Earnings Call Transcript - EVER Q2 2025

Operator, Operator

Good afternoon, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the EverQuote Second Quarter 2025 Earnings Call. I would now like to turn the conference over to Brinlea Johnson with The Blueshirt Group. Please go ahead.

Brinlea C. Johnson, Host

Thank you. Good afternoon, and welcome to EverQuote's Second Quarter 2025 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 are Jayme Mendal, EverQuote's Chief Executive Officer; and Joseph Sanborn, EverQuote's Chief Financial Officer. 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 third quarter of 2025. Forward-looking statements may be identified with words and phrases such as expect, believe, intend, anticipate, 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 subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations. For a discussion of those risks and uncertainties, please refer to our SEC filings, including our annual report on Form 10-K and our quarterly reports on Form 10-Q on file with the Securities and Exchange Commission and available on the Investor Relations section of our website. 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. And with that, I'll turn it over to Jayme.

Jayme Mendal, CEO

Thank you, Brinlea, and thank you all for joining us today. We achieved strong results in Q2, growing 34% year-over-year and delivering record adjusted EBITDA margin and net income. Against the backdrop of healthy carrier profitability, our team remains focused on helping carriers and agents accelerate growth. We continue to make progress toward our vision of becoming the #1 growth partner to P&C insurance providers by efficiently delivering better performing referrals, greater traffic scale, and a broader suite of products and services. In Q2, carrier demand remained stable, reflecting a carrier landscape that is broadly healthy, coupled with consumer shopping levels that remain strong. One large carrier grew spend to record levels, marking their full recovery, while another tightened budgets seeking the optimal balance of growth and efficiency, and a few remained laggards, sharing plans to reactivate in the second half of the year. With the exception of certain challenged geographies like California, we anticipate being back to what we would characterize as a full carrier panel by historical standards by the end of this year. As carriers work to grow policies in force, we remain focused on differentiating our marketplace through superior performance that is underpinned by our data advantage. Our data scale enables us to deploy AI throughout our traffic and distribution bidding and routing systems. For example, as another major carrier adopted our ML-driven smart campaigns product, it drove immediate improvement in their spend efficiency by about 20%. Over time, greater adoption of smart campaigns propels our flywheel as higher ad spend efficiency in our marketplace compels carriers to shift more budget to EverQuote relative to alternative advertising platforms. And as we get more budget and outcome data, we feed this data to our AI-driven systems to enable further improvements to customer performance. Agent and captive carrier demand also remained strong in Q2, with continued growth from our local agent base. We are making progress in our transition from a leads vendor to a strategic growth partner for local agents by driving multiproduct adoption. We continue to build on our foundation in leads by adding additional value-add products and services, broadening the ways we help agents grow, which in turn enables us to consolidate agent marketing budgets and positions us as the indispensable growth partner for these same agents. Over the last 6 months, our paid products per agent have increased by more than 15%, with over one-third of our agent base now using multiple products. Our consumer acquisition teams executed well in Q2, driving 25% year-over-year VMD growth despite elevated competitive pressure in the broader advertising landscape as carriers stepped up their direct advertising efforts as well. As monetization improves and in order to keep pace with carrier appetite for growth, we are making investments in scaling incremental customer acquisition channels, including on several social and video platforms. As we continue to grow, we remain laser-focused on increasing operating efficiency and productivity, evidenced by our record adjusted EBITDA margin and net income. On top of the expense management discipline honed over the last couple of years, we are increasingly layering on AI-driven efficiency applications. For example, in our engineering organization, copilots have gained rapid adoption. We also have teams experimenting with rethinking how we can develop software more holistically using an AI-first approach to inference production-ready code faster and more efficiently than can be done by humans, inclusive of our ability to integrate, release, test, and maintain production-quality code consistent with our performance requirements. In our call center operations, we have introduced AI voice agents with the goal of reducing reliance on human call centers over time. Lastly, we are testing AI agents to help automate operational tasks. We have stood up our first dedicated AI team, which will serve as our nucleus for building and supporting AI use cases across the business. In May, I shared our goal of exceeding $1 billion of annual revenue in the near future. Having just finished our most recent annual growth planning cycle, the roadmap to accomplish this is increasingly clear, and we are making the requisite investments to do so. We are confident that as we continue to execute our strategy, we will emerge as P&C insurance providers' leading growth partner. I'll now turn the call over to Joseph to discuss our financial results.

