EverQuote, Inc.

to Brynley Johnson of the Blue Shirt Group. You may begin.

Thank you. Good afternoon and welcome to EverQuote's third quarter 2024 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 Jamie Mendel, EverQuote's chief executive officer, and Joseph Sanborn, chief financial officer of EverQuote. During the call, we will make statements related to our business that may be considered for looking statements under the federal security laws, including statements concerning our financial guidance for the fourth quarter of 2024. For 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 are views only as of today and should not be considered as of any subsequent date. We specifically disclaim any obligation to update or revise these for looking statements except as required by law. For looking statements are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For discussion of those risks and uncertainties, please refer to our SEC filings, including our annual report on form 10K and our quarterly reports on form 10Q, on file with the Securities and Stage Commission, and available on the investor-related section of our website. Finally, in the course of today's call, we refer to certain non-GAAP financial measures which we believe are helpful to investors. The reconciliation of GAAP to non-GAAP measures is included in the press release we issued after the close of the market today, which is available on the investor-related section of our website. And with that, I'll turn it over to Jamie.

Thank you, Brinley, and thank you all for joining us today. EverQuote had a very strong third quarter. Operating results once again exceeded the high end of our guidance range for revenue, VMM, and adjusted EBITDAF, and we once again achieved record levels across all three of these financial metrics along with record net income. Our continued focus on the P&C market is paying off as we benefit from industry recovery and strong execution. As auto carrier underwriting profitability remained healthy, carriers have continued to reactivate campaigns, restore budgets, and reopen state footprints in our marketplace. Our team has partnered deeply with carriers to find creative ways to support their reentry into the marketplace, helping accelerate progress for several important carriers. At the same time, we continue to grow our local agent distribution channel. With double-digit growth in this channel, it is approaching record high revenue levels. Into this strengthening carrier and agent demand, our customer acquisition teams continue to optimize effectively, and we continue to benefit from our AI-powered bidding solutions. Additionally, we grew our home insurance vertical 30% year over year. As our results show, our team is executing very well in this new environment. Progress in our technology evolution continues as well, as we advance toward more modernized, simplified platforms across all facets of the business. In Q3, we finished the transition to our new site platforms and completed a major release of our new agent platform. These advances have already impacted development speed and will significantly accelerate our ability to roll out new features moving forward.

In Q4,

we are focused on maintaining operational momentum, planning for 2025, and starting to manage through our transition to -to-one consent. As we noted in last quarter's call, we have been preparing to comply with a new FCC rule related to consent collected under the TCPA, the Telephone Consumer Protection Act. We are in the process of implementing the appropriate measures and expect to complete the process by the time it goes into effect in January 2025. In closing, I'd like to thank the EverQuote team for an exceptionally strong performance in Q3. With auto insurance carriers and agents increasingly focused on restoring growth, we find ourselves well positioned. We have sharpened our focus on the P&C market, allowing us to go deeper in serving the needs of this segment. Our execution has been improving quarter after quarter. And with increasingly streamlined technology platforms, we expect our rate of progress in terms of our ability to support providers' growth needs to accelerate moving forward. An exciting time for the EverQuote business. I'll now turn the call over to Joseph to discuss our financial results. Thank you,

