EverQuote , Inc. (NASDAQ:EVER), a leading online insurance marketplace, has reported a robust financial performance for the second quarter of 2024, surpassing its own guidance with record revenue, variable marketing margin (VMM), adjusted EBITDA, net income, and operating cash flow. The company's growth was fueled by its auto and home insurance verticals.
Despite the optimism, EverQuote is preparing for new FCC regulations that may impact its business model, while also planning to invest in technology and product expansion. Looking ahead to the third quarter, the company has set revenue targets between $137 million and $143 million, VMM expectations between $38.5 million and $41.5 million, and adjusted EBITDA forecasts ranging from $14 million to $17 million.
Key Takeaways
- EverQuote achieved record revenue, VMM, adjusted EBITDA, net income, and operating cash flow in Q2 2024.
- Growth was primarily driven by the auto and home insurance sectors.
- The company anticipates a more competitive advertising environment and upcoming FCC regulations to pressure VMM percentage.
- EverQuote is preparing for the new FCC rule affecting consent collection and telephonic outreach, which may impact 25-30% of its business.
- The company maintains a disciplined approach to expense management and is exploring selective M&A opportunities.
- Q3 revenue is projected to be between $137 million and $143 million, with adjusted EBITDA between $14 million and $17 million.
Company Outlook
- Q3 2024 revenue forecast: $137 million to $143 million.
- Q3 2024 VMM projection: $38.5 million to $41.5 million.
- Q3 2024 adjusted EBITDA estimate: $14 million to $17 million.
- Long-term EBITDA margin goal remains above 20%.
Bearish Highlights
- Upcoming FCC regulation changes may reduce lead volume by affecting 25-30% of the business.
- VMM margin expected to decrease due to heightened competition and regulatory preparations.
Bullish Highlights
- Positive developments in carriers' underwriting profitability could lead to campaign reactivations and budget restorations.
- The recovery in the auto insurance industry is broad-based, with multiple carriers showing positive development.
- The company is focusing on improving conversion rates and ROI for carriers through data and analytics.
- Increased spending from existing carriers and the entry of new digital-native insurance companies are expected to support growth.
Misses
- The company acknowledges near-term uncertainty due to potential catastrophic losses and the impact of FCC preparations.
Q&A Highlights
- The new FCC rules will require one-to-one consent for outbound telemarketing, affecting a significant portion of the business.
- Lead quality is expected to improve, potentially leading to higher prices.
- The company is investing in its product offering to meet the growth needs of local agents.
- EverQuote is considering M&A opportunities to accelerate growth while maintaining a disciplined approach to ROI.
EverQuote's recent financial achievements reflect the company's strong position in the insurance market and its ability to navigate a dynamic competitive and regulatory landscape. The company's strategic focus on data-driven decision-making and technology investment positions it well for future growth, despite potential challenges from regulatory changes and market volatility.
With a clear outlook for the coming quarter and a commitment to disciplined expense management, EverQuote demonstrates confidence in its ability to maintain its market leadership and deliver value to its stakeholders.
InvestingPro Insights
EverQuote, Inc. (EVER) has demonstrated a strong financial performance as outlined in the recent article. To further enrich our understanding of the company's position, let's delve into some key metrics and InvestingPro Tips that highlight EverQuote's market standing and future prospects.
InvestingPro Data:
- The company's market capitalization stands at a healthy $832.02 million, reflecting investor confidence in its business model.
- With a gross profit margin of 91.95% for the last twelve months as of Q1 2024, EverQuote showcases its ability to retain a significant portion of its revenue after accounting for the cost of goods sold.
- The recent price performance has been remarkable, with a 254.96% return over the last year, indicating a strong bullish momentum in the market for EverQuote shares.
InvestingPro Tips:
- Analysts are optimistic about EverQuote's future, predicting that the company will turn profitable this year, which is a significant milestone for any growing business.
- The company holds more cash than debt on its balance sheet, a sign of financial stability and resilience that could be crucial as it navigates new FCC regulations and invests in technology.
For readers interested in a deeper dive into EverQuote's financial health and market potential, there are additional InvestingPro Tips available. In fact, you can find a total of 11 insightful tips on EverQuote by visiting InvestingPro insights underscore the company's strategic positioning and potential for sustained growth. With its strong gross profit margins and anticipated sales growth, along with a solid balance sheet, EverQuote is well-equipped to continue its trajectory in the competitive online insurance marketplace.
Full transcript - EverQuote Inc (EVER) Q2 2024:
Operator: Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the EverQuote Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the conference over to Brinlea Johnson from The Blueshirt Group. Please go ahead.
