Q2 2025 MediaAlpha Inc Earnings Call

August 6, 2025

Oh for Inc. Second quarter 225 earnings call.

All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask question.

You ask a question you May press star followed by the number one on your telephone keypad.

Do we draw. Your question you May press Star followed by the number one again.

I will now turn the call over to Alex <unk>. Please go ahead.

Thanks, Karen.

Good afternoon, and thank you for joining us.

With me are co founder and CEO, Steve <unk> and CFO Pat Thompson.

On today's call, we will make forward looking statements relating to our business and outlook for future financial results, including our financial guidance for the third 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 of 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.

Today's discussion will include non-GAAP financial measures, which are not a substitute for GAAP results reckon.

Reconciliations of these non-GAAP financial measures to the corresponding GAAP measures can be found in our press release and shareholder letter issued today.

Available on the Investor Relations section of our website I will now turn the call over to Steve.

Thanks, Alex.

Hi, everyone. Thank you for joining us.

Let me start with the FTC resolution, we announced this afternoon.

As we shared in our press release and form 8-K. Finally, we reached the settlement with the FTC that fully results its investigation into our under 65 health insurance business.

Key terms include $45 million of payments, which we will fund from cash on hand.

As well as additional compliance measures to further strengthen our safeguards within our under 65 marketplace.

While we strongly disagree with the FTC's obligations. We believe resolving this better now is in the best interests of BD Alpha and our shareholders.

We view this as a positive step forward and are pleased to have this matter behind us.

Now turning to the second quarter, we delivered solid results driven by ongoing momentum in our P&C insurance vertical.

Both was again fueled by increased marketing investments from leading auto insurance carriers.

With underwriting margins at robust levels the impact of automotive tariffs are looking increasingly manageable and with slowing rate increases providing less of a tailwind for premium growth gaining market share by acquiring new customers has become even more strategically important for most carriers.

Fully resolved its investigation into into our under 65 health insurance business.

The key terms include 45 million of payments, which we will fund from cash on hand.

We expect these favorable industry dynamics to sustain healthy levels of auto insurance advertising spend in the second half of this year and beyond.

As well as additional compliance measures to further, strengthen our safeguards within our under 65 Marketplace.

New supply partner wins also contributed to our strong second quarter results underscoring the growing competitive advantage of our marketplace technology.

While we strongly disagree with the ftc's allegations. We Believe resolving this better now is in the best interests of media Alpha and our shareholders.

We view this as a positive step forward and are pleased to have this matter behind us.

Operating efficiency and industry leading scale.

And our health insurance vertical we believe the most significant dollar decreases in under 65 transaction value are behind us.

Now, turning to the second quarter, we delivered solid results driven by ongoing momentum in our PNC, Insurance vertical.

Growth was again, fueled by increased marketing investments from leading auto insurance carriers.

While we continue to expect year over year declines in the near term our.

Our health business remains solidly profitable and our relationships with leading Medicare advantage carriers are as strong as ever.

Over time, we're confident that health insurance carriers will allocate more marketing dollars to direct to consumer digital channels, which we continue to see as a meaningful long term growth opportunity for media Alpha.

With underwriting margins at robust levels. The impact of Automotive tariffs are looking, increasingly manageable, and was slowing rate increases providing less of a Tailwind for premium growth. Gaining market share by acquiring new customers has become even more strategically important for most carriers.

With P&C firing in all cylinders and the FTC matter resolved, we're confident in our trajectory for the rest of the year and beyond.

We expect these favorable industry Dynamics to sustain healthy levels of auto insurance advertising spend in the second half of this year and Beyond.

We remain intently focused on capturing the significant multiyear growth opportunities ahead, creating value for our partners and delivering strong long term returns for our shareholders.

New Supply partner wins. Also contributed to our strong second quarter results. Underscoring, the growing competitive advantage of our Marketplace technology, operating efficiency and industry-leading scale.

With that I'll hand, it over the past.

Great. Thanks, Steve ill.

I'll start by walking through the key drivers of our Q2 results.

In our health insurance, vertical, we believe the most significant dollar decreases in under 65 transaction value are behind us.

Transaction value was $481 million up 49% year over year, driven by 71% year over year growth in our P&C vertical.

While we continue to expect year-over-year declines in the near term, our health business remains solidly profitable, and our relationships with leading Medicare Advantage carriers are as strong as ever.

In our health vertical transaction value declined 32% year over year coming in slightly below our expectations.

Adjusted EBITDA for the quarter was $24 5 million, increasing 31% year over year.

Over time, we're confident that health insurance, carriers will allocate more marketing dollars to direct to Consumer digital channels which we continue to see as a meaningful long-term growth opportunity for media Alpha.

Slightly lagged our expectations due to a modestly lower take rate in the quarter driven by our decision to accelerate our strategy to scale back parts of our higher margin under 65 business.

with PNC firing, and all cylinders, and the FDC matter resolved, we're confident in our trajectory for the rest of the year and Beyond,

We remained intently focused on capturing the significant multi-year. Growth opportunities ahead.

Along with some nice incremental partner wins in P&C, there at lower than average take rates.

Creating value for our partners and delivering strong, long-term returns for our shareholders.

With that, I'll hand it over to the path.

For the quarter adjusted EBITDA represented 62% of contribution up from 56% in the prior year.

Great. Thanks. Steve.

I'll start by walking through the key drivers of our Q2 results.

Adjusted EBITDA included $35 $3 million of add backs related to the FTC matter consisting of $2 $3 million of legal expenses and an additional $33 million reserve recorded to reflect a total of $45 million settlement payable.

Transaction value is 481. Million up 49% year-over-year driven by 71% year-over-year growth in our PNC, vertical.

In our health vertical, transaction value, declined, 32% year-over-year coming in slightly below our expectations.

Looking ahead, we expect record third quarter transaction value as we benefit from continued strong demand from the largest carriers in our marketplace.

Adjusted EBITDA for the quarter was $24.5 million, increasing 31% year-over-year.

Accordingly, we expect P&C transaction value to grow approximately 35% year over year.

