Yahoo Finance EverQuote, Inc. (NASDAQ:EVER) Q3 2023 Earnings Call Transcript
EverQuote, Inc. (NASDAQ:EVER) Q3 2023 Earnings Call Transcript November 6, 2023
EverQuote, Inc. misses on earnings expectations. Reported EPS is $-0.87088 EPS, expectations were $-0.72.
Operator: Good afternoon. My name is Briana, and I will be your conference operator today. At this time, I’d like to welcome you to the EverQuote Third Quarter 2023 Earnings Call. Please note that this call is being recorded. All participants are in listen-only mode as this time. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Brinlea Johnson, Investor Relations. Please go ahead.
Brinlea Johnson: Thank you. Good afternoon. And welcome to EverQuote’s third quarter 2023 earnings call. We will 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 fourth quarter 2023, our growth strategy and our plans to execute on our growth strategy, key initiatives, including our direct-to-consumer agency, 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 risks 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 will turn it over to Jayme.
Jayme Mendal: Thank you, Brinlea, and thank you all for joining us today. Q3 was a solid quarter. It followed our June restructuring, which streamlined our operation around its most capital efficient and high ROI parts. In doing so, we restored a greater focus on our most differentiated assets so we can accelerate the rate at which we deliver deeper value to our customers. These assets include our P&C insurance shopping traffic, scale and technology, our local agent network and our proprietary data and associated data science and machine learning capabilities. The actions we took yielded strong performance this quarter relative to guidance. In the third quarter, EverQuote delivered revenue of $55 million, variable marketing margin or VMM, of $19.4 million and adjusted EBITDA of negative $1.9 million.
In the auto insurance marketplace, most direct carrier budgets remain stable and are expected to remain so through the end of the year. However, agent-based carriers continue drawing down marketing support for agents as part of their efforts to slow the rate at which agents are writing new business, particularly in profit challenged geographies. In fact, one major carrier has entirely removed subsidy support through at least the end of the year. As we work through this challenging market, our streamlined cost structure, strengthened balance sheet and proven resilience of the team, give us high confidence that we will be well positioned for the eventual recovery. With each new challenge, our team has found ways to respond. As carrier monetization declined, we rolled out new bidding technologies to more effectively and nimbly manage ad spend to boost VMM efficiency.
As certain segments of agents have lost carrier subsea support, we have offset the impact by growing demand from other agent segments, and as our auto vertical experience challenges, we drove growth in our home and renters vertical. EverQuote’s vision remains unchanged to become the largest online source of insurance policies using data, technology and knowledgeable advisers to make insurance simpler, more affordable and more personalized. To bring this vision to fruition requires continued adaptability and resilience, attributes the EverQuote team has demonstrated in space, most recently through progress made in Q3. Despite continued volatility in the auto insurance market, we plan to restore a pattern of consistent cash generation and driving towards profitability in 2024.
I am confident that our streamlined operation and the proven strength of our team and business model will enable us to emerge with incredible success when the market recovers. Now I will turn the call over to Joseph to review our financial results.
Joseph Sanborn: Thank you, Jayme, and thank you all for joining. I will start by discussing our financial results for the third quarter before providing guidance for the fourth quarter. As a reminder, EverQuote announced the exit of our health insurance vertical in late June and subsequent sale of associated assets within the vertical in August. Our total revenue for the third quarter was $55 million, which was towards the top end of our guidance range for the quarter. Importantly, we delivered variable marketing margin or VMM and adjusted EBITDA that exceeded the high end of our guidance as our operating teams continue to execute well in a deeply challenging environment. Third quarter revenue for our auto insurance vertical was $43.1 million, as we continue to experience substantially weakened demand from our insurance carrier customers.
Our third-party or local agent network was more resilient, representing 58% of total revenues in Q3, but it also declined year-over-year, primarily driven by our largest carrier partner reducing their agent subsidies within the quarter. This customer also notified us in October that it was discontinuing payment of subsidies to us to at least the end of 2023. We exited the quarter with auto revenue at a new low point since the auto insurance industry downturn began in late 2021. As a result, we do not expect the auto insurance recovery to begin until 2024. Revenue from our non-auto insurance verticals was $11.9 million in the third quarter and represented 22% of revenue. Beginning in our reporting for Q3 as a result of our exit from health, we are reporting on two primary verticals from a revenue perspective, auto insurance and home insurance, which includes renters.
