Good day and thank you for standing by. Welcome to the EverQuote Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advise that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Brinlea Johnson of The Blueshirt Group. Please go ahead.

Thank you. Good afternoon. And welcome to EverQuote’s third quarter 2021 earnings call. We will be discussing the results announcing our press release issued today after the market close. With me on the call this afternoon is Jayme Mendal, EverQuote’s Chief Executive Officer; and John Wagner, Chief Financial Officer of EverQuote. During the call we will make statements related to our business that may be considered forward-looking statements under the federal securities law, including statements concerning our financial guidance for the fourth quarter and full year 2021, 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, the impact of COVID on our business and the insurance industry, our ability to maintain existing and acquire new customers, our recent and planned acquisitions and interest or ability to acquire other companies, our goals for integrations 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 affect our actual results, please refer those contained under the heading Risk Factors in our most recent quarterly report on Form 10-Q and our annual report on Form 10-K, which 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 refer to certain non-GAAP financial measures, which we believe are helpful to investors. A reconciliation of GAAP to non-GAAP measures is included in the press release 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.

Thank you, Brinlea, and thank you everyone for joining us today. On October 18th, we announced preliminary results for our third quarter and address current challenges in the auto insurance market. Several key carrier customers experienced higher than expected claims losses resulting in a sudden pullback in our marketing spend in the second half of the quarter, as they attempted to restore their target levels of profitability. Based on carrier feedback, higher than expected claims losses were primarily attributable to a higher loss severity or cost per claim driven by two factors. First, vehicle replacement value and cost of vehicle repair rose significantly, stemming from supply chain and labor shortages. Second, liability or medical costs increased due to a larger than expected number of accidents with serious injuries or fatalities, as well as overall medical inflation. In addition, claims associated with extreme weather including Hurricane Ida placed further strains on carrier profitability. We believe these industry dynamics are isolated to our auto insurance vertical temporary in nature and will correct in the coming quarters, as carriers adjust their pricing to a new underwriting environment before restoring higher levels of customer acquisition spend. During our decade serving auto carriers we have seen similar challenges from which EverQuote has reaccelerated growth following a period of pricing correction by the carriers. In an effort to align our cost structure to the current auto insurance environment, we implemented an approximate 10% structural reduction and non-marketing operating expenses excluding non-cash items. As part of reducing operating expenses we did an extensive review of our business, which resulted in making organizational changes to consolidate leadership and streamline decision-making, which we believe will better position EverQuote for strong growth when the auto insurance industry rebounds. We remain steadfast in building toward our long-term vision of becoming the…

Thank you, Jayme, and good afternoon, everyone. I will start by discussing our financial results for the third quarter and conclude with guidance for the fourth quarter, and our updated guidance for the full year. Our revenue for the quarter was $107.6 million, an increase of 20% year-over-year. Revenue in our auto insurance vertical increased to $89.7 million, a growth rate of 20% year-over-year. Revenue from our other insurance verticals, which includes home and renters, life, health and commercial insurance increased to $17.9 million. Our growth rate of 18% year-over-year representing 17% of revenue within the quarter. Our revenue growth in the third quarter was driven by a 21% increase in the volume of quote request in our marketplace, offset by a 1% year-over-year reduction in revenue per quote request. As Jayme outlined, the performance of our auto insurance vertical in the third quarter was impacted by some carriers reducing their marketing spend in an effort to manage to their profitability targets given a sudden spike in their claims losses. Though increases in claims frequency were largely anticipated by carriers as miles driven have continued to approach pre-pandemic levels. Claims severity was significantly greater than expected. This led certain carriers to abruptly and dramatically reduce their advertising spend in our marketplace late in the quarter and in a manner that we had not anticipated. This pullback in demand directly impacted our marketplace monetization through lower revenue per quote request. We believe these higher claims losses will continue to impact carriers’ profitability in the near-term, which in turn impact their willingness to spend on marketing and new consumer acquisition. Having begun in Q3, the full extent of reduced carrier spend will impact us in Q4 and it is likely to take multiple quarters for auto insurance carriers to fully re-price their…

[Operator Instructions] Your first response is from Michael Graham of Canaccord. Please go ahead.

Thanks a lot. Hey, guys and thanks for all the other information and the color. I just wanted to ask a little bit more about the, what you see as the potential duration of some of the softness in auto? I remember at the time of your IPO you were just sort of coming off of a flat year with similar circumstances, claims going up and margins compressing and I believe it took a couple of quarters after that at that time? Just wondering if you could maybe put a little more color around sort of the timing you expect to see unfold here and maybe if I could just add on to that you have got sort of a standard growth ambition of around 20% per year. Just wondering how you are thinking about that as we finish up this year and head into next?