And our health vertical we expect transaction value to decline approximately 40% to 45% year over year, reflecting a decrease in our under 65 business from Q2 levels as well as continued challenging conditions in Medicare advantage.

Due to a modestly lower take rate in the quarter driven by our decision to accelerate our strategy to scale back parts of our higher margin under 65 business.

Along with some nice incremental, partner wins and PNC that are at lower than average take rates.

For under 65, specifically, we expect Q3 transaction value of approximately $18 million, reflecting a 54% year over year decline in contribution of about $1 million, a roughly 80% decline year over year.

For the quarter, adjusted debit de represented. 62% of contribution up from 56% in the prior year.

To provide greater transparency into the new baseline for our health vertical. This quarter's earnings materials include transaction value and contribution for our under 65 business over the past six quarters.

Adjusted Eva included 35.3 million of adak related to the FTC matter consisting of 2.3 million of legal expenses and an additional 33 million Reserve recorded to reflect the total of 45 million settlement. Payable

Looking ahead. We expect record third quarter transaction value. As we benefit from continued, strong demand from the largest carriers in our Marketplace.

We expect 2025 under 65 transaction value of $95 million to $100 million in contribution of about $10 million, resulting in a take rate up about 10% at the midpoint.

Accordingly. We expect PNC transaction value to grow approximately 35% year-over-year.

By comparison, 2024 transaction value contribution in take rate or $179 million $29 million and 16% respectively.

in our health vertical, we expect transaction value to decline approximately 40 to 45% year-over-year, reflecting a decrease in our under 65 business from Q2 levels as well as continued challenging conditions, in Medicare Advantage

Looking ahead, we expect that under 65 will generate annual contribution in the single digit millions, reflecting the reset in both scale and profitability from the sub vertical.

For under 65 specifically, we expect Q3 transaction value of approximately, 18 million dollars reflecting a 54% year-over-year, decline and contribution of about 1 million dollars. A roughly 80%, decline year-over-year.

Moving to our consolidated financial guidance, we expect Q3 transaction value to be between $545 million and $570 million, representing a year over year increase of 23% at the midpoint.

to provide greater transparency, into the new Baseline, for our health vertical, this quarter's earnings materials, include transaction value and contribution for our under 65 business, over the past 6 quarters,

We expect revenue to be between $270 million and $290 million, representing a year over year increase of 8% at the midpoint.

We expect 2025 under 65, transaction, value of 95 to 100 million dollars in contribution of about 10 million dollars.

Adjusted EBITDA is expected to be between $25 5 million and $27 5 million representing.

Representing a year over year increase of 1% at the midpoint, including a $4 million impact from an expected year over year decline in under 65 contribution.

By comparison 2024 transaction, value, contribution, and take rate or 179 million.

29 million in 16% respectively.

We expect overhead to increase sequentially by approximately $1 million as we continue to selectively invest in head count to support can drive growth.

Looking ahead, we expected under 65 will generate annual contribution in the single-digit. Billions reflecting the reset in both scale and profitability for this. Subversion

We generated significant cash flow and made solid progress in deleveraging our balance sheet during the quarter in Q2, we generated $22 million of cash and ended the quarter with $85 million of cash and a net debt to adjusted EBITDA ratio of 0.6 times.

Moving to our Consolidated Financial guidance. We expect Q3 transaction value to be between 500 and 545 million in 570 million.

Representing a year-over-year increase of 23% at the midpoint.

Excluding nonrecurring payments related to the FTC matters with $33 5 million expected to be paid in Q3, and the remaining $11 5 million in Q4.

We expect Revenue to be between 270 million and 290 million representing a year-over-year increase of 8% at the midpoint,

We expect to convert a significant portion of adjusted EBITDA into Unlevered free cash flow, providing us with substantial financial flexibility going forward.

Finally, I'm pleased to announce that on August 4th we extended the maturity of $142 6 million of the $156 $3 million of indebtedness outstanding under our credit facilities by one year through July of 2027.

Adjusted ebitda is expected to be between 25.5 million and 27.5 million representing a year-over-year increase of 1% at the midpoint, including a million dollar impact from an expected year-over-year decline in under 6,500 contribution.

We expect overhead to increase sequentially by approximately 1 million dollars. As we continue to selectively invest in headcount to support and drive growth.

The remaining $14 million will mature in July of 2026.

With that operator, we are ready to take the first question.

Yeah.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

We generated significant cash flow and made Solid progress and deleveraging our balance sheet during the quarter. In Q2, we generated 22 million of cash and ended. The quarter with 85 million of cash in a net debt to adjusted debit dollar ratio, 0.6 times.

We will pause for just a moment to compile the Q&A roster.

The first question comes from Maria Rips from Canaccord Genuity. Your line is open.

Good afternoon, My question and congrats on the settlement.

Excluding non-recurring payments related to the FTC matter with 33.5 million expected to be paid in Q3 and the remaining 11.5 million in Q4. We expect to convert a significant portion of adjusted debe into unlevered free cash flow, providing us with substantial Financial Financial flexibility. Going forward.

So now with Oklahoma matters resolved and committing to the stronger compliance framework, how it sort of enhancing your competitive positioning in the under 65 vertical.

You talk about how.

finally, I'm pleased to announce that on August 4th, we extended the maturity of 142.6 million of the 156.3 million of indebtedness outstanding under our credit facilities by 1 year, through July, of 2027,

In Continental Europe.

Marcos cleaning processes might impact explorer.

The remaining 14 million will mature in July of 2026.

Quality.

With that operator, we are ready to take the first question.

Hi, Maria Thanks for that question.

I think.

In terms of I think what the measures that we've taken.

Here too this settlement.

As well as the terms of the settlement that we will implement.

At this time I would like to remind everyone in order to ask a question for a star, then the number 1 and your telephone keypad. We will pause for just a moment to compile the Q&A roster.

In the upcoming weeks I think what that's going to do is set a new baseline for our under 65 health insurance business and again, let me just remind everyone that the terms of the settlement really focus just on the under 65 sites. It will have no material impact on the Medicare side of our business or the P&C side of our business.

