EverQuote (NASDAQ:EVER) Q2 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by and welcome to the EverQuote second quarter and listen only mode. After this speaker's presentation, there will be to ask a question during this time, you will need to press star one on your telephone keypad. Please be and if you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Brinley Johnson of the Blue Shirt Group. Please go ahead, ma'am.

0:35 Thank you. Good afternoon, and welcome to EverQuote's second quarter 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 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 federal securities laws, including statements concerning our financial guidance for the third quarter and full year 2020, 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.

1:37 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. Thank you for joining us. 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.

2:28 Our 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 the call over to Seth Birnbaum, EverQuote's chief executive officer and co-founder. Go ahead, Seth.

2:46 Thank you, Brindley. Good afternoon, and thank you, everyone, for joining us today. Our thoughts continue to be with all the individuals and businesses impacted around the world by the pandemic. As a company, we're meeting the challenges brought about by the unprecedented combination of a global health crisis, significant economic disruption, and recent social upheaval, while continuing to execute on our growth initiatives and commitments to our customers. Our strategy continues to yield excellent results. Our tech and data-driven marketplace flywheel continues to drive network effects via more consumers and providers with deeper engagement across multiple insurance verticals. In Q2, we reported a strong second quarter across all of our key financial metrics, delivering year-on-year growth of 41% in both revenue and variable marketing margin.

3:36 We also delivered positive adjusted EBITDA expansion year-over-year consistent with our model. and we have strong momentum in the business which is allowing us to raise our full year 2020 guidance which Jon will cover in more detail. In our view, significant changes in the market brought about by the pandemic will accelerate the long-term shift of insurance online and we remain focused on building the comprehensive digital insurance distribution marketplace for consumers and providers using data and technology to make insurance simpler, More affordable and personalized, ultimately reducing costs and risks. While we continue to be vigilant in shifting market dynamics brought about by COVID, we are fortunate and deeply grateful that given the resilience of our model, our growth prospects have never been stronger.

4:27 The insurance industry remains profitable and continues to exhibit strong demand to invest in online channels. The moderation in consumer demand that occurred since the start of the pandemic is largely in line with our historical seasonal traffic patterns and its impact has been modest on our business given our diversity of traffic sources. Our team remains highly productive and collaborative, operating in a fully distributed manner. And we believe that the dominant dynamic for our business, the secular shift of insurance online, is further validated by the emergence of a growing cohort of successful insurtech companies, many of whom are customers or partners. We're confident we are better positioned than ever and have set the stage for a strong second half and for 2021.

5:12 I am personally energized by our mission to empower insurance shoppers to better protect life's most important assets, their family, property, and future. And our team is passionate about our goal to become the destination for insurance customers, both consumers and providers, by delivering high-value experiences and broad product selection with low friction. Our strong financial performance in the quarter was achieved while continuing to invest and execute across our four growth levers. We've made strong progress with an expanding set of key initiatives, products as well as services as we lean into our massive opportunity in the shift of nearly $150 billion of insurance distribution spend online. Our four growth levers are attracting more high intent consumers to our marketplace, growing and expanding across insurance verticals, deepening consumer provider engagement, and growing provider coverage and budget. We are expanding our growth levers to incorporate personalized insurance experiences from arrival to policy sale and our digital distribution platform to extend into a direct-to-consumer agency model for specific vertical segments.

6:29 Today, we're announcing two new direct-to-consumer initiatives. that extend our marketplace in health and life insurance. We're developing direct-to-consumer or DTC agency experiences in our health vertical via an acquisition and in our life vertical through an organically grown agency platform. Each will enhance the consumer shopping experience and coverage options while enabling providers to connect with incremental underserved consumers. These DTC or direct-to-consumer agency experiences will further deepen our consumer provider engagement and broaden our ability to access the $130 billion commission TAM component of the overall distribution spend in insurance. I'm excited to share Q2 highlights across our growth levers and key initiatives, including several of these newer developments which we expect to enhance customer experience, provider coverage, and budget. First, attracting more high-intent consumers to our marketplace.

7:31 Our traffic teams are executing well, growing consumer quote request volume by 50% year over year in Q2. We continue to be successful, focusing on channels that bring high-intent consumers to our marketplace and delivering workflow improvements to enhance conversion across our insurance verticals. Consistent with our historical seasonal pattern, we saw Q2 traffic volume slightly lower than in Q1, and we believe COVID, compounded with recent social unrest, contributed to moderating consumer demand in late Q2. We, however, have seen traffic volume increase in July with strong unit economics. Consequently, we saw high overall traffic growth in Q2, and we have seen a return to our historically strong Q3 pattern with strong momentum in the current quarter.

