Q4 2024 MediaAlpha Inc Earnings Call
RG: Thank you for standing by and good day, everyone. My name is RG and I will be your conference operator today.
Thank you for standing by and good day, everyone. My name is <unk> and I will be a conference operator today at this time I would like to welcome everyone to them either.
RG: At this time, I would like to welcome everyone to the Mediaalpha, Inc. 4th quarter and full year of 2024 Earnings Call. All lines have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you.
Speaker Change: Inc, fourth quarter and full year, two I need 24 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 telephone keypad.
Speaker Change: If you would like to withdraw your question Press Star one again.
Alex Liloia: I would now like to turn the call over to Alex Liloia, please go ahead. Thanks, R.G. Good afternoon and thank you for joining us. With me are co-founder and CEO Steve Yi and CFO Pat Thompson.
Alex Pease: I would now like to turn the call over to Alex Pease.
Please go ahead.
Speaker Change: Thanks Archie.
Speaker Change: Afternoon, and thank you for joining us with me, our co founder and CEO Steve.
Pat Thompson: And CFO Pat Thompson.
Alex Liloia: On today's call, we'll make forward-looking statements relating to our business and outlook for future financial results, including our financial guidance for the first quarter of 2025. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. 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. All the forward looking statements we make on this call reflect our assumptions and beliefs as of today, and we disclaim any obligation to update such statements except as required by law.
On today's call, we will make forward looking statements relating to our business and outlook for future financial results.
Pat Thompson: Guidance for the first quarter of 2025.
These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
Pat Thompson: Please refer to our SEC filings, including our annual report on Form 10-K, and quarterly reports on Form 10-Q for a full explanation of those risks and uncertainties.
Pat Thompson: Applicable to forward looking statements.
Pat Thompson: All forward looking statements, we make on this call reflect our assumptions and beliefs as of today and we disclaim any obligation to update such statements except as required by law.
Alex Liloia: Today's discussion will include non-GAAP financial measures which are not a substitute for GAAP results. 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.
Today's discussion will include non-GAAP financial measures, which are not a substitute for GAAP results.
Pat Thompson: 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.
Steven Yi: I'll now turn the call over to Steve. Hey, thanks, Alex. Hi, everyone. Thank you for joining us. Our 2024 financial results were outstanding. Emerging from the most difficult auto insurance market in decades, our transaction value grew by more than 150% and our adjusted EBITDA grew by more than 200% year over year. We ended 2024 on a high note, delivering record fourth quarter results across all of our key performance metrics, driven by strength and our P&C insurance vertical. We believe the auto insurance advertising market is well positioned for sustained growth as carrier financial results continue to improve and competition for market share increases.
Steve: I'll now turn the call over to Steve.
Steve: Hey, Thanks, Alex Hi, everyone. Thank you for joining us.
Speaker Change: Our 2024 financial results were outstanding.
Speaker Change: Working from the most difficult auto insurance market in decade or transaction value grew by more than 150% and our adjusted EBITDA grew by more than 200% year over year.
Speaker Change: We ended 2024 on a high note delivering record fourth quarter results across all of our key performance metrics driven by strength in our P&C insurance vertical.
Speaker Change: We believe the auto insurance advertising market is well positioned for sustained growth as carrier financial results continued to improve and competition for market share increases.
Steven Yi: Over the past five years, we've more than tripled our PNC transaction value and gained significant market share due to attractive secular trends and strong execution. These secular growth drivers remain in place, and we expect to continue to outgrow the market as we enable superior outcomes for our partners.
Speaker Change: Over the past five years, we've more than tripled our P&C transaction value and gained significant market share due to attractive secular trends and strong execution.
Speaker Change: The secular growth drivers remain in place and we expect to continue to outgrow the market as we enable superior outcomes for our partners.
