Q1 2021 MediaAlpha Inc Earnings Call
[music].
Greetings, Thank you for standing by and welcome to the media.
Q1 on 2021 earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please.
Press Star Zero.
I would now like to hear on the conference every to your speaker today, Denise Garcia Investor Relations. Please go ahead.
Operator, our discussion today will include forward looking statements about our outlook for future financial results, including our financial guidance for the second quarter and the full year 2021, which are based on assumptions forecasts expectations and information currently available to management. These forward looking statements are subject to risks and uncertainties that could cause for.
What's your 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, and the shareholder letter we posted to the Investor Relations section of our website today for a fuller explanation of those risks and uncertainties and the limits applicable to forward looking statements media Alpha will routinely post information.
<unk> that may be important to investors on our IR website investors Dot media Alpha dotcom and we use this website as a means of disclosing material information to the public in a broad non exclusionary manner for the purposes of the SEC's regulation Fair disclosure. In addition, we will be referring to certain actual and projected financial metrics of media Alpha which.
Our 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 first quarter on earnings release as a reminder, we published a shareholder letter on our IR website and will refer to that during the Q&A session now I'll turn the call over to Steve.
Okay. Thanks, Denise Hi, everyone. We're.
We're pleased to report yet another record breaking quarter, our topline transaction value in the first quarter of 2021 was $262 5 million, an increase of 58% year over year and above the high end of our guidance range.
Our outstanding performance was driven by continued strength of our P&C vertical where we saw a 74% year over year growth.
Well as excellent momentum in our health insurance vertical, which achieved 51% year over year growth.
As we discussed in our shareholder letter.
Our industry leading scale.
Both rate and operating leverage are unmistakable signs that our model was working.
Our scale advantages are enabling us to offer increasing efficiencies to our partners both through superior economics and data science.
Moreover.
We continue to see Greenfield opportunities ahead of us.
In 2020.
A year when we saw the effects of COVID-19 accelerate the insurance sectors adoption of online distribution channels.
The insurance industry still spent only 21% of its marketing dollars on line.
As compared with 65% for marketers across all industries.
We're pleased with how well we're positioned to capture this market opportunity and look forward to a strong continued growth in 2021, and our core insurance markets.
As reflected in our increased full year guidance.
With that.
We'll put it up to your questions.
And as a reminder, that is star one to ask a question.
And your first question comes from on the line of Cory Carpenter with Jpmorgan. Please go ahead.
Hey, thanks, Thanks for the questions, maybe Steve just to start off.
Could you talk about what youre seeing with carrier spend.
<unk> remains remained strong in the quarter.
Are you seeing as the economy reopens miles driven start to normalize and maybe in particular, what what's giving you the confidence to raise the guide at this point.
The year and then I have a follow up for for Teetering on Bell.
I'll stop there.
Yeah, Hey, Corey.
In terms of carrier spending on the P&C space.
Particularly with auto insurance carriers.
We still continue to see the same things that we've talked a bit about in our last call which is debt.
Employment numbers are up everyone knows that.
Miles driven is up but not to the extent that you would expect based on employment numbers and I think importantly painting miles still aren't back and so.
From what we're seeing and hearing from our insurance partners on insurance carrier partners.
Is that they expect things to remain at these levels.
And have above normal loss ratios and I think debt in the second half of this year Theres start you start to see some diverging opinions on whether or not the commuting bouts will come back and frequency will then revert back to normal I think Adam had a great report about this.
Where he makes a strong case that I think commuting miles will stay down below historical levels and hence frequency of book will be below the historical levels because of just changing.
Expectations of workplace.
But then you see others talking more about things getting back to normal and the frequency levels going back to Tom on the second half of this year, I mean, where I stand on this I mean, just in the buy perspective, less as an insurance industry personnel.
So I certainly think that are driving behaviors.
I'm, sorry for expectations of working from our office Theyre going to change.
And so my bet is that commuting miles will start to stay down.
