Thank you for joining us.
Thank you for the invite.
Let me just, for the benefit of everyone here, ask you to maybe give a very quick overview of the company, and where you play in the market, and then we can dive into more specific questions.
Sure. So, thanks, everyone, and hopefully you had lunch as well. So EverQuote Insurance Marketplace focuses on the P&C markets, which is property and casualty, auto and home. We help providers, insurance carriers, and agents connect with consumers that fit their specific profile. We went public in 2018. The story of EverQuote is really how we leverage technology and data to drive better results for our provider partners and help consumers, you know, more easily find insurance.
Joseph, just to piggyback off that-
Sure.
If you look back over the last, say, 2-2.5 years, you've had a few head fakes in terms of the recovery in the insurance market, specifically in terms of auto. So maybe if you could just kind of take us back a little bit, what you've seen in the market over the last 2-3 years and where we are today, just the state of the overall market-
Sure
would be helpful.
Sure. Happy to. So for those of you who have looking at the auto insurance industry, here's a little bit of the backdrop. You know, coming out of summer 2021, a year and a half after COVID, carriers were coming out. Consumers were starting to drive again, carriers trying to figure out how to price risk. So coming out of COVID, they assessed, "Hey, consumers will get back to driving," so the frequency of accidents, which correlates with miles driven, gets back to normal. What carriers misunderstood at the time was, what's the cost of an accident? Or what is the thing...
What drives the cost of an accident is sort of three factors, and I'll sort of walk through them to help explain how they've evolved, but why there was a shock at the time. One is when you total a car, it's cost of replacement. So when you think about when that occurs, the way the carriers price that is they look at used car prices, so Manheim Index, Kelley Blue Book Index.
At the time, as you go back to, if you remember back to the summer of 2021, when this, when the shock first started happening for the carriers, used car prices were actually higher than new car prices, 'cause there were no new cars, so used cars had a huge demand rise, particularly as people wanted to get back to get driving, and they didn't want to take public transportation. You had this substitution. So that was one thing that was a huge drive up in cost. Second thing was on cost side, was on cost of repair. So when you repair a car, there's parts and there's labor. So we think about back to that time period, supply chain issues were really significant, and getting parts from overseas, which taking several months.
You also had the dynamic where cost of labor really spiked dramatically. There was just a real scarcity of labor at that time. So you had those backdrops, and the third was actually the cost, the medical costs of an accident, so medical severity. Coming out of COVID, there was a lot of reckless driving behavior. There's all kinds of studies on this, but actually drove up auto... The accidents were actually resulting in higher injuries from a medical side, and that actually continued with some regulatory changes that happened in Florida last year, which exacerbated that problem.
All of those factors resulted in the following dynamic: as they went from 2021 through 2023 on and off, which was, as carriers went to acquire new consumers, they would say, "Geez, my consumer's not gonna be profitable when I acquire." So for those of you who don't know the insurance industry, carriers can't unilaterally increase their rates overnight. They have to go through a regulatory process. That varies by all 50 states, and so they'd say, "Let's apply for new rates. Our costs are much higher, let's apply for new rates." And what would happen is, they'd apply for new rates.
Six months into it, they'd say, "Oh, great, we get 10% higher rates, while costs are still going higher." And so the auto insurance industry struggled with a dynamic that really started to come into the broader U.S., kind of about 12 -18 months later around inflation, that just created this dynamic, they were always chasing rate. Fast-forward to what's happened as we start this year, we have an environment that's more favorable for carriers in terms of getting, you know, price adequacy is the terminology. They've had about 15%-20% of rate increases on average across, across carriers in the U.S. since the start of last year, and those costs I just described, cost of replacement, has actually come down from the past few years.
Cost of repair is stabilized, in some cases coming down, and then the medical side has also become more stable. So for the carriers, the key requirement is to have stability in that underwriting dynamic, so they can actually price things. So that's the dynamic of the industry. What that meant for us is a company that helps the carriers and agents acquire new consumers. They did not want to acquire new consumers because they were unprofitable. So we had a significant downturn in our business, reflecting that we are the channel that carriers use to grow their business, and when you don't want to grow, it was, you know, a little more challenging times for us. Fast-forward to starting this year, we've had a really strong start to the year.
I think carriers are feeling much more confidence in where they're at, and we can talk more about that if you'd like. But we started this year with. We just put our results last week. You saw us exceed our guidance on revenue, Variable Marketing Margin, which is revenue less advertising cost, and Adjusted EBITDA. Notably, we had a record Adjusted EBITDA level. We also had record net income, and net income is probably something not in your models, 'cause we haven't had it except for $200,000 right after we went public. So I think we've had a notable change, and I think that dynamic, I would say, came about because during the down, particularly last year, we did a significant strategic realignment to really focus more deeply on our P&C customers, how we can help them win.
