EverQuote, Inc. (NASDAQ:EVER) Q4 2023 Earnings Call Transcript
EverQuote, Inc. (NASDAQ:EVER) Q4 2023 Earnings Call Transcript February 26, 2024
EverQuote, Inc. beats earnings expectations. Reported EPS is $-0.19, expectations were $-0.31. EverQuote, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the EverQuote Fourth Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Brinlea Johnson, Investor Relations. Please go ahead.
Brinlea Johnson: Thank you. Good afternoon and welcome to EverQuote’s fourth quarter and full year 2023 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 Joseph Sanborn, 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 of 2024, our growth strategy and our plans to execute on our growth strategy, key initiatives, our investments in the business, the growth levers 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 risk and other important factors that could cause the 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 that is on file with the Securities and Exchange Commission and available on the Investor Relations section of our website at investor.everquote.com and on the SEC’s website at sec.gov.
Finally, during the course of today’s call, we will refer to certain non-GAAP financial measures, which we believe are helpful to investors. A reconciliation of GAAP to non-GAAP measures was included in the press release we issued after the close of market today, which is available on the Investor Relations section of our website at investors.everquote.com. And with that, I’ll turn it over to Jayme.
Jayme Mendal: Thank you, Brinlea, and thank you all for joining us today. 2023 was a transformative year for EverQuote. Our team continued to demonstrate a strong command of the business, managing effectively through a challenge auto insurance market. We maintained positive adjusted EBITDA for the year, improved our balance sheet, and produced record high VMM as a percentage of revenue, against historically low carrier demand. We also returned to our roots as a capital efficient digital insurance marketplace, completing a significant restructuring of the business. We exited our health vertical, including our direct-to-consumer agency. We significantly reduced our headcount and operating expenses, and we refocused on extending the customer acquisition, provider network, data, and technology advantages that are the foundation of our industry leading P&C insurance marketplace.
By consolidating operations and teams, we have not only reduced expenses and improved our capital efficiency, but we have accelerated operational execution within our core P&C marketplace. An example of this can be seen in our home and renters insurance vertical, which grew by 28% year-over-year in 2023. We entered 2024 with a streamlined operation, a focused team, and a healthy balance sheet. Additionally, recent signs point to a less unfavorable auto insurance outlook as profitability appears to be improving for a number of carriers in our marketplace. In the last several months, we have seen carriers reactivate campaigns, expand their geographical footprints, and increase budgets. Nonetheless, we will continue operating with heightened discipline.
We have seen previous auto carrier recoveries falter, and while this recovery appears more sustainable in that we see a broader base of improving carrier profitability, we don’t discount the possibility that volatility may persist in 2024. We also continue operating with urgency, driven by the magnitude of the opportunity that remains in front of us. P&C insurance distribution and advertising is a $100 billion market, of which digital advertising comprises $6 billion, growing at a rate in excess of 10% per year. This shift is supported by the majority of consumers now favoring online to in-person shopping and insurance carriers steadily improving their digital customer acquisition funnels. We also believe this shift may accelerate as new technology, including AI, enables EverQuote and our customers to solve for certain points of friction in online insurance shopping in new ways.
Insurance distribution remains ripe for disruption, and as insurance shopping continues to shift online, we believe EverQuote is well positioned to emerge as the company which defines insurance distribution for the digital era. We continue to build on a unique set of advantages which will enable us to do so. EverQuote processes a vast amount of auto, home, and renters insurance quote requests each year, nearly $35 million in 2023. We believe that the data generated through these marketplace transactions provides EverQuote with a unique competitive moat in its data assets, which will enable us to deploy increasingly sophisticated and effective AI and machine learning models across aspects of our business ranging from traffic bidding to experience personalization to consumer provider matching and recommendations.
