Q3 2020 MediaAlpha Inc Earnings Call
[music].
At this time all participants are in the listen only mode. After the speakers presentation and it'll be a question and answer session. The ask the question during the session the need to press star one on your telephone. Please be advised of today's conference is being recorded if you're acquiring the breeder assistance. Please press star Zero I would now like the hand the conference over to your speaker today.
The music or see Investor relations. Thank you. Please go ahead.
Thank you operator, our discussion today will include forward looking statements about our outlook for future financial results, including our financial guidance for full year 2020, which are based on assumptions forecasts expectations and information currently available to management. These forward looking statements are subject to risks and uncertainties the could cause future results.
Or even the differ materially from today's guidance. Please.
Please refer to the earnings release, we filed with the FCC on form 8-K, and the shareholder letter we posted to the Investor Relations section of our website today for a fuller ex the my explanation of those risks and uncertainties and the limits of flip applicable to forward looking statements.
Oh, well go routinely post information that may be important to investors on our IR website investors Dot media dot com and will use its website address as a means of disclosing the material information to the public and abroad non exclusionary manner for the purposes of the Fccs regulation fair disclosure.
In addition, we will be referring to certain actual and projected financial metrics of media Alpha which are non-GAAP financial metrics and then.
Of course. These metrics include adjusted EBITDA contribution and contribution margin and we present them in order to supplement your understanding and assessment of our financial performance non-GAAP measures should not be considered the substitute for or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures as well.
And as reconciliations of the non-GAAP measures to those GAAP measures are available in our third quarter earnings release at the reminder, we published the shareholder letter on our IR website that will refer to during this Q on Q and a session now I'll turn the call over just the.
Thanks, Steve.
Oh, Hi, everyone welcome to our first earnings call a couple of the company.
Before we open the call it the cost and.
I want to recap some important concepts we discussed during our IPO process.
I'll start with the enormity overall market opportunity.
The insurance carrier spend on digital distribution is projected to increase from $4 billion and 2019.
The 16 billion by 2025.
We believe we're still in the early stages of the two trillion dollar insurance industry shift to digital direct to consumer distribution model.
We built the leading technology platform to connect the insurance consumers with insurance carriers at or near the point of purchase.
Our transparent data science based approach has enabled us to achieve tremendous skill.
The one that is now two to three times larger than the other insurance customer acquisition marketplace.
Our platform is unique and its ability to sort of insurance carrier needs Holistically.
What the they're looking to acquire new customers or generate revenue from the third on converting shoppers by intelligently, referring these consumers to other insurance carriers and distributors.
As the company.
Friends parents, the underlies and inspires everything we do.
From a product development.
To how we work with our partners.
The how we treat our team members.
The company was self funded until our IPO.
We believe and growing profitably.
And the importance of stewardship.
Most of all the.
The only score card, but at the upper matter to US is one that measures the enduring value we have created for our partners.
We're pleased with our third quarter performance.
And we anticipate the strong record breaking fourth quarter.
With that said.
I'm looking forward the discussing our most recent results with you. So we'll open the call the question though.
Uh huh.
Oh.
As a reminder to ask the question you need to press star one on your telephone the dark pushing price the tundra Husky. Please standby Wilson.
[noise].
As a reminder to ask the question you need the press star one on your telephone and.
For your question, we expense the powder Husky, please standby Willi from Paul the Q and a roster. The first question comes from Doug England.
With JP Morgan your line is open.
Great. Thanks for taking the questions I'm on for Steve and and one for the triggering just.
Just first speed of the shareholder letter you talked about spend here 10 largest carrier partners increased 95% year over year and Threeq. You do you just talk about what's driving the momentum that you're seeing with some of the bigger carriers and then also perhaps to tell some of those conversations are evolving.
Some of the carriers, who were not on your on your platform today, and then second Tigran. The Fourq guide does imply some slowdown and growth just relative to the 40 ish percent kind of transaction value growth. The first nine months of the year and Utah.
