I'm Greg Peters, and I am the Insurance Technology Analyst here at Raymond James. We have arrived at the last presentation spot of the day for our conference for day two. I know the phrase "saving the best for last" can be a little bit overused or exaggerated, but in the case of what we see going on inside the auto insurance market and the demand for growth on the auto insurance carrier side, it is a perfect segue for our next company, EverQuote. EverQuote has been a participant in our conference for a number of years now, and they are, inside our coverage list, uniquely positioned to capitalize on the substantial increase in appetite by the carriers to grow their policy counts in auto insurance. The conversation today for the next 25+ minutes is designed to be interactive with Q&A.
Before we start on the Q&A, I thought I'd have Jaymie and Joseph here give us a brief intro, a state of the union, if you will, on how the results wrapped up for last year and the outlook for this year. Why don't we start there?
Sure. Thanks for joining. Last year was a good year for EverQuote. In fact, it was a record year across all of our financial metrics. We enter this year with the business really as strong as it's ever been. As Greg alluded to, the auto insurance market had gone through a challenged period from 2021 to 2023. The industry started to come out of that. In 2024, we were very well positioned to help the carriers get back to growth as their underwriting profitability got where they wanted to get to. As a result, we had really just a tremendous year next year. Coming into this year, there were some concerns among the investor community about a regulatory change that was set to go into effect in January that, as a result of the new administration, has now been struck.
Really, for the first time in a long time, we're coming into this year with the business firing on all cylinders and no sort of notable clouds hanging over our head or out in the horizon. We think we're setting up for another great year this year.
Maybe I'll give you a little financial numbers as well, just to give you context. Last year, we had about $500 million in revenues. That was 74% year-on-year growth. Our Adjusted EBITDA was close to $60 million in revenues. The margin was like 11.6%. A year before, it was negative. When we presented at this conference a year ago, we were starting about talking about mid-single digits. We were like, "10% would be nice." The year we ended at 11.6%. Thank you for the encouragement. We also had net income. We had $12.3 million in net income. I think the last thing I'd highlight is just the cash conversion. That roughly $60 million of EBITDA results in roughly $60 million of additional cash flow. We ended the year with $100 million of cash.
It is just a very different profile business from 12 months ago when we sat here with you last.
Indeed, it really is. Sticking at a higher level, one of the companies that presented inside our coverage universe that presented earlier today was Allstate. They talked about the different states inside their business mix where in certain states they're growing, in other states like New York and New Jersey, they're not growing. Maybe we can apply their appetite, as it depends on state by state, and how does it segue into how it affects your business?
Yeah. As the carriers have been filing their rate increases, they do that at the state level. As they get rate adequacy in a given state, their appetite to grow is restored. The way that we've seen this recovery of the auto insurance industry unfold over the last couple of years, it's been kind of each carrier, one state at a time, getting rate adequacy and then resuming spend in our marketplace to drive growth. I would say in terms of where we are today with respect to that sort of geographical footprint, we are now at a point where most carriers are kind of back in the market with a pretty broad geographical footprint. There's a couple of notable exceptions to that. There's maybe one large carrier that has yet to really step back into the marketplace in a meaningful way.
There is one state that is sort of challenged across the board. That would be California. There is a handful of states like the New Yorks and the New Jerseys of the world, which are lagging behind for some carriers. I'd say we're kind of back 80%-90% of the way to sort of a full footprint of carriers and states at this point.
Just to close the loop on that area of thought, is it safe to say when your business mix across is geographically diversified, or do you have a concentration of business mix in one state or the other?
In terms of consumers coming online to shop for insurance, the traffic volume is roughly proportionate to population. There is no particular skew one way or the other. In terms of our revenue mix, it is dependent on both the volume of shopping activity and the carriers or agents' willingness to pay for a referral. That is where you will see disproportional monetization in states where there is appetite and a couple of these laggard states still being relatively challenged, like California. The value of a shopper in California is less because there are just a few carriers who actually want that business right now.
