Q4 2021 Mediaalpha Inc Earnings Call
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At this time I would like to welcome everyone to the media all for Q4 and full year 2021 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 a question at that time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question again press Star one thank you.
Now my pleasure to turn today's call over to Denise Garcia Investor Relations. Please go ahead.
Thank you Brian after the market closed today media Alpha issued a press release and shareholder letter announcing results for the fourth quarter and full year ended December 31, 2021. These documents are available in the investors section of our website and we will be referring to them on this call our.
Our discussion today will include forward looking statements about our business and our outlook for future financial results, including our financial guidance for the first quarter of 2022.
Based on assumptions forecasts expectations and information currently available to management.
Forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from those reflected in those statements. Please refer to the company's SEC filings, including its annual report on Form 10-K , and its quarterly reports on Form 10-Q for a fuller explanation of those risks and uncertainties.
And the limits applicable to forward looking statements.
These forward looking statements are based on assumptions as of today February 24, 2022, and the company undertakes no obligation to revise or update them and.
In addition on today's call, we will be referring to certain actual and projected financial metrics of media outlets that are non-GAAP financial metrics.
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 reckon.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our press release and shareholder letter issued 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 investors section of the company's web site at investors Dot media Alpha Dot com.
Now I'll turn the call over to Steve and Pat for a few introductory remarks before opening the call to your questions.
Hey, Thanks, Amit.
Hi, everyone welcome to our fourth quarter and full year 2021 earnings call.
I'd like to kick things off with a few key takeaways from our shareholder letter.
First we reached a new and exciting milestone in 2021 by exceeding $1 billion in transaction value.
An increase of 25% year over year.
I'm, particularly proud of this achievement given the current challenges in the property and casualty insurance vertical.
Second we had our strongest quarter ever in our health insurance vertical driven by record carrier spend in both our under 65 and Medicare insurance segments.
Lastly.
Despite the challenges in the P&C insurance vertical.
We firmly believe that the industry is continuing its powerful secular shift towards direct online customer acquisition as.
As the leader in our industry.
We're continuing to invest to be ready to accelerate our growth when the market recovers.
Now I have the great pleasure to introduce Pat Thompson, who joined us as our new CFO back in December .
His breadth of experience across SG&A corporate development strategy and analytics.
Made him a standout candidate.
And I can't think of a better more complementary partner Lee.
US through to the next phase of our growth.
With that I'll pass it to Pat.
A few words before we open the call to your questions.
Great. Thank you, Steve it's great to be here on my first call as media Alfa's, CFO and I'd like to thank the entire team for the warm welcome I've received since joining the company in December .
I joined media also from Expedia, where I spent 11 years in the online travel industry, which was one of the early industries to move online.
As I've been learning more about how insurance is currently bonds sold I believe we are in the early innings of a similar online transition.
Carriers are investing heavily in marketing analytics and improving their online purchase experiences price comparison sites like the zebra and ensure fire gaining adoption for us.
<unk> finance apps like credit Karma erratic insurance to their menu of financial products, yet the insurance industry is only allocating approximately 20% of their AD budgets to digital channels, while other industries overall allocate roughly two thirds of their advertising budget digital which is in line with consumers' time spent with digital media.
I believe that no company is better positioned than media outlet to capitalize on this growth opportunity.
We have gained market share organically over every time horizons since our inception in 2012, becoming a $1 billion plus platform that is the largest online AD marketplace in the insurance industry.
As the two sided platform to scale is powerful.
Suppliers want access to as many advertisers as possible.
Advertisers want access to the most shoppers.
More and better data enables more granular segmentation.
Essentially as we grow or improve any part of our ecosystem the outcomes improve for all of our stakeholders.
My primary objectives of media outlets are to accelerate this flywheel by extending our market share gains through both organic growth and M&A, while remaining focused on driving attractive long term EBITDA growth.
Given these themes we are planning to continue to make significant investments this year, which we believe will position us to accelerate our market share gains as the P&C insurance market recovers and our partners ramp their digital customer acquisition investments on our platform.
We are excited to announce one strategic M&A investment today, which is our agreement to acquire a customer help her team or CHP for $50 million of cash plus up to an additional $20 million based on CHP as achievement of revenue and profitability targets over the next two years.
CHP expands our owned and operated Medicare business and is a highly complementary asset due to our non overlapping Medicare carrier and broker partnerships and CHP is focus on social media channels, particularly short form video advertising.
With CHP, we are doubling down.
On our Medicare business, which stands to benefit from the aging U S population greater online shopping among new Medicare cohorts.