In Q3, revenue in the home and renters’ insurance vertical was $10.7 million, a year-over-year increase of 51%, highlighting what management focus can achieve in a less troubled market segment. VMM was $19.4 million for the third quarter, above our guidance range. VMM as a percentage of revenue was a near record high of 35.2% for the quarter, following a record high in Q2, driven by three primary factors. First, our traffic teams continue to achieve lower customer acquisition costs in a volatile environment, in part by being more selective in the types of consumers we target to bring into our marketplace. Second, our significant investments in developing proprietary technology and processes to better leverage our data to acquire high performing consumers are yielding results.
And third, we benefited from a shift in revenue mix towards our local agent network, which in the past has yielded a higher VMM percentage. This is further evidence that our strategic focus and realignment is generating results. Turning to the bottomline. We continue to be very disciplined in managing costs and controlling what we can control. In the third quarter, GAAP net loss included a significant non-cash charge of $19.4 million related to the sale of assets of our former health insurance vertical in August and increased to a loss of $29.2 million. As previously announced on August 7, we sold assets of our former health insurance vertical to MyPlan Advocate for approximately $13.2 million, subject to customary post-closing adjustments.
The transaction closed on August 1st. Included in the sales were commissions receivable of $30.8 million, which was expected to be collected over the next seven quarters, along with other assets and liabilities. Adjusted EBITDA improved relative to the second quarter to negative $1.9 million and was more favorable than our previously announced guidance range. This was a result of over performance in VMM and reduced operating expenses within the quarter, which drove an incremental $2 million in annualized savings. This is in addition to the nearly $20 million in annualized operating expense reduction that we achieved in the second quarter, following our June workforce reduction of approximately 30% and exit from the health insurance vertical.
We had operating cash flow of negative $4.1 million for the third quarter. This includes $1.8 million in severance payments related to the June workforce reductions, which were paid in early Q3, although accrued for accounting purposes in Q2 and less favorable timing of working capital. With the exit from the health insurance vertical and the scale down of our remaining DTCA, which again requires significant upfront cash investment to drive growth, we expect that our adjusted EBITDA will be a close proxy for operating cash flow within any quarter going forward, subject to the normal working capital adjustments. The company ended the quarter with $39 million in cash and cash equivalents, up approximately 26% from $31 million at the end of the second quarter of 2023.
In addition, we have a $25 million undrawn working capital line of credit with Western Alliance Bank, which is available until July 2025. We have no plans to draw on the facility and have no other debt outstanding. Turning to our outlook, including an update on the market conditions in the auto insurance industry. Ultimately, we remain confident that auto insurance increases will improve financial performance for auto insurance carriers, and consequently, will cause them to seek to acquire new customers for growth. But the timing of this improvement continues to be delayed, and therefore, impacts our guidance for Q4. For Q4, we expect revenue to be between $47 million and $52 million. We expect VMM in the quarter to be between $16.5 million and $18.5 million.
And we expect adjusted EBITDA to be between negative $2.5 million and negative $4.5 million. Turning to industry trends. There have been encouraging signs from some carriers that they are making meaningful progress in achieving their desired levels of profitability. As carriers return to acquiring new consumers, we believe that their appetite for growth will vary considerably by consumer profile and geography, based on where they have achieved sufficient rate adequacy. As such, we believe that digital leaders like EverQuote will benefit, given the better ability of our channel to more specifically target a desired consumer profile compared to most other forms of media. We recognize, however, that several insurance providers are still struggling financially and then macroeconomic headwinds are likely to continue to delay some of these carries from regaining their desired levels of profitability for several quarters.
As such, we believe that the exact timing and slope of auto recovery for the coming year remains uncertain. In summary, we delivered solid performance within the third quarter given the environment, achieving revenue at the high end of our guidance range and exceeding our guidance for VMM and adjusted EBITDA. Our operating teams are executing well, but we remain in a volatile and challenging environment. We have continued to focus on what we can control by taking decisive actions to judiciously manage expenses and build our balance sheet. We have strong conviction that EverQuote will be well positioned to directly benefit from the eventual normalization of auto insurance carrier demand. Jayme and I will now answer your questions.
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