Not strong and held the seasonality given the annual enrollment and maybe you could just talk about some of the puts and takes around growth in fourq. Thanks.
Oh, Hey, Doug Thanks.
So to your to your first question about the increasing and from our our top 10 insurance carriers.
From now keep on desktop and as of right now and so it was growth from on some who are new to the top line.
And so here's what I'll tell you is that what were discovering and that when the large insurance companies the traditional ones that typically and relied on age and Doug and offline channels to sell the fill their policies one day and make the transition to online direct to consumer and they tend to do so and expand rapidly.
The increase there and back there and so I think the high growth rate that you saw from the top 10 partner that the of Q3 of the tier reflect outsize growth rates from some of the large traditional insurance carriers, most notably in the PNC space, who rapidly increased the investment in our ecosystem.
And 2020.
In terms of.
Insurance carriers, who are not on our platform.
You know what I'll tell you is that we're always looking to add new carriers to our pipe on both on the demand and the supply side.
We did a body and Q3 add on top of carrier, who had never advertised in this channel before.
But really the the growth for us is coming from the growth from existing partnerships. We work with all of the top insurance carriers already both the NAND partner and many of the supply partners and so for US it's about.
The day to day account management of the day to day consultation of work that we do with each of those insurance carriers to make sure that all of their spend all of the investments are measured as granularly and efficiently as possible and so so while there are some new carriers that will be coming into the platform.
It's really the and growing the existing partnerships that we already have a just because we've already worked with so many of the major carriers across all the insurance vertical but right.
Okay. That's that's great that's helpful and then.
Thoughts on on just for Q guide some of the puts and takes and any seasonality.
Seasonality dynamics, perhaps.
Yeah, Doug I think you hit it on that.
Comedy.
As a reminder, Q4 tends to be a seasonally weaker period and the PNC.
And so you do see Q4 and come down from Q3 and little bit in the PNC vertical.
And we have seen through November the strong open enrollment period, and both Medicare and helps and so that's driving the guidance in Q4 and one other note is and on other verticals last year, obviously that was pre obeyed traveling the eight Peter.
On the top line.
In other this year, obviously that sort of goes a bit challenged.
And just following up there how do you think about travel coming back you know in 2021 are you starting to see any any pick up in that vertical.
Hey, Doug and Steve.
We're not I mean, we're seeing some increases in the air travel and that's something that we monitor the geospace debt.
It hasn't translated into a big increase in terms of the of.
Of the advertising spend from travel companies that we work with you know for US right now and it's hard to predict when that market kind of that come back, but we feel that we're well positioned for when the market comes back.
Okay, great. Thank you both.
Our next question comes from Mike.
The scheme of credit Suisse. Your line is open.
Hey, good evening.
I guess first question back to your comments about adding the top carrier.
I would never advertised and your and your ecosystem.
Curious you know the.
Should we be thinking about carrier differently than maybe some of the other.
Carriers on your platform or the the given that it has the kind of the more niche client base like it should we be thinking of it you know it spend might be kind of maybe some of the tissue Fortunately smaller and given its niche just trying to.
So the pretty big care and what I understand.
Yeah, Hey, Mike.
Yeah.
I don't think so.
I think that there I mean, it's still early stages and.
And what I will tell you that when we started to work with either new carriers and are ecosystem on or carriers, who have been working with for years and who.
And start to then begin the transition to focus more on direct to consumer and then start to invest more in our ecosystem.
That's that's the that's the growth curve, but that takes one to two years to come up and so on.
The carry that you're referring to has a lot of direct experience.
So they may come up that curve or learning curve or adoption curve more quickly than some of the traditional agency writers.
Who are the ones who have made that transition over the last few years, but right now it's too early to tell what that adoption curves kind of look like.
Okay. That's helpful.
On the switching gears to the contribution margin.
And you pointed out that yeah. There was the partner that I think might of it.
