Good afternoon. My name is Christine and I will be your conference operator today. At this time, I would like to welcome everyone to the EverQuote Q4 and full year 2018 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will a question-and-answer session.

[Operator Instructions]. Thank you. Brinlea Johnson of The Blueshirt Group, you may begin your conference..

Thank you. Good afternoon and welcome to EverQuote's fourth quarter and full year 2018 earnings call. We will be discussing the results announced in our press release issued today after the market close.

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, including statements concerning our financial guidance for the fourth quarter and full year 2019, our growth strategy and plans to execute on our growth strategy, the growth levers we expect to drive our business, our ability to maintain existing and new customers, our 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 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 notes 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 financial measures is included in the press release we issued after the close of market today, which is available on our Investor Relations section of our website at investors.everquote.com. With that, I will turn the call over to the Seth..

Thank you Brinlea. Good afternoon everyone and thank you for joining us today to discuss our fourth quarter and full year 2018 results. Before we get started, let me review our call agenda. I will begin by discussing our view on our market and then Q4 and full year results.

Then I will turn the call over to John to speak to our financials and guidance for 219. Then I will come back to highlight our key growth initiatives for 2019. We are excited about the opportunities for EverQuote and the continued secular shift of insurance online.

The market trends we expected in the insurance industry continue to move solidly in our direction. We see millions of consumers continue to shop and go online for insurance with increasing consumer demand for our services.

Insurance providers, both large and small, continue to increase their spend online and provide technology and integration support to make the experience more seamless, transparent and efficient. They are great partners, validating our industry-friendly approach.

We also see the industry leveraging Internet data and technology to improve pricing, manage insurance shopping, connect with customers, service claims and help make consumer safer while reducing costs.

We are confident that these trends are moving the market in our direction and we are thrilled to be well-positioned as a leader with strong growth prospects in the early days of this vibrant shift online for the insurance industry.

We remain focused on scaling and developing our team to deliver against our growth levers, attracting more consumers to our marketplace, increasing provider coverage, deepening provider and consumer engagement and launching new verticals.

At the same time, in 2019, we are increasing our investment in consumer and provider experiences across EverQuote.com and EverDrive. We are committed to our mission to make EverQuote the destination for consumers to shop for insurance online. We had a strong finish in Q4 and an excellent overall 2018.

I am excited about the progress that we are making at EverQuote as we continue to grow and evolve the largest online insurance marketplace for consumers in the United States. I am proud of our growing team, nearly 250 people working to improve the industry for consumers as well as providers.

Our vision is to become the most trusted insurance destination for consumers. We are powered by data and passionate people. We are building services to simplify and streamline the complexity of purchasing insurance, help the consumers more easily shop for and by the product that protect life's most important assets.

Today, we help millions of insurance shoppers connect with the right providers, save consumers' time and money and with EverDrive as an example, ultimately use data and technology to help consumers become safer.

We are excited to help drive the future of the industry as we focus on the compelling growth opportunity ahead in our auto insurance and new vertical insurance businesses in 2019 and beyond. During the fourth quarter, we delivered better-than-expected results with 23% revenue growth with a 10% increase in quote request year-over-year.

For the full year, we delivered year-over-year revenue growth of 29%. We grew our insurance shopping consumer volume, expanded our insurance provider network and grow our newest verticals quickly and efficiently while deepening consumer provider engagement throughout the year. In the second half of the fourth quarter, we saw strong traffic recovery.

By mid-quarter, we had a number of initiatives underway to grow traffic and these initiatives were successful. Our growth was broad-based with seven out of our top 10 carriers increasing their overall spend on our platform in Q4 as compared to Q4 of last year and we saw the top 10 carriers all increase their spend over the full year.

We also saw an increasing number of insurance agents in our marketplace over the past year. This past quarter, EverQuote completed 18 new partial and 40 expanded partial integrations with insurance providers, including three larger partners who moved to deeper partial integrations with us in Q4.

We are delighted with this progress and see more coming in 2019 as these integrations reduce friction for consumers and increase performance for a provider partners.

We were pleased to announce our recent promotion of Jayme Mendal who been successful in helping us scale our consumer marketing and traffic efforts to COO to oversee our consumer traffic team.

As an example of Jayme's work, he onboard terrific operating leadership in display and we have seen the team deliver consistent performance and growth while also launching new sources this year. Our team is energized and prepared to further scale our business.

An additional example is our search team, which identified significant opportunities via updated bidding strategies. They execute on substantial sequential growth quarter-over-quarter and 22% year-over-year growth in search volume for the quarter using these updated bidding strategies.

