EverQuote Inc. Q1 2023 Earnings Call
Good afternoon, and thank you for joining the Evercore first quarter 2023 earnings call. My name is Kate and I will be the moderator for todays call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers.
At the end I would now like to pass the call over to our host friendly Johnson of the Blue shirt group you May proceed.
Thank you good afternoon, and welcome to Evercore first quarter 2023 earnings call, we'll be discussing the results announced in our press release issued today after the market closed.
With me on the call. This afternoon is Jamie Mendel adequate Chief Executive Officer, and John Wagner, Chief Financial Officer of Evercore.
During the call we will make statements related to our business that may be considered forward looking statements under federal Securities law, including statements concerning our financial guidance for the second quarter 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.
Allowed you to maintain existing and acquire new customers our expectations regarding recovery of the auto insurance industry and other statements regarding our plans and prospects.
Forward looking 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. These statements reflect our views only as of today and should not be considered our views as of any subsequent date.
Typically disclaims any obligation to update or revise these forward looking statements except as required by law.
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 there.
Port on Form 10-Q, our annual report on Form 10-K is on file with the Securities and Exchange Commission and available on the Investor Relations section of our website at Investor day ever quote Dot com and on the SEC's website at SEC Docker finally during the course of today's call. We don't refer to certain non-GAAP financial measures, which we believe are helpful.
To investors a reconciliation of GAAP to non-GAAP measures is 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 that Evercore Dot com.
And with that I'll turn it over to Jamie.
Thank you Brendan and thank you all for joining us today.
Every quote exceeded expectations across our three primary financial Kpis in the first quarter.
We produced revenue of $109 $2 million.
We have a marketing margin or <unk> of $35 $6 million and.
And adjusted EBITDA of $5 4 million.
We achieved a strong <unk> as a percentage of revenue of 32, 6%.
And then adjusted EBITDA margin of four 9%, both representing levels, which we last achieved before the auto insurance industry downturn.
Our progress in Q1 was broad based and at the industry normalizes, we will be well positioned to grow the business significantly and profitably.
It has occurred several times in the current period of auto insurance market instability, our growing momentum in Q1 was met with strong industry headwinds.
Entering Q2, a major carrier partners significantly reduced its customer acquisition budget due to the unexpectedly challenged underwriting results.
We are also seeing targeted reductions in marketing subsidies for captive agents, which could impact our local agent demand for the remainder of this year.
Based on the persistent uncertainty in the auto insurance carrier market, we have decided to withdraw our previously provided full year 2023 guidance.
While we maintain conviction and an auto insurance recovery driving significant growth for ever quote.
Timing remains difficult to predict.
Focusing on what we can control we continue to drive efficiency throughout our operations, while accelerating diversification into stable parts of the business.
Highlights from Q1 includes strong performance in our local agent network, where continued resilience drove record levels of local Asian budget.
We continue to have a commanding leadership position in this market with data, suggesting ever quote maintains the highest market share and performance in the industry.
In our direct to consumer agency, we had a strong open enrollment period with health and Medicare generating historically high levels of profitability and cash efficiency.
And our property and casualty or P&C lines continued to make considerable progress expanding our product offerings and increasing the rate at which we bundle auto policies with homeowners and other ancillary products.
Our direct to consumer agency now represents 50 carriers across our combined P&C and health and Medicare offering as we continue to expand our carrier and product coverage. We continue to build the foundation of our one stop insurance shop.
With the auto insurance carriers, continuing to adjust rates to the changing loss environment, we began shifting more resources into non auto verticals late in 2022.
In Q1, we returned to revenue growth in our home vertical.
And expect to continue that trend as carrier budgets and agent demand shifts from auto and homeowners products.
In Q2, we are replicating the playbook used to reignite growth in the home vertical to our life health and Medicare marketplaces.
We are moving aggressively to restore growth in these non auto verticals over the balance of the year. After a period of contraction following reduction in DTC Medicare agent head count as part of our broader expense management efforts.