Brinlea Johnson: Thank you. Good afternoon, and welcome to EverQuote's second 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 third quarter of 2024. 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 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 the 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 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: Thank you, Brinlea, and thank you all for joining us today. EverQuote continued to build momentum in the second quarter. Operating results once again exceeded the high end of our guidance range for revenue, VMM and adjusted EBITDA, and we achieved new record levels across all three of these financial metrics, along with record EBITDA and net income. In April, I shared our perspective that after years long volatility in the auto insurance market, we believe that a sustainable auto recovery was in fact underway. This view further solidified as we progressed through the second quarter. Auto carrier underwriting profitability remained healthy and carriers continued to reactivate campaigns, restore budgets and reopen their state footprints in our marketplace. As the auto carrier recovery unfolds, our team continues to execute very well. In the second quarter, not only have we worked closely with carriers to help them step back into the marketplace effectively, but we have also grown demand from local agents who are a core and differentiated component of our distribution. Our customer acquisition teams continue to optimize effectively into a dynamic demand environment and our home vertical grew to new record high levels of revenue and VMM. Turning to the back part of the year, we will continue to support carriers and agents as they restore greater focus on growth. We will do so by providing them the guidance, data and tools they need to effectively scale spend in our marketplace and by expanding our customer acquisition and channels that will benefit from growing provider demand and monetization. Also, we have been actively preparing to comply with a regulatory change imposed by a new FCC rule related to consent collected under the TCPA or the Telephonic Consumer Protection Act, which goes into effect in January of 2025. This rule will affect website consent collection requirements and distribution channels that rely on telephonic outreach, most notably our agent channel. We are working closely with carriers and others to comply with the new rule, while continuing to support our customers' need for growth. We believe the change presents an opportunity for EverQuote to improve traffic quality for our customers, accelerate execution of our strategy and extend our market leadership position as our scale enables us to process regulatory change more effectively than others. Lastly, we are maintaining heightened discipline in our expense management and making significant progress in simplifying and streamlining our tech platforms to enable more efficient and effective execution. As we begin to shift back to a more investment-oriented mindset, we will ensure that top line progress continues to contribute to growing operating leverage. In closing, I'd like to thank the EverQuote team for another strong performance in Q2. I'll now turn the call over to Joseph to discuss our financial results.
Joseph Sanborn: Thank you, Jayme, and thank you all for joining. I will start by discussing our financial results for the second quarter of 2024 before providing an update on what we are currently seeing in the auto insurance sector and our guidance for the third quarter. Our strong momentum in Q1 continued into Q2 as we exceeded guidance across all three of our primary financial metrics, 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 and operating cash flow. These impressive financial results were due to continued strong execution from our operating teams against an improving auto carrier landscape. As a result of the realignment of our cost structure last year and our continued disciplined expense management, we are driving significant operating leverage as we scale. Total revenues in the second quarter were $117.1 million, up 72% from the prior year period. Revenue growth was driven by stronger enterprise carrier spend, which increased 42% sequentially and over three times from the comparable period last year. Revenue from our auto insurance vertical was $102.6 million in Q2, up approximately 106% year-over-year and sequentially 32%. Revenue from our home and renters insurance vertical was $13.9 million in Q2, up 29% year-over-year and sequentially 9%. Our strong outperformance in the quarter relative to guidance was primarily driven by carriers continuing to gain confidence in their underwriting profitability as we progressed through the quarter. This resulted in carriers increasing their marketing spend during the period, often with minimal advance notice. VMM was $36.5 million for the second quarter, up approximately 48% from the prior year period. As expected, VMM decreased as a percentage of revenues in the quarter to 31%. Looking ahead to the remainder of the year, given the more competitive advertising environment as well as the impact of preparing for the upcoming regulatory changes, we expect downward pressure on VMM percentage which is reflected in our guidance. Turning to operating expenses in the bottom line. We continue to be disciplined in managing expenses and driving incremental efficiency across our operations, which is resulting in expanding operating leverage as we scale and drive top line growth. Cash operating expenses, which excludes advertising spend and certain non-cash and other one-time charges, were in line with expectations in the second quarter at $23.5 million and decreased 12% from the same period in 2023. Looking to the remainder of this year, we plan to continue to judiciously invest in what we view as compelling high ROI opportunities, including advancing and streamlining our technology platforms and expanding our product offerings for our insurance provider partners. In the second quarter, we reported record net income of $6.4 million. Adjusted EBITDA was $12.9 million in Q2, up 70% sequentially and an improvement from a loss of $2.1 million in the prior year period. Adjusted EBITDA as a percentage of revenues grew to 11% in the quarter, as we continued to benefit from the rapid increase in auto carrier recovery and our strong operating leverage. This, coupled with our tight expense discipline, led to VMM overperformance flowing through to adjusted EBITDA. Looking ahead, we remain steadfast in our commitment to efficient operations while making calculated investments to position the company for long-term growth. As a result, as we progress through the remaining half of the year, we expect adjusted EBITDA margins to remain at or near Q2 levels. We delivered operating cash flow of $12.4 million for the second quarter, ending the period with cash and cash equivalents of $60.9 million, up from $48.6 million at the end of the first quarter of 2024. To note, going forward, adjusted EBITDA will continue to be a close proxy for operating cash flow, subject to normal working capital adjustments. Before turning to guidance, I want to provide an update on our current outlook for the auto insurance industry for the remainder of 2024. During Q1, we shared that several of our carrier partners had recently reiterated their prior comments to us of wanting to return to acquiring new consumers during the course of 2024. Most recently, we are pleased to see this more growth-oriented mindset is taking hold with many carriers, which has led to a strong start to the first half of the year and good momentum continuing into Q3. We, however, remain cognizant. There is no single playbook for how each one of our carrier partners will emerge from the multi-year auto insurance downturn. In Q2, for example, we experienced some unexpected changes from carriers, both favorable and unfavorable as we progress through the period. We expect this unpredictability to persist in the near term and are prepared to adapt our operations accordingly as carriers work to rebuild their growth muscle and adapt their marketing spend to a dynamic and competitive environment. Turning to guidance. For the third quarter of 2024, we expect revenue to be between $137 million and $143 million, we expect VMM to be between $38.5 million and $41.5 million, and we expect adjusted EBITDA to be between $14 million and $17 million. In summary, we have had a very strong start to 2024 and continue to execute and capitalize on the improving auto carrier landscape. Our record results in Q2 for revenue, VMM and adjusted EBITDA are evidence that a strategic focus on driving operational improvements, maintaining disciplined expense management and emerging from the auto insurance downturn as a stronger company is working. Jayme and I will now take your questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Thank you. Your first question comes from the line of Cory Carpenter with JP Morgan (NYSE:JPM). Please go ahead.
