also filed an S3 Universal Shell registration statement.

Speaker 5: With a healthy cash balance, ample borrowing capacity, and a plan to return to generating positive operating cash flow in 2023, we have no immediate plans to raise capital and are not dependent on doing so to run our business. The shelf registration statement provides us flexibility and access to raise capital over the next three years if we deem it necessary.

Speaker 5: or if we identify compelling opportunities to deploy capital to improve the performance of our business. We view dislocation in the InsureTech industry as having the potential to produce compelling acquisition opportunities in areas consistent with our vision and growth levels. And the shelf registration statement will provide us potential avenues for capital.

Speaker 5: beyond our current balance sheet resources if those opportunities should emerge. Turning to our outlook, including an update on the market conditions within the auto insurance industry, we anticipate improving demand from our auto insurance carrier providers during the course of 2023. Auto insurance premium increases.

Speaker 5: along with existing moderation in factors that drive claims losses are anticipated to improve financial performance for auto insurance carriers and consequently their demand for new consumer acquisition. The timing of this improvement will differ among carriers.

Speaker 5: with those that increased rates more significantly and earlier in the downturn reaching rate adequacy sooner. Though there is uncertainty and many auto insurance carriers are still suffering an imbalance between premiums collected and claims paid, we expect gradual normalization of the market. With Q1, we've begun to see this initial improvement in demand from a limited subset of carriers.

Speaker 5: With demand improvement, we expect to return to revenue growth over the course of 2023, with improved VMM and adjusted EBITDA and positive operating cash flow for the full year. 4-Q-1

Speaker 5: We expect revenue to be between $101 and $105 million, a year-over-year decrease of 7% at the midpoint. We expect variable marketing margin to be between $31.5 and $33.5 million, a year-over-year decrease of 5% at the midpoint.

Speaker 5: And we expect adjusted EBITDA to be between $2.4 million, a year-over-year increase of 24% at the mid-late. For the full year of 2023, we expect revenue to be between $420.435 million.

Speaker 5: A year-over-year increase of 6% at the midpoint. We expect variable marking margin to be between $132 and $140 million. A year-over-year increase of 6% at the midpoint. And we expect adjusted EBITDA of between $7 and $13 million.

Speaker 5: a year-over-year increase of 69% at the midpoint. In summary, during the fourth quarter and full year 2022, diversity in distribution, disciplined execution and consumer acquisition, and management of operating costs allowed us to mitigate the impact of the auto insurance pullback.

Speaker 5: and continue to deliver positive adjusted EBITDA. As auto insurance demand returns, we expect to return to revenue growth.

Speaker 5: with an emphasis on rapidly improving adjusted EBITDA and cash flow. Jamie and I will now answer your questions.

Speaker 5: on rapidly improving adjusted EBITDA and cash flow. Jamie and I will now answer your questions. Thank you.

Speaker 2: If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.

Speaker 5: Our first question comes from the line of Michael Graham with Canaccord. Your line is now open. Thank you and thanks guys for sharing all this and it's good to hear that you see the auto market improving throughout the course of the year.

Speaker 5: I just wanted to kind of drill down on that a little bit. Maybe you could just give a little more depth around you know what you're seeing from some of the major carrier customers. You know do you have you know do you have a feel for like how many of them are getting you know closer rate adequacy and then can you just comment like as we get you know these new

Speaker 6: Sure.

Speaker 4: Thanks Mike. So the year has started more or less as expected. I think our view is that Q4 was likely to be a trough period for us and that we'd see a bit of a step up or inflection in Q1. We have seen that occur.

Speaker 4: It is still relatively concentrated in terms of the increase in demand. And so we have seen a subset of carriers restoring healthier profitability and higher demand. And as a result, we've seen them step back into the marketplace in a more meaningful way. Still, you know, state by state.

Speaker 4: and segment by segment. And so I think there's reason for optimism in terms of starting from a good point and expecting that the year will build as other carriers achieve rate adequacy over the course of the year. The reality if you look broadly across.

