Q3 2021 Mediaalpha Inc Earnings Call
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Good afternoon, My name is Emma and I will be a conference operator today.
At this time I would like to welcome everyone. The media Alpha Q3 2021 earnings call.
All lines had been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press. The star one. Thank you Denise Garcia Investor Relations you may begin your call.
Conference.
Thank you Emma after the market closed today media Alpha issued a press release and shareholder letter announcing results for the third quarter ended September 30th 2021. These documents are available in the investors section of our website and we will be referring to them on this call on our discussion today. Our discussion today will include forward.
Looking statements about our business and our outlook for future financial results, including our financial guidance for the fourth quarter and full year 2021, which are based on assumptions forecasts expectations and information currently available to manage that these forward looking statements are subject to risks and uncertainties that could call future results for it.
Then to differ materially from those reflected in those statements.
Please refer to the company SEC filings, including its annual report on Form 10-K, and its quarterly report on Form 10-Q for a fuller explanation of those risks and uncertainties and the limits applicable forward looking statements. These forward looking statements are based on assumptions as of today November 10th 2021, and the company undertakes no obligation to revive.
Eyes or update them. An addition on today's call, we will be referring to certain actual and projected financial metrics a V Alpha which are non-GAAP financial measures.
Jokes conclude 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 reconciliations of these non-GAAP measures to the most directly compare.
We'll get measures are available in our press release and shareholder letter issue. Today finally, I would like to remind everyone that this call is being recorded and will be made available for replay via a link on the investor section of the company's website and investors thought maybe alpha Dot com now I'll turn the call over to Steve for a few introductory remarks before opening to call.
To your questions.
Nice to meet and thank you everyone for joining this call.
Our transaction value in the third quarter of 2021 was $255.1 million, an increase of 17% year over year.
This was a healthy growth rate and both of her outstanding performance in the second half of 2020.
Short of our expectation as we face headwinds P and C insurance political with many of our auto insurance partners temporarily scaling back their marketing investments in response to higher than expected underwriting losses.
These headwinds or what is also leading us to revise their guidance downward for the remainder of the year.
We've been through these auto insurance I called before and remain confident in our future growth.
Despite the general pullback nine of our top 20th P and C insurance carrier partners increase their investments with us in the third quarter by 50 per cent or more compared to the prior year period we.
We believe this illustrates the continuing strength of the insurance industry secular shift to online direct to consumer distribution models.
In addition, Arlene operating model puts us in an enviable position to invest in growth as others may be pulling back.
We believe that these factors will enable us to scale rapidly once the carriers restore their profitability.
One very bright spot during the quarter was or higher than expected you over you over a year growth of 44 per cent and our health insurance vertical which is unaffected by the train and the auto insurance market.
We continue to see outstanding performance in this vertical and the current open an annual enrollment periods and expect this team to have a very strong fourth quarter.
During these times, we will continue to focus on what it's made a successful disciplined.
Execution of growth mindset, and putting our partner's needs first.
We approached the last hard market with this as a foundation and.
And we emerge from that market cycle into a period of tremendous growth that's always pull away from our competition by leaps and bounds.
We have no doubt that we will also come out of this period stronger than ever and ready to seize the opportunities ahead.
With that we'll open it up to your questions.
[noise] at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Pause for just a moment compiled a Q&A roster.
Your first question comes from the line of Michael Graham what kind of cards genuine. He your line is open.
Hey, Thanks, a lot just a couple of questions. The first one Steve maybe just comment on you know in past experience how long some of these auto cycles are taken to sort of troughing and rebound.
And you mentioned that you know nine of the top 20 grew.
Grew by over 50% year over year, which is which is pretty astounding you know given the overall environment and I'm. Just wondering if you could comment on like was there a common thread for those carriers were these the the ones who were already you know more fully embracing D. T C or is there any common thread you know today is carriers that you had have you spending persist.
Hey, Michael Thanks, Great questions.
You know with regard to our past experiences I mean, we have been through this before but what we saw in the last cycle that was back in 2015 and 16, you know that cycle is driven by three big things.
Lower than expected gas prices higher than expected employment increase and distracted driving all which led to higher than expected frequency.
What you saw unfold there was.
Was a hard market cycle that lasted about a little over two years.
I think this time around there's still a lot of uncertainty.
Yeah market dynamics are still fluid, but I think what we're hearing from most of our carrier partners is that this underwriting cycle is gonna unfold you know much more quickly and it makes sense. When you think about what the reasons are behind this cycle right because it's related to post pandemic driving Pat.
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Pandemic related supply chain issues, that's leading to severity issues and then losses from major cat events like Hurricane Ida and the one thing that we know about the duration of the cycle Oh is that it's a pretty large carriers have announced we do expect them to continue to take right well into the first half of 22.
