Good afternoon. Thank you for attending today's EverQuote First Quarter 2022 Earnings Call. My name is Tania and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host Brinlea Johnson of Blueshirt Group. Please go ahead.

Thank you. Good afternoon and welcome to EverQuote's first quarter 2022 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 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 federal securities laws including statements concerning our financial guidance for the second quarter and full year 2022, our growth strategy, and our plans to execute on our growth strategy, key initiatives including 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, our recent acquisitions, 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 cause our actual results, please refer to those contained under the heading Risk Factors in our most recent 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'll 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 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.

Thank you, Brinlea and thank you all for joining us today. In the first quarter, we exceeded expectations across our three primary financial KPIs despite continued headwinds in the auto insurance industry, demonstrating the benefits of progress in channel and vertical diversification. We delivered revenue of $110.7 million and variable marketing margin or VMM of $34.3 million, representing year-over-year growth of 7% and 9% respectively. We also generated adjusted EBITDA of $2.4 million. In Q1, our marketplace exhibited strength in customer acquisition and in our local agent distribution channel. On the consumer side of the marketplace, we grew volume by double-digit levels. On the provider side of our marketplace, we increased local agent budgets by over 20% year-over-year. We applied new data science models to drive better performance for local agents, which is extending our competitive moat in this valuable channel and multiple large agent-based carriers have indicated that EverQuote has become their agents' largest and highest performing partner. Our direct-to-consumer agency or DTCA, a core strategic area of investment for the company continued to perform well in Q1 and represented over 13% of revenues in the period exceeding our internal plans. After two acquisitions and many quarters of integration work, we now sell policies across major lines of insurance, including TMC, health and life. This represents the very early stages of the next phase of the company's evolution to provide a rich customer experience, built upon our unique position, which we believe is the only marketplace and DTCA hybrid model operating at scale across major lines of insurance. The direct carrier channel, which has historically been our largest continues to face significant challenges. While early in the quarter, we saw an uptick in carrier auto demand from December lows. We encountered further pullback in March, which was amplified in…

Thank you, Jayme and good afternoon, everyone. I'll start by discussing our financial results for the first quarter and then provide guidance for the second quarter and updated guidance for the full year of 2022. Our total revenue for the first quarter grew 7% year-over-year to $110.7 million and exceeded our guidance range provided last quarter as growth in consumer volumes and demand from non-carrier customers offset reductions in monetization due to the industry-wide pullback in auto insurance advertising that has affected demand from our direct carrier customers. While the auto insurance industry's challenges were evident in a nearly 20% year-over-year reduction in carrier revenue, all other distribution channels besides carrier grew year-over-year as we benefited from the diversity of our distribution. Strong DTCA and third-party agent revenue growth also contributed to a 4% year-over-year increase in revenue from our auto insurance vertical, growing that vertical to $87.7 million, again, despite reductions from our auto insurance carriers. With regard to carriers within the auto insurance vertical, we did see improvement in pricing and demand early in Q1 a quarter when historically carrier budgets are reset and as expected revenue from carriers grew in Q1 as compared to Q4 as did pricing. But as Jayme mentioned, carrier demand waned as the quarter progressed with a reversal of much of that improvement late in the quarter. This retrenchment has persisted into Q2 as carriers continue to evaluate consumer acquisition targets in light of claims losses and rate changes. Revenue from our other insurance verticals, which includes home and renters, life and health insurance increased 19% year-over-year to $23 million for the first quarter. These non-auto insurance verticals represented 21% of our first quarter revenue and were positively impacted by our health insurance vertical and specifically by DTCA policy sales. During Q1, Health…

Thank you. [Operator Instructions] The first question is from the line of Michael Graham with Canaccord. Your line is open.

Hey. Thanks a lot for the detail on the auto macro, guys. I just wanted to kind of drill in a little more to the comment you made about observing the state-by-state price regulation and sort of the approval there. We've had feedback that carriers are sort of priced too low, they don't want to advertise for obvious reasons. It's adding a lack of profitability. And then, in the early days of getting price increases approved, if they're sort of the first ones in the state, it doesn't make that much sense to advertise, because at that point in time they're overpriced relative to competitors. And so, it really takes most of the carriers in the state to kind of get approved. And so, I was just wanting to have you kind of just give a little more color in terms of where you think we are with some of those state-by-state processes, if you could?

Yes. Thanks, Mike. This is Jayme. So -- and that's right. I think that's accurate. What we're observing is there were earlier movers and later movers in the cycle, both with respect to pulling back on advertising spend and with respect to filing rates. And so, what will happen is, your earlier movers will get their rates approved and now they are profitable in a given state, but they may not be competitive in that state. And so, they need to wait for some of the other carriers to raise their rates as well, before they fully unleash budget in that given state. So the way that this, sort of, is manifesting in the recovery that we're watching unfold is, large carrier X, a major customer of ours, was an earlier mover, right? They get their rate increases through. And what they're reaffirming for us is that "Hey, by middle of the year, call it, July, we're going to be reactivated in all of our states. And what you should expect from us is, we'll reactivate all states with sort of varying levels of pricing or bid. And we'd expect to ratchet those bids up over the second half of the year, so that we exit the year with more normalized levels, as our competitiveness improves while others catch up and increase their rates. Does that make sense, Mike?

