Q1 2022 Mediaalpha Inc Earnings Call

And.

And we expect overhead excluding stock based compensation in Q2 to be $1 million to $2 million below Q1 levels due largely to lower professional fees.

As we look forward, while we don't know exactly when the P&C carriers will complete their rate actions and realized improved profitability, we know they will and.

And when they do we expect to see pricing increase as carriers look to drive growth and volume increase as consumers shop more in response to higher premiums.

And with our transparent flexible platform, we are ready to capitalize.

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 then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Your first question today comes from the line of Andrew <unk> with Credit Suisse. Your line is now open.

Hey, good evening.

Hi, Phil.

Touch on your you view of transaction value.

In the second quarter guidance going down sequelae sequentially.

As cited in your letter due to pushback and spending due to seasonality.

Could you.

I know it's tough to.

To kind of figure out but.

Could you give a little color on why that's happening because I get the sense that that pricing is some of these companies have kind of gotten too close to an equilibrium level in some of the states are starting to be more attractive. So why is it still coming off in <unk> and.

And then secondly, do you think you could see a significant pickup in <unk> on this property and casualty shopping.

Okay.

Hey, Andrew.

This is Steve Thanks for your question yes.

Yes, I would say that I don't know that the industry equilibrium point.

What youre seeing is that there has been a prolonged deflationary environment.

We're seeing continued elevation of claims cost.

And for some carriers this is leading them to take higher rate increases than they originally planned.

It's a dynamic environment and I think in any underwriting cycle like this.

You are going to see different timing and magnitude of rate taking between different carriers.

So I think you are seeing some early positive signals from carriers.

Who took additional labor more rate.

Early on in the cycle.

But then on the other hand youre hearing from some carriers.

That the rates that initially took or planned on taking werent sufficient.

And at higher rate, taking if needed.

I think the.

Overall underwriting environment.

Remains fairly uncertain and dynamic.

But we do share than overall outlook that we'll start to see improvement in the second half of this year.

But I think.

The expectations of the overall auto insurance industry, we'll pivot back to growth mode and resume normal marketing levels.

Our assessment now is that that will likely take longer than.

Than most had originally anticipated.

I see Steve So if I if I understand what you just said so maybe second half youll see improvement, but not the kind of growth you really need to.

Get in.

Good good profitable mood that might take a little longer right.

I think thats right and I think that.

I think that it will take longer than some of the original expectations that you heard in the marketplace.

Got it and then just one other follow up on expenses, So I was kind of.

Running through the financials and you mentioned that.

Equity based compensation.

I think that's going to be around 30. It was 13 eight in the quarter versus $10 $6 million year over year I look to G&A that was about $17 1 million in the quarter.

Versus $15 seven last year in the quarter.

I guess my question is can you help me understand this expense growth given given the tough.

Tough environment.

Growing transaction value.

Maybe talk a little bit about these expenses and why they came up.

Yes.

Andrew This is Pat are you talking about quarter over quarter or year over year numbers year over year unless yes.

Yes, yes.

Yes.

The thing I would say on expenses is keep in mind.

We were we have always been a lean company and we went public in late 2020, we were well under 100 100 employees when that when that happens.

So almost from the get go at the time, we became public we've had to build out all of the public company infrastructure and that has been.

Well in excess of $10 million of incremental cost that we've layered in really over kind of a five quarter period, five or six for higher Ed.

Last year, we were also an investment mode in terms of taking up head.

Head count to support business growth as well to kind of lay a lot of the foundations for success across the next cycle. So I think.

So both of those trends manifest in.

And overhead growth over the course of the last year and the.

Q1.

This year with something of a high watermark for us, particularly on the non people cost side as we spent a good bit on professional fees to get over the hump on first year Sox.

Kind of processes that are relatively newer to us as a public company and our view is that.

Those numbers are going to come down in Q2 and in that.

We're doing some rebase lining of the business the.

The other thing I would say going forward, where it is and I think we use the term more measured investment in head count and I think.

We're not going to get firm guidance on what that means but I would expect very minimal growth on that side, just given some of the hard market conditions, we're experiencing in P&C, where we feel like we're adequately staffed to our growth, but we won't hesitate to add heads here and there where we think that could be revenue generative and pay.

Back quickly.

Very helpful. Thanks, Steve and Pat.

Thank you thanks, Andrew.

Your next question comes from the line of Daniel gross late with Citi. Your line is now open.

Hi, guys. Thanks for taking the question I want to focus.

