Edited Transcript of EVER.O earnings conference call or presentation 4-Nov-19 9:30pm GMT

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CAMBRIDGE Nov 9, 2019 (Thomson StreetEvents) — Edited Transcript of EverQuote Inc earnings conference call or presentation Monday, November 4, 2019 at 9:30:00pm GMT

EverQuote, Inc. – CFO & Treasurer

* Seth N. Birnbaum

EverQuote, Inc. – Co-Founder, President, CEO & Director

* Dae K. Lee

Oppenheimer & Co. Inc., Research Division – Director and Senior Analyst

Ladies and gentlemen, thank you for standing by, and welcome to EverQuote’s Third Quarter 2019 Earnings Call. (Operator Instructions) Please be advised that today’s conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Allise Furlani of The Blueshirt Group. Please go ahead.

Thank you, good afternoon, and welcome to EverQuote’s Third Quarter 2019 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 Seth Birnbaum, EverQuote’s Chief Executive Officer and Cofounder; 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 the federal securities laws, including statements concerning our financial guidance for the fourth quarter and full year 2019, our growth strategy and our plans to execute on our growth strategy, key initiatives, the growth levers we expect to drive our business, our ability to maintain existing and acquire new customers, our interest or ability to acquire other companies, our planned expansion into international markets 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 actual results to differ materially from our expectations. Please refer to these contained under the heading, Risk Factors, in our most recent quarterly report on Form 10-Q, which is on file with the Securities and Exchange Commission and available on the Investor Relations section of our website at investors.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.

With that, I’ll turn it over to Seth.

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [3]

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Thank you, Allise. Good afternoon, and thank you, everyone, for joining us today. We are pleased to report strong third quarter results across all our key financial metrics. We delivered revenue growth of 61% year-over-year, with Variable Marketing Margin of 67% over the prior year period. The strength of our data-driven marketplace coupled with improving operating leverage resulted in another quarter of expanding adjusted EBITDA.

Importantly, we achieved a major milestone and reported our first quarter of GAAP profitability as a public company. In the quarter, we saw a material improvement in adjusted EBITDA, while continuing to invest in the business to capitalize on our large and expanding market opportunity. We are executing well across our key growth levers, expanding consumer volume, growing provider coverage and budget, deepening customer engagement and adding new verticals.

Disciplined execution across our key growth levers resulted in another strong quarter of Variable Marketing Margin growth. We are achieving greater success with consumers and insurance providers by leveraging our investments in proprietary data, automation and machine-learning algorithms.

Finally, we are benefiting across all of our verticals from strong tailwinds in the secular shift of insurance online. Based on our strong third quarter results and positive momentum, we are increasing our guidance for the full year 2019, which John will detail in a moment after I cover progress on our growth levers and key initiatives.

Our superb growing team is passionate and committed to our mission of being the largest online source for insurance policies in the world. We are leveraging data and technology to make insurance simpler, more affordable and personalized. We believe that winning the war for talent is critical for our success, and we are thrilled that we are a magnet for top talent.

In Q3, we welcomed significant senior hires to our team to drive our expansion into new verticals, improve customer engagement and expand distribution. As well as support the growth of our organization, including Elyse Neumeier, as Chief People Officer from Wayfair; Jay Watt, as SVP of Distribution Services from Amazon; Eric Terada, as General Manager of Home & Renters Insurance from Wayfair; Shivi Shankaran, as EVP of Commercial Insurance and Special Projects from Amazon; and Joseph Sanborn, as SVP of Corporate Development and Strategy from JEGI. These individuals complement our existing leadership team and embrace our highly collaborative data-driven culture, which is rooted in a fanatical motivation to drive innovation and scale for our customers, both consumers and providers in our marketplace.

Now turning to a deeper discussion on our growth levers and key initiatives. Growth in consumer traffic was substantial and broad-based in the quarter as our traffic teams and new traffic leaders executed well against the backdrop of favorable market conditions. We delivered an 81% increase in consumer quote request volume year-over-year, while reducing cost for quote request by 13%.