Joseph Sanborn, CFO

Thank you, Jayme, and thank you all for joining. I will start by discussing our financial results for the second quarter of 2025 before providing an update on our capital allocation strategy and our guidance for the third quarter of this year. We delivered a strong second quarter as we further enhanced our operating performance and focused on driving expanding levels of profitability. Total revenues in the second quarter grew 34% year-over-year to $156.6 million. Revenue growth was primarily driven by stronger enterprise carrier spend, which was up over 61% from the comparable period last year. Revenue from our auto insurance vertical increased to $139.6 million in Q2, up 36% year-over-year. Revenue from our home and renters insurance vertical increased to $17 million in Q2, up 23% both year-over-year and sequentially. Variable Marketing Dollars, or VMD, increased to $45.5 million in the second quarter, up 25% from the prior year period. Variable Marketing Margin, or VMM, which is VMD as a percentage of revenue, was 29.1% for the quarter, up from 28% in Q1. Turning to operating expenses and the bottom line. As we scale and drive top line growth, we continue to expand operating leverage in our business through disciplined expense management and by utilizing AI and other technology investments to deliver incremental efficiency. In the second quarter, we grew net income to a record $14.7 million, up from $6.4 million in the prior year period. Q2 adjusted EBITDA increased to $22 million compared to $12.9 million in the prior year period. Adjusted EBITDA margin expanded to a record 14%. We reported record operating cash flow of $25.3 million for the second quarter, ending the period with no debt and cash and cash equivalents of $148.2 million, up from $125 million at the end of Q1. Cash operating expenses, which exclude advertising spend and certain noncash and other one-time charges, were $23.6 million in Q2. Operating expenses were sequentially down in the quarter and lower than expected, reflecting some hiring and short-term projects being deferred to the second half of the year. Also announced today, I wanted to highlight our inaugural share repurchase program. The Board has authorized the company to purchase up to $50 million in shares of common stock over the next 12 months, evidence of the continued confidence we have in our business. We will be opportunistic in repurchasing stock and believe this program is a prudent use of capital and reflects our conviction in EverQuote's business, market opportunity, and cash flow. Going forward, we expect our strong cash flow generation to position us to retain a fortress balance sheet while continuing to invest in growth initiatives, including AI. In addition, on August 1, we entered into a new 3-year $60 million committed credit facility. While our previous $25 million line of credit was never drawn upon, and we have no immediate plans to utilize the new facility, the arrangement provides us with additional financial flexibility. Looking to the back half of 2025, as mentioned last quarter, we plan to increase investment in our AI capabilities, technology, and data assets to drive continued operational efficiency and strengthen EverQuote's long-term competitive moat. We are already seeing evidence of the benefits of our strategic investments, and we'll be disciplined in balancing incremental operating expenses to generate adjusted EBITDA margins at or near current levels. Now turning to guidance for the third quarter of 2025. We expect revenue to be between $163 million and $169 million, representing 15% year-over-year growth at the midpoint. We expect VMD to be between $47 million and $50 million, representing 10% year-over-year growth at the midpoint. And we expect adjusted EBITDA to be between $22 million and $24 million, representing 22% year-over-year growth at the midpoint. In summary, our performance to date this year reflects our steadfast commitment to strong execution and a clear strategy. We remain focused on delivering on our long-term target of approximately 20% annual revenue growth with 20% EBITDA margins. We believe that the strength of our operating model and future growth initiatives will position EverQuote to deliver continued growth, profitability, and free cash flow generation. Jayme and I will now take your questions.

Maria Ripps, Analyst

First, just given the uncertainty around tariffs and the potential impact on carrier profitability in the back half of the year, could you maybe give us a sense of how committed your budgets are in the second half of this year based on your conversations with carriers? Just trying to get a sense of your level of visibility into the second half of the year.

Jayme Mendal, CEO

Thanks, Maria. While we don't have a committed spend model, I think all signs point to a very healthy carrier landscape right now. Carrier demand has been stable and building so far this year. And if you look at some of the latest prints from the carriers, the big carriers are showing 80s combined ratio, so extremely healthy. And then in every interaction that I have with carriers over the last few months, the dialogue has been entirely around growth and us finding more ways to help them grow. So we don't anticipate encountering any budget constraints or pullback over the back part of the year. We do know that the carriers have been watching the tariffs, but they're starting from a position of significant strength. And so we think they'll be able to absorb whatever impact ends up flowing through the system.

Maria Ripps, Analyst

Got it. That's very helpful. Can you help us understand better how the ongoing shift in AI-powered search might impact your traffic acquisition strategy in the future?

