EverQuote, Inc. (EVER) Q4 2020 Earnings Report, Transcript and Summary

Welcome to the Fourth Quarter and Full Year EverQuote 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]. And now, I will turn it over to Brinlea Johnson of The Blueshirt Group.

Thank you, operator. Good afternoon, and welcome to EverQuote's fourth quarter and full year 2020 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 first quarter and full year 2021, 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 recent acquisition 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 to those contained under the heading Risk Factors in our most recent quarter report on Form 10-Q, which is on file with the Securities and Exchange Commission and available on the Investor Relations section of our Web site at investor.everquote.com and on the SEC's Web site at sec.gov. Finally, during the course of today's call, we'll refer to 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 Web site at investors.everquote.com. With that, I’ll turn it over to

Thank you, Brinlea, and thank you everyone for joining us today. As most of you know, we suffered a tragic loss in November with the sudden passing of Seth Birnbaum, our prior CEO and dear friend. While we continue to mourn Seth's passing, his legacy lives on in our work at EverQuote where we remain laser focused on building an industry defining company. I am humbled and honored to assume the CEO role and speak with you today. Despite unprecedented challenges that 2020 brought, our team executed remarkably well. We grew revenue rapidly while driving greater efficiency and producing substantially more cash flow to reinvest in our future growth. In Q4, year-over-year, we reported 32% revenue growth, 46% VMM growth and positive adjusted EBITDA expansion. For the full year, we delivered 39% year-on-year revenue growth, 48% year-on-year VMM growth and record adjusted EBITDA of $18.4 million, up from 8.3 million in 2019. Before diving into more detail on Q4 and 2021, I want to affirm our vision and strategy as shared with you previously. Our company's vision is to become the largest online source of insurance policies by using data and technology to make insurance simpler, more affordable and personalized, ultimately reducing costs and risk. Our strategy is based on building a unique ecosystem of insurance distribution assets that, connected by our proprietary data and technology, will enable us to emerge as the insurance shopping destination for consumers and the distribution platform of choice for providers across all major lines of insurance. This ecosystem includes the following. On the consumer acquisition side of the marketplace, we have two platforms; our performance marketing platform for managing traffic to our owned and operated Web sites and our verified partner network, which is a fast growing platform through which third parties can leverage and benefit from our insurance distribution. We also have two platforms on the provider distribution side of the marketplace; our third party marketplace network of carriers and local agents and our first party direct-to-consumer or DTC agency staffed with EverQuote agents, which was initiated in 2020 and is focused solely on life and health. Our DTC agency is modest in scale but growing quickly. Between traffic and distribution sits our proprietary data and technology, which connects consumers to providers via the lowest friction and highest performing path from arrival to policy. This powers everything from traffic getting to site experience to consumer provider connections. From ad to policy sale, all of our experiences are growing increasingly personalized to each individual shopper. We make investments in these assets to drive our four growth levers. First, attracting more shoppers; second, expanding non-auto verticals; third, optimizing and deepening consumer provider engagement; and fourth, growing insurance provider coverage and budget. Our strong financial performance in Q4 resulted from investments paying off across all four growth levers. For each lever, I'll share Q4 highlights and 2021 focus areas. Let's begin with our first growth lever, attracting more shoppers. Our consumer acquisition team executed well in Q4 growing volume into enhanced monetization as reflected in our VMM expanding to 33%, revenue per quote request increasing 18% and quote request volume growing 12% year-over-year. In December, we welcomed a new Chief Marketing Officer, Craig Lister. Craig joins us from NortonLifeLock with extensive experience scaling data and tech powered LTV-based consumer acquisition programs, and in building a brand in performance marketing context. Looking ahead, investments in both of our consumer acquisition platforms will continue growing the volume of insurance shoppers to our marketplace. In our performance marketing platform, we plan to drive efficiency and scale by more tightly aligning consumer intent and lifetime value to our traffic bidding and provider pricing. We plan