Q4 2020 MediaAlpha Inc Earnings Call
Okay.
Hello, My name is Philip and I'll be your conference operator today, and just kind of I would like to welcome everyone to the media Alpha Q4, 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask the question during that time simply press Star then the number.
One on your telephone keypad, if you'd like to withdraw the question price per pound key.
Turning the call over to your host.
Denise Garcia with Investor Relations. Please go ahead.
Thank you Phil at our discussion today will include forward looking statements about our outlook for future financial results, including our financial guidance for the first quarter and the full year 2021, which are based on assumptions forecasts expectations and information currently available the management we saw.
We're looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's guidance. Please refer to the earnings release, we filed with the SEC on form 8-K in the shareholder letter, we posted to the Investor Relations section of our website today for a fuller explanation of those risks and uncertainties.
On the limits of applicable to forward looking statements.
Of the Alpha we will routinely posts information that may be important to investors on our IR website investors Dot media Alpha dotcom and we use this website address as a means of disclosing material information to the public and abroad non exclusionary manner for purposes of the SEC's regulation Fair disclosure. In addition, we will.
Referring to certain at certain actual and projected financial metrics of media Alpha which are non-GAAP financial measures. 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 a substitute for.
Or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available in our fourth quarter earnings release as a reminder, we published a shareholder letter on our IR website that we'll refer to during the Q&A session now I'll turn.
The call over to Steve.
Thanks, Denise Hi, everyone. As you saw on our shareholder letter, we're pleased with the fourth quarter and overall 2020 results and we anticipate a strong 2021.
Looking forward to discussing our most recent results with you. So we'll open the call the questions now.
Okay.
Again, its star one to ask the question.
Your first question is from Milan of Frank Morgan with RBC capital markets.
Good afternoon.
I guess I'll start with your commentary on the in the release of where you specifically called out the the the strength in your your health insurance vertical of and the record breaking O E. L. E P. The jet or AEP of just occurred.
So I know when the the.
DTC brokers the M E brokers that we spoke with they they commented a lot about in their force the results about this.
You know the the level of demand that they had they had gone out and created our board and the at the same time.
In a lot of the heavy spend there was also some chunky knits around breaking news stories and the presidential election, and so I'm just curious.
How would that affect your business is that something you can capitalize up is that activity of benefit to somebody like media alpha or is that a how does that dynamic play out and what's the opportunity there and then I'll ask a more specific modeling questions.
Yes.
The <unk>.
Could you could you repeat the question.
Oh boy.
And whether or not the I.
I guess the news cycle and the news of you know that was hitting during OAP and AEP, whether that was the benefit to us as the market. Yeah was that of benefit in the there were some commentary about there was a lot of chunky nursing on their call volume and sometimes they just physically couldn't handle it but but yes, just generally speaking the effect of either of elections or breaking news and you know.
Any of those factors that could possibly happen during the during an AEP or on O V. P of.
Or are those good or bad for your business.
Right well I think I think we saw a couple of things.
Is that a lot of our supply partners.
Did have you know, we're seeing media prices go up.
Because of the election.
And so that negatively affected some of our supply partners, we did here of that.
It did negatively affect some of our demand partners, who then increasingly had to turn into a channel like ours from <unk>.
Customer acquisition, because the media pricing and some <unk>.
Play channels of our native advertising channel had gone up because of all of the advertising related to the election.
In terms of the chunky Ness of that what the news may have created in terms of consumer demand I'll be honest, we didn't really see that but you know one way it may of manifest itself.
Is that instead of at the tail end of <unk> and AEP for us, where there's always a fair bit of activity.
Came in a lot stronger than we were projecting and so I don't know if that goes to the observations that others were sharing with you, but certainly that aspect of what you're describing I mean, we did see and we did benefit from.
Gotcha, maybe a modeling question here certainly when I look at the numbers for the first quarter and really all of 21 of.
It seems like at least relative what we've modeled the transaction value of assumptions seem to be a better of larger numbers, but the revenue guide seems to be generally in line with where we are and I'm. Just curious is there any kind of dynamic at work there that might explain that is there any changes in things like transaction value of referral is there sort of a mixture.
Or just any color around sort of the dynamic between the between the the revenue and the transaction value of thanks, and I'll hop off.
Yeah.
Right.
The Grand so.
You're right to point that out there's a bit of a mix shift between open market place and private marketplace transaction value. That's reflected in the Q1 in 2021 guidance.