Jamie, and thank you all for joining. I will start by discussing our financial results for the third quarter of 2024, before providing an update on what we are currently seeing in the auto insurance sector and our guidance for the fourth quarter. Our strong momentum that started in the beginning of the year continued into Q3, as we exceeded guidance across all three of our primary financial metrics, total revenue, variable marketing margin, or VMM, and adjusted EBITDA. We produced a record level of revenue and net income, as well as a record level of adjusted EBITDA and operating cash flow. These impressive financial results were due to continued strong execution for our operating teams against an increasingly favorable auto carrier landscape. Total revenues in the third quarter were 144.5 million, up 163% from the prior year period. Revenue growth was primarily driven by stronger enterprise carrier spend, which increased over 40% sequentially and was up nearly eight times from the compo period last year. Our agency operations, which were considerably more resilient during the downturn, grew 30% year over year. Revenue from our auto insurance vertical was 130 million in Q3, up over 200% year over year. Revenue from our home and renters insurance vertical grew to 14.1 million in Q3, up 30% year over year. VMM was 43.9 million for the third quarter, up approximately 125% from the prior year period. VMM, as a percentage of revenue in Q3, remained strong at 30.4%, as we benefited from our traffic team's ability to more effectively navigate a dynamic advertising environment and the investments we have made in our bidding technology platform. As reflected in our guidance for Q4, we expect modest downward pressure on VMM as a percentage of revenues. Turning to operating expenses and the bottom line, we continue to be disciplined in managing expenses and driving incremental efficiency across our operations, which is resulting in expanding operating leverage as we scale and drive top line growth. In the third quarter, we reported record net income of 11.6 million. Adjusted EBITDA was also a record of 18.8 million in Q3, up 45% sequentially, an improvement from a loss of 1.9 million in the prior year period. Adjusted EBITDA as a percentage of revenues grew to 13% in the quarter, as we continue to benefit from our strong operating leverage as higher VMM flow through to Adjusted EBITDA. We delivered operating cash flow of 23.6 million for the third quarter, ending the period with no debt and cash and cash equivalents of 82.8 million, up from 60.9 million at the end of the second quarter of 2024. Cash operating expenses, which excludes advertising spend and certain non-cash and other one-time charges were 25.1 million in Q3. This includes approximately 500,000 of expenses related to moving our operations in Cambridge and Belfast to new offices in each city to better support in-person team collaboration and manage rent costs. As a result of changes in our real estate footprint, annualized rent expenses will fall by approximately 40% in 2025. Before turning to guidance, I want to provide an update on our current outlook for the auto insurance industry. As we have progressed through the first three quarters of the year, we have seen increasing indications that a more growth-oriented mindset is firmly taking hold among carriers as they have gained increasing confidence in their underwriting profitability. Recent hurricanes Helene and Milton resulted in temporary pauses in carrier spend in southeastern portions of the US at the end of Q3 and early Q4, as carriers followed their customary practice of pausing customer acquisition in impacted areas just before and the initial days after a major storm. Carriers quickly resume spend in impacted areas, which gives us confidence that these hurricanes will not have a material lasting impact on our marketplace. Looking ahead to next year, we remain confident that carriers will continue to expand their customer acquisition footprint in our marketplace as they gain rate adequacy in additional states. While the specific timing and magnitude of such incremental spend in 2025 is not yet clear, we believe that the greater level of stability that is taking hold in the industry will likely result in carriers becoming relatively more aggressive in seeking to protect and expand their market share after prioritizing profitability at the expense of growth during the downturn. As Jamie discussed, we've been preparing for the upcoming FCC changes that will take place in January 2025. In the first half of next year, we expect the transition to -to-one consent will create short-term unpredictability and headwinds primarily with our third-party agents as we recalibrate pricing to reflect what we believe will be the new normal with a lower volume of leads than monetizing at a higher level. Over the past several quarters, we have demonstrated our ability to successfully execute through and quickly adapt to dynamic environments. And as such, we believe we will emerge in this regulatory shift as a stronger company with a better product offering for our customers. Turning to guidance for the fourth quarter, we expect revenue to be between 131 and 136 million, representing 140% -over-year growth at the midpoint. We expect VMM to be between 38 and 40 million, representing 89% -over-year growth at the midpoint. And we expect adjusted EBITDA to be between 14 and 16 million versus a loss of 900,000 in the prior year's period. For context in our Q4 guidance, we expect incremental spend by select carriers in the period to generally offset our continued preparation for the upcoming FCC changes taking place in January. On balance, we expect that seasonal sequential decline from Q3 to Q4 to be comparable to what we have experienced on average over the past five years in our auto vertical. Consistent with our commentary in our August earnings call, our guidance for Q4 also reflects adjusted EBITDA margins moderating to the Adderneer Q2 levels. In summary, during the third quarter, we continue to execute well, further build upon the strong performance we had in the first half of 2024, and capitalize on the steadily improving auto carrier landscape. Our record results in the third quarter for revenue, VMM, adjusted EBITDA, and net income are evidence that our strategic focus on driving operational improvements, maintaining disciplined expense management, and emerging from the auto insurance downturn as a stronger company is working. Jean and I will now take your questions.