Focus on the health segment for a little bit it seems like that is holding up nicely.

So.

Pretty well this OUP I wanted to try to square that with some of the commentary from the E brokers, which again.

<unk> has been pretty <unk>.

Difficult.

In terms of their investment in marketing.

This year ahead of this year's AEP, which will happen in the fourth quarter.

<unk> quote was on their call this morning, saying, they're going to cut.

Expenses $200 million, most of which will be a cut to marketing. This year. So I was wondering if you could help square the strength that youre seeing in the health segment with some of the pullback that the E brokers are taking this year in.

And maybe help frame what percent of transaction value and health.

Particularly on the Medicare side is coming directly from the carriers themselves versus the E brokers that'd be very helpful. Thank you.

Got it.

Yes ill just that first question really quickly.

Fairly well diversified between brokers and carriers.

In the Medicare space and health care overall.

Insurance overall.

With regard to the media for your question about the broker channel how to reconcile what you're hearing on that side with our performance.

I think what you need to do it.

Look under the covers because it's not really one story.

We strongly year over year.

And as you know in our marketplace.

Works for both quick calls.

Well as lead but <unk> is really one area of focus for us.

So with regard to the brokers focus on what channels are working very well and channels aren't working as well.

I think early on that's really played into our favor and.

And then getting them in.

In aggregate increased their level of investment with us and all the while they might be pulling back in other channels and really taking a closer look at their marketing spend.

Got it that's helpful and can you just confirm if CHP is.

Included in your <unk> guidance, and if so how much and for the full year do you still anticipate.

Revenue from <unk> of around $25 million.

Yes, Dan this is Pat.

CHP is included in our Q2 guidance. The annual guidance is the same as what we gave last quarter at the time.

Signing which was 25 in excess of $25 million of TVN revenue in excess of $5 million of.

Adjusted EBITDA.

And we arent, providing a breakout of what CHP, we expect CHP to produce in the quarter. The one thing I will say is that that business is very Medicare centric and the Medicare business tends to have a relatively pronounced peak in Q4. So the.

P&L profile of that business will be very back half weighted for us.

Over the remaining three quarters.

Understood. Thanks for the color guys.

Excellent Thanks, Dan Thanks, Dan.

Your next question comes from the line of Meyer Shields with K VW. Your line is now open.

Okay.

Thanks going back to the P&C vertical if I can.

How should we think about the line of sight.

That you have in other words are there signs of advanced notice or is it just if company exercise that they really want to grow in a particular state and all of a sudden they start bidding up for.

For clicks Youll see it that way.

No I think the way.

Steve the way it works is that.

But because they are constant dialogue and we're checking with our partners that have weekly.

Or at the very least biweekly calls with them.

Okay.

Hampel notice of what Theyre seeing when they expect to turn on certain states and so it's never as simple as hey.

All of US on five states get turned on I mean, where we hear about it well beforehand.

Okay. That's helpful.

Is there any way of breaking down I think in your opening comments, Steve you talked about.

Lower price per click, but number of clips going up a bit more detail, we can get on that.

Yes.

It means a.

Great base of supply partners.

Companies like.

Zebra over 35 insurance carriers.

So and I think what it also means is that the shopping demand or consumer shopping demand remains strong.

So as you know what happens is when prices go up consumers shop more as those rate changes take effect, it's difficult to tie back specifically.

<unk> increases year over year in Q1.

To the right thinking that got kicked off in Q3 and Q4 of last year.

But I think what you will see it.

As with the magnitude of the rate changes that are taking effect in this cycle.

Again overall being higher than expected.

I think what youre going to see is that that's going to lead to a far stronger.

Correspondingly stronger consumer demand.

For our consumer shopping activity as those rate changes take effect.

Really what happens is if you take anything over 5%.

In terms of rate then that tends to stimulate shopping behavior from your existing policyholders.

Anything over 10% than what you see is almost non linear increase of shopping behavior and I think what we're talking about in this cycle is.

Many carriers in many states taking rate well into the double digits.

Okay perfect. Thank you so much.

Again, if you would like to ask a question press star and the number one on your telephone keypad.

Your next question comes from the line of Michael Graham with Canaccord. Your line is now open.

Thank you.

Hey, guys I just wanted to ask.

A couple of the other players in the space throughout.

Two thirds sort of we think we're two thirds of the way through.

Kind of the hard market in auto and.

Just wondering if you have any comment on that.

And then I also I thought some of the some of the discussion in your shareholder letter around some of the things that you do to differentiate your.