In doing that, we took a lot of costs out of the business. We built a lot of operating leverage in, which translates into higher EBITDAs. We got recovery, which is converting nicely to cash flow.
Very helpful background, Joseph, but maybe if I go back about 12 months ago-
Yeah.
We did get a head fake where we saw some recovery exiting 2022.
Sure
-into 2023. That didn't really play out. We can talk about your largest client being-
Sure
... maybe guilty of that as well. But how does this feel different versus 12 months ago?
Sure. So I guess I'll give you a couple things. When we start the year, I'd start with what happened in the Q4 before, so 2022 for 2023, and then we'll do the same for this year. As we started in the fourth quarter of 2022, our largest customer, very bullish about getting back to growth mode in the start of the year when new budgets would reset. Many other carriers, they were much more cautious. They were not sending this tone of, "Hey, we want to get back to growth mode." And as we look to Q1 of last year, we had a very strong recovery for one carrier, our largest carrier. But others, the market was very thin. We call it the marketplace was very thin. There was not a lot of carriers consistently participating.
Fast-forward to this fall into Q1 of this year. This fall, we made the comment in our November earnings call, eight or nine of our top 10 carriers wanna get back to growth. So a very different tone than a year before, and as we start, if we look at Q1's results, the 10 carriers, the 10 largest carriers who were with us in Q4, they're all with us in Q1 at a higher rate. So that's so it's more broad-based, and they're continuing to grow, and the messaging about wanting to continue to build upon growth is clearly coming from them, and so that's a very favorable dynamic.
I think what's driving that fundamentally is what I just described, which is they've gotten rate increases 15%-20% on average, since this, since a year ago, and they're getting more stability in those costs of claims. You put that recipe together, they, they now feel increasing confidence that there's more price stability, so they actually can acquire consumers profitably. It's important to note that when you think about the auto insurance industry, it's not... every carrier is not the same. Carriers in a wide range of how they're coming back, so some carriers, like our, our largest partner, is, and I'll use the baseball analogy I used last week that people seem to like, which is some of our partners, I'd say, are in the middle innings, you know, the early middle innings.
They're coming back aggressively, and they feel they're expanding states where they feel they have rate adequacy and their footprint's increasing. Other carriers, I think, are still sort of figuring it out. There is no playbook for how carriers should do this, so a lot of carriers are still figuring out what the right way is to grow back into this. Think of it as if you were a CMO in insurance carrier, and you had not been in growth mode for two and a half or three years, and now you're getting back into growth mode. Your CEO's like, "Let's grow," and your CFO's sitting there, "Make sure we do it in a prudent way." So you're having this dynamic play out, but we feel like there's, that group of carriers is probably in more of the early innings of recovery.
And then there's a group of carriers that are still figuring out price adequacy, right? And they probably will not come on in any meaningful way until probably next year. But again, we look at that the industry has learned from the past few years, and they're really focusing on sustainability as they lean back in, and that's encouraging.
For the benefit of everyone, I'll mention your largest client, Progressive, and how much does Progressive really drive the decision-making at other large carriers? In other words, like, it seems like they seem to dictate how the market is trending. So I don't know if you could speak to that more specifically in terms of what you see from their spend, versus how much it kind of flows through into other carriers, too.
Sure. So, for those of you who don't know Progressive, Progressive is known as one of the most innovative in using digital channels to build their business. They also report results monthly, which a lot of people use as a way to gain insight on the industry. Insurance industry, it's hard to get insights within, between quarters and even large periods, 'cause a lot of companies are mutual companies. They don't report on a regular basis, so Progressive tends to be talked about a lot in that context. Progressive is also early in using digital channels, so they tend to be viewed as within the industry as someone who's the furthest ahead in thinking of using digital channels. And although no carrier, I'd say, has a playbook how to come out of a downturn like this, this is...
Executives refer to this as insurance executives say, "This is like a once in a generation downturn." I think Progressive has been notable in that they have come out more quickly in pulling back when the downturn began on marketing spend because they said, "We're not gonna acquire consumers that aren't profitable." They're also notably been the most aggressive in getting out when saying when they have rate adequacy, trying to acquire new consumers. And so Progressive is commenting in their public calls that they're expanding their state footprint. There's some larger states that more regulatory challenge states that may be, maybe not until next year.
But I think they do set a bellwether for the industry in the sense that, as they get back to growth mode, I think it's a lot of other carriers will say: Well, if they're getting back to growth mode, what does that mean for us? And so if you put the context of, you know, 2022 and 2023, if you're a typical carrier CEO and you said, "Geez, I really want to focus on getting back to underwriting profitability," you could pull back from marketing spend with not a lot of worry, 'cause all your peers were doing the same thing. You didn't have to worry about... The other thing you're judged on as a carrier exec is profit, getting your underwriting profitability in your, in the overall business, but also what's your policies in force?