to further personalize and align end-to-end user experiences and to expand investment in new channels, including TV. We are also continuing to invest in our verified partner network by rolling out new products that enable verified partners to access our distribution network in different ways. Over time, we plan to build this offering into an industry standard platform for any company seeking to monetize insurance intent among its audience, making EverQuote a ubiquitous distribution platform for the industry. The second growth lever is expanding non-auto verticals. In Q4, our non-auto verticals continued their rapid growth trajectory, with revenues increasing 55% year-over-year with improving unit economics. In our health vertical, we were pleased with the team's performance during the open enrollment period, or OEP. We closed on the acquisition of Crosspointe, a DTC agency platform in health in late September. We developed a plan with aggressive policy sale targets for OEP and exceeded our initial plan by nearly 15%. In addition, three health insurance providers turned to EverQuote's DTC agency to support their OEP sales efforts, illustrating the potential for partners to leverage our tech enabled agency platform through policy sales as a service offerings. Our move into DTC agency in life and health has substantially increased the size of our immediately addressable market, as we now access not only digital advertising and marketing budgets, but also the much larger opportunity of commissioned dollars directly from carriers. Looking ahead, we remain excited by the potential in non-auto verticals and believe that over time, we can grow non-auto verticals to 50% of total revenue. We plan to invest aggressively in health and life where our teams will leverage our DTC agency platform to drive transformational change in the EverQuote shopping experience, including by developing enduring and multi-line relationships with consumers, which will enable us to capture greater LTV. The third growth lever is optimizing and deepening consumer provider engagement. These initiatives reduce friction from the shopping experience and improve performance for providers. We are pleased to share that we achieved deep integrations with all but one of our carriers, leading to lower friction shopping experiences for our consumers and better buying performance for providers. The remaining carrier is also well along in the process of completing their deep integration with EverQuote. In 2021, we will make a number of investments to further remove friction from arrival to policy sale. For example, we are creating a more unified shopping experience by facilitating more online to offline connections on behalf of local agents. We are also enabling online quoting and purchasing policies in our home, health and life verticals. Finally, I'll touch on our fourth growth lever, growing provider coverage and budget. We continue to add third party marketplace providers and expand relationships with existing carriers and local agents. In Q4, we grew the number of marketplace carriers on the platform as we expanded coverage in non-auto verticals, and we delivered high growth in our third party agency business. We also saw digital carriers emerge as a growing customer segment. Our shared D&A for leveraging technology and data to make insurance shopping more efficient makes them a natural fit for leveraging EverQuote's well established consumer targeting and deep integration capabilities, and for supporting innovation and testing of new, more advanced performance enhancing features. We are often asked if these companies are competitors. We do not see them that way. They are first and foremost partners and customers within our inclusive provider ecosystem. Looking ahead, on the back of strong growth and improving efficiency in our third party agency business, we are increasing investment in go to market and product development teams to further improve agent performance. In summary, we delivered a strong Q4 to close out a record year. We drove progress across all four growth levers and made key investments to drive future growth, including in our verified partner network, on the consumer acquisition side of the marketplace and in our DTC agency platform on the distribution side. We enter 2021 with the clarity and strategy and focus on execution. We will continue to invest in new platforms, experiences and capabilities that will enhance the consumer shopping experience, improve provider performance, and ultimately get more people the coverage they need with less cost and friction. With the ongoing shift online of the $2 trillion insurance industry, we anticipate big enduring game changing companies to be born. I believe EverQuote is well positioned to be one of those companies. We have the team, the execution muscle and the strategy to become the online destination for insurance, and we're just getting started. Now I'll turn the call over to John to provide more details on our financial results.