Progress and agent channels, and non auto verticals enable ever quote to diversify further from the auto carrier direct channel.
In addition, we continue to drive efficiency throughout the business.
We achieved a near record high <unk> margin in Q1, as we rolled out new bidding technology, which leverages machine learning to optimize bids at more granular level than ever before enabling our traffic operations to benefit from greater AD spend efficiency.
We also produced a return to pre downturn levels of adjusted EBITDA well ahead of our full auto insurance recovery. Thanks to continued discipline and management of our operating expenses.
We remain steadfast in our belief that we can create an industry defining company as we continue working to redefine the 170 plus billion dollar insurance distribution and advertising market for the digital age.
We have assembled a one of a kind combination of insurance distribution assets, which provides consumers access to a comprehensive set of insurance products across major personal lines.
<unk> and each consumer being more likely to find the right product for them delivered in their preferred manner.
We will focus increasingly on leveraging these assets to build a differentiated insurance shopping destination for consumers.
Through which they can access the industry's widest set of insurance products across major personalized received personalized recommendations on the right products for them and easily access advice from knowledgeable experts as needed.
Evercore its long term value continues to compound as we amass more insurance distribution data, which we are using increasingly to deploy machine learning and artificial intelligence across aspects of our business ranging from traffic bidding to experience personalization to product recommendations.
With our deep roots in data and technology, we believe we will lead the insurance industry and the adoption of AI technology as it proliferates.
As AI applications become more accessible evercore is embracing its potential quickly finding use cases, where it can drive meaningfully greater productivity <unk> enable entirely new products services or ways of doing things.
Our mission is to make it easy for customers to protect life's most important assets their family health property and future.
Our vision is to become the largest online source of insurance policies by using data technology and knowledgeable advisers to make insurance simpler more affordable and personalized.
While we have much work left to do and require a period of industry stabilization to fully realize that vision. We continue to drive operational excellence in this difficult time.
We believe that ever quote is the only company with the asset team and conviction to deliver the insurance shopping experience that the industry as carriers agents and consumers ultimately need to bring the full potential of the digital age to insurance buying and selling.
Our incredible team remained passionate about achieving our vision, which we believe when realized will deliver compelling value for our consumers insurance provider partners and shareholders.
Now I'll turn it over to John to discuss our financial results.
Thank you Jamie and good afternoon, everyone I'll start by discussing our financial results for the first quarter and then provide guidance for the second quarter and the context for our decision to withdraw guidance for the full year of 2023.
Our total revenue for the first quarter of $109 2 million.
<unk> is a decline of 1% year over year, but exceeded our guidance range for Q1 provided last quarter.
Revenue from our auto insurance vertical increased 2% year over year to $89 7 million in Q1 of.
Sequential improvement of 33% over Q4 of 2022 due to a combination of Q1 being a seasonally stronger quarter within our auto insurance vertical and the resurgence of demand within the quarter from our largest carrier customer following initial improvement in their claims losses.
Coupled with consistent performance from our local agent network at nearly 40% of total revenue, we achieved a record level of auto insurance revenue.
Revenue from our other insurance verticals, which includes home and renters life and health insurance decreased 15% year over year to $19 5 million for the first quarter and represented 18% of revenue.
The decline in revenue was attributable to our planned moderation in our direct to consumer agency with an emphasis on optimizing the unit economics, and cash efficiency and offset by double digit growth in our home insurance vertical.
Variable marketing margin or <unk> defined as revenue less advertising expense was $35 6 million for the first quarter, beating our guidance range provided last quarter.
Despite lower monetization variable marketing margin as a percentage of revenue was a near record 32, 6% for the quarter.
Our investments in bidding technology led to a higher margin operating point as we drove down traffic costs and increased consumer traffic volumes, 21% year over year.
So most carriers continue to limit their spending on new consumer acquisition as they work to raise policy pricing to cover rising claims losses consumers are reacting to those price increases by shopping more aggressively.
Turning to our bottom line.
Net loss was $2 5 million in the first quarter.