So how are you maintaining or growing your share? So in the past few years, not many people were trying to acquire consumers, so you could feel pretty safe as a carrier exec to focus on, How do I just get profitability, and I'll keep my consumers? As you start to get into someone like a Progressive leading with growth mode, that'll be, I think, for some carriers will say: Well, what does that mean for them in terms of how they have to think about growth mode? Is there more of a dynamic where maybe they have to lean forward a little more on growth? And as you have the environment where others are, that may put more of a psychology on more competition in the industry.
Very helpful. Joseph, maybe we can step back and talk about the market opportunity. When you think of the TAM, how big is it? How much have you been able to penetrate today? What is the opportunity? And if you could speak to both on the agent side and also on the carrier side, very helpful.
Sure. So when you think about the P&C insurance industry, I'll just focus on there, not the, not the broader world of insurance of health and life. There's about $100 billion spent on distribution dollars today. We have a slide in our investor presentation that touches on this. And you look at the portion of that, that's sort of digital advertising, it's, you know, $6 million-$7 million in digital advertising. And what I would give you is sort of what are the f- what is the, the tailwind that's driving insurance online? So prior to the downturn, the, one of the big drivers for insurance shopping online was insurance was late to go online, relative to, say, broader financial services. In the insurance industry, for lots of historical reasons, was a laggard going online. Consumers are shopping obviously, were online, the industry wasn't there.
That is starting to change in 2021. Obviously, you had a couple year pause. I would view the analogy of the industry was sort of going up the escalator like others, they got off, now they're getting back on, and you're gonna continue to see that secular tailwind benefit. But a couple of things have increased that over this time period, I'd say. I'd give you a few to highlight. One is I talked about rate increases since the start of last year being 15%-20%. If you look at the industry studies, if you go back to, you know, early COVID, you know, pre-COVID times, it's been increase of 40%-50% have been highlighted by some of the analysts. So, what does that mean for a carrier?
A carrier typically spends, in normalized times, 10%-15% of their premium dollars on advertising and marketing dollars. If you think about the dynamic where rates have increased that much, over time, as things normalize, we certainly will see that come into marketing dollars, and our channel is one that's viewed as high performance, high, very high... For the carriers, very high performance in driving the acquiring the consumer profiles they want, so I think there's a benefit there for us. Then, Mayank referred to the sort of two markets we have, sort of carriers and agents, and when you think about when you buy insurance, you can buy insurance online directly. The other way you could buy it is you work through agents. And so when you think of the carrier market, there's sort of, that leads to two types of agents.
One type of agents are sort of called captive agents, so the large captive carriers, the State Farm, the Allstate, the Farmers. They work through like a franchisor-franchisee relationship. And then there's a group of agents called independent agents, who represent a lot of carriers, who are not franchised, who are not captive carriers, but work broadly with a number of carriers. If you look at that market, we have about 6,000 agents today in our business. You know, different studies show that as, you know, $ 100,000 , 100,000 type agents are out there, and it's relatively similarly mixed between captive and IAs. Market studies are imperfect. Some studies are higher, and you see people multiply this, but generally, it's a very large market of agents. Now, not...
We tend to focus on the mid and larger size agents, but we still think there's a lot of growth within our captive agents. We've also more recently been growing our independent independent agent business, which is an area that's relatively new for us. But we are fortunate that that portion of our business has been far more resilient during the downturn. It's also a portion of our business that's gotten a lot of attention from Mayank and others who follow our stock because it's, it has a strong competitive moat. Just think about building a business with, you know, 6,000 small businesses. You know, how do you acquire those consumers, acquire those customers and retain them? So we look at all of that as we have a very strong dynamic for continued growth as we go forward, and obviously, a very big TAM.
I don't have your deck handy, but if I remember correctly-
Yeah.
- I think you have 10% share of the ad dollars today, and I think 1% or less of the overall ad-
Right
and distribution dollars, and that's the way we should look at your market opportunity today?
That's another way to look at it as well. When you look at just pure size of the market, we have a very small percentage of the overall dollars. One reason I would when I talk about those dollars, I think the size of those, the dollars for digital is probably increasing well, 'cause we're getting off that time period, so it's probably even less than 1%, in terms of the opportunity today is tapped. So we think that gives them a lot of support for multi-years growth.
Actually, that was my next question: How fast is that market growing? And then sort of related is, what's your value proposition? Like, why do you win in that market versus your peers? Because obviously, there's LendingTree has a, you know, marketplace as well. There are other players in the market.
Sure.
Why does EverQuote win with these carriers and agents?
Sure. So I think I'll start with just as you think about the market size and how we're winning on it. When you think about the world of insurance, we are focused exclusively on P&C. So we made a decision. We did a strategic realignment last year, and we exited our health business. You know, largely exited our first-party agency business to be really focused on P&C. And the reason we did that is it's a very large market, but we also saw it. We spent a lot of time with our customers, our carriers, and our agents in the first half of last year, and they said, "How can we help them be more successful?
