EverQuote, Inc. Q3 FY2025 earnings call

• Achieved record top and bottom line performance in Q3 with steady progress toward becoming the #1 growth partner to P&C insurance providers.
• Launched Smart Campaigns 3.0, which leveraged the latest model to deliver better performance, with a customer seeing a 7% improvement in ad spend efficiency.
• Over 35% of local agent customers are using more than one of EverQuote's 4 agent products, demonstrating broadening adoption.
• Committed to growing 20% and expanding adjusted EBITDA margin by 100 to 150 basis points per year on average, with the goal of reaching $1 billion of annual revenue in the next 2 to 3 years while transforming into a multiproduct, AI-powered profitable growth solutions provider.

In Q3 2025, EverQuote achieved record top and bottom line performance. Total revenues grew 20% year-over-year to a record $173.9 million. The auto insurance vertical contributed $157.6 million in Q3, up over 21% year-over-year. The home and renters insurance vertical generated $16.3 million in Q3, up 15% year-over-year. Variable Marketing Dollars (VMD) increased to a record $50.1 million in the third quarter, up 14% from the prior year period. Q3 adjusted EBITDA increased to a record $25.1 million, representing a 33% increase year-over-year with an adjusted EBITDA margin of 14.4%.

• Q4 revenue is expected to be between $174 million and $180 million, representing 20% year-over-year growth at the midpoint.
• VMD is expected to be between $46 million and $48 million, representing 7% year-over-year growth at the midpoint.
• Adjusted EBITDA is expected to be between $21 million and $23 million, representing 16% year-over-year growth at the midpoint.
• Full year 2025 is expected to have approximately 35% revenue growth and over 55% adjusted EBITDA growth, reflecting strong operating leverage.

• Competitive pressure in the insurance advertising landscape could impact performance.
• Uncertainties in market conditions, such as potential changes in carrier strategies (e.g., rebating) and seasonal fluctuations, could affect budget allocation and financial results.
• Temporary timing differences in working capital can impact cash conversion from adjusted EBITDA compared to prior quarters.

Q: Congrats on the strong quarter here. Just thinking about the broader industry backdrop and the sustainability of current profitability levels and what that means for customer acquisition spend.

A: Jayme Mendal stated that carrier underwriting is in a healthy and steady state, with acquisition spend likely to continue growing as carriers' underwriting profitability remains strong, and there is still room for advertising spend to keep pace with profitability trends, with 80% of top 25 partners below historical high spend levels.

Q: You've talked about elevated investments in AI capabilities. What are some key platform features or innovations investors should expect in 2026?

A: Jayme Mendal mentioned continued investment in Smart Campaigns, extending AI bidding products to local agents, introducing AI voice into call workflows, and expanding AI modalities beyond voice down funnel.

Q: Your next question comes from the line of Zach Cummins with B. Riley Securities. Could you give more insight into incremental investments in new channels in Q4 and impact on VMM?

A: Jayme Mendal said new channels are higher funnel ones like social, video, display, etc., which take time to optimize and may run at lower margins initially. Joseph Sanborn added that VMM is expected to be around 27% at the midpoint, with investments in new traffic channels putting some pressure on VMM in the period.

Q: We're hearing a lot more from carriers about strategies involving rebating to consumers. What's your take on that?

A: Jayme Mendal stated that they haven't heard about rebating impacting their interactions with carriers, and carriers are focused on growth, which is reflected in their approach to the marketplace.

Q: On the call today, Jayme talked about transforming the model from lead generation vendor to a multiproduct provider. Any more color on product innovation?

A: Jayme Mendal explained that they are wrapping value-add technology and data services around the core referral product for carriers and agents, with examples like AI-enabled bidding solutions for carriers and a one-stop shop for agents' growth needs, including recurring subscription revenue building with local agents.

Q: Just on investing in some of the newer traffic channels, how much of this is at your discretion versus competitors?

A: Jayme Mendal said it's entirely in their discretion, consistent with their long-term strategy to achieve $1 billion in revenue and 20% adjusted EBITDA margin, and they focus on executing their plan rather than closely monitoring competitors' moves.

Q: I had 2 financial questions. Just on the traffic investments, how long do you expect those to impact VMM margins? And is the 20% growth target achievable next year given tougher comp?

A: Jayme Mendal said investments in new channels typically impact VMM margins for 1 to 2 quarters until they blend in at comparable levels. Joseph Sanborn mentioned that while there are tougher comps, they feel bullish on their ability to achieve the 20% growth target through organic means and see opportunities to supplement via M&A if needed.

Q: I had 2 financial questions. Just on the traffic investments, how long do you expect those to impact VMM margins? And is the 20% growth target achievable next year given tougher comp?

A: Jayme Mendal said investments in new channels typically impact VMM margins for 1 to 2 quarters until they blend in at comparable levels. Joseph Sanborn mentioned that while there are tougher comps, they feel bullish on their ability to achieve the 20% growth target through organic means and see opportunities to supplement via M&A if needed.

Q: This is Mitch on behalf of Greg Peters. Could you provide an update on the progress of California with carrier participation and where is there room for improvement in OpEx?

A: Jayme Mendal said California has been ramping carrier by carrier with meaningful spend but still room to grow. Joseph Sanborn and Jayme Mendal discussed that OpEx improvement comes from driving efficiency through technology, such as AI bidding automation, Copilots for engineering, and voice agents in call centers, which are expected to continue driving leverage and efficiency going forward.