They have also started 2019 with excellent results and team performance. We are confident that these changes have better positioned us to drive growth and effectively manage your future operations as we expand.

As we look ahead to 2019, I am excited by the opportunities to drive more growth as we continue to build our business while expanding and evolving our consumer and provider offering.

Now I will turn over the call to John and after John reviews our fourth quarter financial and guidance, I will return to discuss our growth priorities and key initiatives for 2019..

Thank you Seth and good afternoon everyone. I will start by discussing our financial results for the fourth quarter and full year of 2018 and then provide full year 2019 guidance.

We are pleased to report full year 2018 revenue of $163.3 million, up 29% year-over-year and fourth quarter revenue of $39.8 million, up 23% year-over-year and higher than our revenue guidance provided last quarter.

Revenue from our auto insurance vertical grew 18% year-over-year to $141.2 million for the full year and 15% year-over-year to $33.9 million for the quarter. Revenue from our home and life vertical increased 220% year-over-year to $22.2 million for the full year and 99% year-over-year to $5.9 million for the quarter.

91% of our revenue in the quarter came from insurance providers in our direct channel, an increase from 84% in the prior year's quarter. Our year-over-year revenue growth in the quarter was driven by gains in both quote request volume and revenue per quote request.

Compared to the fourth quarter 2017, the number of quote request increased 10% to 3.3 million while revenue per quote request increased 12% to $12.09.

Variable marketing margin or VMM, which we define as revenue as the cost to attract consumers to our marketplace through online advertising, was $48 million or 29% of revenue for the year and $10.6 million or 27% of revenue in the fourth quarter.

We are pleased that our efforts in the second half of the quarter resulted in VMM above our guidance range. Turning to profitability. Adjusted EBITDA was a loss of $5.1 million for the year and a loss of $3.1 million for the quarter, favorable to our guidance range due to our better-than-expected VMM performance.

Our net loss was $13.8 million for the year and $6.9 million for the quarter. Earnings per share for the year was a net loss of $3.03 per share, the calculation of which includes $37 million in non-cash accretion of our preferred stock in the first half of 2018 and is based on 16.9 million weighted average shares outstanding.

For the fourth quarter, earnings per share was a net loss of $0.28 per share based on approximately 25 million weighted average shares outstanding. Stock-based compensation excluded from adjusted EBITDA in the fourth quarter was $3.2 million, which includes certain performance-based equity awards judged to be probable investing.

Looking ahead, we expect stock-based compensation in Q1 2019 to decline to just above Q3 2018 levels and be the range of $11.5 million to $12.5 million for the full year 2019. We ended the quarter with $41.6 million in cash and cash equivalents.

Cash flow from operations in the fourth quarter was $4.1 million, driven by reductions in accounts receivable and increases in accounts payable. Given the nature of our large carrier and advertising relationships, the timing of payments just before or after a period, can have a large impact on operating cash flow.

This quarter, we saw the timing of payments benefit operating cash flow. But we expect cash flows from operations to return to a net use of cash in 2019. Overall, we are very pleased with the performance and the improvement we saw in the second half of Q4 and that we exceeded our guidance on revenue and VMM and adjusted EBITDA.

So far in the first quarter of 2019, we have seen growth in both quote requests and revenue per quote request as compared to Q4 of 2018. With monetization higher than in Q4 if 2018, but still lower than mid-year 2018 levels, we are seeing more modest VMM than we expected thus far in Q1.

Given this slightly lower variable marketing margin, we are now expecting to incur modest adjusted EBITDA losses for the full year 2019. We are targeting breakeven adjusted EBITDA in the back half of 2019 and positive adjusted EBITDA for the full year 2020. With that context, we are providing the following guidance for Q1 2019.

We expect revenue to be between $47 million and $49 million. We expect variable marketing margin to be between $12.8 million and $13.8 million. And we expect adjusted EBITDA to be a loss of between $1.5 million and $2 million. For the full year 2019, we expect revenue to be between $189 million and $197 million.

We expect variable marketing margin to be between $54 million and $58 million. And we expect that an adjusted EBITDA loss of between $2 million and $4 million. Once again, we believe that we will continue to improve our results as we did in the second half of Q4 2018.

We remain focused on increasing monetization, improving advertising efficiency and managing our operating expenses. Finally, let me speak to a couple of housekeeping items for 2019. With regard to our key measure of variable marketing margin or VMM, beginning in Q1 we will subtract all advertising expense from revenue to calculate VMM.

In addition to online consumer marketplace advertising, which is currently subtracted, this change results in us also subtracting offline, EverDrive and insurance provider advertising.