How can we help solve their pain points?" I mean, the, the fundamental level, we help them win. Long term, we think that's gonna position us to do good things as a company, it'll make you, as investors, happy, and it'll make our, our team successful. So we think that's the virtuous cycle, and what we felt in that is that by focusing on P&C, we have a chance to really do some things that will help us differentiate over time. Today, we have the largest P&C marketplace. If you look at our peers out there, you know, lot, lots of peers out there, I won't... I'll let Mayank defer to comparisons in terms of details, but in terms of numbers, we are the largest P&C marketplace, and I think that scale does matter in a marketplace business, and we think that will benefit us over time.
Where we'll benefit is how we're focusing on growing the business. In terms of the growth rate, in the near term, this year, next year, it's gonna be driven by auto recovery, and so I won't speculate on the exact growth rate on that and implications. I will defer to you on that, you can look at the growth rate, but historically, we've said we're a 20+% top-line growth business, and we'll see how that evolves this year into next. As we think about the mid- and longer-term time horizon, I'd say one of the things we've done as a team in this period is, by focusing on P&C, we're in a spot where we're taking advantage of the recovery, right? We're not distracted by being in the health business.
We're not distracted by having other financial service verticals. We're not distracted by having debt on our balance sheet. We have a, I think, a great environment where we can say, "Hey, how do we benefit from this period?" But even during the darkest days of the downturn, I can tell you, our quarterly board meetings would focus on, "Yeah, how do we get through this, but how do we think about the long-term vision?" And our long-term vision is how do we use, how do we help our clients be more successful by doing what we do really well? And what we do really well is using data and technology to help analyze consumers that'll best match providers' profile of what they want to acquire.
Over time, we see ways to go deeper in doing that with both carriers and agents in different ways, but we think that's the, that's the winning hand out in building a really large business.
Joseph, is there a way to maybe look at what the return is for the carrier or agent that is using your technology? Like, what are, sort of in terms of measuring, you know, what is the return potential when they use your platform versus going to an alternative or doing more generic, TV advertising, for example?
Yeah. So for carriers, we are. If you think about ranges of ways they can market, we are the most high, the highest. Digital channel is the highest performing in that. You know specifically what you're spending and what the return is, what's the customer you get. So the attributes you have are much more rich and robust than you'd have, say, in general brand advertising, right? So that's one piece. That benefits our channel in general. With regards to EverQuote, you know, the feedback we get from our carriers at various times is how we're performing. You know, we're told by some of our largest carriers, you know, they think about their-...
There are ways of building, acquiring consumers and retaining them, where the top of the triangle is performance marketing, where EverQuote fits, and we do very well in that category, in various scorecards that carriers share with us at different times.
Got it. Maybe a good time to ask you about AI. I think Jayme talked about AI, leveraging AI on the call. You could maybe share any sort of color on how you're leveraging it to potentially impact the business.
Sure, sure. So, I'm not as charming on talking about AI as Jayme is, but I think we're very excited about the opportunity on it, because what we see is how we're using it in the business today.
So when we think about AI, it is a natural extension of what we've done since the time we've gone public, which is we are leveraging the data we have in a more efficient way to drive results for our provider partners. And so I look at this as the next step in our journey of how we become better at doing that. So some examples we're doing today, we're leveraging it in real time is, the large language models we've developed around our b idding technology to help how we acquire traffic in a way that best matches to providers. It's an auction environment, but how do we make that more efficient? That's an area where we're using it today, we think is really exciting.
We're also using AI today in terms of how we make efficiency of our internal operations. Think of our productivity of our engineering teams, an example we use today. As we think over time how there may be new applications, I'd put it in the category of how are we gonna drive more innovation for our provider partners, and those are ones that we'll see how they evolve over time. But touching on the call is, think of it as ways where our provider partners, like our carriers, may share more data with us, and in doing that, we can help them get better performance, right?
And so an example of this is we have currently have an offering we call Smart Campaigns, we've talked about it various times. But Smart Campaigns is really a way for carriers who may not have the sophistication of the very largest carriers, who say, "Geez, help me..." We will say, "Geez, we-- if you share more data with us, we can help you get better performance because we can better help you," you know, to use the analogy one investor said the other day, "fish in our marketplace, we'll help you be a better fisherman," right? Or fisherwoman. And so that is one of the things we've been doing with effectively using AI-type capabilities with large language models, and we'll build upon that. Those are a few areas within the business we're using it. We're obviously...
It's a very exciting, it's an exciting part for us, but in many ways, it's sort of a natural evolution. It's not doing something we haven't done before.
Maybe pivoting to another topic, we got quite a lot of questions from this, from our investors, is that we talked a lot about the benefit to the carriers and agents u sing your technology. What is the benefit to consumers? Can you maybe give us any sort of quantification on, you know, how much do consumers actually save? Like, what is the, you know, reason for them to go to EverQuote to use your capability to hopefully save some money?
