All right. Thanks, everyone, for joining us for the annual Oppenheimer TMT Conference. Our pleasure to have EverQuote. I think it might be nine or ten straight years of doing this conference. We always love having your participation. With us today is Jayme Mendal, CEO, and Joseph Sanborn, the CFO. Thanks for joining us, guys.
Good to be here.
Thank you.
All right. We'll start with what's going on. Jayme, I would say if we look over, call it the past 12 months where we've seen this upcycle, I would say relative to the peers, when we look at revenue and more importantly, you know, VMD, market, marketing dollars, EverQuote seems to be performing the best, has the most share. Can you just talk about like what's been working for the company and where you think we are now currently in this upcycle?
Sure. I'll start with the cycle. You know, the auto insurance market, we had this fairly extreme hard market from 2021 - 2023. The industry started to kind of get their rates where they needed to be in 2024, and it's continued into this year. Our assessment is that the vast majority of carriers are now broadly profitable across most states. We're seeing that reflected in their participation in our marketplace. In all the engagement that we've had with carriers over the last few months, the conversation has really been about returning to growth, growth, growth. We think that kind of by the end of this year, we'll be back to a fairly kind of normalized carrier demand profile, meaning all carriers active in almost all states. There may be some laggards here and there.
We know California is one of the states that's been a little slower to recover, broadly speaking. By and large, I think we're getting into the later innings now of the recovery and expect to kind of enter next year with a relatively normalized underwriting environment.
Were you going to say something?
No, I was going to move on to the other part of the question, but if you want to click down there.
No, continue.
Yeah. I mean, I would say in that backdrop, we've been executing very well. In 2023, we made a choice to exit some of our non-core verticals. At the time, we were in health, Medicare, life insurance lines, and really refocused the company on deepening our relationships with P&C insurance providers. The auto insurance market, P&C, is a massive market, and we believe that there's real benefit in going deeper in this market to innovate with our customers in terms of how we use our data and the technology we're building to help them grow profitably. That has paid some real dividends. Over that period of time, we've transformed the business quite dramatically. In 2023, we were losing money on an adjusted EBITDA basis. We're going to generate, we'll call it $80 - $100 million this year of adjusted EBITDA. A massive inflection in terms of our profitability.
The growth has been fairly dramatic as well. It's really, I'd say at its core, a result of the market recovery combined with our deeper focus and continued investments in supporting carriers and agents in P&C with their growth as they come out of their hard market.
Got it. Are you sort of looking for, I guess, are you looking forward to the market normalizing and getting out of this boom and bust cycle? I think you've historically said when you have a normalized operating environment, the company's stated target range is closer to the 20% growth rate. How should we view EverQuote in a more normalized environment where you are in terms of the TAM? You're still very underpenetrated.
Yeah. Just why don't I kick it off and I'll let you elaborate. Since going public, you know, we've talked about ourselves as a company that'll be high growth, as we define that 20%+ annual growth on average, with expanding profitability. If you actually look at our CAGR since our IPO in 2018, we have delivered on that promise. We've grown 23% on an annualized basis over that period of time, and we've delivered the exact amount of profitability we have said we would, which is between one and two points of adjusted EBITDA margin per year. The model is really a profitable growth model. I'll let Joseph expand a bit more on that.
Sure. Just to give some context, as we've talked about, you know, top line growth we've been achieving, we're sort of saying going in our medium term, obviously averaging 20% top line growth. Some years will be a little more, some years a little less. On the EBITDA side, we've made a real point since the summer of 2023 to really make sure as we're driving top line growth, we're also expanding profitability. To remind folks some context, as Jayme said, in 2023, we were losing one on the EBITDA side. In 2024, we had 11.6% EBITDA margins, obviously a dramatic change. This year, Q1 was 13.5%, Q2 was 14% EBITDA margins. Q3 implies we'll be sort of in that zone. We've sort of said expect those levels to continue for this year. It means we'll add a couple hundred basis points, give or take, for this year.
