Thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the EverQuote First Quarter 2024 Earnings Call. I would now like to turn the call over to Brinlea Johnson. Please go ahead.

Thank you. Good afternoon, and welcome to EverQuote's first quarter 2024 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 second quarter 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 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 that 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. And with that, I'll turn it over to Jayme.

Thank you, Brinlea, and thank you all for joining us today. 2024 is off to a strong start. In the first quarter, operating results exceeded the high end of our guidance range for revenue, variable marketing margin, and adjusted EBITDA. We achieved record levels of net income, adjusted EBITDA, and operating cash flow. These results were made possible by the actions we took in 2023 to strategically realign the business and return to our roots as a capital-efficient digital insurance marketplace. Since the middle of last year, we have observed auto insurance carrier underwriting profitability steadily improving. With this trend persisting into 2024, carriers have continued to reactivate campaigns, restored budgets, and reopened their state footprints in our marketplace. Actions and messaging from carriers indicate that the majority are either starting to or planning to restore greater emphasis on growth. Given the long volatility in the auto insurance market, we maintained caution while noting our belief that a sustainable auto recovery is indeed underway. Against an improving industry backdrop, our team continues to execute effectively, as evidenced by our bottom line performance. Alongside sequential growth in carrier revenue, we had strong growth in agent revenue compared to the fourth quarter. As provider budgets increased, our performance marketing agents continued to optimize in real time, driving volume and variable marketing margin growth. The progress extended into our home vertical as well, as we achieved record home revenue in the first quarter. Q1 also marked numerous milestones in rebuilding technology infrastructure for future speed and scale. We moved most of our traffic to a new site infrastructure, began migrating customers to a new agent platform, and now have the majority of our traffic bidding migrated to our new ML-powered bidding platform. These changes will enable faster feature development and greater employee productivity in the future. More importantly, this sets us up to accelerate progress in areas ranging from site experiences to AI-powered bidding to new agent products and features. I want to thank the EverQuote team for the incredible tenacity they demonstrated and continue to demonstrate through the recent hard market cycle. This period of unprecedented market conditions dating back to 2021 has been a challenging stretch for EverQuote, but we are emerging stronger. The team which has led us through this challenging period is battle-hardened and energized by the results we're beginning to see. It's this team that gives me confidence in EverQuote's pursuit and eventual achievement of our vision to become the largest online source of insurance policies by using data, technology, and knowledgeable advisers to make insurance simpler, more affordable, and personalized. I'll now turn the call over to Joseph to discuss our financial results.