The first question comes from Maria rips from canor genuity, your line is open.

Uh, great, good afternoon, and thanks for taking my questions and, um, congrats on the settlement. Uh, so now with FTC matter sort of, uh, resolved and with you committing to the stronger compliance framework.

I think what that's going to do is really.

Create a new baseline for us to start to build from.

The reason that we continue to stay in the under 65 businesses, because we still think that there is an opportunity for us to work with consumers.

How do you see sort of this? Enhancing your competitive positioning in the, under 65 vertical. And maybe talk about how this new sort of content review and partners, screening processes might impact of user experience, and and conversion quality.

And help them navigate through the myriad of choices that they have if.

If they don't qualify for Medicare and if they don't have an employer sponsored plans.

Hey Maria. Hey hey, thanks for that question. Um well I think

I think with the recent changes from the Trump administration.

Alright, that's enrolling a number of millions of people from Medicaid as.

As well as making eligibility requirements or tightening eligibility requirements for subsea.

Subsidies.

I think what that's going to do is increase the number of consumers.

We need to be matched with carriers and brokers, who can offer them. The right set of plans depending on their life situation and their financial situation.

You know, in terms of, I think what the measures that we've taken prior to this settlement, um, as well as the terms of the settlement that we will Implement, um, in the upcoming weeks, I think what that's going to do is set a new Baseline for our under 65 health insurance business. And again, let me just remind everyone that the terms of the settlement really focused. Just on the under 65 side. So I'll have, uh, no material impact on the Medicare side of our business, uh, or the PNC side of our business. But I think what that's going to do is really

So we still see an opportunity there and believe that we can operate in this space with the constraints that we have under the terms of the settlement agreement.

And we look forward to really building on this with a great team that we have in that space.

Create a new Baseline for us to start to build from. Um, the reason that we continue to stay in the under 65 business is because we still think that there is an opportunity for us to work with consumers.

And seeing what we can do to really serve consumers and advertisers in a better way than we did before.

Got it.

Very helpful. I appreciate all the color.

And help them navigate through sort of the Myriad of choices that they have. Um, if they don't qualify for Medicare and if they don't have an employer sponsored plan. Um, um I think with the recent changes from the Trump Administration,

And just on <unk>.

You've called out sort of conclude with strength.

Right. This enrolling a number of millions of people from Medicaid.

And in the second half.

Given the uncertainty around tariffs and inflation could you maybe give us a little more color on key variables around.

As well as making eligibility. Requirements are tightening eligibility requirements, for ACA um subsidies.

I think what that's going to do is increase the number of consumers.

Back half of the one level next.

Next year.

Yes, I mean, I think for that time period that youre talking about the back half of this year and the early part of this year, we're very optimistic about carrier budgets.

We need to be matched with carriers and brokers, who can offer them the right set of plans, depending on their life situation, and their financial situation.

I think overall, let me just start with where the industry is in the industry of the underlying dynamics of the industry.

Outstanding underlying profitability is strong and the personal auto space, meaning.

And we look forward to really building on this with a great team that we have in that space.

And in combined ratios for a lot of the carriers, particularly the leading carriers are actually lower than or better than long term targets and so what that's led to is strong advertising investments in Q2 as you saw from our results.

And seeing what we can do to really serve consumers and advertisers in a better way than we did before.

Got it. That's a that's very helpful. Appreciate all the call.

And as you see from our guidance for Q3, we expect very strong budgets to continue into the next quarter.

We certainly expect this trend to continue for the remainder of the year and beyond.

In terms of automotive tariffs let.

And then just on on PNC, uh, I think you called out sort of continued strength and career Span in the second half, uh, and then still given sort of the uncertainty around tariffs and inflation. Could you maybe give us a little bit more call, sort of, on key variables around career, budgets in the back, half of the year, and maybe into next year.

Certainly I don't want to dismiss those out of hand.

I think a lot of carriers are still taking a bit of a wait and see approach, but I think as said second quarter progressed I think what we saw was that profitability.

Within the auto insurance that you see held up very well and I think that's led to a lot of carriers really having the growing confidence that the inflationary impact of the automotive tariffs, we're looking increasingly manageable.

And so again as we remind you there for one last quarter.

Carriers are sort of on the heels of what was the generationally hard market.

Think that they are especially attuned to inflationary pressures that could start to affect our results, but again since our call last quarter I think what we've seen is really positive in terms of the ongoing profitability of insurance carriers and again I think the growing consensus that the industry can absorb some of the single.

Yeah, I mean I think, I think for that time period that you're talking about the back half of this year in the early part of this year, we're very optimistic about carrier budgets. Um, so I think overall, let me just start with where the industry is and the industry, the underlying dynamics of the industry, um, are still outstanding. The underlying profitability is strong in the personal out of space. Um, meaning combined ratios for a lot of the carriers particularly the leading carriers are actually lower than or better than right long term targets. And so what that's led to is, you know, strong advertising investments in Q2 as you saw from our results. Um, and as you see from our guidance for Q3 we expect very strong budgets to continue into the next quarter. Um, we certainly expect this trend to continue uh for the remainder of the year and Beyond

um, in terms of like Automotive tariff,

I mean, certainly I don't want to dismiss those out of hand.

Inflationary impacts that we can foresee from the automotive tariffs.

Um, I think a lot of carriers are still taking a bit of a wait and see approach.

Got it.

Very helpful. Thanks, so much.

Thanks, Brian.

The next question comes from Jeremy Metz giant from K B W.

Your line is open.

Hi, Hum for Tommy Thank you for taking my question.

But I think as that second quarter progressed, I think what we saw was that profitability um within the auto insurance industry held up very well. And I think that's led to a lot of carriers really having the growing confidence that the inflationary impact of the automotive tariffs were looking increasingly manageable.

And so again, as we reminded everyone last quarter,

My first question is on the P&C side.

You know, the carriers are sort of on the heels of what was a generationally hard Market.

You mentioned that TNT transaction value.

