Q3 2024 MediaAlpha Inc Earnings Call
After the Speakers' remarks, there will be a question and answer session.
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Speaker Change: I would now like to turn the call over to Alex <unk>. Please go ahead.
Alex: Thanks, Ken Good afternoon, and thank you for joining us.
Alex: Third CEO, Steve <unk> and CFO Pat Thompson.
Alex <unk>: Today's call will make forward looking statements relating to our business and outlook for future financial results, including our financial guidance for the fourth quarter of 2024.
Alex <unk>: These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please.
Alex <unk>: Please refer to our SEC filings, including our annual report on Form 10-K, and quarterly reports on Form 10-Q for a fuller explanation of those risks and uncertainties and the limits applicable to forward looking statements.
Alex <unk>: All the forward looking statements we make on this call reflect our assumptions and beliefs as of today.
Alex <unk>: And we disclaim any obligation to update such statements, except as required by law.
Alex <unk>: Today's discussion will include non-GAAP financial measures, which are not a substitute for GAAP results.
Alex <unk>: Reconciliations of these non-GAAP financial measures to the corresponding GAAP measures can be found in our press release and shareholder letter issued today, which are available on the Investor Relations section of our website.
Speaker Change: I'll now turn the call over to Steve.
Steve: Thanks, Alex.
Steve: Hi, everyone. Thank you for joining us.
Steve: Our performance in the third quarter set new high watermarks across all of our key metrics.
Steve: Our transaction value and adjusted EBITDA, both reached record levels and exceeded the high end of our guidance.
Before turning the call over to our CFO, Pat Thompson I'd like to remind you of a few highlights of our business model and review some key drivers of our third quarter results.
Steve: We operate the largest insurance customer acquisition media marketplace with strong long term partnerships that easily replicable by competitors.
Steve: Our media marketplace enables leading insurance carriers to reach millions of high intent insurance shoppers through our partnerships with hundreds of insurance websites and apps.
Steve: The reach and transparency of our marketplaces unmatched, allowing carriers to scale their direct to consumer marketing investments rapidly and efficiently.
This marketplace model is a key differentiator and competitive advantage that has established us as a growth partner of choice among carriers and brokers and underpins our ongoing success.
Steve: For the third quarter, our results were primarily driven by momentum in our property and casualty vertical as auto insurance underwriting profitability continued to improve.
Steve: On the supply side highlight in the quarter was executing a multiyear extension with insurer side, one of our largest and longest standing partners.
Steve: We believe this agreement reflects our market leadership position and we continue to evaluate strategic opportunities to further expand and deepen our supply partnerships.
Brokers and underpins our ongoing success.
Steve: On the demand side, we see plenty of headroom for further market share and revenue growth at traditional auto insurance carriers reached target profitability returned to growth mode and increase their investments in online direct customer acquisition.
For the third quarter, our results were primarily driven by momentum in our property and casualty vertical as auto insurance underwriting profitability continued to improve.
On the supply side highlight in the quarter was executing a multiyear extension with insurance side, one of our largest and longest standing partners.
Steve: And health insurance, we're entering our seasonally strongest quarter, driven by annual Medicare and ACA enrollment period.
We believe this agreement reflects our market leadership position and we continue to evaluate strategic opportunities to further expand and deepen our supply partnerships.
Steve: Notwithstanding some of the transitory headwinds in Medicare.
Steve: We believe the investments we've made in our partner network position us well over the long term.
On the demand side, we see plenty of headroom for further market share and revenue growth additional auto insurance carriers reached target profitability returned to growth mode and increase their investments in online direct customer acquisition.
Steve: Finally, I'd like to provide some context on upcoming TCA, one to one consent rules affecting our broader industry that will take effect in January of 2025.
Steve: These rules require sellers to obtain specific consent from consumers before contacting them using an automated dialing system or prerecorded or artificial voice system.
And health insurance, we're entering our seasonally strongest quarter, driven by annual Medicare and ACA enrollment periods.
Steve: While this change is expected to meaningfully limit the volume of shared leads sold we see this as an extremely positive development for consumers and our industry as a whole.
Notwithstanding some of the transitory headwinds in Medicare we believe the investments we've made in our partner network position us well over the long term.
Steve: It is important to keep in mind that these shared leads make up only 5% to 6% of our total transaction value.
Finally, I'd like to provide some context on upcoming TCA, one to one consent rules affecting our broader industry that will take effect in January of 2025.
Steve: And because their marketplaces heavily focused on clicks rather than leads we do not expect these changes to have a significant impact on our business.
