Q3 2023 MediaAlpha Inc Earnings Call
Thank you for standing by my name is Christina and I'll be your conference operator today.
At this time I would like to welcome everyone to the media Alpha Q3 2023 earnings 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 would like to ask a question. During this time simply press star followed by the number one on your telephone keypad if.
If he would like to withdraw your question again press Star one.
Thank you I would now like to turn the floor over to Denise Garcia Investor Relations. Denise you may begin your conference.
Thank you Christina after the market closed today media Alpha issued a press release and shareholder letter announcing results for the third quarter ended September 32023. These documents are available in the investors section of our website and we will be referring to them on this call. 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 of 2023, 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 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 November one 2023, and the company undertakes no obligation to revise or update them. In addition on today's call, we will be referring to certain actual and projected financial metrics with media Alpha that are presented on a non-GAAP basis, including adjusted EBITDA, which we prefer.
In order to supplement your understanding and assessment of our financial performance non-GAAP measures should not be considered as a substitute for or superior to financial measures calculated in accordance with GAAP.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our press release and shareholder letter issued today finally, I'd 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 Companys website at investors Dot media Alpha Dot Com now I will turn the call over to Steve and Pat for a few introductory remarks before opening the call to your questions.
Thank you so much Denise hi, everyone welcome to our third quarter 2023 earnings call.
Like to make a few observations before turning the call over to our CFO Pat Thompson for his comments.
We continue to execute well in a difficult market environment, our third quarter results came in at or above the high end up our guidance range due to strong top line growth and profitability and our health insurance vertical.
For the fourth quarter, we expect our health transaction values to be roughly flat year over year.
Strength in our under 65 segment.
Offset by near term weakness in Medicare as the industry adapts to recent regulatory changes.
Q3 results and our P&C insurance vertical were in line with our expectations as carriers have maintained consistent levels of advertising spend since June one.
We expect TNC advertising spend to remain at or near current levels through the remainder of the year.
We're encouraged by the industry's improving underwriting profitability and continue to expect a broader market recovery to take hold in 2024.
Looking forward our immediate focus is on delivering solid results in our health vertical during the current open and annual enrollment periods.
Longer term our objective remains to capitalize on the significant growth opportunities presented by the insurance industry's ongoing shift to digital customer acquisition.
And we remain confident in our ability to drive significant top and bottom line growth in the years to come with that I'll turn the call over to Pat.
Thanks, Steve ill begin with a few comments on our third quarter financial results and other recent business and market developments before reviewing our fourth quarter financial guidance and opening the call up for questions.
As Steve mentioned earlier, our third quarter results were at or above the high end of the guidance range.
<unk> EBITDA exceeded expectations, increasing $1 $4 million year over year, despite a 26% or $38 million decline in transaction value, but the annual growth driven by continued expense discipline.
Transaction value in our P&C insurance vertical was down 46% year over year in line with our expectations as carriers continue to focus on restoring underwriting profitability over acquiring new customers.
And our health insurance vertical we had another quarter of strong growth as transaction value grew 11% year over year in line with expectations.
Moving to fourth quarter guidance, we expect another quarter of positive year over year. Adjusted EBITDA growth is the impact of expense discipline and higher gross margins more than offset the impact of continued headwinds in our P&C vertical.
In P&C, we expect the impact of seasonality to be muted with transaction value dollars to be similar to third quarter levels.
In health, we expect transaction value growth to be roughly flat year over year for the reasons, Steve noted earlier.
As a reminder, the fourth quarter typically represents about 40% of full year transaction value in our health vertical due to the timing of AEP and OA pain.
As a result, we expect Q4 transaction value to be between 145 and $160 million a.
A year over year decrease of 10% at the midpoint.
We expect revenue to be between $106 million and $116 million a year over year decrease of 10% at the midpoint.
Lastly, we expect adjusted EBITDA to be between $9 5 million and 11 5 million a year over year increase of 16% at the midpoint.
Q4 operating expenses after adjusted EBITDA add backs are expected to be approximately 500000 to $1 million higher than Q3 levels due in part to seasonality.
Moving to other noteworthy items during Q3, we incurred approximately $2 million of legal expenses. The majority of which were related to the ongoing FTC inquiry with the balance from a legal settlement unrelated to our core operations.
We expect to incur $1 million at fees associated with the FTC inquiry during Q4, a bit lower than Q3.