The 1%.

Yeah.

Sustained combine leading carriers and also growing partner base.

Can you provide some more color on the mix between existing carrier spin increases versus new carrier additions. Thank you.

So, I think that there's, especially a tune to inflationary pressures, that could start to affect the results. But again, you know, since our call last quarter, I think what we've seen is really positive in terms of the ongoing profitability of insurance carriers, and again I think the growing consensus that the industry can absorb some of the single-digit inflationary impacts that we can foresee from the automotive tariffs.

Yeah happy to Pat happy to to answer that I would say that.

Got it. That's uh, that's very helpful. Uh, thanks so much.

Thanks Maria.

On the carrier side.

The vast majority of the increase in spend was from existing carriers.

And that's not to say, we didn't have any new ones come in.

The next question comes from islami mag joint from KBW, your line is open.

The typical trajectory, we see with our new carrier is when they come in.

Hi. Um, it's Jane on for Tommy. Thank you for taking my question.

Start they start small.

My first question is on the PNC side.

And so the.

The growth we saw in the carrier side in the quarter was really driven primarily by the <unk>.

So a couple of the biggest carriers.

And that's the trend we're seeing kind of continue.

In Q Q3.

Moving to the other side on the supplier the publisher side I would say, we've been gaining share pretty consistently for the last five six quarters. That's a trend. We think will continue to two will continue.

Um, you mentioned that the PNC transaction value group, 71% year-over-year driven by 15 the month on leading carriers, and also growing partner base, um, can provide some more color on the mix between existing carrier spin increases versus, um, New carrier editions. Thank you.

Yeah, happy to. This is Pat.

To answer that, I would say that.

You know, on the carrier side.

And I would say, we've been gaining share of wallet with existing shared partners and we've been winning some exclusive partners as well and.

You know, the vast majority of the increase in spend was from existing carriers.

Both of those we think are testaments to the.

The technology, we have the account management, we have the overall monetization capabilities are our offering.

And, you know, that's not to say we didn't have any new ones come in. It's just, you know, the, the typical trajectory we see with a new carrier, is when they come in, they, they they start, they start small,

And we feel very optimistic about that trend continuing in the future asphalt.

Got it thank you.

My second question.

and so, you know, the growth we saw in the carrier side in the quarter was really driven, you know, primarily by uh the head, you know, so the couple of biggest carriers and you know, that's a trend we're seeing kind of continue uh, into Q3 the

Hum.

So it gives them some of the transaction value was.

Okay.

Driven by news.

On the and Dan kind of offset by a modest.

Take rate compression.

Like what's your strategy to optimize this trade off between volume growth and public debt as you scale.

Yes, I'll take a first crack at that.

I think right now we're still optimizing for for market share in transaction value.

What that's doing is creating a lot more transaction within our marketplace, giving us a lot more data that we can use to optimize spin.

You know, moving to the other side, on the the supplier, the public Sher side, you know, I would say, you know, we've we've been gaining share, uh, pretty consistently for the last, you know, 5 6 quarters. That's a trend. You know, we think will continue to to will continue. And, you know, I would say we've, you know, been gaining share of wallet with, you know, existing shared partners and we've been, you know, winning, you know, some exclusive Partners as well. And, you know, both of those, you know, we think our Testaments to, you know, the technology we have the account management. We have, you know, the overall monetization capabilities of our uh, our offering. And, you know we feel very optimistic about uh that Trend continuing in the future as well.

And on behalf of our major carrier partners and so I do think that in the us.

Thank you. Um, my second question is

Coming quarters right.

On. Um,

As the turn from a hard market environment to a soft market environment really settles.

So I guess um, some of the transaction value was.

I think you will see us start to optimize.

Sure.

More for gross profit.

Some driven by new new Supply upon the Indian kind of offset by a model.

Going forward and I believe that with the data that we have in the market share that we have.

That will be able to do that better than anyone else in the industry.

Take rate compression. I just want to like, what what's your strategy to optimize this tradeoff between volume growth and profitability as you scale?

Got it. Thank you that's helpful. Appreciate the color.

Thanks for the questions.

The next question comes from Michael Zaremski from BMO capital markets. Your line is open.

Thank you David This is Jack on for Mike just a follow up on kind of the.

The margin outlook when you adjusted EBITDA outlook.

First of all this quarter and kind of the change going forward, mostly attributable to the under 65 business being smaller.

And you just talked about some of them to supply partner wins in the P&C side too just any additional color on the emerging profile of those relative to your existing business and maybe just a way for us to think about EBITDA margins and how those might trend over time.

Yeah, I'll take a first crack at that. Um, well, I think right now we're still optimizing for, uh, for market share and transaction value. Um, you know, what that's doing is creating a lot more transaction within our Marketplace, giving us a lot more data that we can use to optimize, uh, spend on behalf of our major carrier partners. And so, I do think that, you know, in the upcoming quarters right as the, as the term, from a hard Market, environment to a soft Market environment, really settles? Um, I think you will see a start to optimize, um, you know, uh, more for, uh, gross profit.

Yes, and this is Pat and here I would say, we really think about <unk> margins when we when we manage our business.

Um, going forward and I believe that, you know, with the data that we have in the market share that we have, right? That we'll be able to do that better than anyone else in the industry.

The first of those is take rate, which for US is contribution divided by transaction value.

Got it. Thank you. That's helpful. Appreciate the color.

Thanks for the questions.

And we've seen some compression there over the between Q1 and Q2.

The next question.

You from VMO Capital markets, your line is open.

And the primary driver of that compression is that under 65 is a smaller portion of the mix and it's a lower margin business and we've given some detail in our shareholders letter.

My name is Jack on for, for Mike. Um, just a follow-up on kind of the

To that effect that you can see that yes, I would say within P&C, we've seen a bit of take rate compression there and that really has been driven by.

Two different things one is the spend is shifting a bit private.

The margin outlook on the trustee but I Outlook is that the the for all this quarter and kind of the the change going forward mostly tribal to the the under 65 business being smaller um and you just talked about some of the the supply partner wins and the PNC side too. Just any additional color on the the merchant profile of those relative to your um existing business and maybe just a way for us to think about even a margins and how those might turn over time.