And having been through the cycles before for US It is hard to foresee this market coming back in full until they're done with this week taking process.
Oh.
As the Profitabilities address again have you been through this before we fully expect to know that the industry is going to revert back to grow pretty quickly, particularly in our ecosystem because the overall efficiency and how quickly they can scaled back in our ecosystem and so what we're focused on in this period is really about laying the phone you know the foundation of the groundwork pixel.
Out of this profitability cycle.
You know what the current carrier focused on profitability inefficiency enables us to do is to make additional progress with initiatives and integration to boost efficiency that honestly get overlooked sometimes when carriers are just trying to grow.
And what this means is more granular conversion tracking integrations better data patching integration I think an enhanced interested increased interest in carriers, you know working with us as a supply partner to generate revenues from non converting shoppers.
And focusing all of these story a hard market cycle. Like this you know it was one of the ways that we put distance on a competitive as coming out of the last cycle and we expect to be able to do that this time around as well.
Michael you. Your second question about nine out of 20.
Our carrier partners in the TNC vertical growing by over 50 per se quarter over quarter in Q3 or you over here in Q3, I think there's a common thread is that these are all carriers got worse still relatively early in.
In adoption of direct to consumer marketing and so we talk about the secular shift a lot I would say that you know if there's one common theme you know you know connecting those nine carriers. It's that they were in any two or three of this adoption curve and not in any six or seven.
Got the Super helpful. Thank you Steve.
Thanks, Michael.
Your next question comes from the line of Daniel gross like with Citigroup. Your line is now open.
Oh.
Hi, guys.
Oh, no it ain't that they're increasing scrutiny on Medicare Catholic housing requiring all Medicare advantage crafting materials can be submitted to CMS priorities. Just wondering if you guys have seen any slowdown in the generations from your partner or your own interest assets.
Okay.
Oh.
Yeah, understood and sorry, you broke up a little bit, but I think you're asking about whether the the CMS pre approval requirement for Medicare advantage advertisements has led to any kind of slowed down and our ecosystem.
Yes.
Yeah. It hasn't we actually you know, we're having a very strong.
Enrollment period, and we haven't seen any material impact from these new CMS guidelines.
Ah. The first is are owned and operated websites aren't subject to the CMS political requirements and then we do work with demand and supply partners. So who are subject to those requirements. You know those partners, having pulled back with us in any way and in fact, some of those partners are the ones increasing their budgets two to three times.
They were in the last enrollment period, and I think the overall feedback that they're giving us is that it.
Is that getting a three approval for digital advertising copy has been a lot quicker than for offline AD copy such as television AD copy and radio AD copy.
Okay. Okay. Thank you that's helpful and then as a lot. Please save a conversion N T N T like Tom pretty different than we had expected. So just wondering what the private my second name is for at and T and T. It is correct.
Yeah. That's a great question. So what we saw on Q3 is that we had some large supply partners, who scaled is a tremendously over the years.
<unk> established wreck relationships with a couple of larger TNC carriers that resulted in this shift because you know we don't provide guidance related to the mix of open and private marketplace transaction. I think this is exactly right like we don't because they're.
There can be near term fluctuations that are largely partnership driven.
So.
The thing to keep in mind, though and the point I want to emphasize is that the growth of our private marketplaces is fundamentally a good thing for our business and I would think for the industry as well.
This product was designed for at scale supply partners, who just in broad strokes need more of a technology platform solution than a full service marketplace the ocean.
And so the growth in our private marketplace partnerships, well first and foremost means that we've succeeded in helping the supply partners scales too are open exchange to levels that were really hard to imagine just a few years ago.
And we see the growing adoption of a private marketplace product by many of these at scale certified partners.
We take that to mean that we've been able to actually evolve our offerings to meet their changing needs.
Because these are very important partners, they're needs are gonna be different when they are a mid sized partner a smaller partner in the open exchange and when they're in at scale Parker.
And so for these larger partners keep in mind that our private marketplace is Ah strongly differentiated platform offering that no. Other company has been able to offer in any credible way we have nine to 10, such partnerships Ah no. One else has even one and believe it's not for lack of trying.
I think for US it also leads to far more deeply integrated partnerships.
And these are some of the largest supply partners administrator, who then enter into a multiyear exclusive partnership with us to become a private marketplace partner.
Now keep in mind the dynamics here that will shift more to the open exchange it'll be the growth of new demand partners, because new demand partners or midsize demand partners typically can.
Support is maybe direct relationships as large demand partners Ken.
And then it's gonna be the growth of newer supply partners as well smaller partners midsized partners that's a scale.