Adjusted EBITDA was positive $5 4 million in the first quarter.
The result was above our guidance range for Q1 provided last quarter and reflects a return to pre auto insurance downturn levels based on stronger auto insurance performance, demonstrating that as auto insurance industry conditions improve our marketplace has the potential to deliver expanding profitability.
Operating cash flow was a use of cash of $1 2 million for the first quarter, a significant year over year and sequential improvement, reflecting the cash flow contribution from greater positive adjusted EBITDA.
We ended the quarter with cash and cash equivalents on the balance sheet of $28 8 million and no debt outstanding on our $45 million debt facility.
Turning to our outlook.
<unk>, an update on market conditions within the auto insurance industry.
As anticipated we witnessed improved demand in our auto insurance vertical in Q1, driven by a very strong return of our largest carrier customer as they experienced improved financial performance, which resulted in an increased focus on growing their new consumer acquisition.
At carrier, However suffered an abrupt increase in claims and a decrease in profitability in March caused by a combination of one time factors and more persistent claims related expenses.
This resulted in a significant reduction in their demand entering Q2 dropping to trough levels of Q4 2022.
Outside of this major carrier, who had taken more decisive rate action earlier in the downturn nearly all other auto insurance carriers are continuing to experience low levels of profitability and are aggressively increasing rates in order to achieve rate adequacy.
Although our third party agent network has been resilient.
Prolong nature of this downturn has resulted in some reductions of carrier support for their captive agents and we anticipate the possibility of further reductions which may impact our local agent business during the second half of this year.
Ultimately, we remain confident that auto insurance premium increases will improve financial performance for auto insurance carriers, and consequently will increase their demand for new consumer acquisition, but the timing of this improvement continues to be delayed.
Therefore impacting our guidance for Q2, and our decision to withdraw guidance for the full year.
For Q2, we expect revenue to be between 70% and $75 million.
A year over year decrease of 29% at the midpoint.
We expect <unk> in the quarter to be between 23 and $26 million a year over year decrease of 26% at the midpoint and we expect adjusted EBITDA to be between negative four negative $1 million.
In summary, we delivered results better than our guidance for the first quarter and are executing well, while judiciously managing expenses.
Though we recognized a higher level of uncertainty in the near term we have conviction that we will directly and significantly benefit from the eventual normalization of auto insurance carrier demand.
Jamie and I will now answer your questions.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star followed by a one on your telephone keypad.
Any reason you would like to turn that question. Please press star followed by <unk>.
As a reminder, if you are using a headset.
A speaker phone please remember to pick up your handset before asking your question.
Our first question will be from the line of Ralph Scott Scott Cart with William Blair. Your line is now open.
Good afternoon. Thanks for taking the question just in terms of the large carrier I guess it was a market.
Earlier in Q1, and then out in March.
Any sort of thoughts on when that carrier could return and or conversations that particular carrier I know, it's pretty dynamic.
Situation and then maybe just a follow up with the other carriers that are now are still low profitability how are the conversations.
You sort of progressing or trending with those carriers and then I have a follow up.
Sure.
Hey, Rob.
The large carrier that pulled back.
<unk>.
We don't we don't have like a firm commitment on what the sort of Reengagement path looks like.
They have pointed us to the data.
Available right.
Watch continue to watch how their combined ratio trends they have.
Publicly well known and understood target that they are managing the business too.
So as they are able to manage down to their combined ratio target, we do expect them to reactivate.
Spend and as they are able to take rate in specific states, we expect that to occur state by state.
The signal that they've given us is theyre reviewing things month to month.
I think the interpretation based on looking at their numbers and speaking with them is that we probably don't expect any significant movement inside the quarter, but we are hopeful that come.
Q3, they will have largely gotten their combined ratio in line for the first part of the year, which would bring them back to a more normalized state for the back part of the year.
With respect.
Two other carriers.
We continue to get a consistent message that the back part of the year is when we would expect to see some summary engagement.
We know there are carriers that are benefiting from earning in on previous rate increases.
