MediaAlpha, Inc. (MAX) This fall 2021 Earnings Name Transcript

Picture supply: The Motley Idiot.

MediaAlpha, Inc. (NYSE:MAX)
This fall 2021 Earnings Name
Feb 24, 2022, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Girls and gents, thanks for standing by. My identify is Brent, and I might be your convention operator in the present day. At the moment, I want to welcome everybody to the MediaAlpha This fall and full 12 months 2021 earnings convention name. [Operator instructions] It’s now my pleasure to show in the present day’s name over to Denise Garcia, investor relations.

Please go forward.

Denise Garcia — Investor Relations

Thanks, Brent. After the market closed in the present day, MediaAlpha issued a press launch and shareholder letter saying outcomes for the fourth quarter and full 12 months ended December 31, 2021. These paperwork can be found within the traders part of our web site, and we might be referring to them on this name. Our dialogue in the present day will embody forward-looking statements about our enterprise and our outlook for future monetary outcomes, together with our monetary steerage for the primary quarter of 2022, that are primarily based on assumptions, forecasts, expectations, and knowledge at present accessible to administration.

These forward-looking statements are topic to dangers and uncertainties that would trigger future outcomes or occasions to vary materially from these mirrored in these statements. Please check with the corporate’s SEC filings, together with its annual report on Type 10-Ok and its quarterly stories on Type 10-Q, for a fuller rationalization of these dangers and uncertainties and the bounds relevant to forward-looking statements. These forward-looking statements are primarily based on assumptions as of in the present day, February 24, 2022, and the corporate undertakes no obligation to revise or replace them. As well as, on in the present day’s name, we might be referring to sure precise and projected monetary metrics of MediaAlpha which might be non-GAAP monetary metrics.

These metrics embody adjusted EBITDA, contribution, and contribution margin, and we current them with a purpose to complement your understanding and evaluation of our monetary efficiency. Non-GAAP measures shouldn’t be thought of as an alternative choice to or superior to monetary measures calculated in accordance with GAAP. Reconciliations of those non-GAAP measures to essentially the most immediately comparable GAAP measures can be found in our press launch and shareholder letter issued in the present day. Lastly, I want to remind everybody that this name is being recorded and might be made accessible for replay through a hyperlink on the traders part of the corporate’s web site at traders.mediaalpha.com.

Now, I am going to flip the decision over to Steve and Pat for just a few introductory remarks earlier than opening the decision to your questions.

Steven Yi — Co-Founder and Chief Govt Officer

Thanks, Denise. Hello, everybody. Welcome to our fourth quarter and full 12 months 2021 earnings name. I would wish to kick issues off with just a few key takeaways from our shareholder letter.

First, we reached a brand new and thrilling milestone in 2021 by exceeding $1 billion in transaction worth, a rise of 25% 12 months over 12 months. I am notably happy with this achievement given the present challenges within the property and casualty insurance coverage vertical. Second, we had our strongest quarter ever in our medical insurance vertical, pushed by document provider spend in each our Below 65 and Medicare insurance coverage segments. Lastly, regardless of the challenges within the P&C insurance coverage vertical, we firmly imagine that the trade is continuous its highly effective secular shift towards direct on-line buyer acquisition.

As a frontrunner in our trade, we’re persevering with to take a position to be able to speed up our development when the market recovers. Now, I’ve the good pleasure to introduce Pat Thompson, who joined us as our new CFO again in December. His breadth of expertise throughout SG&A, company improvement, technique, and analytics made him a standout candidate. And I am unable to consider a greater, extra complementary accomplice to assist lead us via the following part of our development.

So with that, I am going to cross it to Pat to say just a few phrases earlier than we open the decision to your questions.

Patrick Thompson — Chief Monetary Officer

Nice. Thanks, Steve. It is nice to be right here on my first name as MediaAlpha’s CFO, and I would wish to thank the whole workforce for the nice and cozy welcome I’ve acquired since becoming a member of the corporate in December. I joined MediaAlpha from Expedia, the place I spent 11 years within the on-line journey trade, which was one of many early industries to maneuver on-line.