Thank you, Jayme, and good afternoon, everyone. I'll start by discussing our financial results for the fourth quarter and full year 2020 and then provide guidance for the first quarter and full year 2021. We're pleased to report very strong fourth quarter and full year 2020 results across all of our key financial metrics, exceeding our revenue, variable marketing margin and adjusted EBITDA guidance provided last quarter. We delivered fourth quarter revenue of $97.3 million, up 32% year-over-year and full year 2020 revenue of $346.9 million, up 39% from the previous year. Fourth quarter revenue in our auto insurance vertical increased to $76.2 million, a growth rate of 27% year-over-year, reflecting a continued healthy auto insurance industry and strong appetite for new customer acquisition from our carrier and agent insurance providers. Looking at the full year, revenue from our auto insurance vertical increased to $283.2 million, up 33% over the previous year. Fourth quarter revenue from our other insurance verticals, which includes home and renters, life, health and commercial insurance, increased to $21.1 million, a growth rate of 55% year-over-year and represented a record 22% of total revenue. For the full year, revenue from our other insurance verticals increased 74% year-over-year to $63.7 million and represented 18% of total revenue. In Q4, our other insurance verticals benefited from the health and Medicare open enrollment period. This included a more than doubling of the historic growth rate of our recently acquired Crosspointe DTC health insurance agency. This acceleration was driven by integrating our performance marketing and verified partner platforms with Crosspointe’s direct-to-consumer sales operations. The early results of our Crosspointe acquisition provide a proof point of the acquisition strategy of leveraging our expertise in consumer acquisition to accelerate the growth of an acquired business. Q4 was representative of what we expect to be a new pattern of sequential Q4 revenue growth relative to Q3, driven by the contribution of open enrollment season within our health insurance vertical. Turning to our metrics. Quote requests in the fourth quarter increased 12% year-over-year to 6.6 million with contributions to growth coming from both our performance marketing and verified partner platforms. Revenue per quote request increased 18%, reflecting our continued focus on attracting high performing consumers, most valued by our providers. Revenue per quote request also benefited from unusually favorable end of year provider budget capacity in our auto insurance vertical and higher monetization associated with our health DTC agency operations in the year end open enrollment period. These improvements in traffic volumes and monetization lead to record variable marketing margin, or VMM for Q4, which exceeded our guidance provided last quarter. Defined as revenue less advertising expense, VMM is our primary metric for managing the profitable growth of the marketplace. This quarter, VMM was $31.9 million, an increase of 46% year-over-year. As a percentage of revenue, fourth quarter VMM expanded to 33%, up from 30% in Q4 of last year. This record VMM was a reflection of the aforementioned monetization improvements from strong provider demand and Q4 budget capacity in autos, as well as the open enrollment period for health and Medicare policies. Given that these drivers were specific to Q4, we would not expect to maintain this level of VMM percentage in Q1, but do believe we'll continue to see VMM percentage expansion over time, while we target and manage for incremental variable marketing margin dollars in absolute terms. For the full year, VMM grew 48% year-over-year to $108.6 million. As a percentage of revenue, full year VMM expanded to 31%, up from 30% in the previous year. Turning to profitability. Fourth quarter GAAP net loss was $3.8 million, or a loss of $0.13 per share based on approximately 28 million diluted weighted average shares outstanding. Fourth quarter’s GAAP net loss reflected a $1.8 million non-cash charge to account for the change in the fair value of the Crosspointe acquisition earn-out based on the improved performance and outlook of that business. Full year GAAP net loss was $11.2 million, or a loss of $0.41 per share. We delivered record adjusted EBITDA of 5.4 million or 5.5% of revenue for the fourth quarter, driven by our better than expected revenue and VMM performance. Due to our improving performance during the quarter, we accelerated spending on operational resources to lay the foundation for growth in 2021, while still delivering favorable performance against our guidance range. For the full year, we delivered adjusted EBITDA of $18.4 million, or 5.3% of revenue, up nearly 2 percentage points from the previous year. On the balance sheet, we ended the quarter with $42.9 million in cash and cash equivalents, reflecting a $3.2 million use of cash in operating cash flow during the quarter driven by the timing of payables and receivables at year end. For the full year 2020, operating cash flow was a positive $10.7 million. Turning to our outlook for 2021. We expect revenue growth to continue to exceed our long-term model of 20% with continued higher growth from our other insurance verticals. As Jayme outlined, we are making significant investments in our business, driven by the massive market opportunity that we see. These operational investments support our growth initiatives in DTC agency, verified partner network and in technology and data platforms to accelerate long-term growth of our marketplace and continue to build our competitive moat. We expect to be able to make these investments while still growing adjusted EBITDA on a full year basis, consistent with the low end of our long-term model. For Q1, our guidance is as follows. We expect revenue to be between $100 million and $102 million, a year-over-year increase of 24% at the midpoint. We expect variable marketing margin to be between $30.5 million and $31.5 million, a year-over-year increase of 30% at the midpoint. And we expect adjusted EBITDA to be between $4 million and $5 million, a year-over-year improvement of 18% at the midpoint. For the full year 2021, our guidance is as follows. We expect revenue to be between $430 million and $440 million, a year-over-year increase of 25% at the midpoint. We expect variable marketing margin to be between $135 million and $140 million, a year-over-year increase of 27% at the midpoint. And we expect adjusted EBITDA of between $25 million and $30 million, a year-over-year increase of 49% at the midpoint. In summary, fourth quarter financial results capped off a year of increasing momentum and strong performance at EverQuote. Our team has stayed focused on execution as evident in our results, and has positioned us well for continued growth in 2021. And with that, Jayme and I look forward to answering your questions.