Thank you, Jayme, and thank you all for joining. I will start by discussing our financial results for the first quarter of 2024 before providing an update on what we are currently seeing in the auto insurance sector and our guidance for the second quarter. We had a strong start to 2024 and exceeded first quarter guidance across all three of our primary financial metrics of total revenue, variable marketing margin, or VMM, and adjusted EBITDA. We produced a record level of net income as well as a record level of adjusted EBITDA. These results were driven by continued strong execution of our operating teams against an improving auto carrier landscape. Total revenues in the first quarter were $91.1 million, driven by stronger enterprise carrier spend of more than 150% from Q4 levels. Revenue from our auto insurance vertical is $77.5 million in Q1, representing roughly 85% of revenues in the period and a sequential increase of 72% from the fourth quarter of 2023. Revenue from our home and renters insurance vertical was $12.7 million in Q1, a sequential increase of 29% from the fourth quarter of 2023. VMM was $30.8 million for the first quarter, up nearly 50% from the fourth quarter of 2023. The VMM as a percentage of revenues in the quarter was 33.8% and, as expected, declined from the record level of the previous quarter as we experienced a more costly advertising environment, which was partially offset by continued strong execution by our traffic teams and the ongoing benefits of our investments in our bidding technology. Turning to operating expenses and the bottom line. We continue to be very disciplined in managing expenses and driving incremental efficiency across our operations. Our efforts to streamline the business have led to improved execution and greater operating leverage. Cash operating expenses, which exclude certain non-cash and other one-time charges, were in line with expectations of $23.2 million in the first quarter or a 23% decline from the first quarter of 2023. In the first quarter, we reached a milestone of generating positive GAAP net income for the first time since the third quarter of 2019, reporting a record high of $1.9 million. Adjusted EBITDA reached a record $7.6 million in Q1, a 41% improvement year-over-year on 17% lower revenues, reflecting a strong operating leverage that we have created in our model since our June 2023 strategic realignment. Adjusted EBITDA as a percentage of revenues reached 8.3% in the quarter as the rapid increase in auto carrier recovery in Q1, coupled with our tight expense discipline, led to VMD overperformance flowing through to adjusted EBITDA. We remain steadfast in our commitment to efficient operations. And as we gain greater confidence in the sustainability of the recovery, we expect to modestly increase investments to support our future growth. As a result, as we progress through the second half of this year, adjusted EBITDA margins are likely to moderate but remain above pre-downturn levels. We delivered operating cash flow of $10.4 million for the first quarter, ending the period with cash and cash equivalents of $48.6 million, up from $38 million at the end of the fourth quarter of 2023. Adjusted EBITDA will continue to be a close proxy for operating cash flow going forward, subject to normal working capital adjustments. Before turning to guidance, I want to provide an update on what we are seeing in the auto insurance industry this year. During our February call, we shared that many of our carrier partners have recently reiterated their prior comments to us about wanting to return to acquiring new consumers during the course of 2024. We are pleased to see this more growth-oriented mindset taking hold, which has led to a strong start for the year with more auto insurers beginning to return to our marketplace. We are increasingly optimistic that auto recovery will be more sustainable this time around. However, we are cognizant that there is no playbook for how our carrier partners will emerge from what several insurance executives have referred to as a once-in-a-generation downturn. Given these dynamics, we expect unpredictability to persist in the near term, which makes it increasingly challenging to look at historical seasonal patterns to predict our outlook for the remainder of the year. We continue to execute on the strategy and accomplish the goals we laid out last year following our June strategic realignment. We committed to restoring consistent quarterly cash flow from operations in the first half of the year, followed by a return to our pre-downturn adjusted EBITDA margins in 2024. I am pleased to share that we achieved both of these goals within the first quarter ahead of our expectations. Furthermore, we expect our operations to continue to generate cash flow and quarterly adjusted EBITDA margins to remain at or above pre-downturn levels for the remainder of this year. Turning to our guidance. For Q2 2024, we expect revenue to be between $100 million and $105 million. We expect VMM to be between $31 million and $33 million. And we expect adjusted EBITDA to be between $7 million and $9 million. In summary, we entered 2024 with deep conviction that EverQuote is extremely well positioned to directly benefit as sustainable auto carrier recovery takes hold and persists. We delivered strong performance in the first quarter, exceeding guidance for revenue, VMM, and adjusted EBITDA. Our ability to achieve record levels of net income and adjusted EBITDA in the first quarter demonstrates our efficient business model. We will continue to focus on strong execution and remain steadfast in our commitment to efficiency while strategically investing and positioning EverQuote for future growth and success.

Jayme, maybe if you could provide some perspective, if you could, please, just in terms of how broad-based the recovery you're seeing in terms of number of carriers, increasing number of states? Just any sort of operational metrics you might be able to add to the obviously really strong outperformance in the quarter? Then, I have a follow-up for Joseph.

Sure. Thanks, Ralph. So if you take a step back, I think across the board you're seeing broad-based improvement in carrier underwriting profitability. So that's been steadily improving. Over the last year, I think auto carriers have taken about 20 points of raise and you're seeing across a number of carriers double-digit percentage point improvements in their combined ratios. So I think we are seeing the industry itself getting back to a more broad-based position of health, which is the primary leading indicator for re-entry back into the marketplace. Within our marketplace, I can share that we've seen all the top 10 carriers from Q4 step up their spend into Q1. A broad base of carriers are reactivating campaigns, restoring budgets, and reopening state footprints in our marketplace. Now, if you look at the performance we've seen so far this year and the guidance we're providing for the second quarter, that demonstrates a recovery that has happened quite faster than we expected in the first part of this year. A significant part of that recovery is somewhat front-loaded relative to how we expected the year to play out. And there is certainly one major carrier that has leaned in very aggressively. But by and large, we are seeing a more broad-based recovery than we observed this time last year.