And you're saying and maybe head of onetime negative influence I just want to make sure I'm I'm I'm interpreting that correctly or are there any other kind of the secular trends on the contribution margin that we should be thinking about.
Mike This is Stephen the me, let me take that.
Just the first off on the contribution margin.
That's a partner that and.
Many of their relationship with US early we had signed a long term deal earlier in 2020 of.
The contemplated the economic relationships starting in October and until the first.
They want at the start early but had.
Really through the transition period.
A fee to pay to the other part of prior platform provider and so to be a good partner. There. We took on that business, but took no margin in Q3 really a onetime simple yeah issue, where you see revenue in Q3, but no contribution from that partner.
And take on did you call out the impact or the quantify it for US is that's where we should we should think about.
Yeah, and on a pro forma basis.
The partner would have added.
Little over a percent right one percentage point to the contribution margin. So that would have been a little over 50% in the Q3 and be taken on have.
Have you taken on revenue sure contractual revenue share of which commenced on October onest.
Okay, and so and other than that no no other trends, we should be thinking about Uh huh.
Yeah Yeah.
And on the outer outer years.
Yes.
Okay.
Lastly on.
And we can kind of go back to travel and I.
I know the.
I will look like the all of a little cloudy.
Given the pandemic.
But I mean, I guess should we.
Now the should be eventually be thinking about right.
Travel could kind of of.
And actually right hopefully come back and not in the real way, if you're saying, it's the primary driver of the almost 10 million year over year drop and revenues and the other segment.
Yeah, Mike on the I think I think you can.
Assume that it will come back but.
But it's really hard to say, what the timing will be.
And just one on the we studied the industry. We're looking at what's going on but you know the the odds to do with the uncertainty around what's happened this year and obviously, what you know going into the next I would say that I feel comfortable saying your guess is as good as mine in terms of what the timing would do.
Okay understood. Thank you very much.
Again, if you would like to ask the question Press Star one on your telephone.
Our next question comes from the Daniel Bernstein from Citi. Your line is open.
Hi, guys. Thanks for taking the question and congrats on the good quarter out of the gate and I want to focus a little bit on the Medicare in the P. period and that that just ended.
You know any thing that was the difference this year versus last year, obviously everything it's kind of moved on line now. So just curious if you've seen anything different from the demand partner perspective or kind of the the amount of the customer referrals coming through quits calls or leads and any trends.
And is that were different this year versus previous years.
You know I would say that with the with nothing nothing specific to call out right and I think of the demand was strong and so we've had very strong that you'd be performance.
And but it was in the form of increased demand right increased adoption of direct to consumer on.
Some of our partners now starting to support and online only experience, which then precipitate.
A heavier investment and online customer acquisition.
You know the the growing adoption of Medicare advantage.
Among the new entrants into the Medicare pool.
So all of those are trends and thinking of their trends and demographic trends that we've seen for a while.
So all of those things and just the continuation of those trends and we believe contributed to a strong it you'd be for us.
Not any one thing that we're seeing and this period that we really hadn't anticipated.
Gotcha, Okay that makes sense and then well one of the newer channels for you and it's kind of the agency channel any comments you can make on on the progress growth going into the selling the leads to line to the traditional agents and your hiring of sales folks to address that channel.
Yeah, absolutely I think we're making good progress.
And it's something that we launched the Q3 and you're right the point out how the higher and going to hire is going very well we have the great team there and that's ramping up and many of them and or are in Arizona on because it does require different team in place to do outreach and work with age and as opposed to insurance carriers that our team of typically used to doing.
And the we're happy with the ramp of of that team we.
We are starting to generate revenue from that business, but right now we're really focused on the.
Building on organization and making sure that with the early adopters. The early age and so we're working with that we're making sure that day again and understand what their needs are and what the feedback is.
Because in this space. The one thing that we are seeing early on the it's very encouraging to US is that there is room for innovation here there is room for disruption here.