We continue to believe we have been and remain fully compliant with all laws and regulations and we are cooperating with the FTC as they continue their inquiry.
Turning to the balance sheet, we continue to prioritize financial flexibility and using excess cash to decrease net debt.
Ended the quarter with $15 million of cash on hand, and our focus remains on reducing financial leverage through a combination of net debt reduction and adjusted EBITDA growth.
With that operator, we are ready for the first question.
Yes.
Great at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad and we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Michael Graham with Canaccord Genuity, Michael the floor is now yours.
Okay. Thank you.
And I appreciate all the information and hopefully were getting to the end of this tough period here.
I had two questions related to P&C transaction value.
First one is.
You had a peak of $183 million in transaction value in P&C in Q1 of 2021, and this quarter was $45 million.
If we are if you are right and we're fortunate enough to have.
A better year next year and we start growing again can you just have any high level thoughts on like how long it takes to kind of get back to that previous high.
Unknown Executive: Thank you for standing by.
Christina: My name is Christina, and I'll be your conference operator today.
Christina: At this time, I would like to welcome everyone to the Media Alpha Q3, 2023 earnings call. All nine ten places on mute to prevent any background noise. After the speakers are marks, there will be a question and intercession. 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 questions, again, press star one. Thank you.
And then just a related question you might want to where you're going is just.
I am wondering.
How long historically, you're practically is the lead time that you have visibility into when carriers get ready to turn spending back on.
How far in advance do they tend to notify you.
Hey, Michael.
Yes.
I'll answer the last question first which is the amount of lead time.
Denise Garcia: I would now like to turn the floor over to Denise Garcia and Vester relations. Denise, you may begin your conference.
I would say that we get.
It differs right, but I think we get.
Denise Garcia: Thank you, Christina. After the market closed today, Media Alpha issued a press release and shareholder letter announcing results for the third quarter and is September 30th, 2023. These documents are available in the investors section of our website, and we will be referring to them on this call.
At least several weeks if not a couple of months of lead time.
Before carriers start to turn on spend or turned down spend.
Certainly that has a lot of caveats.
I'll say this period right now we're getting plenty of notice from carriers as we're engaging in discussions just because we're starting to see the light at the end of the tunnel in what's been a historically difficult hard market.
Denise Garcia: 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 of 2023, which are based on assumptions, forecasts, expectations, and information currently available to management. These forward looking statements are subject to risk, finance, certainties. It could cause future results or events to differ materially from those reflected in those statements. Please refer to the company's SEC filings, including it's as a report on form 10T, and it's quarterly reports on form 10T, for a fuller explanation of those risks and uncertainties, and the limit applicable to forward looking statements.
And so.
Now, let's go back to your original question.
Here's what I'd say I'd say that we're.
Looking forward to 2024.
We're seeing positive signs as everyone else's right.
Higher rates the earnings and the earnings through at a rate that is actually far higher than moderated moderating claims cost and so thats. Good thats the industry really digging up its way out of the profitability hole.
That has been dug for it over the last couple of years.
Denise Garcia: These forward looking statements are based on assumptions as of today November 1, 2023, and the company undertakes new obligation to revise or update them.
And so I think what youll see in the beginning of next year.
Is increased spend.
Denise Garcia: In addition, on today's call, we will be referring to certain actual and projecting financial metrics with Media Alpha that are presented on a non-gap basis, including adjusted EBITDA, which we present in order to supplement your understanding and assessment of our financial performance. Non-gap measures should not be considered as a substitute for or superior to financial measures calculated in accordance with gap. Reconciliation of these non-gap measures to the most directly comparable gap measures are included in our press release and shareholder letter issues today.
Because I think enough carriers will either be at target profitability or at the very least have good line of sight to reaching targeted profitability in 2024.
Which means that when the annual combined rate combined ratio as well as advertising budget cycles renew in the beginning of next year the whole industry should see a benefit from that and we should see a material increase in advertising spend in Q1, no I will say that.
The.
The increase in the upcoming Q1 is not likely to be as strong as what we've seen in the past, namely last year.
Denise Garcia: Finally, I'd like to remind everyone that this call is being reported, and we'll be made available for replay via a link on the investor section of the company's website at investors.mediaalpha.com.
And it simply I think a concession to how unpredictable the cycle has been and so this isn't just us I think saying this from our discussions with carriers have you heard this in the earnings call that progressive had earlier today.