And now it seems that everyone's adjusting their 2023 rate increase plans upwards.
And they are seeing good receptivity from from state even states like California.
On large carrier announced they got a 19 point rate increase from California, which is a significant step in the right direction.
So we are beginning to see some of these other carriers get their combined ratios more in line or at least trending in the right direction or with line of sight to get to get there their combined ratios in line.
Middle of the year, and we would expect that the slowly start to step back in.
By State segment by segment as they do.
Great. Thanks, So just a quick follow up.
The local agents.
Have you seen that.
That business be impacted I guess in Q1 or Q2 or is that just something that you are bracing for potentially to happen in the second half of this year. Thank you.
Yeah. So.
The carriers have been.
Removing subsidy dollars they provide marketing subsidy dollars two agents they have been removing them.
State by State segment by segment over the course of this year.
And we have seen some impact, but we've been able to grow through it. So we did exit Q1 with record levels of agent budget. They likely would have been higher without the withdrawal of some of those support dollars but.
But we continue to make good progress now what we expect for the balance of the year is that carriers. Some carriers will continue to remove additional subsidy dollars in states, where they are not profitable and that the subsidy dollars will return to the marketplace as the carriers are able to get rate. So we do expect it will be hard to continue growing budget for the balance of.
Of the year, but we maintain a really good position in that market, we have a dominant market share we provide the highest performance.
If any of the competitors that are sending volume into that channel and so we feel good about continuing to build that channel over the longer term.
Okay, great. Thanks, Tim appreciate it.
Thanks, Rob.
Thank you.
Our next question will be from the line of Cory Carpenter with Jpmorgan. Your line is now open.
Thanks for the question just on the health business can you just talk about any impact from some of the proposed policy changes we're seeing in Medicare advantage within those can impact you on the negative side or potentially even the positive side, if it hurts competitors more.
Then.
You did guide to back to negative EBITDA in <unk>. So just curious on the cost side it sounded like Youre focused on reallocating resources.
You feel about your expense base and kind of maintaining it where it is or maybe you can share like any rate cuts.
Cuts going forward. Thank you.
Sure. Thanks Cory.
So with respect to the changes in med advantage regulation.
To put it into context med advantage represents call.
Call it about 5% of the business plus or minus a few points.
I think what Youre, describing is the new CMS marketing rules and we have been preparing for those new rules to take effect since they were initially proposed in the.
In December of last year.
Now since they have been finalized and work that we've been working with our carriers to ensure we're aligned we're ready to execute and compliance with the new requirements and we do not view them as having a big impact on our business.
Rules tend to focus on unsolicited contact of Medicare beneficiaries, we don't engage in any unsolicited contact.
So yes, there's been some attention paid to the 48 hour waiting period.
We don't believe that that applies to consumer initiated calls which is the vast majority of our of our Medicare business.
And.
While that 48 hour rule may apply to us the schedule like personal marketing appointments.
Which traditional Medicare brokerage sales people do you have in person marketing activities that we don't do it ever quote.
Nobody we've spoken to interprets the new rules is prohibiting a consumer from calling us to enroll in the Medicare plan.
We will continue to work with our carriers to interpret and comply with it but today, we don't see these roles as having much of an impact on our business.
Cory it's John here I'll take the second part of that and with regard to operating expenses I guess going back to the very beginning of the downturn, we were pretty quick to take action to make sure that we were resourcing the business correctly for the demand that we saw.
Going forward, especially in the auto insurance vertical so we've done that and we've continued to do that youll see the guidance that we have provided for Q2 does imply lower levels of operating expenses and that is some steps that we've done internally already.
I think you could.
Spec that we will continue to tightly manage expenses and I think even in the.
The toughest parts of the downturn, we have we've.
We've always made a priority of trying to manage the business for full year adjusted EBITDA that is something that we feel strongly about.
When possible that we would maintain that even even regardless of demand conditions that would be in line with what you might see from us.
Okay.
Great. Thank you.
Thanks Kurt.
Thank you all.
