EverQuote Inc (EVER) 2021 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for attending today's EverQuote Fourth Quarter 2021 Earnings Call. My name is Tia, and I will be your moderator for today's call. (Operator Instructions)

I would now like to pass the conference over to your host, Brinlea Johnson with Blueshirt Group. You may proceed.

Thank you. Good afternoon, and welcome to EverQuote's Fourth Quarter and Full Year 2021 Earnings Call. We will 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 2022; our growth strategy and our plans to execute on our growth strategy; key initiatives, including our direct-to-consumer agency; our investments in the business; the growth levers we expect to drive our business; our ability to maintain existing and acquire new customers; our expectations regarding recovery of the auto insurance industry; our recent acquisitions; 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 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 cause our actual results, please refer to those contained under the heading Risk Factors in our most recent quarterly report on Form 10-Q and our annual report on Form 10-K, which is on file with the Securities and Exchange Commission and available on the Investor Relations section of our website at investor.everquote.com and on the SEC's website at sec.gov.

Finally, during the course of today's call, we will refer to certain non-GAAP financial measures, which we believe are helpful to investors. A reconciliation of GAAP to non-GAAP measures was included in the press release we issued after the close of market today, which is available on the Investor Relations section of our website at investors.everquote.com.

And with that, I'll turn it over to Jayme.

Thank you, Brinlea, and thank you, everyone, for joining us today. 2021 marked a defining year for EverQuote. Despite significant headwinds emerging in the auto insurance industry in the second half of the year, the team exhibited tenacity and the business showed its resilience.

In 2021, we delivered revenue and Variable Marketing Margin, or VMM, year-over-year growth of 21% and 19%, respectively. We generated adjusted EBITDA of $14.6 million. We made significant strides toward our strategy to move down the insurance value chain, enabling richer connections between shoppers and providers, selling policies directly to consumers and building deeper customer relationships.

Q4 accentuated this progress and resiliency. During Q4, we exceeded our revised revenue expectations, growing 5% year-over-year, while delivering performance in line with our guidance on both Variable Marketing Margin, or VMM, and adjusted EBITDA. The following advances towards our long-term strategy contributed to our solid results in Q4 amidst the very challenging auto insurance industry backdrop.

On the shopper side of our marketplace, we added 50 new partners in 2021 to our Verified Partner Network. Consumer volume acquired through these partners contributed to 25% year-over-year quote request growth in Q4.

On the provider side of our marketplace, auto revenue in our local agent channel grew in Q4, even as revenue from our auto carrier channel contracted significantly during the period. We expanded adoption of our service to manage the online to off-line connection on behalf of local agents, driving better performance for agents and extending our competitive moat in this valuable channel.

Our direct-to-consumer agency, or DTCA, a cornerstone investment area over the last 2 years, delivered a breakthrough Q4. In health and Medicare, our Eversurance agency delivered $14.5 million of revenue and over threefold year-over-year increase. And since the start of the enrollment period, Eversurance customers have given us a positive 84 NPS score, effusively citing the helpfulness and friendliness of our advisers.

We also integrated Policy Fuel, the P&C agency we acquired last summer, culminating the assembly of EverQuote's multiline direct-to-consumer agency. We entered 2022 performing well in customer acquisition and in our local agent and DTCA distribution channels. Unfortunately, the carrier channel, which has historically been our largest, remains problematic, with continued uncertainty around the timing of recovery in auto insurance, carrier, digital customer acquisition spend. While we've seen modest recoveries from Q4 lows, we remained 30% to 40% below August 2021 levels of carrier online revenue per quote request, or RPQR.

Each week, carriers continue making large changes to campaigns, including pausing or reactivating entire states or segments, which is highly unusual during more stable times. These changes result from ongoing profitability analysis being done by the carriers as both rate and loss environments continue shifting dynamically.