Yeah, makes sense. The auto insurance market exited the fourth quarter of 2024, producing some of the best results that we've seen out of a number of carriers. Not all of them, but many of them are producing great results. When I think about, and we're seeing their advertised spend pick up, when I think about their underlying combined ratios being at very attractive levels relative to history, incrementally, their advertising dollars, their acquisition, their ability to spend more on acquisition costs probably is higher. Can you talk about carrier appetite for your leads? Have you seen an increase in the value of your leads you're selling? Maybe walk us through how that's ranged and where we are in that cycle.
Yeah. We've certainly seen the appetite for our leads come back in a big way over the course of the last year. We've seen, if you take the 70%+ growth that we generated last year, it was sort of largely driven or heavily driven by increase in monetization, increase in carrier coverage, and willingness to pay. Monetization was a big part of the growth equation over the last year. For the direct carriers specifically, I think our carrier segment grew 200% year-over-year last year and exited Q4 at 500% year-over-year. There was a really significant ramp in carrier spend and carrier willingness to pay over the course of the year last year as persisting into Q1.
There is this monetization aspect, and there is the unit count aspect. Talk to us about the unit count aspect. Are you seeing increased demand for unit counts too?
Yes. Increased demand for unit counts. I think most carriers, at least for certain segments and geographies, want as much volume as they can possibly get. Thanks to the rate cycle, everybody's getting renewal notices. Insurance is more expensive than it was before, and that triggers a lot of shopping activity. We have seen historically high shopping levels over the last year. We expect them to kind of persist into this year. Generally speaking, the growth last year, I think we mentioned auto and home kind of volume, shopper volume was up, I think, 10%-15% last year. A good amount of the growth being driven by volume, balanced by monetization.
Yeah. That is a robust environment for you. It is probably one of the better ones for you over the course of history. As you transitioned, one of the things that you talked about in your opening comments, and we have all been tracking, is the potential regulatory headwind that you were going to face in January that has been stalled out or killed. Can you talk to us about the expenses that you, the upfront expenses that you endured to get ready for this? Because I have to imagine we are going to have some favorable comparisons as we go through the year, assuming that does not come back.
Sure. I mean, let's talk about what the regulatory change was. There was an FCC Rule that was coming in place, which was one-to-one consent. The fact that that meant was in our marketplace model, a consumer comes in, can be connected with multiple providers. It was going to go one-to-one. The impact of that was, particularly in our agent business, about roughly 25% of the business on leads. Pretty dramatic impact. It was one we had been talking about. If you look through our comments starting last summer, we've been talking a lot about how we've been preparing for it. The result of that was going to be an environment where we started to increase price increases for agents. There was going to be a lower volume of shoppers, but there were going to be higher quality.
All of that ended the day before it was going to begin when the new administration came in. You look at that, what does it do to our environment right now? We look at this. That was the largest. If you think about Jamie's comment, we've gone through a period of multiple years of having various storm clouds around the company. This was the last one, and this one is gone. You look from the expense side, I guess what I'd say is it's less about lower expenses per se. It's a matter of the management focus being able to put on how we grow the business, and not '25 and beyond, and not focusing on managing the next regulatory or other crisis in the business. That is a dramatic shift.
Even since we've made the announcement, it was less than a month ago when this changed, or just over a month ago, we've already been, you can just see our ability to sort of refocus the efforts on the team, which in the latter part of Q4, and latter part of last year, Q4, probably half of the bandwidth of the company was consumed in trying to deal with this regulatory change. Just the amount of bandwidth now focused on how do we grow, how do we help our agents and providers be more successful, dramatic shift. I mean, that's what's really exciting for us.
Yeah, indeed. Maybe related to all this, because of the increased demand, can you talk about the competitive landscape? Who else is in your market providing this? How do you guys consider your value proposition with some of your competitors, and how do you see that changing over the next year?