This will make our marketplace more effective for consumers and providers and more operationally efficient for EverQuote. EverQuote’s marketplace offers access to a relatively broad set of P&C insurance products. As a reminder, P&C insurance carriers distribute their insurance products through different channels, some directly to consumers, others through captive agents, and others through independent agents. EverQuote has built a marketplace which supports all carriers in their pursuit of profitable growth, most notably through the inclusion of the largest local agent network in the industry. We continue to invest behind our advantage with local agents, we believe represent the best point of purchase for many consumers who go online to shop for insurance.
Our vision remains unchanged to become the largest online source of insurance policies by using data, technology, and knowledgeable advisors to make insurance simpler, more affordable, and personalized. While market conditions made progress toward this goal challenging in 2022 and 2023 as carrier underwriting appetite contracted. In 2024, we expect a return of conditions for progress as the carrier market begins to normalize and carriers once again seek to acquire new policyholders. Additionally, we enter the year leaner and more focused than any time in recent memory. We believe the stage is set for a year in which we rebuild momentum in our operations, financial performance, and progress towards our longer-term vision. Our team’s strength and discipline and resilience and our financial health will serve us well as we continue our relentless pursuit to build an enduring industry defining company.
Thank you. I’ll now turn the call over to Joseph.
Joseph Sanborn: Thank you, Jayme, and thank you all for joining. I will start by discussing our financial results for the fourth quarter and full year 2023 before providing an update on what we are currently seeing in the auto insurance sector and our guidance for the first quarter of 2024. We exceed guidance for the fourth quarter across all three of our primary financial metrics of total revenue, variable marketing margin, or VMM, and adjusted EBITDA. In addition, Q4, which is typically seasonally down from Q3, showed quarter-over-quarter improvement across all three metrics, most notably at the adjusted EBITDA level. These results were driven by continued strong execution by our operating teams in what was a prolonged and deeply challenging environment.
Total revenues in the fourth quarter were $55.7 million, driven by stronger enterprise carrier spent up more than 50% from Q3 levels. For the full year, revenue was $287.9 million. As a reminder, EverQuote announced the exit of our health insurance vertical in late June, which represented approximately $15 million of 2023 full year revenue. Revenue from our auto insurance vertical is $45 million in Q4, representing 81% of revenues in the period. We saw a modest increase in auto revenues in Q4 relative to the third quarter, which was a new low point since the auto industry downturn begin in late summer 2021. Revenue from our auto insurance vertical is $227.5 million for full year of 2023, or 83% of total revenues, excluding revenues from our former health insurance vertical.
Beginning in Q3, as a result of our exit from health in June 2023, we are reporting revenue in two primary verticals, auto insurance and home insurance, which includes renters. Revenue from our principal non-auto vertical, home and renters insurance was $9.8 million in Q4, a year-over-year increase of 48%, and for the full year was $40.9 million, a year-over-year increase of 28%, highlighting the benefit of dedicated leadership focused on this vertical during 2023. VMM was $20.7 million for the fourth quarter and $100.3 million for full year. VMM as a percentage of revenue was a record quarterly and annual high of 37.1% for the fourth quarter and 34.8% for the full year, driven by three primary factors. First, our traffic teams continue to execute well in adapting our operations to a volatile environment.
Second, our significant investment in developing proprietary technology and processes to better leverage our data to acquire high intent consumers is continuing to yield results. And finally, we benefited from a relatively more favorable advertising environment. This is further evidence that our strategic decision to focus and take actions to realign our operations is generating results. Turning to operating expenses and the bottom line. We continue to be very disciplined in managing expenses and driving incremental operating leverage. We ended 2023 with a significantly more efficient operating model than we had when began last year, given the substantial actions we took to streamline our operations during the period. For context, cash operating expenses, which excludes certain non-cash and other one-time charges, or $21.6 million in the fourth quarter, are nearly 30% below the first quarter of 2023.
