I'm Brad Erickson. I cover internet here at RBC. Very pleased today to be joined by the management team from EverQuote, CEO Jayme Mendal, and CFO Joseph Sanborn. Thanks for being here, guys.
Thank you for having us.
In Boston. Yeah. I have a list of questions we'll go through, but I'll, as always, just raise your hand if you have something, and we'll try and elevate it. I think maybe just spend a minute on the quarter you guys just printed, obviously, and just bring us up to speed of it, and then we'll dive right in.
Great.
Sure. Q3 was a great quarter for us. We had record results across all our financial metrics: revenues, VMD, just EBITDA, net income. We are very pleased. I think what it represents for the company is you have seen this progress for us. We have had continued strong execution. We have had benefit of auto care recovery coupled with strong execution for quarter after quarter. What I think is, when I look at this quarter, I would say we also, a couple of things I think were really interesting takeaways, is when you look at one of the questions then, as we think about the future, how do we think about growth? The second half of this year, if you look at our guide with Q3, it shows 20% year-on-year growth. We gave an intermediary target on a path to a billion in revenue.
I think a lot of things we're quite excited about as we look to this quarter and next year. Yeah. I guess you spoke to the big focus was on the carrier underwriting, having reached sort of much healthier levels, but you also kind of said things have sort of a ways to go. What would be the things that sort of sustain that or cause it to get better in the next year? Because you're clearly signaling that, but just to understand what would sort of be underneath all that.
Yeah. Carrier underwriting is now, we would say, broadly healthy, meaning everybody who reports publicly has mid-to-high 80s combined ratios, which is generally quite healthy. We think we're well into a soft market cycle, which tends to last multiple years. What we've seen out of carriers is over the last year specifically, we've really seen kind of a broadening out of carriers who are really focused on growth now. It was just a couple of carriers early 2024. Now, just about all carriers have at least reactivated at some level in the marketplace. We have one large national carrier that's yet to come, and expect them to be live not by the end of this year, early next year.
We have the kind of balance of carriers kind of in the sort of mid-tail that are not yet back to kind of peak spend levels. There is still quite a bit more recovery to happen in that sort of kind of middle tier of carriers. Right now, the expectation with the industry is that underwriting will continue to remain sort of stable. There is no visible kind of thing that would put things off balance. We think the setup for 2026 is quite healthy for the marketplace.
On that kind of mid-tail, you say, yeah, because I think you'd said getting back to peak at some point, but what, 80% are not there or something?
Yeah. We got 80% of our top 25 carriers have not reached historical peak levels of spend.
What would allow for peak, I guess? Or what did that look like last time? Recognizing every time is a little bit different, but just paint a picture of what.
Yeah. I think new peak, you'd expect to be higher than old peak simply because advertising spend tends to move proportional to premium. Premiums have gone up quite a bit since before the sort of hard market cycle. You'd expect new carriers to kind of grow into higher levels of spend than they had previously. In terms of what that looks like, it's typically the carrier is competing for traffic. They're trying to acquire new customers broadly across all their geographies and across all the segments that they compete for.
Got it. Okay. You mentioned the new carrier. Maybe just expand what happened there. Was that an old partner came back on, new partner? What was the?
Yeah. It's one of the large major national carriers. Most of the carriers pulled back, if not paused entirely during the hard markets of 2022, 2023. Most began to reactivate 2024 and 2025. This one in particular was sort of the last to reactivate. The reason for that is they really went through a significant rebuild of their marketing, both infrastructure and team. Until they got through that, they really were not ready to begin redeploying marketing dollars into the market. They're now through that, and they have started to sort of engage, and we're working through the usual sort of integrations and things like that to get them back live.
Got it. Okay. That's great. Let's set aside some of the other kind of lines and some of the other ancillary opportunities you guys have in front of you with being platformed. If you just look at sort of the core business, this might be a weird question, but what's the beta relative to carrier spend for you guys, right? How do you sort of grow faster? What's the mechanics of that if you had to pinpoint it?