Cory Carpenter: Good afternoon. So last quarter, you guided to potential sequential decline in auto revenue in 3Q. Clearly, no longer expecting that. I guess my question is, what has changed since then? Has it been more breadth of carriers? Has it been opening of new states? I know you were cautious around kind of the wave two and the new state openings, or was it more of the wave one carriers kind of continuing to ramp above their historic spend? I'll stop there and then I do have a quick follow-up.
Jayme Mendal: Sure. Thanks, Cory. So I think we guided with the information we had at the time in -- this time last quarter. What we've seen subsequently is we just continue to see encouraging data out of the carriers. Their underwriting profitability, particularly their loss ratios and the underlying combined ratios are steadily improving. As that happens, the carriers have continued to reactivate campaigns, restore budgets, reopen the state footprints in the marketplace. And while it is -- there is, I think, as you know, heavy concentration in one major carrier, the recovery is more broad based than that. And so, we've seen some positive development not just from that one carrier, but from a number of carriers since the time we guided last quarter. And from where we sit today, I mean, I think we see the actions taken thus far as being sustainable so long as the underwriting profitability holds. We also see some upside over time because there are certain carriers that have historically been meaningful spenders in the marketplace who are not yet sort of back to spending the way they used to. There are also certain states that have been challenged and probably will remain so for a bit, but will eventually come back online. These are states like California. So I think in -- in sum, it's a little bit of everything contributing, and we expect it to continue to develop favorably from here.
Joseph Sanborn: I think I'd add, Cory, when we give our guidance, it's based on what we know at the time. We've had certainly favorable developments, as Jayme highlighted. I also would reiterate the comments that were in our prepared remarks around just, it's an unpredictable environment. So we're seeing carriers making adjustments within the quarter. You saw this in this quarter, we started in Q1, as carriers are progressing through the quarter, they're actually making decisions to make incremental spend based on their assessment, their underwriting profitability improving. They're often doing with little numbers. And so, that was a dynamic that came in that allowed us to have over-performance in the second half of the quarter, resulted in beating expectations meaningfully. We're seeing that sort of dynamic. We factored it into our guidance as we look at Q3.
Cory Carpenter: Thank you. And just to -- for follow-up, I wanted to go back to the FCC regulatory change, Jayme, you mentioned. Could you talk a bit more about that? And then, Joseph, any way to kind of frame how big of an impact this could have on the business next year? Thank you.
Jayme Mendal: Sure. So let me try and provide a bit of an overview, and then Joseph, I'll kick it back to you for the impact. At a high level for those who are less familiar with it, in January, the FCC published new rules that amend consent requirements under the TCPA, which is the Telephonic Consumer Protection Act, to require one-to-one consent for outbound telemarketing calls or texts made using certain technologies, regulated technologies they're referred to. So that would include, like, automated telephone dialing systems, pre-recorded voice, artificial voice. And these rules will go into effect January of 2025, January 27th of next year. So since then, we've been working with legal experts, our clients, with others in the industry, to understand the requirements, interpret them, and put a plan in place to comply with them. And of course, we are fully committed to compliance and are working with our customers to do so. So what does this all mean? Just to sort of contextualize it, the part of our business that it affects is the part that relies on telephonic outreach to consumers. And so, that's, call it, 25% to 30% of the business is, it will be affected by the change. Now, what will that effect be? I think from our point of view, it's a very healthy development for the industry. This requirement of one-to-one consent really gives the consumer more control over how they get their quotes. And so, on the one hand, what that will mean is that some consumers will opt into fewer provider options, resulting in fewer leads being able -- available to be sold to insurer. We would expect to see lead volume for the affected part of the business come down a bit. But on the other hand, what it will do is it will alleviate a consumer pain point, specifically the number of phone calls that some consumers receive. And two, very importantly is it will improve the quality of the lead product. So, we've now done a lot of testing, and our data shows that one-to-one consent will improve the performance of the leads that go out to agents. So, I mean, because of all this, I think the expectation is that agents will be willing to pay more for what will ultimately be a better product and in net-net, will end up with slightly fewer leads but at higher prices. So that's kind of the overview. From our point of view, complying it will require us to adapt. It comes with some uncertainty, but we're working very closely with carriers, agents, publishers. We've got a plan, it's in flight. We'll believe we'll be able to manage through it effectively and that will come out the other side in an advantaged position.
