EverQuote, Inc. (NASDAQ:EVER) Q1 2024 Earnings Call Transcript May 6, 2024
EverQuote, Inc. beats earnings expectations. Reported EPS is $0.05356, expectations were $-0.07. EVER isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the EverQuote First Quarter 2024 Earnings Call. 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 would now like to turn the call over to Brinlea Johnson, Investor Relations. Please go ahead.
Brinlea Johnson: Thank you. Good afternoon and welcome to EverQuote’s first quarter 2024 earnings call. We’ll be discussing the results announced in our press release issued today after the market closed. With me on the call this afternoon is Jayme Mendal, EverQuote’s Chief Executive Officer; and Joseph Sanborn, Chief Financial Officer of EverQuote. During the call, we will make statements related to our business that may be considered forward-looking statements under federal securities laws, including statements concerning our financial guidance for the second quarter of 2024, our growth strategy and our plans to execute on our growth strategy, key initiatives, our investments in the business, the growth levers we expect to drive our business, our ability to maintain existing and acquire new customers, our expectations regarding recovery of the auto insurance industry, and other statements regarding our plans and prospects.
Forward-looking statements may be identified with words and phrases such as we expect, we believe, we intend, we anticipate, we plan, may, upcoming, and similar words and phrases. These statements reflect our views only as of today and should not be considered our views as of any subsequent date. We specifically disclaim any obligation to update or revise these forward-looking statements, except as required by law. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risk and other important factors that could cause the 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 investor.everquote.com and on the SEC’s website at sec.gov.
Finally, during the course of today’s call, we will refer to certain non-GAAP financial measures, which we believe are helpful to investors. A reconciliation of GAAP to non-GAAP measures was included in the press release we issued after the close of market today, which is available on the Investor Relations section of our website at investors.everquote.com. And with that, I’ll turn it over to Jayme.
Jayme Mendal: Thank you, Brinlea, and thank you all for joining us today. 2024 is off to a strong start. In the first quarter, operating results exceeded the high end of our guidance range for revenue, variable marketing margin, and adjusted EBITDA. We achieved record levels of net income, adjusted EBITDA, and operating cash flow. These results were made possible by the actions we took in 2023 to strategically realign the business and return to our roots as a capital efficient digital insurance marketplace. Since the middle of last year, we have observed auto insurance carrier underwriting profitability steadily improving. With this trend persisting into 2024, carriers have continued to reactivate campaigns, restore budgets, and reopen their state footprints in our marketplace.
Actions and messaging from carriers indicate that the majority are either starting to or planning to restore greater emphasis on growth. Given the year’s long volatility in the auto insurance market, we maintain caution while noting that we believe a sustainable auto recovery is in fact underway. Against an improving industry backdrop, our team continues to execute effectively, as evidenced by our bottom line performance. Alongside sequential growth and carrier revenue, we had strong growth in agent revenue compared to the fourth quarter. And as provider budgets increased, our performance marketing agent continued to optimize in real-time, driving volume and variable marketing margin growth. The progress extended into our home vertical as well, as we achieved record home revenue in the first quarter.
Q1 also marks numerous milestones in rebuilding technology infrastructure for future speed and scale. We moved most of our traffic to a new site infrastructure, began migrating customers to a new agent platform, and now have the majority of our traffic bidding migrated to our new ML-powered bidding platform. These changes will enable faster feature development and greater employee productivity in the future. More importantly, this sets us up to accelerate progress in areas ranging from site experiences to AI-powered bidding, to new agents’ products and features. I want to thank the EverQuote team for the incredible tenacity they demonstrated and continue to demonstrate through the recent hard market cycle. This period of unprecedented market conditions dating back to 2021 has been an extended challenging stretch for EverQuote, but we are emerging stronger.
The team which has led us through this challenging period is battle-hardened and energized by the results we’re beginning to see. It’s this team which gives me confidence in EverQuote’s pursuit and eventual achievement of our vision to become the largest online source of insurance policies by using data, technology, and knowledgeable advisors to make insurance simpler, more affordable, and personalized. 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 first quarter of 2024 before providing an update on what we are currently seeing in the auto insurance sector and our guidance for the second quarter. We had a strong start to 2024 and exceeded first quarter guidance across all three of our primary financial metrics of total revenue, variable marketing margin or VMM and adjusted EBITDA. We produced a record level of net income as well as a record level of adjusted EBITDA. These results were driven by continued strong execution of our operating teams against an improving auto carrier landscape. Total revenues in the first quarter were $91.1 million, driven by stronger enterprise carrier spend of more than 150% from Q4 levels.