These rules require sellers to obtain specific consent from consumers before contacting them using an automated dialing system or prerecorded or artificial voice system.
Steve: With that I'll turn the call over to Pat for a more detailed review of our third quarter performance and fourth quarter guidance.
While this change is expected to meaningfully limit the volume of shared leads sold we see this as an extremely positive development for consumers and our industry as a whole.
Pat Thompson: Thanks, Steve our third quarter results exceeded the high end of our guidance ranges across all metrics, including record transaction value and adjusted EBITDA of $451 8 million and $26 $3 million respectively.
It is important to keep in mind that these shared leads make up only 5% to 6% of our total transaction value.
Pat Thompson: P&C transaction value was up 52% sequentially above our expectations of 40% to 45%.
Pat Thompson: Driven by increased year over year pricing and higher volumes as participation in our marketplace's continued to scale.
Pat Thompson: Transaction value in our health vertical was up 9% year over year in line with our expectations.
Pat Thompson: As expected our take rates were somewhat lower as our business continued to Mexican P&C, which is more private exchange based and some of our largest supply partners benefited from volume based pricing.
Pat Thompson: Overhead was in line with expectations. The net impact of all deaths was that adjusted EBITDA increased by $22 $7 million, representing over 600% growth year over year.
Pat Thompson: Looking forward to Q4, we expect PNC transaction value levels to be flat to slightly up as compared to Q3, reflecting stronger performance than normal seasonal trends.
Pat Thompson: And health, where Q4 is our seasonally strongest quarter due to the timing of both the Medicare and ACA enrollment periods.
Pat Thompson: We expect transaction value growth to be down mid single digits year over year due to the well documented headwinds in the Medicare payer space.
Pat Thompson: Moving to our consolidated financial guidance, we expect Q4 transaction value to be between $470 million and $495 million.
Pat Thompson: At year over year increase of 192% at the midpoint.
Pat Thompson: We expect revenue to be between $275 million and $295 million a year over year increase of 143% at the midpoint.
Pat Thompson: We expect adjusted EBITDA to be between 29, 5% and $32 $5 million a year over year increase of 144% at the midpoint.
We expect overhead to increase sequentially by approximately $500000 to $1 million as we continue to selectively add head count to support and drive growth.
Pat Thompson: Lastly, we expect our Q4 adjusted EBITDA add back for legal costs, including costs associated with the FTC inquiry can be similar to Q3.
Pat Thompson: Turning to the balance sheet, we've made solid progress in deleveraging.
Pat Thompson: During the quarter with a net debt to adjusted EBITDA ratio of less than two times to.
Pat Thompson: To capitalize on market opportunities and grow our market share we have been strategically investing in our business and working capital.
Pat Thompson: We continue to expect high conversion rates of adjusted EBITDA into cash over time due to the operating efficiencies in our business, including minimal capital expenditures and low working capital needs with that operator, we are ready for the first question.
Pat Thompson: Okay.
Speaker Change: At this time I would like to remind everyone in our Dutch ask a question press star one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Michael Graham with Canaccord Genuity. Your line is open.
Michael Graham: Thank you and congrats on the great momentum I wanted to ask a couple of questions. The first was just.
Yeah.
Michael Graham: On the on the Middle innings comment that you gave in the shareholder letter.
Okay.
At this time I would like to remind everyone in order to ask a question press star one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Michael Graham: Wonder if you could kind of put a little more context around that.
Michael Graham: Is it does that mean middle innings like.
Michael Graham: Some of the carriers have not come back yet or is it more like <unk>.
Your first question comes from the line of Michael Graham with Canaccord Genuity. Your line is open.
Michael Graham: Broadly spread to a lot of carriers and they are just still kind of getting ramped up and then I just wanted to ask if you can make a comment on the hurricanes.
Thank you and congrats on the great momentum I wanted to ask a couple of questions. The first was just.
Michael Graham: In the southeast and whether Youre seeing any.
Michael Graham: Any impact from those.
Michael Graham: On the on the Middle innings comment that you gave in the shareholder letter.
Michael Graham: Hey, Michael Yes.
Michael Graham: Yes, thanks for that question.
Michael Graham: Yes.
Just wonder if you could kind of put a little more context around that.
Michael Graham: <unk> comment the context for that.
Speaker Change: So it's really I think twofold.
Is it does that mean middle innings like.
There are similar to what we talked about last time, which is one.