Given this uncertainty, our full year forecast is based on conservative assumptions about the recovery in auto carrier monetization, which has 2 implications. First, it negatively affects revenue, particularly in the first 3 quarters of the year, as our 2022 forecast anticipates minimal growth in the auto business as expected gains with local agents and in DTCA are offset by an extended period of lower year-over-year carrier demand. And second, it has a relatively larger negative impact on adjusted EBITDA.

Ultimately, the recovery in auto carrier monetization will be driven by the pace at which carriers receive approval to increase rates, enabling them to restore broader underwriting appetite and higher willingness to pay.

We approach 2022 with discipline and flexibility. We will apply discipline and managing profitability by sharpening our near-term focus to a limited set of strategic initiatives. These include: first, in customer acquisition, growing and expanding newer channels like live calls; second, in our marketplace, extending our advantage with local agents as we continue improving the quality of shopper-agent connections; and third, in our DTCA, more fully integrating Policy Fuel with our broader organization, continuing to optimize our funnels to improve unit economics and establishing our ability to cross-train agents and cross-sell consumers across product lines. We are also pausing efforts to build a commercial insurance vertical.

At the same time, we will invest judiciously in areas where we can extend the competitive advantage and emerge from the auto downturn and a position of relative strength. We will be measured early in the year while planning for and creating options to accelerate investment quickly if auto insurance carrier pricing rebounds faster than expected.

In closing, we remain steadfast in building towards our long-term vision of becoming the largest online source of insurance policies by using data and technology to make insurance simpler, more affordable and personalized. It has been a busy first year as CEO of EverQuote. I couldn't be more proud of our team's ability to navigate changes in the industry or more excited by the long-term opportunity for EverQuote. Last year's progress with local agents and in our DTCA has set the foundation for EverQuote's next phase of growth as we build the one-stop insurance shop for the digital age.

Now I'll turn the call over to John to provide more detail 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 of '21 and then provide guidance for the first quarter and full year of '22.

Our total revenue for the fourth quarter grew 5% year-over-year to $102.1 million, despite macro challenges in the auto insurance industry. Full year revenue increased 21% to $418.5 million. As anticipated, revenue in our auto insurance vertical decreased to $70.4 million in the fourth quarter, down 8% year-over-year, as auto insurance carriers cut their advertising spending to manage for overall profitability, considering the recent increase in claims losses affecting the auto insurance industry.

Unpacking the overall performance of our auto insurance vertical in the fourth quarter makes it clear that we benefited from the diversity of our distribution channels, even within the auto insurance vertical, as revenue from carriers declined more significantly by 29% year-over-year. But that decrease was partially offset by an increase of 12% from our local agent network and additional contribution from our DTC agency.

Though auto insurance carriers have dialed back their direct advertising to increase their immediate profitability, agent businesses and their commission payments from carriers are not affected in the same manner because those well-established structures cannot be throttled back in the short term without long-term consequences for the carriers' business.

Revenue from our third-party agents was 39% of total revenue in both Q4 and the full year '21, reflecting the resilience of agent distribution during this difficult auto insurance cycle. For the full year, notwithstanding the challenges in the second half, our auto insurance vertical grew by 17% to $330.9 million.

Revenue from our other insurance verticals, which include home and renters, life and health insurance, increased to $31.6 million in the fourth quarter, growing 50% year-over-year, which demonstrates the progress we've made diversifying our revenue streams beyond the auto insurance vertical. For the full year, revenue from our other insurance verticals increased 38% to $87.6 million.

Notably, these non-auto insurance verticals represent 31% of our fourth quarter revenue, an all-time high and representing significant growth compared to 22% of revenue in the prior year period. Our non-auto insurance revenue growth benefited from our strong execution in the health insurance vertical and specifically from our direct-to-consumer agency policy sales.

During Q4, we increased our health first-party employee agent count by over 200% to approximately 130 agents. And we delivered revenue of $14.5 million, achieving a 281% year-over-year increase in our health DTCA revenue.