8:20 Overall, we continue to deliver consumer demand and variable marketing margin growth in excess of our long-term model and faster than the secular market shift online. We believe we are gaining share in insurance shopping online. Additionally, we're excited at early results from recent performance brand tests combining engaging content and marketing creatives to help us develop our brand strategy with positive ROI. Next, growing and expanding across insurance verticals. In Q2, we had another strong quarter in our non-auto verticals, with revenue increasing 133% year over year. with Solid Unit Economics as we benefited from the network effects of our marketplace and from disciplined investments in our non-auto verticals with increased headcount in the vertical teams. In Q2, we launched exciting new customer experiences in our home vertical. In addition to scaling integrations and reducing customer friction, we delivered auto and home bundling from the consumer to the provider, enabling end-to-end cross-selling. Our view is that consumers gain access to a broader panel of the top agents in the market with relevant products and discounts.

9:31 We see incremental monetization for the bundled referrals, creating wins for our consumer and provider customers as well as our business. In Q2, we also began to scale an organically developed direct-to-consumer agency experience for the life insurance vertical, which we have been building for months. Through a sophisticated data-driven sales technology platform, We seamlessly connect underserved life vertical segment specific consumers from arrival to policy sale with licensed agents directly on our marketplace platform and sell life insurance policies on a commission share basis. Our DTC agency initiatives enable more comprehensive consumer coverage addressed under and unserved consumer needs, help us maximize provider inclusion from the large carriers to individual agents, and increase product selection for customers. We are confident that this will ultimately increase buy-for-user while enabling us to deliver more personalized, better consumer experiences for consumers and providers in our marketplace.

10:35 In our health insurance vertical, we announced today that we are acquiring Crosspoint, a data-driven health insurance agency headquartered in Evansville, Indiana, that connects consumers to high-quality health care insurance. This acquisition positions us to accelerate the growth of our health vertical with a DTC agency capability enabling improved health insurance vertical customer experiences, deep integration, broader carrier distribution, and higher monetization with recurring revenue. Looking ahead to the fourth quarter open enrollment period, we believe we are well positioned to drive significantly higher revenues in our health insurance vertical with our expanded provider coverage and monetization opportunities. We're building our DTC agency experiences with the vision of bringing together Best-in-class agency operations like those of Crosspoint and Health with cutting-edge enabling technologies of our marketplace platform, including machine learning and AI, as we've launched in our life vertical to create an enhanced and more personalized end-to-end consumer-to-provider arrival-to-policy sale experience with greater monetization opportunities and bind or policy sale performance. Bundling in home and auto as well as DTC agency for life and health enable us to develop user experiences to enhance consumers' insurance shopping journeys, deepen engagement, and drive incremental long-term value in our marketplace. We plan to roll out our first logged in user experience

12:06 in Q4 of this year. Our third growth lever, deepening consumer provider engagement. We are confident that direct-to-consumer Agency experiences in our health and life verticals will deepen customer engagement and improve the consumer experience in the insurance shopping journey. By having EverQuote act as a first-party agent to sell a policy directly to insurance shoppers in these select verticals, we will complement our provider partners in under and unserved segments, delivering a wider range of choice, personalization, and end-to-end shopping experiences that further reduce friction. Integrations also reduce friction. As you may recall, we established the goal of completing deep integrations with 100% of our carriers by the end of this year to improve consumer experience and increase provider bind rates or policy purchase rates to drive up marketplace efficiency. This is one of our key initiatives for 2020.

13:03 And at the end of the second quarter, I'm pleased to say we are well on our way to our goal of 100% deep integrations with 66% of our carrier partners and we continue to make steady progress. Four, growing provider coverage and budget. We continue to add more providers and expand our relationships with existing carriers and agents. This quarter, over 94% of revenue from carriers came from those who've been on our platform for more than a year. We added several new customers to our smart campaigns platform where we use machine learning to automate bidding for our carrier partners. resulting in more efficient marketing spend at desired KPI targets. We also began to offer the option for carriers to bid on our referrals on either an ROI or conversion rate metric to better meet their individual targeting preferences.

13:55 Our agency business expanded to 37% of revenues this quarter, up from 24% last quarter, which further diversified our revenue mix and contributed to increased revenue per quote request sequentially. Our investments to expand agent demand via content marketing, consultative sales, top-notch service, and carrier partnerships, to name just a few, are paying off. Of note, our accelerated growth program, which focuses on larger agencies, has ramped up for agents who are increasing their acquisition and marketing spend with us online. Rounding out key initiatives. Data sciences, machine learning, AI, and team building. I'm happy to share some insights into progress. We continue to build our engineering and data sciences capabilities as we seek to better leverage our large and rapidly growing data set of consumer and carrier preferences to drive consumer satisfaction and operating leverage.

