MediaAlpha, Inc. Price & Performance (MAX)

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 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 in our P and 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, Over the past five years, we've more than tripled our P and C transaction value 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. In our health insurance vertical, our fourth quarter results were impacted by ongoing headwinds in Medicare Advantage and some softening in under-sixty five demand. While we expect near term pressures in health, important to note that our long term growth opportunity in this vertical is the Medicare Advantage market. Which is a several hundred billion dollars 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. As you may recall, last quarter I discussed the TCPA one to one consent rules, which were scheduled to take effect at the January. Before they were implemented, a federal appellate court determined that they exceeded the FCC's authority. We do not expect provides 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 Leads. As we previously shared, on October 30, we received a draft complaint initial settlement demand from the Federal Trade Commission related primarily to the operation of our under-sixty five health insurance business. We take compliance very seriously and strongly disagree with the FTC's allegation and we believe we have meritorious defenses. 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. With that, I'll hand it over to Pat for a deeper dive into our fourth quarter performance.

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 499,200,000.0 and $36,700,000 respectively.

P and 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. 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 Medicare Advantage. For 2024, our health vertical accounted for $270,000,000 of transaction value. Or 18% of the total. At a 14% take rate.

Within Health, under 65 accounted for approximately two thirds of the transaction value at a slightly higher take rate.

Our Q4 adjusted EBITDA included $9,000,000 of add back related to the FTC matter.

These consisted of $2,000,000 of legal expenses, along with a $7,000,000 reserve.

Recorded in accordance with U. S. GAAP requirements.

Inclusive of these add backs, Q4 adjusted EBITDA increased $24,000,000 year over year representing 189% growth. Looking forward to Q1, we expect P and C transaction value levels to grow approximately 170% year over year, representing a high single digit sequential decline. 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.

Expect Q1 transaction value to be between $415,000,000 and $440,000,000 a year over year increase of 95% to the midpoint We expect revenue to be between $225,000,000 and and $245,000,000 a year over year increase of 86% at the midpoint. We expect adjusted EBITDA to be between $24,500,000 and $26,500,000 a year over year increase of 77% at the midpoint. We expect overhead to increase sequentially 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 $43,000,000 of cash and net debt to 2024 adjusted EBITDA of less than 1.3 times. 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.

This time, I would like to remind everyone Your first question comes from the line of Michael Graham from Canaccord. Please go ahead. [indiscernible] Congrats on the strong business momentum. I know there will be Lots of questions about that. I wanted to actually ask on the FTC situation if I could please. And just when you filed your 10 Q last quarter, you had said that the demand settlement the settlement demand exceeded your liquidity, your available liquidity. And then I see that you sort of updated us a little bit here and you have a $7,000,000 accrual. So just looking for a little bit of color if we could ask for it on on how you see this process unfolding, to the extent you can comment and Specifically why $7,000,000 was the the right number for an accrual? Thank you.

Hey, Michael. Yes, I mean, as I mentioned in my prepared remarks, I mean, we're in ongoing discussions with the FCC staff. And so it's hard for us to really comment much beyond what we've disclosed in our filings as well as prepared remarks. Certainly, I think what we can tell you is that when we reach resolution at this time, we'll certainly update investors Otherwise, we'll just have to limit our disclosures to a quarterly basis as this FTC settlement discussions progress. I'll turn it over to Pat to address the questions about the about the $7,000,000 Great. Thanks, Steve, and appreciate the question. Michael. So on the $7,000,000 for the reserve amount, we calculated this per U. S. GAAP.

Specifically under ASC four fifty, which is a contingent liability. Accounting. And effectively to book any sort of reserve there two criteria must be met, which is that a loss is probable and estimable, and we met those criteria. And I would say on the estimability side, the estimate corresponds to the lower end of the range of reasonably estimated losses on our side. And so, put the usual caveat in, which is that number is obviously subject to change in the future based on us getting additional information, but that's what we booked for the quarter ended twelvethirty one.

Okay. That's helpful context. Thank you both. Thanks, Michael.

Your next question comes from the line of Corey Carpenter from JPMorgan. Please go ahead. Hey, good afternoon. Thanks for the question.

I wanted to ask about the P and C comments you made around pricing moderating in 4Q and offsetting seasonality. Could you just expand a bit on what you're seeing in the P and C market this year I know you're not giving a guide for 2025, but just kind of how we should maybe use that as a framework for kind of growth going forward And maybe if we've kind of have a more complete recovery to date. Thank you.

Yes, sure. Hey, Corey. Yes, I mean, I think I think we're extremely bullish about what 2025 is going to look like for our T and C vertical.

Think really you don't need to look much further than just the profitability numbers that you're seeing from the carriers. They finished the year or 2024 very strong. Some of the earlier ports that you're seeing in January looked outstanding. And so ultimately, we think that profitability is going to fuel a lot more competition in our marketplace going forward for 2025 and beyond.