Data and technology are core to our platform advantage. Each day, we accumulate millions of data points, which leverage our ability to optimize consumer acquisition. We have seen multiple wins with the application of our proprietary data and machine-learning algorithms to grow existing sources and add new ones. Our expertise in leveraging machine learning to personalize the experience enables us to continue to refine our product mix to more effectively serve our entire customer base. We continue to scale our inbound calls program, which provides consumer an option to accelerate their path to a quote by phone. We are adding more providers and expanding budget with existing carriers and agents to grow overall revenue. 93% of revenues in the quarter came from providers who were on our platform a year ago.

In Q3, we added 24 new integrations as we work towards the goal of getting each consumer one click or one call away from a bindable quote. We are optimizing conversion rates in our consumer shopping funnel, which our internal metrics indicate, leads to an increase in the rate of which consumers bind or purchase a policy. The deepening of our integrations with our provider partners is a key component of our efforts to reduce friction in the consumer shopping journey.

During the quarter, we saw continued evidence of the value of our machine-learning capabilities. For example, our real-time bidding campaigns allow us to more efficiently reach and match our prospective policyholders with provider partners, which led to a broadening of our portfolio of carriers. Carriers in our marketplace are seeing higher LTV efficiency and stronger performance across their KPIs as indicated by higher bids in our marketplace auctions and increasing revenue per referral. For example, one of our largest partners using these new capabilities is experiencing a 50% increase in consumer referrals from our marketplace at their desired ROI target. Continued expansion of our machine learning and real-time bidding capabilities will allow our partners to efficiently grow their advertising spend with EverQuote, while achieving even better ROI for campaigns in our marketplace.

Two priority growth initiatives we talked about, last quarter, included our Accelerated Growth Program for larger insurance agents and our verified partner program to enable third-party partners to participate with providers in our marketplace. Both continue to succeed, scale and have been well received by our insurance provider partners and help accelerate our agent business this quarter.

In addition to achieving strong growth in autos, we are diversifying our business with growth in other verticals. During the quarter, we reported strong growth in our new verticals of home, renters, life and health, and had revenue up 68% over the prior year period. Our heath vertical is off to a promising start, bringing with it increased diversity in our provider base with 9 new direct provider partners added this quarter. We are excited about our first Medicare open enrollment period in health.

EverQuote agents have been capitalizing on the expansion of home traffic in order to bind highly coveted multiline or bundled prospects. For example, Matthew Golden, a large agent in our Accelerated Growth Program from Milwaukee, concentrates on EverQuote home consumer referrals to drive ROI focused growth, with over 60% of his new EverQuote business closings as high-value bundled policies. In comparing us to other providers, this agent commented that there’s a constant fluctuation with my other providers, but with EverQuote, it’s been consistent the whole time. EverQuote is just ahead of the game. It doesn’t get much better than what you guys are doing.

And most recently, we launched our commercial offering and partnered with another InsurTech innovator, Bold Penguin, who shares our vision for making the insurance buying process simpler, more efficient and affordable to consumers. We expect to make steady investments in our new verticals to increasingly diversify our consumer traffic, revenue and business, while providing consumers more great insurance options. We remain focused on improving the consumer experience through investments in our technology platform and new offerings that drive greater customer satisfaction, loyalty and lifetime value. The success in our marketplace is underpinned by our core strength in amassing and combining a large quantity of insurance shopping data with our proprietary machine learning and automation technology. This expertise enables us to possess unique insights into the relative preferences of consumers and carriers, personalize the experience for both parties and achieve alignment for products in terms of price and coverage. We had a focused effort during 2019 in applying new machine learning models to specific marketing channels and consumer experiences, resulting in significant margin improvements derived from gains in marketing efficiency, consumer conversion rate and increased carrier monetization. We are confident our increasing use of and investment in artificial intelligence and machine learning technology, coupled with our growing data advantage, will improve customer experiences while expanding revenue and profitability across our business. As a result, we are increasing our investment in data sciences and AI approaches as well as machine learning algorithm development by growing our team of data scientists and data engineers.