As we go toward that long-term goal of 20%, we'll probably add at least 100 basis points a year, some years maybe a little more. You put that combination together, you know, revenue and top line growth with expanding EBITDA margins, and importantly that EBITDA is very high cash converting. Last quarter our EBITDA was $22 million cash. Operating cash flow was actually close to $25 million, given the timing of payables and receivables. It went nicely to the bottom line. We think that model will continue for us. That's why we feel really good about driving growth, but also as we're doing it, driving profitability. As we're driving the profitability, we're trying to build an enduring business as well. Part of that is you're seeing the investments we've talked about.
We get to, in the second half of this year, continue to build them on things around our technology stack and AI. Those are things that are trying to set up the growth in such a way that as we think about the industry evolving, we are well positioned to grow in a way that is much more durable as we scale the business.
Got it. Just touching back too on the margin, I think when I'm always talking about EverQuote, I also think it's really helpful to look at your EBITDA as a percentage of VMM, VMD, VMM margin. I actually think in these businesses, your VMD is kind of like revenue. It's just more of a net basis, right? If you look at it on VMD, you're approaching almost 50% operating margin. You're 50% margin.
Yeah, that's right. It's another way to look at sort of operating leverages relative to VMD dollars. I think it speaks to, you know, as we get a dollar coming down to the VMD line, part of it is, you know, it's driving additional investment. Part of it's bringing a contribution to the bottom line to drive show return in the business. That is a managed outcome. How we choose to invest really depends upon how we're trying to balance those two. What I think we have demonstrated as a team since the summer of 2023 is we are very good at trying to do, as we're growing the top line, being very disciplined on driving continued efficiency in our core operations, while at the same time making sure we're investing in new areas that'll drive growth in future periods.
That's been sort of the dynamic we've set up that I think is, you know, getting dollars to that, to your point, to that VMD line are important, but then saying what's the efficiency that's coming through the bottom line. I think it's one of the silver linings of the downturn. The team has become much more disciplined on how we think about return on investment and how we invest the dollars. When you see discussions happening about new projects, and it's not Jayme or I asking, you know, what's the ROI and the time horizon, it's members of the leadership team as we're reviewing things. We've sort of changed the culture of how people think about driving results that are not just showing top line growth, but also showing how we're driving cash flow and bottom line expansion.
You just mentioned, you know, using AI to drive more durable growth. Can you talk about the strategy there and how you benefit from AI, and then what, you know, what sort of, you know, kind of drives that durable growth?
Sure. We've been, I mean, I would say we've been applying AI for a long time in the context of machine learning. I would say the vast majority of the business's operations are really powered by ML. The example we've given a few times in the public setting is all of our traffic bidding is, you know, a lot of it is done through ML. These are a bidding platform that we built over the last few years, which has both automated away a lot of manual work and made us more effective at doing that. It used to be the case we'd have a traffic team of 15, 20 people. That equivalent team today is probably five, managing more spend with greater efficiency. We did that for ourselves. Over the last couple of years, we've taken that capability of traffic bidding and productized it for our carrier customers.
Now we offer this product called Smart Campaigns that allows insurance carriers to use our ML bidding platform into our marketplace to drive more efficiency in their ad spend. In doing so, we get more budget from them. There's a pretty well-worn pattern now, which is they adopt Smart Campaigns, they improve efficiency, they recycle that back into the marketplace with more budget. We've gotten real critical mass of adoption on that product over the last year or so. That's sort of one category of AI. Then, you look at Gen AI and in the context of Gen AI, we break it into kind of two categories. We've got applications that are going to drive operational efficiency within the business, help us automate work that used to be done by humans.
Number two would be more a customer-facing application, actually integrating the technology into our products in some way that improves customer outcomes. We've made a lot of progress on the former. Just over the last year, we've got engineering using copilots sort of regularly now to generate a good chunk of our code. We've got engineering teams that are actually experimenting with more of an AI-first approach to software engineering from start to finish. I think we will start to see some meaningful improvement in the productivity of our engineering organization over time as we get broader-based adoption as the tools continue to improve. We also have introduced AI voice into our call center operations. We're starting to see some real performance out of that. It's a meaningful cost line item for us, which we believe we'll be able to render to AI to a large extent over time.