At this time, I would now like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Our first question comes to the line of Mayank Tandon with Needham and Company, your line is open.

Thank you, good evening. Congrats Jamie and Joseph on the quarter. I wanted to just start with the new regulation. Could you just remind us how much of the business would be exposed to the impact? And is there any way to quantify what the impact would be? For example, if it went into effect this year, is there a way to maybe size what the impact would have been just to give us a sense of how we can reflect that in our model going forward?

Sure, thanks Mayank. So I'll take the first part and then I'll let Joseph address the sort of how to think about it from a modeling standpoint. You know, so just as a reminder, the new rule that effectively requires one to one consent that gives the consumer a bit more control over how they get their quotes. And so, you know, on the one hand, the effect of that will be that some consumers will opt into fewer provider options resulting in fewer leads being sold. And this specifically affects outreach that occurs telephonically. So that's mainly our agency business the offline leads that we're selling, which is, you know, call it 25, 30% of the business. But on the other hand, it's gonna improve the quality of that product, specifically the performance of those leads for those agents, because you have fewer agents reaching out to a consumer and that, you know, consumer will have opted in more explicitly. So net-net, you know, what will happen is the pricing will adjust and agents will end up paying more for what is ultimately a better, a higher quality lead product. So that's kind of how it affects us in terms of, you know, how that you should think about that from a modeling standpoint, I'll let Joseph address that piece.

Yeah, to contextualize a few, Mike, is the leads is about roughly 25% of the revenues we've talked about in our last call, it continues to be around that percentage. And it primarily affects our agents, as Jamie mentioned. So when we think about this into the start of the year, there's a lot of puts and takes on it right now. And as we've talked about, is some unpredictability in terms of exactly how we'll play out, because it ultimately depends upon how agents will respond to better performing the higher priced consumers being referred to. So we think that will play out of the course of, you know, Q1 into Q2. The way we think about it, and from modeling perspective, it is fairly, fairly simple right now is, as you think about Q4 to Q1, you typically have a seasonal step up from Q4 to Q1 when you have budget resets, it's across the entire business. And that's a double digit type increase, if you look historically where we've been in terms of the step up from Q4 to Q1. You would see, what we see expected with this, with the impact of the FCC change, of a much more muted growth, step up from Q4 to Q1, we'll still see growth, but you'll see a more muted growth. And we expect, as you think through modeling, VMM margin will sort of work through a little bit in first quarter, you may see some pressure as rates stabilize, but we think that will sort of normalize as you get into the middle of the year.

That's a very helpful color. As my follow up question, I wanted to just go back to your comments, Jamie and Joseph around carriers opening up in new states. How long does that continue? In other words, what I'm getting at is, how long will that be a tailwind before you sort of are at a point where that's not the incremental driver, but really it's more about just capturing more of the budget from your carrier partners?

Yes, thanks Vyak. So we're pleased with the recovery thus far. It's been a strong recovery so far this year. That being said, it's been driven, I would say mostly by a relatively limited number of carriers so far. And so if you take a step back and look at the market, what you've got is a auto insurance industry that is increasingly healthy from an underwriting standpoint. So you're seeing mid 90s to low 90s combined ratios, almost across the board. But you've got effectively all but one carrier kind of losing share and one carrier gaining a lot of share. And so I think the table is sort of set for, the conditions right now are such that the carriers are profitable. They're losing share with one exception and they are talking more about and leading more into growth as we turn the corner into next year. So our general point of view is, we've started to see more carriers reenter the marketplace, more carriers expanding their footprint. And we would expect that to persist into next year. We also know that next year you've got to most likely, one or more large states that could sort of really come back in a more meaningful way, California being the most notable one. So our expectation is that there will be some more recovery as we progress into next year. And that will come from more carriers, more geographical footprints. But I think the, you know, we're definitely more than halfway through the recovery at this point. It's hard to pin exactly where we are, but I would say sort of mid to late innings.