Yeah. I think it comes from our ability to deliver higher return on ad spend relative to other partners in our channel and relative to sort of categories of advertising budget in other channels. The primary way that we do that is really through the use of data and technology. The benefit that one of the core value propositions of EverQuote or of our channel, I'll say, and then I'll get to EverQuote, core value propositions of our channel is that we collect all the relevant underwriting data on a consumer before the carrier needs to make a decision about whether to sort of bid for that business, and if so, how much to pay for it.
Out of the gate, we as a category, as a channel, are far more targeted and precise relative to a TV or even Google or Facebook, where the targeting is much less precise. EverQuote specifically kind of layers on some of our data and technology. Smart Campaigns is the product that we sort of talk most about, which is our carrier bidding product. With Smart Campaigns, what we're doing is we're effectively applying AI to do bidding into our marketplace on behalf of the carrier. Whereas the old way of doing things is a carrier might set up campaigns for different segments of the market, and they'd sort of say, "Hey, I'm willing to pay this much for this segment." With Smart Campaigns, we take it down to the individual level.
We set up a data feed where they're telling us, "Okay, for every consumer we send you, do they quote? Do they buy?" What was the outcome? We are basically building models that are optimizing to whatever their target KPI is. These models are doing the bidding for them. Typically, when a carrier goes from more manual-based bidding to Smart Campaigns, you're seeing a 20%+ improvement in the return on ad spend. That tends to be fast followed by a shifting of budget from other partners or from other channels to EverQuote.
Got it. Got it.
That's sort of the flywheel that we're trying to drive.
Totally. In that 20% increase, because we see this across different verticals and different types of ad businesses, sometimes people overcapture that, capture it, or undercapture it. How would you say you guys are doing there, and what's sort of the view longer term?
I think we're on a good trajectory. It took us quite a while. We launched Smart Campaigns probably four years ago. The really challenging part in driving adoption is the carriers need to share a lot of data with you, which they're reluctant to share with anyone. Over the period of two or three years, we were able to get enough proof points to then get the next carrier, the next carrier to adopt it. It got to a point where we really had some inflection in 2024.
Now we have kind of the majority of our carriers are using Smart Campaigns. There's still a few that are holding out because they prefer to control it themselves, and that's okay. The majority of the carriers are now using Smart Campaigns. I feel like we're on a good trajectory. I don't know if it's over or under index, but we are continuing to release new features that make the model performance better and broaden out adoption to the last handful of carriers that aren't on it yet.
Got it. This might be an uninformed internet analyst question, but just in terms of end market-wise, when you talk to investors, what are the corollaries that you would point to with people? It could be around vehicle demand, fuel prices, shipping costs, interest rates. I don't know. How do you frame that for people?
Yeah. There are a couple of ways to think about it. One is, I think it's important to understand for the carriers, it's about stability in the underwriting environment and the costs, right? What you see right now is, and what took place the past couple of years is you had carriers broadly get healthy because they got price increases, 40% on average over the past three or four years, but they got stability in underwriting costs. The key for the carriers to be healthy in an underwriting environment is gaining that stability. That is what you've achieved, whether it's supply chain stabilizing, labor costs stabilizing. The big one that was coming out of COVID that was a challenge was cost of used cars, which drives a new total of car. They looked at used car pricing.
They were more expensive than new cars because you could not find a new car. That stability is a key thing we would point to. That is one we would say is broadly healthy environment for the carriers. The second is we think about what is the dynamic of growth when we look forward in our sector, right? There are a couple of forces I think probably worth calling out. One is that Jayme mentioned, which is this idea of the carriers have had 40% rate increases. They tend to spend 10%-15% on sales and marketing. We get that tailwind coming through. The tailwind that has always been a part of our story and continues to be is insurance is a lagger going online, right? If you look at a lot of other sectors, your 60% plus of advertising spend is through digital channels. Insurance is a third.