14:51 An example of our work in Q2 includes deploying an internal anomaly detection platform, allowing for faster and more automated issue identification and resolution to improve many aspects of a consumer's journey, including integration. We believe that given our success with team building, we are winning the war for talent and we are thrilled to be a magnet for top talent. We've been successful hiring while developing current talent to support growth, scale, and innovation. EverQuote leaders are raising the performance bar with every hire and promotion. During Q2, we hired a significant number of full-time employees, including 20 engineering, tech, and data folks. Notably, we've also added three senior leaders to our team since our last earnings call. Mike Connolly as SVP of Agency Sales and Customer Success who joined from CarGurus, Tom McDermott as SVP of Health and Medicare who joined from Wayfair, and Michael Aldis as VP Insurance Data and Product Services from Liberty Mutual. We believe that continuing to add top talent to the team is another key indicator of our future growth and ability to capitalize on our massive market opportunity.

16:01 I also want to take a moment to talk about EverQuote's actions related to the important topic of diversity and inclusion, which has been an integral part of our culture since our founding. We believe that supporting diversity and inclusion is critical to both our success in winning the war for talent and creating an inclusive marketplace for the broadest possible range of insurance consumers. Like all decisions in our business, our efforts in diversity, equity, and inclusion, or DEI, are data-driven and extend to protecting the integrity of our analytics from potential bias. As we continue to grow as a company, we want to ensure that our long-standing commitment to DEI remains integral to our strategic decision-making and governance. Yesterday, we announced that Darrell August, who is foundational in our growth and leads our strategy group and our DEI initiatives, was named to our board.

16:51 We are confident that our board's decision-making will be enhanced by his presence and counsel. We view DEI in the context of our broader commitment to Environmental, Social, and Governance, or ESG, considerations in managing our company. Since our founding, we have recognized the importance of incorporating broader social considerations into building a great company, which we believe ultimately drives higher long-term shareholder value. We look forward to sharing more with you about our efforts around ESG. Finally, I wanted to touch on our strategic plan, which we refer to internally as our path to $1 billion, and includes bold bets on initiatives such as direct-to-consumer agency experiences. This plan is our internal roadmap for how we plan to build a large and impactful company that can lead and accelerate the digital transformation of the $2 trillion insurance industry online.

17:48 We're confident that we have the elements and a deterministic path to grow our business to $1 billion of revenue consistent with our long-term model. In summary, we delivered a solid second quarter with strong execution across our verticals and see continued strength in the business as Jon will reflect in our guidance. Our marketplace flywheel is demonstrating progress and resilience with increasing diversity across our team, traffic, verticals, distribution, and customer experiences, including direct consumer agency initiatives in life and health insurance. We are confident that we are better positioned now than at any point in our history to capitalize on the shift of insurance online. I would like to thank our customers, our partners, and our shareholders for believing in our vision and for their ongoing support, as well as our terrific employees who each share my passion about EverQuote's incredible future.

18:43 Now, I'll turn the call over to Jon to provide more details on our financial results.

18:49 Thank you, Seth, and good afternoon, everyone. I'll start by discussing our financial results for the second quarter of 2020, highlight our current financial performance, and then provide guidance. We're pleased to report a solid second quarter of 2020, with results consistent with our guidance across all our key financial metrics. Second quarter revenue was $78.3 million, up 41% year over year, A growth rate that is notable considering the level of economic and social disruption during the quarter. Second quarter revenue in our auto insurance vertical increased to $64.6 million, a growth rate of 30% year-over-year. Second quarter revenue from our other insurance vertical, which includes home and renters, life, health, and commercial insurance, increased to $13.7 million, a growth rate of 133% year-over-year.

19:47 Non-auto revenue now represents 17.5% of total revenue. In the second quarter, variable marketing margin, or VMM, which we define as revenue less advertising expense, was $23.5 million, an increase of 41% year over year. As a percentage of revenue, VMM expanded nearly a point over first quarter VMM to 30%, while staying consistent with the prior year's quarter. In the second quarter, consumer quote requests increased 50% year-over-year to 6.8 million. We believe traffic this quarter was negatively impacted by a combination of factors, including the softer seasonal trend of Q2, as well as a modest impact from consumer shopping distraction as a result of COVID-19 and social unrest.

20:39 During the quarter, we put a greater focus on growing consumer volumes in a challenging consumer environment, while not losing sight of our primary goal of growing variable marketing margin. Although online advertising costs have decreased broadly, insurance-specific advertising has remained more competitive, reflecting the resilience of the general insurance industry during this time. Our traffic teams have been disciplined and selective across the advertising and acquisition landscape and were successful growing consumer quote request volumes through the quarter and, importantly, exited the quarter with momentum as it extended into Q3. As anticipated, our increased volume of quote requests as compared to the prior year period was accompanied by a 6% year-over-year decline in revenue per quote request to $11.55 for the quarter. However, note that this was a 5% sequential improvement over Q1.