[Operator Instructions]. Your first question comes from the line of Michael Graham from Canaccord. Your line is open.

Thanks a lot. I appreciate the question and congrats on the results. I wanted to ask a big picture one and then one about the guidance. On the big picture, could you just comment on the state of the sort of typical auto insurance shopper? I think several years ago like before your IPO in the U.S., there wasn't a lot of switching and I think the average time that a consumer stayed with an auto carrier was long and I think that's been compressing. But do you have a feel for like how much that's compressed and how much more it can go, because it seems like a real good tailwind for your business? And then you touched on this a little bit, but I just wanted to ask on the guidance the relative growth you're expecting between auto versus the other verticals. And just the other verticals grew twice as fast in Q4. Just any more quantification or color you’d care to put around that would be helpful. Thanks.

Thanks, Mike. This is Jayme. I'll take the first question. We don't have any data on switching patterns or behaviors. But certainly we have seen the increasing shift of shopping into digital channels in general. And so we've got $150 billion of distribution spend; today, only about 4% of that moves through digital channels. Meanwhile, we've got about 70% of shoppers who go online to buy insurance. And we think that as the process of buying insurance online becomes more accessible and becomes easier for consumers, which is a big part of what we are focused on, that the ability for them to re-shop will increase, and it will reduce a lot of the friction for continuing to shop over time. So our expectation is that yes, shopping behavior will increase but I don't have any specific data points for you.

Michael, on the guidance question, we expect -- first, we continue to see a very healthy auto insurance market. And so we expect that auto insurance vertical will continue to grow. We continue to say that the other verticals will grow at a pace faster than auto insurance simply due to the relative tenure of those verticals for us. I think that's probably emerging as a bit of a growth pattern as we move through the year. So I would expect that others -- the other vertical will probably have a more modest growth rate in Q1, but build as we move toward the end of the year. And certainly we're building off of open enrollment now within the health insurance vertical. We had good results this year and we're starting to recognize that that is going to be part of our seasonal pattern as we go into Q4. We now expect that Q4 will be a sequentially up quarter against Q3 and that's due to the influence of health. So we think other continues to grow faster than auto. But we also think that auto is going to have a strong year in 2021. We don't see any major difference, any major changes on the auto insurance landscape. We think it continues to be healthy and growing into 2021.

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

Your next question comes from the line of Ron Josey from JMP Securities. Your line is open.

Great. Thanks for taking the question and glad to see things going so well internally. I want to ask about carrier integration. I think, Jayme, you mentioned all but one carrier were integrated here. And as we look forward with RPQ, revenue per quote request, RPQ are growing, call it mid to high teens in the back half of 2020. Can you just talk about how carriers are viewing Ever from an ROI perspective, how that's increased now that you, call it, almost a year -- more than a year into having some of your major carriers integrated? And then I didn't hear much about it on the call, I'm sure it will come up. But if you could talk about just the bundling opportunity, right? I think in 3Q, we talked about autos and home and health and life I think launched this quarter, and any progress on the bundling opportunity would be helpful? Thanks again and great quarter.