Sure, yeah, yeah. So, it's really saving dollars and time, right? So I'm gonna focus a little bit just on the giving the example. I won't focus on dollars right now because the dollars have increased so much that there's just... It's hard to draw meaningful conclusions with the things moving around. But what I would say is this, for a consumer if you've tried to shop online for various carriers, it takes 30, 40 minutes to give you your data and your workflow, to go through and give you your data. Then you have to do it with multiple carriers. It's a time-consuming process. We make it a lot easier for consumers to get multiple offers, to think about, hey, what's the right match for them?
One of the questions you've always had is, "Hey, well, Joseph, it's not like shopping for travel. Why isn't travel? Why isn't insurance like travel? Like, travel's so easy. We go in, I can comparison shop, and it's great, and I can sort of close my, close everything online." The simple reality is that insurance is a more complicated matching problem, and you have an industry that's more structurally, has very different structural dynamics, where there's not the transparency of pricing in the same way. So within the context of that industry, we have done lots of things to evolve the consumer experience, which I think is gonna benefit consumers, getting more benefits to consumers to shop more efficiently and look at more options. And that, I think, is the number, that coupled with the fact they can save money over time.
Pre-downturn, we would quote, we'd save $600 on average for consumer shopping with us. If you looked at today, we haven't updated those comments publicly, in part because you have a dynamic where rates have increased so much, we wanna have a chance for it to sort of settle out before we start quoting more. But, you know, suffice to say, we feel pretty good we're helping consumers save money.
I was gonna say, I did save money pre-COVID. I haven't tried it again-
Yeah.
But maybe I should go back.
You should go back and shop.
Save money.
You should go back and shop.
Premiums have gone up a lot, definitely.
Rates have gone up a lot.
According to that.
They definitely have gone up a lot. And it's funny, I will give something from our conference in January with you. My anecdotal test of insurance rates and how consumers are thinking about them is the investors, right? So, if you think about the average American family insurance, auto insurance is the top five expenditure for the average American family, probably not for the average investor family. But in the conference we had with you in January, which I always enjoy going to, five of our 13 investors brought up auto insurance.
There you go.
A lot of them say, "Do you know how much my rates have gone up?" I think it's an awareness of how much rates have gone up. So the shopping behavior, that, when you think about what that means for us, is you have pent-up demand for consumers to shop, and that we saw record levels of shopping last year that's continued into Q1. Unlike last year, where there was relatively few carriers who wanna acquire consumers, there's more carriers who want our consumers now, and that is continuing, and we think that is almost like a spring that's gonna continue to benefit us.
As you think about more rate increases coming through, and they're still rolling through in different states, some of the larger states, I said, maybe not happening until next year, that will propel more shopping. And so maybe you'll be one of them.
Excellent. There you go. So we spent a lot of time talking about auto, mostly. That's about 80%-85% of your-
Correct
... revenue on average.
Yeah.
So let's talk about the other 15%-20%, you know, home, renters-
Yeah
... et cetera. Could you talk about any trends you're seeing there in that market? You know, good, bad, ugly-
Sure
... what does the trend line look like?
So you've got the stats right. A bunch home was roughly 15% last quarter for us, and it has been for the past few quarters. You know, that was a business... It's a good example of one of the benefits of our strategic realignment of last June, just management focus on how we drive value. So our home vertical is something we've been in since 2016, and in many ways, with all our diversifications and getting into first party, we a little bit lost its way. We didn't have the right leadership focus. We put some leadership focus on that in, you know, first part of last year, just as leading up to our restructuring.
What we've seen is in the past couple of quarters, we've had really nice growth. Last two quarters of last year, we had really nice growth year-on-year. That continued to Q1, we had almost 30% sequential growth, a little over that in year-on-year growth. So it's a relatively small business for us today, but we feel very good about the long-term potential of home. As you think about from an industry perspective, you probably had a little more. When you ask industry participants how they think about home, you get a broader mix of answers relative to auto. It very much depends on where carriers are focused, 'cause some home markets have been more impacted than others by Cat losses, and that has colored some of the views of carriers of going into those markets.
That being said, one of the benefits we're having right now from home is the cat losses, which is one of the thing that, catastrophic loss, that impact home insurers. We had a relatively favorable Cat season in September and October of last year. Relatively less severe accident, much, much relative to the norms, it was below that. And the other Cat season was actually the first quarter of the year, and that was also quite low. So I think that makes carriers feel better about the area. I would say relative to auto, it's probably a little further behind if you took depending if you look across the blend of carriers we talked to, but we do think there's some really good opportunities there. And particularly, as you think about not all home markets are the same, right?
That actually plays really well to EverQuote. The precision with which we can target consumers plays well in verticals like home, where that matters is even more important.