The increasing popularity of privately administered Medicare advantage plans.
We anticipate that the deal will close in the next two weeks and we will have a minimal impact.
On Q1 financials.
For the balance of 2022, following the closing we expect CHP to contribute in excess of $25 million of revenue and 5 million of adjusted EBITDA.
In conclusion, I couldnt be more excited about media outlet as long term growth opportunity. The insurance industry is still in the early stages of its digital transformation and we are investing to grow our platform and market share and extend our competitive advantage with that operator, we are ready for the first question.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
Your first question comes from the line of Charlie <unk> with Wolfe Research. Your line is open.
Hi, good afternoon.
I guess my first question as we think about your EBIT margin.
With the headwinds in the auto going on.
Is your <unk> guide kind of where we should expect margins to be as long as the environment or.
Is there some seasonality in there.
Yes.
Thank you for the question.
I'm happy to kick it off on it and.
The thing I would say on the on the margin for Q1.
There are a number of forces at play in the business and I would say that.
We're in the midst of the P&C downturn right now that I think we elaborated on quite a bit I think our view is that those trends are continuing and we believe they will continue through the balance of the quarter.
And so as you look at the trends I think you can see that one thing that I would probably call out from a margin standpoint is that.
We continue to invest in the business from an SG&A standpoint.
And.
Both in terms of adding people to the business to power our growth.
And also.
The professional fees side to support.
Our IPO and being a public company going through the Sox process for the first time I think our view is as the business recovers we would expect.
To see margins start to improve EBITA margins start to improve to look something somewhat more like historical levels. We definitely believe they are they are depressed at the moment.
Thanks Thats helpful.
And then I guess can you just expand a little bit more on the health care acquisition how it.
This into your ecosystem and how that deal came about.
Yes.
I'll start with that.
I think the acquisition.
<unk> was super attractive.
One for because of our outlook on the Medicare vertical we're big believers in the overall secular trends in that space with larger numbers of seniors aging in every year. These newer cohorts opting in to Medicare advantage at higher levels than older cohorts as well as the just the general led.
<unk>.
Internet Daffiness exhibited by the newer cohorts of Medicare.
Consumers.
Meaning that they are increasingly starting their shopping and research experiences online.
In addition to that specific that the HD.
Love about that business is what they've been able to do to leverage social media channels social media marketing.
Which is an area of quite honestly that we haven't traditionally been strong in.
In order to generate.
High quality.
Customer inquiries for Medicare consumers.
For us what we're seeing in our marketplace as a growing appetite for calls from a lot of our Medicare carriers and their ability to really tap into the social media channel, which is best.
And really innovative way.
They did a really good fit for both our owned and operated business as well as their health insurance vertical more generally.
I will say one other thing which is that.
Which is that the culture of the company as we looked in and.
The cultural fit that we saw was a really important factor.
There are also a self funded company.
Very strong entrepreneurial spirit.
Our spirit that I can certainly relate to as an entrepreneur myself.
Having started this company.
By funding it ourselves.
And as we scale.
Really welcome the fresh injection of fresh entrepreneurial energy to the overall team.
And I'm really looking forward to getting them integrated and <unk>.
And we can do here.
And probably the other piece I would I would just add on that would be we believe it's financially attractive as well and I think we've stated that for the balance of 2022 post close we expect in excess of $25 million of revenue and $5 million of EBITDA. So roughly a 10 month basis. So we believe the multiple is.
Tractive relative to where we're at relative to the growth potential of the business.
Thanks for the answers.
Thank you.
Your next question comes from the line of Meyer Shields with <unk>. Your line is open.
Great. Thanks, I wanted to start if I can on on the health insurance side I know there was a ton of churn.
In the quarter and for a lot of the public brokers. It was a pretty difficult quarter. I was hoping you could talk to how that impacts lifetime value estimation.
And your expectations for within that level of churn is likely to continue.
Okay.
Listen I mean, let's take a step back when we think about Medicare I mean first and foremost we think about those secular trends.
That I talked about in the last question, we still are big believers in them.
And it was a really strong performer for us this year.
With respect to some of the churn that that you've been hearing about from.
From some companies who are in this space.
For us we have a very diversified base of demand partners for advertisers.
While we cannot disclose the specific mix.
It's a pretty fair split between both carriers.
Well with brokers.
With the overall trend being.
Towards direct spending from carriers.
Because of the secular trend of carriers moving moving gradually towards direct online customer acquisition and then one evidence of that was that in this past quarter.
Spending from carriers, both for Medicare and under 65 worked at record levels for us.
Yes.
Expect to.