Just a reminder, that that business model net deployment exists and we created it to support our at scale supply partners, who want to work directly with the demand partners and we've seen a few of our partners kind of get to that scale and we facilitate them.
Those types of relationships right. It helps us continue to grow the top line.
And continue to grow the contribution margin dollars, but does create a bit of a shift between transaction value and GAAP revenue and recall the GAAP revenue from private marketplace transactions.
Converts the GAAP revenue at a fraction of rate.
Our take rate.
Your next question is from the line of Cory Carpenter with Jpmorgan.
Hey, Thanks for the question.
Steve maybe on for you and then all of them on.
The follow up for Kieran.
Just hoping you could expand a bit on some of the trends you saw on the fourth quarter in the P&C vertical.
Just how youre thinking about the sustainability of that.
The economy starts to reopen the more miles driven in 'twenty one.
Hi, Cory Thanks, yes.
So what we saw in the fourth quarter for our P&C vertical was just the continued strength of the.
The demand did that vertical.
As you know if you follow the sector at all.
Fourth quarter is typically a C.
Seasonally down quarter.
And so to see demand go up in Q4 in TNC certainly for US was not something that we were anticipating but obviously very happy to see on I think that speaks volumes for.
Just the strength in the demand that were soft in the market in 2020 the.
In 2021, I mean, what we're expecting is.
Of that the new baseline that's been set in 2020 will remain and that the growth will be back to more historical growth levels.
I think what 2020 did particularly for the property and casualty insurance space has really accelerated the adoption of direct to consumer online channels and you've heard that elsewhere, you've heard us talk about that but what we've seen is that as a lot of the offline channels have come back offline marketing channels and customer acquisition channels like TV and sports marketing.
We've seen the level of investment in our channel.
The continued to go up from a lot of the carriers who made.
Accelerated their investment into our channel.
With shelter in place back in March and April of last year, and so for US we think that that's the very good sign that the growth that we saw on 2020 will.
We will stick around and inform the new baseline upon which will grow and I think that's what our forecast reflects.
Thank you and then.
And then in the shareholder letter you mentioned you expect to invest aggressively in this year. So just hoping you could expand a bit on on some of your key investment priorities I think you mentioned the employee hiring.
And then maybe just some of the puts and takes and how that impacts margins. This year.
Sure.
The plan is.
As you'd expect from us is about product and technology investments.
I would say.
Relative to many other companies those will still look modest because of the operating leverage in our business continues to be high.
We're also investing in the agent channel.
And that requires more head count sales oriented head count.
But again, what we're seeing is that.
Our sales.
Sales and marketing costs relative to revenue will remain in that healthy 2% range.
From an overall margin perspective shifts.
We don't see our head count plans and hiring plans really affecting the EBITDA margin what youre seeing there in 2021.
Is it reflective of public company costs, increasing year over year in 2020, we had two months of that in 'twenty. One you will see the full year effect of that.
Okay, great. Thank you both.
Thanks Corey.
Your next question is from the line of Mike Zaremski with credit Suisse.
Hey, This is hey, guys. This is Charlie on for Mike.
I guess first.
Can you tell us whether there were any new carrier additions in the fourth quarter that maybe.
The helped helped growth or any other dynamics you could call out.
Okay.
Hey, Charlie.
No no one notable who are new in Q4, I mean remember that we're already working with all of the major carriers in all of the insurance sectors that we're in and so for us the.
The growth is really coming from growth from existing partnerships on the day to day focus that we have on delivering value to our existing partners.
Got it.
And then I guess.
Just on the on the contribution margin.
Is there is.
Is this kind of like a good run rate to think about now or.
Are there I guess you mentioned the private versus the open shift is there anything that would impact.
The contribution margin in 'twenty one.
Hey, Charlie I think this is a good run rate to think about in our guidance reflect.
All of the kind of puts and takes that we expect the impact contribution margin.
Remember as part of the driver of that is going to be mix and mix of supply and mix of vertical. So in Q4, you saw that contribution margin increased sequentially to 16, 2% from $14 three.
Part of that is the <unk>.
Open enrollment periods for health and Medicare and the seasonal uptick there.
And from here forward.
What we're modeling is.
The mid 15% range.
The range for contribution margin, we think that's appropriate.
Got it. Thank you that's helpful. Thanks, guys.
Thanks Robert.
Your next question is from the line of Michael Graham with Canaccord.
Sure.
Hey, good evening, guys and congrats on the on the great strong finish to the year.
A quick follow up on one of the earlier questions first please which is.