Joseph Sanborn: Just add on to that a bit, Cory, just to emphasize a few points because there's a lot here to take in. So when you think about this business, Jayme said the portion of the business impact, this is really around our leads business, about 25%, 30% of the business. That is principally our third-party agent business. So, that's the first piece. We really do not anticipate much of an impact to our clicks business, which is really the direct carrier enterprise side. So that's -- I want to reiterate that point. When you think about the impact of this at a high level, we talked about this in our last public appearance in Q2, which is we view this as you will have lower volumes of consumer -- lower volumes of consumers ultimately coming through this process. We expect though there'll be higher quality, higher converting, there's going to be lower converting, higher performing. And as a result of that, from a point of view of the provider, you have an opportunity to have a consumer who's a better qualified, higher performing opportunity -- lead for them. And that in turn, we think will lead to opportunities for higher monetization. So lower volume, higher monetization. When you think about that dynamic, how would you think about quantifying that? And I'd say one of the things I'd emphasize here is that there's not one single thing. When you look about the changes that are going to be done within our marketplace to execute this, there's a number of number of individual things that are being done in our traffic operations and how this will flow through on our workflows to bring consumers to providers. When you look at all those impacts right now, based on the discussion we've been having with the carriers, what we're seeing is that carriers each are figuring out exactly how they're going to comply with us. So we're working that through and we'll continue to form our views on this. But based on how we're seeing it now, we view this as the likely outcome is that financial performance in our business is likely to be more temperate probably in Q1 than a normal start of the year you would have with carrier budget resets, sort of the net-net of all of this. And as we prepare for one-to-one consent, I should highlight that we're also making some investments in the current period to prepare for this. And that's coming through both on the operating expense side, it's also coming in on our VMD and revenue side as you make through some of these tests, that does impact the performance on -- as you go through these tests, that does impact the traffic side and the VMM margin, which we noted in our prepared remarks. And our plan is to continue making these efforts into Q4 as we prepare for one-to-one consent at the start of the year.
Cory Carpenter: Thank you both.
Jayme Mendal: Thanks, Cory.
Operator: Your next question comes from the line of Jed Kelly with Oppenheimer. Please go ahead.
Jed Kelly: Hey, great. Thanks for taking my question. Just one quick question. Jayme, you mentioned local agent is a source of differentiation. I know a lot of the other marketplaces are seeing pretty good revenue growth, so can you just touch on that? And then Joseph, you generated a very healthy free cash flow this quarter. Can you talk about how you're thinking about returning capital or capital deployment, as you guys sort of inflect to a much larger free cash flow base? Thank you.
Jayme Mendal: Thanks, Jed. Yes. So, I mean, with respect to the agent business, we've always viewed the agents as a differentiated part of our distribution. We continue to invest in delivering better performing products, more products into that agent base. We had great performance this past quarter. That business is growing year-over-year. It's growing sequentially. And so, our focus right now with agents is really helping enhance the product we have and beginning to expand that offering to more holistically address their growth needs, particularly in a world where fleet volumes going to come down a bit. We have ways to offset that and continue to serve their needs. So I think our focus here will be quite instrumental in our ability to kind of continue to build on the advantage that we have with agents. And I think we've got a pretty compelling roadmap that we'll be kind of executing and rolling out over the next couple of years, which will really continue to build on the strength of these agent relationships and enable us to continue to grow the agent business and leverage it as an advantage in our traffic buying within the marketplace.
Joseph Sanborn: Maybe I'll touch on the use of cash. So, we're pleased, obviously, how we -- the turnaround the business resulting in positive cash flow from the business. Again, we had record this quarter, and we expect to continue to be cash generative going forward from operations. As we look at potential -- as we look at growing the business over time, we've talked about coming out of this, having a stronger leadership position based on the moves we've made. And we think that sets us up to consider potential M&A selectively in areas that we could accelerate our current organic plans. We've talked about that in our prior calls. We continue to see that opportunity. We think there's also a dynamic in the private markets, given the dislocation in some -- the private capital markets. It can be some quality private insurer techs who we would -- we may be able to get a more favorable terms than we might have a few years ago. We look at M&A though still through the prism through which we've been guiding the business, which is being very disciplined. If we look at acquisitions, they will be in the context of our P&C focus. They also be in the context of maintaining our disciplined approach to generating top line growth and return on investment as measured by free cash flow. And I think the last thing I would touch on is we feel very good about our long-term strategy. We just came through a process this summer focusing on that. And we don't -- we do not see M&A as a requirement to achieve our long-term goals. We do see it as an additional lever we can consider, and we think we're increasingly in a better position to do it as the opportunities may arise.