This change is necessary to capture the expense of new offline advertising channels like direct response television and the cost of advertising our EverDrive app from which we have begun to generate revenue through insurance offers to our safe driving users.

This change streamlines the calculation of VMM as simply revenue less all advertising and is a better judge of financial performance of the company's marketplace considering our expanding advertising channels and monetization.

We believe the effect of this change will be to reduce variable marketing margin by approximately $1 million for the full year 2019 and less than 1% of revenue in all periods in 2019. The effect of this change for prior periods is to lower VMM by less than 1.5% of revenue.

For past periods, the effect of this change can be calculated from our non-GAAP reconciliations of VMM to revenue less advertising expense, as shown in our prior reported results. This change has been reflected in the 2019 guidance provided.

Also in Q1, we are broadening our definition of quote request to include all forms of unique consumer request for insurance quotes. We are making this change to reflect the impact of our new inbound calls product introduced in the first quarter of 2019, which Seth will speak about.

Inbound calls involve in consumer requesting an insurance quote by telephone without completing a web form, which previously was our single measure of a quote request.

We do not expect this will result in a significant change in the number of reported quote request for Q1, but as inbound calls grow we believe a broader definition of quote requests is necessary to accurately measure consumer insurance quote requests. With that, let me turn the call back over to set a Seth..

Thank you John. Let me wrap up by highlighting our 2019 key growth initiatives and then we will open the line for questions.

As I have outlined before, we continue to drive our business along our four key levers for growth, expanding shopper consumer volume, adding more providers and provider budgets, deepening the engagement of consumers and providers and launching new verticals.

First, to expand consumer volume, we are continuing to invest in our marketing teams and expanding our marketing channels for advertising EverQuote to consumers. In 2019, we have started to test direct TV advertising as an offline performance channel.

We have also launched and are scaling our inbound call service to help provide quotes for consumers who would contact us by phone rather than online. Adding this route for consumers to use our service should allow us to capture additional consumers and grow our total share of the insurance shopping market.

Second, we plan to add more providers and expand budget with current providers to grow overall revenue and revenue per quote request and expand our provider offerings.

Two priority growth initiatives we have got underway include our new accelerated growth program for larger insurance agents and our verify partner program enabling agents to connect with consumers from third-party partners by leveraging our marketplace platform technology.

Accelerated growth program is already demonstrating significant sales leverage with high average revenue per agent and fast growth since launch this year.

Third, we plan to continue to deepen consumer engagement via expanding integrations, investing in the product features on EverQuote.com with the goal of getting each consumer one click or one call away from a bindable quote and continuing progress with EverDrive.

As we secure deeper integrations, we can also help our providers maximize their results through the use of our SmartCampaigns bidding engine which allows them to optimize their bidding based on their bind rates.

We are investing in both EverQuote and EverDrive consumer experiences in 2019 and are focused on ways to drive greater consumer satisfaction, loyalty and lifetime value.

Several examples of these investments include, reducing friction via integrations, more insurance advising guidance, increased choice by adding providers, additional product pricing options using EverDrive score, support for in-app purchasing for EverDrive users.

While it's still early days for EverDrive, last year we launched our first carrier offer and went live in five states. This year we expect to expand to over 20 new states, add several more carriers and offer new features to EverDrive users, again, such as in-app policy purchasing and management.

We are focused on the insurance experience inside EverDrive. I look forward to sharing more with you on these initiatives as we continue to develop EverDrive and EverQuote.com. Finally, in 2019, we expect to add new verticals including renters and commercial insurance. In summary, we had a solid end to Q4 and a strong year at EverQuote.

We remain confident in our business, opportunity and long-term growth model. We are excited that the industry trends continue as expected. And we are well-positioned to benefit from the shift of insurance online. We remain focused on extending our leadership as the largest online insurance marketplace in the U.S.

and becoming the destination for insurance shopping consumers. We look forward to keeping you updated on our progress. And with that, John 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..

Thank you. And guys, thanks for all the detail. I have two questions. One is, just within auto, you had 50% revenue growth.

Could you just maybe comment at a high level on the mix between volumes and pricing there and just give us a feel for maybe what was going on the under the hood? And then secondly, Seth, you mentioned a couple of times efforts to increase traffic volumes and lead volumes.

I am just wondering if you could go into a little more detail about what some of those efforts are and how sustainable you think they are given that it had a good impact here in the first part of the year already?.

Sure. So Michael, to answer your question, thanks again, we saw balanced growth in Q4 between volume and monetization and that continued in Q1 in terms of seeing balanced growth in both quote request volume and rising revenue per quote request.