Steve: Now, turn the call over to Steve and Pat for a few introductory remarks before opening the call to your questions. Thank you so much, Denise. Hi, everyone.
Steve: Welcome to our third quarter, 2023 earnings call.
But we will we expect to see is really the momentum starting to gain steam over 2024, as more and more carriers get comfortable with their rates.
Steve: I'd like to make a few observations before turning the call over to our CSL Pet Thompson for his comments. We continue to execute well in a difficult market environment. Our third quarter results came in at or above the high end of our guidance range due to strong top line growth and possibility in our health and transfer to call. For the fourth quarter, we expect our health's transaction value to be roughly flat, year over year, as continued strength in our under 65 segments.
And then we expect this to really extend into 'twenty fives right.
To answer your specific question of when things will get back to exactly that level, it's impossible to say.
But we do think that the recovery is going to gain steam over the next year and a half now.
I think with the elevated shopping levels that we expect to see for 18 to 24 months I think it's going to be a strong two to three years of growth through what is it increasingly softening market until we get to that level and beyond in the years to come.
Steve: It's offset by near-term weakness in Medicare as the industry adapts to recent regulatory changes. Q3 results in our P and C insurance vertical were in line with our expectations. As carriers have maintained consistent levels of advertising spend since June. While we expect T&C advertising spend to remain at or near current levels through the remainder of the year, we're encouraged by the industry's improving underwriting profitability and continue to expect a broader market recovery to take hold in 2024.
Hope that answers your question Michael Yes, that's very helpful. Steve Thanks, so much.
And your next question comes from the line of Mike Zaremski of Bank of Montreal, Mike. Your line is open.
Okay.
Steve: Looking forward, our immediate focus is on delivering solid results in our health vertical during the current open and annual enrollment periods. Longer term are objective remains to capitalize on the significant growth opportunities presented by the insurance industry on going shift to digital customer opposition and we remain confident in our ability to drive significant top and bottom line growth in the years to come with that.
Good afternoon.
I'm more of a P&C guys. So my question is on the health side actually so on the P&C side. When we just think about kind of how much inflation.
Has come into the system and it's just the cost of our auto insurance policy versus.
A few years ago right pricing is up 50 plus percent.
Which I guess I feel like you said.
Pat Thompson: I'll turn the call over to that. Thanks, Steve. I'll begin with a few comments on our third quarter financial results and other recent business and market developments for reviewing our fourth quarter financial guidance and opening the call up for questions. As Steve mentioned earlier, our third quarter results were at or above the high end of the guidance range. Adjusted to the exceeded expectations, increasing $1.4 million year over year, despite a 26% or $38 million decline in transaction value, but the annual growth driven by continued expense discipline.
Actually help right.
Your transaction revenue volumes in outer years.
On the house side.
Could you remind us what type of.
Deflationary.
Levels have are impacting the health side of the business.
Yeah, and Mike. This is Pat here I can I can address that question and I would say the trends the inflationary trends are pretty different between P&C and and the health side of the house so on P&C.
Pat Thompson: Transaction value in our P&C insurance vertical was down 46% year over year in line with our expectations. This carriers continued the focus on restoring underwriting profitability over acquiring new customers. In our health insurance vertical, we had another quarter of strong growth, this transaction value grew 11% year over year in line with expectations. Moving to fourth quarter guidance, we expect another quarter of positive year over year adjusted EBITDA growth is the impact of expense discipline and higher gross margins more than offsets the impact of continued headwinds in our P&C variable.
Yes.
The industry of call it severity, which is the cost of resolving the claims in the end.
Inflation, there has been kind of running in the double digits.
For a while now and I.
I think that is in Stark contrast to where it was for the better part of 20 years before that which was.
Anywhere from.
Zero to low mid single digits.
And really I think what's caused a lot of the P&C hard market is the fact that yes. They.
They just haven't been able to take rate fast enough given how high the the claims cost inflation has been.
Pat Thompson: In P&C, we expect the impact of seasonality to be muted with transaction value dollars to be similar to third quarter levels. In health, we expect transaction value growth to be roughly flat year over year for the reasons Steve noted earlier. As a reminder, the fourth quarter typically represents about 40% of full year transaction value in our health vertical due to the timing of AEP and OEP. As a result, we expect Q4 transaction value to be between $145 and $160 million, a year over year decrease of 10% at the midpoint.
On the health side I think.
Long term inflation for.