Speaker 4: The industry right now is that many carriers still have not achieved great adequacy as at least the latest data we have available, which is Q4 for many January for at least one. And so it's still a bit of a mixed bag out there. Now, they have all been taking rate.

Speaker 4: Even California is now allowing rate increases. And so what we expect is that has these rates earned in, each month that passes, each quarter that passes, carriers will restore profitability in certain segments of the market. And as they do, they'll begin to lean back in in terms of their customer acquisition app.

Speaker 4: In terms of shopping behavior, what you asked about is in fact what we would expect to happen, which is that as rate increases flow through, you're going to have to be able to get the

Speaker 4: Consumers will receive renewal notices at substantially higher premium than what they were paying previously, and that will trigger shopping behavior. So we've seen that flow through the marketplace even in 2022. We saw it with elevated levels of consumer shopping behavior persisting into 2023, and we would expect it to be a little bit higher than what we would expect it to be.

Speaker 4: to continue for as long as the rate cycle has been effect, which from where we said today, is likely to extend into 2024.

Speaker 4: to continue for as long as the rate cycle is in effect, which from where we sit today, is likely to extend into 2024. OK, that's really helpful. Thank you, Jamie.

Speaker 2: Welcome. Thank you, Mr. Graham. Our next question comes from the line of Cory Carpenter with JP Morgan. Your line is open. Next to the question, one for John and one for Jamie. Maybe John starting with you. Just because you help us with what you're kind of baking into the guide from a recovery perspective.

Speaker 2: and maybe to be extent you're willing to provide any color on auto or not auto growth expectations this year. And then Jamie, could you just touch a bit on the presentation mentioned re-excelerating not auto growth this year? Could you just talk about some of your initiatives there? Thank you. Sure, thanks ???. Thanks, Laurie. So.

Speaker 5: addition a gradual increase in demand from other carriers as they reach rate adequacy we see the rates that they've already taken burn in to their book of business and we see them start acquiring again and then I would say kind of you know that is a gradual movement that we see going through the year including into the back half of 23 and then I would say our range also includes the fact that you know there's a certain amount of

Speaker 5: uncertainty within the market, right? Some carriers are very much still struggling with the imbalance between premiums and claims, and so we've captured that as well in our guide as well. There's a range there that allows for the fact that we don't know with certainty what the recovery, what the slope will look like, or what the speed will look like.

Speaker 5: And so we've really, I would say, prudently kind of captured those scenarios in our guide. As we look at the breakdown, we certainly, you know, we talk a lot about autos. We also see non-auto growth, the other verticals also returning to growth over the course of the year as well.

Speaker 4: So we are starting to gear up for growth across the board. And, Cory, to answer the second part of your question. You know, in 2022, we really focused intensely on stabilizing the auto vertical.

Speaker 4: And, you know, as part of doing so, we had to apply an added level of rigor and discipline and expense management. And unfortunately, that came at the expense of a certain amount of resourcing in our non-auto verticals.

Speaker 4: One example would be in the direct consumer agency where we entered the year last year with plans to grow agent headcount in the health and Medicare business. We made a decision in year to instead focus more heavily on driving up the unit efficiency of that part of the business and...

Speaker 4: have already sort of reallocated some dedicated resourcing into non-auto verticals. And as the auto business recovers, we will continue to reinforce that move because we continue to see just a huge amount of potential in the non-auto verticals and look forward to getting them back to growth mode. Thanks for your time today.

Speaker 7: Thank you, Mr carpenter.

Speaker 2: Our next question comes from the line of Mayank Tandon with Needham. Your line is now open. Thank you. Good evening. Congrats Jamie and John . Good to hear that growth is reflecting higher. That's encouraging. Good afternoon.