As I have been studying extra about how insurance coverage is at present purchased and bought, I imagine we’re within the early innings of an analogous on-line transition. Carriers are investing closely in advertising analytics and enhancing their on-line buy experiences. Worth comparability websites like The Zebra and Insurify are gaining adoption. Private finance apps, like Credit score Karma, are including insurance coverage to their menu of economic merchandise.

But, the insurance coverage trade is simply allocating roughly 20% of their advert budgets to digital channels. All different industries general allocate roughly two-thirds of their promoting budgets to digital, which is according to customers’ time spent with digital media. I imagine that no firm is healthier positioned than MediaAlpha to capitalize on this development alternative. We have now gained market share organically over each time horizon since our inception in 2012, turning into a $1 billion-plus platform that’s the largest on-line advert market within the insurance coverage trade.

As a two-sided platform, this scale is highly effective. Suppliers need entry to as many advertisers as potential. Advertisers need entry to essentially the most buyers. Extra and higher information permits extra granular segmentation.

Basically, as we develop or enhance any a part of our ecosystem, the outcomes enhance for all of our stakeholders. My major aims at MediaAlpha are to speed up this flywheel by extending our market share features via each natural development and M&A, whereas remaining centered on driving engaging, long-term EBITDA development. Given these themes, we’re planning to proceed to make vital investments this 12 months, which we imagine will place us to speed up our market share features because the P&C insurance coverage market recovers and our companions ramp their digital buyer acquisition investments on our platform. We’re excited to announce one strategic M&A funding in the present day, which is our settlement to accumulate Buyer Helper Staff, or CHT, for 50 million of money plus as much as an extra 20 million primarily based on CHT’s achievement of income and profitability targets over the following two years.

CHT expands our owned and operated Medicare enterprise and is a extremely complementary asset because of our nonoverlapping Medicare provider and dealer partnerships and CHT’s give attention to social media channels, notably short-form video promoting. With CHT, we’re doubling down on our Medicare enterprise, which stands to learn from the ageing U.S. inhabitants, higher on-line purchasing amongst new Medicare cohorts, and the rising recognition of privately administered Medicare Benefit plans. We anticipate that the deal will shut within the subsequent two weeks and may have a minimal influence on Q1 financials.

For the stability of 2022 following the closing, we count on CHT to contribute in extra of 25 million of income and 5 million of adjusted EBITDA. In conclusion, I could not be extra enthusiastic about MediaAlpha’s long-term development alternative. The insurance coverage trade remains to be within the early phases of its digital transformation, and we’re investing to develop our platform and market share and prolong our aggressive benefit. With that, operator, we’re prepared for the primary query.

Questions & Solutions:

Operator

[Operator instructions] Your first query comes from the road of Charlie Lederer with Wolfe Analysis. Your line is open.

Charlie Lederer — Wolfe Analysis — Analyst

Hello. Good afternoon. I assume my first query. As we take into consideration your EBITDA margin with the headwinds in auto getting into, is your 1Q information type of the place we must always count on margins to be so long as that is the setting? Or is there some seasonality in there? Thanks.

Patrick Thompson — Chief Monetary Officer

Yeah. And thanks for the query. I am glad to kick it off on it. You realize, the factor I’d say on the margin for Q1, you realize, that there are a variety of forces at play within the enterprise.

And I’d say that, you realize, we’re within the midst of the P&C downturn proper now that I feel we have now elaborated on fairly a bit. I feel our view is that these traits, you realize, are persevering with, and we imagine they’ll proceed via the stability of the quarter. And in order, you realize, you have a look at the traits, I feel you’ll be able to see that. One factor that I’d, you realize, in all probability name out from a margin standpoint is that, you realize, we proceed to put money into the enterprise from an SG&A standpoint and, you realize, each when it comes to including folks to the enterprise to energy our development and in addition on the skilled payment facet to help our IPO in being a public firm going via the SOX course of for the primary time.

I feel our view is because the enterprise recovers, we’d count on to see margins begin to — EBITDA margins begin to enhance to look, you realize, one thing — considerably extra like historic ranges. You realize, we undoubtedly imagine they’re depressed for the time being.