Turning to our metrics. Quote request in the fourth quarter increased 24.5% year-over-year to 8.2 million with a strong contribution from our Verified Partner Network, especially in support of our open enrollment period within the health vertical. Revenue per quote request for the fourth quarter decreased 16% year-over-year, reflecting price declines from carriers within our auto insurance vertical, partially offset by greater contribution from our non-auto verticals and our DTC agency.

The variable nature of our advertising and consumer acquisition spending was evident in a nearly equal reduction of our cost per quote request of 15% year-over-year, aligning our cost of acquisition with the current lower levels of auto insurance carrier demand.

Q4 marked our second quarter with accelerated consumer volume growth at greater than 20% year-over-year quote request growth. We anticipate that once consumers start receiving rate increase notices from their current carriers, that many of those consumers will shop for new policies in search of lower rates, adding support for continued quote request growth in 2022. However, our business has evolved beyond a referral marketplace to include new models and traffic like the Verified Partner Network and new models and distribution like DTC agency.

We believe that the quote request metric no longer fully reflects the dynamics of our marketplace and is generally an output as we manage the business for variable marketing margin. As a result, we will no longer be providing quote request as a regular quarterly metric, but we'll update you on consumer acquisition progress and metrics periodically.

Variable Marketing Margin, or VMM, defined as revenue less advertising expense, remains the North Star of our business and the key metric that we seek to maximize as we grow the business. We delivered a fourth quarter VMM of $32.9 million, an increase of 3% year-over-year. Full year VMM expanded 19% year-over-year to $129.6 million.

Turning to our bottom line. GAAP net loss was $8.5 million in the fourth quarter and $19.4 million for the full year. While we continue to make investments to support our growth initiatives, we've also been focused on managing our operating expenses, especially as it relates to resources dedicated to the auto insurance vertical to maintain positive adjusted EBITDA during this difficult period. We delivered adjusted EBITDA of $543,000 for the fourth quarter and $14.6 million for the full year 2022.

Operating cash flow was a use of cash of $6.9 million in the fourth quarter, reflecting our modest adjusted EBITDA in the quarter, which drives cash flow from our referral marketplace and higher revenue contribution of policy sales commissions in our DTC agency, which we collect over the expected lifetime of the policy sold, which stretches into future periods. We ended the year with cash and cash equivalents on the balance sheet of $34.9 million and $25 million in availability on our debt facility.

Turning to our outlook, including an update on the market conditions within the auto insurance industry. As Jayme detailed, though we see increases in demand and pricing from our carrier customers in our auto insurance vertical in Q1 2022 as compared to Q4 of 2021, we are far from the more normal levels of demand in the first half of 2021. In discussions with our carrier customers, they are expressing less near-term confidence and visibility in their advertising budgets as compared to a typical year.

Last quarter, we identified the expected stages of this cycle with carriers recalibrating rates, refiling with regulators and implementing those higher rates in renewal cycles and with new business. That process is now widely reported and is being underway within the industry, and we believe we are in the middle innings of a multi-quarter hard market cycle within auto insurance.

We expect measured and gradual improvement in demand and pricing within our auto insurance vertical through 2022 as carriers realize premium increases from rate changes. Those changes improve their overall profitability, and they reinstate advertising spending to grow new business. We expect that return of carrier demand, combined with higher levels of insurance shopping caused by consumers reacting to higher renewal rates, will set the stage for an eventual return to a more normal market and our return to our long-term model of higher growth and increasing profitability.

As we manage through this cycle, we are focused on auto insurance opportunities within more resilient distribution channels, such as our large network of third-party agents and our DTC agency and in our non-auto insurance verticals, which are not impacted by the auto insurance headwinds.

In Q1, we expect revenue to be between $101 million and $103 million, a year-over-year decrease of 2% at the midpoint. We expect variable marketing margin to be between $32 million and $33.5 million, a year-over-year increase of 4% at the midpoint. And we expect adjusted EBITDA to be between 0 and $1.5 million.