In summary, we delivered a strong Q3 with solid execution across all of our verticals. Our disciplined approach to managing our operations resulted in expanded levels of adjusted EBITDA and achieving GAAP profitability. Our strong momentum into Q4 positions us to end the year firing on all cylinders. We’re scaling the business and executing well on team building, growth levers, key initiatives and our mission as we capitalized on the massive market opportunity in front of us. We are bullish on the long-term prospects for our business and believe we have set the stage for continued growth and profitability in 2020 and beyond.

Now I’ll turn the call over to John to provide more details on our financial results.

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John Brandon Wagner, EverQuote, Inc. – CFO & Treasurer [4]

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Thank you, Seth, and good afternoon, everyone. I’ll start by discussing our financial results for the third quarter of 2019, and then provide fourth quarter 2019 guidance and our increased guidance for the full year 2019. We are very pleased to report third quarter revenue of $67.1 million, up 61% year-over-year and above our revenue guidance provided last quarter.

Revenue growth rates accelerated across multiple verticals, with continued impressive growth in our auto insurance vertical and a resurgence of growth in our other insurance verticals, which includes home and renters, life and health.

Revenue in our auto insurance vertical increased to $57.3 million, a growth rate of 60% year-over-year. Revenue from our other insurance verticals increased to $9.8 million, a growth rate of 68% and now represents 15% of total revenue.

Our growth in Q3 was broad-based with strong demand from our carriers and continued success in building consumer traffic to our marketplace. Revenue continues to be driven by our direct insurance providers. Those carriers and agents that participate directly on our platform now represent 95% of revenue. This quarter, 98% of this direct revenue came from established providers, meaning those who have been on our platform for at least one year. These measures illustrate the direct and reoccurring nature of our revenue, which in turn improves the visibility we have into the future of our business.

Growth in consumer traffic volume was substantial and broad-based in the quarter as a result of strong execution by our traffic teams and attracting consumers to our insurance marketplace. We delivered an 81% year-over-year increase in consumer quote requests to $5.5 million, while reducing cost per quote request 13%. Revenue per quote request declined 11% year-over-year and was relatively consistent with Q2, despite much higher quote request volume. More importantly because cost per quote request declined more than revenue per quote request, variable marketing margin as a percentage of revenue expanded this quarter. Throughout the quarter, carrier demand remained strong as reflected in a year-over-year increase in the average price per referral. This is a good indication of the performance and value that our insurance providers experienced from our consumer referrals.

With regard to Variable Marketing Margin, or VMM, defined as revenue less advertising expense, we had a solid quarter with VMM of $20.9 million, an increase of 67% year-over-year, which exceeded our guidance provided last quarter. As a percentage of revenue, VMM was 31%, an expansion of 1 point from 30% in Q3 of last year. This quarter, we achieved a major milestone with our first GAAP profitable quarter as a public company. Third quarter GAAP net income was $200,000 or $0.01 per share based on approximately $28 million diluted weighted average shares outstanding.

We delivered record adjusted EBITDA for the third quarter of $3.8 million or 5.8% as a percentage of revenue, favorable to our guidance range due to better-than-expected VMM performance and continued disciplined operating expense management.

On the balance sheet, we ended the quarter with $41.9 million in cash and cash equivalents, a $4.9 million improvement from the previous quarter end. We achieved positive free cash flow of $3.7 million in the quarter, largely driven by our positive adjusted EBITDA.