Jayme Mendal, CEO

Sure. Yes. I think it's fairly evident that search and shopping for everything will evolve over time. We believe that there are reasons to believe it could move a bit more slowly in insurance. This is an industry that is more opaque. So rates aren't readily available on the open Internet. It's a regulated industry. It's a relatively high-value, high-stakes purchase for the consumer. But over time, clearly, more search volume and shopping will move over to these AI platforms. And we think we're really well positioned to engage with that LLM-based traffic. Right now, we've started building LLM-based conversational workflows in our call center operations. And you can sort of think about those as effectively taking the top of the shopping funnel using agentic AI. And over time, we'll be working our way down the funnel to facilitate more of that buying experience. So I think how and when these platforms open up to advertisers is still a bit of an open question and how much of that is paid versus organic. But I'd say given our monetization and our AI capabilities that are sort of fast developing, we're going to be really well positioned to acquire this traffic.

Cory Alan Carpenter, Analyst

Do you think tariffs impacted carrier budgets in Q2, and are you considering any potential effects from that in Q3? Additionally, the Q2 results and Q3 guidance suggest typical seasonality expected in the auto business. Can you help us understand this in light of your continued optimism about the potential for growth as the recovery extends to more carriers in the remaining states that are open?

Joseph Sanborn, CFO

Sure. Thanks, Cory. I'll start answering the question and then Jayme can add more. Looking at Q2, we wanted to understand the impact of tariffs. Just to remind everyone, tariffs were announced on April 1. For carriers and much of the business community, the beginning of Q2 brought some uncertainty as they tried to understand the implications of the tariffs. Carriers were concerned about the potential rise in claims costs. Throughout the quarter, it seemed that carriers maintained healthy combined ratios and underwriting margins. We noticed that carriers may have engaged a bit earlier than expected due to their underwriting margins. This showed some hesitation in response to the influence of tariffs in Q2. However, as the quarter progressed and particularly into June, we observed carriers becoming more active, and this trend has continued into July. This likely reflects better clarity regarding the tariff environment, which has been considered in our guidance for Q3. Additionally, we are now seeing broad-based recovery across many states, although California and a few others remain lagging. As Jayme pointed out earlier, we anticipate having a complete carrier panel back in the marketplace by the end of the year, and we expect these slower states to show more significant improvement by 2026. While we can't provide exact timing, it is encouraging to see progress in these states, albeit gradually.

Zachary Cummins, Analyst

Maybe just digging a little bit deeper into some of your carrier commentary here in Q2. It sounded like you had one major carrier that really ramped up spend, while another was more so in a defensive mode here in Q2. So any additional context you can give around that and kind of where you're at with the rest of the carrier base in terms of ramping up budgets here in the coming quarters?

Jayme Mendal, CEO

Yes. So I would say that most of the carriers are back in growth mode and feel largely stable in their budget levels. There was one carrier that was kind of fluctuating a bit over the first half of the year, and that was reflected in the commentary. But even they are now sort of fluctuating back up from where they were in Q2. On balance, I would say the carriers feel oriented towards growth and the demand feels stable. There were a couple of carriers that have really not yet reactivated in our marketplace, but we've gotten signals from them that they do intend to reactivate in the second part of this year. And so we expect to exit the year with, as Joseph said, what we would characterize as a full panel of carriers relative to sort of historical participation in the marketplace.

Zachary Cummins, Analyst

Understood. That's helpful on that side. And just given where the balance sheet is right now, nice to see the share repurchase authorization. Just curious on the flip side of that, if there is any interesting M&A that you're considering at this juncture? And any sort of update as to how you're thinking about potentially deploying that capital?

Joseph Sanborn, CFO

So thanks for the question. I guess just give you some context on the buybacks. Obviously, we're pleased to do our first buyback of up to $50 million over the next 12 months authorized by the Board. I think it really reflects the confidence we have in our business and really just the cash flow generation of the business. At the same time, obviously, we'll continue to look selectively at M&A. M&A is certainly something we will think about, particularly as it accelerates what we're trying to do in our core markets of P&C and accelerates our long-term position to be the leader in that space. And so we'll continue to look at that, and we'll update you as we have more to share, but it’s certainly part of the things we're looking at over the next several months.

Jason Michael Kreyer, Analyst

So you talked about a full panel of carriers, a full panel of states. I'm just curious from a competition standpoint, if you've seen any greater competition for leads, if you think that's creating any more volatility or any more pressure on VMM either in Q2 or as the year progresses?

