EverQuote, Inc. (NASDAQ:EVER) Q4 2022 Earnings Call Transcript

EverQuote, Inc. (NASDAQ:EVER) Q4 2022 Earnings Call Transcript February 27, 2023

Operator: Good afternoon. Thank you for attending today's EverQuote Fourth Quarter and Full Year 2022 Earnings Call. My name is Megan, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to Brinlea Johnson of Blueshirt Group. Brinlea, please go ahead.

Brinlea Johnson: Thank you. Good afternoon and welcome to EverQuote's fourth quarter 2022 earnings call. We'll be discussing the results announced in our press release issued today after the market closed. With me on the call this afternoon is Jayme Mendal, EverQuote's Chief Executive Officer; and John Wagner, Chief Financial Officer of EverQuote. During the call, we will make statements related to our business that may be considered forward-looking statements under federal securities laws including statements concerning our financial guidance for the first quarter and full year 2023, our growth strategy, and our plans to execute on our growth strategy, key initiatives including our direct-to-consumer agency, our investments in the business, the growth drivers we expect to drive our business, our ability to maintain existing and acquire new customers, our expectations regarding recovery of the auto insurance industry, and other statements regarding our plans and prospects.

Forward-looking statements may be identified with words and phrases such as we expect, we believe, we intend, we anticipate, we plan, may, upcoming and similar words and phrases. These statements reflect our views only as of today and should not be considered our views as of any subsequent date. We specifically disclaim any obligation to update or revise these forward-looking statements except as required by law. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and other important factors that could cause our actual results to differ materially from our expectations, please refer to those contained under the heading Risk Factors in our most recent quarterly report on Form 10-Q or annual report on Form 10-K which is on file with the Securities and Exchange Commission and available on the Investor Relations section of our Web site at investor.everquote.com and on the SEC's Web site at sec.gov.

Finally, during the course of today's call, we'll refer to certain non-GAAP financial measures, which we believe are helpful to investors. A reconciliation of GAAP to non-GAAP measures is included in the press release we issued after the close of market today, which is available on the Investor Relations section of our Web site at investors.everquote.com. And with that, I'll turn it over to you Jayme.

Jayme Mendal: Thank you, Brinlea, and thank you all for joining us today. 2022 proved to be a formidable year as our teams resolve and our business model's resilience were tested by the difficult auto insurance market, which caused carriers to dramatically pull back customer acquisition spend while they work to increase rates. Against this backdrop, we delivered full year revenue and variable marketing margin, or VMM, of $404.1 million and $128.3 million, respectively, and we generated adjusted EBITDA of $5.9 million. Throughout the year, our team continued to demonstrate its agility and strength by adjusting operations to a rapidly changing environment to deliver solid financial results. We implemented disciplined expense management to deliver adjusted EBITDA profitability for 2022, exceeding the high end of our original adjusted EBITDA guidance despite significantly lower revenue as carriers pulled back on marketing spend more than initially expected.

Our customer acquisition team swiftly recalibrated to frequent and large reductions in carrier demand, and we drove higher efficiency in our resilient agent distribution channels, enabling us to achieve a record annual level of VMM as a percentage of revenue. Turning to 2023. We continue to see auto insurance carriers raising rates to restore adequate profitability as inflationary loss pressures persist. In Q1, thus far, we have seen a significant sequential increase in auto enterprise demand, driven by a limited subset of carriers. While we remain optimistic about demand improving over the course of the year, the exact timing and shape of recovery remains uncertain. Amidst the continued volatility, in 2023, we will work to restore revenue growth, bring profitability back to pre-downturn levels and generate positive cash flow.

Despite the unsettled nature of the past 18 months, EverQuote enters 2023 in a stronger position than ever before. We continue to make steady progress and a market opportunity that remains enormous. Insurance distribution and advertising is a $170 billion market. Unlike nearly any other vertical market of scale, insurance distribution still lacks a clear digital category leader. At the same time, data continues to point to a more digital future. Internet shopping is still growing. Insurance carriers are steadily building digital competencies and shifting distribution spend online with upstart digital first carriers advancing that curve more quickly, and applications to deploy new technology, machine learning and AI to solve industry challenges are becoming more accessible.