Turning to guidance. While Q4 is generally a seasonally softer quarter than Q3, we are encouraged by our recent performance. We are reflecting this continued momentum in our Q4 2019 guidance as follows: We expect revenue to be between $67 million and $69 million; we expect Variable Marketing Margin to be between $19 million and $20 million; and we expect positive adjusted EBITDA to be between $2 million and $3 million.

By extension, we are anticipating a stronger full year 2019 and we are raising our guidance as follows: We expect revenue to be between $242 million and $244 million, an increase from our previous full year guidance of between $215 million and $219 million; we expect Variable Marketing Margin to be between $70.5 million and $71.5 million, an increase from our previous full year guidance of between $62.5 million and $64.5 million; and we expect positive adjusted EBITDA of between $6.1 million and $7.1 million, an improvement from our previous range of between $1 million and $2.5 million.

In summary, we delivered impressive third quarter financial results across the business. We believe that our initiatives in 2019 to expand our marketplace into new verticals and strengthen our data and technology advantage has set the stage for continued success in 2020. And with that, Seth and I look forward to answering your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Ron Josey from JMP Securities.

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Ronald Victor Josey, JMP Securities LLC, Research Division – MD and Senior Research Analyst [2]

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And what a great quarter. I wanted to us 2 things, please. On guidance, clearly, a pretty big increase and lots going on with new partnerships and new verticals. Can you just help us understand maybe the drivers in guidance? I mean we’re talking about up sequentially in 4Q something that, I think, seasonality — seasonally isn’t necessarily — isn’t something we see that often. So just break out guidance and what’s driving the increase would be helpful? And then maybe bigger picture, that 93% of revs in the quarter from clients on a platform for more than a year, I think that’s a new disclosure and implies around 150% net retention — revenue retention. So just broadly, maybe, Seth, you can talk about what’s accompanying to these existing clients, they’re devoting more spend EverQoute digital overall? Just anything around like these trends that you’re seeing in the industry that’s driving that would be helpful?

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [3]

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Ron, I’ll take the first part of that, then on guidance. Guidance is very consistent with past quarters, right? We reflect what we have a high confidence and what we’re seeing in the business. For Q4, like previous quarters this year, we’re continuing to see very strong traffic growth and that is generally driving kind of revenue in through Q4. We obviously have reflected the fact that we see a lot of momentum leaving Q3. And in the first part of Q4, so you’re right, seasonally, Q4, we expect that to be down. But this year, we’ve reflected that actually at the midpoint as slightly up. So I think that reflects really how we’re feeling about the quarter and a little bit about how we’re feeling about our other verticals as well as they are contributing as well.

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John Brandon Wagner, EverQuote, Inc. – CFO & Treasurer [4]

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Wag, John, let me take the second part. So there’s 2 factors that are EQ specific, Ron. One is performance both in terms of consumer volume and in terms of consumer conversion rate that has been driven for our provider partners, where there’s folks on the platform are spending more because of integrations because of technologies like smart campaigns, which enables us to better match a carrier and a consumer coming to EverQuote, looking for insurance, that’s driving up the providers performance in the marketplace without driving up their cost per sale. So that’s been a real powerful driver of growing not just budget but share with existing partners on the platform. And we have, I think, mentioned, though not as deeply the fact that a vast majority of our direct revenue is reoccurring and that continues to grow really quickly. I think macro or an industry, broader trends are that the shift of insurance online continues and maybe some — certainly, we believe that there are some early indicators that it’s picking up and accelerating and that’s also contributing to that.

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Operator [5]

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Your next question comes from Michael Graham from Canaccord.

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Michael Patrick Graham, Canaccord Genuity Corp., Research Division – MD & Senior Equity Analyst [6]

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Great quarter. Just I wanted to see if you could give us a little more depth on some of your ad tech initiatives? And then more broadly, kind of building on Ron’s question, just when we think back to 2016 into 2017, you sort of had a tough year for the auto insurance industry in general in ’16 that led to less spending in ’17. And I’m just wondering, as we look ahead to next year, what sort of macro things are you seeing in the auto insurance market that aside from the marketing mix shifting online, just sort of generally fundamentally, what are you seeing in the auto insurance market as we head into next year?