Steven Yi: In our health insurance vertical, our fourth quarter results were impacted by ongoing headwinds in Medicare Advantage and some softening in under 65 demand. While we expect near-term pressures in health, it's important to note that our long-term growth opportunity in this vertical is the Medicare Advantage market, which is a several hundred billion dollar industry at a nascent stage of online advertising adoption. We have a strong market position, including partnerships with seven of the top 10 Medicare Advantage carriers, and we expect the challenges currently facing this industry to be resolved over time.
Speaker Change: In our health insurance vertical our fourth quarter results were impacted by ongoing headwinds in Medicare advantage and some softening in under 65 demand.
Speaker Change: While we expect near term pressures in health. It is important to note that our long term growth opportunity. In this vertical is the Medicare advantage market, which is several hundred billion dollar industry at a nascent stage of online advertising adoption.
Speaker Change: We have a strong market position, including partnerships with seven of the top 10, Medicare advantage carriers and we expect the challenges currently facing this industry to be resolved over time.
Steven Yi: As you may recall, last quarter, I discussed the TCPA one to one consent rules, which were scheduled to take effect at the end of January. Before they were implemented, a federal appellate court determined that they exceeded the FCC's authority. We do not expect revised rules to be implemented in the foreseeable future. To the extent they are, we would expect minimal impact as only 7% of our 2024 transaction value was from lease.
Speaker Change: As you May recall last quarter I discussed the TCT, a one to one concert rules, which were scheduled to take effect at the end of January.
Speaker Change: Before they were implemented a federal appellate court determined that they exceeded the FCC's authority.
Speaker Change: We do not expect provides rules to be implemented in the foreseeable future.
Speaker Change: To the extent they are we would expect minimal impact as only 7% of our 2024 transaction value with from leap.
Steven Yi: As we previously shared, on October 30th, we received a draft complaint and initial settlement demand from the Federal Trade Commission related primarily to the operation of our under 65 health insurance. We take compliance very seriously and strongly disagree with the FTC's allegations and will believe we have meritorious defense. At the same time, we are actively engaged in discussions with the FTC staff in an effort to reach a mutually acceptable resolution. If we reach a resolution, we'll update investors. Otherwise, we'll continue to update our disclosures on a quarter-by-quarter basis.
Speaker Change: As we've previously shared on October 30th we received the draft complaint and initial settlement demand from the Federal Trade Commission related primarily to the operation of our under 65 health insurance business we.
Speaker Change: We take compliance very seriously and strongly disagree with the FTC's obligations and we believe we have meritorious defenses.
Speaker Change: At the same time, we are actively engaged in discussions with the FTC staff in an effort to reach a mutually acceptable resolution.
Speaker Change: If we reach a resolution we will update investors otherwise, we will continue to update our disclosures on our quarter by quarter basis.
Patrick Thompson: With that, I'll hand it over to Pat for a deeper dive into our fourth quarter performance and first quarter guidance.
Pat Thompson: With that I'll hand, it over to Pat for a deeper dive into our fourth quarter performance and first quarter guidance.
Patrick Thompson: Thanks Steve. Our fourth quarter results exceeded the high end of our guidance ranges across all metrics, including record transaction value and adjusted EBITDA of $499.2 million and $36.7 million respectively. PNC transaction value was up sequentially in line with expectations and above normal seasonality driven by higher year-over-year pricing and volumes as investment in our marketplace continued to scale. Transaction value in our health vertical was down 8% year over year, slightly below our expectations. As we saw softening in under 65 as well as the expected headwinds in Medicare For 2024, our health vertical accounted for $270 million of transactions.
Pat Thompson: Thanks, Steve.
Pat Thompson: Our fourth quarter results exceeded the high end of our guidance ranges across all metrics, including record transaction value and adjusted EBITDA of $499 2 million and $36 $7 million respectively.
Pat Thompson: P&C transaction value was up sequentially in line with expectations and above normal seasonality driven by higher year over year pricing and volumes as investment in our marketplace continued to scale.
Pat Thompson: Transaction value on our health vertical was down 8% year over year slightly below our expectations as we saw a softening in under 65 as well as the expected headwinds in Medicare advantage.