And that profitability will stay high.
And hence the soft market will continue certainly through the end of this year and into next year.
But.
But thats our view on it and that's exactly it.
That's what we're hearing from our insurance carrier partners as well.
That's helpful and then just particularly on it it looks like you're expecting more of the business day shift to the to the private marketplace could you maybe just help us with what's driving that and maybe how you think about debt mix longer term. Thank you.
Sure Corey.
That's a great question, we do see some of our larger partners.
Going direct via the private platform deployment with select key advertisers and Thats really a validation of what our platform was built to enable in the first place.
So what I'd point to is Q1 performance right coming in at the top end of the range on transaction value.
While you see the GAAP revenue number.
Wrote down at a net rate for some of that increased transaction value would be a private platform you see contribution dollars right.
Measure and value that we're bringing to shareholders on to our partners.
Increase.
And keep pace with that transaction value growth.
From a longer term perspective, it can be hard to gauge exactly kind of where this will move.
We believe there is an equilibrium point here right as new partners ramp.
And take advantage of the demand side dynamics at play here with continued soft market in P&C and increased share your demand for consumer referrals.
Moving to see open marketplace transactions increase.
And so you see that with a statistic we made available in the shareholder letter where the cohort.
Oh supply partners that are smaller but meaningful in.
In the open marketplace growing nicely year over year at a clip for 51% and the actual number of partners increasing as well.
Great. Thank you Bill.
And your next question comes from line of Frank Morgan with RBC capital markets.
Actually Tigran I would I'll stay on that point that was one of my question. So looking at those and I think you called them out there for open open market transactions greater than a million.
$1 billion of transaction value, how long does it really take to see those.
Over what period of time do those actually grow and is there a size where there was eventually tap out.
No I think yes, you see those partners grow with market demand and so we've seen those partners growth sequentially quarter over quarter from the Q1 2020 cohort and you see that as you look back at older cohorts as well.
Some of those partners are better at scaling than others and those that get to very very significant scale may choose to go direct with some carriers.
But we don't really see that happening unless it's a partner of massive scale.
Yes.
Got you and just sort of accounting question I noticed a fairly noticeable sequential drop in the cash and it looks like there was a fairly big reduction in payables anything that you would call out about that is that for anything they are unusual or just kind of normal seasonal patterns for our working capital management.
It's really normal seasonal patterns, so driven by the timing of when we release our supplier payments. So you can see some lumpy lumpiness in that.
Outflow from quarter to quarter on a normalized basis.
Things really changed in our working capital cycle.
Really just the effect of timing of when we released the large supplier payments. So we see about a $34 million outflow there in Q1 and the offset is good.
Good collection cycle right on the receivable side.
And note that Q4 is the seasonal peak for US right and so you buildup from receivables there and start to collect on that in future quarters, but nothing really to call out nothing of concern very very much normal cycle.
Q1 trends.
Got you and I know, we've just on the health insurance side of the business you know with another year of good solid growth there but.
Just two.
I guess get your confirmation should we expect that business to slow down over the next couple of quarters, given the normal seasonal pattern of that business before we get back to a year and AEP again or anything that you would call out on the health insurance side or any observations about how the O E P with thanks.
I think we had a strong Oems.
Oh I'm.
Alright.
Your comment about just the yes, we did have a strong OAP and then we did see greater spend from health insurance carriers during the special enrollment periods as well.
And so for a lot of our insurance carrier partners in the on 65 health space we're up.
<unk> <unk> from from past year surpassed outside of open enrollment periods and so we were happy to see that so we feel good about the upcoming open enrollment period, but I'll, let <unk>.
And for the rest of your question.
Yeah, and I think Steve hit it on the head there great open enrollment.
We've seen nice performance through the extended special enrollment period, but seasonal trends will take hold in Q2 and Q3.
For you see again that spike in Q4.
Okay. Thanks.
As a reminder to ask a question that is star one on your telephone keypad again on a star one to ask a question.