That's got real traction now. We've got a whole body of work really thinking about how we can innovate aspects of the customer experience using generative AI that's in the form of more conversational type shopping experiences or services for the consumer and/or tools for the providers to get more value out of their digital marketing. It's an exciting time. There's a lot going on right now at EverQuote, but it's very much kind of embedded in our DNA.
Insurance has always been a more complicated product for consumers to understand, right? I mean, that's why you usually have to have some type of human contact. As AI gets better, I assume you start getting more informed shoppers coming into the funnel. Can you use AI to maybe get more vertically integrated where you have a smarter consumer coming in that you could start to get more value on the transaction? How do you think about that dynamic?
Yeah, I mean, there's a lot of potential interface points between the consumer and the AI in the journey. I think what you're describing is if you have a consumer who starts with AI, you know, search, we'll say, right, they're engaging with the AI to get some information about insurance before entering the shopping process. We think that behavior will evolve over time to there will be more and more of that. On the other side of that, yes, I think you'd have a more highly qualified consumer. I think the AI would be able to take the consumer further down the shopping funnel before a handoff occurs. The distribution that we provide will still be an important part of that funnel. The question is, how do we access that traffic that's coming through those LLMs?
Today there's a number of theories in terms of where it will evolve to, right? It could be more content-based, so you just have to provide the content and you get pulled into the AI search results. There could be more like deeper integrations that are opened up between the platforms and distribution partners like ourselves. There could be paid advertising in the future. We're closely monitoring the evolution of these platforms, but we do think that there will be a meaningful opportunity to unlock a large flow of relatively high-intent traffic as they continue to mature.
Got it. Is it too early yet to start using some of these new AI channels, some of these new AI platforms as demand channels for EverQuote?
Yeah, there's not a, you know, EverQuote has historically been entirely focused on paid programmatic advertising, right? That's where we live, that's where we shine. These platforms, I'd say so far that's been a good thing because the paid channel, like paid searches in insurance, has been completely unaffected to date by any changes they've made in their organic search results. We haven't been affected by some of the changes happening in the SEO landscape as some others may have been. On the flip side, the platforms have not really opened up for paid advertising yet. That's why I'm saying I think they will, I think at least one or more of the platforms will over time. I mean, Google will almost certainly find a way to monetize these users. Right now, we're kind of just watching as the landscape evolves.
As it gains traction, I think it'll become more clear exactly how we engage. It is likely that there will be large flows of traffic that open up through them.
You mentioned earlier just about driving deeper value to the carriers and becoming more focused.
Yep.
However, I kind of look at your free cash flow, right? I mean, you're going to be, hex the buyback or whatever, you're going to be close to $200 billion of cash on your balance sheet on year end. Just how do you sort of think about how you want to deploy capital? I think one of your competitors said, "Hey, we got to be aggressive in traffic acquisition costs because we want to gain back more share with a larger carrier." There is always going to be a decent amount of competition. Now that you're coming from a, you probably have the best balance sheet among any of your competitors now. Not probably, you do. Just how do you think about maybe using consolidation just to drive more value and maybe get to a level of earning predictability that Mike investors might like and might help the stock too?
Sure. Maybe I'll start a little bit, sort of think about the highest levels of capital allocation. There's probably three pieces we think about. First is making sure we have a fortress balance sheet. We want to make sure we have the strongest balance sheet in the space and then some. We think that's critical. As a public company and to be a leader in the space, that's step one. Step two is we've thought about our capital. I guess, Jayme, to your point, we're generating a lot of cash flow. How do we best deploy that? M&A certainly could be part of that. Over time, I think I made the comment to you on our call, over the next couple of years, it's an industry where some consolidation could take place. I think there are opportunities for us to continue to look at that to augment our current plans.
That being said, we don't need M&A in and of itself to achieve our growth targets. This averaging 20% growth, 20% EBITDA, I want to be very clear. We believe we can achieve that without M&A, but M&A could be a chance to accelerate that. We think we'll see how that emerges, but we think we're in a spot to take advantage of that between our balance sheet and also just the strength of our team and driving operations. The third piece was, is there a way to return capital to shareholders? We announced a buyback on last week's earnings call. You saw this morning we executed a portion of that buyback, buying back shares from Dave Blunden, our largest shareholder. It's a very efficient way of doing it where it didn't impact the public liquidity.