21:41 Similar to quote request volumes, we are seeing higher revenue per quote request continue into Q3, largely as a result of strong referral pricing. Although it's an output of our marketplace model, we do see higher revenue per referral as at least partially indicative of improving carrier sales performance from our referrals and a reflection of carriers' willingness to reflect that improved performance in their referral bids. Increases in revenue per quote request also provide us with the ability to bid more aggressively for advertising and consumer traffic while still delivering higher variable marketing margin as a percentage of revenue. The second quarter gap net loss was $2.8 million, or a loss of 10 cents per share based on approximately 27.1 million weighted average shares outstanding.

22:34 This compares to a gap net loss of $2 million in the prior year period. Our gap net loss was impacted by $6.3 million in stock compensation expense, largely the direct result of our higher stock price. We expect stock compensation for the balance of the year to be between $15 and $16 million. We delivered adjusted EBITDA of $4 million, or 5.1% of revenue, for the second quarter, above the midpoint of our guidance range. Our adjusted EBITDA benefited directly from favorable expense management and the variable nature of a portion of our non-advertising operating expenses. We generated $4 million in positive cash flow from operating activities in the quarter, with $54.4 million in cash and cash equivalents on the balance sheet at the end of the quarter. We are also finalizing a renewal of our working capital line of credit, increasing it to $25 million further improving our liquidity position. As Seth mentioned earlier, we're excited today to announce the acquisition of Crosspoint to help fuel our growth in the health vertical.

23:44 Crosspoint joins our recent direct to consumer agency initiative in the life vertical and will allow us to provide end-to-end insurance shopping experiences within the health vertical. The combined DTC agency initiative expands our TAM to include agency commissions and offers us the opportunity to improve the consumer shopping experience. Consideration to be paid at the closing of the acquisition is $15 million in cash, which will be funded from our balance sheet. Additional consideration, payable whenever quote stock may be earned based on three years of post-closing operational performance. In 2019, Crosspoint reported cash-based revenue of approximately $4 million and positive EBITDA. Crosspoint Management has demonstrated a consistent growth trajectory, and we're excited to add approximately 30 new team members to our company, including the two passionate founders and leaders.

24:42 We expect to close the acquisition in late Q3. Before discussing guidance, I'd like to provide a brief update of the impact of COVID-19 on our business. Beyond a modestly perceptible impact to consumer shopping intent and volume, We believe COVID-19 had a relatively minor impact on Q2 results. We remain confident that the long-term impact of the pandemic will be to accelerate the transition of insurance industry advertising dollars to online channels and to emphasize the importance of products and workflow that support online consumer insurance shopping and purchasing. We continue to closely monitor the near-term effect of COVID-19 on advertising and consumer traffic and acquisition.

25:28 and as previously noted, we've seen early trends consistent with our seasonal pattern of sequential growth in Q3. Now turning to the specifics of Q3 guidance, we've reflected these operational trends observations and our confidence as follows. We expect revenue to be between $84 and $86 million, a year-over-year increase of 27% at the midpoint. We expect variable marketing margin to be between $26.5 and $28 million, A year-over-year increase of 30% at the midpoint. And we expect adjusted EBITDA to be between $4 and $5 million, a year-over-year improvement of 15% at the midpoint. For the full year 2020, we're pleased to be increasing our guidance reflecting the early Q3 momentum through the balance of the year, the impact of the cross-point acquisition, and incorporating the anticipated organic growth of our health vertical.

26:27 We expect revenue to be between $331 and $336 million, an increase from our prior guidance of $318 to $327 million. We expect variable marketing margin to be between $101 and $104.5 million, an increase from our prior guidance of $96 to $102 million. And we expect adjusted EBITDA of between $15 and $17.5 million, an increase from our prior guidance of $12.5 to $17.5 million. In summary, we delivered solid second quarter financial results in line with our guidance. We're experiencing continued momentum that we are pleased to reflect in our improved outlook. Seth and I look forward to answering your questions.

27:24 And as a reminder, to ask a question, you will need to press star 1 on your telephone keypad. To withdraw your question at any time, press the pound key. Please stand back while we compile the Q&A roster. And your first question comes from the line of Ralph Sheckart from William Blair. Please go ahead.

27:49 Good evening. Thank you for taking the question. I have a couple if I could. First, Seth, on the DTC new initiatives, both by the Crosspoint Acquisition and Life Insurance program that's homegrown, perhaps you give us some more color on the strategic rationale for these. Obviously, a large TAM, but just curious how this is going to interact with the marketplace model, and then any more of these opportunities that you may have going forward that you could perhaps give some perspective on. And then maybe just kind of rewind a Sorry, we'll start with that one.

28:19 Yep. No, go ahead.