Those are two questions. One is, are there other areas of expansion beyond home and renters? 'Cause you divested healthcare, so just curious if there are other, you know, tangential markets-
Sure.
- that you're looking to tap into. And then, do you have an aspirational goal in terms of where you want that mix to be over time, in terms of auto versus not auto?
Sure. So, so first, auto and home are both part of the P&C world, property and casualty. If you know the property and casualty world, there's a lot of other products that come under those world, whether it be motorcycles, boats, RVs, you know, various ancillary products that P&C carriers are creating. Those markets are smaller, I would acknowledge in one breath. Flip side is, there might be opportunities in those markets to do something that's different, where we have more insights on the data, 'cause it's a smaller market, and as a result, we may have, you know, maybe opportunities to be... Those ancillary markets may be really interesting for us to look at. So we are looking at those, and, and I think but I see us staying broadly in P&C. We think that's where we, we will win long term.
That also allows us to leverage our existing distribution and some of our customer acquisition. So we see that as a really good opportunity for the long term. But you'll see us look at, you know, what the industry refers to as sort of ancillary verticals beyond auto and home, and we're excited about that. And then, with regards to the mix, we haven't articulated a new mix. Historically, we would say, like, 80, 20 auto, home, prior to when we went public. We haven't updated that. Right now, about 85, 15, that sort of has continued. You know, we'll update that more as we get in latter part of this year, and we give you more perspective as we think about...
As we see some auto recovery, more sustainable, we'll talk a little bit about the long-, medium-, and longer-term vision, including that sort of stat.
That begs the question in terms of M&A. Would you consider potential tuck-in? I know you've done tuck-in deals in the past but that's something now that things seem to be looking up. Are you open to doing more M&A to sort of help maybe fuel that expansion into other areas?
Sure. So let me start with cash just about $50 million at the end of Q1. Significant increase from where we were a year ago, and we feel very good that we're generating cash flow. So in our business today, we did about, we added about $10 million of cash flow in Q1 to the cash position. We expect to continue to be cash flow positive going forward. So that's the first piece. So we think we'll have some nice cash. As we think about investing, certainly M&A could be part of it. I would say, as we think about the M&A strategy now, it'll be different than what we did on our, in our... When we did the health acquisition.
I was a former M&A banker, as Mayank knows, and I would say, when we did the acquisition into health back in 2020, it was, I would say, two or three standard deviations away. We went into an area we didn't have a really much of a market, and we went into first-party distribution, we had no prior experience. So doing a lot at once. I think if you look at our acquisitions, as we think about acquisitions today, they'll be very much, I would say, over the plate for us or one standard deviation way. They'll be focused on P&C, where we might be able to accelerate something we're currently doing with someone who we see as an opportunity to build upon it.
Now, what I would point on it, the discipline we've had with how we've managed operating expenses in the past, you know, in the past four quarters, you'll see us apply to when we look at M&A as well, which is, how is it gonna drive cash flow? We like cash. I particularly love cash. So it's gonna be a key part of how we look at M&A. We're gonna look at, obviously, the strategic fit being over the plate, and the third is, you know, how is it gonna work culturally? Is it a, is it an asset-light model that fits with our tech DNA? What we have learned as a company is, that is our strength. You know, having a large hourly workforce is just a, a skill set that is, is not...
We certainly have inside sales teams, but having a large agent workforce or large hourly workforce is just not our DNA, and so you'll see us stay disciplined on that as well, most likely. So those are things we'd think about in M&A, and we'll see as that evolves over time, but we think there could be some good opportunities. We do believe that the industry, like any marketplace models that you've covered, scale does matter. We have the largest P&C market, and we think we'll build upon that over time, and M&A could be part of that.
Excellent. Turning to more number-related questions. So you touched on this earlier, but I was gonna bring it up again. You blew through the results last quarter. You gave very positive guidance for 2Q, but you chose not to give guidance for the back half of 2024. So maybe just if you could kind of guide us through what your thoughts are, visibility levels for not just the second quarter, which looks really good, but potentially for the recovery to continue into the back half into 2025.
Sure. So let me start by saying we feel very good about the sustainability of recovery, right? The question is, how does it manifest over the next in the near term versus into 2025? And that's the part where we have a little more unpredictability. But let me start with Q1. Q1, we had, as Mayank said, we put forward a guide of $78 million-$82 million on revenue, and we came in at $91 million. So significant overperformance, and that flowed through to all the way through to adjusted EBITDA, VMM adjusted EBITDA... what drove that people are like, "Well, geez, that seems like a significant overperformance.
We should bake that in going forward." And I will tell you exactly what happened, which we decided on our guide, we gave it on Monday, February 26th, and literally in the week following, we got positive news, positive news, positive news from various carriers doing things that was not foreshadowed, right? They were deciding to make things. They were feeling increasing confidence as they went into the period. Our largest carrier also expanded their state footprint more rapidly. They started Q1 being much more measured in Q1 of 2024 than Q1 of 2023, and that was simply they, you know, they probably, the CEO has been burnt a couple of times as they had with going back too quickly. They were understandably more measured.