Yeah. There's no, I would say, direct pure play comp. Though some of the companies that we're often sort of compared to would be like a LendingTree, a MediaAlpha, a QuinStreet. There's differences with all their business models, whether it's differences in their vertical sort of composition, LendingTree being, for example, in many financial services, insurance just being one of them, or MediaAlpha, QuinStreet not really having the local agent presence that we do, being more of just an intermediary platform between publishers and carriers. That'd be the comp set that we're typically compared to. I would say the decision that we have made that sets us, I believe, on just a different course than these is we've really made this conscious choice, and we made this in 2023 to focus on the P&C market specifically.
We felt that at the time we were in health insurance, Medicare, life insurance, we've since exited all those markets. We've really doubled down on P&C with the idea being the market is plenty large for us to generate the kind of growth that we aspire to for the foreseeable future. There is real value in going deeper with P&C providers to solve their problems at a very sort of fundamental technical level. It is where we have a real advantage. We have a data advantage. We have a distribution advantage with our local agent network. The path forward for us is one where we're really focused on becoming the number one growth partner to all P&C insurance providers. I think we're well on that path.
If you just look over the last couple of quarters, we've really invested heavily in improving performance by applying new technology to how we bid for traffic, how partners bid into our marketplace. We're starting to see some, we think we're starting to see some share gains as a result of that, which you can start to see in the numbers in Q4 and Q1.
Right. The technology piece, there's two components to your answer. One, the agent component, and then two, the technology component. I just want to, let's take the latter first because technology is always forefront of any conversation when it relates to financial services. Spend a minute and talk to us, expand on that comment about technology and how you're using technology, et cetera.
Yeah. We see, I'd venture to guess, more insurance shopping volume on the internet than just about any other company out there, say, for maybe a small handful of the largest carriers out there. It's tens of millions of consumers shopping for insurance every year. That data has been accumulating over the years, and we use it for a number of different purposes. On the traffic side, we use it to automate how we bid in a performance marketing context for all the traffic that's flowing into the marketplace. Equally important, we use it to decide how we're going to sort of match and connect each consumer with the right subset of providers for them. Now we're beginning to extend some of our bidding capabilities out to the providers themselves.
If you're a carrier now, you can use a product that we call Smart Campaigns. We've gotten good adoption now of this product where all the sort of ML infrastructure that we built for our own bidding, we now have sort of externalized as a product for carriers to bid into our marketplace, and we're seeing them get a lot of increased performance out of that. The way that these marketplaces tend to work is if you can drive more performance on a unit of traffic out to the marketplace, those providers will be willing, they'll shift budget to you, they'll pay more for your traffic. If you have more monetization, then you can go and source more volume of traffic from whether it's Google or Meta or wherever the traffic originates. Higher volume of traffic means we have more data.
More data means we can do a better job of optimizing performance. That is the flywheel that we are investing in each day. It is the technology and the data that underpins that that has allowed us to get to where we are today as the leading online insurance marketplace.
Excellent. You also mentioned distribution as a key critical advantage. Talk about that.
Yeah. We have the largest, if I take a step back, insurance companies in the U.S., they'll distribute insurance to consumers either directly or through a local agent. If we as a marketplace want to have a comprehensive set of products on the shelves, we need to be able to facilitate referrals out to a digital quoting workflow like a Progressive or a GEICO or something like that. We also need to be able to facilitate connections to local agents because if you want to get State Farm, which is the largest auto insurance carrier and has great product, you need to do that through a local agent. We have really invested in building out sort of the breadth of insurance products out there. The most proprietary piece of that is this local agent network.
We have thousands of local agents who use EverQuote to access local shoppers who go online to buy insurance. It is continued investment in the growth of that agent network and further supporting that agent network through now a growing suite of products and services that we feel is a real edge that we are building.
Excellent. I remember sitting in your office maybe two years ago or so, just aspirationally hoping for you to get to a 10% margin, and you cleared the 11% margin. What was striking to me last year is that you unveiled an aspirational target of, I mean, a higher margin. Maybe step back and give us an update on your margin through the year, through end of last year, but then also talk about the steps you need to execute on in order to get to that 20+ % margin that you talked about a couple of conference calls ago.