Jed Kelly: Thank you. Very helpful.
Jayme Menda: Thanks, Jed.
Operator: Your next question comes from the line of Ralph Schackart with William Blair. Please go ahead.
Ralph Schackart: Hi. Good afternoon. Thanks for taking the question. Just in terms of the VMM margin, I guess being at sort of the lower range contemplated, is that more of a temporary, I guess, issue as you sort of work through some of the regulatory changes, maybe some pricing on search, or is that something that would be contemplated perhaps on a longer-term basis? And then maybe just kind of a follow-up on the previous question. You talked about seeing strong performance from local agents also in the quarter, along with the recovery that's continuing. So just curious what you're seeing perhaps more specifically from local agents in the quarter. It's also contributing to strong performance. Thank you.
Joseph Sanborn: Sure. Thanks, Ralph. So in terms of the VMM margin, I touch on a couple things for you. Just to give -- remind folks of context, we started the year signaling that VMM margin would come down from last year as we had auto carrier recovery and it became a more competitive environment. Q1, we said we were going to come in a little under 30 points exactly where we landed. This quarter, we said would come in around 31%, which is where we've landed. We thought we'd come in -- that we'd be in that 30% to 31% for the year initially. And why we're moderating that is two-fold. One is we do view the advertisement as increasingly more competitive. We do think some of that is in part the environment of quickly returning growth and the monetization hasn't quite calibrated accordingly. So there is one dynamic there, and I think that is a big piece. But the second piece we would touch on is some of the work we're doing around preparations for FCC. We do believe that longer term, there is an opportunity to continue to build upon our VMM margin percentage that we've -- the low-30s and continue in building from there, in part reflecting the progress we're making on our bidding technology and things of those nature. We'll continue to be able to build our data advantage, which will be important in the long-term. In the near-term, we're cognizant of these two dynamics, the competitive advertising environment becoming even more so in the next -- near term. And second, overlaid with the impact of the FCC preparations we're doing for Q1.
Jayme Mendal: Yes. And then on the second question, Ralph, there's a handful of factors that are contributing to the strong performance of the agent business. I think the first is you're seeing the kind of beginnings of what amounts to a recovery from some of the agent-based carriers. So with that, we've seen changes made by the carriers with respect to their financial support for agents like subsidy programs and things like that, and kind of the incentive structure, the bonus plans they've got in place with the agents. So the carriers are at least in a targeted way beginning to sort of restore more emphasis on growth with their agents, and the agents are responding accordingly. Number two, like I said, we continue to work to enhance our product that's going out to the agents. So we've been making investments and continuing to be best-in-class from a quality standpoint. And I think that's being well received by the agent base. And into that, we've been able to execute very well, so that the teams have been selling into the agent population and servicing them well and driving growth as a result.
Ralph Schackart: Great. Thanks, Jayme. Thanks, Joseph.
Jayme Mendal: Thanks, Ralph.
Joseph Sanborn: Thank you, Ralph.
Operator: Your next question comes from the line of Michael Graham with Canaccord Genuity (TSX:CF). Please go ahead.
Michael Graham: Hi. Thanks a lot, and congrats on the momentum. I just wanted to ask about the visibility that you have into the second half as a whole. You mentioned that some carriers were back in action and you were still waiting on others. So I just would love to hear some context around how you feel about the visibility regarding your Q3 guidance and just how you feel the year might finish. And then I just wanted to ask -- sort of related to Jed's earlier question, I just wanted to ask about how you're thinking about EBITDA margins as revenue starts to accelerate. You had like really good incremental profitability with an 11% margin in the quarter, and you're guiding lower than that for the third quarter. So I just want to kind of understand how you're thinking about what the business might produce on the EBITDA side.
Jayme Mendal: Thanks. Thanks, Mike. So I'll start with the visibility into the back part of the year. I think we are -- as I mentioned earlier, underwriting profitability looks healthy and improving in auto. And thus far, I think the gains that we've made appear to be sustainable. We do see additional upside out in the future. And that upside, just to reiterate, comes specifically from a handful of carriers that have been sort of slow to recover, but who we do expect to join the recovery soon, and from states that are kind of lagging from a rate approval standpoint. We don't -- it's hard to say exactly when those things will come to pass. I think we're confident that as we turn the corner into 2025, we will certainly begin to see some of that happen. But between now and the end of the year, I think what we can say is we're comfortable with this sort of like level of recovery we've seen thus far, and that's factored into guidance. But we don't contemplate significant additional upside beyond that. Now, all that being said, right, we continue to operate with discipline like we've seen -- we've seen some unpredictability of these recoveries in the past. There's the unknown of cat losses. We are in hurricane season after all, right? So there are things that cause us to continue to operate with discipline. But in terms of the recovery, we're pretty solid on where we are right now and do expect some upside out in the future.