That continued through the quarter, but that – I think as they gained increasing confidence, they accelerated that in the latter part of the quarter, particularly in March. So that's what resulted in the, you know, strong overperformance relative to the, well, the guide we gave. As we look at Q2, we're seeing results that, you know, are... The midpoint, it's $100 million-$105 million of revenue. So the midpoint of that is, puts us, assumes auto getting at or near the peak we had in Q1 of 2023. Now, when I say peak in Q1 of 2023, we also were at close to those levels within a few hundred thousand in, before the downturn began the summer of 2021. So we've had this multiple times.
I'll just compare it with Q1 of 2023 versus Q2 of what we're seeing now is it's a much broader base now. Q1 of 2023 was really driven by, you know, one large carrier, and as I said, the market was much more thin. We see broader participation now, so that's what makes us feel good about sustainability. When I talk about the back half of the year, we chose not to give a guide, and our philosophy in giving a guide is, at the time we give the guide, we wanna have high confidence that we where that guide will land, right? As we looked at the factors that would drive the next leg of growth, what we tried to indicate on the call was: how should you think about seasonality in our business?
So if you've analyzed our business just on the auto side or just the P&C side, and I know not all the data is public, but we've certainly analyzed it, is the... If you wanna look at the seasonal pattern, Q1 would generally, you know, start, Q2 would go up, Q2 would go down a bit, Q3 would go up, and then Q4 would go down. If you look at those patterns, wide variability, I'll be the first to say, there was by no means the perfect seasonal pattern. But as we look at the context of that, and we thought of... What we tried to say to, to analysts was, we're obviously breaking the seasonal pattern significantly. We have a significant sequential increase from 13% to midpoint, Q2 over Q1. Seems like we're getting a lot of growth front-loaded here.
As we look to the back half, we feel bullish about sustainability, but we say a couple of things, which is, when I give my analogy of where carriers are at, you know, for our largest carrier, new states opening. Question on whether those will happen in the second half. You know, in any meaningful way, those may be more 2025. You look at the carriers I said who are coming into the market, there have been, although they're confident about wanting to grow, there's been some fits and starts. I gave the analogy of figuring out how to grow. There is no playbook. I'll give you a real-life example just to crystallize it. I'll give you two, actually. One carrier we had, one of our top ten carriers, marketing spend in April was down from March.
So in and of itself, not unusual, but it was the lowest of the four quarters for the year. So, so we see it in our dashboards. We're very dashboard-centric and everywhere, like, what's going on, right? Another example, we had a carrier who was early entry in going back into growth, into growth, moved into states before others, and as there's more competition, they've been pulling back. And we said, "Oh, why are they pulling back?" Right? We actually talked to them and said, "Guys, we're still committed to growth. We're just figuring this out as we go." First carrier is like, "Still committed to growth. We're just figuring out what's the right spot." Second carrier said, "Well, we may not grow in that state. We may pull back there with, because customer acquisition costs rose.
We'll look over here." And I, going back to my baseball analogy, right? Since, Yeah, like, I think a lot of carriers are still figuring out the batting order, like, what's the right way to approach this? And I think that makes some unpredictability in the second half that we don't have line of sight to predict. So that's why we did not give a full year guide, and that's why we've sort of put a, saying the seasonal pattern, you know, we don't have conviction that will continue.
Also, Joseph, I think you did a really good job over the last 18 months of right-sizing the business. So I thought maybe I'll give you the chance to talk about what you did on the cost side, how you've been able to sort of create this model where now as revenue starts to grow again, hopefully you'll start to see a leverage, and it already showed up in the first quarter, also in your guide. So-
Sure.
Yeah, the floor is yours.
Happy to. I appreciate it.
Sort of beat your drum a little bit.
I appreciate it, so thank you, Mayank. So the things we've done as an organization, right? We went public in the summer of 2018, and if you look about the dynamic in which we went public, was all about growth. That was what the Street wanted. That's what we embraced, which was land and expand to several different new verticals. And for the two years prior to the downturn, beginning in the summer of 2021, we grew sort of 40%-45% in that year period on revenues, but EBITDA generally stayed in 5%-6% EBITDA margin, so we're sort of in that zone. And as we think about where we're, what we went through last year, we made a decision, which is we are gonna get back to basics as a business.
We're gonna get back to an asset-light model, and how do we ultimately drive value for shareholders? I learned that people like cash, and adjusted EBITDA should be a really good proxy for cash flow. During the diversification efforts we did in health, there was some unusual math on how you did it, but if you know the model around the Medicare providers, you recognized all the revenue upfront, but you get the cash flow over several years, but you have all the costs upfront. So it effectively meant every time you wrote a policy, you got adjusted EBITDA, but you actually wrote a check, right? In our new model, we've taken a lot of action to get us back to basics.