It does. Yes. That's helpful. And I can appreciate that dynamic. And I also just wanted to ask John, if I could for -- any more color you can provide on sort of the mix of guidance on the revenue side between Q3 and Q4? Just any high-level comments on how you expect the second half to trend from a linearity perspective?

Sure. So, we've reflected what we have seen early in the quarter as well as information that's very recent on the quarter as to what we would expect in Q2. I think at the low end of the guidance range, we've assumed fairly similar performance going through Q3. And then of course Q4 we would see an increase in performance related to the annual enrollment period within health. And also, in the back half of the year we do, as Jayme mentioned we do expect some of the carriers to continue to be turning on. So, the -- I think what we're seeing is that carriers are in different stages in their cycles, but there are certainly those. And I think Jayme's example of a large carrier who has indicated to us that they will turn on all states in the second half is indicative of one of the carriers that is kind of going through the cycle faster. So, we do think there's some uptick as we move through the back half of the year.

Okay. Thanks a lot. Really appreciate it.

Thanks Mike.

Thank you, Mr. Graham. The next question is from the line of Ralph Schackart with William Blair. Your line is open.

Good afternoon. Thanks for taking the question. I was just curious, what the behavior has been from carriers that have largely repriced rate at this point or have commented that it's sort of largely behind them. Just are you seeing this same sort of headwind activity? Just trying to get a sense of how broad-based this is across your carrier base and I have a follow-up.

Yes. So let me try to take that one out Ralph. At this point, if we look across basically all the top carriers rank order in terms of spend a year ago and we look at them today how many have significantly pulled back their spend with us as they move to increase their rates. And the answer is now all of them. That wasn't the case in coming into the year. There were still a couple of carriers, large carriers who were somewhat holding out. They were refiling their rates, but they were holding out on pulling back their acquisition spend to see, if they could sort of get through to the other side. And that's some of what we saw in March, April and now May is that those holdup carriers have pulled back on their acquisition spend to the point where we now can look at our entire carrier base and it does start to look like all of the air is out of the tires. And we expect it to start sort of coming back in as we progress through the second half of the year.

Okay. Great. And then just on the demand side and the marketplace side can you maybe talk about that activity as it relates to being put on consumers what that activity looks like with consumers like coming to the platform to shop for better rates? Just any color you could provide there would be helpful?

Yes. I think that the increase in rates across the board does appear to be driving more shopping activity. So, in our customer acquisition we have seen strong performance so far this year. I think we mentioned double-digit growth year-over-year in terms of quote request volume and that's been somewhat balanced across our owned and operated channels, growing as well as our verified partner network growing. So the demand does appear to be up as a result of the rates increasing. And as they continue -- rates continue to move up upwards, it should only provide a tailwind in the form of more shopping volume.

Okay. That’s helpful. Thanks, Jayme.

Thanks, Ralph.

Thank you, Mr. Schackart. The next question is from the line of Jed Kelly with Oppenheimer. Your line is open.

Hey, it's actually Sam on for Jed. Thanks for taking my question. Just wondering if you could dig into what you said, I'm mentioning you expect full or somewhat normalization in the first half of 2023. Just wondering how your outlook for the recovery has changed since the last call and if you're seeing any impact from competition or this is more industry related?

Sure. So I guess if you look at how we've changed in terms of our outlook. First I would say, I take the second part of that first and say it's absolutely industry related. And I think you've already heard our past comments echoed by carriers and other competitors in the distribution area. We're one of the first to release here. So we're kind of on the vanguard but I think you'll hear the story repeated. I think what's changed in our outlook is that we still expect improvements starting in the second half of the year. What really has changed is that we expected Q1 stronger demand coming from the carriers. And indeed we saw that stronger demand, stronger pricing. What we didn't expect is to see that some of those gains given up late in the quarter and for that to extend into Q2. So I think we expected that the gains we would make in Q1 that are largely associated with the budget cycle and new dollars coming to us that we would see those come back really retrench in the way the carriers were looking at the dollars. So what we've reflected now in our outlook is that we think Q2 is this second trough of demand and that we start to build off of that. So I think when you look at that as compared to our outlook prior, we thought Q2 would be stronger. And we thought that the build in the second half of the year would be stronger. We've now taken kind of a more moderate view on the build in the second half and then extending into 2023 with a full recovery.

Very helpful. Thank you.

Thanks, Sam.

Thank you. The next question is from the line of Aaron Kessler with Raymond James. Your line is open.

Hi. This is Alex on for Aaron Kessler. Maybe just wanted to ask about maybe your guidance. And if anything has changed for your expectations for agent hiring with maybe a pullback in auto if that's kind of changed anything kind of how you invest for the DTCA?