28:22 Maybe just on the quarter, kind of want to revisit some of the comments there. I think you had called out some seasonality, obviously, in Q2 on the traffic side, but also some maybe pronounced impact from COVID as well as the social unrest in late Q2. Any way you could help us think about how that traffic rebounded, perhaps quantify it in July, and then any perspective, which one may have impacted more in the quarter, you know, between COVID and or the social unrest. Thanks.

28:50 Sure, Ralph. Thanks, and good afternoon. So I'm going to take the first question, and Jon is going to answer the second question. You know, our traffic team is doing extraordinary work driving great growth, and there are specific segments. where we obviously have more consumer demand than provider supply, and you can see that in the RPQR, the revenue per quote request dynamic. The direct to consumer agency initiatives, both of them, will actually help us cover these underserved consumers. They certainly can help us lower friction, drive higher revenue per quote request in these specific segments, and so ultimately it'll enable us to continue to ramp traffic, spin our flywheel more, increasing actual overall consumer demand in the marketplace to benefit everybody. So that includes our partners in the marketplace.

29:39 So we do expect that the vast majority of consumers to continue to match and connect with partners. And again, this will enable us to drive incremental growth, especially by increasing the coverage for underserved consumers in these specific segments. As far as incremental VTC segments, right now we're focused on obviously health and life, and that's what we're working on right now.

30:04 Sure. And then, hi, Ralph. I'll take the second part. Within Q2, we saw a more challenging consumer environment. Our traffic teams reacted to that, and ultimately we turned in quote request volumes that were in line with our expectations, albeit at slightly higher cost per quote request. I think more importantly, we saw very good momentum going into Q3. We've reflected that in our guide. I think when we look at Q3, we see a balanced quarter developing, certainly a quarter that's led by growth in consumer volumes, but I think you'll continue to see good sequential increases in unit economics as well. So I think we saw Some turbulence in Q3, and you can connect that to the normal, excuse me, Q2. You can connect that to the normal seasonal pattern of Q2.

30:57 But we also described some connection to consumer distraction from shopping, which is COVID-19 or social unrest. But I think we've seen a Q3 developing that is, like Q2, largely consistent with the seasonal pattern which for Q3 means sequential growth over Q2.

31:20 Great. That's really helpful. Thanks, Seth. Thanks, John. And your next question comes from the line of Ron Josie from JMP Securities. Please go ahead.

31:32 Great. Thanks for taking the question. And hi, Seth. Hi, John. So I wanted to understand maybe following up on Ralph's question, the D2C agency model set a little bit more and maybe just from the consumer approach, can you just talk about How the consumer experience might evolve here, and really the two different channels on the DTC agency versus the marketplace. And then I want to ask a little bit on auto revenues. It looked like they declined sequentially around 4.5%, and just wondering if this has anything to do with what you talked about within Chival and Rest, et cetera, or is this more of a seasonal thing which sort of ebbs and flows? Thank you.

32:08 Sure. Hi, Ron. Good afternoon. This is Seth. I'm going to take the first question on DTC. agency, and then Wags will follow up with your question with regards to auto's growth. On DTC agency, it is a consolidated marketplace experience. So consumer arrives, and if that consumer happens to be in one of the segments that we're covering with a direct-to-consumer agency experience, you know, let's say we can do it, we can sort of match them by age or coverage needs. Basically, they can go through our workflow. They can get either a curated quote, so a single quote exit matched with a product that serves their needs, or multiple quote exit, and then they can actually connect with an agent directly in our platform, either online or offline, to purchase insurance. And so these are experiences that we're already building out.

33:02 We already have these personalized experiences running in production in life, and it literally takes a consumer who's matched in a specific segment with an under-met need with a very streamlined product that they can purchase online or offline through one of the agents in our platform. And so that's precisely how it works. Again, we're confident it'll reduce friction, increase coverage, and plug us, sort of broaden our exposure to the Commission TAM.

33:30 So, Ron, on your second question there, we did connect our expectations around Q2 with the normal seasonal pattern. We were quick to say in the past that we've seen disruption to that seasonal pattern, which is usually a softer Q2 in recent years, and that was really connected to the growth of the other verticals. So that seasonal pattern of a down Q2 is one that we do associate more with the autos vertical than with these new other verticals, which are growing kind of through any seasonal trend. and that's what you saw within the quarter with the other vertical growing 133% year over year. So we do see kind of the seasonal trend as being most connected to the auto's vertical and kind of our historic business.

34:20 And I think, Ron, it's also important to note, right, we came in right on our traffic model, right? 50% year on year growth for quote request volume in the quarter and sort of right on the button in terms of maybe at the high end of the model for costs, which again, we believe is that compounding effect of COVID and social unrest. And then it was simply an air pocket, came right out with strong momentum, strong unit of economics into Q3. And your next question comes . Please go ahead.