Joseph Sanborn: Maybe I'll add on to it as well. To give you a little sense of the back half of the year, more specifically in the numbers. So I guess first we see this dynamic where positive dynamics across auto carrier recovery. We see that continuing into 2025 as Jayme said, some larger states coming online and also carriers would have not had meaningfully return seeing that opportunity with those as well. I think the real question is on the exact timing and how this plays out. We talked about in our prepared remarks is a dynamic where we continue to have near-term uncertainty, and I think it reflects what we're dealing with the carriers, which is they're going back after a multi-year period of downturn. There's --they're going back and trying to figure out how they rebuild that growth muscle and how do they go about adapting to an environment where as they enter states, they may feel there's an opportunity and all of a sudden, other carriers come on very quickly and it changes the dynamic and they have to look at other states. So that's all part of the mix for us. And we think that near-term predictability will persist as we -- through the remainder of this year. And so, that certainly factors into our thinking. And again, we saw this in Q1. We started again in Q2, and they went both ways. There was a lot of favorable things that happened, particularly in the latter part of both Q1 and Q2, that allowed us to exceed our guidance. At the same time, there were some unfavorable things which we had to adapt to and work through. We noted those as well. As I look to Q4, I think the question a lot of folks are asking is what is our Q4 going to look like relative to Q3? So here is what we know, and again, we base our guidance on what we know at the time. We're not going to speculate, but we'll give you what we know. Some of the factors you might consider. So first, when you look at -- Jayme talked about the momentum going into the second half of the year, into next year, you feel good about that momentum. I think the real question is how does it play out specifically within the time periods? So first I would highlight that the normal -- when you think about what do we look at to guide to the Q4, we'd say what specific events do we know of significant states or things that will happen that will have materially moved marketplace positively and negatively. We don't have specific insight into anything we've not talked about, so what we know is reflecting in our guidance. Beyond that, we'd be speculating if more states would happen sooner or carriers may change their view. So we don't have a view there. If you look at seasonal patterns, we've talked about the challenges of using seasonality, given this auto recovery cycle. But that being said, it is something we do look at here internally as we try to analyze carriers in our business more broadly on the agent side as well. Generally, seasonality, Q3 to Q4 is down high single digits close to 10%. Since 2020, the average is right around there. And so, we do look at that. The other thing we would acknowledge is that when we think about the dynamics of this, we also would say the second half of the year has some impact on FCC preparations, which I've mentioned in my prepared remarks, and that will certainly -- those investments will continue into Q4. And the last is this dynamic around cat losses. And I want to sort of put some balance on this, which is carriers run -- have run their business for years thinking about how to factor in cat losses into their business and that continue -- carriers are doing that and will continue to do that well. I think the dynamic I would focus on is really if you look at the season we had in 2023, the storm season, which tends to run like mid-August to mid-November, was a very, relatively mild, very favorable carrier viewpoint, that gave confidence to a lot of carriers in late 2023 as they started thinking about their plan '24, it gave them some confidence. Fast that forward to now, some carriers are still sort of getting their comfort with the levels of underwriting profitability. We're cognizant that if the cat losses become more meaningful than a norm, it could make their confidence shaken a bit as they're thinking about their spend. So those are the dynamics we would think about sort of the puts and takes looking from Q3 to Q4, acknowledging it's an environment where there's a lot of reasons for options, but also continue to near-term uncertainty. And then second, in terms of EBITDA margins, maybe I'll give some context in this point. We started the year saying we were going to get back to pre-downturn margins. We thought we'd do that in the first half of the year. We did that in Q1. We actually went beyond. We said we'd stay in that 6% to 8% for the rest of the year. As we progress into Q2, we made some public comments saying we were at that 8% level. What we saw is in the second half of Q2, we had favorable performance that because of our tight operating leverage, flowed through the bottom line and we ended up at 11%. You look at our guide for Q3, the midpoint of our guide is the same as Q2. It's 11%. So, we're expecting sort of flat margins going into Q2, some interesting modest incremental investment, but also some tightening on the VMM margin, which is reflected. And as we look to Q4, we're still expecting sort of out or near that 11%, give or take. The way I look at Q4 is if it's sequentially down from Q3, it will manage expenses carefully to sort of still land within that add or near that level. If we should have a strong, such as AR, everything I just discussed is -- doesn't work out to sequentially down. It becomes favorable, as Q3 was. That would be a dynamic where you might have a chance for over-performance, particularly if it happens late on the quarter, just like we've had in Q1 and Q2. As we look to next year, 2025, what I would just remind you is what we've said previously, which is we want to continue to have improvements in EBITDA margins. Our long-term goal is 20-plus percent. Our thought in Q2, when we last commented on this is that you'd be in that 8-ish percent, give or take, for the rest of the year. We get to double digits, low double digits in 2025. We're obviously there early now, and we're pleased by that. I think it reflects the strong performance, but also the operating leverage we've embedded in the model that we're now benefiting as it flows to the bottom line. And with -- and so that, I guess, is the color I can give you for the rest of this year. Again, long-term goal still being 20-plus percent.
Michael Graham: That's really helpful. Thanks a lot, Joseph and Jayme. Thank you.
Joseph Sanborn: Thank you, Mike.