Hey, Mike. Thanks for the question. This is Jayme. So we have a couple of data points to draw on in terms of the expectations around timing and duration, obviously, we don’t have perfect information. But the first thing we can draw on is historical experience. I think you are right, it was around 2016 into 2017 last time experienced something like this and then the second data point is just the feedback we are getting from carriers. And so the playbook that they deploy is the drawdown marketing spend to solve for two things really, the first is in-period profitability, the in-quarter or in-your profitability, and the second is, to stop acquiring policyholders they now know to be unprofitable. Step two, to address that second piece is the carriers will re-file their rates with the state departments of insurance and that’s a process that will take several months. And then once they feel good about the rates they will reengage and resume to sort of normalized levels of marketing spend. So that’s what we saw in the previous time we went through this. That’s what you expect to see happen this time, that’s the guidance we have been given by carriers. In terms of how long we expect it to persist? The best information we have right now suggests that we will find a trough. We will find a bottom in Q4, likely to see a step-up in Q1 and then somewhat gradual recovery over the course of next year. And I think different carriers sort of were affected in different ways and we will respond with different approaches or at least levels of speed. That’s been our experience. So we would expect to see somewhat of a phased-in approach over the course of next year, ultimately having us exit next year back to normalized levels of spend.

And then, Michael, I would just add to that with regard to the second part of your question, that also implies that we would exit next year back on our long-term growth model, right? Our long-term growth model is still an appropriate, long-term growth model to use, obviously, what we are seeing in this next number of quarters is something that is tied to the industry and tied to some of the macro trends for the industry. But we are confident that we will emerge into 2023 back on our long-term model of growth and profitability growth.

Okay. Sounds good. Thanks, Jayme. Thanks, John.

Thanks, Mike.

Thank you. Your next response is from Ralph Schackart with William Blair. Please go ahead.

Good afternoon. Thanks for taking the question. I guess, Jayme, kind of circling back off of Michael’s question. I know you have seen these changes before particularly at the IPO and then you did correct. But I guess what similar with what we are seeing today versus last cycle, which a big last cycle related to more technology in cars and pushing up claims costs, but then you also have some added cross currents here with supply chain issues, and then, I guess, people go back to watch and just love your perspective on some of compare contrast?

Yeah. Thanks, Ralph. So there are -- there is a confluence of factors that are occurring this time, which are distinctive, right? They are different --the underlying drivers are different than the last time around. So one difference is the fact that it’s -- the carriers have another rep under their belts, right? And I think are better positioned this time to react -- to respond quickly, having learned some lessons from the last time this occurred and we are hearing some of that. The second is just the underlying drivers. So in this case, you have got this confluence of events. Number one, being miles driven coming back to almost pre-COVID levels, I think we are at 96% of pre-2019 levels of miles driven and so accident frequency is going up as a result. What we hear from the carriers, this was largely anticipated, right, and so perhaps not a driving factor relative to your expectations. But number two is, increases in levels of severity and this was not completely expected. So they are seeing more serious accidents, right, and more bodily injury expenses associated with that. And they are seeing, as you mentioned, supply chain shortages, labor shortages, which are making the cost of repairing and replacing vehicles more expensive. And then you layer on top of that, Hurricane Ida came through, again, not an unexpected events for a hurricane to Atlanta and Louisiana. But for that hurricane to proceed and flood good chunk of the Northeastern United States wasn’t expected, right? And so it is higher frequency, plus higher severity, plus catastrophe, all coming together at the same time, some of which was unexpected, which is making this a particularly sort of sudden shock to the system. But back to my first point, I do think the carriers this time around are at least better prepared, right? The playbooks are pretty well understood at this point and so they go through the motions and they will all -- we anticipate they emerge kind of back to where we started once rates have been normalized.

That’s helpful perspective. Just maybe one more clarifying question, I guess, just in terms of what’s driving the claims severity, maybe if you could flesh that out a little bit. Is that something that has, I guess, continued through, I guess, Q4 or what would sort of, I guess, slow down or mirror so to speak or neutralize the severity part of what’s going on?