Healthcare claims has run higher than it has for auto insurance, but it's also been more consistent and more predictable and so I think on the Medicare side, you've seen some of the big players talk about medical claims coming in above expectations, that's a point or two above expectations and that's in Stark contrast to P&C where.
For 2021 and 2022 it may have been 10 points.
People's expectations, and so I think the health side.
Yes, there is.
Pat Thompson: Lastly, we expect adjusted EBITDA to be between $9.5 million and $11.5 million, a year over year increase of 16% at the midpoint. Q4 operating expenses after adjusted EBITDA addbacks are expected to be approximately $500,000 to $1 million higher than Q3 levels due in part to seasonality. Moving to other noteworthy items, during Q3, we incurred approximately $2 million of legal expenses, the majority of which were related to the ongoing FTC inquiry with the balance from a legal settlement unrelated to our core operations.
There's been a bit of noise about that but in our mind thats not a particularly big issue just given the kind of range of which it normally operates.
Okay got it yes, we've been hearing and seeing data points about health inflation ticking up a bit okay.
On the P&C vertical my last question just.
In the past you've talked about.
Maybe seeing some.
<unk>.
Larger carriers.
And to the marketplace that werent larger carriers that they werent big players in the marketplace.
In the past.
And you're still.
Do you sense that in the coming year or so there are some carriers that are trying to be.
Pat Thompson: We expect to incur $1 million fees associated with the FTC inquiry during Q4, a bit lower, and thank you three. We continue to believe we have been and remain fully compliant with all laws and regulations. And we are cooperating with the FTC as they continue their inquiry. Turning to the balance sheet, we continue to prioritize financial flexibility in using excess cash to decrease net debt.
Bigger direct to consumer players through rigor marketplace or it's just too early to tell.
No.
Oh, Hey, Hey, Mike This is Steve, though I think we are.
I think we're continuing to see that trend.
Pat Thompson: We ended the quarter with $15 million of cash on hand, and our focus remains on reducing financial leverage through a combination of net debt reductions in the Justin Eva Douglas.
I think that when you look at the list of the largest P&C carriers I think I think they're punching according to their weight in varying degrees within our marketplace and so there is certainly our large carriers, who traditionally have relied on agent based distribution, whether it's be captive agents through independent agents, who.
Christina: With that operator, we are ready for the first question. Great. At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. And we'll pause for just a moment to compile the Q&A roster.
Who are looking to invest and have invested in direct to consumer capabilities and they're at various stages of actually investing in those capabilities and so.
So we continue to expect.
Large carriers.
One or two top five certainly certainly within the top 25 carriers.
Michael Graham: Your first question comes from the line of Michael Graham, with can-core genuity.
Sorry to come into the marketplace.
Coming years and become more relevant players in the marketplace.
Michael Graham: Michael, the floor is now yours. Okay. Thank you. And appreciate all the information and hopefully we're getting to the end of this, you know, tough period here.
To what thesis which is that.
Agent based distribution certainly isn't going to go away.
But really every top carrier needs to invest indirect distribution.
Michael Graham: I had two questions related to P and C transaction value. The first one is you did you had a peak of 183 million in transaction value in P and C and key one of 2021. And this quarter was 45 million. If we are if you're right and we're fortunate enough to have, you know, a better year next year and we start, you know, growing again. You just have any high level thoughts on, like, how long it takes to kind of get back to that, you know, previous high.
Because of the success that the direct to consumer model has had and really.
Changing the landscape over the last 10 years and league table over the last 10 years and so we continue to see that trend I think what <unk> seen really in the hard market is.
Essentially a pause in that secular trend.
As the market emerges from into a soft market.
And carriers get back into a growth mindset, I think youll see a continuation of that and so you should see other larger carriers. So again has traditionally focused on different types of distribution methods to really start to resume their direct to consumer investments and then become bigger players in our marketplace as a result.
Michael Graham: And just a related question you might want to weave in is just, you know, I'm wondering, how long historically or practically is the lead time that you have visibility into when carriers get ready to turn spending back on, you know, how far and events do they tend to know to fight you. Same Michael.
Okay. Thank you.
Thank you.
And our next question comes from the line of Ben Hendrix from RBC.
Your line is open.
Great. Thank you very much guys just was hoping to get a quick update on your thoughts thus far in Medicare AEP.