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [7]

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Sure. So on the ad tech front, obviously, emphasized earlier in the call is machine learning driving wins across the — not just the ad tech stack, but even things like product. But specifically to ad tech, using a more sophisticated data scientists to select creatives for updated bid strategies for automating bid strategies has been successful not just in sort of single marketing campaigns but across several different marketing campaigns and channels. And so that’s been a lot of — or some of the wins that we’ve had in the past quarter.

With regard to the macro trends in autos, both carriers and agents in our view seem quite healthy, they’re profitable and we’re in a little bit, at least, again, from our perspective, in a Goldilocks situation for the auto insurance vertical. And so far, as you have the multiplicative, the insurers are doing quite well, the consumers continue to sort of demand — have demand for the product and they’re also shifting their marketing spend online in terms of looking for efficient growth. So it’s a really nice situation from a macro perspective.

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Operator [8]

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Your next question comes from Ralph Schackart from William Blair.

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Ralph Edward Schackart, William Blair & Company L.L.C., Research Division – Partner & Technology Analyst [9]

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Just maybe kind of go back to Ron’s original question on some of the traffic growth you saw in the quarter. You also talked about some favorable marketing — market conditions, sorry, of accelerating growth. Just curious whether it’s something specific or unique to Q3? Or was it just the platform sort of all coming together this quarter in combination with favorable market conditions?

And then second, you had a number of key hires during the quarter, just curious, sort of, what skills do they bring to the table? And any more color on some of those recent hires would be helpful?

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [10]

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Sure, Ralph. Maybe we’ll take the first one first. The — as far as driving growth, it was literally execution across the platform. Though we had excellent execution across traffic as we mentioned, that was really across sources and marketing channels. And kudos to the team, the team just did an outstanding job and just everybody. And it’s really a matter — and we meant it a firing on all 8 cylinders, then we had specific wins and tech in workflows, in products, in consumer experiences and then it was certainly compounded by performance that our tech and tools delivered for providers and all of that was supported by the overall industry tailwinds as a general backdrop. So it really is that conversions of great execution across the platform and the industry backdrop. And again, we are really bullish that, that just keeps cranking in the future.

As far as your second question, with regards to market, again, for us, we see the industry picking up in terms of the online shift, and insurance is going to continue to move in EverQuote’s direction. Obviously, we couldn’t be more excited about those trends.

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Operator [11]

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You’re next question comes from Jed Kelly from Oppenheimer.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division – Director and Senior Analyst [12]

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So I think at the IPO, you said, in the next 4 to 5 years, you see 20% as the right barometer for sustainable top line growth. If I look at you and the other large aggregator or marketplace, you’re probably, call it, 13% of the market. I mean you think over the next 2 to 3 years that with more carriers adopting these channels, I mean it can grow at 25%, 30%, just how should we be thinking about growth in the industry over the next 2 to 3 years?

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [13]

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So Jed, I’m not sure where you get the 13% from — when we view our market, I don’t know, Wags, if you want to step in, but when our view of the market, it’s far vaster. The way we view it is that $120 billion plus of distribution spend by the U.S. insurance industry. So you’re talking predominantly commissions and ad spend. When you view EverQuote’s revenue to the lens of that TAM, which we really believe in, it’s — we’re just tiny, it was very early days in terms of the shift online, there’s huge upside across all the verticals we operate in.

And Jed, I just want to be respectful of the last question. I sort of wrote it down but it didn’t answer it. As far as the key hires — and then obviously take an additional questions, if you’d like, the key hires, we’re focused on our really sophisticated tech and data-driven leaders who have experience in scale, specifically in scale of complex dual-sided or multisided marketplaces where accumulating data is a significant advantage. And then we also look for cultural affinity, both with grit — sort of performance focused that we enjoy working with who are going to be really dedicated to our mission of building the largest online source of insurance in the world. So these are some just great folks. They add to an already great team, and we are thrilled to have them.