This dynamic of transaction value growing faster than revenue seems to be.
The most pronounced in Q1.
Based on your guidance and then it looks like it moderates as we go through the year.
Do I have that right and is there the story to tell there or anything to focus on.
Hi, This is secret on you've got that right. So the the dynamic there is as partners reach of certain scale right and we're agnostic to whether.
They are working with us through our open market place or private marketplace.
As they scale.
We'll facilitate those relationships and we've seen a bit of mix move to the private marketplace.
And that's a reflection of the demand site environment, right and that demand side environment, we expect to remain strong.
And what that does is that drives new supply partners into the ecosystem.
Which will largely be open marketplace. So it'll then moderate and kind of back come back too.
On a 70 30 split between open marketplace transaction value.
And private marketplace transaction value and we're really focused on growing that key top line metric that represents the growth investment in customer acquisition from all of our partners.
And it reflects our share in the in the broader market.
Okay. That's helpful to you and thank you and then.
A broader question if I could.
Your guidance for pretty rapid growth in Q1, I'm looking most of that transaction value and then.
Much lower growth rate for the for the full year.
Kind of leads me to believe that the third.
This should be a good opportunity to outperform that guidance.
On my my interpretation.
But but as we look at the growth rates you had for some of your verticals exiting this year.
76% in P&C, and 46% on health and 27% and life could you maybe just at a high level about when you thought about the guidance for this year.
Growth rates in those verticals like relative to how they did sort of exiting this year do you.
Do you expect them all to slow down the same amount or something to kind of grow faster or are there any high level thoughts you could share around the verticals as we go through the year.
Yeah, Hey, Michael it's Steve.
And of high level, I think what youre seeing in our numbers and our forecast is.
Is starting.
Starting to overlap periods, when we did see a rapid acceleration.
Celebration of of.
Of the investment dollars going from offline marketing channels to online that was in part by in large part due to COVID-19 and so.
As I mentioned earlier I think we do expect growth to normalize and we're expecting a very good year.
We expect growth to normalize from the baseline that were set in 2020.
But at a high level I think thats really what youre seeing in terms of the growth rates on a quarter by quarter basis.
Okay. Thank you much guys have a good night.
Thanks, Michael.
Your last question is from the line of Daniel gross line with Citi.
Hi, guys. Congrats on a strong end of the year and really appreciate the.
Economy of these calls.
I guess going back to the health segment question I'm curious, what's built into the guidance in <unk>.
2021, as we think about it.
AEP for for plan year, 'twenty, two given we might see a return of more face to face.
Sales in the agent force.
Help us think through next year's AEP.
Next year, you're talking about the 2020, you're talking about 2021 2021 EBIT per plan year 2022.
Yes understood.
Oh listen I mean, I think there'll be I would think there'll be some of that right.
But what we've seen our online only processes for force the Medicare products, we've seen the growth of.
Online applications and online shopping processes from the new cohorts or aging into Medicare and we're seeing that at higher levels than the older cohorts.
And we're seeing of greater propensity for these newer cohorts the up for.
The Medicare plans of privately administered Medicare plans, most notably the Medicare advantage and so.
So I think youre right, there will be some reversion back to face to face shopping, but I do think that.
Sort of the positive trends the secular trends will continue and we're expecting for a very good this year.
Got it Okay, and then as we think about the other.
The segment it seems like folks are itching to start traveling again and the vaccine rollout is going well Keith like that what's the assumed in and travel for for 2021.
I would say I'll say at a high level.
Little.
It's really because we do see the numbers on our side picking up.
If you look at the TSA stats you'll.
Youll see our numbers going up.
In line with what Youre seeing in terms of U S domestic air travel.
I think it's still too early to say exactly what the timing of that return is going to be whether what the second half of this year is going to look like.
And whether it will take six months or nine months for things to get back to normal or what was the 24 months.
Okay, but its safe to say a reversion to normalcy isn't baked into your 2021 guidance.
That's right I think thats it yes, okay.
Okay. Okay.
And then lastly.
I saw the rollout of of the new agent the agent channel on.
Your website it looks like an interesting product can you just talk about.
What youre, assuming current contribution in that channel the agent channel for 2021, and which segment that will largely show up in.
And so the.
We're not we're not anticipating.
Strong financial contribution from that business this year.
We're focused on innovation product innovation, we're working with a few hundred agents already we're focused on getting the feedback and really finding a new way to sort of this important market.
In terms of when you start to see that impact layer and where youll see it first is on the P&C.
Got it.