Jayme Mendal, CEO

Thanks, Jason. We have observed competitive pressure in the advertising landscape this year. Carriers benefit from increased budgets, and they are also entering the broader advertising market, which has introduced some competitive challenges. Despite this, we have continued to perform strongly in a more competitive traffic environment. We are making progress with our AI bidding solutions and achieved a 25% growth in VMD year-on-year. Additionally, we improved our VMM margin from approximately 28% last quarter to 29% this quarter. While we are facing more competitive pressure, we are managing it effectively and remain focused on maintaining our margins and pursuing growth through new channels, as I mentioned earlier. I'm as curious about this as you are. I would say intuition would suggest that the carriers will have quite a bit of room going into the back part of the year in terms of their combined ratios, particularly for those that manage to kind of a calendar year outcome. So we've received no indication from any carriers that there's some end-of-year budget flush coming. But in the past, when we've entered the end of the year and we've seen both pressure for growth and margin in profitability, we have seen some carriers deploy excess budget into the market at the end of the year.

Joseph Sanborn, CFO

Maybe I'll just add to that. That tends to be a phenomenon you see more with public companies than you do with some of the mutual companies. They just have a different sort of mentality about managing annual budgets. So just trying to be cognizant of it as terms of how we've seen it in the past.

Ralph Edward Schackart, Analyst

Regarding the pressures you're experiencing in the search engine marketing channels as the carriers come back online, would you categorize this as typical pressures you've encountered before and need to find workarounds for? Or is there something different or more significant in what you're observing today? Additionally, could you provide some insight into the incremental channels you’ve been testing? That would also be appreciated.

Jayme Mendal, CEO

Thanks, Ralph. I would say there's nothing unusual about the competitive pressure we're experiencing. It's most intense in industry-specific areas like search, while we're seeing more stability in broader channels like social and video. As a result, we're directing some of our resources to mitigate the competitive pressure in search. So nothing really unusual there. Can you remind me of the second part of the question?

Ralph Edward Schackart, Analyst

Yes. Just any sort of update you can provide or metrics around social or the video channels and just any progress that you're making there?

Jayme Mendal, CEO

Got it. So these were channels that we were fairly active in before the downturn. And then as the auto monetization kind of fell out, we pulled back a bit in these channels. And so there's a part of this that's just reactivating the engine and rescaling the engine. And we're seeing some traction, right? Some of these channels are beginning to scale. And then there are some incremental platforms which we have not been as active in the past, which now with monetization where it is, we believe we should be able to compete as well.

Mayank Tandon, Analyst

Jayme and Joseph, even though you didn't provide specific guidance for the fourth quarter, could you just remind us of the seasonality just so that we get our model straight, don't get over our skis? Any thoughts around how we should think about the top line, VMD, and just the leverage in the model on the EBITDA front?

Joseph Sanborn, CFO

Sure, thanks for the question. Regarding seasonality, we typically see a slight decline from Q3 to Q4, around 3% to 5%. As for VMD, we’re still targeting the high 20s as we manage the business. Concerning EBITDA, as I mentioned earlier, we aim to maintain margins at or near current levels, with Q1 at 13.5% and Q2 at 14%. Our Q3 guidance suggests we’ll be in that same range, with the midpoint just under 14%. We plan to keep those levels, which means we will adjust our expenses accordingly. In Q3, you can expect an increase in expenses, and that trend will likely continue into Q4. This aligns with what we indicated at the beginning of the year, as we anticipate adding incremental investments in the latter half of the year, particularly focusing on technology and AI.

Mayank Tandon, Analyst

Right. That's helpful. And then going from a short-term question to a long-term question. Jayme, you talked about the $1 billion roadmap to get there. Could you maybe just give us a little bit more on how you think about the growth coming organically? Are you including M&A opportunities to get to that type of revenue growth target? And then also, just I would add that, is this contingent on adding larger carriers that aren't clients today? Or do you feel like you have enough headroom to grow within the account base to really get to that type of level?

Jayme Mendal, CEO

Yes. So hopefully, it's not a long-term question. We hope to get there relatively soon. And we think we can do so organically and with our existing customer base. The plan that we've got really relies on the distribution side, which is about continuing to improve performance for carriers and agents through AI products like Smart Campaigns. We've got a reliable pattern established now where when we deploy these products, they improve performance, we get more budget, we get more pricing. And so that's a part of it. With the agents, we're expanding products to get more share of their wallet. And then on the traffic side of the marketplace, we think we can sort of size the opportunity in under and unpenetrated channels that we're beginning to sort of expand into and scale up. And then outside of auto, I think the homeowners vertical and other non-auto verticals could round it out. So our plan to get to $1 billion of revenue does not rely on M&A. But as Joseph mentioned, feel free to layer on, Joseph, that's a potential accelerant.