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John Brandon Wagner, EverQuote, Inc. – CFO & Treasurer [14]

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So Jed, I’ll just add to the kind of the guidance aspect of the question. We do in our long-term model guide to 20% plus in terms of top line growth. And we’re confident in that ability, especially as we add new verticals so we can very much do more what we’re doing in existing verticals. And as we add new verticals, gives us new levers of growth and expands our TAM as well. Certainly, we’ve always said as well that there will be opportunities for us at times to grow top line faster as well as to expand adjusted EBITDA faster. This quarter is a good example of a time then we’ve been able to do both and as well as our guidance, right? We’ve kind of entered this year with a guide that was 20% plus on the high end for the year. We delivered better than that, in Q1, we were able to raise the guidance. Again, the — and Q2 and then guided for Q3 to over 40% at the high end and delivered 61%. So clearly, we have momentum in the business that is real and that we’re feeling throughout the year and that’s really kind of led to this 70% top line guide on Q4. It obviously gives us a lot of confidence going into 2020. Again, we’ll fall back to our long-term guidance, short of giving our guidance for 2020 next quarter. But that is to say that clearly, we have a lot of confidence in our ability to deliver that top line, while also expanding adjusted EBITDA based on our performance this year.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division – Director and Senior Analyst [15]

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And then just a couple more questions. It looks like you’re non-variable marketing expenses did accelerate this quarter. Anything there you call out? And then, I guess, over the weekend, Allstate’s been advertising with Tina Fey sort of their safe driving app, do you view this as an opportunity for branding? Or just how do you think about that, what Allstate’s doing?

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John Brandon Wagner, EverQuote, Inc. – CFO & Treasurer [16]

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So let me take the first part, Jed, on the non-variable. We saw some increase in the non-variable costs, that would be to be expected in terms of both the top line beat as well as the VMM beat. Some portion of our non-ad spend costs are still variable in terms of either stock comp or some of the cost of providing the marketplace that we’ll flex a little bit when we have large top line beats. Seth, you want to comment on the EverDrive?

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [17]

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Sure, Jed. So the interpretation would be you’re asking somewhat about EverDrive. My belief is long-term, there is a significant opportunity in building out a safe driving marketplace, EverDrive is that app that sort of takes the first step of that. Just as we have an auto insurance marketplace built out today for online shopping, you’ll have one for safe drivers to get connected and shop for safe driving-related insurance offers. This past quarter, the EverDrive team was really heads down, focused on launching the quote and app functionality and it’s either out right now or very nearly out and we’ll obviously update everyone more on EverDrive next quarter. But long term, a great opportunity plays right into, you can go to a single carrier to do it or you can shop at a trusted third-party adviser to do it. And so very consistent with the marketplace message.

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Operator [18]

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You’re next question comes from Mayank Tandon from Needham.

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Mayank Tandon, Needham & Company, LLC, Research Division – Senior Analyst [19]

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Congrats, Seth and John. I wanted to ask you about health care if you could give us any early indications on the traction within the health care segment? And then maybe, Seth, if you could help size the opportunity versus your other insurance areas and when you think that may really start to inflect in terms of contributing to growth? Is it 2020, 2021, just a timeline on that would be helpful?

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [20]

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Sure. So the — Mayank, I appreciate your question because it’s an opportunity to very publicly give the whole team who work on the health care launch and scaling here a shout out. They all did a fantastic job under a really driven leader. Here in the health care vertical, we’ve got obviously the first revenue out the door, consumers are flowing through it. We’re evolving the consumer experience. We added — again, as we mentioned, 9 of the net new carrier additions in the quarter were health care specific carriers, which were great. The BD team brought those carriers on — into the marketplace. And we’re obviously very bullish that ultimately, health care is as big or bigger than any of our other verticals. So I think, long term, the opportunity is to build a significant marketplace, just in health care alone, obviously, there’s some really great comps that we admire. And ultimately, we’re not going to give a lot of specifics yet. It literally just got rolling, and we look forward to updating you more in future calls.