Dave also locked up some of his shares, so I think it's good for trading dynamics. All of those, I think, are the three ways: strong balance sheet, using M&A, and selectively returning capital to shareholders through repurchase. We think we can do all of the above. Obviously, when you think about a repurchase, people say it's a use of capital. That is true. It also helps signal what we believe in the stock, which is we believe we're generating a strong cash flow that will continue. We have confidence in our trajectory. We want investors to see that, and we think that will be reflected in the stock, but also make our stock more useful for M&A as well. That's sort of how we think about all the pieces, Jed.
Do you ever think about the cash now, theoretically, now you have a much longer, you could start to look at potential projects that might have an attractive ROI, but just a longer payback period. Can you talk about any potential projects or where you think about deploying capital where, now that you have this cash pushing, it might make sense to invest in the business?
That's a great point. When I talk about that fortress balance sheet, it's in contrast to where we were a couple of years ago. At the time, a couple of years ago, we would sit down and look at investment opportunities across the company and say, "That's a really good opportunity, but the payback period's too long. We're not going to do that." Now we're taking a very different view, and we can think much more of, you know, classic ROI. Hey, if the payback period's longer, which often is the case with large, especially large technology investments, we actually can say, "Does that make sense to do it because of the ROI?" We're making those decisions to do those. Some of the investments we're making in AI, they were in broader technology in the second half of this year.
Those are things that'll have, yes, some benefits, but they are longer-term payoffs. They're not going to drive meaningful changes in 2026, you know, relative to the scale of our business, but they certainly will start impacting 2027 and beyond. That is very much the mindset of how we're doing it. It comes back to now we're in this spot where I think we've built a strong financial position. How do we use that to continue to build upon the strengths we have and really emerge as the leader in the space over the next few years and really pull further away from our competitors? We think that's the opportunity we have.
You're still about 90% auto. Is the opportunity more to invest more in auto, or is it more to sort of get back into that home insurance segment? It's still a pretty large TAM, maybe a little more complicated. Just how do you think we're, I mean, I don't know if you ever go back into health, but just some of the other verticals.
We think there's a real opportunity in the P&C marketplace. It's broadly defined. It's a very large market. Auto, as you point out, is our largest vertical. Home is our second largest vertical. Home had really good growth in Q2, 23% growth year- on- year, 23% sequentially. We think home has also had a little bit of the dynamics that auto had on COVID and dynamics around pricing. A lot of those are sort of worked through auto first. Now they're working through home. I think that's going to be a good opportunity for us. As we think about growing the business over time, we think there's opportunities to stay within P&C. We don't see ourselves going back into the health world, for example. We think within P&C, we can go deeper into other P&C products.
There's areas that are smaller markets, maybe have interesting dynamics around them, like the proverbial toys, the boats, and the motorcycles, RVs. There's that opportunity. There's also opportunities, we think, to help. Again, our mission is to help carriers and agents grow. How can we do tools to help them be more successful? We've talked about some of the work we've done with agents and carriers to go deeper on our product offerings. I don't know, Jayme, if you want to add a little bit of color on those areas. That's another way we can stay within P&C, but serve the mission of going deeper on carriers and agents and still support our growth opportunity.
Yeah, I would echo that. I mean, I think one of the dimensions for growth is going to be vertical expansion, but within P&C, where we get real leverage with our existing distribution and traffic. Even within auto or home, you know, we see ample opportunities to continue growing organically. On the traffic side of the business, we've got channel expansion into channels where we're relatively un or underpenetrated right now because we had pulled back during the auto downturn. There's, be it social channels, video channels, a lot of volume that remains to be had there. On the distribution side of the marketplace, with carriers, it's all about driving more performance through Smart Campaigns adoption and other optimization to get more budget. We're seeing that pattern play out.
With agents, we're really focused on expanding our product suite for them, expanding share of wallet with the local agent as we roll out more products and move from being a lead vendor to truly their kind of single consolidated growth partner. We think that even within auto, we've got plenty of levers to continue growing the business for the foreseeable future.