Steve: Yeah, I'll answer the last questions first, which is the amount of lead time. I'd say that we get, I mean, it differs, right, but I think we get, you know, at least several weeks if not, a couple of months of lead time, you know, before carriers start to turn on stand or turn down spend. You know, certainly, they had a lot of caveats. I'll say this period right now, we're getting, you know, plenty of notice from carriers that we're engaging in them in discussion just because, you know, we're starting to see the light at the tunnel and what's been a historically difficult part market. And so.
We heard from Humana management, this morning, stating that.
Perhaps broadly plan design degradation has progressed the less to a lesser degree than expected amid risk model changes and maybe that could point to less shopping behavior. This year than they had initially expected just wanted to see how things are trending so far from your perspective, and if theres any change to the way you are.
Thinking about the transaction value activity this year. Thanks.
Great. Thanks.
Thanks for the question. This is Pat here, So I would say AEP has gotten off to a slower start than we would have hoped.
Steve: Now to go back to your original question. I say that we, you know, we're looking forward to 2024 and certainly we're seeing positive signs that everyone else is, right. You know, higher rates are earning through and they're earning through at a rate that's actually far higher than moderated, you know, moderating claims costs and so that's good that's the industry really digging up its way out of the profitability hole that has been dug for it over the last couple of years.
I would say that some carriers I think are doing well others are maybe having a few more challenges from at least what we've gleaned from the public calls and from what they've told us and I would say that really there have been kind of two primary issues first I would say is that we have some partners that had been struggling to.
Adapt quickly to some of the new marketing rules that have been put into place by CMS.
Steve: And so I think what we're going to go, you'll see in the beginning of next year, you know, is increased spend. Because I think enough carriers will either be at target profitability or it's very, they have good line of sight to reaching target profitability in 2024, which means that when the annual combined rate. Well, advertising budget cycles renew in the beginning of next year, the whole industry should see a benefit from that and we should see material increase in advertising spend into one.
And we have other partners that have seen delays in getting marketing creative.
Proved to be able to run in a timely manner for the startup AEP and so.
We've seen partners, whether they're publishers or carriers working through adjustments to try to adapt to this new world order and get things to where they need to be.
But it looks like it's going to be a slower AAP than than we hoped but having said that we're as bullish as we've ever been regarding the long term potential in Medicare advantage, its a product that over half of Americans.
Steve: Now, I will say that. You know, the increase in the upcoming Q1 is not likely to be as strong as what we've seen in the past, namely last year. And it's simply, I think, a concession to how unpredictable the cycle has been. And so, you know, this isn't just us, I think saying this from our discussions with carriers. Are you heard this in the earnings call that progressive had earlier today? So, we'll be expect to see is really the momentum starting to gain steam over 2024 as more and more carriers get comfortable with their rates. And then we expect this to really extend into 25, right?
<unk> chosen to opt into that number keeps going up into the right and that's a trend that we think will continue in the years to come and one that should be.
Benefit us and quite frankly benefit.
The consumers and the carrier so it's a win win win.
Very helpful. Thank you.
And our next question comes from the line of Thomas Mcdonnell Inc. From K B W. Thomas Your line is now open.
Yes.
Hey, guys. Thanks for taking my question.
Steve: I mean, to answer your specific question of when things will get back to exactly that level, it's impossible to say. And now, but we do think that the recovery is going to gain steam over the next year and a half. And I think with the elevated shopping levels that we expect to see for 18 to 24 months, I think it's going to be a strong Q2 3 years of growth through what is a increasingly softening market. Until we get to that level and beyond in the years to come.
The first one is on the P&C side.
Is it appropriate to think of the potential kind of carrier advertising spends.
Perhaps next year, perhaps thereafter.
As getting back to the same percentage of premiums as it was a few years ago and I ask just because given the robust growth in the overall personal auto premium pool that could suggest a pretty tremendous revenue opportunity in the out years. Once it does normalize. So just wanted to get your sense on if you think of as a percentage of premium.
Michael Graham: So, I hope that answers your question, Michael. Yep, that's very helpful, Steve. Thanks so much.
Should revert back to where it was a few years ago.
Mike Seramsky: And your next question comes from the line of Mike Seramsky of Bank of Montreal. Mike, your line is open. Good afternoon. You know, I'm more of a PNC guy, so my question is on the health side actually, so you know, on the PNC side will me just think about kind of how much inflation is coming into the system. And it's just that cost of an auto insurance policy versus a few years ago, right, pricing is up, you know, 50 plus percent, which I guess I feel like should eventually help write your transaction revenue volumes in utter years.