Sure. Maybe I'll just give you some context on the model to start with. We see this as a business that's had extraordinary growth, right? We see growth in this business over the long term, sort of high teens, 20% on average. Really nice growing business. As you look at our EBITDA margins, I made the comment we were at 11.6% last year. That was twice what we ever achieved pre-downturn. Big change, right? It also was very high cash converting, basically 100% conversion to operating cash, which it wasn't before. We've changed the model a lot. As you look at this year, the commentary we gave in this year, we gave guidance for Q1, and we didn't give guidance for, we gave insights in the year.
Our Q1 says it's probably 12.5% as the midpoint, so 100 basis points up from last year. As we see through the year, we've sort of said, hey, assume it's sort of at or near those levels. Part of that dynamic is we look to the second half of this year, we are going to make some additional investments in our technology and data platform, right? We have shown that as we manage the operating expenses really well, but we want to make sure that we are making investments to position us for growth, not for this year. This year is set $26 million-$27 million. We want to build the winning hand in this industry, and we think we have the backdrop to do it. To do that, we have to make sure we're making the investments in technology.
We're going to do it in a way that's disciplined so investors will see us also continue to contribute to that EBITDA margin. We haven't talked exactly how it will evolve to get to 20% on the long-term model, but we added 100 basis points this year. I think you'll see us adding every year along the way. Obviously, the wildcard that we had, say, for example, in Q4, as our EBITDA margins were higher than we expected because in a given quarter, if we have overperformance carrier spend coming on late in the quarter, that often goes direct to the bottom line given the leverage we have in the model because we plan, although we think about spending throughout the quarter, at a certain point, you can't spend it prudently, so we'll just drop to the bottom line.
That is always sort of the dynamic in our model. I say assume it's in this sort of 12.5%, all the things equal, and we'll see what else happens.
Part of the margin conversation has to, I'd be remiss if we didn't talk about the Variable Marketing Margin. Why don't you pivot to that.
Sure. I'll explain first of all what it is. It's revenues less advertising dollars or variable marketing dollars, and Variable Marketing Margin is just that as a percentage of revenues, right? If you look at Variable Marketing Margin, the percentage, we've sort of talked about it as being sort of in the high 20s for this year. Our guide says about 28%-29% for Q1. Some context on that. When you look at Variable Marketing Margin, it's periods where it's been higher when the advertising environment was not as dynamic as it is now, right? If you put it in context, if you go back to early entering 2023, the Variable Marketing Margin we had with a much smaller business was around 29%, right, in the auto P&C marketplace.
We had a period where in the downturn we had some margins really go up into the mid-30s, and we said, don't assume this is the new normal. Assume this is really what it is, which is a very depressed market, and we're taking advantage of it. If you look at our commentary last year, we said, hey, we're going to sort of see through 2024, having it go down to sort of high 20s, and that's exactly where it ended the year in Q4. We sort of see that continuing this year. It's important to remember when we manage the business on the traffic teams, they don't manage to the percentage on a day-to-day basis. They really manage to driving the dollars.
Of course, we look at the margin, but think of that as a weekly review versus the daily operation, which means there's variabilities given by the advertising environment, but generally in the high 20s is where we see it. As I gave that contrast, it was 29% going into 2023. We're doing that nicely. Why is that not improving? Give me some context. It's a much, it's dramatically bigger business. What is allowing us to maintain that margin despite a much more competitive advertising environment is our technology. How we're leveraging our bid. We talk about our bidding technology, and that's been a key example. That's going to give you a little context in the VMM.
It really is. As I'm sitting here listening to you talk about the opportunity for you, really, it's like all this hard work, this is what you've been waiting for.
Exactly, yeah.
It's a unique time for you guys.
We feel that way.
You talk about the free cash flow. You do not have any debt on your balance sheet. I guess before I get into what can go wrong, one of the other pieces that can pop up is acquisitions or, God forbid, diversification. I feel like this focused strategy has really delivered positive results for shareholders. Is there anything going on in the M&A pipeline? Is there any targets out there that could enhance what you are doing in the marketplace? What are you seeing out there from a capital deployment standpoint?