A much different trajectory. That's a second tailwind we have. You overlay the dynamic of when we see what we have in the business, which is broadly healthy going into next year, but also on the consumer side, shopping levels remain quite high. Why? Insurance has gone up so much, and it's a top five expenditure for the average family. You look at about in a period of belt tightening, that demand will come through as well. I think people see an opportunity to shop and save. That's a very favorable backdrop for us. Those are things we would talk about. The other thing I would mention is there's a recency bias that exists out there, which is, "Hey, what happened in COVID? That's going to be the thing that when's that going to happen next?" Will we have another COVID? I get it.
The industry is when you go through these hard market cycles, they typically are 6-12 month cycles. The last time one happened is 2017. We had a single-digit growth year, and we had a record year the following year. That is much more than normal in this industry. We have been trying to educate investors as we have come out of this period of rapid growth of the industry from a steep trough. We are starting to see stabilization in the industry. They say, "Well, what does it look like going forward?" We are giving those factors, which you are going to look a little further back than the most recent downturn for a recent hard market to understand this is an industry that is broadly healthy, wants to engage through digital channels, and it is a massive market. We think we are well-positioned for that.
Yeah. Yeah. Let's talk about sort of the expanding platform, local agents. I guess start with the AI bidding. I don't know if you can share anything like what you just did with your big commercial partners, but what are the mechanics of how that works? What does it produce, and what are sort of the early results or outcomes you see from I know you haven't fully rolled it out yet, but any early commentary on AI bidding with your agents that you can talk about?
With agents specifically, we haven't extended it to the agents yet. That's planned for we'll start rolling it out to agents in Q1 of next year.
Okay. No early testing you can talk about?
No. No. Not yet.
What's the expectation there?
I think the expectation is consistent with what we've seen with carriers, which is that it should improve their return on ad spend with us. As a result of that, the agents should be inclined to shift more of their marketing budget to EverQuote.
Got it. Just on adding lines, walk us through kind of parts and pieces of the different end markets you could go after there or other loans, I should say, how big are those? I guess what portion of the business could that be applied to?
Sure. You look at our business today, roughly 90, we're exclusively in T&C, property and casualty. 90% is auto, 10% is home. Just directional view, home is roughly half the premiums of auto. If we're 10% versus 90%, we think it's a disproportionately higher growth opportunity in home over time. I think there's a second dynamic fueling home as well, which is you have a dynamic of the home market was behind auto in recovery. Some of the same factors coming out of COVID affected home, and you're starting to see that come through as well. We see that on the vertical side. When I think about the pieces that will sort of drive growth on the business overall, I'd start with actually on the distribution side. Think about our Smart Campaigns we talked about.
That's driving more carriers to put dollar spend with us. We're getting more of their budget. That in turn allows us to go to the traffic side and bring forth more traffic as well. In addition to the vertical expansion, you bring on getting more budget through to come to the front as well. On the agent side, I would say the thing we're doing there is we're adding more products. The reference you made in our recent earnings call was historically we sold one product to an agent, which was an online to an offline connection. What we've been adding now is new products, marketing services, lead connection services.
This is the subscription business.
Subscription business as well. You look at those, and now we're doing multiple products to an agent as we try to become the premier sort of one-stop shop for agents to grow their business. That has lots of benefits to us as well. We think all of that sort of ties together to drive the growth factors.
How much at an agent level or whatever, how much is that or how much could that subscription level be relative to kind of the ultimate value they provide?
Today, subscription revenue spend is just early days, right? What is exciting about it is we're seeing the interest level from agents because why? Because they want to work with fewer folks to help them grow. If we can do that successfully, and we have been doing it, we're seeing the agents want that. What drove us to think about how to bring subscription revenues and bring multiple ways to grow is we spent a lot of time in 2024 surveying agents, spending time with agents, said, "Do these things to help us grow."