Customer lifetime value and the ability to really assess that based on renewal rates that are coming through.
We really welcome the advertisers are looking more closely at that.
Because what our channel out loud to advertisers to do is just really granularly at that customer lifetime value on a publisher by publisher basis.
And then match that to the customer acquisition cost and the ability for carriers as well as brokers to do that on a very granular level, it's really one of the hallmarks of our marketplace.
And so we welcome.
Brokers as well as carriers and their efforts to really get a better bearing unexpected lifetime value.
So.
I don't know if that answers your question or if theres anything more specific I can I can tell you.
No I think it does.
What you said, but I think it is helpful.
Follow up if I can just <unk> P&C last quarter, you talked about how there was still a bunch of companies in the top 20 that were increasing their spend I was hoping you could update that.
Or give us some sort of update on on that cohort.
Sure.
What do we step back and just give.
Give you our outlook on just generally how that market is doing right.
Not much has changed since the outlook that we shared with everyone that quarter.
It's still a super dynamic underwriting environment, particularly with respect to severity.
Because as we all know inflationary pressures that persisted through 'twenty two.
Now Terry.
Carriers are making pretty good progress with pricing increases.
And we generally agree with others, who were talking about a.
Second half recovery and I think Thats Directionally correct.
But I think really when you Peel back the layer you start to understand that the situation is a little bit more complicated than that.
First of all you have the basic issue of.
Having to predict exact timing.
Each carrier's rate approvals across multiple states dozens of carriers seeking rate increases in dozens of states and all of these states are slightly different perspectives. The types of rate increases that they are open to allow me.
In addition to that.
One carriers actually take the rate increases.
Some of the carriers, who were early to take them actually become less competitive.
And so the conversion rates go down.
For the simple fact that their prices now higher than everyone else's and so sometimes those conversion rates stay down until more carriers that followed suit and taken rate themselves.
And then when the rate actions have been taken.
How quickly they earn through to actually improve underwriting profitability.
Will vary by carriers.
Because each carrier has unique mix of six to 12 month policies and it is really upon the renewal that these pricing increases take effect right.
And so you have to consider all of these factors.
When you start to think about exactly when each specific carrier will start to return to more normal levels of growth marketing investment.
The thing that we do know is based on our experience in the industry.
Is that when the market turns one.
One of the hallmarks of our programmatic marketplace with hundreds of supply partners is really how rapid periods.
And when the market turns.
This happened during the last hard market cycle.
Happened during the Covid when we had a sudden.
Massive acceleration in the migration of offline advertising dollars online.
And so it's been our experience to that the speed of the steepness of the turn to a growth environment can also be hard to predict but obviously in this case under very positive.
Yeah.
Okay.
Okay. That's very thorough thank you very much.
Your next question comes from the line of Daniel <unk> with Citi. Your line is open.
Hi, guys. Thanks for taking the question I could go back to the health.
And the challenges in the E broker channel specifically.
I know you mentioned you can't really break out.
Your exposure.
To the E brokers, but I guess im more concerned around 2022.
AEP given if you look at what the publicly traded folks have said, they're really tight trading growth down from $30 40, even 50% to market growth, which would be around 10%. So a pretty dramatic drop in consumption for 2020 to AEP. So I'm just curious if you think.
Sure.
Direct to carrier partner consumption and Youre under 65 consumption can offset those pressures and you'll be able to maintain growth in kind of that 30% transaction value range for 2022 or are we going to see a little bit of a deceleration in growth for.
For next year's AEP.
Thanks, Dan.
What I can tell you is that we're not expecting a slowdown of our Medicare business. This year.
It's early but we're off to a strong start and in.
2022 within our Medicare segment with spend being up year over year from both carriers as well as the Medicare brokers.
So with respect to.
I think the closer look that a lot of the Medicare brokers are taking with their marketing sources.
And the expected lifetime value from each of their marketing sources, and really the averaging and taking a granular look at that again as I as I alluded to in an earlier answer I mean that type of development is something that we welcome because that's exactly what our marketplace was built to enable.
And so we've gone through these types of cycles within the P&C space as carrier carriers have gotten smart about really D averaging like how their.
Paul what the value of a policy that's required that our channel is right and then apply expected lifetime value on an average basis to then really refine.
What they are bidding for these very granular consumer segments across hundreds of different supply partners.
And so I think we're very well built.
To continue.
Port either the same or a higher level of investment from a lot of the Medicare brokers.
As they really reassess right, what the efficient marketing channels are and which ones are the less efficient ones.
And again ill point to what we're seeing now again, which is early but we've maintained a pretty strong level of spend again, both from carriers as.