Hey, Thomas Yeah, It's a good question.
So so carriers typically.
Benchmark their advertising spend or measure the effectiveness of their advertising spend based on the expected lifetime value of the customer.
And so the policy that they are acquiring yes, so I think to the extent that there has been a significant amount of inflation.
The dollar value of all of the policies that are being sold.
I think you can expect advertising spend to go up in rough proportion of that.
<unk> that theyre going to continue to measure the effectiveness of their advertising spend based on just the percentage of customer lifetime value that theyre pegging the return on that spend too.
Pat Thompson: I'm a health side and it's, did you remind us of what type of inflationary, you know, levels have are impacting the health side of the business.
Yeah.
Okay, yes that makes sense.
And then my second question is there any concern out there that just the amount of shopping behavior and really the kind of high velocity switching that we're seeing in light of the rate increases that carriers are pushing through means that carriers won't pass to feel the need to pay for leads as much as they have in the past just because there's so much kind of natural turnover.
Pat Thompson: Yeah, and Mike, this is Pat here, I can address that question. And I would say the trends, the inflationary trends are pretty different between PNC and the health side of the house. So, on PNC, you know, the industry of call of severity, which is the cost of resolving the claims, and inflation there has been, you know, kind of running in the double digits for a while now. And, you know, I think that is in, you know, kind of start contrast to where it was for the better part of 20 years before that, which was, you know, it was anywhere from, you know, zero to low mid single digits.
The books already.
Yes, that's also a very good question.
Well I think what you are.
Hearing about is a little bit of slowdown in terms of amgen or organic shopping behavior, because we've been.
In an environment, where rates have been going up for the better part of two years.
And so I do think that.
In this case and in upcoming years, what's really going to drive the market is the desire for growth.
Pat Thompson: And really, I think what's called the lot of the PNC hard market is the fact that, you know, they just haven't been able to take great fast enough given how high the claims cost inflation has been. On the health side, you know, I think long term insulation for, you know, kind of health care claims has run higher than it has for auto insurance. But it's also been more consistent and more predictable.
If youre going to have.
And our belief is that whenever theres desire for growth I think the advertising spend will follow and be in proportion with that desire to grow and so what you're going to see it.
What are you going to see our carriers, who have largest sat on the sidelines for the better part of two to two and a half years really not growing their policies in force and so I think once target profitability is obtained by a lot of these carriers I think the growth pressures will start to build.
Pat Thompson: And so I think, you know, on the Medicare side, you've seen some of the big players, you know, talk about, you know, medical claims coming in above expectations, it's a pointer to above expectations. Communications, and that's in stark contrast to PNC where, you know, for 2021 and 2022, it may have been 10 points about people's expectations. And so, you know, I think that the health side, you know, yeah, there's, you know, there's been a bit of noise about that, but in, you know, our mind, that's not a particularly big issue, just given the kind of range of which it normally operates.
And regardless of the I think the amount of organic shopping behaviors or behavior that you expect to see in the marketplace. I think the carriers are going to invest in growth and the way they stay invest in growth is really through advertising.
Makes sense thanks, guys.
And again, if he would like to ask a question. Please press Star then the number one on your telephone keypad again, Please press star one on your telephone keypad.
Mike Seramsky: Okay, Alex. Yeah, we've been hearing and seeing data points about health inflation taking up a bit. Okay.
Mike Seramsky: On the PNC vertical, my last question, just, you know, in the past, you've talked about, you know, maybe seeing some, some larger carriers enter the marketplace that weren't larger carriers, you know, that there weren't big players in the marketplace in the past.
Thank you and with no further questions. We do thank everyone for joining this does conclude today's media Alpha Q3, 2023 earnings call and you may now disconnect have a great day everyone.
Please wait the conference will begin shortly.
[music].
Steve: You still, you know, do you do sense that in the coming year or so, there are some carriers that are trying to be bigger direct to consumer players through to re your marketplace, or it's just too early to tell.
Steve: No, I hate, hey Mike, this is Steve. No, I think we're, I think we're, we're continuing to see that trend. You know, I think that, you know, when you look at the list of, of the largest PNC carriers, I think, I think they're, they're punching according to their weight and varying degrees within our marketplace. And so, there certainly are large carriers who traditionally have relied on agent-based distribution, whether it's the captive agents or independent agents, who are looking to invest and have invested in direct to consumer capabilities.