So to give you a sense of what we did in June of last year, we did a couple cuts, reductions, of course, part of this, but the most significant was in June of last year. We did a 30% reduction in our workforce, 20% reduction in operating costs. We made the decision to exit our health vertical. We made a decision to, I alluded to this, exited our agency business on the health side, as well as the whole vertical, and we significantly pulled back on having first-party agents in our P&C business. All that was premised around the view, which is: how do we ultimately get back to the model we think we can be successful at, and in the long term, have built a strong competitive moat, which is we're a tech company? Getting back to that asset-light model.
If you've seen what that has done for us is, you know, maybe I'll start with in fall of last year, we made two commitments to investors. We said we're gonna get back to cash flow positive in the first half of 2024, and we said we're gonna get back to pre-downturn adjusted EBITDA margins, and they were sort of 5.5%-6%. We said we're gonna do both of those things, first one in first part of the year and second, sometime in the course of 2024 based on recovery. We actually achieved both those objectives in Q1, faster than we might have expected. The cash flow one, we were very focused on, but pre-downturn... The margin, EBITDA margin in Q1 was 8.3%, a record for the company.
It was on a record adjusted EBITDA of $7.5 million, also a record net income. I think that all reflects the operating leverage we built in the business. As we get a return on the business, we're actually being very disciplined about making sure we get incremental EBITDA margin and dollars. As we did not guide for this year, as we mentioned, but we said we'll look to continue to manage the business fairly tightly on costs, and so our costs are gonna go up modestly from Q1 to Q2, like half to three-quarters of a million dollars is what's implied in the guide.
As we progress through the rest of the year, we will manage that, so if the business, you know, recovers, you know, at the more balanced rate we're looking, we'll probably keep that closer to 24, maybe a little bit of increase. And if it grows more quickly, we may put more investment in. Think of all of that incremental investment really not driving growth this year. Maybe it's a little bit of variable comp, but really it's driving growth in the out years, and that's one of the benefits we think of this, the setup we've created. We've created a lot of operating leverage. We're also in a spot because we have the house fully in order. We can actually think about how we're gonna build, not just growth for 2024 and 2025, but the longer term.
We've instituted a much more disciplined investment process. Think of it as five years out of going public, six years out of going public will be this summer for us. We're reverting to the policies or adopting the policies of, you know, being a more mature public company. How do you think about investment? All those things. And for our team that went through those efforts last year, you can imagine it's ingrained in us, how do we drive return on every dollar now? And I think you'll see that continuing to happen this year as we, as we get more recovery and look to future years.
Very helpful. I think we have maybe 2 minutes left, so any questions? Go ahead, John.
Typically, gross margin is a sort of static. You have the advertising costs, and that's been a hard line to leverage. Can you level the gross margin line going forward as well?
So as you look at what's into gross margin, it's. We don't talk a lot about it in the business because it's data center costs and otherwise. So we do look for some improvements there in how we look at data center cost measures, but they're, that's usually not the. I think of that in the context of overall operating cash operating expenses. So I cited the number of about $24 million for Q2, modestly up from Q1. When we think about the business of investing overall, including the categories of expenses that constitute gross margin, we think about these dynamics as, where are we gonna drive efficiency? We're gonna continue to drive efficiency wherever we can. So every vendor contract comes up, including some of the ones that constitute the gross margin costs, we'll look and drive efficiency where we can.
If you're a vendor of EverQuote, you can be assured you're gonna be getting strong negotiations. We try to renegotiate those costs. At the same time, we're looking at where do we add incremental OpEx, where we think it actually can drive growth. That discipline has been coming into the business in every category of expenses, and we'll continue to do that.
Anything else? Go ahead, John.
Can you talk about the opportunity you have in 2025 with capital adequacy in new states that might come online? You said there's some large states. Could that be another propellant for growth?
So there are some large states that'll come online in 2024, 2025, and let me explain what that means to come online. As carriers get rate adequacy, they will feel more confident engaging in marketing activities to acquire new consumers. As they try to acquire new consumers as they get new rate increases, that'll flow through to consumers, and that'll probably result in more consumer shopping. So that's the dynamic of new states coming on. It's important to realize that the way new states come on, it's not like a flick of the switch, it all happens at once. Different carriers will do it at different rates, but certainly, we see that as an opportunity that will drive growth in, in 2025. Some of those states are very large states, as you might aware.
Without naming specific states, the larger states that are heavily regulated, we think those will be ones that'll be certainly an area to drive growth in 2025.
Super. I think we're out of time.
I see the light flashing, so thank you, Mayank. Appreciate it. Thank you very much. Appreciate it. Enjoyed it.
Thank you. Thank you.