Your next question comes from the line of Daniel on gross.
<unk> with Citi. Please go ahead.
Hey, guys. Thanks for taking on the question I don't know maybe.
It may be focused on the shift from open to private.
On a segment basis, if I just look at the conversion values, that's revenue divided by transaction value it looks like the.
On the greatest Delta this quarter on a sequential basis.
Was it.
It wasn't PNC and then followed by health I was wondering if there was anything specific to call out in P&C as we think about the shift from open market two to private market and what that will mean for conversion rates for the rest of the year into next year.
Hey, Danielle I'll take that first which is I don't think there's anything specific to call out with respect to P&C I think the dynamics at play it's really that we had rapid growth in the P&C vertical.
In part because of the acceleration of the adoption of direct to consumer.
By insurance carriers during last year during COVID-19.
So with the influx of demand I think the existing supply partners that we had benefited from that they scaled very nicely from that.
And so AD supply partners scale.
Then our partnership really then is able to be flexible enough to shift to a model where if they choose they can deploy or they can start working directly with insurance carriers through a private marketplace based on up and so on the natural gating factor. There is debt insurance carriers are only willing to work directly with larger supply partners and so as.
These insurance as a supply partner scale that some of them did nicely last year.
More partners essentially qualified and got in bad debt threshold for some of the insurance carriers. So that they can work directly together as Kieran pointed out the influx in demand then also attracts new supply partners and we're seeing nice growth within our open exchange.
Smaller supply partners.
And we expect them to continue to grow nicely and keep in mind. Some of the biggest partners that we had right now we're really very small partners two years ago three years ago.
And so this in part in enabling these partners to grow and scale is really part of our model and we're happy to be able to continue to work with them under a private marketplace model because that's designed for these partners who've been successful within our ecosystem.
Got it alright that makes sense and then just looking at the guidance. It seems like the assumption is you'll continue to see a shift to private for for <unk> and then you'll see the influx of the smaller and medium sized partners come online in Q3, and Q4 am I.
Interpreting that correctly.
Dan Thats right and its also impacted by seasonality.
And so the book.
And have a little bit of an impact on on the optics there the flow through.
But by and large you got it right.
Got you, Okay that makes sense and then in the health check can you remind us sorry go ahead.
Sorry, Dan let me.
I do want to make sure that this is the reason that we focus on transaction value because we love working with our partners.
And as they scale.
And they shift to a private marketplace model Thats by design and so we're not at any given time in the near term overly concerned about the mix of private versus open and Thats why we focus on transaction value and then the next line down in terms of overall contribution and so I just wanted to make that clear that as Stephen pointed out over the long term, we do expect there to be.
Some equilibrium point as new partners come in.
And there is a natural check to the private marketplace model because of the on.
The demand side and their willingness to work with number of partners directly and that being limited.
But at the end of the day the shifts that we expect to see in the near term is really why we focused on transaction value above all.
Yes that makes sense, okay, and can you remind us on the health segment what percent of transaction value is from the ISP are under 65 versus Medicare.
Under 65 is roughly 40% 50% of the transaction value.
Okay and that's it.
Is that more weighted this year because of the S&P and you expect that to trend down in 'twenty two.
That's right I think we see accelerating growth in Medicare as others have seen.
And so naturally I think youll see a mix shift towards Medicare.
Got you, Okay, and then one last one for me any update on the agent.
<unk> agent strategy.
An uptick youre seeing there.
Yes.
Last quarter, we continue to be focused on product innovation there.
And we're very happy with some of the test results that we've had from product innovation that we've been putting out to the marketplace.
I will say that one of the things that we are seeing more of right. Because we're engaged in discussions with these agent based carriers about how best to start working with their agents can help them with their marketing efforts is that we are seeing an increasing trend towards these carriers starting to centralize some of the agent marketing support what people refer to.
Co op dollars or allowances for managers and agents, which essentially marketing dollars that theyre, giving to agents typically.