Great, I didn't ask that question very well, but that was a great color. Thank you so much, James. Okay.

Thank you. And your next question comes from the line of Gregory Peters with Raymond James. Your line is open.

Well, good afternoon, everyone. I guess my first question, can you just take a step back and talk to us about the new bidding technology and the new agent platform? And from a technical perspective, I'm just curious how that interfaces with the existing agency management systems that so many of these agents have in place already.

Sure. So, you know, for some time now, Greg, we've been working to realign and sort of simplify our technology platforms to really support the future scale, velocity of new feature development, and going deep into specific use cases within the P&C market as we really focus on going deeper here. And so we've rolled out a number of new or enhanced platforms over the last year that spans our site traffic, which is now all running through a new platform, our traffic bidding platform, which effectively uses sort of AI bidding. So we have machine learning that does the vast majority of our traffic bidding today. And then we have an agent platform, which was just released, where we had a big release of it to thousands of agents, which will really accelerate our ability to deliver new features to agents. So we're making good progress there, and we're seeing the benefits of it. With respect to how it interacts with agent management systems, you know, our agent platform today is primarily focused on the delivery of our referral products. So it's setting up campaigns to help them target, you know, specific risk profiles and accept lead delivery or live call delivery of those referrals. So we do integrate with a number of agency management systems or lead management systems out there, but our technology platform lives almost like one step up funnel from that. That being said, you know, part of the replatforming is setting the stage for us to continue to add more features to it and, you know, really develop richer relationships with those agents that begin to span more of their needs over time.

Okay. That answer your question? Yeah, that's interesting detail. And there's some follow-ups I have on that, but we can take that offline. The other important question I wanted to ask is just, given the success you've had this year, I'm intrigued by the cash build that you have on the balance sheet. And I'm just curious how management and the board are thinking about the cash build, because if we look forward, it seems like with the recovery in the auto market, you're gonna continue to accumulate cash. So what are the uses of cash at this point as we think about the outlook?

Sure. So thanks, Greg, for the question. So we are pleased that we've been building cash. I think it reflects that over the past year, we've taken the business from, you know, really focused on how do we drive, you know, not just the adjusted EBITDA, but cash flow and how that represents building value over time. So it's been a big part of our strategy, so thank you for noticing it. What I would say in terms of, as we think about cash, we do expect it to continue to build as well. We do not see cash needed to grow, specifically to grow the business. You know, it's a cashflow positive business, we expect that to continue with nice conversion from adjusted EBITDA to free cashflow. You know, I think as we look at potential uses for cash, you know, I think we will, a couple things we'll think about. You know, one is obviously maybe we might think about M&A as a potential way to accelerate our existing strategy. As we've mentioned to you, this summer, we did our annual strategy review process and coming out of that, we have our five-year plan for how we're gonna drive, you know, long-term growth and profitability at EverQuote. And it's very much focused on the P&C vertical, but we could see opportunities to augment things we're gonna do organically with potentially intergenic activities that could accelerate it. And the way we think about it is, you know, the landscape has changed a lot in terms of, you know, the private insure tech market. Many of them have been challenged at raising additional rounds of capital. And there's an opportunity for us potentially to accelerate things for us and bring on additional folks who wanna be part of a winning team in what we're trying to do here at EverQuote. So I think, of course, if we look at those opportunities, they'll be in the context of the same way we look at things internally right now, which is how does it drive our core strategy of P&C? How does it focus on driving additional cash flow and EBITDA and help our clients succeed and win? So I think that's the primary. And then beyond that, we'll think of other things that help continue to drive growth in the business overall.

