Ladies and gentlemen, thank you for standing by and welcome to EverQuote's Third Quarter 2019 Earnings Conference 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 advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Allise Furlani of The Blueshirt Group. Please go ahead.

Thank you. Good afternoon and welcome to EverQuote's third quarter 2019 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 Seth Birnbaum, EverQuote's Chief Executive Officer and Co-Founder; 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 laws including statements concerning our financial guidance for the fourth quarter and full year 2019, our growth strategy, and our plans to execute on our growth strategy, key initiatives, the growth levers we expect to drive our business, our ability to maintain existing and acquire new customers, our interest or ability to acquire other companies, our planned expansion into international markets, 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 actual results to differ materially from our expectations. Please refer to these contained under the heading risk factors in our most recent quarterly report on Form 10-Q which 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. With that I'll turn it over to Seth.

Thank you, Allise. Good afternoon and thank everyone for joining us today. We are pleased to report strong third quarter results across all our key financial metrics. We delivered revenue growth of 61% year-over-year with Variable Marketing Margin of 67% over the prior year period. The strength of our data-driven marketplace coupled with improving operating leverage resulted in another quarter of expanding adjusted EBITDA. Importantly, we achieved a major milestone and reported our first quarter of GAAP profitability as a public company. In the quarter, we saw a material improvement in adjusted EBITDA while continuing to invest in the business to capitalize on our large and expanding market opportunity. We are executing well across our key growth levers, expanding consumer volume, growing provider coverage and budget, deepening customer engagement, and adding new verticals. Disciplined execution across our key growth levers resulted in another strong quarter of Variable Marketing Margin growth. We are achieving greater success with consumers and insurance providers by leveraging our investments in proprietary data, automation, and machine-learning algorithms. Finally, we are benefiting across all of our verticals from strong tailwinds in the secular shift of insurance online. Based on our strong third quarter results and positive momentum, we are increasing our guidance for the full year 2019 which John will detail in a moment after I cover progress on our growth levers and key initiatives. Our superb growing team is passionate and committed to our mission of being the largest online source for insurance policies in the world. We are leveraging data and technology to make insurance simpler, more affordable, and personalized. We believe that winning the war for talent is critical for our success and we are thrilled that we are a magnet for top talent. In Q3, we welcomed significant senior hires to our team…

Thank you Seth and good afternoon everyone. I'll start by discussing our financial results for the third quarter of 2019 and then provide fourth quarter 2019 guidance and our increased guidance for the full year 2019. We are very pleased to report third quarter revenue of $67.1 million, up 61% year-over-year and above our revenue guidance provided last quarter. Revenue growth rates accelerated across multiple verticals with continued impressive growth in our auto insurance vertical and a resurgence of growth in our other insurance verticals which includes home and renters, life and health. Revenue in our auto insurance vertical increased to $57.3 million, a growth rate of 60% year-over-year. Revenue from our other insurance verticals increased to $9.8 million a growth rate of 68% and now represents 15% of total revenue. Our growth in Q3 was broad-based with strong demand from our carriers and continued success in building consumer traffic to our marketplace. Revenue continues to be driven by our direct insurance providers. Those carriers and agents that participate directly on our platform now represent 95% of revenue. This quarter 98% of this direct revenue came from established providers, meaning those who have been on our platform for at least one year. These measures illustrate the direct and reoccurring nature of our revenue which in turn improves the visibility, we have into the future of our business. Growth in consumer traffic volume was substantial and broad-based in the quarter as a result of strong execution, IR traffic teams and attracting consumers to our insurance marketplace. We delivered an 81% year-over-year increase in consumer quote requests to $5.5 million, while reducing cost per quote request 13%. Revenue per quote request declined 11% year-over-year and was relatively consistent with Q2 despite much higher quote request volume. More importantly, because cost per quote…

[Operator Instructions] Your first question comes from Ron Josey from JMP Securities. Your line is open.

