Good afternoon. I'm Ralph Schackart, Internet Analyst here at William Blair that covers EverQuote.
Great to stand.
Thanks for attending our annual Growth Stock Conference. Today we're happy to have Joseph Sanborn, CFO, back; Jayme Mendal , the CEO of EverQuote. I've covered the company since its IPO, and happy to have you back, as always.
Thank you.
I have to tell you, if you don't mind, please check our website for disclosures, just to check my compliance box. EverQuote is not going to be doing a presentation, so I've asked both Joseph and Jayme to maybe do a very expansive kind of overview of the business as we kick things off, and then we'll go into Q&A fireside chat after that as well. Would you grab the door too at some point? Thank you.
All right, maybe kick things off. For investors that are new to the story, maybe just give a good overview, if you could, please, of what you do, sort of the evolutions of the business, talk about sort of the growth prospects going forward, and maybe that'd be a good launching-off point.
Sure. Thanks for joining us. EverQuote's a leading online insurance marketplace. We find consumers, wherever they are on the internet, with some intent to buy insurance, get them to our EverQuote-hosted properties, web properties, where we'll gather all the relevant underwriting information that would be required to sort of match and connect them with the right insurance provider for them. We will, as seamlessly as possible, try and get them to the right quotes. For the consumer, we help them save time and money shopping and reshopping for insurance. For the providers, which are primarily the direct-to-consumer carriers and local agents, we're a large and efficient source of growth, of new policies for them. We operate primarily in auto insurance. 90% of the business is auto, and the balance, 10% or so, is homeowners. We are today the leading P&C online insurance marketplace.
Maybe a little call-outs for financial context would be helpful for folks. Q1, we announced our results. Q1 is our fourth straight quarter in a row of record revenue, VMD, variable marketing dollars, and adjusted EBITDA. Our adjusted EBITDA is also one that's very high converting to cash. When you think about the model, it's a business that, at a high level, had a period of rapid recovery in the auto carrier spend in the course of last year. It's continued into this year. We're now going into a period where the carriers have a very healthy backdrop in terms of combined ratio. We'll talk more about the industry, but a very healthy combined ratio is where they want to grow and where through digital channels, where the means to do it.
You have a favorable backdrop with consumers who are looking to shop, given auto insurance rates are up significantly. That is a pretty healthy dynamic for us as a business. The last thing I would say, sort of in the business high level from a financial viewpoint, is you have seen us go through this really nice evolution in our model where we have built really a sort of balancing growth and profitability. Top-line growth, for instance, our IPO, the CAGR has been 22%. We think about our long-term ROI, averaging 20% top-line growth with expanding EBITDA margins. Last year, they were just like 11.5%. We have indicated this year there will probably be 150-200 basis points more than that, going towards 20% in the long term. You think of that as a backdrop for the story Jayme described with a large market opportunity and a strong financial model.
Great. Maybe just kind of touching on the market opportunity, if you could maybe help us think about the TAM and how you size it and how carriers think about the digital channel as a source of traffic and binding policies.
Sure. So maybe I'll start out. You think about the market we serve. It's insurance carriers and agents trying to grow their business, right? If you look at the amount of spend on distribution and advertising, it is about $115 billion of spend a year. Within that, the portion that is digital advertising today is about $7 billion. That $7 billion, if you look at various industry estimates, growing 15% plus over the next several years is the expectation. The driver of that underlying is insurance's aggregator going online. If you look at the broader industries of companies going online, broader financial services, travel, their 50%-60% plus of spend is on digital channels. Look at insurance, it's well under half. It's like a third to 40% based on the studies. That's the backdrop in terms of the TAM.
Great. Maybe just on the actual product itself or the experience on the consumer side, what's the key problem you're trying to solve or for the carriers as well? Maybe kind of walk through both sides of the marketplace, how you're connecting people, what you're trying to solve, and maybe get a sense of average cost savings.
Yeah. For consumer, it's pretty straightforward. We're trying to, as quickly and efficiently as possible, get them to the right insurance policy for them. Consumer shops their insurance with us, they save $600 to $700. They'll also save quite a bit of time because the alternative to using a service like EverQuote would be to go out to various agents and carriers and try and get a bunch of quotes. You have to re-enter a bunch of information, provide a bunch of information over the phone to some agents, online to some carriers and all that. I mean, if anybody's shopped insurance lately, it can take literally hours of time. We'll help them get to a quote far more efficiently and ultimately to the right quote.