34:57 Hey, great. Thanks for taking my question. Just first, on the third quarter guidance, is that predominantly organic? And then on the crosspoint acquisition, I mean, does the majority of that revenue show up in the fourth quarter? Just how should we view the guidance?

35:15 Yeah, you've got it, Jed. So third quarter, you know, as we look at the crosspoint acquisition, we anticipate that closing late in Q3. So we really don't anticipate much contribution within Q3. So what you're seeing there is is a strong organic quarter. As you look at the full-year guidance, we've considered the cross-point acquisition as well as the momentum that we're carrying into Q3, as well as the contribution from our own health vertical as well in terms of the full-year raise with regard to the full-year guidance there.

35:52 Okay, thank you. That's helpful. And then just a couple things. On I mean, are you seeing any benefit from the increase in used car sales that we saw in June, July? And then how are you thinking of the large carriers' budgets as, you know, brand television starts, you know, as live events and they start to lean more into branded channels? Just how is that dynamic shaping up for the second half of the year?

36:22 So, you know, typically, Jed, we see no connective tissue, little to no connective tissue. between car shopping and even auto insurance shopping. A vast majority of the business is renewal, price shopping, you know, triggered by a claims experience, good or bad. And so again, we don't see much connective tissue. We grew traffic in Q2 really, you know, at the high end of our growth model for traffic with a modestly increased cost per quote request. So we're pretty confident that the consumer demand dynamic and the opportunity to grow consumer demand is evident and right in front of us and we'll keep executing on it. With regards to incremental advertising on TV and turning on some of these channels, again, we see it more as a dimmer switch. It'll turn on slowly over time as opposed to a light switch. And there are certain conditions under which incremental offline advertising actually can drive up online consumer demand as well.

37:22 So, again, we've considered all this. in our model and our guidance, and we're really confident that we've set the stage not just for a strong Q3, but a strong back half of the year.

37:34 Okay, and then just one more question. You talked about some of the social unrest maybe impacting your traffic acquisition. The election's coming up, so I mean, how are you going to manage that? Because I guess that would could be potentially as volatile as social unrest online. So just can you talk about that too?

37:57 Sure. Again, it is important to emphasize that the traffic teams delivered a significant 50% year-on-year growth. In addition, as you know, we keep diversifying the marketplace, adding traffic sources, expanding our major sort of traffic elements or the sort of different marketing campaigns. And in fact, in Q2, we saw an increase across the board in all of our traffic operations, certainly with some highlights in search or industry-specific channels. And again, we didn't so much see traffic moderation because we were able to keep executing against our model. And I believe that's also related to just our team's increasing and extraordinary ability to execute and demonstrate resilience in the traffic models that we have. And then sort of finally coming out of that, I'm really confident that we'll be able to continue to execute as we did in Q2, even with the election in view. And that is a function of increasing diversity, great execution, and resilience in the business model or traffic model.

39:06 Thank you. And your next question comes from the line of Michael Graham from Canaccord. Please go ahead.

39:18 Thank you. Hey, everyone. Does the DTC initiative change your regulatory footprint at all? You know, do you have to go, like, state by state and get licensed or anything like that? Does it impact your growth trajectory? And then, you know, you've talked in the past about sort of tapping more into the agent commission TAM and auto. sort of moving beyond advertising budgets. Do you plan on taking this model to auto as well? And can you just touch on what are some of the other strategies you have in place to capitalize on the agent commissions, Tim, in auto?

39:57 Well, sure. Let me take your first question. Hi, Michael. Good afternoon. So as far as compliance, in order to share quote information to basically help folks get insurance, We have been licensed to produce insurance for some time. So we maintain, I believe we maintain licensing in all or most of the states that we operate in. So we don't expect any kind of sort of bottleneck or Any of our growth to be prevented by having to go through licensing because we've done that. In the health segment, the acquisition of Crosspoint gives us incremental, not just incremental in market experience, but also some incremental licensing around health and appointments with some of the carriers in the specific segments that we're going to serve together with Crosspoint. As far as plans for DTC and auto, right now, again, there's so much opportunity in these two specific segments that we're announcing today in health and life that that's where we're really focused.

41:03 And there's always an opportunity with agency partners to evolve the business on more of a commission share basis. So, you know, that's always open to us. We will continue to explore the opportunities as we expand the marketplace for both consumers and providers. And we're going to be focused, laser focused, on growing out the health and life verticals using these new initiatives.

41:26 Okay, that's great. And I'll just slip in one more. Seth, maybe you can just comment on the macro and auto. I mean, I think we saw a little bit of, you know, carriers with maybe a little more money to spend. You know, how much have you guys factored into your thinking for the balance of the year, the possibility that, you know, miles driven starts to go up and claims activity starts to go up and does that impact Carrier Spending.