And which is more or less code for its shifting too.

That very top carriers.

Yeah, and and this is Pat here, I would say, you know, we really think about 2 margins. When we uh, when we manage our business,

At the very top carriers, there and so that's one driver and then the second piece Steve touched on this some in the last question actually.

You know, the first of those is take rate which for us is contribution. Uh, divided by transaction value.

As we on boarded on the supply side.

In particular, one nice new partner that was at lower than average take rates and so once again its profit dollars positive but it.

It was in <unk>.

Negative in terms of impact on the overall take rate.

Then talking about the second margin that we focus on that is kind of how we convert contribution to EBITDA.

And we've seen that number trend upwards very nicely year over here for a while now and Thats a trend that we.

We feel good about it efficiency is in our DNA, we ended the quarter with 148 employees.

And you know, we've we've seen some compression there, you know, over the uh between q1 and Q2 and the uh primary driver of that compression is that under 65 is a smaller portion of the mix, and it's a lower margin business and we've given some detail in our shareholders letter uh, to that effect. So you can see that, you know, I would say within PNC, we've seen a bit of take rate compression there and that you know really has been driven by uh 2 different things. 1 is, you know, the spend is you know, shifting a bit private.

We will always be laser focused on running this business as efficiently and as intelligently as possible.

Yes.

Thank you.

The next question comes from Dan Hendrix from RBC capital markets Your line.

And, you know, which is more or less code for its shifting to, you know, the the very top carriers, uh, the very top carriers there. And so that's, you know, 1 driver. And then the second piece Steve touched on this. Some, in the, the last question actually, which is we've, you know, onboarded, uh, on the supply side. You know, in particular, 1, nice new partner that was at lower than average take rates. And so once again, its profit dollar positive.

Line is open.

Hi, This is Michael Murray on for Ben.

Congrats on the FTC settlement with shares trading at depressed levels relative to your historical levels and then also the company, having pretty modest leverage levels could.

Could you provide provide your thoughts on your capital structure and the potential for share repurchases.

But it, uh, was uh, you know, negative in terms of impact on the overall take rate. And then talking about the second margin that we focus on that is kind of how we convert contribution to ebit dots. And, you know, we've seen that number, you know, Trend upwards very nicely year-over-year for a while now and that's a trend that uh, you know, we feel good about and

Yeah. This is Pat here I'm happy to happy to talk to that.

Would say that we we are long term shareholders of the stock and we're definitely focused on driving long term returns I would say we're in a spot where we've got $45 million of cash that are going to be going out the door in the next three to four months, depending on timing of court approval.

Efficiency is in our DNA, we ended the quarter with 148 employees and, you know, we will always be laser focused on running this business uh is is efficiently. And as intelligently as possible.

Thank you.

The next question comes from Ben Hendrix from RBC Capital markets. Your line is open.

For the FTC settlement.

So that'll be a big short term use of cash we're a business that is generating cash in a pretty good clip right now and thats. The trend that we think will continue and we think we've got some nice flexibility going forward.

To invest in the business, both organically and potentially Inorganically and also to.

Hi, this is Michael Murray, on for Ben. Uh, congrats on the FTC settlement. With shares trading at the press levels relative to your, uh, historical levels and then also the company having pretty modest leverage levels, could you provide your thoughts on your capital structure and the potential for share repurchases?

Reduce debt <unk> return capital to shareholders I would say, we don't have any.

Firm targets or commitments on that I think the one thing I can say is that.

We are all about deploying capital intelligently and putting it to the best use possible to drive long term returns.

Yeah.

Okay, and then just shifting gears I'm curious to hear your expectations for AEP.

<unk> have indicated there may be some pullback in benefits and brokers believe this can lead to shopping increased shopping behavior. So curious how you feel your platform is positioned if there is in fact increased shopping behavior.

Yes, I'll address the first part of that impact can jump in.

As well I mean I think.

I think we do anticipate there'll be increased shopping behavior, I think there'll be a bit of a trend in the marketplace as a lot of the Medicare advantage carriers actually rebalance their coverage or their portfolio mix and actually dropped plans from a lot of geographies and I think thats going to lead a lot of consumers to shop around.

In addition to that I think youre going to see some repricing.

Our long-term shareholders of the stock and where, you know, definitely focused on driving long-term returns, you know, I would say we're in a spot where we've got 45 million dollars of cash that are going to be going out the door in the next, you know, 3 to 4 months, depending on timing of Court approvals for the FTC settlement, you know? So that'll be a big short-term use of cash. We're a business that, you know, is generating cash at a in a pretty good clip right now. And that's the trend that we think will continue and we think we've got, you know, some nice flexibility going forward, you know, to invest in the business, both organically and potentially inorganically. And, and also to, you know, reduce debt Andor, you know, return Capital to shareholders. I would say we don't have any, you know, firm targets or commitments on that, you know, I think the 1 thing I can say is that, you know, we are, uh, all about uh, deploying Capital, uh, intelligently and putting it to the best use possible to drive long-term returns.

And the dropping of benefits or the adding of benefits, which again is going to create a bit of churn for consumer churn in the marketplace and so I.

I think that's one part of the equation that I think bodes well.

But at the other side of it is I think they're really the Medicare advantage carriers I think inherent.

<unk> coming into this upcoming AEP.

Okay, and then, uh, just shifting gears. Uh, I'm curious to hear your expectations for AEP. Uh, payers have indicated, there may be some pullback in benefits and Brokers, uh, believe this could lead to shopping, uh, increase shopping Behavior. Uh, so curious how you, you know, feel your platform's positioned. If there is in fact, increased shopping Behavior,

I think what you've seen is a couple of pioneer's 24, and 25 pioneers.

Yeah, I'll I'll address the first part of that and pack and jump in. Um,

They haven't done so well.

So even though with Medicare advantage, you can reprice and change your benefits on an annual basis.