Yeah. Maybe I'll take it up a bit to just sort of how we think about cash. These were questions we were not getting a year ago at the conference. Now that we have $100 million in cash and we are a cash-generating business with EBITDA basically being a proxy for cash, we get a lot more questions about what we are going to do with cash. These are good questions to have. I'd say first, which sort of gets glossed over by a lot of folks, though, but it is key to emphasize, is how we think about investments today organically. The time horizon we thought about for investments a year ago, 18 months ago, you can imagine when you have a very thin balance sheet, your time to money is a very key criteria. You rule out many high-impact projects because the time horizon is too long.
As we think about where we are now, we are actually making investments, particularly in the second half of this year. They will not benefit this year. They may not even benefit next year. They are going to set us up to really benefit long-term, and that is critical. Particularly on the technology side, you have to think in terms of several quarters, multiple years out. I am now able to do that. That is the first one. I think it is probably the most important to carry away. Second, on M&A, M&A is an opportunity that will emerge for us in our sector. I think you made a comment about diversification. We have tried that before. We like the P&C market. It is a very, very large market. We feel this is a place where we can make a very, very large business serving it.
The question is, are there opportunities that allow us to go deeper within P&C, right? Those opportunities could be helping products for our agents, right? It could be how we use data with carriers. It could be new traffic sources. It could bring us in potentially into other related areas within P&C verticals. I think those are all opportunities that we'll look at organically, but maybe we accelerate or say it's easier to buy versus build. We'll look at that as a second option. I would say we are fortunate. We're seeing a lot of things. I would say they are generally sort of tuck-in type profile. I think that's probably the right profile for us. I think they're also lower risk for shareholders as well.
You will see us look at those, but they'll be guided by it's got to fit the strategy, focus on P&C. It's got to be adding value for our carrier partners, and it's got to fit our financial criteria, i.e., we like making money. Those are going to be the three things on it. I'd say those are the two things in capital allocation. The third that we'll think about is, and we get a lot of questions on, so I'll just hit it head on, is buybacks. It's sort of a common theme. It's something we'll consider. I think we're always cognizant of we're not a large-cap company. We're a small-cap company. We've got to be conscious of flow and liquidity and all those things.
That being said, we appreciate the math that $X divided by a few number of shares is a net positive from a per-share basis. We will think about that as well as another tool in the toolkit.
Yeah. Excellent. I asked this question of a previous company because really your company and a number of other companies operating inside my vertical seem to be like the near-term outlook for over the next 24 months is very strong. I asked this question of this other management team, and I think it's entirely appropriate for you too. It's like against this backdrop that is very bullish, what are the issues that worry you that can go wrong, whether it's macro, outside your control, or maybe more company-specific? Because it seems like it's a very strong outlook.
Yeah. I mean, we share your view. I mean, the overall sentiment is one of. We think it's a very strong outlook as well. You have a few sort of probably favorable things that are likely to occur at some point over the next 12 to 18 months, whether that's California coming back or another big carrier stepping back into the marketplace. A lot of that bodes well. I think for us, number one is remaining focused and disciplined, right? We've worked very hard to sort of refocus the business, implement a certain level of financial discipline, not just sort of among Joseph and myself, but really permeate down into the organization.
As we get back into much more of a growth mentality, we are going to be making investments, but we need to make sure that those are very targeted, very focused, and we're very disciplined in how we do that. I think for me, that's certainly top of mind. Beyond that, I think to your question around diversification, it's like, are we going to we've exited this hard market in a position of strength. I don't anticipate we'll see another hard market like the one we just saw.
Yeah, that's amazing.
At some point in the future, there will be another hard market of some form. I think the challenge will be to make sure that we enter that hard market with a much more sort of diversified and durable business than the one we had in 2021 when this one hit us.
Excellent. Congratulations on your success. The outlook looks great. Good luck to you.
Thank you.
For everyone participating, we have hit the top of the hour. Management will be available in a breakout afterwards downstairs. Thank you for your participation.
Thanks, Greg.
And.
Thank you, Greg.
Thanks a lot.
For having us. We appreciate the support. Thank you.