We're just listening to our customers, and we're bringing it through. I think on the subscription revenue side, the opportunity there is in addition to bringing in a new source of revenue that's recurring, it's bringing that stickier relationship across a multi-product offering. That's what we are really excited by. Early days for being revenues for us today, but the opportunity is getting a lot of traction because we're seeing the feedback from the agents. It's quite positive.
Yeah. No, that's good to hear. You've talked about sort of looking to revive some of the marketing channels. I don't know if I'm characterizing quite that correctly, but bring some channels back. Maybe I think you mentioned social and a few others. Where is that focus in terms of the types of channels you're looking to go after or revive, I guess, from a marketing perspective?
Yeah. I would say there's some revival, and there's some that new. Generally speaking, we see a future where carrier demand and agent demand is somewhat insatiable, right? There's just a lot of the conversations that we are having with carriers and agents are really, really focused on growth and setting up for growth for next year. We are anticipating higher demand. Into that, we need to make sure that we're continuing to scale traffic in addition to improving the performance of the traffic. In terms of how we will scale traffic, there's the performance, which drives more monetization, which allows us to scale in our existing channels. There's expanding into new channels or bringing back to life channels we used to participate in.
Those would be the usual suspects, social channels like Meta or TikTok or things like these. It would also include AI search as sort of a category that feels like white space that we are beginning to step into now. It might include sort of more channels that historically we've stayed away from because it's been hard to kind of target with the level of precision that we like to have. Now TV, for example, streaming and things like that are much more targetable than they were five years ago. As the monetization and demand comes back, I think what we are working through is kind of a reactivation of some of the channels we used to be in, as well as stepping into some of these new channels like AI search or TV.
Yeah. Meta stands out. I think they've been doing a little bit better with their technology. You talked about when you think about content generation, right? They have some of these new models that can just the intake of content they can handle, and then the ability to recommend content, ad targeting, and all that stuff is extraordinary. What have you seen with that thus far, and how are you guys adapting sort of your content generation for that particular channel if you can speak to that?
Yeah. With Meta, it's still relatively early days of us sort of stepping back in and scaling it. I think we are testing into some of these newer tools, and we're seeing that they perform. I think we're certainly bullish on Meta as a channel for us.
Okay. I am curious just, and we will get into some of the generative search stuff in a bit, but Reddit is another channel that has emerged, right? Community-based forums more broadly are proving to be super important for they have really high citation share in generative search, AI overviews, etc. What has been your approach from that perspective?
I guess to be a little bit more specific, we talked to a lot of advertisers in the channel, and we hear differing opinions where on the one hand, some of them want to establish a presence organically on Reddit just because it is a little bit more of a credible way to sort of build your brand on there or have people talking about you. On the other hand, we have also heard people are just like, "Hey, I need to be on Reddit. Let's just go smash some ad dollars into there and see what happens." Not that that sounds a little bit less thoughtful, but no less effective, I think, for a lot of people right now. Where do you guys kind of stand on the Reddit?
Yeah. I think our view on Reddit is it would be an input into a broader AI search strategy. Our general thinking is nobody knows exactly how these platforms are going to sort of open up to outside advertisers or traffic over time. The options are content-based, of which Reddit would be a part. That is sort of like traditional SEO where you generate content. Now you are going to want to do it sort of purpose-built for how these LLMs actually consume information in their training runs, and Reddit is a big part of that.
You generate helpful content. It gets picked up by the LLMs, and then you show up in the results. Number two is through more technical integrations. You're building kind of apps or plugins or some kind of integration so that the app knows to hand off a consumer to you or engage with you as they're trying to retrieve information. The third is going to be paid advertising, which is certainly coming. We are positioning to.
When you say coming, sorry, are you talking generative search broadly or?
I think generative search broadly, I think there may be different platforms that monetize more through paid advertising than others. Yes, I think there will be a large amount of traffic that will be accessible through one or more of these platforms through paid advertising.