Speaker 5: I was going to just ask more around your expectations in terms of the court requests and the revenue for court requests. How are you thinking about that breakdown as you look at 2023? Sure, Mayank. I'll take that. We see it as growth being fueled by a mix of monetization as well as traffic. As we already talked about, we think the environment in which rates are increasing is increasing.

Speaker 5: this past year. In addition we believe that also there is the opportunity for monetization increases.

Speaker 5: Initially that doesn't mean necessarily that that is carriers bidding up because there are really the early cohort of carriers that have...

Speaker 5: to obtain rate adequacy coming back to the marketplace. But there are opportunities for modernization, even with those early carriers. And that really is really twofold. It's carriers that are coming back to market and maybe are displacing a lower bid, not necessarily bidding up comparatively.

Speaker 5: And then also it's the opportunity for us to increase the number of referrals per consumer. So as carriers, even the initial carriers come back into the marketplace that can increase the number of monetization events that we have for.

Speaker 5: per consumer. So as a consumer is looking to get multiple quotes on a policy, our ability to monetize them multiple times and give them multiple quotes is directly related to the carriers that are in the marketplace. So as they come back...

Speaker 5: We have that opportunity to increase monetization. As we look forward to 23, it is really a combination of balance, consumer volumes, as well as additional monetization. That's a very helpful context. I just wanted to add another question around seasonality. John , could you remind us of the seasonality, especially in auto as we build out the rest of the year?

Speaker 5: in terms of the revenue trajectory and of course also how that will square with your BMM and EBIT outlook. Is it going to be fairly linear this year just given some of the trends or should we expect the usual seasonality to play out in 23 as well?

Speaker 5: Yeah, so I would start by referring back to kind of the usual seasonality within auto and that is a good strong Q1 usually followed by a slightly softer Q2 and a slightly stronger Q3 and then a pullback within auto as you come into Q4 both with the...

Speaker 5: the holiday season consumers distracted by the holidays as well as some of the carrier media spend that leaves the market in favor of retail spend. So that's the normal characteristics of the seasonal pattern within Auto. I think clearly this year you have the opportunity, especially when you look at the COP and Q4 to see something that contradicts that usual pattern.

Speaker 5: that has some growth and some build, especially as we get through to the second half of the year. And then over that, I would just overlay the fact that health and our DTCA offering has a bit of a different seasonal pattern. So if you look at our overall results, the health DTCA business

Speaker 5: has a stronger quarter, the strongest quarter in Q4 and a second strongest quarter in Q1 with the lock-in period within health in Q2 and Q3. So we would expect, you know, within health, a reduction in Q1 and then a softer period in Q2 and Q3 before returning to the health...

Speaker 5: annual enrollment period and open enrollment period in Q4 for Medicare Advantage, as well as for the under 65 health offerings. That's very helpful. Good refresher for me. Thank you so much.

Speaker 2: Thank you, Mr. Tandon. Our next question comes in line with Ralph Shackert with William Blair. Your line is open. Good afternoon. It takes taking the question.

Speaker 5: Evercoat's business model has gone through these transitions historically where the carriers have taken rate. The marketplace has had to adjust and then coming out of that the business has seen pretty strong growth. Just curious if you could kind of rewind a little bit and maybe give us a little history lesson here as well as maybe the similarities that you are seeing now versus past cycles. You know any difference.

Speaker 5: in 2017, in which there was a fairly sudden spike in claims losses for the auto carriers. And then as the carriers took rate during that period, we saw a very strong market for auto in terms of demand.

Speaker 5: into 2018 and 2019. I would say the differences between that experience and what we've seen recently are the fact that at that time, it wasn't very well understood exactly the dynamics that were happening to cause the COVID-19 pandemic.

Speaker 5: Auto insurance claims to spike I think in retrospect There's a better understanding that it was probably mostly being caused by distracted driving and some cost to repair vehicles I'd say the other major difference between that cycle and this one was the the length and the severity clearly this cycle This imbalance has been more severe than what we saw

Speaker 5: all started to react to that, albeit at different speeds with different levels of rate increases, but they've all reacted to that. You've seen them all take a rate at this point. Some of that rate has burned into their book of business, earned in, and some has not yet. But you're seeing the industry all react in a very similar way, probably with more consistency than what you saw in 16 and 17.