And then the increase in carrier partners, because regardless of scale of our carrier supply partners.
The marketplace product really isn't a product that's designed for them and so over the long run for US. It's just really about maintaining a healthy balance of both of these models because it tells me that we're doing a pretty good job of serving the needs of both are small and midsize supply partners as well as our largest ones.
I think that was super helpful. Thanks for the color.
Thank you.
Your next question comes from the line of my <unk> K B W. Your line is now open.
Great. Thanks to a basic question, but I can first within PNC are you getting any.
Are you seeing any signs of concerned about insurance companies wanted to raise rates, but having some regulatory function.
I could answer that pretty quickly that that is something that that that we're seeing mostly quite honestly and just in the trade press and not any specific feedback that her partner, so you're giving us.
Okay, Perfect and then I don't know whether this is manifesting itself at all but the number of the I guess senior health brokers are struggling with retention I was hoping you could walk us through what impact that has to be the alpha if any.
Well.
Those brokers are are both demand and supply partners of ours.
And again to the extent that they're they're going to struggle with pretension that would be damn textually side potentially a lower expected lifetime value to the customers that they require and so that would lead them to pull back on the day that they have in our ecosystem and so you know for us and our channel we're not seeing that in fact, we're seeing some of the big.
[noise] budget increases coming from these brokers in our ecosystem.
And they keep in mind the vast majority of the demand is also directly from the carriers themselves and not from these types of brokers.
Okay perfect. Thank you so much.
Yeah. Thanks, Matt.
[noise] again, he would like to ask a question press Star then the number one on your telephone keypad.
Your next question comes from the line of Frank Morgan. Your line is RPC capital markets. Your line is now open.
Good afternoon, so it sounds like in terms of the cycle itself on the PNC Sad. The 23 is the year, where hopefully things get back to normal is there.
Lag from the time, the underwriting improves and we're marketing spend goes up or is it pretty much simultaneous with the improvement in that you know the the underwriting margins what would be your experience from from past cycles on that.
Yeah, Hey, Frank So I I would I would not characterize today's the market coming back in 2023, I would characterize it as we don't know exactly when it will alright, and so I mean, we do have some partners telling us that they that they expected back in early part of this year again, and then we have other partners telling us that'll be back later and then we also see.
The rate filings and the pace of the approvals that are happening and we see that companies announcing that these wait takings will you'll continue well into 22 right now.
When it does come back we tend to see little to no lag from taking right to coming back to marketing.
Honestly, that's like your partner just told us that yesterday.
There may be some differences this time around because there is a bit of uncertainty around but the severity is gonna look like because keep in mind. The underlying issue here, which is that we are emerging from a once in a lifetime pandemic and a lot of patterns that people are seeing both in terms of frequency and severity are kind of once in a lifetime events that have been hard to predict.
And so but you know what the carriers are telling US you know they'll be back very quickly. After the rates are taken if that simultaneously with the rates being taken.
But keep in mind into that other factor is that this industry is dealing with something that's you know an uncertainty that is new to a lot of people.
Understand and just to just to one more on this topic.
I think the last quarter, you called up to two of the large of your top carriers, where you're saying that the more than two that that number has increased since last quarter in terms of those who are either contemplating or have cut budgets.
Yeah, right that's right.
That's right I think we started to see the early signs right.
And in those early signs that we were seeing in Q3 right.
And there is one aspect of this cycle that I alluded to which is different from the last one which is you know it did unfold quickly and more uniformly across all carriers are most carriers than than in the last cycle and again, it's it's really because.
There's a multitude of factors, but really unexpected severity stemming from supply chain issues that a pandemic related that a lot of carriers weren't foreseeing.
Gotcha, well I guess, having diversity is a is a good thing now with it with a stranger sitting on the health side of the business. So maybe just one question there yet.
Do you have questions or ensure but I'm I'm I'm just curious.
As we've listened to the D. C. C. Brokers report this season, there does seem to be a bigger focus on quality of new business that they add you know so I'm just curious does that maybe even drive more demand for you if if the if the if the the the desire to have quality <unk>.
Embers come on board, so to reduce churn deserved consumption of leads go up or what would you have used that would affect the business [noise].
Well I think I think it would affect the business positively and I think that that's part of why we're seeing.
Very high levels of demand from some of those broker partner that you're referring to.
Yeah, but we're seeing demand levels of two to three times previous periods from those demand partners and so and so as they focus on quality to the extent that their budgets with us and their investment with US is going up I think it does exactly what you're what you're alluding to.
Okay. Thank you.
Thanks right.
As a final reminder, if you would like to ask a question press star and the number one on your telephone keypad.
There are no further questions. This and today's conference call. Thank you for all attending you may now disconnect.
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