Michael Graham: Some of the carriers have not come back yet or is it more like brought broadly spread to a lot of carriers and they're just still kind of getting ramped up and then I just wanted to ask if you can make a comment on the hurricanes.
Speaker Change: One is we've had we've had great recovery in the market in 2024.
But it continues to be primarily driven by a small number of very large carriers, who are very sophisticated when it comes to direct to consumer advertising and so when we say from that perspective that the recovery, we feel like it's still in the middle innings, it's about the broader participation of other top carriers.
In the southeast and whether Youre seeing any.
Any impact from those.
Hey, Michael Yes.
Yes, thanks for that question.
With the middle any comment the context for that.
Speaker Change: Certainly there has been progress within the industry.
It's really I think twofold.
Speaker Change: From a quarter ago, and so there has been incremental increases in budget from.
There are similar to what we talked about last time, which is one is we've had we've had great recovery in the market in 2024.
Speaker Change: A larger number of carriers, but I would say that when you look at the list of the top 10 to 15 carriers still several large carriers jump out as.
But it continues to be primarily driven by a small number of very large carriers, who are very sophisticated when it comes to direct to consumer advertising and so when we say from that perspective that the recovery, we feel like it's still in the middle innings.
Speaker Change: Carriers, who.
Speaker Change: Are either still on the sidelines.
Speaker Change: Or otherwise somewhere below where we would expect them to be based on their market share and historical spend levels.
About the broader participation of other top carriers.
Speaker Change: In addition to that I think a smaller factor is really the geography that we mentioned.
Currently there's been progress within the industry in a sense.
Speaker Change: We still have states like California, New York, New Jersey.
Speaker Change: Very large states, which in aggregate make up about 20% of the U S market, where there has been incremental progress in terms of carriers getting rate increases approved but those three states again in particular really arent, where they normally would be in terms of overall market share.
Speaker Change: Media pricing.
Speaker Change: And overall volume and so.
Speaker Change: So I think those two perspective, they are really what color.
The middle innings comment from our perspective.
Speaker Change: With regard to the hurricane and obviously the big event for the insurance industry. It's a notable one.
Speaker Change: But for us.
Speaker Change: It really these types of things tend to be almost non event from.
Speaker Change: From a marketplace perspective at FERC.
Speaker Change: Primary reason being that very heavily skewed to auto insurance.
Speaker Change: Tends to happen. During these periods is that is that advertisers will turn off their campaigns have paused their campaigns for a few days leading up to the event and then almost immediately turn backlog. So so even though obviously it was a human tragedy.
Speaker Change: It was a notable insurance that then.
Our P&C auto insurance media marketplace.
Speaker Change: Relatively not a backdrop.
Speaker Change: Okay. Thank you Steve.
Michael Graham: Thank you Michael.
Speaker Change: Your next question comes from the line of Denny Pfeifer with J P. Morgan Your line is open.
Speaker Change: Hey, Thanks for the question for the first can you maybe parse out some of the different scenarios on how the health business would be impacted as it relates to HCA and your under 65 business. If we have a Republican versus a Democratic administration and I have a follow up thanks.
Speaker Change: Yes sure.
Yes.
Speaker Change: Packages might have that might have something to add to this.
Speaker Change: But I think it really at a high level, we've grown our health insurance business pretty steadily I believe over the last nine to 10 years and so.
Speaker Change: And so thats been through both Democratic and Republican administrations and so.
Speaker Change: So regardless of the outcome of the upcoming election, I think we remain confident in our ability to grow that business over the long term I think again at a very high level.
Speaker Change: I think that our Medicare advantage business that maybe at the margins would benefit from a Republican administration.
Speaker Change: <unk> has broad bipartisan support but again with the Republicans have generally though the party is generally a bit more in favor of Medicare advantage.
Speaker Change: But then the countervailing factor there is that for the under 65 business again, we tend to have more activity there under Democratic administrations, because they put more emphasis on marketing and promoting under 65 plans for ACA plans.
Speaker Change: And so overall I would say that that doesn't change the high level assessment that again, we'll grow through both Democratic and Republican administration, and the marginal impacts that one or the other could have I think tend to wash each other out.
Speaker Change: Got you that's helpful. And then for my second question in regards to the carriers that we're early in turning spend back on can you give any color into whether their budgets continue to grow or have they started to level off and kind of back to more normalized rates of spend thanks.
Speaker Change: Okay.
Speaker Change: I think as you've seen from our results and our forecast I mean, we still continue to see pretty strong momentum from those from those carriers.
I think that.