That answer makes sense. Thanks again for your time. Thank you, Greg. Thanks, Greg.

And your next question comes from the line of Jason Craher with Craig Hallam. Your line is open.

Great. Thank you. Nice work, guys. So just wanna ask about VMM. We've seen that just come under a little bit of pressure over the last couple of quarters. Wonder if you could give some perspective on where you think that trend's going forward and then what do you think would need to happen in the market to see that figure start to expand?

So thank you, Jason, for the question. So I think in terms of VMM marks, I think one of the things that we've highlighted and we highlighted in our prepared remarks is how it has resulted for us in Q3. I think we put, as we talked about since the start of the year, we expect as we went to a more normalized environment that we would have VMM margins come down from where they were at their heights of late last year and early this year, reflecting as we got to a more normalized environment with carriers looking to grow their business. And as that has continued, we expected some downward pressure on VMM margin. What we were able to do in the course of Q3 is really through the two things. I think the effect of our teams really adapting very nicely in the traffic side to the environment, coupled with our bidding technology, we were able to maintain a very strong VMM margin, very, very close to where we were in Q2. And that, I think, speaks to the investments we've made in the data and the technology that are really starting to pay off for us. And we think that will be sustainable over time. As we've talked about with the FCC changes coming up, we think there'll be some modest pressure. We reflect that in our guide for Q4 that reflects some downward pressure, but very modest. We expect there'll be some in the start of the year as well as we go through these changes. But we think we'll normalize around these levels as we get into the middle of next year and through the FCC change. And we think that is really a level that is to be sustainable over time for us. Again, I think the other thing I'd probably highlight for you too is that as we think about VMM margin, for us, we look at it in the context of the efficiency of our traffic operations. And ultimately, we think it's important that we're not just driving revenue, we're driving margins. So we have a sustainable financial model over time.

That's super helpful. Just on that, the FCC, the TCPA change, I'm assuming you've done some testing in the market. Just curious if there's any details you can provide on what you've learned in testing that is framing your opinion on what's gonna happen in that January changeover?

Yeah, we've been doing testing on it for quite some time now. We've tested many, many variants of different treatments that would be compliant. And I think what we've come to appreciate is, as I said earlier, I think by giving consumers a bit more control, then what happens is, you'll end up with slightly fewer consumers opting in to various provider options. And then the results of that will be fewer leads sold. But the encouraging bit is that those consumers who do opt in convert at significantly higher levels. And so, we do expect lead volume to come down a bit, but we also are gonna reflect the improved performance, the improved quality in the form of higher pricing. And I think the net of it will be a better product for our customers, because they will be converting those leads at a higher rate, and a better experience for consumers in that it sort of eliminates some of the unwanted outreach for those consumers who otherwise would have opted out if given the option. So we feel confident in our plan. We've been working closely with carriers, with agents, with other partners to adapt. We're in the process of executing our transition plan right now. It's all in flight. And we look forward to getting through it and coming out in a better place on the other side.

And maybe I'll just add on, Jason, to the other piece of that, which if you think about the FCC changes, we came out with a note on this as well. I guess our view on it is that this is a change that is a challenge for the industry broadly. We have been putting a lot of effort into it from early on. And we think, as Jamie said, we're not gonna come out stronger than this. We think we're actually coming in a better position strategically. And many, and others will not. And so we feel very good about what we're doing and positioning us for this change. And the silver lining is we'll come out in, I think, a better spot. It'll be better for our customers, as well as consumers, as well as ourselves.

All right, appreciate all the thoughts. Thanks, Jamie. Thanks, Joseph.

Thanks,

Jason. And the next question comes from the line of Janet Kelly with the Heimer. Your line is open.