Thank you. So, Ron, on the first question of integrations, Seth set an audacious goal for us at the beginning of last year and we're incredibly proud of the team's efforts and the results that we delivered. So we have now completed all but one of our deep carrier integrations. We expect to have that last one completed shortly. The impact of that is felt, as you noted, with the provider in the form of improved performance, but it's also felt by the consumer in the form of lower friction and in their shopping experience. As we look ahead in terms of what's next and how we can continue to integrate more deeply and improve performance for the providers, I'd say there's a bit of a bifurcation in the way that I think about it. You've got that subset of shoppers that want to do their auto -- their insurance shopping in general online. And then you've got another subset of shoppers that wants to get on the phone and talk to someone, because at the end of the day, this is a relatively complex financial instrument for most people. And so we have initiatives lined up against both the online and offline buying paths. Online, we're planning to move further downstream and so you'll see us push to get consumers closer to the quote or even to be able to purchase online for certain products that expect a lot of the online quoting and purchasing to appear first in non-auto verticals. And then down the offline path what we are focusing some investment on began last year and will continue this year is taking over that connection, specifically on behalf of the local agent. And in doing so I think we can apply some best practices as well as some technology to improve performance and connection rate for the local provider, but also create a much more unified EverQuote experience for the consumer. And so I think both of those things as they materialize and scale over the course of the year are to improve provider performance and provide some tailwinds for revenue per quote request. Now you asked the question about bundling. Last year, we did roll out some bundled products. If you think about what drives RPQ, our revenue per quote request, up, it's both the -- it's the number of connections per consumer and it's the value of each of those connections. And that value can be driven by the downstream performance of the referrals. So that was -- integrations improve that performance. It can also be driven by us sending higher LTV shoppers out to providers. And a bundled shopper would be an example of a higher LTV product or referral type. So we've made some progress in home and auto where we're continuing to roll out more bundled products in P&C, and we'll do the same in health and life. And the last thing I'll say on that is specifically in health and life where we have our DTC agency platform, I think we really have an opportunity to cross train our agents across health and life and have some opportunities to cross sell those customers both as they come in and over the course of their life as a customer with us.

Got it. Thank you.

Your next question comes from the line of Jed Kelly from Oppenheimer. Your line is open.

Thanks for taking my questions. Just a couple. One, you mentioned TV which I think is pretty interesting. I guess what's the strategy around leaning more into TV? Have you gotten the customer experience to where you want it? And then you mentioned earlier that Crosspointe grew double its revenue in 4Q. Can you just dive into that more and does this make you want to acquire more agencies that are a little more tech enabled?

Sure. Thanks, Jed. So with respect to TV, if you think about -- our first growth lever is attracting more shoppers, and we have a number of ways that we do that, one of which is by expanding into new channels. So we've done some testing in TV. You're right to sort of think about TV relative to the experience that we're sending the consumer into. And I would say we have pockets of TV as a channel into specific experiences, which are -- in which we are finding performance. So specifically, that's in our DTC agency distribution and in life specifically, and so that is a proof point for us and something that we're -- a wedge that we're driving through right now. We're excited by the addition of Craig Lister, as I mentioned, who has an extensive performance marketing background, not only in the channels in which sort of EverQuote grew up, but also the channels which we plan to expand to in the future, including TV, OTC, radio and others. And so I think Craig will certainly take up the banner and help us expand profitably and scale in those channels. With respect to Crosspointe, we are pleased with the results in Q4 and in the open enrollment period. We closed on the acquisition in late September. And so it was pretty tight to integrate and get ready for open enrollment. And the team just did a tremendous job in that effort. We set an aggressive plan for ourselves. We exceeded that plan. And the cultural fit has been fantastic. And so as I reflect on Q4 OEP and Crosspointe, I take away two things. The first is increased confidence in health as a growth platform moving forward. And I think having not only the operational platform of Crosspointe, but the knowledge transfer that occurred with their experience into our traffic teams, our product teams, I think that probably accelerated our progress in health by a good 18 to 24 months. So that was a key takeaway. The second though, which may have been more core to your question, is that its success for us has validated M&A as a tool in the toolkit. So as we look ahead, we will count M&A as an opportunity to accelerate execution of our strategy.

Thank you.