Operator: Your next question comes from the line of Zach Cummins (NYSE:CMI) with B. Riley Securities. Please go ahead.
Zach Cummins: Hi. Good afternoon. Congrats on the quarter, and thanks for taking my questions. So first question for me is just in terms of carriers that haven't ramped up spend yet, I mean, do you get any sort of feedback as to why they haven't at least started to dip their toe in, in terms of renewing some of these budgets and kind of their expectation of a timeline to when they'll start to be more meaningfully involved in trying to acquire new customers? And then my follow-up question is away from the automotive side, just curious, what's driving the pretty strong performance we're seeing in the home and renters insurance business and expectations we should be modeling in for that moving forward?
Jayme Mendal: Sure. Thanks, Zach. So with respect to the carriers that have yet to reactivate or yet to sort of ramp, it's typically one or two reasons. Reason number one is just underwriting health. They haven't quite gotten to a place where they're comfortable sort of throttling spend up yet. And number two is actually like staffing and resourcing. So there's at least one major carrier that really kind of took down their staffing levels in their marketing department and are sort of left in a position where they need to actually hire back in before they're able to manage the amount of spend that moves through our channel. So I would say the former is the more common reason that we've heard. But interestingly enough, it's not the only reason. And the expectation, just given the trend line of underwriting and obviously the staffing piece can be solved for, is that these issues get resolved probably between now and the end of the year. But again, we don't know exactly when. And so therefore, it's hard for us to factor that into any guidance we provided.
Joseph Sanborn: Maybe the one piece I'd add before on home is if you think about the carriers as they went into the downturn, some carriers went into the downturn much faster than others. They pulled back quickly on spend try to readjust pricing. What you've seen with some of our carriers that they were, they delayed going into pulling back spend. And as a result, it's taking them longer to work through repricing their book. And that's reflective in our agency side.
Zach Cummins: Yes.
Jayme Mendal: And then on the home vertical, I mean, we had another record quarter for revenue for VMM in home, and that's with a backdrop of a homeowners market that's still struggling pretty mightily. So if you just look at like the cat losses in Q2, they were elevated quite a bit. And so home, the lack of health -- underwriting health in home was on full display in the carrier's Q2 results. And yet we've been able to just continue to grow it through solid execution. So, I think the expectation going forward on home is we feel like we're sort of well positioned. We've got a good handle on that marketplace at this point. And as the market recovers, we should be in a good position to ride that recovery. But we need to see the carriers kind of sort out their home underwriting before we would expect meaningful upside from here, and we expect they will. It was just kind of the second priority relative to auto. And so, we're starting to see the carriers get around to kind of putting more focus on home, but that will likely take some time to work itself through.
Zach Cummins: Got it. Well, thanks for taking my questions and best of luck with the rest of the quarter.
Jayme Mendal: Thank you, Zach.
Operator: Your next question comes from the line of Greg Peters with Raymond James. Please go ahead.
Unidentified Analyst: Hey, good afternoon. This is [Sid] (ph">InvestingPro on for Greg. Just based on your results year-to-date and your guidance. Curious if you can comment if it's correct to believe you're gaining wallet share of the carriers who have increased their growth appetite, or are you seeing an increase in willingness to spend on your platform when compared to the pre-downturn?
Jayme Mendal: Yes. I mean, we're certainly seeing a willingness to increase spend. I think, look, we are a leading digital P&C insurance marketplace. Right now, we're in a period where there's a lot of change. It's happening quickly where I think many of us are riding that wave of growth and we believe we're executing really well in it. We made a decision last year to go deep in P&C to really focus there, to go deeper with carriers, deeper with agents. We're focused on quality, sustainability of that growth. And so, we feel really good about our market position long-term. I think one month to the next, one quarter to the next, it's a little hard to measure. Some of the data we do get back from carriers, though, from some of our biggest carrier partners would suggest that we have gained share in the recent past.
Unidentified Analyst: Okay, thank you.
Jayme Mendal: Thanks, Sid.
Operator: Your next question comes from the line of Jason Kreyer with Craig-Hallum. Please go ahead.
Jason Kreyer: Great. Thank you. You mentioned a few times on just the variability on the recovery in some states. Curious if you can give an updated perspective on some of those larger states, where rate adequacy has been challenged. And have you have any perspective on when that starts to straighten out?
Joseph Sanborn: Yes, the biggest state, I mean, the states that tend to be challenged, just California, New York, New Jersey, Michigan, to an extent. The biggest one of those is California. And all the intel we get from carriers would suggest that they're expecting getting back to adequate rates in 2025. So, we have yet to hear from any of the major carriers that they expect a significant kind of breakthrough in rate approvals between now and the end of the year. New York would be the other one that's maybe noteworthy. We're starting to see some movement in New York, at least in parts of the state, so that one could happen sooner or it's beginning to happen maybe a little bit sooner. I think California will probably be the last shoe to drop and that one is likely to be in 2025.