Speaker Change: Pricing wise I think we can foresee some leveling off in terms of pricing even add additional carriers come back into the fold and provide for a more competitive environment.
Speaker Change: And I'll point, you, though in terms of something that goes to the sustainability of the pricing in the media investments being made.
Speaker Change: Two.
Speaker Change: To the Investor presentation that progressive made in August of this year that really highlighted the fact that.
Speaker Change: With a carrier who has been very disciplined about understanding the expected lifetime value of the policy that sterling.
Speaker Change: Their targeted customer acquisition costs that they're incurring through paid media channels like ours.
Speaker Change: Remain at or below the thresholds that they set and so that's certainly matched what we're hearing from them directly in from other carriers, who have started to invest heavily into our space.
It goes to the sustainability of the pricing in the media investments being made.
<unk>.
Speaker Change: The levels of investment that we're seeing as well as the media price levels are sustainable.
Speaker Change: Well to the Investor presentation that progressive made in August of this year.
We highlighted the fact that.
Speaker Change: Thank you.
As a carrier who has been very disciplined about understanding the expected lifetime value of the policies that are selling.
Speaker Change: Your next question comes from the line of Tony <unk> with Keybanc.
Their targeted customer acquisition costs that they're incurring through paid media channels like ours remain at or below the threshold that they've set and so that's certainly matched what we're hearing from them directly in from other carriers, who have started to invest heavily into our space.
Speaker Change: Your line is open.
Speaker Change: Mr <unk> your.
Speaker Change: Your line is open.
Speaker Change: Ask your question.
Speaker Change: The levels of investment that we're seeing as well as the media price levels are sustainable.
Speaker Change: I will proceed to the next question.
Speaker Change: With Mike Jim.
Thank you.
Speaker Change: <unk> with BMO capital markets. Your line is open.
Speaker Change: Your next question comes from the line of Tommy Mckeith joined with Keybanc.
Speaker Change: Your line is open.
Mr. Mcshane. Your line is open please ask your question.
Speaker Change: Mike.
Speaker Change: <unk>. Please ask your question.
Speaker Change: Your line is open.
Speaker Change: I will proceed to the next question.
Speaker Change: I will proceed to the next questioner.
Speaker Change: With Mike <unk>.
Speaker Change: Ben Hendrix with RBC capital markets. Your line is open.
<unk> <unk> with BMO capital markets. Your line is open.
Ben Hendrix: Great Hey, Thanks, guys just wanted to get some more color on the expectations for lower transaction value year over year and this coming AEP.
Ben Hendrix: I know, there's been some pullback and some pressure in Medicare advantage, but we're expecting a inactive cheese and I'm wondering if you're seeing just more spend to go internal towards our towards internal channels and carriers or are forced to ingest more shopping behavior, rather than actual transaction. Just any color. You can you can provide there would be great. Thank you.
Mike <unk>: Mike <unk>.
<unk>. Please ask your question.
Mike <unk>: Your line is open.
I will proceed to the next questioner.
Ben Hendrix with RBC capital markets. Your line is open.
Yeah and Ben Thanks for the question. This is Pat I'll tackle this one so.
Ben Hendrix: I'd say for that the health vertical overall, where we're guiding to transaction value being down mid single digits year over year, and we said that we believe Medicare L. B.
Ben Hendrix: And under 65 in the upcoming quarter.
And I think the challenge is that the Medicare payers are seeing its been kind of pretty well documented as they're seeing higher.
Ben Hendrix: Higher.
Yeah.
Ben Hendrix: Service utilization Theyre seeing star ratings go down.
Ben Hendrix: And there.
Ben Hendrix: I think different carriers are in different spots, but we've seen a number of carriers that have tightened their belts in terms.
Ben Hendrix: Interest in spending heavily on marketing.
Ben Hendrix: I think the counter to that is there have been a number of planned design changes that have happened that have spurred increased consumer shopping.
Ben Hendrix: And I think that some of the payers there may be tightening their belts I think there could be some folks in the broker community that are better may be benefiting from the change were also only 15 days into AEP. So, it's a little bit hard to say, but.
Ben Hendrix: The long story short I think.
Ben Hendrix: Pricing trends are weak volume trends are pretty good and the net of that we think is going to be down slightly but.
Ben Hendrix: Over a three to five year time horizon, and I think we're as bullish now as we've ever been about the opportunity for us in Medicare advantage.
Thanks for the color.
Ben Hendrix: Okay.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.
Speaker Change: Ladies and gentlemen that concludes today's Q&A session and conference call. Thank you all for joining you may now disconnect.