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

Good evening. Thanks for taking the question. First one for Jayme. I know you’ve been in the role only for a couple months now as CEO, but just as you've had a chance to sort of reevaluate the strategy and I know you were instrumental in previously setting it, how are you sort of thinking about the existing strategy in terms of are there areas of refocus, do you want to shift anything around maybe on the marketing side, any major changes there or tweaks, would be the first question. Then I have a follow up.

Okay. Thanks, Ralph. So the short answer is no, Ralph. We are somewhat fortuitous that we had just come through a long-term planning cycle. And so we solidified our strategy towards the end of last year. This was a strategy that Seth and I co-developed with the team. I authored the document. And it extends out through 2023. And so we made many of our sort of big strategic decisions as part of that process. And as a result, this year was always meant to be a year of very much sort of focus and execution, and that remains the case. I have high confidence in our strategy. I believe it's the right strategy to build a long-term competitive advantage in this market. And at this point, we're heads down on execution.

Great. Thanks, Jayme. And then a follow up on the VMM guide. Looks like the growth rate in dollars will be quite a bit slower than what we've seen historically. And just curious, is that just sort of I guess law of larger numbers coming into play, maybe exceptional performance in 2020. And then you talked about some investments in health and life and then TV investments. Just curious to know if there's any changes anticipated to your marketing strategy next year. Thanks.

Yes, sure. I'll take that Ralph. With regard to kind of VMM and as we look back; first, a couple of things to recognize in Q4. We had an exceptional quarter in Q4 and we had favorable dynamics from a couple of different areas. One is from open enrollment within our health vertical and the second is with year-end provider budgets. So open enrollment, obviously, as we go into Q1, we'll see open enrollment has ended. And then also, we saw a little bit of a bump this year from provider budgets as we got to the end of the year. Sometimes that can actually turn unfavorably against you. This year, we saw provider budgets actually run favorably for us. And so I think we've reflected within the VMM guide a normalization of both of those factors. We're exiting out of open enrollment and also we're seeing the providers budgets normalize. And so I think what you've seen reflected there is still solid growth over Q1 of 2020. So we're expecting VMM as a percentage of revenue up about 1.5. And then on VMM dollars, we're still reflecting about a 30% growth rate over Q1 of 2020. So a solid guide, but certainly there's some aspects of Q4 that was exceptional and that won't repeat in Q1.

That makes sense. Thanks, John. Thanks, Jayme.

Thanks, Ralph.

Your next question comes from the line of Mayank Tandon from Needham. Your line is open.

Thank you. Good evening. Jayme, first, just want to get a sense from you in terms of the wallet share that you have today of your existing clients. Could you just talk about what share in your mind do you currently have, what are sort of the growth opportunity within the core, call it the auto customer base, since auto’s the one that's a little bit more mature than the other verticals for you, just want to get a sense of again the penetration level? And then I have a follow up after that.

Sure. Thanks, Mayank. So I'll take it sort of at two levels, there's the carriers and then there's the local agents. And I'm guessing, because I don't have complete data on what share of wallet we have for all of the local agents. But the sort of subjective view that I have is, it would not be surprising for us to have about 50% share of wallet of expense among the agent base. And one of our growth levers is to expand provider coverage and budget. And so we have a number of programs in place, specifically with our local agent base that is meant to, through the use of higher service level and some tools, expand our share of wallet with them. And we've been very successful growing this program. It’s called our accelerated growth program over the last couple of years. So whatever the number is, I do believe it has been growing over the last couple of years. Within the carriers, it's a harder question to answer because many of our large carriers operate in a budget unconstrained environment, meaning that as long as we are hitting their target KPIs, there's no fixed allocated budget to us. I presume such is the case for other providers of traffic to them. So that one is a little bit harder to answer.

Got it. That's helpful. And then maybe for John. John, just want to get a sense in terms of the growth in '21. So how should we think about the growth between the quote request volumes and the revenue per quote? Is that going to be a little bit more balanced would you say relative to what you saw in 2020, because there were obviously some factors including the tougher comp that you had on the volume? So just a sense of how that should maybe track over the course of the year as we build our models? And also just tied into that would be any change in seasonal spending patterns outside of the healthcare comment that you mentioned, has that been affected during the pandemic?