You mentioned programmatic advertising has been sort of your main traffic acquisition. Do you ever think about building up the brand and then trying to drive brand, or are the payback periods too long and it just doesn't work for what you're trying to build?
No, I think our general approach to traffic has been to kind of go from the bottom of the funnel up. I think as you get up above a certain point, brand becomes more important. As we get into even some of these channels that I'm describing, like display, social, TV, video, these are channels that maybe don't require a strong brand, but certainly are benefited by having a stronger brand. We're probably approaching that point where we're contemplating investments in brand. Exactly what form that takes is to be determined. I wouldn't expect us to be airing a Super Bowl commercial anytime soon, but I do think that sort of more programmatic, performance-oriented brand advertising will make its way into EverQuote's portfolio over the next year or two.
Got it. As you kind of think, maybe some shorter-term focus questions, as you think about the guidance for the full year, you're coming up against some tougher comps, but EBITDA, absolute EBITDA dollars, free cash flow looks healthy. Can you just kind of help talk about how we should be thinking about the back half of the year?
Sure. As you just give some context to folks in the growth, in the first half of the year, we grew 50%- 55% year on year. Very strong growth in the first part of the year. As you pointed out, the second half of 2024, the growth over the prior year was over 150% on the prior year of 2023. Suffice to say, I think we do have some tough comps in the second half of this year. I agree with your assessment. The way we think about it is, though, with the growth we have through the first half of the year, the growth we're implying in Q3, put that together with any reasonable assumptions to Q4, you're going to see a year that has very strong growth for this year, high 20s, 30% growth. You're also seeing an EBITDA margin that's 14-ish % or so, 13%- 14%.
A really nice rule of 40 company and then some. We feel really good about that. Admittedly, the comps make it a little tricky, but I think when you look on year and year, you should feel very good about the progress we're making. As you look ahead from there into the second half of the year, you say, what else, what's the wildcards here? Where's the upside potential? Where's the opportunity? I think one of the wildcards is we have not guided for Q4, but what you and others have reflected in Q4 is, hey, we have the seasonal pattern that we've used to describe, which typically Q4 is down from Q3. One thing we had happen in 2024 was actually Q4 was up from Q3.
That occurred because some carriers decided to use their budget and the remaining budget they had in the very end of Q4 to really put a lot into the system in the second half of Q4, mid-November through December. That is unusual from a seasonal pattern perspective, but it did happen in 2024. Last time it happened for that was 2020 in COVID. I think one of the wildcards for this year is does Q4 look like an opportunity where that might happen? On the one hand, you would say we have combined ratios very, very healthy for the industry, underwriting margins very healthy. As they progress through the year, you've seen the carriers, as they get more clarity on tariffs and they get more of the year's known than unknown, you could get into a spot where some carriers have combined ratios in the mid to high 80s.
They're trying to get to the mid to high 90s for the year. It gives you an awful lot of room to invest in growth in Q4. The wildcard is a little bit of, you know, how does the cat environment go? The normal cat season is between sort of, you know, midsummer, starts to go into, you know, early part of Q4. Plenty of room to absorb what would be any normal cat season. If that comes through with that, I think there's an opportunity for sort of that budget, you know, the budget, you know, flood and that it could happen in the late part of Q4. That's the wildcard for us for this year. From the margin point of view, we'll continue to manage the business well from the cost side to sort of drive those EBITDA margins that have added near current levels.
Got it. Just going back, you do have some of your own agents operating on EverQuote, right? You do have, or no, not anymore, correct?
Correct. We do not have AI agents, right? Yeah, that's right.
Do you think about going back and getting, I know we touched on it earlier, but just getting some type of vertical integration? I know you had more of an agent strategy in 2021- 2022, went down, it worked out well, the market got nuts. Do you think about now revisiting it? I know we talked on it earlier because you do have some more cushion.
I think we learned a lot from our vertical integration the last time through. As you know, there was a lot going on at that time, and we were expanding into new verticals, and we were expanding vertically downstream into selling of insurance policies across health and Medicare and P&C at the same time as the P&C market sort of imploded. There was a lot going on there. I do think that one thing we came to have deep appreciation for was the kind of difference in business model and cash flow profile of at least a more traditional type of agency. We made a decision to get back to more of a tech, capital-efficient marketplace, and that has served us very well.