Well, the -- again, the two factors driving the severity up are more serious accidents and so greater bodily injury expenses and healthcare costs associated with that. And then number two, is the supply chain and labor shortages. Now when the carriers address those issues, they -- it can be addressed in one of two ways. One is a sort of resolve themselves, as I think, you are sort of inquiring about. Number two is they just update pricing to reflect what is now a new normal and I think it is that the latter tack that they are taking there, assuming that this is a new normal and they are revising pricing to reflect that. Over time, one could certainly see at least the supply chain shortage and labor shortages resolving and who knows that could lead to a period of time where the carriers experience higher levels of profitability. But right now as far as we can tell, they are really just focused on correcting pricing in response to what has emerged as a new normal.

Okay. That’s helpful. Thank you, Jayme.

Thank you. Your next response is from Jed Kelly of Oppenheimer. Please go ahead.

Great. Thanks for taking my question. Just on the marketing recovery, we still see a lot of insurance TV commercials. So when the carriers are bringing back their marketing spend, how does it work with the branded channels like television relative to the affiliate marketplaces like yourself?

Hi, Jed. I will take that one. So, I guess, we think that all marketing spend for the carriers will be affected. Clearly, there is a difference in terms of commitments and lead times on certain types of spend. So we think we felt this as soon as the carriers did and as soon as the carriers made the decision to calibrate their models toward trying to reach those profitability goals. So I think that’s sudden for us. I think over time as some of those commitments to mass media roll through, that’s when other advertising sources will see reductions and that’s also might be a little bit of a tailwind for us going into 2022 in terms of carrier demand. So I think we are -- the carriers are faster to react with a marketplace like ours and then, but over the medium-term, our marketplace also offers the carriers a more targeted level of spend that is highly attributable and so I think we do better in the medium term, as they say recalibrate or rebalance against other marketing and acquisition sources those that have longer commitments cycles and that we get proportionally more spend as our performance valid is worthy of. So, I think, it is -- you will see roll through Jed, but we are going to get hit first, but I think we may do better in the medium-term.

And then you mentioned next year getting back your growth targets, would that be 20% growth or would that actually be a higher level of growth, call it, you would actually think compounding the 20% growth relative to 2019. How should we think about that growth rate next year?

Yeah. I think for -- we will certainly give guidance next quarter and giving more thoughts on what 2022 will look like. I think we know that we are looking at something in terms of care demand that is multi-quarters in its length. We are confident really in emerging from 2022 back on that long-term growth path. So with regard to 2022, we are not making any statements about where we are. With regard to emerging out of 2022, we will be back on that the long-term profile. If you look at in terms of how the company might emerge. I mean you can go back and look at periods like 2018. There were periods in which we were able to grow especially consumers in the marketplace, volumes much more successfully coming out of the slowdown. So that may give some indication, but right now I think we are committed to the fact that the long-term model is still the right model for us and that will be back on track as soon as these carrier demand the profitability issues normalize.

Sorry. And then just one more for me, I guess, and how does this re -- make you rethink your direct-to-consumer initiative? I mean, potentially finding a way to accelerate the process, it seems that if you are able to get more agents, get more commissions that part of the business is much less cyclical?

Yeah. It’s a good question, Jed. So one of the interesting observations we have had through this period has been that, while there sort of carrier direct business was affected suddenly and substantially, our agency distribution was largely unaffected and that’s both, our third-party through marketplace, our third-party agents, as well as the direct-to-consumer agency. And so to your point, I think, certainly, instill high confidence that we are heading down the right path and I think emboldens us to consider how we can be a bit more aggressive in moving faster down that path as we go. I will pause there. Did I answer your question?

Thanks. Yeah. Thank you.

Thank you. Your next response is from Cory Carpenter with JPMorgan. Please go ahead.

Hey. Thanks for the questions. Just curious just how broad based the cuts were in throughout your network versus isolated to a certain type of carriers, maybe you are kind of giving out any notable difference in cuts from traditional agency for direct-to-consumer carriers, insured techs? And then, as a second question is with PolicyFuel, you mentioned it’s running ahead of expectations. So I am hoping you could talk to what’s working well and somewhat early lessons learned from the integration? Thanks.

Sure. The industry effects are relatively broad based, Cory. But I would say to my earlier point we are seeing them affect us more directly on that sort of direct -- more direct-to-consumer oriented carriers that would buy referrals directly from us. So that would include the sort of DTC carriers, it might include some of the more insure tech carriers as you would classify them, seem to be responding in our marketplace more aggressively. The second --- provide me the second part of your question, Cory, please. PolicyFuel -- Pol -- yeah.