No transparency and granularity.
Right.
For all of the things that we brought to our ecosystem.
And.
I think on lacking here and we have to address it and differently, but we see a lot of opportunities. There. So we're very happy with what we're seeing and the progress we're making.
And and and the results are coming in and we expect strong growth from this business going forward.
Got you, Okay and last one maybe maybe particular and it looks like transaction expenses was the double of what you were expecting from the from the flash numbers and the IPO prospectus I'm just curious you know.
What the what kind of that that that's the double and how we should think about that for the rest of the year.
Yeah, Dan So those are the onetime IPO related transaction expenses that when we were formulating the flash range were reflected as.
Balance sheet item.
And on closing right, we determined that some of those need to be expensed as of onetime non recurring items you can expect to see a similar number before the month, we closed the ideal.
And then obviously the going forward beyond that.
You expect to see that normalize and adjustments to EBITDA and not to reflect these onetime transaction items.
Got it all right. Thanks, guys.
Our next question comes from Michael Gram of Canaccord. Your line is open.
Michael the in your line is open.
Okay, sorry on mute.
Hey, guys. Thanks for taking the question.
My first question is just on the I'm wondering if you can comment on the dynamic of the and partners you know turning.
Turning in the supply partners as well on your platform and you know our most of the the carriers that you're working with taking advantage of that opportunity.
And you know is converting more of those folks into that dynamic of the the opportunity for you.
Hey, Michael its the yeah, absolutely I think that we I don't know most of you know we work with over 35 insurance carriers, both as demand partners and supply partners.
And so a lot are and what we're happy about is the progress that we've made recently in terms of expanding those partnerships getting the partnership to be sure one of expanding the partnerships that we already have and play.
As we tried to explain and the path.
There is the there is the development cycle relationship cycle of what the supply partnerships with insurance carriers typically the dipping their toes and the water and and expanding from there and that can take two to three years to really expand those partnerships and what weve been happy about is is the openness that these insurance carriers have now to expanding the.
And I believe the a lot of the due to how competitive the marketplace and become for customer acquisition.
Because this and the great way to offset from acquisition cost the net customer acquisition cost and start to increase with the increased competition and the stock market, particularly on the T. and see space, but we are seeing greater interest in this program and that's been adopting it but then expanding.
The and expanding these relationships that we may have had in place for one and two years from or.
Okay. Thanks for that and then I wanted to ask the bigger picture question. Just on the you know as DTC becomes more prominent and specifically I guess the auto insurance market.
It seems like we should see tumors switching policies more frequently. So this is the shock and compare and I'm just.
Just wondering if that's true and and does that and I think more transactions and this is going to be a better outcome for your platform just wondering if you.
Foresee any longer term issues, where you know carrier LTV might be under pressure from that dynamic the.
Even losing customers more frequently and and you know how do you see those two you know sort of higher transaction volumes versus the potential for.
The lower ltvs sort of playing out.
Yeah. That's the good question, Michael it's hard to say right I I Where's the thing.
Is that is that.
And that the non standard drivers have been opened the switching policies more and thats been for some period of time now and now what we're seeing our standard of drivers of the standard consumer the more opened the switching policies and comparing policies because the ease with which they can do so and so.
How will that impact the expected lifetime value of these consumer I mean.
Again, and it's hard to say I mean, right and if there's if the increased switching compare.
In Paris, and then it would lower it a bit but what I have confidence in and those are the experience carriers that we work with the vehicle the factor that in and factor data and quickly when it comes to assessing what the expected lifetime value with of the consumers.
Yep, Okay. Thanks, a lot going on and ultimately for us that day and at the on site ultimately for US that that's what's important right that the effect of that in our accurately being able to evaluate the.
The expected LTV.
Yep, Okay. Thank you Steve I appreciate it.
There are no further questions at this time. This concludes today's conference call you may now disconnect.
[noise].