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Mayank Tandon, Needham & Company, LLC, Research Division – Senior Analyst [21]

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Got it. Okay. I want to push further on that one for now…

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [22]

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But it has traction. Well, I would say that we are very pleased with the way it’s going.

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Mayank Tandon, Needham & Company, LLC, Research Division – Senior Analyst [23]

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That’s good to hear. And then maybe for John. John, just in terms of some of the underlying metrics. If you could just talk about how we should be thinking about that quote request growth, revenue per quote and cost per quote as we model into ’20? Maybe just any color around that would be helpful in terms of the trend line, how we should think about these key drivers of revenue?

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John Brandon Wagner, EverQuote, Inc. – CFO & Treasurer [24]

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Sure. For the balance of 2019, it’s very consistent with what we’ve said in past quarters, which is we’re seeing the growth in revenue come from the volume side. We’re seeing very nice increases in quote request volume, and we are also seeing improvements in the actual referral pricing. And we’re seeing a slight decline in the number of referrals, just simply based on the large amount of volume that we’re bringing into the auction.

As we go into 2020, I think it’s probably early to say. We’ll continue to manage the business for VMM dollars. And then — and we’ve generally would expect that we’d have 2 contributors over time to revenue growth, that is both volume in terms of quote request as well as revenue per quote request. We do think that there is an opportunity to continue to grow revenue per quote request, much like we saw in 2018. So we think there’ll probably be a balance as we look out further. But certainly for the balance of 2019, it’s been driven by the progress we’ve made in the execution within in our traffic teams in terms of driving more consumers to the website.

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Mayank Tandon, Needham & Company, LLC, Research Division – Senior Analyst [25]

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Okay. That’s helpful. And then one final one in terms of the VMM. I think when you went public, you were targeting about a 30 basis point increase year-on-year? Is that still the baseline we should be thinking about for ’20 and beyond? And then the 20% plus top line grow that you’ve mentioned earlier?

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John Brandon Wagner, EverQuote, Inc. – CFO & Treasurer [26]

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Yes. Specifically about VMM margin as a percentage of revenue, is that what you’re asking, Mayank?

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Mayank Tandon, Needham & Company, LLC, Research Division – Senior Analyst [27]

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Yes, yes. The 30 basis point expansion per year.

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John Brandon Wagner, EverQuote, Inc. – CFO & Treasurer [28]

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Yes. So we have historically done better than that and we’ve historically grown VMM faster than that. But what we’ve said is we’re going to manage the business for VMM dollars. And historically, when we’ve managed for VMM dollars, we have seen increases in VMM as a percentage of revenue, just as we’ve applied our technology and data to the acquisition side of the business. And then we have a number of levers in terms of monetization that could also increase that VMM as a percentage of revenue.

I think as we look out, we think of our long-term margin as VMM growing to about 40%. And we think about that — doing that over a number of years. So 30 basis points would be very comfortable for us. And I think you’ll — just like this quarter, you’ll continue to see us make slow steady progress against VMM as a percentage. Even though we’re going to manage to those dollars and if we have the opportunity to grow variable marketing dollars, even if it compresses VMM as a percentage, we would do so if it’s still made sense in terms of additional VMM dollars. Does that help?

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Mayank Tandon, Needham & Company, LLC, Research Division – Senior Analyst [29]

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Yes, absolutely.

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Operator [30]

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(Operator Instructions) Your next question comes from Doug Anmuth from JPMorgan.