And our expectation is that the pricing is something right now that they feel comfortable with.

I think because of the churn and some of the unexpected consumers they may get coming into their products.

As well as some uncertainty about the upcoming medical loss ratios I think is going to lead a lot of demand in our marketplace, namely the willingness of of the Medicare advantage carriers to spend to acquire new customers.

As well. I mean, I think, I think we do anticipate they'll be increased shopping behavior. Um I think there's they'll be a bit of a churn in the marketplace as a lot of the uh, Medicare Advantage carriers actually, you know, rebalance their coverage or their portfolio mix and actually drop plans from a lot of geographies and I think that's going to lead a lot of consumers to shop around. Um, in addition to that, I think you're going to see some repricing, um, and the dropping of benefits or the adding of benefits, which you can, it's going to create a bit of churn or consumer churn in the marketplace. And so, um, I think that's 1 part of the equation that I think bodes. Well,

Be a bit muted coming into this AEP.

So in summary, I think there will be a lot of consumer shopping behavior.

But what we're anticipating is that the carrier budgets going into this AEP will be lighter than previous years.

Um, but at the other side of it is, I think the really, the Medicare Advantage carriers I think inherent um, conservatism coming into this upcoming AEP.

Yes.

I would probably add one thing to what Steve said, there which is.

Our the demand profile for us in Medicare advantage, its a blend of carriers and brokers and I would say the carriers definitely are sure their belts are pretty tight right. Now I think the brokers are doing maybe a bit better on average and there may be a bit more willingness there.

I think what you've seen is a couple of pioneers to 24 and 25 Pioneers, um, and they haven't done so well. Um, and so even though with Medicare Advantage, you can re price, uh, and change your benefits on an annual basis. Um, and our expectation is that the pricing is something right now that you feel comfortable with,

I think because of the churn and some of the unexpected consumers, they they may get coming into their products.

So I think the net trend is not is not looking great in Medicare, but we do have demand from the broker side, which looks to be hanging in a bit better than the carriers.

Okay. That's really helpful. Thank you so much.

Thanks.

Um, as well as some uncertainty about the upcoming medical loss ratios. Um, I think it's going to lead a lot of demand in our Marketplace. Namely the willingness of of the Medicare Advantage carriers to spend to acquire new customers. Um, be a bit muted coming into this. Ah, so in summary, I think there will be a lot of consumer shopping Behavior,

Again, he did have a question you press star followed by then in my mind.

But what we're anticipating is that the carrier budget going into this aum will be lighter than previous years.

As there are no more questions I will now conclude our Q&A session ladies.

Ladies and gentlemen, this concludes today's call. Thank all for joining and you may now disconnect.

Yep. And and and I would probably add 1 thing to what Steve said there. Which is, are the demand profile for us in Medicare Advantage? It's a blend of carriers and Brokers, and I would say, you know, the carrier is definitely, you know, or or or you know, their belts are pretty tight right now, you know, I think the Brokers are doing, you know, maybe a bit better on average and there may be a bit more willingness there. And so, you know, I think that the, the net trend is not is not looking great in Medicare. But you know, we do have demand from uh, the broker side which, you know, looks to be hanging in a bit better than the carrier side.

Okay, that's really helpful. Thank you so much.

Thanks.

Again, see you do you have a question kindly press star followed by the number 1?

If there are no more questions, I will now conclude our Q&A session.

ladies and gentlemen, this concludes today's call thank you all for joining and you may now disconnect

Mhm.

Thank you for standing by. My name is Karen and I will be your conference operator. Today at this time I would like to welcome everyone to the media. Alpha Inc, second quarter 2025 earnings call on lines have been placed on youth to prevent any background noise.

After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star followed by the number 1 on your telephone keypad.

To withdraw your question, you may press star followed by the number 1 again.

I will now turn the call over to Alex liya. Please go ahead.

Thanks Karen.

Good afternoon, and thank you for joining us.

With me, our co-founder and CEO Steve and CFO Pat Thompson.

On today's call, we'll make 4 looking statements relating to our business and outlook for future Financial results, including our financial guidance to the third quarter of 2025.

These 4 looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

please refer to our SCC filings, including our annual report on form, 10K, 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 4-link 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.

Today's discussion will include non-gaap Financial measures which are not a substitute for Gap results.

Reconciliations of these non-gaap Financial measures to the corresponding Gap. Measures can be found in our press release and shareholder letter issued today, which are available on the investor relations section of our website.

I'll now turn the call over to Steve.

Thanks Alex.

Hi everyone. Thank you for joining us.

Let me start with the FTC resolution. We announced this afternoon.

As we shared in our press release and Form 8K filing. We've reached the settlement with the FTC that fully resolves its investigation into into our under 65 health insurance business.

The key terms include 45 million of payments, which we will fund from cash on hand.

As well as additional compliance measures to further, strengthen our safeguards within our under 65 Marketplace.

While we strongly disagree with the ftc's allegations. We Believe resolving this better now is in the best interests of media Alpha and our shareholders.

We view this as a positive step forward and are pleased to have this matter behind us.

Now, turning to the second quarter, we delivered solid results driven by ongoing momentum in our PNC and Insurance vertical.

Growth was again, fueled by increased marketing investments from leading auto insurance carriers.

With underwriting margins at robust levels, the impact of automotive tariffs is looking increasingly manageable, and slowing rate increases are providing less of a tailwind for premium growth. Gaining market share by acquiring new customers has become even more strategically important for most carriers.

We expect these favorable industry Dynamics to sustain healthy levels of auto insurance advertising spend in the second half of this year and Beyond.

In our health insurance, vertical, we believe the most significant dollar decreases in under 65 transaction value are behind us.

While we continue to expect year-over-year declines in the near term.

Our health business remains solidly profitable and our relationships with leading Medicare Advantage. Carriers are as strong as ever.

with PNC firing, and all cylinders, and the FDC matter resolved, we're confident in our trajectory for the rest of the year and Beyond,

We remained intently focused on capturing the significant multi-year. Growth opportunities ahead.