Great. Thanks for taking the question, and what a great quarter. I wanted to us two things please. On guidance, it's really a pretty big increase and lots going on with new partnerships and new verticals. Can you just help us understand maybe the drivers in guidance? I mean, we're talking about up sequentially in 4Q something that I think seasonality -- seasonally isn't necessarily -- isn't something we'd see that often. So just break out guidance and what's driving the increase would be helpful? And then maybe bigger picture that 93% of revs in the quarter from clients on a platform for more than a year, I think that's a new disclosure and implies around 150% net retention -- revenue retention. So just broadly maybe Seth you can talk about what's like happening to these existing clients they're devoting more spend EverQoute digital overall. Just anything around like these trends that you're seeing in the industry that's driving that would be helpful?

Thanks, Ron. I'll take the first part of that then on guidance. Guidance is very consistent with past quarters, right? We reflect what we have a high confidence and what we're seeing in the business. For Q4 like previous quarters this year, we're continuing to see very strong traffic growth and that is a generally driving kind of revenue in through Q4. We obviously have reflected the fact that we see a lot of momentum leaving Q3. And in the first part of Q4 so you're right seasonally Q4 we expect that to be down. But this year we've reflected that actually at the midpoint as slightly up. So I think that reflects really how we're feeling about the quarter and a little bit about how we're feeling about our other verticals as well as they are contributing as well.

Thanks. Wag John. Let me take the second part. So it's two factors that are EQ specific Ron. One is performance both in terms of consumer volume and in terms of consumer conversion rate that has been driven for our provider partners where their folks on the platform are spending more because of integrations, because of technologies like smart campaigns, which enables us to better match a carrier and a consumer coming to EverQoute, looking for insurance that's driving up the provider's performance in the marketplace without driving up their cost per sale. So that's been a real powerful driver of growing not just budget but share with existing partners on the platform. And we have I think mentioned though not as deeply the fact that a vast majority of our direct revenue is reoccurring and that continues to grow really quickly. I think macro industry broader trends are that the shift of insurance online continues and maybe some -- certainly we believe, there's some early indicators that it's picking up and accelerating and that's also contributing to that.

Good. Thank you.

Your next question comes from Michael Graham from Canaccord. Your line is open.

Thank you and great quarter. Just I wanted to see if you could give us a little more depth on some of your ad tech initiatives? And then more broadly kind of building on Ron's question, just when we think back to 2016 and 2017 you sort of had a tough year for the auto insurance industry in general in 2016 that led to less spending in 2017. And I'm just wondering as we look ahead to next year what sort of macro things are you seeing in the auto insurance market that aside from the marketing mix shifting online just sort of generally fundamentally what are you seeing in the auto insurance market as we head into next year?

Sure. So on the ad tech front obviously emphasized, earlier in the call is machine learning, driving wins across the -- not just the ad tech's stack but even things like product but so specifically to ad tech using more sophisticated data scientists to select creatives for updated bid strategies for automating bid strategies has been successful not just in sort of single marketing campaigns but across several different marketing campaigns and channels. And so that's been a lot of that -- or some of the wins that we've had in the past quarter. With regard to the macro trends in autos both carriers and agents in our view seem quite healthy, they're profitable and we're in a little of lease again from our perspective in a Goldilocks situation for the auto insurance vertical. And so far as you have the multiplicative, the insurers are doing quite well, the consumers continue to sort of demand -- have demands for the product. And they're also shifting their marketing spend online in terms of looking for efficient growth. So it's a really nice situation from a macro perspective.

Okay. Sounds good. Thank you, Seth.

Your next question comes from Ralph Schackart from William Blair. Your line is open.

Good afternoon. Just maybe kind of go back to Ron's original question on some of the traffic growth you saw in the quarter. You also talked about some favorable marketing -- market conditions sorry of accelerating growth. Just curious whether it's something specific or unique to Q3? Or was it just the platform sort of all coming together this quarter in combination with favorable market conditions? And then second, you had a number of key hires during the quarter just curious sort of what skills do they bring to the table? And any more color on some of those recent hires would be helpful? Thank you.