Pat Thompson: For 2020 for our health vertical accounted for $270 million of transaction value or 18% of the total at a 14% take rate.
Patrick Thompson: for 18% of the total at a 14% take. within health under 65 accounted for approximately two thirds of the transaction value at a slightly higher Our Q4 adjusted EBITDA included $9 million of ADVACs related to the FTC. These consisted of $2 million of legal expenses, along with a $7 million reserve recorded in accordance with U.S. GAAP requirements. Inclusive of these ad backs, Q4 adjusted EBITDA increased $24 million year over year, representing 189% growth. Looking forward to Q1, we expect PNC transaction value levels to grow approximately 170% year over year, representing a high single digit sequential decline.
Pat Thompson: Within health under 65 accounted for approximately two thirds of the transaction value at a slightly higher take rates.
Our Q4, adjusted EBITDA included $9 million of that.
Pat Thompson: Add backs related to the FTC matter.
Pat Thompson: It consisted of $2 million of legal expenses, along with a 7 million dollar reserve recorded in accordance with U S GAAP requirements.
Pat Thompson: Inclusive of these add backs Q4, adjusted EBITDA increased $24 million year over year, representing 189% growth.
Pat Thompson: Looking forward to Q1, we expect PNC transaction value levels to grow approximately 170% year over year, representing a high single digit sequential decline.
Patrick Thompson: To date, we have seen a moderation in pricing from Q4 levels, partially offset by the typical seasonal volume uplift, and we expect these trends to continue for the remainder of the quarter. In our health vertical, we expect transaction value to decline by a high teens percentage year over year, as conditions in under 65 have continued to soften in Q1. As Steve mentioned, we see our long-term growth opportunity in this vertical in Medicare Advantage. Moving to our consolidated financial guidance, we expect Q1 transaction value to be between $415 million and $440 million. a year over year increase of 95% at the We expect revenue to be between $225 million and $245 million.
Pat Thompson: To date, we have seen a moderation in pricing from Q4 levels, partially offset by the typical seasonal volume uplift and we expect these trends to continue for the remainder of the quarter.
And our health vertical we expect transaction values declined by a high teens percentage year over year as conditions in under 65 have continued to soften in Q1.
Pat Thompson: Steve mentioned, we see our long term growth opportunity in this vertical in Medicare advantage.
Pat Thompson: Moving to our consolidated financial guidance, we expect Q1 transaction value to be between $415 million and $440 million a year over year increase of 95% at the midpoint.
Pat Thompson: We expect revenue to be between $225 million and $245 million a year over year increase of 86% at the midpoint.
Patrick Thompson: A year over year increase of 86%. We expect adjusted EBITDA to be between $24.5 million and $26.5 million. A year-over-year increase of 77% at the We expect overhead to increase sequentially by approximately $500,000 to $1 million as we continue to selectively add headcount to support and drive growth. Turning to the balance sheet, we've made solid progress in deleveraging, ending the quarter with $43 million of cash and net debt to 2024 adjusted EBITDA of less than 1.3 times. Moving forward, we expect to convert the significant portion of adjusted EBITDA into unlevered free cash flow due to the operating efficiencies in our business, including minimal capital expenditures and low working capital needs.
Pat Thompson: We expect adjusted EBITDA to be between $24 5 million and $26 $5 million.
Pat Thompson: A year over year increase of 77% at the midpoint.
Pat Thompson: 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: Turning to the balance sheet, we've made solid progress in deleveraging ending the quarter with $43 million of cash and net debt to 2024, adjusted EBITDA less than one three times.
Pat Thompson: Moving forward, we expect to convert a significant portion of adjusted EBITDA into Unlevered free cash flow 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.
RG: With that operator, we are ready for the first question. This time, I would like to remind everyone in order to ask a question, rests are then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.
Pat Thompson: At this time I would like to remind everyone in order to ask a question Ross sorry, then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Michael Graham: Your first question comes from the line of Michael Graham from Canaccord, please go ahead. Thanks, and congrats on the strong business momentum. I know there will be lots of questions about that.