Revenue from our auto insurance vertical was $77.5 million in Q1, representing roughly 85% of revenues in the period and a sequential increase of 72% from the fourth quarter of 2023. Revenue from our home and renters insurance vertical was $12.7 million in Q1, a sequential increase of 29% from the fourth quarter of 2023. VMM was $30.8 million for the first quarter, up nearly 50% from the fourth quarter of 2023. The VMM as a percentage of revenues in the quarter was 33.8% and as expected declined from the record level of the previous quarter as we experienced a more costly advertising environment which was partially offset by continued strong execution by our traffic teams and the ongoing benefits of our investments and our bidding technology.
Turning to operating expenses and the bottom line. We continue to be very disciplined in managing expenses and driving incremental efficiency across our operations. Our efforts to streamline the business have led to improved execution and greater operating leverage. Cash operating expenses which exclude certain noncash and other one-time charges were in line with expectations of $23.2 million in the first quarter or 23% decline from the first quarter of 2023. In the first quarter, we reached a milestone of generating positive GAAP net income for the first time since the third quarter of 2019, reporting a record high of $1.9 million. Adjusted EBITDA reached a record $7.6 million in Q1, a 41% improvement year-over-year on 17% lower revenues, reflecting the strong operating leverage that we have created in our model since our June 2023 strategic realignment.
Adjusted EBITDA, as a percentage of revenues, reached 8.3% in the quarter, as the rapid increase in auto carrier recovery in Q1, coupled with our tight expense discipline led to VMD overperformance flowing through to Adjusted EBITDA. We remain steadfast in our commitment to efficient operations, and as we gain greater confidence in the sustainability of the recovery, we expect to modestly increase investment to support our future growth. As a result, as we progress through the second half of this year, adjusted EBITDA margins are likely to moderate but remain above pre-downturn levels. We delivered operating cash flow of $10.4 million for the first quarter, ending the period with cash and cash equivalents of $48.6 million, up from $38 million at the end of the fourth quarter of 2023.
Adjusted EBITDA will continue to be a close proxy for operating cash flow going forward subject to normal working capital adjustments. Before turning to guidance, I want to provide an update on what we are seeing in the auto insurance industry this year. During our February call, we’ve shared that many of our carrier partners have recently reiterated their prior comments to us of wanting to return to acquiring new consumers during the course of 2024. We are pleased to see this more growth-oriented mindset has taken hold, which has led to a strong start for the year with more auto insurers beginning to return to our marketplace. We are increasingly optimistic that auto recovery will be more sustainable this time around. However, we are cognizant that there is no playbook for how our carrier partners will emerge from what several insurance executives have referred to as a once in a generation downturn.
Given these dynamics, we expect unpredictability to persist in the near term, which makes it increasingly challenging to look at historical seasonal patterns to predict our outlook for the remainder of the year. We continue to execute on the strategy and accomplish the goals we laid out last year following our June strategic realignment. We committed to restoring consistent quarterly cash flow from operations in the first half of the year, followed by our return to our pre-downturn adjusted EBITDA margins in 2024. I am pleased to share that we achieved both of these goals within the first quarter ahead of our expectations. Furthermore, we expect our operations to continue to generate cash flow and quarterly adjusted EBITDA margins to remain at or above pre-downturn levels for the remainder of this year.
Turning to our guidance, for Q2 2024, we expect revenue to be between $100 million and $105 million. We expect VMM to be between $31 million and $33 million, and we expect adjusted EBITDA to be between $7 million and $9 million. In summary, we entered 2024 with deep conviction that EverQuote is extremely well-positioned to directly benefit as sustainable auto carrier recovery takes hold and persists. We delivered strong performance in the first quarter like senior guidance thrust, revenue, VMM, and adjusted EBITDA. Our ability to achieve record levels of net income and adjusted EBITDA in the first quarter demonstrate our efficient business model. We will continue to focus on strong execution and remain steadfast in our commitment to efficiency while strategically investing and positioning EverQuote for future growth and success.
Jayme and I will now answer your questions.
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