Sure, Rob. Maybe we'll take the first one first. As far as driving growth, it was literally execution across the platform. Though we had excellent execution across traffic as we mentioned that was really across sources and marketing channels. And kudos to the team, the team just did an outstanding job and just everybody and it's really a matter -- and we meant it a firing on all eight cylinders then we had specific wins and tech in workflows, in products, in consumer experiences and then it was certainly compounded by performance that our tech and tools delivered for providers and all of that was supported by the overall industry tailwinds as a general back drop. So it really is that conversions of great execution across the platform and the industry backdrop. And again, we are bullish that that just keeps cranking in the future. As far as your second question with regards to market, again for us, we see the industry picking up in terms of the online shift and insurance is going to continue to move in EverQuote's direction. Obviously, we couldn't be more excited about those trends.

You're next question comes from Jed Kelly from Oppenheimer. Your line is open.

Great. Thanks for taking my question. So, I think at the IPO, you said in the next four to five years, you see 20% as the right barometer for sustainable topline growth. If I look at you and the other large aggregator or marketplace, you're probably call it 13% of the market. I mean, you think over the next two to three years that with more carriers adopting these channels -- I mean it can grow at 25%, 30%, just how should we be thinking about growth in the industry over the next two to three years?

So Jed, I'm not sure where you get the 13% from -- when we view our market I don't know why you would want to step in, but when our view of the market is far vaster. The way we view it is that $120 billion plus of distribution spend by the U.S. insurance industry. So, you're talking predominantly commissions and ad spend. When you view EverQuote's revenue to the lens of that TAM, which we really believe in we're just tiny it was very early days in terms of the shift online there's huge upside across all the verticals we operate in. And Jed I just want to be respectful. The last question, I wrote it down, but didn’t answer it. As far as the key hires and then obviously take in additional questions if you'd like, the key hires we are focused on are really sophisticated tech and data-driven leaders, who have experience in scale, specifically in scale of complex, dual sided or multisided marketplaces where accumulating data is a significant advantage. And then we also look for culture affinity both with grit -- performance focused that we enjoy working with who are going to be dedicated to our mission of building the largest online source of insurance in the world. So, these are some just great folks. They add to an already great team and we are thrilled to have them.

So, Jed I'll just add to the kind of the guidance aspect of the question. We do in our long-term model guide to 20% plus in terms of topline growth and we're confident in that ability especially as we add new verticals, so we can very much do more what we're doing in existing verticals. And as we add new verticals, gives us new levers of growth and expands our TAM as well. Certainly, we've always said as well that there will be opportunities for us at times to grow topline faster as well as to expand adjusted EBITDA faster. This quarter is a good example of a time that we've been able to do both and as well as our guidance, right? We've kind of entered this year with a guide that was 20% plus on high-end for the year. We delivered better than that in Q1. We were able to raise the guidance. Again -- and Q2 and then guided for Q3 to over 40% at the high-end and delivered 61%. So, clearly we have momentum in the business that is real and that we're feeling throughout the year and that's really kind of led to this 70% topline guide on Q4. It obviously gives us a lot of confidence going into 2020. Again, we'll fall back to our long-term guidance short of giving our guidance for 2020 next quarter. But that is to say that clearly we have a lot of confidence in our ability to deliver that topline, while also expanding adjusted EBITDA based on our performance this year.

And then just a couple more questions. It looks like you're non-variable marketing expenses did accelerate this quarter, anything that you call out? And then I guess over the weekend, Allstate's that advertising with Tina Fey their safe driving approximately do you view this as an opportunity for branding? Or just how do you think about that what Allstate's doing?

So let me take the first part Jed on the non-variable. We saw some increase in the non-variable costs. That would be to be expected in terms of both the top line deed as well as a VMM deed. Some portion of our non-ad spend costs are still variable in terms of either stock comp or some of the cost of providing the marketplace that we'll flex a little bit when we have large top line deeds. Seth you want to comment on the EverDrive?