Got it. Okay. Yeah, let's talk OpenAI specifically if we can. Just what do your conversations sound like or have you had conversations with them? In particular, right, there's a line of divide or there's just a debate to be had of like, do you want to go ahead and be an early adopter/conformist to their sort of app within an app type of thing? Or do you just say, "Hey, it's a meritocracy. Our content's awesome. Our product's awesome, and we feel comfortable with quality and relevance, and we're going to show up"? How do you think about them as a channel like that?
I don't think they've decided yet. Yeah. I think that's why you need to be, I think if you're going to take the channel seriously, you need to be positioning for both. I actually think you will get benefit from both across the different platforms. It's just unclear if you take OpenAI and ChatGPT specifically, are they going to lean more towards content orientation, which is what it's really been to date, or are they really going to start integrating kind of more like apps?
Are they going to be more of a pay-to-play kind of ecosystem, whether that's through traditional paid advertising or having your app be the one that gets accessed by the LLM when they're handing off consumers? I think they are, based on our interactions with them, all of the above are things that they are at least considering and testing. It is not clear which one will win out or whether it will be some combination of those.
Got it. Okay. I mean, I guess the question becomes, do you view that? I mean, is it safe to say that if and as that channel becomes bigger for you, it's immediately accretive? I know I'm not going to push you on the VMD guide or anything like that, but just in isolation.
Yeah. In isolation, I mean, it would be net new traffic. The benefit for EverQuote, given where the market is today, is that we don't have any organic traffic through Google. We are purely paid programmatic traffic acquisition, so we haven't lost anything. Anything we pick up through the AI search channels will be incremental. It will be accretive from a volume standpoint. As far as we can tell, most of this traffic is originating for free so far. It would certainly be accretive from a margin standpoint as well.
Yeah. Yeah. Okay. I guess just from the perspective of carriers, right, one of the other debates is that generative search, or ChatGPT as an example, sort of reshuffles the deck, right, for discoverability. Whereas before, you have the paid, you have the blue links. Clearly, you guys are a leader in this vertical around that. This is true across a number of verticals. The carriers could get more aggressive, right? In their case, it's simply a matter of providing the content, right? OpenAI has a decision to say, "Hey, this vertical isn't so fragmented that we couldn't roll up all the data and provide it in a different fashion," and like I said, reshuffle the decks on discoverability. How do you think about that?
I think you'd look to what happened with search as it exists today, which is Google tried to do that. There was a time where Google tried to create a price rate comparison kind of experience analogous to what they have with FLYCE or many other products. The carriers violently rejected that. The thing that is unique about this category is that pricing is opaque, right? There is no API that you can hit and just get all the rates for all the consumers out on the internet.
That is very intentional on behalf of the large carriers because they're worried about adverse selection. They don't want rate transparency. I don't think that there's going to be some overnight paradigm shift in insurance specifically. I think in maybe in other categories, it may be more likely to happen. Our feeling is that insurance will take more time and that the notion that there will not be a place for a third party that is helping to kind of aggregate and distribute or align consumers to the right end buyers is not the future that we see.
Okay. What about when you think about agentic capabilities, right? I don't know, in travel, I've heard it called aggregating the aggregators, essentially, right? How do you think about the potential for agentic shopping solutions, essentially?
Yeah. Again, I think the limiting factor is the lack of rate transparency. That is one thing that exists in travel that does not exist in insurance. I think the other factor is insurance is a more complex product at the end of the day. It is a high-ticket, complex product that you really do not want to get wrong. Auto insurance is definitely home insurance. The vast majority of consumers still fall off to talk to a carrier or a local agent before they actually purchase insurance. I think that is another factor that will sort of require things to move a bit more slowly in insurance than they might in other categories.