Okay. That's really helpful. And then, just historically, I know it's unpredictable, like you talked about on the recovery path. But historically, you'd see a strong Q1, seasonally maybe down Q2, up Q3, maybe Q4 is down. Just can you help us kind of think about the shape of the recovery as we think about modeling 2024?

Sure, and happy to, Ralph. So let me maybe start by discussing how it unfolds today, as Jayme said, relative to expectations. So the normal seasonal patterns you just described indicate that we expected a good start to the year, with Q2 down, Q3 up, and Q4 down. Given what's transpired, it's been a much stronger start to the year, as Jayme mentioned. And it's really been led by a handful of carriers who've been aggressively expanding their state footprint more quickly. As a result, we had a strong Q1. When you look at our Q2 guide, it implies auto returning to peak and near-peak levels seen in Q1 of 2023. Thus, we see this growth as being more front-end loaded. The way we think about second half of the year implies that the carriers' more aggressive moves into the marketplace will continue, but the timing regarding the states is still to be determined. We expect strong year-on-year growth in the second half of the year, but we are not currently expecting the typical seasonal pattern of sequential improvement from Q2 to Q3 to apply this year given the front-end loaded nature of the recovery so far. That's what we can share right now based on what we are observing.

Congrats on the strong results. Maybe just to follow up on Ralph's question. One of the other players in the industry had suggested that volumes were recovering, but pricing was especially strong here in the early phases of this recovery. So I just wonder if you could comment on the role that pricing might be playing and whether that means this recovery is more sustainable or less sustainable? And then I just wanted to ask a quick question on operating leverage. I know you mentioned it in your prepared remarks, but you had such good flow-through during the quarter. How are you thinking about the ability to keep delivering that flow through the year?

Sure. Thanks, Mike. I'll take the first question, then I'll turn it over to Joseph on the operating leverage question. So we continue to see elevated levels of shopping persisting into Q1, and we would expect that to continue throughout 2024. As the rate cycle unfolds, people receive renewal notices. Those renewal notices show rates that are significantly higher than what people have been paying, triggering shopping behavior. We expect to see elevated levels of shopping behavior as this cycle unfolds for as long as the rate cycle remains in effect, noting that there is a 6 to 12-month lag from when a rate increase goes into effect to when the renewal notice is sent to the customer. We anticipate pricing has stepped up meaningfully from Q4 to Q1 and is now operating at healthy levels by historical standards. We'd expect some stability in the higher pricing levels, assuming the auto recovery maintains its foothold. Therefore, we benefit from a combination of sequentially higher volume and higher pricing.

With regards to operating leverage, let me just give you some context. Following our strategic realignment last summer in June, we've focused on driving operating leverage in the business. Q1 was representative of this effort. We achieved a record level of adjusted EBITDA and net income. The adjusted EBITDA margin was 8.3% in Q1. As we consider how to expand the expense base over the year, we need to manage spending for adjusted EBITDA margins to stay above pre-downturn levels, set at around 5.5% to 6%. We could see adjustments in cash operating expenses as we proceed through the latter half of the year, but we remain disciplined. We'll add modest investments as we progress to position us for future growth while maintaining our EBITDA margin.

I have two questions. First, could you provide more details about the incremental investments you plan to make? What specifically will you be investing in? Secondly, regarding the home vertical's growth of 35%, can you share your observations on that and your thoughts on the sustainability of that growth moving forward?

Sure. Thanks, Cory. As Joseph mentioned, discipline in expense management will continue. But as we get comfortable with our adjusted EBITDA levels, we will begin to ramp targeted investments back in as the year progresses. Two areas I'll highlight are data science and AI applications across the business as well as improving our existing products and developing new products to better meet agents' needs. For the home vertical, we achieved record revenue in this category in the first quarter. We are starting to see improvements in underwriting profitability for homeowners, which had faced similar challenges to auto due to numerous catastrophe losses. But in Q1, carriers produced better underwriting results. We expect home to continue growing throughout the year, though comparisons will become slightly tougher as the year progresses. We anticipate continued growth in this vertical through 2024.