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Dae K. Lee, JP Morgan Chase & Co, Research Division – Analyst [31]

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This is Dae Lee on for Doug. Congrats on a great quarter. So I just want to understand the drivers of 2Q outperformance a little better. So whilst marketplace participation is strong across all carriers and agents and directly gained some shares. Just trying to see if either carriers or agents drove the strong growth? And if any particular customers stood out? And then, I was curious on your decision to launch commercial vertical as a partnership. Why did the partnership make sense? And if — will this vertical have differences versus your other verticals in terms of economics or anything else?

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John Brandon Wagner, EverQuote, Inc. – CFO & Treasurer [32]

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Sure.

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [33]

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Sure. Yes. So I mean, revenue growth, Dae was broad-based in the carriers and the agents as we mentioned on the call, both improved quite quickly. The agency business — thanks to some of the initiatives and just across the team and on the carrier’s side of the business, again, very broad-based with a vast majority of our carriers increasing their spend in the time period.

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John Brandon Wagner, EverQuote, Inc. – CFO & Treasurer [34]

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Some of the metrics that we’ve mentioned in the past would be, we increased spend from our top 10 carriers, 9 out of 10 of our largest customers this quarter increased spend over this time last year. Our largest customer, in terms of — across all customers, was 23% in the quarter as a percentage of revenue. So very much holding share as we’ve grown the business overall.

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [35]

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Dae, would you mind repeating the second question? I didn’t get the note.

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Dae K. Lee, JP Morgan Chase & Co, Research Division – Analyst [36]

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Yes. So it was about your commercial launch as a partnership. Just wondering why you went down with the partnership route? And then if this vertical will have differences versus your other verticals in terms of economics or how you go-to-market?

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [37]

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Sure. Yes. So commercial go-to-market with Bold Penguin. So I’d have to start with the people, the folks there, Ilya and Ben are just fantastic. We like working with them, brilliant, brilliant founding team there. Commercial is very similar economically, maybe even more attractive from a marketplace perspective. And so far as there is traditionally more margin in the distribution of commercial insurance products than some of the other verticals we already operate in. So you could think of this, there’s almost more — there’s a greater percentage per dollar of premium of TAM in commercial for EverQuote’s marketplace approach — and just as a — in general, it’s a very, very fragmented marketplace. One of the more interesting aspects of commercial is that because it’s so fragmented, because there’s so many different types of coverages, businesses and products, even the workflow, even the technology you need to get to take a consumer quote is quite complex. And what Ben and Ilya have done is really streamlined a set of, call it, connector technologies so that you can connect consumers and providers more easily. And since that’s sort of — we bring consumers to the marketplace and we bring providers, they’re almost a perfect tongue-and-groove group partner for us, they help simplify, obviously, the connected tissue between it. The workflow is the tech stack are excellent integrated right into our marketplace. And I would say about this about the Bold Penguin relationship. One is, we are very confident that it, obviously, accelerates our path to market and scale. But the other thing is together, we believe we actually get to a bigger TAM. And so far as it makes commercial products accessible via the Internet, it’s almost like an on-ramp. So we love the guys, it makes a lot of sense for us, and we believe that ultimately we will drive the same or better economics in commercial as we do in autos or any of our other verticals.

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Operator [38]

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We have no further questions. I would like to turn the call back over to management for closing remarks.

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Seth N. Birnbaum, EverQuote, Inc. – Co-Founder, President, CEO & Director [39]

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Sure. I want to thank everybody for joining us — for taking the journey with us. We’re obviously thrilled with the results of the quarter. But just as importantly, for us, we stand with a great and growing team at the convergence of what we believe to be the right strategy as insurance moves online, focused on operations, execution and excellence. We couldn’t be happier with the results or more excited about. So wrapping this year, next year and just a huge future at the company. So again, really grateful to the industry, our partners and the investors all of you to take a ride with us — and look forward to speaking to you again in the near future. Thanks, so much.

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Operator [40]

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This concludes today’s conference call. You may now disconnect.



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