Well as the Medicare brokers, thus far this year.
Okay. That's helpful. And then on <unk> are you able to break out what percent of their business is done with the carriers directly versus the third party brokers.
Yes, and I'm happy to take this one Dan that is not something where we're disclosing it at this time.
Okay. Okay, and then last one for me on the other revenue.
Can you break out how much of that is.
Due to travel.
And any expectations for travel to pick up in 2022 as the pandemic wanes.
Yeah, and I can I can also take that one Dan we don't we don't breakout how much of it is in a travel versus education versus financial services, but it's Chuck.
Chunk of all three and none are none are the vast majority.
Of the overall and the thing I would say on travel as Covid really hit that business hard for.
The market for us in particular than we've seen.
Some growth off the bottom in 2021, and we're still seeing that today and so the growth rates are pretty good but it's off of a pretty low base and I think it's a business that kind of time will tell what it gets back to is the travel market slowly normalizes.
Got it I appreciate the color thanks, guys.
Again, if you would like to ask a question press star one on your telephone keypad.
Your next question comes from the line of Cory Carpenter with Jpmorgan. Your line is open.
Hey, its Brian smiling on for Cory Thanks for taking my question.
You mentioned that 22 shaping up to be an investment year can you just parse out what your key growth priorities are into the new year and then specifically what are the next steps in scaling the agents business and just thinking about health do you see further potential for M&A going forward. Thanks.
Yeah. Thanks.
So.
Your first question about where we're investing.
I'll say first and foremost we're always investing in our people and technology right. We have from day, one we continue to do that now.
I know youre hearing a lot of uncertainty from us about what the near term is going to bring in the P&C vertical.
But what that.
But otherwise, it's just an overwhelming confident and having been in this business for now close to a decade.
The long term trends will be and how these types of markets again, while difficult to predict in the near term are very easy to predict what happens to the long term if <unk> been through these types of cycles before.
And so for US a lot of the investment.
It is really about continuing to invest in the people technology and our products to really best serve our partners now to get more specific.
Organically, we're investing nine really enhancing our owned and operated capabilities.
And obviously Inorganically you see this with our acquisition of CHP.
We're also investing in product development to better support improved consumer shopping experiences for a lot of our supply partners, who are increasingly looking to offer a better rate based consumer experience for their customers.
And we're always investing in deeper integrations, but also have now are focused on.
Building down funnel partnership capabilities.
Carrier partners.
Of particular need for a lot of new carrier partners, both across P&C, but also in health and life insurance.
Of carriers, who are newer to direct to consumer marketing who would benefit from.
More integrated down funnel solutions.
Now, let me shift here and talk a little bit about the agent business.
We still see the agent business working directly with agents.
To sell them leads and calls.
We still see that as a really interesting opportunity.
Certainly over the long term and we continue to invest.
We've narrowed our focus a bit.
Based on what we're seeing in this marketplace and what we've learned from this marketplace over the past year.
I think more importantly in.
In the current market environment, we're just super focused on laying the foundation right and improving the foundation of our core business the core carrier business.
To put ourselves in a position to really accelerate our market share gains in our competitive position upon the return of the market because we've seen this before we've.
We've done this before and in past cycles, we know the types of investments that we have to make right types of integrations and recommendation, but curious and we're open to now.
And so we're really busy just laying that foundation.
Because ultimately when the market turns.
The growth is all going to be from the carriers really returning to their normal growth oriented levels of spend and Thats, where we see the greatest area of investment right now in the middle of the market cycle.
Great and I can't I can hop in on the M&A portion.
So just to give you a little bit of color on how we're thinking about M&A generally.
Historically media Alpha has always had a very high bar regarding M&A and the CHP deal is the third deal that we've ever done in the largest one we've done from a purchase price perspective.
And so the thing I'd say is like our bar is high and it will remain high and they will buy things that we understand that we like and that we think can add value.
I would also say that I have experience of being <unk>.
Company for a long time that generated significant returns from M&A and it also.
<unk> companies that are destroying a lot of value from it and so to the extent that we find.
Good businesses that are complementary to us that fit into our strategy and that we can buy them.
Tractive price or it's financially attractive we're going to go hard after those assets and if we're not finding anything that meets those criteria, we won't be going hard at it and so I think we'll kind of be pursuing the path. We're on now Ron right now.
We will see how it plays out over time.
Thanks for taking my questions again.
Thank you there are no.
There are no further questions at this time, ladies and gentlemen, thank you for your participation on today's call. Just now concludes today's conference call you may now disconnect.
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