With regards to your second question, on those initiative I highlighted to and I think it's worth mentioning, display in terms of what we hired or put in additional theme of leadership, really operating leadership, but the entire team has really done an excellent job in terms of getting much higher velocity with our new creative processes.

We have added marketing resources, which has helped out the team and we have seen not only strong performance from the team in Q4 but continued strong performance into 2019 and it's very sustainable. And again, what's just as exciting is the spirit of the team, the energy and the scalability of the team.

That goes just as well for our search team, which just did an outstanding job updating our bidding strategies in Q4, which again was one of the initiatives that we highlighted. That was very successful. So we saw a sequential growth in Q4 in search volume which is counter to seasonal trends traditionally and continued strong growth into Q1 for search.

What's more, in Q4 we saw search volumes up 22% year-on-year.

So literally across the traffic teams, some really smart investment in bringing on additional marketing talent, some senior hires in leadership and nurture and develop and create a bit more operating process in our teams has really paid off and it's sustainable and we are excited that really with and also with the promotion of Jayme Mendal which we talked about not only on the call but in a press release, we are starting the march towards really scalable traffic teams and it's exciting and sustainable..

Okay. Thank you..

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

Hi. This is Dave Lee, on for Doug. Thanks for taking our questions.

First, just could you give us more update on the traffic acquisition headwind that you talked about earlier in 4Q including creative fatigues and changes to the Facebook policy? And how you think about the advertising environment in 2019? And then second, you talked about growing spend across all your top 10 carriers in 2018 but I guess in 4Q you saw increased spend from seven out of 10.

Is there anything to know in 4Q? Is there like a seasonality factor to that? And what are some of the ways you can see more consistency across all top insurance carriers?.

Sure. Thanks Dave. Maybe help I will take your last question first and that has to with seasonality. In the back half of Q4, which is traditionally a seasonally softer quarter in the insurance business and for us, we actually saw strong trending and really strong end to the year.

And that was driven by some of those traffic initiatives which we discussed. We certainly saw, as we had discussed on our prior call, post-election we saw a bounce in display but let me get into specifically what we did in creative, to your first question. We added marketing resources. We hired three individuals in Q4 who really hit the ground running.

We have launched a rigorous new creative development process, which improved our velocity in testing new creatives significantly. We have launched across the company actually machine learning as a service and specifically to creative optimization, we have seen creative selection through machine learning begin to pay off.

So we have a creative band that's based on machine learning technology, which is really starting to show some legs. What we launched news campaigns with fresh creatives. Some of these examples, our live campaigns for millennial and young families.

With regards to the campaigns, we are seeing success with greater personalization that actually leverages our ability to target specific consumer audiences and more motion including animation and video ads. And finally, we are doing more creative content around specific savings messages for different segments of the audiences.

And all of this is really early days but it's beginning to pay off in terms of our performance. Let me address then the other part of your question around Facebook. We relaunched Facebook in Q4. I would say that our traffic diversity means that before and now we are not overly reliant on Facebook.

Again, in the quarter, we grew quote request by 10% with very small volumes of Facebook, certainly lower than it has been historically. Now we do have dedicated resources which we have put on to Facebook. We have relaunched these campaigns.

We have brought in some more marketing resources and what we are really excited about is that the social channel broadly and Facebook specifically really represent an incremental upside opportunity for us as we grow social overtime..

So Dave, I will just add as well, just to give a little more color on what we were seeing when in the quarter and going into Q1 of this year. The second half of fourth quarter was really driven by traffic winds. And we saw those traffic wins practically across the board.

Going into Q1 of 2019, we are now seeing this balanced growth between both revenue per quote request and the number volume of quote request as measured against Q1 of last year as well. So we have now seen strong traffic and then we are also seeing this nice balanced growth going into 2019..

Got it. Thank you very much..

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

Great. Thanks for taking my questions. Just following up on that last point, John.

So should we expect for 2019 for quote requests and revenue per quote request to grow on balance with 1Q 2018? Is that how we should look at it?.

Yes. That's what our guidance is really designed to give you some insight to the business and what we are seeing. And generally, that's what we are reflecting in the guidance here which is, we are seeing a growth that is in line with our long-term growth model and we are going to see in the course of the year increasing VMM as well.

So kind of along the lines of what we have said in the past, which is at the high end of our guidance we are signaling to you would return to growth 20% plus and expanding VMM. And right now, we do see that as a balance growth for the year..

And then you highlighted the increasing investment at EverDrive.

Is there any way we can kind of see how that is kind of incremental to 2019, either in VMM or higher quote request? And then my second question is, have you seen any changes in the competitive requirement over the last three to four months when compared to what you did during your initial outlook for 2019?.