For the full year 2022, we expect revenue to be between $420 million and $430 million, a year-over-year increase of 2% at the midpoint. We expect variable marketing margin to be between $128 million and $134 million, a year-over-year increase of 1% at the midpoint. And we expect adjusted EBITDA to be between 0 and $5 million.

We expect to grow revenue modestly for the year and maintaining positive adjusted EBITDA on a full year basis despite market challenges in auto insurance. With the increased contribution of our DTC agency, we expect our seasonal pattern will reflect a slightly negative adjusted EBITDA in Q2 and Q3 as we exit the secondary Medicare open enrollment season in Q1 and incur staffing costs in advance of Q4's annual enrollment period. We expect Q4 will be our strongest quarter for revenue, VMM and adjusted EBITDA.

Similar to Q4 of '21, our operating cash flow will reflect a use of cash as policy commission revenue recognized in the DTC agency is growing and primarily collected in future periods.

In summary, we delivered results in line or better than our revised guidance for the fourth quarter, reflecting the resilience of our multi-vertical insurance model and our diversity of distribution channels.

In 2022, we are maintaining discipline in managing operations, while investing in select opportunities to drive growth. With the eventual recovery of the auto insurance market, we expect to be in a strong position to capitalize on that recovery and to return to revenue growth and increasing profitability, consistent with our long-term model.

Jayme and I would now welcome your questions.

(Operator Instructions) The first question is from the line of Jed Kelly with Oppenheimer.

Great. Just 2, if I may. Any way to quantify the impact you think you'll see maybe from an organic traffic standpoint or volumes from more consumer shopping when they get the -- I guess, when they get the letter from the insurance company that their rates are going up?

And then, John, just on the guidance, kind of looks like your VMM dollars are going to be consistent with last year. So it looks like we're going to see an increase in OpEx. I guess I get the staffing costs. But can you kind of touch on more of those investments?

I'll take the first question. Jed, thanks. It's hard to quantify with any precision the impact that increased rates will have on shopping behavior. But we've seen it historically. When there's wave of rate increases, it tends to be followed by a bump in shopping behavior. And in this particular case, we anticipate the wave of rate increases to be both widespread and significant. So I don't believe it's unreasonable to expect you'd see sort of a tailwind of 10%, 20% in volume as a result of the rate increases.

And Jed, on the -- on next year, yes, there is additional operating cost built in. I'd say the most significant aspect of that outside of our investments in DTCA, which are probably most important to note, is also just generally higher operating costs. I think we are not alone in that. We are seeing higher costs even on our wages as the environment for talent is very competitive. And we're seeing that even in the wages and fair market value of our employees. So we have -- we do have a level of increased costs in the model that reflects some of those pressures that we're seeing in the wage model as well.

Got it. And just back to the, I guess, the DCA revenue. It was $14.5 million. Do you think you're gaining share from some of your other competitors that already reported results and might have struggled with some of the health care insurance policies?

Yes, Jed. So obviously, we're at a different level of magnitude, right, in terms of this being really our second open enrollment season. But I think different from what we're experiencing elsewhere is that we were pleased with our open enrollment. We performed above our revenue targets within the health DTCA business, and we did so with economics that we had largely planned for.

And so I think you've heard elsewhere commentary around challenges in the market, more shopping, less conversion. That's not what we experienced. So hard to say exactly what others are seeing, but we are very pleased with the performance of DTCA, health, and we really took it as a point of validation on the strategy.

And Jed, just to maybe just add a fine point directly to the question about market share. As John said, we're obviously starting from a considerably smaller base, but I would -- I think just the growth rate of three- to fourfold growth year-on-year would suggest that we took some share from the existing market.

The next question is from the line of Michael Graham with Canaccord.