Speaker 5: team. And that's that's largely what we expect as we get through the the back end of this uh... this imbalance as the carriers take that rate and also see that rate that they've already taken or are an inter their book of business and start getting reflected in their results in their combined ratios and start returning to

Speaker 4: focus on acquiring consumers. I think the only thing I'd add is...

Speaker 4: There's two sides of the equation. There's the right side, which the carriers are working through, and then there's the lobside. I think the big question for the industry will be what that lobside looks like over the course of the year. There's the right side.

Speaker 4: I think there's a scenario where things somewhat stabilize where they are, and then the race.

Speaker 4: come and meet the losses where they are. And there's also a scenario where you could continue to see deflationary pressures in the loss environment, meaning the cost of used cars or some of the cost drivers subsiding, in which case the carriers could enter a period of somewhat windfall profitability.

Speaker 5: typically set annual budgets and I'm guessing that's reflected in your guidance today but are you seeing any changes in pattern with that just given the macro uncertainty and then taking right just kind of curious you know just on the full year basis if you're seeing sort of any change in behavior there from the carriers thank you yeah

Speaker 4: From last year, we are seeing the subset of carriers that have gotten their rates in line have largely returned to more sort of normalized historical approach to setting their budget, which varies by carrier. Some operate relatively unconstrained ways. You know, we'll set their budget on a quarterly or monthly basis.

Speaker 4: but we're seeing budgets return to normal in pockets. In other areas, we're seeing just carriers managed through budget gaps, and that's being reflected in the lower levels of demand and spend with the balance of carriers who haven't yet achieved great adequacy.

Speaker 4: And those budgets tend to get revisited, if not monthly, quarterly. And so we tend to get information from some of these carriers, so we obviously have an open dialogue with them. And in general, I'd say they're moving to a more constructive stance, meaning they're looking for pockets, on balance they're looking for pockets where they can lean in, where they have profitability. But we sort of learn more as they learn more about their underwriting results with each month or quarter that passes.

Speaker 2: Okay, that's really helpful. Thank you, Jamie. Thanks, Rob. Thank you, Mr. Shockert. Our next question comes from the line of Aaron Kessler with Raymond Jane.

Speaker 2: Okay, that's really helpful. Thank you, Jamie. Thanks, Rob. Thank you, Mr. Schackert. Our next question comes from the line of Aaron Kessler with Raymond James. Your line is now open.

Speaker 5: Great. Thank you. Mary, can you talk a little bit about as well the agency performance in the quarter, kind of what are you seeing from agents? And then additionally, can you talk – I think you noted in the report, kind of some market share gains, just how are you thinking you're doing versus competitors currently? And lastly, just the non-auto verticals.

Speaker 4: And I already think you see the most opportunity for re-exceleration in 2023. Thank you. Sure. So agents, competitive landscape or market share and non-auto, and just to clarify, you know, we talk about two different agent channels, and I can have to talk about both. But we have our local agents, our third-party agent network, and then we have our direct consumer agency. Is there one that you were inquiring? Yeah, no, sorry.

Speaker 4: most opportunity for reacceleration in 2023. Thank you. Sure. So agents, competitive landscape for market share and non-auto. And just to clarify, we talked about two different agent channels, and I'm happy to talk about both, but we have our local agents, our third party agent network, and then we have our direct to consumer agency. Is there one that you were inquiring about specifically? The local auto agents.