The one thing about insurance that a lot of people do not appreciate is that there is literally a right answer for every individual consumer, if you define right answer as being the lowest price for a given level of coverage. Most consumers have no idea who is the right provider for them. Every carrier specializes in a different segment of the market. They all price their risk down to the individual level. Joseph could go to Liberty Mutual and get one rate for the same coverage, Progressive will give him a very different rate. We have a ton of data that has been accumulated over the years that helps us match, sort of sort and filter and do a lot of the work for the consumer before they get to that quoting point. We can really narrow the options for them very efficiently.
Great. Good.
For the carrier, if we just go over to the other side of the marketplace, providers are generally looking to grow and to grow profitably. It is add more policyholders and pay the right price to acquire them. We provide a very large pool of prospective customers to them. Importantly, we also allow them to target with much more precision than they can through any other channel. Because we have gathered all the relevant underwriting data for each consumer, they can literally, we will say, "Hey, we have this specific consumer. They have these sort of attributes. This is where they live. This is their driving record. This is how many cars they own. This is what kind of cars they own," so on and so forth.
They can make a determination as to whether they want to bid to acquire that customer and if so, how much they're willing to pay. In a world where in a market where targeting is probably the sort of paramount attribute you're looking for in your customer acquisition, EverQuote allows them to target and therefore drive far more efficiency in their ad spend than they could get in any other channel.
You talked about rates. Maybe, Jayme, if you could provide some historical context of why carriers set rate, maybe a little bit of a history lesson, where we were, sort of where we are today, and then what states haven't set rate broader audience.
Yeah. Insurance is a regulated industry. Insurance companies have to file and get approval for the rates that they charge at the state level. They are periodically reviewing and filing for rate changes, sort of up or down. There was a bit of a shock to the system with COVID beginning in 2020, 2021, when the loss pressure increased at a very dramatic rate. Going into COVID, things were somewhat normal. Early days of COVID, all the cars came off the roads. No accidents. Carriers were remarkably profitable. They started to lower their rates to compete for business. The supply chain shocks began to set in, which made the cost to repair and replace vehicles go up dramatically, seemingly overnight. All of a sudden, they were upside down. Now they are paying out more on claims losses than they are taking in on premium.
They're unprofitable. Basically, every incremental policy they're acquiring is unprofitable. This brought the industry into what's referred to as a hard market. A hard market is when the carriers are generally not priced right relative to the risk that's out there. In that kind of market, they all will pull back. They do not want to acquire new policyholders until they're able to get their rates up to adequate levels relative to the risk that's out there. They worked through this process of filing for rate increases. It's going to go state by state. Over the last few years, the industry has been working through it. Last year, we began to see rate adequacy take hold. This is happening at a carrier state level.
We saw a lot of spend, which was taken out of our marketplace in the 2021 to 2023 period, start to come back in. That is reflected, as you'll see, in extremely high growth rates last year and turning the corner into this year. Where are we now in that recovery cycle? I would say we have sort of a broad-based recovery, a lot of carriers, a lot of healthy state footprint. The marketplace is back to a healthy place. We're still at a point where half of our top 25 customers are not yet back to sort of peak spend levels. There is still some runway to go in this recovery at the carrier level.
If you look at it sort of through the geographical lens, you've got some big states that haven't quite given rate the way that the carriers need just yet, California being the biggest example. That would represent kind of another leg up in the recovery. We expect all this to continue to kind of flow through over the next 12-18 months.
Great. As carriers all set rate in all the states and we're sort of back to equilibrium, if that's the right way to think about it, as they're thinking about a direct digital channel, maybe like a Progressive, or as they're thinking about agent channels or just carrier channels in general, why would they choose you over the competition? What really sets you apart? Why are you additive to sort of their direct approach?
Yeah, sure. I would start with the targeting. If you're comparing our channel to other channels, the primary advantage of advertising in our channel is that we allow carriers to target and bid with much more precision than they can in any other channel. That would include a Google or a Facebook. Those are obviously large channels. They can find high intent in a channel like Google. You're not paying relative to the value. You're not bidding relative to the value of the individual consumer, which is really, really important in insurance. That's why I think most carriers would characterize our channel as probably the most efficient from an ad spend efficiency standpoint, where they try and concentrate as many dollars as they can relative to the scale, the volume that's available in our channels.
If you look at EverQuote specifically relative to other players in the channel, we would point to a couple of key differentiators. The first is sort of the data and technology that we have developed over the years to better match and connect consumers with providers. That sort of manifests in, again, relatively higher ad spend efficiency from carriers, which allows us to get more budget from them. The second piece is insurance distribution. You have the direct-to-consumer carriers, but actually 60%-70% of insurance is distributed through local agents. We have, over the last decade or so, built out the largest local insurance agent network in the industry.