Hey, great. Thanks for taking my question. Just two, if I may. It looks like, you know, your guidance implies, I'm not gonna ask about VMM margins. I'm gonna ask you about EBITDA as a percentage of VMM. It looks like you're gonna exit that. That this year is gonna be 35 to 36%. And you're talking about, you know, lower rent expense next year. Can you just kind of give us some guardrails when we think about your EBITDA margins on VMM? Like how we should be thinking about that? My second question is just around the, for two guidance, kind of implies, you know, there is a quarter over quarter revenue decline. However, when I've looked on how the business has historically performed in up cycles, it's usually, revenues usually expand or increase quarter over quarter. We just wanna talk about some of that thinking down there. Thank you.

Sure. So maybe I think the second one, just sort of seasonality is. So I think if you look at our business first on seasonality, you have to look at, given we had the health business, since we divested health, health tended to be a very strong Q4 performer. In second quarter it was Q1. So you gotta sort of isolate that business from our financials. When we look at this, we look at really the auto business and going back over the past, you know, half dozen years, what does it look like, Q3 to Q4? And it's been a sequential down, you know, 7, 8%. You can do it five years, six years on average. I will acknowledge that there's pretty wide range. It's been quarters, there's been years when it's back, it's been up double digits, it's been years when it actually been down, even more material than it's been up in prior years. So averages by their nature are, have some limitations given some of the volatility we've had in our business overall. That being said, it is certainly something we look at with an ever quote. The other thing I'd point at, as I've talked about seasonal trends in general in the business is what's true in Q4 has been true pretty broadly for in the industry, which is agents tend to, on the agent side of our business, we have agents taking holidays. And so you have vacation time, which impacts the agent business. On the carrier spend side, generally speaking, you have carriers who are relatively pullback, relatively speaking on spend in the period, because they don't want to compete against the holidays. They don't want to compete against, you know, e-commerce and retail. And so those are the things that factor into it. As we've put it all in the mix, and we've thought about those in the context of everything we're seeing in the business, we do believe there'll be some carriers that we see coming from Q3 into Q4. Select carriers actually have incremental spending Q4 for us. And that'll also be offset by what we're seeing on some of the preparation we're doing for FCC and some of the cut over to -to-one that we expect to happen in the latter part of the quarter in advance of the official change in January. That's in the seasonality piece. The next piece I'd say in VMM margin, I think VMM, you know, even to adjust, even just the EBITDA margins to VMM, it's an interesting way to look at the business. I guess when I tend to look at it, I look at it slightly differently, which is I think about, as we think about the EBITDA margins, you know, that we just to give some context, right? We were at five and a half to 60% to 6% pre downturn. We're eight and a half percent in Q1. So we have record levels in Q1. We saw that continuing to Q2, we had 11%. What we said at the time is that, hey, double digit EBITDA margins we're really pleased with. It reflects the operating leverage we built into the model. And as we've had, you know, rapid carrier spend come on, it went to the bottom line before we started making investments. So, and as we progressed in the period, we made comments multiple times saying that we were really a pull forwarding some of the margins we expect in 2025 into, you know, Q2 and now Q3. And so what we see in Q4 really is that you have seasonality coming down, you see those, the margins returning to, you know, comparable to what we saw in Q2, that 11% is shown as what is implied for Q4. As we look to next year, that is what we've sort of said for next year going forward. I think the first part of the year is, we'll still have to work through exactly how it'll play out as we think through how -to-one consent impacts the business in the first part of the year. And we'll work that through. And then over time, you'll see us be very disciplined about adding incremental off-backs. But we will make incremental investments to position the business for long-term. And again, it's done with that same view that we've been doing is, you know, as we make incremental investments, it's very much what is the ROI and how do we have clear conviction that it's gonna drive value for us in, you know, 2026 and beyond.

Thank you.

Thank you, Jed.

And your next question comes in the line of Ralph Shackert with William Blair. Your line is open.