Speaker 4: Yeah, sure. So that part of the business has demonstrated really strong resilience over the last year. As the direct carriers contracted meaningfully, we were able to continue growing demand from local agents. And that's in spite of the industry headwinds, it's in spite of cost controls that we placed on that business just as part of our overall opex management efforts. And I think we are pretty confident that today Everquote is both the largest and highest performing provider to the local agent base. Predominantly those captive agents that all states or state farm or farmers agents of the world. So it's been a strength for the business in 2022. As we look at it next year, we're going to continue to invest.

Speaker 4: strength of our agent distribution, that's both third-party agents and our direct consumer agency as well as just

Speaker 4: our effectiveness in managing traffic operations and response to some fluctuating demand over the course of the year. So, you know, we're pretty confident that we have picked up a step through the downturn and a shift position as well on the way out. And then to address your third question around non-auto verticals, you know, I think the growth is going to be fairly well balanced across the non-auto verticals.

Speaker 4: One area that we're leaning into a bit more heavily is home insurance. If you look at some of the carrier results, the PNC carriers, while they continue to work on restoring auto profitability, the picture in home is a bit better for them. And so, therefore, they do have appetite to grow. There is more demand that is there.

Speaker 4: over the last year into the health and Medicare operation. And we're continuing to invest in driving strong unit economics. And as we do, we'll return to a more of a growth posture in those verticals over the course of the year.

Speaker 7: Great, thank you. No problem. Thank you, Karen. Thank you, Mr. Kessler. Our next question comes from a line of Jed Kelly with Oppenheimer.

Speaker 5: You're on the phone. Hi, great. Thanks for taking my questions. Just a couple. If I may, just just going back. Um.

Speaker 5: to the competitive dynamic. I think some of the competitors maybe are kind of guiding for somewhat of a faster growth rate, maybe in one queue. Can you discuss anything around the competitive dynamics? And then you did file a mixed shelf offering. Can you discuss?

Speaker 4: any potential acquisitions or how the environment is for valuations and the overall acquisition environment. Thank you. Sure. I'll take the first piece, Jed. We've seen and sort of like heard how some of the others are talking about the recovery. I don't think there's.

Speaker 4: Don't believe there's a difference in terms of what we're seeing versus what others are seeing we have seen a substantial Step up sequentially from q4 into q1 It's relatively concentrated as we mentioned in terms of You know it coming from a small subset of the carrier base

Speaker 4: in terms of what we're seeing versus what others are seeing. We have seen a substantial step up sequentially from Q4 into Q1. It's relatively concentrated, as we mentioned, in terms of it coming from a small subset of the carrier base.

Speaker 4: I think we are likely seeing what the rest of the industry is seeing. You have to recall that we have a different distribution, sort of a channel mix, from most of the industry, in that about half of our revenue comes from the agent channel, which has been more of a steady grower throughout. So you might expect to see a bit more of a swing from other companies that have less diversification in their distribution base. But by and large, we're taking a relatively conservative approach to it. We appreciate that there's still quite a bit of uncertainty in the market. We want to see some more depth in terms of carriers returning to the marketplace, more carriers returning to growth mindset. And I think as we do, you will see a...

Speaker 4: reflect that as our confidence builds that we have, that we have those dynamics in the marketplace in a way that we haven't yet achieved, but we're moving in the right direction for sure. And, Jed, on the shelf registration we filed today, I would describe that really as just good housekeeping and a step to give us some capital optionality. You know, in my prepare remarks, I went out of my way to say that, you know, it's not something that we're looking for to raise capital to fund the business.

Speaker 5: You know our view on acquisitions that we've spoken about in the past, which is we think acquisitions can be a part of our growth story if they tie in well to kind of our no growth levers. And if they provide us, usually some sort of initiative that we've thought about growing ourselves, and we look to...

Speaker 5: an acquisition in order to jumpstart something like that. So we think there could be some opportunities on that side. The filing of the shelf really just gives us optionality around being able to raise capital, but no specific plans in mind and certainly no dependencies.

as we look at the shelf. And then just as a follow up, I look at the non-variable marketing of your total sales and marketing. I think it was 14, 5 million this quarter, so down 14%, down 5% sequentially. How should we be forecasting, or what's implied in the guide for that line item for 23? Thanks.