I wanted to ask a couple. The first one is just on the auto headwinds. I think, John, your comments seem to indicate that Q4 -- you expected Q4 to be sort of a low point. And building from there, I just wanted to see if that was the correct perception. And then I think we identified that like the last couple of times this happened, it took sort of 4 to 6 quarters for the industry to work itself out. And I think when we first started talking about this, we felt like perhaps this cycle might happen more quickly. And I'm just wondering if some of the more recent data points you gathered have given you any more insight as to how long you think this is -- the cycle is likely to take relative to prior ones.

Thanks, Michael. I'll kick it off by saying we still believe that we did see an increase in January. That was largely expected, if nothing else, just based on the seasonal nature of budgets with the carriers, the fact that Q1 is a stronger season for auto coming off of Q4. So we do think that Q4 was the low point for auto demand. And that we now start a ramp going through 2022. I think what you could debate within the industry is what that ramp looks like, and what's the slope of that line to recovery.

As Jayme mentioned, we've been very thoughtful in how we've estimated that recovery. We're being kind of judicious in terms of a modest growth through the year when we look at auto insurance. And we're really focusing on those pockets within auto insurance where we can still grow revenue, and that's the things that we highlighted like our third-party agents or our first-party agents within auto and then, of course, the other verticals as well.

So that guidance is built on this combination of the other things in the business going well and growing as expected. And then we can avoid the idea that roughly 80% of the business is all 20%, 25% recover as we go through 2022. So that's a headwind that we can avoid. But we think we're largely seeing it play out like as we expected, right?

I think we were pretty early last quarter, talking about the trends, and we've seen that be echoed elsewhere. We're seeing the rate changes come through the carriers. We're seeing combined ratios start to get better from the carriers, but it's still early on in that process. And although that has translated to some increase in demand, it is, as Jayme said, volatile when you look at it. And we think there is a slope that builds through the year. It's not a light switch. It's a different switch.

Yes, Mike, if I could just add a little more color. We are -- the situation is still -- it's very dynamic, right? So each week, we're seeing carriers continue to make -- we have characterized pretty significant changes to their campaigns. I mean pulling out of states or segments or reactivating states or segments as things change. This is like very unusual during more normal times. So these are now like weekly occurrences happen since the downturn sort of started, which used to happen -- in normal times would happen maybe once or twice a year.

So the environment is dynamic. And in the face of that, we chose to take a kind of conservative view of the recovery in our forecast. It could come sooner, right, than we're forecasting. And when it comes, the business will be in great shape. As John said, we're firing on all other cylinders, right? And I think there's -- if you were -- if I were to take a glass half full view of it, you might argue that, hey, look, the carriers are getting their rates pushed through.

A lot of the driving factors of higher losses are subsiding in terms of inflation, supply chain bottlenecks, the used car -- tightness in the used car market. And there's going to be more shopping behavior as rates roll through. So one could argue there will be a bit of a swinging of the pendulum in auto insurance. And if and when that happens, right, especially in light of the progress we're making in other parts of the business, it will be a great swing for us. But I think in terms of our expectations with respect to timing, we're taking it -- we're assuming it will come through quite slowly this year just because of what we're seeing day to day at this point in time.

The next question is from the line of Ralph Schackart with William Blair.

Jayme, I wonder if you could just go back on a comment. I think I may have heard you sort of just talking about the recovery, but just wanted to be clear on what I thought I heard. Did you mention that in certain states -- or maybe you could provide some color more broadly, in states, even if it's not broad-based, that have reset their rates and consumers are coming back to perhaps shop new policies. Have you seen, even if it's on a small scale, that traffic pick up where consumers are, indeed, coming back to the marketplace and shopping policies and/or budgets starting to come back even if they're starting to trickle in and out coming at the pace that you would typically see in a seasonally strong Q1?

Yes. So I would separate the consumer volume from the budgets. On the consumer side, we have seen a noticeable bump in shopping behavior as we turn the corner into the new year. So that is playing out as expected.

With respect to budgets, we're still seeing it cut both ways. So we're seeing, as rates get approved, carriers reactivating certain segments or geographies. But we're also seeing them continue to pause out others. And so it's moving in both directions still, which, again, is why we're not forecasting a sort of rapid recovery in the first half of the year. We think it will take a bit more time to play out.