You want me to take it? So we factored some of the incremental cost or investments in EverDrive into our planning. We don't account for growth from EverDrive, the growth initiatives or even the launch of new verticals like renters and commercial in our guidance or into our current forecast.

And so, for us, EverDrive certainly on the revenue side, we treat as upside..

And Jed, I will say that behind the change in VMM and including EverDrive advertising is not so much increased spend within the EverDrive advertising, it is more of the fact that EverDrive is now generating revenue through offers.

And so up until now, EverDrive was largely public relations safe driving app and now it's become a part of the marketplace. Still very much early days, but that change really reflects the broadening of the marketplace and that EverDrive advertising has to be incorporated within VMM..

Then on the competitive environment, any changes?.

No. We didn't really see any recent changes in the competitive environment and we are very, very -- so the idea for is, we are focused on taking advantage of just a wide range of opportunities by building out and scaling the team and we are not seeing any change in competitive environment or pressures.

It's really just the organic growth building up on what we are doing..

Thank you..

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

Hi. Good afternoon. This is actually Kyle Peterson, on for Mayank today. Just wondered to think about how we should think about home and life growth in 2019. Obviously, the comps get tougher coming out from a very strong year.

Just kind of how that factors in the overall revenue guidance? Just how should we think about how that will grow and how the auto piece will grow in the coming year?.

I think you still want think about home and life as our newer verticals and growing faster than auto. As you say, it's up against larger comps and also just kind of larger scale. So we would expect that to see some reduction in growth rate, but it's still going to be the faster growing new vertical for us..

And long-term, Kyle, I would add, thanks, that there is an opportunity for us to have these verticals and we expect them to be as big, certainly together, to be as big or bigger than auto as they grow..

Right. And then I guess just to confirm, I think you said earlier the renters and commercial is not in the guidance.

Would that be all upside? Anything that was generated from those this year?.

Yes. Within the guidance is not renters and commercial. So no upside figured in there in the guidance nor for many of the initiatives that Seth spoke of. So that would be incremental. With regard to renters and commercial, as we launch those in 2019, we expect their contribution would be relatively modest..

All right. Great. And the one last one for me and then I will hop out. Just wanted to see if you guys could give an update on some of the integration efforts with the carriers? I know you guys gave some qualitative updates.

I just wanted to see if you guys could touch a little more on some of the bind rates you guys are seeing and early successes, long-term potential from that, that will be great..

Sure. So this past quarter, we actually did 40 deeper partial integrations, actions in 40 overall partial integrations. We had 18 integrations that actually moved or net new partial integrations. And we had 40 integrations overall that either were new or went deeper.

In addition, three of those integrations of partial integrations were with larger partners. And so, again we see continued progress. We don't break it out in terms of variable bind rate, but it does reduce friction for consumers. It improves performance for providers.

And what we then we see providers do is lean in and be able to spend more on the platform. And that's consistent. In fact, last full year, 10 of 10 providers, all of our largest carriers, rather increased their spend on the platform. Almost all have some form of integration and many took a step deeper with us in their partial integration..

All right. Great. That's good color. Thanks guys..

Thanks Kyle..

[Operator Instructions]. Your next question comes from the line of Aaron Kessler from Raymond James. Your line is open..

Yes. Hi guys. In Q4, I think you mentioned a little bit of pricing compression from some of your auctions.

Just curious how that shaped up throughout the quarter? And then how you are looking at that going into Q1 in 2019? And just for the 2020 positive EBITDA outlook, kind of how should we think about maybe the split between operating leverage and gains from VMM leverage there as well?. Thank you..

So in the second half of Q4, we saw that over-performance over what we expected and what we reflected in the guidance really coming primarily from traffic. In Q1, we have now seen gains in both traffic and revenue per quote request. So you are now seeing that transition to that blended growth in Q1, Aaron..

Got it..

And with regards the second piece, we are forecasting expanding VMM throughout the year. So if you look at full year guidance and compare to Q1 guidance, we are continuing to reflect our growth story of expanding variable marketing margin.

And then fairly good discipline on operating costs and that will line us up to reaching our target of break even adjusted EBITDA in the back half of the year. So it is a combination of those contributions of both VMM and also good discipline on the operating cost side..

And I would just add a little bit more. The initiatives that we launched in Q4 to grow traffic, we had wins, again, in nearly all of the marketing channels. And so you are seeing those strong result flow-through into the year as well..

Got it. That's helpful. Thank you..

There are no further questions at this time. EverQuote, I turn the call back over to you..

Thank you everybody. Look forward to meeting you on the road and appreciate your time tonight..

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