Yes.
Yes.
Yes.
[music].
Steve: And they're at various stages of actually investing in those capabilities. And so, so we continue to expect, you know, large carriers, you know, cup one or two top five, certainly, certainly within the top 25 carriers, it's hard to come into the marketplace, you know, in the upcoming years and become more relevant players in the marketplace, you know, according to our thesis, which is that, which is that, you know, agent-based distribution certainly isn't going to go away, but really every top carrier needs to invest in direct distribution, you know, because of the success that the direct to consumer model has had and really changing the landscape over the last 10 years and league table on the last 10 years.
Sure.
[music].
Steve: And so, we continue to see that trend. I think what you've seen really in the hard market is, is essentially a pause in that secular trend, but as the market emerges from into the soft market and carriers get back into a growth mindset, I think you'll see a continuation of that. And so, you should see other larger carriers. So, again, have traditionally focused on different types of distribution methods to really start to resume their direct to consumer investment and then become bigger players in our marketplace as a result.
Mike Seramsky: Thank you.
Okay.
[music].
Yeah.
Okay.
Sure.
[music].
Ben Hendrix: And our next question comes from the line of Ben Hendrix from RBC. Ben, your line is open. Great. Thank you very much, guys. I just was hoping to get a quick update on your thoughts thus far in Medicare AEP. We heard from Humanum Management this morning stating that perhaps broadly planned design degradation has progressed to a lesser degree than expected amid risk model changes. And maybe that could point to less shopping behavior this year than they had initially expected.
Ben Hendrix: I just wanted to see how things are turning so far from your perspective. And if there's any change to the way you're thinking about the Transaction Value Activity this year. Thanks. Great. Ben, thanks for the question.
Pat Thompson: This is Pat here. So I would say, you know, AP has gotten off to a slower start than, you know, we would hope. Would say that, you know, some carriers, you know, I think are doing well others are, you know, maybe having a few more challenges from at least what we've, you know, gleaned from the public calls and from what they've told us. And, you know, would say that really there have been, you know, kind of two primary issues, you know, first I would say is that we have, you know, some partners that have been struggling to adapt quickly to some of the new marketing rules that have been put into place by CMS.
Pat Thompson: And, you know, we have other partners that have seen delays in getting marketing creative approved to be able to run in a timely manner for the start of AP. And so, you know, we've seen, you know, partners whether they're publishers or carriers working through adjustments to try to, you know, adapt to this new world order and get things to where they need to be. And, you know, but it looks like it's going to be a slower AP than than we hoped.
Okay.
Thank you.
No.
[music].
Sure.
Thanks.
[music].
Pat Thompson: But having said that, you know, whereas bullish as we've ever been regarding the long-term potential in Medicare Advantage, it's a product that over half of Americans chosen to opt into, you know, that number, you know, keeps going up into the right and that's trend that we think will continue in the years to come and one that should benefit us and quite frankly benefit the consumers and the carriers. That's a win-win win.
No.
Sure.
Yeah.
Okay.
Okay.
Ben Hendrix: Very helpful. Thank you.
Please wait the conference will begin shortly.
Sure.
[music].
Thomas McJoynt: And our next question comes from the line of Thomas McJoynt from KBW. Thomas, your line is now open. Hey guys, thanks for taking my question.
Okay.
Yes.
[music].
Thomas McJoynt: The first one is on the PMC side. Is it appropriate to think of the potential kind of carrier advertising spend perhaps next year, perhaps year after as getting back to the same percentage of premiums as it was a few years ago? And I asked just because given, you know, the robust growth in the overall personal auto premium pool, that could suggest a pretty tremendous revenue opportunity in the out years once it does normalize. So just want to get your sense on it if you think as a percentage of premium, it should revert back to where it was a few years ago.
Yes.
Yes.
Yes.
Okay.
Yes.
[music].
Steve: Hi Thomas. Yeah, that's a good question. So, so carriers typically spend smart their advertising federal measure, the effectiveness of their advertising spend based on the expected lifetime value of the customer. And so, or the policy that they're acquiring. And so, I think to the extent that there's been a significant amount of insulation on the dollar value of all the policies that are being sold, I think you can expect the advertising spend to go up in rough proportion of that, assuming that they're going to continue to measure the effectiveness of their advertising spend based on just the percentage of customer lifetime value that they're pegging their return on that spend to. Okay, yep, that makes sense.