Just to clarify, are you saying the non-advertising component of sales and marketing?

Just to clarify, are you saying the non-advertising component of sales and marketing? Yes.

Yeah, so there you see within that number you see the reflection of the plans to focus our DTCA efforts around improving economics. And so there you see the reduced expense in that line item mostly being driven out of lower aging count, lower resources going into DTCA this year versus last year. It was very important for us to grow the business.

established that we could scale the business. This year we are more focused on improving the efficiency. And as Jamie mentioned, we significantly improved the efficiency of our DTCA, which is, you know, both in PNC and most especially within health. As we move forward, we are looking at DTCA and we are looking at the health and safety of our patients and our patients.

Again, mostly focused around improving the economics of the direct-to-consumer agency. When we achieve those economics, we believe that warrant scale will start to scale DPCA again. What is implied in the guide is...

generally modest resources around DTCA with some incremental resources in the back half of the year this year versus last year. But no, you know, no dramatic growth plans and resources that are implied within the operating expense guidance.

resources around DTC area with some incremental resources in the back half of the year this year versus last year. But no, you know, no dramatic growth plans and resources that are implied within the operating expense guidance. Thank you.

Thank you, Mr. Kelly. Our final question comes from the line of day and day. Would be Riley's securities. Your line is a little open. Yeah, I think you guys appreciate taking questions. Looks like I've been asked, but I'll sneak one more in just to follow up on the discussion on cash off if you had there. It looks like.

You know, you're baking in that OpEx below the VMM line slightly up year over year. Maybe just talk about any leverage you have if you were to choose to bring some of those VMM dollars down to EBITDA, you know, more so than you're currently baking into the guide. And then if that EBITDA were to come in roughly around where you're guiding to in 23D, do you have a sense where free cash flow would be for the year? I think the swing factor really would just be the sort of working capital in the DTCA, but anything else there in terms of EBITDA and free cash flow would be great.

business, but we have efforts there in order to manage that business for reduced cash usage as we improve the economics of that business. So that combination at the midpoint of our guide, we think it brings us slightly positive for the full year on operating cash.

I then turn to the first part of your question. When you look at the economics, I'd say the greatest opportunity really is if we see greater strength around carrier demand and return to the market.

We have a history of when we see greater demand that translates pretty quickly into a higher VMM and although below the VMM line we are often making choices between growth and EBITDA usually when we see that that translates into you know stronger EBITDA than expected largely because it takes us time to deploy those dollars.

for growth. And so I think if you look and say, you know, what is certainly anything under the VMM line, we have that choice between investing for growth and today in our guidance we have some investments baked in for growth around our agency business, both first party and third party. And then I think beyond that, the leverage, the kind of

The accretion for EBITDA on additional VMD is very strong after that. And that would be the upside that we could see if we see stronger demand returning over the course of the year. Okay. That's all I've got guys. Appreciate your time. Thanks Dan. Thanks Dan. Thank you Mr. Day. There are no additional questions waiting at this time. I'll pass the conference back over to Jamie Mandel for closing remarks. Thank you. So we were really tested in 22 with the most severe hard market in auto insurance memory.

And I got to say, I'm incredibly proud of how the team rose to the occasion and adapted to it. Despite a significantly worse demand scenario than we predicted at the beginning of last year, we managed to drive efficiency and deliver an adjusted EBITDA above our original 2022 guidance.

Looking ahead, we are working hard to restore growth, to improve adjusted EBITDA, and generate positive cash flow from operations. As we do, we are excited to just continue to build on the strategic momentum in our pursuit of an industry-defining destination for insurance shopping in the digital age. Looking forward to sharing updates on our progress as the year goes on. Thank you all.

I conclude the ever quote fourth quarter in full year 2022 earnings call. Thank you for your participation. I hope you have a wonderful day. Thank you.