One of the things we do think a lot about is there's still a number of large insurance carriers out there who will only really distribute products through an agent because they don't have direct distribution built out, and they don't even, in some cases, have captive agent bases. About a third of the premium that needs to get accessed through some type of agency type platform. We do think about, are there more tech, really tech-first and tech-enabled ways to access some of that budget, some of those products on behalf of our customers? The answer is probably yes.
I guess the sort of short answer to your question is I think there are aspects of the kind of agency operation of the past that we still believe have some strategic value, but the approach that we took the last time through is not the approach that we would take the next time.
Got it. I know we're coming up here at the bottom of the hour. Is there anything you think, given where the stock's kind of been flat here, I mean, I guess I would say you probably think you're not getting the appropriate valuation you are, you know, for your growth and how much free cash flow has grown over the last two years. Do you think there's anything that investors are misconstruing that you don't think is fully reflected? What do you think the biggest misconception is about, you know, the digital insurance marketplace?
Sure.
You want to start?
Yeah, kick it off.
Sure. I mean, obviously, I think we have a lot of opportunity to go in our stock, right? I mean, we're up 17% this year, which is nice progress, but we think we have a long ways to go. I think for investors, one of the challenges for investors with our story has been we've changed the business so dramatically in the past two years. We've radically changed the business. I had a call with an investor earlier today, actually, and talked about how much we've changed the business. I think a lot of people are still trying to understand the new approach to EverQuote and how we're building value.
I think those investors who've seen it are starting to see like this is a very different story of not only how we're managing the business, but also how we're trying to translate and driving, not only helping customers succeed, but also when customers reward us with their revenues, how we manage those revenues to drive returns for shareholders and cash flow. I think that's a big difference. I think the world does not really understand that as well as they should. The other piece is just the opportunity we have. We think this is a very large TAM for us. I think we've gone through this once-in-a-generation type downturn. This is a moment in time. This can't continue, right? Although, yes, we hope there's not another COVID experience. We all hope that doesn't happen. I think it's important to remember what is this industry.
The thesis for EverQuote prior to the industry downturn was insurance is a laggard online, right? The proportion of advertising dollars spent on digital channels was well below average of any other sector. What's happening in the meantime? Other sectors actually went further ahead. Insurance still remains a laggard going online. A difference is that the revenues for the customers we serve have gone up by 40% - 50% with premium increases. Generally speaking, when this 40% -5 0% rate increases, carriers being effectively quasi-regulated entities will spend 10% - 15% of their revenues on sales and marketing. Effectively, we had this, we were a laggard going along with us, a really strong growth opportunity for forward growth.
That remains the case, but you also have this overlay of 40% - 50% growth that they've had in their own business, which will translate eventually into benefiting us on the sales and marketing side. We think that's the dynamic. The last piece is, you know, there's the opportunity and then there's our ability to take advantage of it. We think we have proven in this time, not only how we've changed the business to, you know, really help our carriers and agents grow, but also drive shareholder value. We have this opportunity. We think we've proven we can execute really well and manage through change. I think that's why we're really excited about it. I think as investors start to see those pieces, like if you believe in this space as an opportunity and the size TAM it is, we are a great way to play that opportunity.
Jayme, did you have anything to add?
I think that was well said. What I have experienced personally is as we have really focused and gone deeper with our existing carrier partners, I do think we are emerging as the partner of choice for them. We've invested a lot in our data solutions, our technology solutions. We have a roadmap that I think will continue to deliver a lot more value to carriers and agents in terms of how we help support them grow. As Joseph said, the market is massive. There are a lot of secular tailwinds behind us in terms of the shift of this spend into digital channels like ours. I think we're really, really well positioned to be a leader and kind of emerge as the dominant player in the space.
All right. Thanks, Jayme and Joseph, for joining us. Time's concluded, but thanks again.
Thanks, Jed.
Great job on growing, generating probably close to $80 million of free cash flow this year is an awesome job. Congrats. Keep up the good work. Hopefully more investors get into the name because it's super interesting.
Thank you, Jed. We appreciate the help.
Thanks.
Thank you.
All right.