I think one thing to note is that now that a lot of the rate actions are starting to slow down, right, because carriers have achieved rate adequacy, I think what you're going to see is additional growth pressure [indiscernible] 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 do so because they're going to have to now grow by acquiring new customers and new policies. And not just rely on rate actions that they've been taking for the better part of three years. Consumer 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 this year and beyond. [indiscernible] Now thinking about what happened with pricing in Q4 to Q1, I think the dynamics here are really growth market dynamics that we haven't seen in a while.

And so what you saw was a lot of carriers having very good twenty twenty fours and having essentially locked in their profitability targets for the year relatively early, so I think what you saw in Q4 was a lot of carriers leaning into most scalable and high quality channel Right. To invest in customer acquisition and really showed a willingness to run a little bit hot During the quarter, Again, because they had the strong results locked in and they wanted to take advantage of what were unseasonably high consumer shopping trends in Q4, And now that we're in Q1 and it's the new year with new budgets, and combined ratios are typically set right, on a calendar year or annual basis. I think what you're 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 we've seen in the past is really the momentum continuing to build as the year goes on.

All the dynamics I mentioned earlier in this answer. Great. Thank you. That's helpful. Thanks, Corey. Your next question comes from the line of Eric Sheridan from Goldman Sachs.

Please go ahead.

Thanks so much for taking the question. Maybe two if I can. In terms of moving beyond the P and C category, can you update us on some of your key initiatives to broaden out that appeal from the platform to a wide array of partners 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 investments you think need to make in either platform or product that are driving elements we should be keeping in mind when you think about elements of incremental operating leverage and also driving growth in 2025? Thanks so much.

Yes, sure. When we think about really our biggest growth opportunities. I mean, certainly we continue to believe that P and C has a tremendous amount of growth still left in it. And then And then we just have to look at Medicare for what is a $500,000,000,000 industry 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 has over 50% market share with seniors right, that we have partnership with seven 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 P and C and Medicare. Now specifically where we're investing and we're certainly looking at other insurance verticals such as commercial, You know that we've been investing in our business because one of the things that we that we've been focused on up until now is really working with the direct to consumer carriers 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. And then in terms of strategic areas investment, I think like a lot of other companies will really focused on data science and bolstering those capabilities to drive greater efficiency. Both our publishers to drive higher yield, as well as to drive greater advertising efficiency for our advertisers.

Thank you. Thanks, Eric. It's Jing on for Tommy. Can you like talk about [indiscernible] the cost to acquire traffic How does that impact your margins?

Yes. Well, I think that basically I mean, I think what you're highlighting is one of the differences between our business model and the business model of a lot of our publicly traded comparable companies don't have a really strong O and O presence particularly within P and C. And so we're not acquiring or incurring direct customer acquisition costs. We work with a marketplace of hundreds of publishers right, and allow insurance advertisers to reach consumers shopping on those publisher sites. And so So certainly, I think what you're seeing in the overall industry as carriers start to reinvest in customer acquisition is not just increasing prices and robust budgets in channels like ours, but you're seeing that in upstream channels like Google and display networks as well. Certainly, I think that's affecting some of our publisher partners as well as our carrier partners and their ability to acquire traffic from those other areas. But it really doesn't have that much of an impact on us, particularly on the P and C side. Because we don't have a very strong owned and operated business in that area.

Got it. Thanks. [indiscernible] Your next question comes from the line of Ben Hendrick Yes. Hey, thank you very much. Just appreciate all the comments on the MA growth opportunity, but in the very near term, if you could provide a little more detail on your guidance assumptions for 1Q. Sounds like if I heard you right transaction value is expected to decline mid teens maybe versus in 1Q versus an 8% decline 4Q. Just wanted to get the specifics of kind of what you're seeing in the industry and the driving that lower and if that's kind of moved lower since you initially started seeing headwinds in the in the senior space? Thanks. Yes. Yes. And Ben, thanks for the question. This is Pat. Our guidance for Q1 is for the the health vertical, which is Medicare Advantage and 65 Health to be down in the high teens year over year. And kind of speaking specifically to 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 that business was down year over year in Q4 And the headwinds we saw in Q4 are kind of continuing in the Q1.

And I would say the growth rates we're expecting for Medicare pretty similar between those February.

And where we've seen kind of the slowdown in our health vertical has been in the under-sixty five business and that kind of started in as we progressed through Q4 and it's continued thus far into Q1. And so I would say on the Medicare side, some short term speed bumps given some of the well documented challenges that the payers faced in that market. But Steve kind of outlined both in his scripted remarks [indiscernible] the Q and A. Think the opportunity at Medicare Advantage is pretty vast one we're investing behind and it's one we're excited to unlock in the years to come.

Great.

Thanks for the clarification.

You're welcome.

That ends our Q and A session, and we appreciate your participation. Ladies and gentlemen, that concludes today's call.