Speaker Change: Your first question comes from the line of Michael <unk> from Canaccord. Please go ahead.
Thanks, and congrats on the strong business momentum I know there'll be lots of questions about that I wanted to actually ask on the FTC situation, if I could please and just.
Michael Graham: I wanted to actually ask on the FTC situation, if I could, please. And just, you know, when you filed your 10-Q last quarter, you had said that the settlement demand exceeded your available liquidity. And then I see that you sort of updated us a little bit here, and you have a $7 million accrual. So just looking for a little bit of color, if we could ask for it on, you know, how you see this process unfolding, to the extent you can comment, and specifically why $7 million was the right number for an accrual. Thank you.
When you filed your 10-Q last quarter, you had said that.
Speaker Change: The demand settlement the settlement demand exceeded your.
Speaker Change: Liquidity your available liquidity, and then I see that your sort of updated us a little bit here.
Speaker Change: And you have a $7 million of accruals. So just looking for a little bit of color. If we if we could ask for it on.
Speaker Change: How you see this process unfolding if to the extent you can comment and specifically why US why 7 million was the was the right number for an accrual. Thank you.
Steven Yi: Oh, hey, Michael. Um, yeah, I mean, you know, as I mentioned in my in my prepared remarks, I mean, we're in ongoing discussions with the FTC staff. And so it's hard for us to really comment, you know, much beyond what we've, you know, disclosed in our filings, as well as our prepared remarks. You know, certainly, I think what we can tell you is that, you know, when we reach resolution, it's better, we'll certainly update in vectors, you know, otherwise, we'll just have to limit our disclosures to a quarterly basis, you know, as the FTC settlement discussions progress.
Michael: Hey, Michael Yes.
Speaker Change: As I mentioned in my in my <unk>.
Speaker Change: Prepared remarks, I mean, we are in ongoing discussions with the FTC staff.
Speaker Change: So it's hard for us to really comment much beyond what we've disclosed in our filings as well as our prepared remarks.
Speaker Change: Certainly I think what we can tell you is that when we reach resolution better we'll certainly update investors otherwise, we'll just have to limit our disclosures to a quarterly basis.
Pat Thompson: The FTC settlement discussions progressed ill turn it over to Pat to.
Pat Thompson: To address the questions about.
Pat Thompson: About $7 million.
Pat Thompson: Great. Thanks, Steve I appreciate the question Michael.
Pat Thompson: Yes.
Pat Thompson: <unk> million dollars for the reserve amount, we calculated desk per U S. GAAP.
Pat Thompson: Specifically under ASC, 450, which is that contingent liability accounting and effectively to book.
Book any sort of a reserve there two criteria must be met which is debt.
Pat Thompson: A loss is probable and estimable.
Pat Thompson: And we met those criteria and I would say on the Este <unk> side.
Pat Thompson: The estimate corresponds to the lower end of the range ships on a reasonably estimated losses on our side.
Pat Thompson: So, but the usual caveat, which is that number is obviously subject to change in the future based on us getting additional information, but that's what we bought for the quarter ended.
Pat Thompson: 12 31.
Pat Thompson: Okay. That's helpful context, Thank you both.
Pat Thompson: Thanks, Michael.
Speaker Change: Your next question comes from the line of Cory Carpenter from JP Morgan. Please go ahead.
Cory Carpenter: Hey, good afternoon, and thanks for the question I wanted to ask about the P&C comments you made around pricing.
Cory Carpenter: Pricing moderating in <unk> and offsetting seasonality could you just expand a bit on what youre seeing in the P&C market. This year and I know youre not giving you got 2025, but just kind of how we should maybe use that as a framework for kind of growth going forward and maybe if we just kind of have a more complete recovery to date. Thank you.
Speaker Change: Yeah sure Hey, good morning, Yes, I mean, I think I think we're extremely bullish about.