41:52 So, you know, maybe we'll go backwards through that. Again, we're confident that by increasing diversity outside of auto, by even within auto having a diversity between the carrier business, the agency business, and the DTC distribution businesses, we further increase monetization diversity in that we believe over the long term really strengthens the business. As far as the dynamics we're seeing, and again, what we expect through Q3 in the back half of the year is, you know, we saw even in Q2 and now leading into Q3 increasing monetization. So Q2 revenue proposal plus was up sequentially from Q1. We saw that momentum continuing again into Q3 where monetization continues to strengthen. And we believe that reflects really two things.

42:40 One is our performance for referrals and the performance of our referrals for our provider partners but also our provider partners' appetite to grow their business with us, to increase their marketing spend. As far as what do we expect the impact to be, on the provider side of the business, we expect continued strength and demand from the providers. Now, on the consumer side, we did see some modest moderation towards the end of Q2, and that also was just an air pocket come out, and both July was very strong, volume and unit economic-wise for consumer demand in auto, and we expect that to continue into the quarter, and it's reflected in our guidance. As far as, you know, how do we expect all these puts and takes to play out, again, I think the effects in terms of turning back on TV, folks driving more because of the way the pandemic was managed in the U.S.

43:36 are likely to be more of a dimmer switch turning up. have been a light switch, and we expect continued strength both in growing consumer demand and in better budget demand in the marketplace in Q3 and through the end of the year, a slow shift back to normal, if you will.

43:57 Okay. Sounds good. Thanks so much. And your next question comes from the line of Mayank Tanton from Needham.

44:09 Please go ahead. Thank you. Good evening. Hi, Seth and Jon. Just a few questions here. I wanted to ask you broadly about competition. Your larger peer, or I guess you're about the same size now in terms of peer revenue, has talked about some relative softness versus you, at least what you're showing in your business, despite some of the challenges in the second quarter. Could you talk about what are some of the differences that have helped you maybe come out relatively unscathed So far during the pandemic and then also just I would love to hear any thoughts if you could comment on some of the emerging so-called emerging players in this market. I think there's a lot of noise around platforms like Zebra, Gabby, etc. Are they making a dent in the market or is it sort of so large that it's not really having an impact on your opportunity?

45:00 Sure, Mike. You know, let me take it maybe backwards with your second question first and good afternoon. So, you know, again, The dominant trend in the business is the secular shift of literally billions of dollars from offline spend by the insurance industry to online. A lot of the online agencies, which you just mentioned, and a lot of the insurtechs, some of whom just went public, many of them are either partners or customers of ours because, again, we can help provide them consumers for the specific books of business or the segments that they're each addressing. So we're really well positioned to not just inherit, you know, increased marketing spend from the carriers, but also partner with these insurtechs and online agencies so they can grow their business profitably, and we do.

45:48 They are in essence, especially the names you just mentioned, potential or already incremental budget in our marketplace. You know, as far as our comp, I think you're referring to Tree, I understand. Our revenues exceed theirs at this point, but all that having been said, I have no commentary on their operations for insurance, by the way. Not in total, but for insurance, I have no commentary on their operations. I will say what's different about us is we've taken a tech and data-driven approach that's really focused on addressing the broadest possible swath of consumers with broad product selection, maximize provider inclusion to basically also maximize and I think our incremental growth over our peers should demonstrate that.

46:41 That's a good, helpful background. Also, just one question for Jon. Jon, as we think about the second half model, how should we think about the quote request versus revenue per quote request tracking? And then also, do you still expect to see some benefit on the cost or is that going to start to trend higher as I think you mentioned that it is still competitive on that side of the market as well?

47:07 Sure. So I think what we think about for Q3 and beyond is really balanced growth, right? We think of that, you know, as in recent quarters being driven by quote request volume, but we also expect incremental increase in the unit economics. And I think that would be led by revenue per quote requests. So I think you would expect increases in Q3 in revenue per quote to Q3 of last year as a more meaningful benchmark than say this past quarter in terms of where revenue per quote request could go. But it's still going to be a story that's led by volume increases. But it's a balanced story with revenue per quote request as well. I think as part of that whenever we see revenue per quote request increases, that allows us to get a little more aggressive on traffic acquisition, and that usually is accompanied by an increase in cost per quote request, but often not quite the level of revenue per quote request. So that usually is reflected in increases in variable marketing margin, which is what we've reflected in our guidance for Q3.

48:20 Right. That clarifies it. Great job, guys. Thank you so much.

48:23 Thanks, Brian.

48:24 Thanks, Brian. And your next question comes from the line of Doug Edmuth from JP Morgan. Please go ahead. Hi, this is Ryder on for Doug. Thanks for taking my questions. I'm wondering what kinds of increases you're seeing in bind rates from carriers with deep integrations versus carriers without deep integrations and how that translates into revenue per quote quest.