Steve: And then my second question, is there any concern out there that just the amount of shopping behavior and really the kind of high velocity of switching that we're seeing in light of the rate increases that carriers are pushing through means that carriers won't have to feel the need to pay for leads as much as they have in the past just because there's so much kind of natural turnover in the books already. Yeah, that's also a very good question.
Yes.
Okay.
[music].
Thanks.
[music].
Steve: Well, I think what you're hearing about is a little bit of slowdown in terms of ambient or organic shopping behavior because we've been in an environment where race have been going up for the better part of two years. And so I do think that that in this case in the upcoming years, you know, what's really going to drive the market is the desire for growth that carriers are going to have. And our belief is that whenever there's desire for growth, I think those the advertising spend will follow and the proportion with that desire to grow.
Steve: And so what you're going to see is, what you're going to see are carriers who have largely stand on the sidelines for the better part of two to two and a half years, really not growing their policies and force. And so I think once target possibilities obtained by a lot of these carriers, I think the growth pressures will start to build. And regardless of, I think the amount of organic shopping behaviors or behavior that you expect to see in the marketplace, I think the carriers are going to invest in growth and the way they invest in growth is really through advertising. Nice sense as well, nice.
Christina: And again, if you would like to ask a question, please press star. Then the number one on your telephone keypad. Again, please press star one on your telephone keypad. Thank you.
Yes.
Okay.
Okay.
Unknown Executive: And with no further questions, we do thank everyone for joining.
[music].
No.
Okay.
Okay.
Okay.
Okay.
Please wait the conference will begin shortly.
Sure.
[music].
Okay.
Thanks.
[music].
Yes.
Okay.
Yeah.
Yes.
[music].
Uh huh.
[music].
Okay.
[music].
Yeah.
Okay.
Sure.
Okay.
[music].
Yeah.
[music].
Yes.
Yeah.
[music].
Hello.
[music].
Unknown Executive: This just concludes today's media alpha Q3 2023 earnings call. And you may now disconnect.
Sure.
[music].
No.
Okay.
No.
Okay.
Please wait the conference will begin shortly.
[music].
Okay.
Great.
[music].
Yeah.
Yes.
Yes.
Yes.
[music].
Yes.
Okay.
[music].
Okay.
No.
Yes.
[music].
Okay.
Okay.
[music].
Okay.
Yeah.
[music].
Please wait the conference will begin shortly.
[music].
Okay.
[music].
Yeah.
[music].
Yes.
Yes.
[music].
Yes.
[music].
Yes.
Yeah.
Yes.
[music].
No.
Okay.
Yes.
[music].
Please wait the conference will begin shortly.
Sure.
Yes.
[music].
Yes.
Okay.
And.
Yes.
[music] communities.
Yes.
Okay.
<unk>.
Yes.
[music].
Yes.
[music].
Yes.
[music].
Yes.
Yes.
Yes.
Okay.
[music].
Please wait the conference will begin shortly.
[music].
Yeah.
Yes.
Yes.
[music].
Yes.
[music].
Yes.
[music].
Okay.
Yes.
[music].
Unknown Executive: Have a great day, everyone. Please wait.
Please wait the conference will begin shortly.
Yes.
[music].
Yes.
Yes.
Yes.
[music].
Okay.
Sure.
Okay.
[music].
Sure.
[music].
Yes.
[music].
No.
Okay.
Okay.
[music].
Please wait the conference will begin shortly.
[music].
Okay.
Yes.
[music].
Yes.
Yes.
Yes.
[music].
Yes.
[music].
Yes.
[music].
Yes.
[music].
Yes.
[music].
Yeah.
[music].
Yes.
[music].
Please wait the conference will begin shortly.
[music].
Great.
[music].
Yes.
Yes.
Okay.
Yes.
Yes.
[music].
Yes.
Okay.
[music].
Yes.
[music].
Yes.
[music].
No.
[music].
Please wait the conference will begin shortly.
[music].
Okay.
[music].
Yes.
Yes.
[music].
Yes.
[music].
Yes.
[music].
Okay.
Yes.
[music].
Unknown Executive: The conference will begin shortly. Thank you. Please wait, the conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly Please wait, the conference will begin shortly. The conference will begin shortly. Please wait, the conference will begin shortly The conference will begin shortly The conference will begin shortly Please wait, the conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly Please wait, the conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly The conference will begin shortly Please wait, the conference will begin shortly. The conference will begin shortly.