Now for every consumer that comes in, not only can we match them with the Progressives and GEICO of the world, but we also have a way to connect them with the local agent, State Farm, Farmers, Allstate, independent agents. That really gets them the full breadth of coverage they need.
One of the analogies we sometimes explain for just to help make it real, folks, is why do carriers benefit from working with us versus just going direct in the channels? For the carriers, it's like fishing, right? They cast a broad net. They pull in lots of fish. With us, that's really spearfishing. They can very specifically target the profile they want. And because we have more information, we know more about the given fish, to use the analogy, they can get exactly what they want that fits their criteria to cut for a policy profile they want to acquire. That's probably the way to sort of simplify it. The capabilities Jayme mentioned reinforce it. we can do that in a way because we've been at this for so long, better than others in the industry.
That efficiency that we bring is overlaid with all this tech data that we've been able to build. Every day we get better and better using that data, and we get more and more of that data. That just builds a flywheel to make us stronger in doing our fishing analogy.
On the spearfishing analogy, are they doing that just to balance out risk for their book of business? Why wouldn't they want to continue just bringing in lots of fish?
At the end of the day, it's about acquiring a profile consumer meets their exact policy profile. The better they can do that, the more efficient their spend is. When they cast that net, there's lots of fish they can't have a match for, right? If you want to, for them, they want to spend where they know they're going to get results. That's what we love to do. Because when they get information from us, just to go with the analogies, they know details about that consumer. When they cast the broad net, they don't know what they're pulling in. As Jayme said, the business of insurance is very different than a lot of other businesses in that companies make their business focusing on a specific profile consumer.
The rate they charge, if you think about matching of the rate based on the coverage, that'll be different across carriers because they think about consumers differently. Even within carriers, their profiles can change from time to time based upon underwriting criteria, how they're thinking about broader risk management.
I know one of the, I know we'll get to products in a second, but just maybe skip ahead a little bit. One of the things I know you've been working on are the direct-to-carrier integrations, also as a point of differentiation, I think, in the model. Can you maybe expand on that and how to differentiate and how the data feed helps further that spearfishing, if we stay with that analogy?
Yeah. There are a couple of things we're focused on with carriers. The first is these deep integrations. When a consumer fills out all their information with us, we have, over the years, worked to integrate with the websites, the quoting, the digital quoting flows of all the carriers. We'll try and get the consumer to basically land as close to or on the quote from a carrier to minimize the amount of data reentry and maximize the conversion rate through the funnel for the carrier. That helps drive, again, more efficiency in their ad spend with us. The second thing that we've focused a lot on and has really begun to take hold in the last year is a product that we call Smart Campaigns, where we'll basically apply our data and our ML-based bidding technology that we use for our own traffic acquisition.
We've now productized it and made it available to carriers. For those carriers who are not super sophisticated at bidding for traffic online, which is the vast majority of carriers, we will now allow them to basically opt into this product and let us do the bidding into our own marketplace on their behalf. They can tell us, "Here's sort of how we think about the world, our segmentation, our KPI targets." We can build a model on their behalf that does the bidding to improve the efficiency that they'll get from the marketplace.
Great. I'm just kind of switching gears a little bit. Obviously, a lot of conversation is going on about tariffs and the fluidity there. Can you maybe provide some perspective on how it may impact either your business or how it may impact carrier spend?
Sure. When you think of tariffs, first, our business is directly not impacted. The impact is really on our carrier customers. The specific impact is on potential inflation on cost of claims. If you think about what drives claims cost, one of the elements is cost of repair. One of the key elements of cost of repair is auto parts. Based on everything that's known today, carriers are expecting that they'll have some incremental costs the second half of the year based on what's known about tariffs. The question we often get, "Is tariffs like another COVID? Is it going to be the same thing for the industry?
This great shock to the system? I think it's a couple of things I'd say bear in mind. One is every estimate out there is this is a small piece, this is a piece, but only one piece of cost of claims. You think about cost of claims back in COVID, you had supply chains just broke entirely. You had costs go up dramatically to get the parts that are available. You also had other elements like auto labor costs. Your colleague Adam Glauber talks about a lot. Auto labor costs went up, spiked dramatically because no one wanted to work at the time in repair shops because they didn't want to be inside with COVID. That is more stable now. You look at the cost of replacement, which is when you total a car.