Our next question will be from the line of Michael Graham with Canaccord. Your line is now open.
Thank you maybe just to follow on that last question on sort of expense management.
And just like.
Is this a level where you just.
Trying to understand how youre thinking about profitability overall, I think it's totally understandable.
Pulled out full year guidance, given the environment and what we've heard from some of your peers.
And you have a slight EBITDA loss targeted now for Q2 and just.
Im wondering sort of how youre thinking about if the environment does not improve in the short term, how you're thinking about like how much of a loss you would be willing to incur on a quarterly basis I'm just kind of like a related question is are there are there major investment areas where.
You are not entertaining kind of cutting back because of central importance to the business.
Sure. Thanks, Michael.
Turning to softly.
On that one so yes, we have guided to a slight adjusted EBITDA loss for Q2.
As we said there's reasons to believe that we could see a return to demand as.
As we move through the year.
But we believe we've taken the steps around the operating expenses that will keep that adjusted EBITDA loss modest in Q2, and possibly into Q3 and then we do expect that in Q4 were influenced again by the health <unk>.
Article in the annual enrollment period within Medicare So so I think.
Pretty committed to.
Full year, managing as much as possible to a positive adjusted EBITDA.
And not to forget that much of our model is variable in nature and so when we do see reductions in costs not only do we see reductions in things like advertising expenses.
You've seen up until now, but you also see some semi fixed costs some of our technology costs that scales with.
With revenue that actually comes down so I think we're comfortable that youre not going to see a dramatic difference in our <unk>.
Adjusted EBITDA profile, even if we see a scenario in which demand stays lower longer.
And Mike with respect to the <unk>.
Potential impact on investment.
Where we're focused right now is in parts of the business, where we have stability and which will further diversify us from that direct carrier channel.
So we have shifted resources into non auto vertical marketplaces, we've seen some some great progress so far in homeowners, which was the first place that we redirected those resources.
We're far more sort of fast following with life health and Medicare marketplaces and.
And continuing to invest in our in our agent channels I think if there is.
A place that.
Might be affected depending on.
How the auto recovery proceeds over the course of the year, it probably would come from incremental advisor head count.
Which we have historically.
Flex as the growth as we're able to support it with cash flow from the marketplace.
That's probably the one area of investment that we would take a look at first.
Alright, it sounds good thank you guys.
Thanks, Mike.
Thank you.
Our next question will be from the line of Jed Kelly with Oppenheimer. Your line is now open.
Hey, great. Thanks.
Hey, Thanks for taking my question.
Just if I go back to some of your commentary.
You kind of believing just given the carrier Congress conversation and the time it takes to pass right through the state boards that too.
<unk> is likely the trough quarter for this year is that kind of where you think your internal projections are.
Yeah.
Yes Jed.
No.
We've sort of been in.
And the business of prediction a few times throughout the.
This hard market cycle, and we haven't gotten it right, so I'm, probably not going to make another prediction.
What we can tell you is.
<unk>.
Q4 was was definitely a relative trough the year began as we expected it would with one major carrier really leaning back in pretty aggressively.
And then what's happened subsequently is that loss ratios have remained elevated despite rate increases due to higher for longer inflation in areas that affect auto losses, and so they are continuing to see longer time and cost to repair vehicles.
Parts and labor.
Slightly higher injury severity higher than historical cat catastrophe losses in Q1.
And the response has been pretty consistent across most carriers alright, okay, well, we need to sort of revised upwards. Our plans for rate increases for the balance of the year, they're going to benefit from earning in previous rate increases and the states seem to be receptive and so.
I think we have some comfort that things will continue to improve over the balance of the year, but.
Okay can we put a stake in the ground and say Q2 is very likely to be the trough I just think there's too much uncertainty to make a claim like that.
Got it and then looking at your <unk> margin guidance.
It looks like its near 34% based on my math.
Which would be.
Hi.
Never been so.
I mean can you can you preserve margins <unk> margins into the mid 30 in this low demand environment. We're seeing one of your competitors do the same thing.