The next question is from the line of Mayank Tandon with Needham.

This is actually Kyle Peterson on for Mayank. Just wanted to touch a little bit on the cost side of the business. I know you guys have previously taken some actions on the cost side. It seems like it was going to preserve EBITDA reasonably well. I guess is -- did some of those cost savings end up getting reinvested back in the business? Or is it just that the recovery is taking a little longer, and so without the volume there, it's harder to see that in the '22 guide?

Yes. Thanks, Kyle. I'd say there's a bit of a combination there. I'd say the biggest aspect of the first component is what we called out, which is we are seeing pressure on wages. And we are making sure that we are retaining our folks and being responsive to what the market conditions are.

The other component, I think, is just the auto is -- even with the growth of the other verticals, auto is just such a significant part of the business. That pulling -- that coming -- pulling back at the magnitude it has put pressure on EBITDA. It rolls right through to EBITDA and puts pressure on us for the next several quarters as we go through the year. Really just no way to avoid that in the auto insurance turn now.

Okay. That makes sense. And then, I guess, just a quick follow-up on thoughts on the recovery. I guess just kind of with what you guys have seen since you guys reported in November versus now, it seems like there was some thought that 4Q was going to be the bottom. And I think the guide kind of implies it will be flattish, at least, for the first quarter. If things -- did things get worse like in December and like early January? Or have they just not recovered at the pace originally anticipated?

So the Q4 transpired more or less as expected. I think the trough went a little bit lower than we planned for. The good news is the health business outperformed our expectations. And so it was -- the sort of benefit of diversification played out in Q4 as the other channels kind of more than covered for auto.

But that does appear to have been the trough, right? So we saw a slight tick-up in January. And here we are now in mid-February, and things are still sort of dragging near the bottom. And so we -- again, because of that, we're forecasting most of the recovery to occur in the later part of the year. But it's not too far off of our original expectations. I would say, went a little bit lower in Q4 and hasn't quite stepped up the way we thought it might in Q1.

So does that answer your question, Kyle?

Yes. Yes. No, that's helpful. So I guess, it's just maybe bottomed a little lower than anticipated and it's taking a little longer to fight its way back. But that's helpful. Appreciate the color.

The next question is from the line of Cory Carpenter with JPMorgan.

Wanted to ask about the health care DTCA business. Now that you've had a few successful open enrollment periods, can you just talk about how that's informed your view on the size of the opportunity going forward and how big the business could be for you over time?

Sorry, I'm getting feedback. Hopefully, it's just me. And then just more broadly, you hired a bunch of agents this year. But what do you need to do, kind of next steps, just to kind of scale that business to the next level from here?

Sure. I'll start. Thanks, Cory. So listen, our vision is to become the one-stop shop for insurance in the U.S., where we really help customers manage all their insurance needs across all lines insurance and over the arc of their life. And so this year was kind of the culmination of assembling the assets that we need to do that and really punctuated in Q4 with the success we had at sort of the next level of scale in health and Medicare.

And so as we think about what we're building, it's more than just the health and Medicare agency. It's really like -- it's a fully integrated multiline agency. And in that agency, we'll have agents who can be cross-trained and rotate across product lines to reflect the seasonal patterns and needs of consumers. We'll have agents who can serve consumers across multiple lines of business to improve retention and LTV over time.

So cast in that light, Cory, we think this can become a sort of on equal footing with our marketplace business over time. That's sort of how I'd think about it. And it's very complementary to the marketplace business. It kind of sits on top of it where we have consumers coming through, and in many cases, the right product for them will be State Farm auto policy. In other instances, it might be something that we offer directly.

And so that's kind of how we think about it. It really extends beyond just like a health and Medicare brokerage, which affects how you think about the sort of potential scale of it over time.

Does that answer your question or at least your first question?

Yes. Yes, it does.