Creating value for our partners and delivering strong, long-term returns for our shareholders.

With that, I'll hand it over to the path.

Great. Thanks. Steve.

I'll start by walking through the key drivers of our Q2 results.

Transaction value was 481. Million up 49% year-over-year driven by 71% year-over-year growth in our PNC, vertical.

In our health vertical, transaction value, declined, 32% year-over-year coming in slightly below our expectations.

Adjusted ebit off for the quarter was 24.5 million.

Increasing 31% year-over-year.

Due to a modestly lower take rate in the quarter.

driven by our decision to accelerate our strategy to scale back parts of our higher margin under 65 business,

Along with some nice incremental, partner wins and PNC that are at lower than average take rates.

For the quarter, adjusted debit de represented. 62% of contribution up from 56% in the prior year.

Adjusted Eva included 35.3 million of adak related to the FTC matter, consisting of 2.3 million dollars of legal expenses and an additional 33 million Reserve recorded to reflect the total of 45 million settlement. Payable

Looking ahead. We expect record third quarter transaction value. As we benefit from continued, strong demand from the largest carriers in our Marketplace.

Accordingly. We expect PNC transaction value to grow approximately 35% year-over-year.

We expect that by 2025, under 65 transactions, the value will be between $95 million to $100 million, contributing about $10 million.

Resulting in a take rate of about 10% of the midpoint.

By comparison 2024, transaction value, contribution and intake rate, or 179 million 29 million in 16% respectively.

Looking ahead, we expected under 65 will generate annual contribution in the single-digit. Billions reflecting the reset in both scale and profitability for this subvert vertical moving to our Consolidated Financial guidance. We expect Q3 transaction value to be between 545 million and 570 million.

Representing a year-over-year increase of 23% at the midpoint.

We expect Revenue to be between 270 million and 290 million.

Representing a year-over-year, increase of 8% at the midpoint.

Adjusted IBA is expected to be between 25.5 million and 27.5 million representing a year-over-year increase of 1% at the midpoint, including a million dollar impact from an expected year-over-year decline in under 6,500 contribution.

Growth.

Excluding non-recurring payments related to the FTC matter.

With 33.5 million expected to be paid in Q3 and the remaining 11.5 million in Q4. We expect to convert a significant portion of adjusted debe into unlevered free cash flow, providing us with substantial Financial flexibility, going forward.

Finally, I'm pleased to announce that on August 4th, we extended the maturity of $142.6 million of the $156.3 million of indebtedness outstanding under our credit facilities by one year, through July of 2027.

The remaining 14 million will mature in July of 2026 with that, operator, we are ready to take the first question.

At this time.

I would like to remind everyone in order to ask a question, press start and the number 1 in your telephone keypad. We will pause for just a moment to compile the Q&A roster.

The first question comes from Maria rips from canor genuity, your line is open.

Uh great good afternoon and thanks for taking my questions and um congrats on the settlement. Uh so now with FTC matters of uh resolved and with you committing to the stronger compliance framework

How do you see sort of this? Enhancing your competitive positioning in the, under 65 vertical, and maybe talk about how this new sort of content review and partner, screening processes might impact of user experience, and and conversion quality.

Hey Maria. Hey, hey, thanks for that question. Um, well I think...

Right. This enrolling a number of millions of people from Medicaid.

As well as making eligibility. Requirements are tightening eligibility requirements, for ACA um subsidies.

I think what that's going to do is increase the number of consumers.

We need to be matched with carriers and brokers, who can offer them the right set of plans, depending on their life situation, and their financial situation.

so we still see an opportunity there and believe that we can operate in this space, you know, with the constraints that we have under the terms of the settlement agreement,

And we look forward to really building on this with a great team that we have in that space.

And seeing what we can do to really serve consumers and advertisers in a better way than we did before.

That it that's a that's very helpful. Appreciate all the call.

And then just on on PNC uh I think you you called out sort of continued strength and Keras then in the second half. Uh I mean still given sort of the uncertainty around tariffs and inflation. Could you maybe give us a little bit more, call, a sort of an key variables around career, budgets in the back, half of the year and maybe into next year.

See from our guidance for Q3, we expect very strong budgets to continue into the next quarter. Um, we certainly expect this trend to continue uh for the remainder of the year and Beyond

Um, in terms of the automotive tariffs?

I mean, certainly I don't want to dismiss those out of hand.

Um, I think a lot of carriers are still taking a bit of a wait and see approach.

But I think as that second quarter progressed, what we saw was that profitability within our own insurance agency held up very well. I think that's led to a lot of carriers really having the growing confidence that the inflationary impact of the automotive tariffs is looking increasingly manageable.

And so again, as we reminded everyone last quarter,

You know, the carriers are sort of on the heels of what was a generationally hard Market.

So, I think that there's, especially a tune to inflationary pressures, uh, that could start to affect the results. But again, you know, since our call last quarter, I think what we've seen is really positive, in terms of the ongoing profitability of insurance carriers, and again I think the growing consensus that the industry can absorb some of the single digit inflationary impacts that we can foresee from the automotive tariffs.

Got it. That's uh, that's very helpful. Uh, thanks so much.

Thanks Maria.

The next question comes from Islami Mag, joined from KVEW. Your line is open.

Hi. Um it's j on for Tommy. Thank you for taking my question.

My first question is on the PNC side.

Um, you mentioned that so PNC, transaction value, Google 71% year-over-year driven by 15 leading carriers and also growing partner base, um, can provide some more color on the mix between existing carriers. Spend increases versus, um, New carrier editions. Thank you.

Yeah, happy to. This is Pat happy to uh, to answer that. I would say that, you know, on the carrier side.

You know, the vast majority of the increase in spend was from existing carriers.