Good afternoon. Thanks for the question. Two questions, please. Maybe just returning back to the FCC change that's coming beginning of next year. Jamie, perhaps give some perspective. As the feedback that you've been receiving and sort of the actions that the agents and the customers are taking is sort of in line with your expectations. Have there been any, I guess, major shifts versus what your thesis was going in? That's the first question. Second question is for Joseph, more philosophical. I know you talked about some pull-through in the huge step up margins in 2024, but given the return to growth and the linear cost structure that you've implemented, philosophically, how are you thinking about expanding margins versus reinvesting in the business? Thank you both.

So with respect to how the customer engagement has gone relative to our expectations, I would say it's been very much in line with our hopes. Which maybe exceeded expectations in that, effectively all the carriers and agents with whom we've been interacting have been very receptive of the data that we've been sharing and the actions that we plan to take. You gotta remember all these carriers are, and agents, are moving back into very much like a growth mindset. So they're willing to work with us to do what is needed to support our ability to continue to help them grow. And so there's been a lot of data sharing with the large carriers that are most effective. We share data from some of the testing we've been doing to help them understand the performance improvement, which is the basis for pricing changes that we plan to roll through. Upon reviewing that data, I think they're more than willing to sort of support the changes that we hope to implement. And more broadly, I think we've seen carriers more open-minded to supporting a broader range of things we can do, whether it's new services, new products, things like that, to support their growth in the future. So overall, I would say the process has somewhat exceeded our expectations, but we've received very little in the way of pushback, if that's what you're asking about.

So maybe turning to the margin philosophy, I guess maybe give you the highest level, which is our philosophy continues to be we're doing growth and profitability, and over time having growing profitability. Now we see our

long

-term growth averaging 20 plus percent in the top line, and you see adjusted even down margins getting to 20 plus percent as well. I think what you will see, right, as we look to next year, I think one of the things we're cognizant of is that we've had a lot of margin expansion in a very short period of time. And so we certainly will be very disciplined in any incremental op-ex we do make next year, and be driven by how we're gonna drive return in 26 and beyond. But I'd say we've had an awful lot of margin expansion in one year, 1,100, ,300% through getting to Q3, getting to zero before we're negative, and now we're saying we're gonna continue to that 11% level in Q4 and forward. So I'd say over time we see that growing. How much happens next year, given how much margin expansion we have this year, I think is an open question, Ralph. And I think part of the reason we're being somewhat hedging on it is we still try to think through the exact implications of the modeling of FCC in the first part of the year and how that plays out. You know, as we look to Q1 for expenses, we'll have typical step up in Q1 as we normally do at the start of the year. You know, as we think beyond that, we will certainly be disciplined and adding incremental expenses, but you expect we'll be making investments to drive growth in future periods. And over time going to that

point. Okay, great, thanks Joseph, thanks Jamie, appreciate it. Thank you, Ralph.

And your next question comes from the line of Corey Carpenter with JP Morgan. Your line is open.

Thanks and good afternoon. Why don't we go back to the agency channel of 30% year over year this quarter. Jamie, could you just expand on what you're seeing in that channel? Is the recovery similar to the direct carrier channel where it's driven by maybe a small number of large carriers? Or just expand a bit on what you're seeing there. And then Joseph, I know you've been asked a few times, I mean, one more try, but just on the 4Q outlook, is there, you know, just trying to think about how big of an impact the FCC changes are having, maybe a different way of asking it, would auto revenue in 4Q be flat or even sequentially without the FCC impact? Thank you.

Thanks Corey. So with respect to the agent channel, you know, the agent business is performing very well. You know, it's approaching record high revenue levels. What we are seeing is the captive carriers who were, you know, a bit slower to kind of respond and work through the hard market cycle are beginning to sort of feel better about their underwriting profitability and beginning to encourage growth among their agent base through changes in underwriting, through increases in marketing support, which flows directly to us. So we're seeing these carriers really begin to push the agents for growth again, which is, you know, it just helped begin to drive more recovery among the agent base. That being said, the sort of rate of change with agents is always a bit slower than the rate of change with direct carriers, just because you have this sort of large distribution channel that is slower to move, it was slower on the way down, it was slower on the way up. But I think what we're seeing now is that the sort of recovery is here for the agents and it's been building up late and we would expect that to continue into next year. So that's encouraging. I think, you know, we continue to view our leadership position with these local agents as an important part of our long-term competitive position. And that, you know, taken together with advances in our agent technology platform make us very excited about making some real progress with agents next year.