Jason Kreyer: Thank you. And then you kind of gave an indication that as you move from Q1 to Q2, the recovery became a little bit more broad-based across carriers. Just curious, any more details on that? Like looking across your carrier partners, what is the mix of those that are in the midst of a pretty robust recovery versus those that are still kind of waiting in early stages of recovery?
Jayme Mendal: Yes, it's an interesting question. I mean, if you kind of benchmark against historical levels of spend, I would say the majority of carriers are still in the early to mid-stages of a recovery. There is obviously one major carrier that we would characterize as being in later stages of recovery, but most I would characterize as being earlier to mid stages.
Jason Kreyer: Got it. Thank you.
Jayme Mendal: Thanks, Jason.
Operator: Your next question comes from the line of Mayank Tandon with Needham & Company. Please go ahead.
Mayank Tandon: Thank you. Good evening, Jayme and Joseph. Jayme, can you share any insights into the buying rates or conversion rates or the ROI on the marketing spend by carriers, which -- how has that changed over time? Has that gone up enticing them to come back to you for even more spend? I'm just trying to get a sense of sort of the share shift in the market versus your competition?
Jayme Mendal: Yes, I mean, so the bind rate of our traffic is obviously something we invest a lot of time and attention into and into improving. We believe we have like a real data advantage when it comes to this. As one of the largest marketplaces out there, we process just a vast amount of data through the funnel and we get a lot of feedback from our carriers with respect to the performance of every click or lead that we're sending them. And that is really the foundation for a lot of the data science and AI work that we focus on. So where we are sort of actively managing, we see meaningful improvements in conversion rate. And I said earlier, we have placed an outsized emphasis of late on quality and performance. We think there's really an opportunity to continue to differentiate through the quality of our traffic. So, we're continuing to focus there. And I think that the investments we're making in our data, in our analytics, and some of the technology that we've been rolling out for traffic bidding and for sort of provider bidding services will all contribute to continuing to improve our relative buying rate.
Mayank Tandon: Got it. That's helpful. And then also just maybe a longer-term question. When you think about the spend overall, do you think over time it's going to be more driven by new carriers coming onto your platform? Or do you think it'll really be a function of the current carriers? And I know you have many of the big ones already on your platform, increasing their marketing spend over time, because as you said earlier, you have that advantage in the market with your data analytics. So just trying to get a sense of growth from existing clients, increasing their spend, versus new logos coming onto the platform.
Jayme Mendal: Yes. It's a great question. I mean, I think the answer is it's likely going to be a bit of both. We believe like very strongly in this secular tailwind of marketing budgets and spend flowing from more upper funnel harder to measure channels into more lower funnel easier to measure channels, because you can get more performance out of a channel like ours than you can out of just about any other channel. The reason for that is we collect all the consumer attributes that are relevant for insurance underwriting. And so, the sophisticated advertiser can target with much more precision in our channel than they can anywhere else. That drives outsized ROI, and I think that's why you see dollars moving from other channels into ours at a steady rate over time. And so for the, we'll call it the existing customer base, we expect that trend to continue and we expect to get a disproportionate share of that by continuing to help our providers optimize through the data, throughout the technology, through everything that we've been talking about. At the same time, over the last five to 10 years, we continue to see sort of a new breed of digital native, we'll call it, insurance companies coming into the fray. And typically, the way this starts is it'll be a carrier or somebody that leaves an established insurance carrier, because they've identified some gap in the market, and they spin up an insurance product and they sort of start digital first because, again, digital allows them to target for the very precise type of risk they're looking for, and then they're able to grow from there. And some of our -- actually, some of our largest spenders in the marketplace are not the legacy insurance carriers, but some of these companies that have probably been around for less than 10 years. And so, we would expect that trend to continue to proliferate. And I do think that over the next 10 years, we'll probably see a vast increase in the amount of spend coming from these digital-native carriers, some of whom probably haven't even seen the light of day yet because the ability to sort of target for insurance risk in this channel is superior than it is anywhere else. And I think there's just a tremendous opportunity to create efficiency in the insurance market for people who understand that and know how to build an insurance company into it.
Mayank Tandon: That's great color. Thank you so much. Congrats on the quarter.
Operator: And that concludes our question-and-answer session. I will now turn the conference back over to management for closing remarks.
Jayme Mendal: All right. Well, thank you all for joining us today. To close, I'd just like to take a moment to really zoom out and reemphasize how well our team's been executing our plan since last summer's realignment. Over the last year, we've achieved a remarkable turnaround in financial performance. This began with streamlining with refocusing around the core of our business. That's our digital P&C marketplace. It's an area where EverQuote has built a significant competitive moat. It's fueled by our data, by our technology, and through the strength of our distribution and our customer acquisition platforms. And so now, as a direct result of these efforts, we find ourselves just really well positioned to reap the benefits of the ongoing market recovery, which is resulting in financial performance that is exceeding expectations across all metrics, and notably in record levels of profitability, record levels of cash flow. So, we look forward to continuing to lean into this -- to this renewed focus against the backdrop of an improving insurance market as we enter the back half of the year and begin looking ahead to 2025. Thanks again.
Operator: And this concludes today's conference call. Thank you for your participation, and you may now disconnect.
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