Congrats on the strong results here in Q1. I really just had a question around the ramp up in advertising expenses as you start to see improvements in demand. Can you talk about some of the pricing that you're seeing in the ad environment? And maybe which channels you could be prioritizing versus others as you start to see carrier demand really ramp up?

Yes. As carrier demand has increased, we have seen some competition in the advertising environment, especially in the more vertical-specific channels, like paid search. However, we are always managing our business to maximize our variable marketing margin dollars. Therefore, when we believe we can gain incremental volume or dollars, we may bid into that, which could compress VMM margins but will boost our variable marketing margin dollars. So, as we've seen competition in the advertising environment increase, we've noticed a slight compression in VMM; however, this has been more than compensated for by the increases in volume and pricing. Higher pricing has also made insurance as a category more competitive in broader channels that aren't industry-specific, such as display or social, which have also seen a resurgence in activity in the first part of this year.

To give some context on VMM margins, while Q1 was just under 34%, we had anticipated a drop from the levels of Q4 due to the depressed environment. Our guidance for Q2 implies a VMM margin around 31%. I would outline three factors influencing this: rising advertising costs due to increased demand, our ongoing testing back into certain channels that are currently less efficient, and the mix shift between agency and enterprise. We typically see a relatively higher VMM in agency than enterprise, but as we see a ramp in enterprise tariffs in Q1, they have driven the overall shift in mix to lower VMM margins.

This is Sid on for Greg. Just with the recovery in the auto carriers, it doesn't feel like they've fully restored their budgets. But your second quarter guidance seems to imply revenue near the quarterly run rate you were achieving in 2021. So just curious if you could discuss how you meet your market share and if it's fair for us to assume that it's increased in the last couple of years?

Yes. We are today the largest digital P&C insurance marketplace if you look at it by revenue. Over the last couple of years, we've operated under a very constrained budget environment. During this time, we've primarily focused on maximizing profitability and improving the value we deliver to our customers. This included better targeting heightened traffic, and in some cases, it meant pulling back on volume. Despite this, we have retained our position as the largest digital insurance marketplace in P&C. As we continue to invest, we expect our position to strengthen as we pursue our goals.

When you think about auto revenues, our peak was Q1 of 2023. Remember that our Q2 guidance implies we are at or near the peak levels for auto seen in Q1 of 2023. We believe that auto recovery will be significant. However, what we see for the second half of 2024 will depend on unknown factors such as the pace at which other carriers enter the market and the specifics of their growth plans. We do expect year-on-year growth in the second half of the year based on current trends; however, the typical seasonal pattern may not hold true this year.

This is Cal Bartyzal on for Jason. So just to start following up on some of the commentary that you had on agents. Just kind of curious what you're seeing there? What may be the pockets of strength? And if there's any green shoots that you're seeing from captive carriers that would indicate the upswing in the agent channel?

Sure. Our agent business performed well in the first quarter. We noticed the return of some carrier subsidies; however, it's been happening in a fairly targeted manner, similar to the direct carriers re-entering the market. Overall, it's been a favorable trend. We aim to invest in our relationships with agents and their growth needs. We see an opportunity to enhance relationships within the independent agent channel through product improvements and new offerings.

And then just a second one from me quick. I just wanted to follow up on kind of some of the comments earlier about some of this new bidding technology and some of the things you guys are doing on the tech side. As we've seen VMM as the Q2 guidance lies, kind of getting back towards where it kind of has been historically. I mean, do you think that there's any upside to historic levels, particularly as you continue to roll out these tech improvements?