I'm sorry, Cory, I lost a thread on the second part of your question. Can you restate it?

No problem. It was my fault. I apologize. I was just asking, the second part was just you ramped hiring of agents this year and I think doubling or tripling headcount. Just what are kind of the next steps to kind of scale it as you go into the next open enrollment period? Is it as simple as hiring more agents? Maybe could there been more M&A? Or kind of how do you -- what do you think you need to do to take it to the next level?

Yes. No, it's a good question. So certainly, there's a straight-ahead path that involves growing the team size. But as we do, right, and sort of going back to the vision I cast for, there's a lot of work to be done to build this integrated both operational and technical platform that will allow us to get where we're going.

And so I think this year we'll be balanced in the way that we approach growth while we go to work on building the platform, improving unit economics, making sure we understand and have high confidence around the sort of the patterns of these businesses. And so I would expect to see growth this year, but it won't just be -- there will be a more balanced approach, which has some growth but also improving unit economics as we do.

The last question is from the line of Aaron Kessler with Raymond James.

This is Alex Bolton calling in for Aaron Kessler. Maybe extending the last question. You kind of touched on balancing growth in DCA -- DTCA. I guess maybe could you talk through some of the cash flow challenges in that business specifically happens with the other brokers in the industry? I guess how are you thinking about balancing growth as you grow that business and it becomes a bigger size within EverQuote?

Sure. Thanks, Alex. So it definitely has a different cash flow profile than our referral marketplace. Generally, our referral marketplace tracks well in terms of cash flow against adjusted EBITDA. Here, within the agency business, those dollars are collected in periods after the policy sales, some first year value and then some trails after that. So traditionally, this has been an area that, as we've scaled it, the cash flow is coming off of the marketplace, has been part of the way we have financed the growth in DTCA.

This next year, as we look forward, I made the point in my point that we're -- in my script that we're seeing some use of cash. And that really reflects the fact that we are seeing relatively modest overall adjusted EBITDA. And so the source of cash that normally we would see fueling kind of the growth in DTCA is not there. And so we do expect that there will be some growth.

As Jayme said, we're carefully kind of monitoring and managing DTCA for not only growth but also profitability. And we consider cash flow as well in there. And so we're able to kind of govern or invest in the business, especially as we see the economics really justify the cash requirements of the business as well. So we are monitoring across kind of all 3 levels -- levers of growth, profitability and economics and cash flow.

Okay. Great. And then maybe on the third-party agency channel, I guess, as rate increases come through, even the carriers are holding back, I would expect the third-party agencies to grow as a percent of total revenue. Maybe you can touch on what your expectations are for the third-party agency channel.

Yes. The local agents continued to -- the channel continues to perform well for us. Our team has done an excellent job of delivering high levels of service to local agents. We've rolled out products that helped us improve the sort of connection rates to consumers who come in online, digitally through the marketplace. And by and large, we believe we have sort of some of the best performance in the industry with our local agents.

And as a result, it's grown steadily over the years up to and including the back part of last year when we saw a contraction in the carrier business. So I don't know that the prevailing industry dynamics are going to materially affect or change the agent behavior. We haven't seen it yet, right? We saw it acutely with the carriers but less so with the agents. And so we have no reason to believe we won't see kind of continued stability and growth in that channel.

There are no additional questions at this time. I will now pass it back to the management team for any closing remarks.

All right. Thank you, and thank you all for your time today. Our Q4 performance, to me, represents really a validation of our strategy, as the diversification enabled us to grow and deliver positive adjusted EBITDA during unprecedented headwinds in the auto insurance market. The progress we've made with the local agents and in our DTCA has set the foundation for EverQuote's next phase of growth as we build the one-stop insurance shop for the digital age.

Our team is focused. We're executing well across the business, and we're increasingly well positioned for accelerated products and strong performance when the auto insurance industry recovers.

So thanks all for your time today.

That concludes today's conference call. Thank you, and have a great day.