Would we expect your margins to kind of hold at these levels until demand comes back.
Yes, Jed so what we've reflected in Q2 guidance is.
Mmm that implies an improved.
<unk> as a percentage of revenue.
That does reflect what we are seeing does reflect the fact that we had very good margins in Q1, I think a lot of that is attributable as we mentioned to a combination of new technology that we've rolled out.
In our bidding technology as well as a favorable market for advertising so a lot more opportunities in the landscape and so that is very much.
What we're seeing and I think we certainly feel confident in that in terms of the guidance that we've given you in maintaining those <unk> levels.
Alright, thank you.
Thanks, Ed.
Thank you.
Our next question will be from the line of Dan <unk> with B Riley Securities Yes.
Your line is now open.
Yeah, guys. Thanks for taking the questions. Just first quick one for me can you remind us what percent of the business percentage of revenue from that agent channel that you've talked about I think you've said in the past just a reminder would be helpful.
I'm sorry, Dan was it the agent channel.
Yes, yes, the agent channel as opposed to the.
Direct carriers yet.
It hovers around 40% of revenue.
And that has been consistent.
Through through the downturn. So so that has been a very resilient channel for us.
Got it okay.
Any comments you can provide just in terms of like traffic to the marketplace quote request.
I realize it's a challenge in terms of sort of monetizing them on the auto side, but.
A lot of rate hikes or getting pass through wondering just how robust the traffic into the marketplace.
Q1 and into Q2.
Yes, so traffic has definitely been a relative strength in the marketplace.
In the first quarter, we grew quote request volume more than 20%.
And there's a few factors contributing to that first is as you say is the rate cycle. So you continue to see double digit rate increases as the norm.
As a result.
Driving elevated levels of shopping as people get their renewal notices but at the same time, we've been rolling out our newest bidding technology, which is driving record levels of efficiency in our AD spend and we believe is contributing meaningfully to our ability to take share and drive some real material growth during this period as well.
Okay.
Dan I would just say that.
The effect of consumers that are shopping is largely intuitive and largely what we expected.
There is now industry research that backs that up that consumers are are shopping more as they're seeing those envelope.
Include double digit increases in their policy premiums, it's a very natural reaction for consumers.
Okay.
Got it and then quick one.
Yes.
Call you guys go to shelf in place you talked about opportunities for accretive acquisitions, just maybe remind us where you see the best opportunities there whether this sort of.
Re deceleration although as either.
Celebrated or delayed any conversations you are having on potential targets or ideas in terms of where to potentially put that capital to work.
I think we continue to see.
Opportunities arise our sense is the kind of depressed auto market is actually accelerating the rate at which opportunities are presenting themselves.
So.
I would say for us it hasn't either accelerated or decelerated.
Any efforts, we continue to meet with companies in the space. Our view is things that we can that can meaningfully accelerate.
Progress against our strategy in a way that makes sense for us.
Well, we will take into consideration.
But that's that's sort of the extent of what we can tell right now.
Alright, Thanks, guys appreciate taking the questions.
Thanks, Dan.
Thank you that concludes our call I will now turn it back over to the management team for closing remarks.
Alright, Thank you and thank you all for joining us today.
While its unfortunate to experienced another false start in the auto recovery.
This extended period of uncertainty we have high conviction that it's just a matter of time before loss of stabilize and carrier acquisition spend normalizes. In Q1 provides just a glimpse of what a even a partial recovery would start to look like.
Now in the interim the team is doing a hell of a job controlling the things we can control to ensure we emerge a much stronger more diversified business that includes improving unit economics and profitability in our marketplace and our DTA, we accelerating our non auto verticals strengthening our advantage with local agents and beginning to incorporate AI.
Throughout the business.
Evercore its future is bright.
We have made harder and progress towards building the digital insurance destination for the future and we look forward to sharing updates in the quarters to come.
Thanks Al.
That concludes today's call. Thank you for your participation you may now disconnect your lines.
You may now disconnect your lines.