Sure. Thanks, Mayank. So with regard to the kind of the mix, I guess I'll start in Q1. Coming into Q1, we expect revenue per quote request to fuel the better portion of our revenue growth in Q1. So we expect revenue per quote request to continue to be strong, probably not at Q4 levels, but certainly at levels above the full year average of revenue per quote request. So monetization continues to fuel growth in Q1. But we also see contribution from quote requests in Q1. Even though we're up against pretty tough comps in Q1, we had 80% quote request growth in Q1 of last year. So it is a mixed story in Q1. And as we move through the year, quote requests and volume of consumers plays a larger role as we grow through the year. In terms of the seasonal pattern, we have seen a larger kind of sequential increase in quarters than we did historically. And I think that certainly is been reinforced with Q4 of this year. P&C is seasonally a down quarter in Q4. But we've seen Q4 actually as an up quarter this year, mostly due to the contribution of the health vertical. So we think that as we move through the year, we'll see a little more sequential growth as well as a strong Q4, really buoyed by the contributions of the health insurance vertical.

Great. Thanks, Jayme and John. Congrats on the quarter.

Thanks, Mayank.

Thanks, Mayank.

Your next question comes from the line of Doug Anmuth from JPMorgan. Your line is open.

Great. This is Dae Lee on for Doug. Thanks for taking the question. And firstly, I’m sorry for your loss of Seth. He will be missed.

Thanks, Dae.

My first question is on you talked about improving unit economics and non-auto verticals. So just wanted to hear your views on or could you provide more color on how your non-auto unit economics compared to your other vertical? And then how do you think about the long-term monetization potential between those two verticals? And then secondly, given all the changes that are happening in the online traffic acquisition channels focused more on privacy, are you anticipating any changes to your ability to target and acquire customers?

So why don’t I take the first part of that, Dae? In terms of improving unit economics, certainly we see the influence of the direct-to-consumer agency business in Q4 with improved revenue per quote request. So that business in general has better monetization as we go direct to consumers and we monetize on the agency commission. So that's part of the reason why we saw kind of record levels or nearly record levels in revenue per quote request and expansion of VMM in Q4. And that's something that generally we expect to continue in Q4.

Thanks, John. And with respect to privacy, we're not -- we don't see any imminent risks or concerns on that front. We have a number of different levers to continue to grow our traffic volume. This year, we're focused on things like more personalized site experience that we expect to improve conversion rate. I mentioned already the expansion into new channels. The verified partner network has been a good growth driver for us over the last year or two, and we're investing incrementally in products to make our third party distribution network more available to more types of publishers and media partners in the future. And so we see promising prospects for growth and expect that to build over the course of the year. So we're not particularly concerned about that right now.

Your next question comes from the line of Ben Rose from Battle Road Research. Your line is open.

Yes. Good evening, Jayme and John. A couple of questions. Jayme, maybe you could speak to the strategy kind of longer term of monetization of commissions, and whether that will be a growing portion of the revenue base in the future?

Yes, absolutely. So we launched our direct-to-consumer agency efforts in 2020 and we now have the platform live in life insurance and in health insurance, in those two verticals. As we have moved into the direct-to-consumer agency space, we almost overnight unlocked a larger immediately addressable TAM in the form of commissions directly from carriers in addition to the marketing budgets, which we accessed through the third party marketplace. And so in those verticals specifically, I would expect commission revenue to comprise the majority of our revenue in a relatively short order. Now as we look across to P&C, the value of the DTC platform is less immediately obvious because we have such robust distribution in the third party marketplace in P&C. Now, that's not to say there aren't segments or pockets of consumers where we might benefit from adding that layer of coverage through a direct-to-consumer agency, but I think that decision has not been made and that would dictate the sort of long-term answer to your question as a percent of our overall revenue.

Okay, that's very helpful. Thank you. And my other question is with respect to the sales and marketing budget overall, if you were to look at that exclusive of advertising, so stripping out the VMM portion of it, could you talk about what some of the larger programs are within that line item, if you will, and whether there may be some opportunities for leverage over the coming year or coming 18 months?