The way the Allstate for the World had worked with these insurance agents is to give some other agents, notably the top agents some co marketing dollars that they could use to then.
I lead by calls or do other marketing efforts.
What we're starting to see interest in that marketplace is that these carriers just on just centralized a lot of that support that theyre offering and to put it simply starting to centralize the lead buying and the call buying and then distributing those consumer opportunities to their agents and theres. Some real benefits on centralizing thats right because you can use technology like ours.
Based on data science based on programmatic technologies to buy more intelligently.
Installed the feedback loop problem at the carrier and do it on a centralized basis, which has really been one of the intractable issues with media being purchased by agents is that you never know exactly what's working on what doesn't and if you've heard our calls and I was talking about you know how fundamental that has to our overall business model and the efficiency of our business model and so to the <unk>.
Stent that we see this trend of these agency based carriers starting to centralize their efforts in helping their agents.
Prior customers we.
We see that as a very good trend and something where that marketplace is starting to come to us.
And so we've been very happy to see that trend, we agree with that trend. We do believe that a lot of that trend is being accelerated by these agency carriers that also both screening and beefing up their direct to consumer business, because thats, an easy connection to make when do you start to get more active in direct to consumer the benefits of actually centralizing the media buying but they are funding on behalf of their agents.
And so that's a new development that we've been seeing certainly keep you updated on that but for right now our focus remains on really innovating on the on the product side and to be on the platform side and I think youll see a strict and this year then re ramping up there.
Recruitment of the sales team and then really start to reach out to agents.
More aggressively towards the end of this year on next year.
Got it I appreciate the color thanks, guys.
Sure.
Your next question comes from the line of Michael Graham with Canaccord. Please go ahead.
Yeah. Thanks, two questions. Please guys. One is you mentioned in the shareholder letter, it's something that I think we're all pretty aware of which is the.
The insurance industry on we spend a little over 20% of it.
Ads on digital channels versus 65% overall can you just comment comment on like do you see us involving two kind of getting up to parity with the overall advertising market.
Kind of a straight line or do you see like natural areas, where there could be an inflection point.
And then the other question I wanted to ask is just if you could.
Please give us a little color on some of the GAAP charges this quarter it looks like.
There were some impacts to GAAP EPS, just wondering if you could talk us through that.
Hey, Michael.
I think great question, yes in terms of whether that 21% is going to become 65%.
I think it's more likely than not it gets it gets pretty close and one of the reasons I say that is that when you see a lot of the insured tech companies, which are natively digital native technology companies and you see the allocation of their marketing spend at their customer acquisition spend I mean, do you see it closer to those levels, if not higher than the industry normal level.
<unk>.
Certainly not anywhere close to 21%.
So that's one sign that.
Debt five years from now for extrusion now there'll be more carriers allocating that those levels of spend to digital marketing.
Hmm.
Now in terms of.
How smoothed that transition will be.
Within the P&C space.
I would say that.
That it might be a little lumpy in the sense that there are large advertisers within the P&C space.
And so as they start to turn on and really start to increase their investments in direct to consumer you might see some spike as some of these carriers then really start to invest in for us in that area.
And so that could be one reason, where the increases are a little bit lumpy, but otherwise I don't have any information that would tell me that it would.
Be more of a steady growth year over year.
Okay. Thanks, and then any comments on the on.
On the charges to GAAP EPS.
Yeah. Thanks, Michael so in the quarter as you all know we completed our first follow on offering.
They were roughly $8 million of expenses.
Really related to professional services and executing that offering.
<unk>.
Taking the net income number for the quarter of 0.2 million, adding that back gets us to roughly $3 million of net income or EPS of <unk> <unk>.
And so it's primarily driven by those one time charges related to the execution of that offering in Q1.
Okay. That's helpful. Thank you both very much.
Thanks, Michael.
That concludes on questions for today's call.
And that concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
On that.
Non.
Yeah.
Yes.
[music].
Total revenue.