You look at that, and that relates to used car prices. Used car prices have come down significantly from the peaks of COVID. You may recall when we were all trying to get cars at that time, there were no new cars. Everyone bought used cars to substitute. If you look at that in comparison to now, the impact is isolated really to auto parts. What's known is feels like pretty absorbable. Why? Because the carriers are very healthy, right? It's important to bear in mind that the carriers' combined ratios are at very, very healthy levels relative to their norm. If you think about a reference point, carriers talk about combined ratios of being in the mid-90s as a goal. Meaning, take your revenues less all your costs, the difference is your profit margin. Right now, they're in the low to mid-80s.
If you think about that dynamic, that gives them pretty reasonable room to absorb increased inflation costs on claims. You might go so far as to say, as a quasi-regulated industry, having some increase in pressure on claims costs, they could not only absorb, but as you think about broader public relations with insurance commissions in various states, it could sort of tie into that well. You look at all that. We think tariffs, everything that is known today, very isolated, limited, I should say, limited and known. You say, "What happens if we do not know it?" Like, say there is this unknown that is going to change. I think one of the carriers did a nice job talking about this on a recent call.
One of the things we learned during COVID is how to do rapid rate increases in several states at one time." One of the challenges during COVID is carriers were chasing rate. They had to file constant rate filings with several states, and they'd have to do it multiple times a year. That was not a muscle they had built in most carriers. Most carriers, you file rates, you're done. Maybe file a second one nine months later. During COVID, they were constantly chasing rate. They had to build an apparatus to do that. Carriers have now built it. If you did have the, you say, seems to be limited, everything we know, if something unusual happened, what is your ability to respond? Very different now than it was during COVID.
Great. Maybe switching gears to products. Jayme, maybe give some perspective about the products that you were able to build pre-GenAI. And then now that you have GenAI as a toolset, how has that augmented both your product development, speed to market, and then also internally, how are you leveraging it as well?
Yeah. We think about, we kind of bucket AI applications into two categories. The first is ones that are more sort of operationally, like operational efficiency oriented. How can we adopt or build tools that make the team, improve the productivity of the team? The second is more, I guess, customer-facing, right, or driving sort of incremental value for customers. On the former, I think we've started to get broad adoption of a number of sort of AI tools, some GenAI, and then you've got more traditional AI, sort of machine learning-based applications. A couple of examples there. You've got, well, on the ML side, all of our bidding technologies, we've been using ML to build this bidding technology and develop it over the last few years.
It really started to drive some significant impact in terms of our ability to both grow and manage our margin. It is also, from an operational efficiency standpoint, taken work that used to be done by, as an example, there is one team that used to be 15-20 people that is now five people. It is managing a lot more spend and doing so more efficiently than the 15-20 people did back then. You have more sort of traditional tooling, things like Copilot. We have engineers. There is a good amount of our code, which is now being first pass is being generated by AI. There are analogous tools in our customer service organization, analytics organizations that are sort of being tested.
I think we are pushing the teams to adopt these tools where we think they can allow us to basically do more with less, broadly speaking. You come over to the sort of customer-facing side of the world. We've been kind of scanning for applications that we felt would sort of meaningfully improve either the experience or the outcome for customers. There's a number that we've begun testing. For us, AI Voice is an interesting sort of use case in that we do a lot of telephony. We have a lot of customer conversations that are fairly transactional. That's one place where we're beginning to test, can the AI Voice replace what is today done by either an IVR or a sort of inside call center rep?
We are pretty confident that we'll be able to transition a lot of our sort of voice interactions into an AI modality. Once we do that, you can start to imagine other applications where you're actually taking on some of the work that's being done today in a web form in a different format, whether that's GenAI sort of chat-based or GenAI Voice-based. We do think there will be applications that begin to evolve as we develop the capability, get it into production, and start working on it with actual customers.
Okay. So we're doing time. All right. Pushed on time. I'll move to analyst mode here. I'll ask a three-parter, as we typically do. Maybe move to the financials, Joseph. Maybe give an overview of Q1. In your opinion, what were the real standouts, the most recent performance? Remind investors, if you can, on your long-term targets. I think historically, or more recently, you've talked about the pathway to a billion-dollar company. Maybe sort of lay out the building blocks of how you get there.
Sure. For Q1 for us, it was, I mentioned this earlier in our call, earlier discussion, it's another record quarter for revenue, VMD, and adjusted EBITDA. It's a story where we had growth year on year of 80-plus % on revenue, reflecting that 2024 was the start of auto recovery. The momentum continued into the start of this year. Importantly for us, when you think about the financial model, as you go down from the top, I'll sort of bring you through. Variable marketing margin dollars, which is revenue less advertising costs, and then we refer to VMM as the margin on that. That ran 28% in Q1, very much in line with what we said, sort of high 20s. As you go further down, you look at operating expenses.