Insurance distribution is ripe for disruption. As a market leader, EverQuote continues working to redefine the category of insurance distribution for the digital age. Our mission is to make it easy for customers to protect life's most important assets; their family, health, property and future. In pursuit of this mission, our vision is to become the largest online source of insurance policies by using data, technology and knowledgeable advisers to make insurance simpler, more affordable and personalized. What makes us uniquely positioned to define this category, I would point to two important competitive differentiators. First, EverQuote continues to be a data and technology company first. This element of our DNA has enabled us to scale our customer acquisition platform into one of the largest sources of online insurance policies in the U.S. Our strength continues to build and compound as we amass more data and deploy machine learning across more aspects of our business over time, ranging from traffic bidding, to experience personalization to product recommendations.

This will make our marketplace both more effective for consumers and providers and more efficient for EverQuote. Second, EverQuote has assembled a one of a kind combination of insurance distribution assets, which enables access to a comprehensive set of insurance products across major personal lines. Carriers provide access to their insurance products through different channels, some distribute directly to consumers, others through captive agents and others through independent agents. Some carriers use multiple channels depending on their preference for a digital sales funnel or a telephonic one. EverQuote has built a hybrid marketplace, which supports all carriers in their pursuit of profitable growth. Those who distribute digitally and direct to consumer can participate in our digital marketplace, those who distribute exclusively through captive agents can plug into our local agent offerings, and carriers who distribute through independent agents can appoint our direct to consumer agency, Eversurance to access our shoppers.

From the consumer's perspective, this hybrid marketplace enables EverQuote to offer a comprehensive set of insurance options, resulting in each consumer being more likely to find the right product for them delivered in their preferred manner. We will focus increasingly on leveraging these distribution assets to build a unique and differentiated insurance shopping destination for consumers through which they can access the industry's widest set of insurance products across major personal lines, receive personalized recommendations on the right products for them and easily access advice from knowledgeable experts as needed. Success will set the stage for deeper and more enduring customer relationships through which we will manage consumers' insurance needs across multiple products and over time.

To be clear, we are still in the early stages of this journey, but we have now cleared a challenging and important milestone of assembling and integrating requisite foundational assets. We still have much work to do to achieve our vision. That said, we believe that EverQuote is the only company with the assets, team and conviction to deliver the type of insurance shopping experience that we believe the industry, including its carriers, agents and consumers ultimately needs to bring the full potential of the digital age to insurance buying and selling. Our team is energized by the opportunity ahead, and we look forward to sharing our progress this year as we continue to build the industry's preeminent one stock insurance destination. Now I'll turn the call over to John to discuss our financial results.

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John Wagner: Thank you, Jayme, and good afternoon, everyone. I'll start by discussing our financial results for the fourth quarter and the full year 2022 and then provide guidance for the first quarter and full year of 2023. Total revenue for Q4 was $88.3 million, a decline of 13% year-over-year and within our guidance range provided last quarter. For the full year, revenues increased 3% to $404.1 million. Revenue from our auto insurance vertical decreased 5% year-over-year to $67.2 million in Q4 and 2% to $324.4 million for the full year of 2022. The decline in revenue in Q4 was attributable to a 21% decrease in consumer monetization year-over-year, reflecting the impact of lower carrier demand as a result of the industry-wide auto insurance downturn and a further pullback in reaction to Hurricane Ian losses, partially offset by a 9% increase in consumer volume.

Revenue from our other insurance verticals, which includes home and renters, life and health insurance, decreased 33% year-over-year to $21.1 million for the fourth quarter and represented 24% of revenue. For the full year, revenue from our other insurance verticals decreased 9% year-over-year to $79.7 million. While down on a year-over-year basis, Q4 revenue from our other insurance verticals increased 40% sequentially from Q3, reflecting the seasonal contribution from our health insurance vertical during the annual open enrollment period. Within health DTCA, revenue exceeded our internal forecast due to higher sales conversion and efficiency and improved consumer targeting, but declined from the prior year as expected due to a lower number of agents as part of our planned moderation and agent growth and emphasis on optimizing unit economics and cash usage.