48:50 Sure. I mean, what we've discussed publicly and published is that we see an increase, depending upon the depth of the integration, An increase in bind rate or conversion rate to a policy sale of anywhere between 10% at the low end and 41% at the high end. And we expect that essentially to linearly be reflected in revenue per quote request in two ways. One is just a bid up because now providers actually can recycle higher performance into higher volume. And then we also feel or believe you're confident you can leverage integration, specifically deep integrations, to increase the number of referrals We make procure requests. So there's two ways that that can drive increasing our BQR as we execute on that.

49:35 Great. Thank you. And your next question comes from the line of Aaron Kessler from Raymond James.

49:46 Thanks, guys. I'm curious to hear your thoughts on what you're seeing in the market for ad pricing. I assume it did improve. from Q2, or just in terms of you buying traffic, or from Q1, sorry. And then how much room do you think you further have to improving maybe your efficiency of buying? That was obviously a big benefit over the last year. How should we think about that going forward? Maybe finally, just if you can tell, how are consumers changing their policies with COVID-19? I assume obviously they're driving less. Are they ratcheting down kind of their insurance levels? I assume the offset is that insurance companies are more profitable as well. Thank you.

50:27 Sure. Can you clarify, Aaron, did you say efficiency of buying?

50:33 Yes, that was the second question. How much room do you think you further have to improve your kind of ad buying efficiencies?

50:41 So what we saw and was consistent in Q2 in the non-insurance industry specific channel, we saw pricing soften. And then We saw certainly towards the, and throughout the quarter, we saw the specific, and we had talked about this before, Aaron, we saw industry-specific channels, again, because of the resilience of the industry. We had expected this. We saw industry-specific marketing channels. So relatively, you know, the costs were stable to up, you know, as there was some tighter competition, and the unit economics were strong throughout. In terms of overall traffic execution, we stayed focused on continuing to drive higher converting traffic, and our channels and saw a modest increase in price towards the end of the quarter, which then sort of cleared out as we entered July.

51:28 We had a very strong July, both in terms of volume, but also in terms of cost dynamics on a per converted basis. As far as the efficiency of buying from the platform, what I can say publicly is year on year, we've dramatically increased the rate at which we go from an arrival to a quote. And we do expect that with deep integrations, we will continue to drive up our bind or policy sales rate and that will be reflected back to us as monetization. That's what we believe and we have seen monetization not just increase sequentially from Q1 to Q2 but also shows strong momentum and strengthening from Q2 into Q3 which is sort of giving us confidence that that dynamic is underway. As far as major policy changes I think what we can say is we do expect people to continue to shop especially Thank you very much.

52:45 And just as a reminder, if you would like to ask a question, please press star one on your telephone keypad. The star one. And your next question comes from the line of Michael McGovern from Bank of America. Please go ahead.

53:01 Hey, thanks for taking my question. I just want to ask a quick one about the brand strategy and how does the long-term strategy change now with the DDC agency offering and also would you consider expanding the DTC agency business to more verticals longer term? Thanks.

53:23 Sure. Maybe I'll take them a bit out of order. Good afternoon, Michael. So as far as long-term strategy, the DTC agency initiatives really extend our marketplace by deepening provider and consumer engagement and serving underserved consumer segments. So again, we think ultimately it provides better coverage which will enable us to drive more traffic and all of our partners will benefit. It also gives us an opportunity to broaden our exposure to the commission TAM, the $130 billion commission TAM in the shift of insurance online. As far as brand strategy, what we said is our long-term model and we expect to continue to execute with our data-driven and tech marketplace model. And we'll extend our growth levers and keep building on our path to a billion.

54:09 But we have an opportunity to introduce what we call a performance brand strategy, Michael, which gives us the ability to basically leverage increasingly what we call upper funnel advertisement to build out audiences across our specific vertical and actually further increase conversion rate, not just of our traffic, but downstream to policies. And so we conducted some of probably really the largest tests that we have in our history on building in-market insurance audiences across several different consumer segments. It was successful, and we're going to keep evolving our brand strategy. We do see it as incremental potentially to our long-term model, and we do expect that any quote, unquote, brand spend we have to drive positive ROI in our existing marketing channels, which is an important distinction from loss-leading brand

54:59 marketing. All right. Thanks so much. and currently I'm showing no questions at this time in the queue.

55:15 So I do want to thank everybody for joining us. You know, our teams, shareholders, investors, analysts, it was a great quarter. We put in place the basis for what we're confident is a strong Q3 back half of 2020 and into next year. We're more bullish and excited about our business than ever, and we appreciate everybody's support and participation in our journey. We look forward to taking your questions offline and meeting you at upcoming events. Thank you so much. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for participating.