So -- the -- hey, Alex, this is Jayme. The performance of DTCA continues to meet or exceed our expectations across the board. And had a really strong Q1 and in fact in many ways it -was a big part of why you didn't see what otherwise could have been a much more challenging set of circumstances in the first quarter of this year. So I think the strategy to invest there as a more stable and diversified distribution channel has been borne out really through some of the challenges we faced recently. And our appetite to continue investing remains strong. I think we are continually evaluating, how we weigh that level of investment against the performance of the marketplace. At the end of the day, the marketplace has historically funded a lot of investments in DTCA and other new opportunities. And so I think, as we look at the new shape of the recovery there is there are some trade-offs that we'll evaluate with respect to the rate at which we ramp the DTCA this year, but we continue to invest behind it. It continues to improve in terms of its unit economics and its performance. And so we just try to keep that balance in mind.

Okay. And as I think about I guess the cash flow coming through, I know you said it'd be negative as you invest. It looks like the health vertical had what close to $10 million in Q1, which would I guess offset the cash flow coming in from Q4. Is that correct?

Yes. You're looking at a quarter in which we had negative operating expenses and the -- overall the business had positive adjusted EBITDA but DTCA has the cash. So as you go forward, as there's pressure on adjusted EBITDA especially in these middle quarters you would expect a higher use of cash. And then as we come into Q4, you'll see higher contribution from DTCA but also we think an improving story within the marketplace. So, you kind of track a combination of DTCA contribution, which is a use of cash but also marketplace EBITDA which can -- and as the recovery takes place can become a source of cash. But we continue to think that for the balance of the year we're going to be a net user of cash in a way that is consistent with what you've seen in Q4 and Q1 and actually accelerated due to the EBITDA profile as we go through the end of the year.

Okay. Appreciate that.

Thank you, Mr. Kessler. [Operator Instructions] The next question is from Cory Carpenter with JPMorgan. Your line is open

Thanks for the questions. I have two, just one more on the auto carrier. So just want to make sure we understand, what's changed in recent weeks on the carrier side. Is the message from carriers just that states have taken longer to pass through price increases, basically implying it's more of a state specific issue delaying the recovery? Or could also be other macro variables in the play here like perhaps car pricing or some of the situation that's happening in Europe across those taking longer to play out. And then separately on the DTCA business, could you just talk about just how you think about the sustainability of growth from here. Any target on how big you see this could be as a percentage of your business over time? Thank you.

Thanks, Cory. So I'll take the first question. With respect to what's driving the delay in recovery, I don't think there's been any change in terms of certain states holding out or not approving rates as we or the carriers expected earlier in the year. The broad macro considerations, are certainly a part of why the loss environment has gotten to where it is in the first place, right? And you mentioned the used car market inflation and used cars being a big part of it. I think the thing that surprised us, was that there would be the sort of second wave of carriers who kind of held out on adjusting their acquisition spend until, March or April or May of this year, right? We knew they were all experiencing similar profitability issues. We knew they were all increasing rates. And we sort of anticipated that, they would uniformly over some period of time if they were going to pullback on acquisition spend they would have made those decisions, before the spring of this year. And so the fact that there were two or three meaningful sized carriers who really waited quite a bit longer than the rest to really reduce their acquisition spend, that was the thing that caught us off guard. So that would happen so much later in the cycle.

The second one on really what the potential of DTCA is in the long-term. So we think DTCA and other verticals as diversity within our distribution that really the combination of those could grow to be greater than 50% of what we do. So really the marketplace distribution could become overtime, the minority and DTCA and the other verticals outside of auto could become the majority. So I think you've started to see that with how DTCA has performed. DTCA has proven it can be a high growth lever for the business and one that we control more so than some of the marketplace dynamics.

Great. That's very helpful. Thank you both.

Thanks Cory.

Thank you, Mr. Carpenter. There are no additional questions waiting at this time. I will now turn it to the management team for any closing remarks.

Yeah, all right. Well, thanks everyone for joining us today. Q1 performance, just further validated our strategy. The diversification in verticals and distribution channels really enabled us to grow and deliver positive adjusted EBITDA, despite unprecedented headwinds in the auto insurance market. It's unfortunate that in Q2 these headwinds have intensified. Seasonality will also dampen the offsetting effect of our diversification in health and Medicare as we exit the open enrollment period. And that sets us up for a challenging middle part of the year. But nonetheless, we continue to expect an auto industry recovery beginning in the second half of this year which, we anticipate will continue into 2023. Throughout the downturn we've continued making progress, progress with local agents, in our direct-to-consumer agency and that positions us really well for strong performance when the auto industry does in fact recover. Despite the market's current challenges, our team remains laser-focused on execution. We're energized. And we continue building the one-stop-shop for insurance in the digital age. Thank you all.

That concludes the EverQuote's first quarter 2022 earnings call. Thank you for your participation. You may now disconnect your lines.