Variable marketing margin, or VMM, defined as revenue less advertising expense, was $29.1 million for the fourth quarter on the high end of our guidance range provided last quarter. Full year VMM decreased only slightly to $128.3 million. Despite lower monetization, variable marketing margin as a percentage of revenue was a record 32.9% for the fourth quarter and 31.7% for the full year. Though lower monetization generally places pressure on advertising margin, during this period, we have been able to realize margin expansion, a direct result of refinements in our use of data and technology to bid competitively for advertising in a less competitive advertising environment. Turning to our bottom line. GAAP net loss was $8.5 million for the fourth quarter and $24.4 million for the full year.

Adjusted EBITDA was a positive $92,000 in the fourth quarter and $5.9 million for the full year. The result was within our guidance range provided last quarter and reflects our ability to manage our business for positive adjusted EBITDA even during the auto insurance downturn. Operating cash flow was a use of cash of $4.9 million for the fourth quarter, reflecting the offset of positive cash flow from our referral marketplace against the higher seasonal revenue contribution of our DTC agency with its associated multiyear collection of policy sales commission revenue. We ended the year with cash and cash equivalents on the balance sheet of $30.8 million and no debt outstanding on our $45 million debt facility. Coinciding with the filing of our 2022 10-K today, we've also filed an S-3 universal shelf registration statement.

With a healthy cash balance, ample borrowing capacity and a plan to return to generating positive operating cash flow in 2023, we have no immediate plans to raise capital and are not dependent on doing so to run our business. The shelf registration statement provides us flexibility and access to raise capital over the next three years if we deem it necessary or if we identify compelling opportunities to deploy capital to improve the performance of our business. We view dislocation in the insure tech industry as having the potential to produce compelling acquisition opportunities in areas consistent with our vision and growth levers. And the shelf registration statement will provide us potential avenues for capital beyond our current balance sheet resources if those opportunities should emerge.

Turning to our outlook, including an update on the market conditions within the auto insurance industry. We anticipate improving demand from our auto insurance carrier providers during the course of 2023. Auto insurance premium increases along with existing moderation in factors that drive claims losses are anticipated to improve financial performance for our auto insurance carriers and consequently, their demand for new consumer acquisition. The timing of this improvement will differ among carriers with those that increased rates more significantly and earlier in the downturn, reaching rate adequacy sooner. Though there is uncertainty and many auto insurance carriers are still suffering an imbalance between premiums collected and claims paid, we expect gradual normalization of the market.

With Q1, we've begun to see this initial improvement in demand from a limited subset of carriers. With demand improvement, we expect to return to revenue growth over the course of 2023 with improved VMM and adjusted EBITDA and positive operating cash flow for the full year. For Q1, we expect revenue to be between $101 million and $105 million, a year-over-year decrease of 7% at the midpoint. We expect variable marketing margin to be between $31.5 million and $33.5 million, a year-over-year decrease of 5% at the midpoint. And we expect adjusted EBITDA to be between $2 million and $4 million, a year-over-year increase of 24% at the midpoint. For the full year of 2023, we expect revenue to be between $420 million and $435 million, a year-over-year increase of 6% at the midpoint.

We expect variable marketing margin to be between $132 million and $140 million, a year-over-year increase of 6% at the midpoint. And we expect adjusted EBITDA of between $7 million and $13 million, a year-over-year increase of 69% at the midpoint. In summary, during the fourth quarter and full year 2022, diversity and distribution, disciplined execution in consumer acquisition and management of operating costs allowed us to mitigate the impact of the auto insurance pullback and continue to deliver positive adjusted EBITDA. As auto insurance demand returns, we expect to return to revenue growth with an emphasis on rapidly improving adjusted EBITDA and cash flow. Jayme and I will now answer your questions.

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