Okay Thats it from me thanks, guys.
Thanks.
Your next question is from the line of Cory Carpenter with Jpmorgan.
Hey, sorry, I just wanted to squeeze one more on.
Maybe I wanted to go a little more on the agent Agency channel.
Could you just talk at a high level about the opportunity of going after there and then.
On.
As we think about the next year I know, you're not expecting much revenue, but just in terms of rollout what could it look like kind of what are the key learnings so far on what.
Some of the upcoming milestones for that business. Thank you.
Yes.
One of the high level of story there of course is.
Is that.
As much as we talk about direct to consumer is what should we talk about insurance carriers.
P&C going direct and in the other sectors going direct.
Well over half of auto insurance policies are still sold through agents right now and so it is an important market.
It is an important distribution channel it will remain so.
It's just the channel that we haven't worked with.
As you know some of the other publicly traded companies of our space.
Roughly 40% or so of their insurance revenue.
Coming from the work directly with agents.
And so the reason that we're getting into it because we think that there is room for innovation here and to do things differently.
And to make the same kind of have the same kind of transformative effect.
With our approach to the space that we had when we first entered into.
On the space of working directly with insurance carriers.
And so in terms of.
I'm sort of milestones really for us what we're focused on is just building a better product.
Having a better experience that agents have giving them more control over exactly how they are connecting with consumers right. Now I think if you ask anyone in the space that consumer experience is not good.
So I think if you're looking for directionally, what kind of innovation that you're going to see from us.
Well I'll start with having a better consumer experience because of any agent who buys leads from our current lead generator will tell you that.
A good consumer experience results and a good referral on a bad wound result from the bad ones and right now, there's just way too much bad consumer experience right now.
For the leap in calls that are being generated and sold the agents.
Helpful. Thank you.
Your next question is from Mike Zaremski with credit Suisse.
Hey, Thanks, I jumped on late but I had one question as a follow up two tenths of Coreys.
On the agent channel.
Curious.
If you can give us any color.
On the Tam of the current agent lead channel is that our.
There are a lot of competitors there that are doing this or is this a small space. Currently that is mostly kind of greenfield opportunity that you guys are going to try to open up or is it both.
No I think I think there I think the best way to think about the the.
Base line.
Tam is to is to look at look at the publicly traded companies in our space companies like like the lending trees insurance, but never quote.
And apply that percentage I mentioned about 40% or so of the revenue coming from P&C insurance of being from agents.
And then you do have a number of large private companies.
Who are focused on the space and so it's a big part of the marketplace I mean.
I think you can look at it as it is.
Yes.
<unk> half or so or more of the half of insurance policies are still being sold through agents.
I think you can think about the total addressable market opportunity.
In those terms in terms of just how much marketing spend there is.
In P&C insurance.
Okay and just following up is there.
I think we understand your analytics are are probably better than a lot of your peers, but when the agent. Let's just say you put the quota from from an Allstate agent when an agent is considering lead options.
I think price is.
One factor is when you say that your your your leads might be more.
More price competitive versus your competitors or is there kind of on each kind of special sauce to kind of.
Why why your lead generation software might be all the better than others.
I would say well I'll answer the price question first which is easier which of which is I think the one difference is that the agents are going to have full control over exactly what they want to pay.
Alright, and Thats not always the case right now usually in the space they are price takers.
We're just not big believers in that.
As the long term business model.
Terms of what we will do differently.
I think what Youll see is that because we don't have the burdens of being an incumbent in this space and having revenue on generating revenue on it.
A lot of revenue from.
On a business model, that's based on a sub optimal consumer experience I think that youll see us innovating and providing for a way to refer and connect interested shoppers with agents and a much more consumer friendly way.
And thats going to naturally lead to I guess higher quality referrals or leads and and in that case and then if there are enough agents third of greater competitive marketplace than Bell Sunbelt did whatever the day.
Whatever the feel is appropriate for a relief coming through.
I can tell you right now that the pricing of that the issue. It's the quality of the leads on what they get you Shouldnt you should not have to sift through a 100 needs of call of 100.
Consumers that youre accessing through this model now to get one policy of two policy.
No that's fair and we've heard many agents talk about the.
The lead just didn't didn't didn't pan out, but the wasted money like us.
On the matter right.
Absolutely absolutely.
Alright, well. Thank you very much on looking forward to learning more throughout the year.
Yeah. Thanks, Mike Good luck.
And there are no further questions that does conclude today's conference. Thank you for participating you may now disconnect.
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