Sure Jed. So the interpretation would be I think somewhat about EverDrive, my belief is long-term there is a significant opportunity in building out a safe driving marketplace, EverDrive is that app that takes the first step of that. Just as we have an auto insurance marketplace built out today for online shopping, you'll have one for safe drivers to get connected and shop for safe driving related insurance offers. This past quarter the EverDrive team was really heads down focused on launching the quote and app functionality. And it's either out right now or very nearly out and we'll obviously update everyone more on EverDrive next quarter. But long-term, a great opportunity plays right into you can go to a single carrier to do it or you can shop at a trusted third-party adviser to do it, and so very consistent with the marketplace message.

Thank you.

Thanks Jed.

You're next question comes from Mayank Tandon from Needham. Your line is open.

Thank you. Congrats Seth and John. I wanted to ask you about healthcare, if you could give us any early indications on the traction within the healthcare segment? And then maybe Seth, if you could help size the opportunity versus your other insurance areas and when you think that may really start to inflect in terms of contributing to growth? Is it 2020, 2021 just a timeline on that would be helpful?

Sure. So the -- Mayank I appreciate your question because it's an opportunity to very publicly give the whole team to work on the healthcare launch and scaling here shout out. They all did a fantastic job under really driven leader. Here in the healthcare vertical, we've got obviously the first revenue out the door, consumers are flowing through it. We're evolving the consumer experience. We added -- again as we mentioned nine of the net new carrier additions in the quarter were healthcare specific carriers, which were great, the BD team brought those carriers on -- into the marketplace. And we're, obviously, very bullish that ultimately healthcare is as big or bigger than any of our other verticals. So I think long-term the opportunity is to build a significant marketplace just in healthcare alone, obviously, there's some really great comps that we admire. And ultimately we're not going to give a lot of specifics. It literally just got rolling and we look forward to updating you more in future calls.

Got it, okay. I want to push further on that one for now…

It has traction. I would say that we are very pleased with the way it's going.

That's good to hear. And then maybe for John. John, just in terms of some of the underlying metrics if you could just talk about how we should be thinking about the quote request growth, revenue per quote and cost per quote as we model it into 2020? Maybe just any color around that would be helpful in terms of the trend-line, how we should think about these key drivers of revenue?

Sure. For the balance in 2019, it's very consistent with what we've said in past quarters, which is we're seeing the growth in revenue come from the volume side. We're seeing very nice increases in quote request volume and we are also seeing improvements in the actual referral pricing. And we're seeing a slight decline in the number of referrals, just simply based on the large amount of volume that we're bringing into the auction. As we go into 2020, I think, it's probably early to say. We'll continue to manage the business per VMM dollars. And we generally would expect that we'd have two contributors over time to revenue growth that is both volume in terms of quote request, as well as revenue per your quote request. We do think that there is an opportunity to continue to grow, revenue per quote request much like we saw in 2018. So we think there'll probably be a balance as we look out further. But certainly for the balance of 2019, it's been driven by the progress we've made in the execution within in our traffic teams in terms of driving more consumers to the website.

Okay. That's helpful. And then one final one, in terms of the VMM, I think, when you went public you were targeting about a 30 basis point increase year-on-year? Is that still the baseline we should be thinking about for 2020 and beyond? And then the 20% plus top line grow that you've mentioned earlier?

Yes. Specifically about VMM margin as a percentage of revenue, is that what you're asking Mayank?

Yes, yes. The 30 basis point expansion per year.