And so you know the growth we saw in the carrier side in the quarter was really driven, you know, primarily by uh the head, you know. So there's a couple of biggest carriers and you know, that's a trend we're seeing kind of continue uh into Q3 the

You know, moving to the other side on the the supplier, the publisher side, you know, I would say, you know, we've we've been gaining share, uh, pretty consistently for the last, you know, 5 6 quarters. That's a trend. You know, we think will continue to to will continue. And, you know, I would say we've, you know, been gaining share of wallet with, you know, existing shared partners and we've been, you know, winning, you know, some exclusive Partners as well. And, you know, both of those, you know, we think our customers to, you know, the technology we have the account management. We have, you know, the overall monetization capabilities of our uh, our offering. And, you know we feel very optimistic about uh that Trend continuing in the future as well.

Got it, thank you. Um, my second question is on

um,

so I guess um, some of the transaction value was um,

Driven by new new Supply upon the Indian kind of offset by a modest.

Take rate compression. I just wonder like, what what's your strategy to optimize this tradeoff between volume growth and profitability as you scale?

Yeah, I'll take a first crack at that. Um, well, I think right now we're still optimizing for, uh, for market share and transaction value. Um, you know, what that's doing is creating a lot more transaction within our Marketplace, giving us a lot more data that we can use to optimize, uh, spend on behalf of our major carrier partners. And so, I do think that, you know, in the upcoming quarters right, as the, as the turn from a hard Market, environment to a soft Market environment, really settles? Um, I think you will see a start to optimize, um, you know, uh, more for, uh, gross profit.

That we have in the market share that we have, right? That will be able to do that better than anyone else in the industry.

Got it. Thank you. Much helpful. Appreciate the color.

Thanks for the questions.

The next question comes from Michael Jeremy from BMO Capital markets.

Line is open.

Hey, good evening. This is Jack on for, for Mike. Um, just a follow-up on kind of the the margin outlook on the utility but Outlook is that the the for all this quarter and kind of the the change going forward mostly tribal to the the under 65 business being smaller. Um and you just talked about some of the the supply partner wins in the PNC side too. Just any additional color on the the merchant profile of those relative to your um existing business. And maybe just a way for us to think about even a margins and how those might turn over time.

Yeah. And and this is Pat here, I would say, you know, we really think about 2 margin when we uh, when we manage our business,

You know, the first of those is take rate which for us is contribution. Uh, divided by transaction value.

Letter uh to that effect. So you can see that you know I would say within PNC we've seen a bit of take rate compression there and that you know really has been driven by uh 2 different things. 1 is, you know, the spend is you know, shifting a bit private.

But it uh, was uh, you know, negative in terms of impact on the overall pick rate.

And then talking about the second margin that we focus on that is kind of how we convert contribution to ebita. And, you know, we've seen that number, you know, Trend upwards very nicely year-over-year for a while now. And that's a trend that, uh, you know, we feel good about and efficiency is in our DNA. We ended the quarter with 148 employees and, you know, we will always be laser focused on running this business uh, is is efficiently. And as intelligently as possible.

Thank you.

The next question comes from Ben Hendrix from RBC Capital markets. Your line is open.

Hi, this is Michael Murray on for been, uh, congrats on the FTC settlement, uh, with shares trading at the Press levels relative to your uh, historical levels and then also the company having pretty modest leverage levels. Uh, could you provide provide your thoughts on your capital structure in the potential for share repurchases?

Yeah, this is, this is Pat here. I'm, I'm happy to happy to talk to that, you know, I would say that, you know, we, we are long-term shareholders of the stock and where, you know, definitely focused on driving long-term returns, you know, I would say we're in a spot where we've got 45 million dollars of cash that are going to be going out the door in the next, you know, 3 to 4 months, depending on timing of Court approvals for the FTC settlement, you know? So that'll be a big short-term use of cash. We're a business that, you know, is generating cash at a, at a pretty good clip right now. And that's the trend that we think will continue and we think we've got, you know, some nice flexibility going forward, you know, to invest in the business, both organically and potentially inorganically. And and also to, you know,

Reduce that and or, you know, return Capital to shareholders, I would say we don't have any, you know, firm targets or commitments on that, you know, I think the 1 thing I can say is that, you know, we are uh all about uh deploying Capital uh intelligently and putting it to the best use possible to drive long-term returns.

Increased shopping Behavior. Uh, so curious how you you know feel your platform's positioned. If there is in fact, increased shopping Behavior,

yeah, I

I'll address the first part of that and pack and jump in. Um,

As well. I mean, I think I think we do anticipate that they'll be increased shopping behavior. Um, I think there's there'll be a bit of a turn in the marketplace as a lot of the uh, Medicare Advantage carriers actually, you know, rebalance their coverage or their portfolio and mix and actually drop plans from a lot of geography. And I think that's going to lead a lot of consumers to shop around. Um, in addition to that, I think you're going to see some repricing, um, and the dropping of benefits or the adding of benefits, which again, is going to create a bit of churn or consumer churn in the marketplace. And so, um, I think that's 1 part of the equation that I think bodes. Well,

Um, but at the other side of it is, I think the really, the Medicare Advantage carriers I think inherent um, conservatism coming into this upcoming AEP.

I think what you've seen is a couple of pioneers to 24 and 25 plan years. Um, and they haven't done so well.

Um, and so even though with Medicare Advantage, you can re price, uh, and change your benefits on an annual basis. Um, and our expectation is that the pricing is something right now that you feel comfortable with, I think because of the churn and some of the unexpected consumers, they they may get coming into their products.

But what we're anticipating is that the carrier budget going into this will be lighter than previous years.

Yep. And and I would probably add 1 thing to what Steve said there. Which is, are the demand profile for us in Medicare Advantage? It's a blend of carriers and Brokers, and I would say, you know, the carrier is definitely, you know, or or or you know, their belts are pretty tight right now, you know, I think the Brokers are doing, you know, maybe a bit better on average and there may be a bit more willingness there. And so, you know, I think that the, the net trend is not is not looking great in Medicare. But you know, we do have demand from uh, the broker side which, you know, looks to be hanging in a bit better than the carrier side.

Okay, that's really helpful. Thank you so much.

Thanks.

Again, should you have a question, kindly press star, followed by the number 1?

If there are no more questions, I will now conclude our Q&A session.

Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.

Q2 2025 MediaAlpha Inc Earnings Call

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