One of the learnings that we had coming out of COVID is how to be more disciplined in managing our operating expenses. You've seen that discipline continue as we've come into this period of growth, which is resulting in a lot of dollars going to the bottom line. OpEx in Q1 was $24.5 million, was very similar to what was in Q3 of last year. Q4, the guide for this quarter implies a little over $25 million. That's, I think, how we manage the business on the cost side. On the EBITDA side, what that resulted in is adjusted EBITDA that was at a record level and had EBITDA margins around 13.5% in Q1, which was an uptick from where we ended last year. When you think about that, what does it mean as you look ahead to the rest of the year?
It'd probably be helpful for you. We do not provide annual guidance. We provide guidance for the quarter, for Q2, but we do give some insights for the rest of the year. Maybe just a touch on those. As we think about the business progressing through the year, let's talk about that VMM margin. We see VMM margin sort of staying in the high 20s. The puts and takes on VMM margin are interesting. One of the dynamics on advertising is it's a dynamic of the advertising market, which we do not control. Interestingly, a key driver of that, one of the biggest competitors for advertising dollars is actually our customers who are doing general brand spend that we talked about earlier. That is one dynamic in that market, and they've been doing that significantly. That has put some pressure on VMM margin.
The flip side is we've counterbalanced that with what we do with our bidding technology and allows us to be more efficient in our advertising spend. Just to give you some context on that, the high 20s, if you think about our business start of 2024, look in the rearview mirror to 2023, the VMM margin auto marketplace was basically 29%, but the business was half the size of it is today, well under half the size. If we had said back then that our business would more than double, have an advertising environment that's more competitive, people would be very surprised that we have the same margins. I think it speaks to what we're doing with our bidding technology.
As you progress down the P&L looking ahead for the rest of the year, what we've talked about is we're going to have incremental investments in the second half of the year, which will result in our EBITDA margin staying around the current levels, at or near this sort of 13-13.5% range. The investments are principally going to be in areas that are around our technology area. They will not benefit 2025. They're really focusing on 2026 and 2027 as we think about making the investments to be a strong growth business going forward, leveraging the capabilities we have on the data stack and also on our AI capabilities. I'll touch last on the long-term model, which is we view this as averaging 20-plus % growth on the top line with growing profitability in the bottom line.
EBITDA margins, depending on, we'll see how the year finally shakes out, but based on what we've said, you'll see EBITDA margins were up to last year tick up 150 basis points over 2024. As we go forward, we think the long-term dynamic is averaging 20% top line growth on average year over year, coupled with getting to EBITDA margins of 20%. We will see some incremental margins added each year. Importantly, it's going to cash flow as well.
That's great. Just a quick minute or two if there's any questions in the audience. Sir.
How does your business get impacted or not by how people change or search? How does AI, like Elon something like that, in search for insurance? Are you involved in that kind of whole transaction or not?
Yeah. Today, we have a fairly balanced traffic portfolio, right? Search is just a piece of that. I think our largest traffic partner is Google. I think that's around 20%. That would include Google Search and other Google platforms like their Display Network. That's really the part of the traffic landscape that would be affected. To date, just to keep in context, insurance is a somewhat unique category in that, A, it's very transactional, like lower funnel searches that are typically happening. There's very little organic traffic in search. It's almost all paid traffic. Number two, it's a very opaque category. Unlike sort of restaurant information is broadly available on the open internet, insurance rates are not. Probably in part for those reasons, we have seen no impact to kind of traffic flows in paid search in the insurance category.
Over time, do we expect that the Perplexity, the ChatGPTs, the Geminis of the world will begin to generate traffic? Yes. I mean, they already are. It is growing quickly, but at a relatively small scale. I think the big question for the industry is, what will be the model to actually tap into that traffic? I do not think the platforms themselves have quite figured that out. There could be a paid advertising model, which would be sort of relatively straightforward for us to plug into. There could be sort of more of like a plug-in model where you are building sort of widgets or tools that integrate with these platforms. We are exploring those as well.
It could be more of like a content-oriented SEO strategy, much like you had with Google, where it's just like we just have to put good information out there, and then you'll get some backlinks as a result of that. I think all those are possible. We're kind of actively working on developing a point of view on where to place our bets. I think right now it's still relatively early. In the insurance category specifically, I think it will be a laggard to kind of make its way into these platforms.
Unfortunately, we're out of time. All right, Joseph, Jayme, thank you so much. Thank you for your interest in EverQuote.
Thank you all. Have a great day.
Thanks.
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