Joseph Sanborn, CFO

I want to remind everyone of our long-term model. We have communicated that we aim for an average of 20% growth in revenue, and we plan to reach adjusted EBITDA margins of 20% over time. Last year, our EBITDA margin was 11.6%. Based on our messaging today and our performance in the first half of this year, we expect to increase that by at least a couple of hundred basis points this year. As you consider our path to 20%, we plan to add 200 basis points annually. While we don't guarantee that increase every year, I anticipate an average addition of about 100 basis points, with some years potentially exceeding that. We see a significant growth opportunity while simultaneously enhancing profitability as we achieve our revenue growth.

Jed Kelly, Analyst

Just looking at the guidance and the VMM margins, would you expect, as the market sort of normalizes and we return to a steady-state growth, that you would expect your VMM margins to go back into the low 30s? Or how should we just think about the level of VMM margin predictability or VM dollars predictability over the next, call it, 18 to 24 months?

Joseph Sanborn, CFO

I believe our perspective on VMM aligns with our discussions since the beginning of the year. We anticipate it will generally remain in the high 20s range, occasionally dipping into the low 30s. On average, we view it stabilizing in the high 20s. It’s essential to remember that we don’t manage the business on a daily basis. The traffic teams focus primarily on driving VMD, rather than specifically targeting VMM. However, we do monitor it regularly throughout each month, and there is a connection between the peak VMD point and the VMM margin, which corresponds with our current high 20s position. We feel confident that this is the appropriate approach to managing the business.

Jed Kelly, Analyst

Got it. And then just the cash balance, it's a great job. It looks like, excluding the buyback, could be approaching $200 million end of year. Do you ever think about acquisitions in terms of helping you get some leverage over some larger carriers and reduce competitive spending on what you have to pay for traffic? Can you just talk about M&A and how you kind of think about using your cash balance to fund additional growth?

Joseph Sanborn, CFO

Yes. When we consider mergers and acquisitions, our focus aligns with our current strategy. We aim to be the top growth partner for property and casualty carriers and agents. It’s not about gaining leverage over them, but rather about how we can assist them in achieving success. Our goal is to help them enhance their performance and increase their share of wallet, which in turn supports their business growth. This is how we view the opportunity. There are some M&A prospects that could fit into this strategy, but fundamentally, we believe that our success comes from our customers’ success. If we effectively manage the results they provide us, we can deliver excellent outcomes for our shareholders, and this will continuously drive shareholder value.

Mitchell Rubin, Analyst

This is Mitch on behalf of Greg Peters. So on Slide 12, you guys have a table where you're breaking out the auto versus home revenue quarterly. It looks like it sequentially increased each quarter since Q1 through Q4, and it came down a bit in the second quarter of '25 relative to the first quarter. So I was wondering if you could provide some color on this dynamic.

Joseph Sanborn, CFO

I think what I'd say in the home business, the way to think about home, I believe this page provides a visual to help people see the breakouts of auto versus home revenues. Looking at the relative proportion in a given quarter, I'm not sure I'd quite look at it that way. Generally, it's been around 10%, give or take. I'd say with the home vertical specifically, maybe I can give you some context around that. That's a vertical that had nice performance in Q2. We had 23% growth year-on-year and also sequentially as well. So a really nice quarter. I think that reflected the broader landscape of home having strong underwriting pickup improvements relative to Q1. As you may recall, in Q1, we had an environment where the home environment broadly for carriers had some pressure with cat losses. Looking into Q2, I think it's become a much more stable underwriting environment. We feel good about home and think it will continue to be an opportunity for us to grow over time. The way we're thinking about the quarterly cadence of the buybacks is going to be opportunistic and based on market conditions. We don't have a prearranged plan to do certain things within a given quarter. But again, it's one where we view it as a good way to reflect the confidence we have in our business and the strong cash flow generation. And it's also a way to give that value back to our shareholders in a way that we've talked about in the past is one of the things we consider. And so we're pleased to be able to do it, but it'll be opportunistic in how we execute it for our first program.

Jayme Mendal, CEO

Thank you all for joining. Look, we continue to make great progress. This quarter was punctuated by a number of records, particularly as it relates to our operating efficiency as we introduce more ML and AI more broadly across the business. We reached record levels of net income, operating cash flow, cash balance, and adjusted EBITDA margin. And we're really energized right now. We're energized to continue growing efficiently towards that $1 billion revenue goal as we build EverQuote into the unambiguous leading growth partner for P&C insurance providers. Thanks all.

Operator, Operator

This concludes today's conference. We would like to thank everyone for participating. You may now disconnect your lines. Have a pleasant day.