Speaker Change: What 2025 is going to look like for our TMT vertical I mean, I think really you don't need to look much further than just the profitability numbers that youre seeing from the carrier. They finished the year of 2024 very strong and some of the early reports that youre seeing in January look outstanding.
Speaker Change: And so ultimately we think that profitability is going to fuel a lot more competition in our marketplace going forward for 2025 and beyond.
Speaker Change: One thing.
Speaker Change: To note is that now that a lot of the rate actions are starting to slow down.
Speaker Change: Carriers have achieved rate adequacy.
Speaker Change: I think what youre going to see additional growth pressure because pricing increases will no longer fuel premium growth and so I think what you're going to see is a lot of carriers, who are slow to jump back into our marketplace and invest in customer acquisition spending really having to do so because theyre going to have to now grow by acquiring new customers and new policies and not just rely.
Speaker Change: Rate actions that they've been taking for the better part of three years.
Speaker Change: Shopping as you've heard probably has remained at elevated levels because of all the rate taking over the past three years and so from that front I think it looks good and so all of those three things really put together I think bode well for a lot more competition in our marketplace, particularly within the personal auto space for this year and beyond now thinking about.
Speaker Change: What happened with pricing in Q4 to Q1.
Speaker Change: I think the dynamics here are really growth market dynamics that we haven't seen in a while and so what you saw with a lot of carriers, having very good 2020 fours and having essentially locked in their profitability targets for the year relatively early and so I think what you saw in Q4 with a lot of carriers leaning into there.
Speaker Change: Most scalable and high quality channels right.
Speaker Change: We invest in customer acquisition, and really showed a willingness to run a little bit hot.
Speaker Change: During the quarter.
Again, because they had good strong result locked in and they wanted to take advantage of what were unseasonably high consumer shopping trends in Q4.
Speaker Change: And now that were in Q1 as the new year with new budgets and combined ratios are typically set right on a calendar year annual basis, I think what youre seeing in Q1 is a little bit more conservatism just because inherently they don't know what that year is going to bring right again. The early results look outstanding and what we expect to see as well.
Speaker Change: The pack is really the momentum continuing to build as the year goes on for all the dynamics I mentioned earlier in this answer.
Speaker Change: Great. Thank you that's helpful.
Laurie: Thanks Laurie.
Speaker Change: Your next question comes from the line of Eric Sheridan from Goldman Sachs. Please go ahead.
Eric Sheridan: Thanks, so much for taking the question maybe two if I can in terms of moving beyond the PMC category could you update us on some of your key initiatives to broaden out that appeals to the platform to a wide array of partners and then the second part of the question would be when you think about 2025 as a whole what would you identify as some of the key strategic.
Speaker Change: Investments you need to make in either platform or product.
Speaker Change: Driving elements. So we should be keeping in mind. When you think about elements of incremental operating leverage and also driving growth in 2025. Thanks. So much.
Speaker Change: Yes sure.
Speaker Change: We think about.
Speaker Change: Really our biggest growth opportunities.
Speaker Change: Certainly we continue to believe that PMT has a tremendous amount of growth still left in it.
Speaker Change: And then and then we just have to look at Medicare for what is the.
Half a trillion dollar industry.
Speaker Change: Which is in the very very early innings of going direct to consumer and has really yet to scratch the surface for online advertising and the fact that Medicare advantage is over 50% market share with seniors.
Speaker Change: Alright.
Speaker Change: We have a partnership with stepping out of the top Medicare carriers I mean, I think we have a really strong foundation for growth within Medicare and so as we think about other ways to deploy our platform and other businesses to get into we really can't overlook just how massive the opportunities are within TNC and Medicare now specifically, where we're investing.
Speaker Change: And we're certainly looking at other insurance vertical such as commercial.
Speaker Change: You know that we've been investing in our agent business, because one of the things that debt.
Speaker Change: That we've been focused on up until now it's really working with the direct to consumer carriers.
Speaker Change: And now we'd like to expand those partnerships with agent based carriers by working directly with their agents. So we continue to invest there both on the team and the technology.