From some of the competitors I think those are really good insights and I just.

I don't know if <unk> had any early discussions with some of your demand partners.

But just wondering if you think you can exit this current environment with more share.

Maybe being able to highlight the strengths of your offering a little better.

Sort of wondering if you have any comments about that.

Hey, Michael Yes, I appreciate the question.

I think.

I think from the beginning I think understanding how uncertainties types of.

Underwriting cycles can be and I think with an appreciation of how this cycle.

The root causes of it.

Still lay within what was an unprecedented event right.

I think we've been hesitant to really put a number on where we are or what inning. We're in.

To the right taking cycle.

And I think what you've seen over the last couple of months.

Again, some carriers very smart carriers are figuring out that they need to take more rate as inflationary pressures persist I.

I think that goes to this.

And I think what we're seeing is.

Some conflicting signs coming out right.

Which is far more like a typical rate taking cycle or a hard market cycle.

Some carriers are taking rate earlier, where they're taking more rate than others.

In India, and they end up overshooting undershooting.

And so you have carriers really layering in in achieving rate adequacy at different times.

And so I think thats, what youre seeing in this marketplace.

And I think two things.

<unk> that this market cycle with two thirds or more of the way through.

My view is that that probably putting a little bit too much credence on some of the early positive news that you are here.

Okay in terms of.

Did you have a follow up to that part.

Well you kind of maybe it's better to ask the follow up now and then I'd love to get your thoughts on the sort of.

Competitive advantage market share question, so sorry to interrupt but just.

Kind of drilling into that a little bit.

When we look at your Q2 guidance.

Should we interpret that as like <unk>.

What we've seen so far in April kind of on a run rate basis or is that more.

Because I know you mentioned that March was kind of okay, but April looked a little bit worse in the letter.

Should we think about it that way or is it more based on sort of relative to the earlier question a lot of visibility in terms of discussions and just trying to get a feel for how.

How conservative or not that sort of Q2 guidance might be.

Yeah and Michael.

And what I would say is I think we outlined in the letter and and and Steve spoke about some of the market dynamics, which where Q1 was relatively stable late March business took a step down.

And that trend has been pretty consistent to the two the presence.

And we've gotten some good news from some carriers and we've gotten some not so good news from some other carriers and so we've incorporated that kind of.

All of our best knowledge as of last night into the guidance numbers that we put out and I am not going to tell you exactly what we've got it in there for volume and price, but the thing I will tell you is that we.

We're assuming that the balance of the quarter. It doesn't look all that much different from from what we've seen thus far.

Okay. Thanks Pat.

So Michael to answer the second part of your question, which I really appreciate it.

I mean, we've been.

This long enough and ending I think a part of the insurance industry. We tend to look at things in terms of years not necessarily quarters.

And when you do that what we've seen in past cycles.

Is that these hard market time reps.

<unk> represents an opportunity for us and the reason that it does though is that the carriers when they prioritize profitability over growth.

<unk> Barry.

Additional urgency around efficiency initiatives that we're pushing all the time.

But these are projects that sometimes can get sidelined when carriers are in full on growth mode and just looking for additional volume and so it's about improving conversion tracking.

Proving data passing.

In our programs to monetize non converting shoppers something in particular that we're getting a fair bit of traction with this segment.

And it's really during times like this that we tend to make the most headway with these types of initiatives.

Which I think small town small individually, but in aggregate it really allows us to squeeze seven.

Several percentage points of efficiency.

The carrier spend and I can tell you that those things add up and as the market returns our ability through our hundreds of supply partners in our marketplace and our ability to programmatically enable carriers.

To achieve and maintain the efficiency targets, while scaling their spend oftentimes very rapidly is really the hallmark of our marketplace and why we were able to outpace competitors coming out of these hard market cycles.

In the last hard market cycle coming out of that and as well as during Covid. When you saw a large influx of offline budgets to online and I can tell you in both of those cycles that we were the primary beneficiary of that.

Because of all the work that we do during these times that allow for this granular measurement of efficiency.

That allows carriers to spend and scale their spend very rapidly without having to sacrifice their efficiency targets.

And so that's what we're focused on right now I know for an earnings call for analysts that doesn't sound very interesting, but for US we have been.

<unk> 11, plus years now I can tell you that that's that's the whole ball game.

Thanks, Okay. Thanks, a lot Steve I appreciate the answer.

Thanks, Michael.

This concludes today's conference call. Thank you for attending you may now disconnect.

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Yeah.