PolicyFuel.

PolicyFuel. Yes. So we are a couple of months in now on PolicyFuel. Just to kind of reorient you to how it fits into the big picture. We first began down this direct-to-consumer agency path. With the launch of our life insurance agency in early 2020, we accelerated down that path with the acquisition of Crosspointe in the health and Medicare space in the sort of mid-to-late 2020. And then we have accelerated once again with the acquisition of PolicyFuel and with the acquisition of PolicyFuel we now have this direct-to-consumer agency operating across all major persona lines of insurance. So we are excited to have closed the deal. The team is well-integrated and we are off to a good start. It’s still quite early so there’s a lot of focus on the integration and ensuring we maintain the plan we laid out for the team. But all signs are positive so far and we are excited to have him on Board.

Thank you.

[Operator Instructions] Your next response is from Mayank Tandon of Needham. Please go ahead.

Hey. Good evening. It’s actually Kyle Peterson on for Mayank. Thanks for taking the questions. I just want to touch a little bit on the emerging verticals. I noticed that both as a percentage of revenue and some that dollar basis sequentially that get a little bit -- were you guys seeing some of the same challenges you guys are seeing in auto in some areas kind of like home and life or just want to see if you could provide any additional color on some of the emerging verticals?

No. The emerging verticals I have not been affected by the same industry dynamics that the auto market has been. And we would expect to see the emerging -- the non-auto verticals accelerating into Q4. It wasn’t really a catalyst for outsized growth in Q3. I think they sort of kept pace with auto but didn’t exceed it. As you recall, we have been investing quite heavily over the course of this year to get ready for the annual and open enrollment periods in health and Medicare, and that’s included three axing the number of advisors in that agency business and all the infrastructure and team to support them. So as we progress here through Q4, it’s still very early in the enrollment period, but the signs are positive and we do expect that to be a large catalyst for to reaccelerate non-auto’s growth this quarter.

Okay. That’s helpful. And then, I guess, just maybe a follow-up on obviously some moving pieces between carrier demand, and then, obviously, there is some expense reductions rationalizations. But how should we think about, is there anything in that kind of 10%, call it, to kind of cash expenses that would impact like the pace of your ability to grow basically when the demand environment improves or how should we think about the puts and takes between some of these cost initiatives and kind of how you guys are prepared to reaccelerate growth as demand improves?

Yeah. Okay. It’s a great question. So as we approach the expense reduction, we are weighing a couple of different things. On the one hand, we are trying to model out effectively different scenarios with respect to how deep the direct auto dip would be and how long it would last and be diligent and managing expenses to sort of preserve profitability through that period of time. On the other hand, if you just take the direct auto business and set it aside. I know it’s a big thing to set aside. But if you can do that and you look at the rest of the business, we are actually feeling very good about the investments that we have made and starting to see them pay off, right? So we have been talking a lot this year about the verified partner network on the consumer acquisition side of the business. We have been launching new products into that and that’s beginning to take hold. The direct-to-consumer agency strategy is -- our progress is accelerating, and as we move into the open enrollment period and as we acquire PolicyFuel, the marketplace agency business is healthy and so a lot of the investments we have been making are really building some momentum right now and we want to be very thoughtful not to disrupt the momentum that is building in other parts of the business. So as we approached it, we are balancing those two things and we feel the level of expense reduction we got to was responsible in the context of what’s going on in the auto business. But didn’t necessarily slowdown the momentum we are building or make any sacrifices that we couldn’t live with in terms of slowing progress on the other parts of the business and it came with some organizational changes that we think will just help us move more efficiently. So my personal sentiment is we are in a good position. We have some tough things going on around us right now. But it will pass is our expectation, and we believe that as it does, we will be really well positioned to keep growing and getting back to our trajectory that we were on before.

Makes sense. Thanks guys.

Thanks, Kyle.

This now concludes the Q&A for our call. I will turn the call back over to Jayme Mendal, CEO.

Hey. Then thank you all for joining us today. The market presents a near-term headwinds for our business but we are confident that these issues are temporary in nature and we will correct as carriers adjust their pricing strategies to the new underwriting environment. As we mentioned, we are executing well against our strategy. We believe EverQuote will emerge from this period even better positioned to be a powerful player in $150 billion insurance distribution market. Thank you all and have a great evening.

Thank you. This concludes today’s conference call. Thank you for participating You may now disconnect.