Speaker Change: And then in terms of strategic areas of investment I think like a lot of other companies were really focused on data science and bolstering those capabilities to drive greater efficiencies for both our publishers to drive higher yields as well as to drive greater advertising efficiency for our advertisers.
Speaker Change: Thank you.
Eric Sheridan: Thanks, Eric.
Your next question comes from the line of Tom <unk> from <unk>. Please go ahead.
Eric Sheridan: Hi.
Speaker Change: For Tommy.
Speaker Change: Can you talk about the trends and the cost to acquire traffic.
Speaker Change: How does that.
Speaker Change: And at your margin.
Speaker Change: Yes, well I think that basically I mean, I think what youre highlighting its one of the differences between our business model.
Speaker Change: Business model, a lot of our publicly traded comparable companies.
Speaker Change: And that we're not really don't have a really strong O&M presence, particularly within PNC and so we're not acquiring.
Speaker Change: We're incurring direct customer acquisition costs, we work with a marketplace of hundreds of publishers.
Speaker Change: Alright, and allow insurance advertisers to reach consumers shopping on those publisher sites and so.
So certainly I think what youre seeing in the overall industry as carriers start to reinvest and customer acquisition is not just increasing prices and robust budget in channels like ours, but youre seeing that in upstream channels like Google and display networks as well certainly I think thats affecting some of our publisher partners.
Speaker Change: As well as our carrier partners and their ability to acquire traffic from those other areas.
Speaker Change: But it really doesn't have that much of an impact on us, particularly on the T&D side, because we don't have a very strong owned and operated business in that area.
Speaker Change: Got it thanks.
Speaker Change: Ken.
Speaker Change: Okay.
Speaker Change: Again to ask a question press star one on your telephone Keypad. Your next question comes from the line of Ben Hendrix from RBC. Please go ahead.
Ben Hendrix: Yeah, Hey, thank you very much.
Ben Hendrix: I appreciate all the comments on the EMEA growth opportunity, but the very near term just if you could provide a little more detail on your guidance assumptions for <unk> sounds like if I heard you right transaction value is expected to decline mid teens maybe versus.
Ben Hendrix: In <unk> versus an 8% decline for here just wanted to get the specifics of kind of what youre seeing in the industry, that's driving that lower and if that's kind of moved to lower sense. Since you initially started seeing headwinds in the.
Ben Hendrix: In the senior space.
Ben Hendrix: Yes, yes.
Ben Hendrix: Thanks for the question this is Pat.
Ben Hendrix: That our guidance for Q1 is for the health vertical which is.
Ben Hendrix: Medicare advantage and under 65 health to be down in.
Ben Hendrix: In the high teens year over year.
Speaker Change: And kind of speaking specifically to Medicare advantage, the Medicare advantage business I think we kind of talked about over the back half of last year that we were seeing some headwinds there and I would say.
Ben Hendrix: That business was down year over year in Q4.
Ben Hendrix: The headwinds we saw in Q4 are kind of continuing into Q1, and I would say, yes, the growth rates, we're expecting for Medicare pretty similar between those that between those two.
Ben Hendrix: Those two quarters.
Ben Hendrix: And where we've seen kind of a slowdown in our health vertical that's been in the under 65.
Kind of started.
Ben Hendrix: As we progressed through Q4, and Thats continued thus far into Q1, and so I would say on the Medicare side.
Ben Hendrix: In short term speed bumps given some of the well documented challenges that the payors.
Ben Hendrix: In that market, but Steve you kind of outlined both scripted remarks and in.
Steve: The Q&A, we think the opportunity in Medicare advantage is that pretty vast it's one we're investing behind and it's one we're excited to unlock in the years to come.
Ben Hendrix: Great. Thanks for the clarification.
Ben Hendrix: Yes.
Ben Hendrix: Youre welcome.
Speaker Change: And so I Q&A session and we appreciate your participation ladies.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Okay.