Our current workforce consists of approximately 380 employees, down by nearly 40% from this time last year. In the fourth quarter, GAAP net loss was $6.3 million, and for the year GAAP net loss was $51.3 million, which included a restructuring charge of $23.6 million related to actions we took last summer, which included the exited sale of our former health insurance vertical and a significant reduction in our workforce. In addition, full year net loss includes $22.8 million in ongoing stock comp expense, which is the lowest annual level we have seen over the past 4 years. Adjusted EBITDA for the fourth quarter was negative $0.9 million and positive $0.5 million for the full year. We had operating cash flow of negative $0.8 million for the fourth quarter, with the exit from the health insurance vertical and the scale down of our remaining DTCA operations, which again requires significant upfront cash investment to drive growth.
We expect that the adjusted EBITDA will be a close proxy for operating cash flow going forward, subject to normal working capital adjustments. The company ended Q4 with $38 million in cash and cash equivalents, up from $30.8 million at the end of 2022. In addition, we have a $25 million undrawn working capital line of credit. We have no plans to draw on the facility, and we have no other outstanding debt. Before turning to guidance, I want to provide an update on what we are seeing in the auto insurance industry as we start this year. Based on our recent discussions, many of our carrier partners have indicated that they have made meaningful progress towards achieving the desired levels of underwriting profitability. Many insurers also reiterated their comments to us from last call of wanting to return to acquiring new consumers in 2024.
This more growth-oriented mindset has led to a strong start for our company this year, with more auto insurers beginning to return to our marketplace. We are encouraged by the positive outlook starting this year and are cautiously optimistic that auto recovery will be different and more sustainable this time around. We recognize, however, that conditions could change rapidly as many carriers are balancing a desire to return to new customer acquisition with being careful to not do too much too quickly, which could jeopardize their considerable work over the past several quarters to restore their underwriting profitability. For example, our largest carrier partner has taken a more measured approach to customer acquisition so far this year, relative to the more aggressive posture they had in Q1 of 2023.
Additionally, one of our captive carrier partners has to date significantly limited the states in which they are interested in writing new business as they continue to manage their profitability goals. We also have seen a carrier pullback, meaningfully in their February spend in our marketplace from their January levels, as they test the attractiveness of different markets and customer segments. While these carrier dynamics create some uncertainty over the exact timing and slope of auto recovery, we believe that insurers taking a more balanced approach to restoring their marketing spend will ultimately create a more sustainable long-term recovery which will benefit our company. In regards to our progress following our June 2023 restructuring, we committed to restoring consistent positive quarterly cash flow from operations in the first half of this year followed by a return to our pre-downturn adjusted EBITDA margins in 2024.
We believe we remain on track to achieve both of these goals. After a step-up in first quarter operating expenses relative to Q4, largely driven by customary annual increases, we plan to continue to maintain tight expense discipline, which will drive incremental operating leverage and adjusted EBITDA margin expansion as we benefit from what we expect to be an expanding auto recovery as we progress through 2024. Based in our strong starts this year, the midpoint of our Q1 guidance implies a near return to pre-downturn adjusted EBITDA margins. While we are encouraged by our early performance this year, we recognize that considerable uncertainty remains around the exact timing and slope of auto carrier recovery and as such we will not be providing full-year guidance.
Turning to our outlook. For Q1 2024, we expect revenue to be between $78 million and $82 million, we expect VMM to be between $26 million and $28 million, and we expect adjusted EBITDA to be between $3 million and $5 million. In summary, we delivered solid performance in the fourth quarter given the environment, exceeding the height of our guidance across revenue VMM and adjusted EBITDA. We enter 2024 with strong conviction that EverQuote is extremely well positioned to directly benefit as sustainable auto carrier recovery eventually takes hold. From an operating perspective, we will continue to focus on strong execution, and controlling what we can control. We believe that the decisive strategic actions we took in 2023 to successfully refocus our operations on our core P&C markets, streamline our operations, and strengthen our balance sheet to set the stage for future growth and long-term profitability.
Jayme and I will now answer your questions.
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