Yes. I wouldn't over-index any one quarter on the VMM front. Joseph explained factors contributing to VMM compression on a percentage basis. Over the longer term, some of the investments we are making, particularly in our bidding platform, have structurally improved VMM. We can take more granular real-time data about the consumer, distribution, and the auctions in which we compete, applying machine learning more effectively to generate profit-maximizing bids. This allows for a structural expansion of VMM as a percentage. However, we are currently in a transitional advertising landscape, which is affecting our distribution mix and we are exercising caution as we roll out our bidding technology.

If we look at 2023, we had VMM margins impacted by various pressures within a very depressed environment, particularly with costs remaining low for advertising. What we've previously stated is that we expect normalized VMM margins for the marketplace, excluding certain costs, to be in the high 20s to low 30s starting last year. We believe that this year we can get to the 30% to 35% range. We expect VMM margins to experience incremental improvements throughout this year.

Just looking at the industry as a whole, it seems like everyone is doing pretty well. So we're assessing how you're performing relative to your carriers or relative to other competitors. How should we assess what key metrics we should look at? And then I think you ended the quarter with $48 million in cash. Can you talk about is that the right balance going forward and how you kind of view your balance sheet?

Yes. As you've mentioned, we are focused on delivering strong results, which so far have shown evidence of a successful realignment towards a capital-efficient digital insurance marketplace. Our records for adjusted EBITDA, net income, and operating cash flow demonstrate our effective strategy. As we spread deeper into the P&C insurance market, we plan to leverage our access to proprietary data and further strengthen our market position. Although hard to provide specific metrics for comparison, we aim to measure ourselves by the value we deliver to our customers and how closely we achieve our stated goals.

Regarding capital allocation, we ended Q1 with approximately $50 million, a significant improvement from a year ago. This uptick reflects our commitment to operate efficiently and generate cash flow. We aim to focus on long-term organic growth while remaining open to selective acquisitions that could drive inorganic growth. We will maintain our disciplined approach in this regard as we've done so with operating expenses.

Congrats Jayme and Joseph on a strong quarter. A couple of clarifying questions. Joseph, sorry I missed this, but I think you walked through some of the assumptions for the back half, even though you're not giving formal guidance. But just to be clear, if the recovery holds that you're seeing right now, would you still expect to see sequential growth, maybe not the same seasonality that you've seen historically, as you said, but some sequential growth in the back half 3 and 4Q, just based on what you're seeing in the market right now?

Yes, Mayank, as I stated earlier, we've had a much stronger start to Q1, which is progressing into Q2. That said, our Q2 guidance implies auto is at or near the peak levels previously seen. There are factors at play, such as a limited opportunity for large carriers to open more states. We are seeing enthusiasm for growth among wider carriers, but the specificity and timing of their recovery plans are still uncertain. Therefore, we do not currently expect the sequential growth pattern to hold as we move forward into the second half of the year, although we still believe in a multi-year recovery.

No, that's very clear. And then, as a quick follow-up, Jayme, I think you were asked about pricing. And I just wanted to go back to some of the key underlying drivers. So could you just walk through what is driving RPQ? I know you don't provide the details like maybe in the past. But just is it more bundled offerings? Is it better integration with the carriers? What are some of the underlying factors driving these trends for you?

Yes. The recent upticks in revenue per quote request are largely driven by the auto recovery. Carriers are stepping back into the marketplace as of the beginning of this year, leading to more participants, expanded state footprints, and increased budgets and bids. This competitive dynamic is generating increased pricing for the traffic we generate. We're also seeing a similar trend on the agent side, with a meaningful rise in demand sequentially from Q4 into Q1 as we enter the year.

That concludes our Q&A session. I will now turn the conference back over to the management for closing remarks.

Thank you. I just want to thank everyone once again for joining us on the call today. The team and I are energized by how strong a start to the year we've had here. Over the last couple of years, we've made a number of difficult decisions to realign the business toward a brighter future. The benefits of those decisions are now clear as we produced record levels of net income, adjusted EBITDA, and operating cash flow in Q1. Now, with a solid foundation, a battle-hardened team, and more focus than ever before, we're excited to continue building a great business into this incredible market opportunity of bringing insurance distribution into the digital age. Thanks, all.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.