Thanks, Ben. I guess I'll start that off by saying the DTC agency initiative certainly plays a larger role in our sales and marketing expense. So you'll see some investment coming through on that line item as we add the ability to talk to consumers directly, and sell policies directly. So you'll see that line item already starting to scale relative to sales and marketing.

Yes. And then I think you'd expect to see leverage not only there, but across the third party sales and marketing teams as well. So we’re innovating on products. Specifically, we're rolling out an enhanced carrier campaign management platform, which I think will remove some of the operational load on our enterprise account management teams. And likewise, scaling up B2B marketing and some enhanced product initiatives within our agency network that should also reduce the operational load from the third party sales and marketing agents, sales and marketing teams.

Okay. Thank you. That's very helpful.

Your next question comes from the line of Nat Schindler from Bank of America. Your line is open.

Yes. Hi, guys. I'm just trying to figure out -- it looks like the Crosspointe acquisition fully closed in September, but there was a change in the fair value of a continuing consideration that was exactly equal to your acquisition-related costs that looks like a change in earn-out I'm guessing. Is that telling me that Crosspointe did significantly better in Q4 than you expected if I'm right? Also, can you talk a little bit about the variable marketing margin of the various verticals? Maybe not in exact terms, but generalities; auto versus health, home and others and if those are long-term trends or if those are current?

So I'll take the first part of that, Nat. So yes, you've got it right. The adjustment that you see coming through is a result of us marking -- more or less marking to market the value of the earn-out for Crosspointe so that the initial evaluation of that is based on Crosspointe as a standalone entity. The mark to market really represents the addition of kind of what we have seen in terms of our expertise around traffic and the early results of Crosspointe. So that that is effectively a mark to market adjustment based on the performance of Crosspointe within the quarter, and our forecast for Crosspointe in our health insurance vertical as we go forward. So that generally is a change that you'll see in Q4. And then we'll continue to mark to market that component of the milestone simply because it's paid out on a stock-based basis. So as our stock fluctuates, we could see additional charges. But for the most part, that adjustment is related to the performance of Crosspointe and our improved performance of the – and outlook for that business.

And with respect to the VMM profile of the various verticals, again, we don’t break it out by vertical, but what I can share is P&C is sort of moving together now, so auto and home has matured a bit as a vertical and is exhibiting higher VMM relative to some of the other two more nascent verticals or three; life, health and commercial lines. And so those three were comfortable operating at a lower VMM operating point while we build scale, amass data to inform the efficiency of our traffic acquisition and would expect them to come up over time.

Okay. Just to follow up on the Crosspointe point, can you just -- roughly how much of the quarter’s growth was attributed to that vertical or even specifically that acquisition?

So I guess on Crosspointe, we're certainly -- we're very pleased with the results in Q4, but we're really building off of a relatively small revenue platform in terms of what we acquired with Crosspointe. As a reminder, Crosspointe in all of 2019 was about $4 million worth of revenue. So the majority of the revenue that we saw in Q4 was a result of really growth off of that platform. So really, what we're excited about with Crosspointe is not what we acquired in terms of the revenue base, but what we think we can add in terms of adding our distribution to that. And that's what we saw. We talked a little bit about the fact that we more than doubled, nearly tripled the growth of that initiative. And so the vast majority of that growth was really organic.

Makes sense. Thank you.

Thanks, Nat.

Thanks, Nat.

There are no further questions at this time. I'll turn the call back over to Jayme Mendal for closing remarks.

Thank you. So I appreciate everyone joining today. We’re in the early innings here of a shift of $150 billion of insurance distribution spend online and in seismic shifts like this that big enduring companies are born. EverQuote is a leading marketplace in the industry and we continue our track record of execution with strong Q4 performance and another record year. Our strategy is clear and we are making targeted investments in growth platforms across traffic, experience and distribution that will allow us to continue building our competitive moat for the long term. I'm confident that we have the team, the strategy, the execution muscle to really emerge as a defining company for insurance distribution in the digital age. Thank you all for your time today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.