And Corey, with your regards to your question on Q4, I'll look, if it was not for FCC changes, would we be closer to flat Q3 to Q4? And I guess I give you this call, which is, I still think we would probably be seasonally down, but I think we'd be closer to flat. I think it's a reasonable assumption as we think through Q4. So to give you some more specific answer, I think closer to flat, I'm not sure it's quite right to say it'd be flat Q3 to Q4. As we said in our prepared remarks, there are select carriers that are increasing spend going into Q3. We didn't say our prepared mark, because there are some carriers who've made clear they'll seasonally pull back in Q4 and they've been explicit in that to us. So there is both of those aspects.

Thank you, Atuffo.

Thank

you for the question.

And your final question comes from the line of Zach Cummins with B. Riley Securities. Your line is open.

Yeah, hi, thanks for taking my questions. Appreciate it. Just two for me. First, Jamie, I was curious of maybe the feedback you've been getting from the broader set of carriers and their intentions around potentially ramping up spend going into next year. And then my second question is just within the home and renters vertical. I'm nice to see the strong growth again this quarter. Just curious what's driving the solid performance in that vertical and expectations we should be assuming moving forward.

Sure. Yeah, so on the broader auto recovery, there's what we hear from directly from carriers. And then there's kind of what we see as leading indicators. And I think we've established a pretty good understanding of how they're underwriting profitability today, translates into their appetite for growth tomorrow. And so taking the first piece now, I'll just reiterate underwriting profitability looks healthy, broadly speaking within auto. By broadly speaking, I mean across carriers, mid to low 90s or better combined ratios. Now within that, there's obviously some nuance state to state, but you're starting to see a pretty healthy underwriting environment and auto insurance. And sure enough, as that's been materializing, we're starting to see more and more carriers leaning in, expanding their footprint, increasing their budgets. And that's been part of the build that we've seen so far this year. Now in terms of what we're hearing specifically from them, I think I'd struggle to identify a single carrier who's not focused on growing next year. So I think that the barring any changes to underwriting profitability, it's shaping up to be a year where the table is set for increased competition in the marketplace. You've got this dynamic, as I mentioned earlier, where one carrier is growing, kind of all the other carriers are shrinking. And that's not a sustainable place for them to be. So the direct feedback kind of jives with some of the higher level market data we're watching. And I think it does shape up to be a year where you see a lot of demand come back into the market from carriers. So that's the bid on auto. With respect to home, I mean, we started talking about restoring greater focus, a bit more resourcing on home, must have been last year at this point. And we started to just see the benefits of that. Most recently, the growth that we're seeing it's fairly balanced, it's both growth in traffic and growth in monetization. And the combination of those two things has allowed us to sustain a very healthy growth rate in home. Now that's in the backdrop of a homeowner's market, which is still dealing with elevated cat losses, that we have these hurricanes. But under the hood, you're seeing underlying combined ratios improving in home as well. So I think the combination of better execution in home and an improving market dynamic should set it up pretty well going into next year as well.

Great, thanks for taking the questions. Thank you.

And there are no further questions at this time. I would now like to turn the call back over to management.

All right, well, thanks all for joining us today. Just to reiterate, we delivered an exceptional third quarter, surpassed our expectations. And it's been a strong year to date, forever quote. We're pleased with the team's continued execution. And now as auto insurance carriers and agents restore focus on growth, we feel very well positioned as a leader in the market and the sole pure play PNC focused marketplace. So we look forward to continuing to make progress and keeping you updated on our progress as we go. Thanks for your time.

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