You mentioned other channels. One last one on the marketing. I think you might have been referencing some programmatic channels or whatever. Zero-click disruption, right? It's not affecting all sites. I know it seems like it is, but it's affecting news sites. It's affecting a lot of B2B sites with content that has a draw to the website. How has that affected sort of your programmatic initiatives around which channels to go after or hasn't? Has it not really mattered?
It really hasn't mattered on the programmatic side. I think that's probably felt more by content-heavy type players. Again, for us, because we don't have that, we view it as an opportunity, right? Even if we are able to build content sort of purpose-built for the AI search engines, and now we're able to start showing, even if there's a much lower click-through rate than what exists today in organic search, all that's accretive to us.
Got it. Got it. Okay. Just speak to the margins. I know you always get asked this question, but a lot of moving pieces within VMM. You've obviously guided to sort of rough levels of margin expansion, but also said like, "Hey, there's a level of there's some exogenous forces here, right, that we can't control." What is the sort of flex upside downside to the margin targets, and what would cause things to go really right or really wrong?
Sure. I think you should refer to VMM margin specifically. When you look at VMM margin, there are sort of two inputs in my, so we are simplifying it. One is the cost of advertising we do not control, right? That is sort of the rock pressure and the raw material commodity for our business, right? That we do not control, and that goes up and down based on various pressures in the business and the broader environment on our specific business. There is the question of the efficiency with which we acquire that advertising. What I would give you as the example is if you go back to 2023, when our business was $250 million-$260 million in auto, our VMM was in the high 20s, right?
Yeah, we had some periods where we had to go higher when the market was really depressed, but we're two and a half times the size now. We basically have a VMM on average in the high 20s. If I said to you back then, we were going to have that kind of result, people would be like, "Well, how is that going to work in an advertising environment that's certainly going to get more competitive?" I think we're doing it because of the success of our traffic and bidding capabilities. Generally, think about margins sort of in the high 20s in VMM. I think it's important to realize in a day-to-day basis on how we run the business, we run to solve for VMD. There's a correlation there, but generally, we look at trying to solve for that over time.
In Q4, we said we're making some investments in new channels. There is some modest downward pressure in Q4. I think it speaks to we've had a really strong year. We're coming into Q4 with a guide that's actually sequentially up on revenues. We say, "Let's make sure we're investing for the long term." That is exactly an example of us doing it. I look at margins more broadly in the business on we continue to manage the things we do control very well, which are the cash OpEx. We're seeing our EBITDA margins continue to grow.
Probably a real simple way to think of the business is we're averaging our goal is to average 20% top-line growth and get some EBITDA margins that will go from roughly 13.5% this year to 20% long-term off. If you think of those two, we're going to do that. There'll be some puts and takes along the way. In any given quarter, I wouldn't get too focused on the puts and takes. I'd look at the story we're doing. That's really what we've been executing on for the past couple of years pretty successfully.
Got it. Got it. Can you just hit the M&A question real quick, either/or, just to try? What would that look like? I mean, are we thinking bolt-on for the technology, sort of channel expansion? I don't know what I'm trying to be creative.
Sure. I'd say first, we feel really good about the hand we have for organic growth. We have a path to a billion in revenues. We feel very good about that without M&A. I think M&A could take two forms for us, right? I think one is there could be sector consolidation. We'll see how that evolves. I think there could be opportunities to participate in that, but hard to know timing and how those things evolve. The other piece we see is, as we think about our P&C strategy, are there ways we could accelerate that?
There's a lot of private insurer tech companies, which have some interesting aspects, whether it's new products for carriers or agents that leverage our data focus and how we do more marketing tech. Is it something that helps us expand on the vertical side, deeper at home, maybe deeper in small business personal lines? Those are things we could be looking at for M&A. I think there's some real opportunities there. You'll see us look more thoughtfully at that in 2026.
Got it. Cool. I left a whole minute for a question if there is one. Anyone? Quiet crowd. We'll call it there. Thank you, guys. I really appreciate it.
Thank you, Fred.
Thank you.
It's a pleasure.