Yes. So we have historically done better than that and we've historically grown VMM faster than that. But what we've said is, we're going to manage the business per VMM dollars and historically when we've managed per VMM dollars we have seen increases in VMM as a percentage of revenue, just as we've applied our technology and data to the acquisition side of the business. And then, we have a number of levers in terms of monetization that can also increase that VMM as a percentage of revenue. I think, as we look out, we think of our long-term margin as VMM growing to about 40%. And we think about that -- doing that over a number of years. So 30 basis points would be very comfortable for us. And I think you'll -- just like this quarter you'll continue to see us make slow, steady progress against VMM as a percentage, even though we're going to manage to those dollars and if we have the opportunity, to grow variable marketing dollars, even if it compresses VMM as a percentage, we would do so if it still made sense in terms of additional VMM dollars. Does that help?

Yes, absolutely. Thank you so much for taking my questions.

[Operator Instructions] Your next question comes from Doug Anmuth from JPMorgan. Your line is open.

This is Dae Lee on for Doug. Congrats on a great quarter. So I just want to understand the drivers of 2Q outperformance a little better. So while the marketplace participation is strong across all carriers and agents and directly they gain some shares, so just trying to see if either carriers or agents drove the strong growth and if any particular customers stood out? And then I was curious on your decision to launch commercial vertical as a partnership. Why did the partnership make sense? And if -- will this vertical have differences versus your other verticals in terms of economics or anything else?

Sure. Yes. So, I mean, revenue growth, Dae, was broad-based in the carriers and the agents, as we mentioned on the call both grew quite quickly. The agency business, thanks to some of the initiatives and just across the team and on the carrier's side of the business, again, very broad-based with a vast majority of our carriers increasing their spend in the time period.

Some of the metrics that we've mentioned in the past would be we increased spend from our top 10 carriers, nine out of 10 of our largest customers this quarter increased spend over this time last year. Our largest customer in terms of -- across all customers was 23% in the quarter as a percentage of revenue. So very much holding share as we've grown the business overall.

Dae, would you mind repeating the second question? I didn't get the note.

Yes. So it was about your commercial launch as a partnership. Just wondering why you went down with the partnership route? And then if this vertical will have differences versus your other verticals in terms of economics or how you go-to-market?

Sure. Yes. Commercial go-to-market with Bold Penguin. So I'd have to start with the people the folks there Ilya and Ben are just fantastic. We like working with them brilliant, brilliant founding team there. Commercial is very similar economically maybe even more attractive from a marketplace perspective. And so far as there is traditionally more margin in the distribution of commercial insurance products than some of the other verticals we already operate in. So you could think of this there's almost more -- there's a greater percentage per dollar of premium of TAM in commercial for EverQuote's marketplace approach -- and just as a in general it's a very, very fragmented marketplace. One of the more interesting aspects of commercial is that, because it's so fragmented, because there's so many different types of coverages, businesses and products even the workflow, even the technology you need to get to take a consumer quote is quite complex. And what Ben and Ilya have done is really streamlined a set of call it connector technologies so that you can connect consumers and providers more easily. And since that's sort of -- we bring consumer base and we bring providers, they're almost a perfect tongue-and-groove group partner for us. They help simplify obviously the connected tissue between it. The workflow is the tech sac are excellent integrated right into our marketplace. And I would say about this about the Bold Penguin relationship. One is we are very confident that it obviously accelerates our pass to market and scale. But the other thing is together we believe, we actually could get to a bigger TAM and so far as it makes commercial products accessible via the Internet it's almost like an on-ramp. So we love the guys it makes a lot of sense for us and we believe that ultimately we will drive the same or better economics in commercial as we do in autos or any of our other verticals.

Great. Thanks for taking my question.

We have no further questions. I would like to turn the call back over to management for closing remarks.

Sure. I want to thank everybody for joining us -- for taking the journey with us. We're obviously thrilled with the results of the quarter. But just as importantly for us we stand with a great and growing team at the convergence of what we believe to be the right strategy as insurance moves online focused on operations, execution and excellence. We couldn't be happier with the results or more excited about. So wrapping this year, next year and just a huge future at the company. So again, really grateful to the industry our partners and the investors all of you to take a ride with us -- and look forward to speaking to you again in the near future. Thanks so much.

This concludes today's conference call. You may now disconnect.