Charlie Lederer — Wolfe Analysis — Analyst

Thanks. That is useful. After which I assume, are you able to simply develop somewhat bit extra on the healthcare acquisition, the way it matches into your ecosystem, and the way that deal took place?

Steven Yi — Co-Founder and Chief Govt Officer

Yeah, you realize, I am going to begin with that. Effectively, I feel the acquisition, you realize, for us was tremendous engaging, one, for — due to our outlook on the Medicare vertical. We’re massive believers within the general secular traits in that area with bigger numbers of seniors ageing in yearly, these newer cohorts, you realize, opting in to Medicare Benefit at increased ranges in older cohorts, in addition to only a common degree of web savviness exhibited by the newer cohorts of Medicare customers, which means that they’re more and more beginning their purchasing and analysis experiences on-line. Along with that, particular to CHT, what we love about that enterprise is what they have been capable of do to leverage social media channels, social media advertising, which is an space, fairly actually, that we’ve not historically been robust in, with a purpose to generate high-quality buyer inquiries from Medicare customers.

For us, what we’re seeing in our market is a rising urge for food for calls from a whole lot of our Medicare carriers and their capability to actually faucet into the social media channel, which is huge, in actually modern methods, making it a very good match for each our owned and operated enterprise, in addition to our medical insurance vertical extra usually. I am going to say one different factor, which is that the tradition of the corporate as we regarded in and the cultural match that we noticed was a very vital issue. You realize, they’re additionally a self-funded firm. Very robust entrepreneurial spirits, a spirit that I can definitely relate to, as an entrepreneur myself, having began this firm by funding it ourselves.

And as we scale, we actually welcome this recent injection of, you realize, recent entrepreneurial vitality to the general workforce. And I am actually trying ahead to getting them built-in and seeing what we are able to do right here.

Patrick Thompson — Chief Monetary Officer

And doubtless the opposite piece I’d simply add on that will be, you realize, we imagine it is financially engaging as properly. And I feel we have acknowledged, you realize, that for the stability of 2022 post-close, we count on in extra of 25 million of income and 5 million of EBITDA. So, you realize, roughly a 10-month foundation. So we imagine the a number of is engaging relative to the place we’re at and relative to the expansion potential of the enterprise.

Charlie Lederer — Wolfe Analysis — Analyst

Thanks for the solutions.

Steven Yi — Co-Founder and Chief Govt Officer

Thanks.

Operator

Your subsequent query comes from the road of Meyer Shields with KBW. Your line is open.

Meyer Shields — KBW — Analyst

Nice. Thanks. I wish to begin, if I can, on the medical insurance facet. In different phrases, a ton of churn within the quarter.

And for lots of the general public brokers, it was a reasonably troublesome quarter. I hoped you may discuss via how that impacts lifetime worth estimation, and your expectations for whether or not that degree of churn is more likely to proceed.

Steven Yi — Co-Founder and Chief Govt Officer

Hear, I imply, let’s take a step again. You realize, once we take into consideration Medicare, I imply, at first, we take into consideration these secular traits, you realize, that I talked about within the final query, we nonetheless are massive believers in them. And it was a very robust performer for us this 12 months. With respect to among the churn that you’ve got been listening to about from some firms who’re on this area, you realize, for us, we have now a really diversified base of demand companions or advertisers.

Whereas we won’t disclose the precise combine, it is a fairly truthful break up between each carriers, in addition to brokers, with the general development being towards direct spending from carriers due to the secular traits of carriers transferring progressively towards direct on-line buyer acquisition. And one proof of that was that on this previous quarter, spending from carriers, each for Medicare and Below 65 was at document ranges for us. You realize, with respect to buyer lifetime worth and the flexibility to actually assess that primarily based on renewal charges which might be coming via, for us, we actually welcome the advertisers who’re trying extra carefully at that as a result of what our channel permits advertisers to do is simply actually granularly assess the client lifetime worth on a publisher-by-publisher foundation after which match that to the client acquisition value. And the flexibility for carriers in addition to brokers to try this on a really granular degree is absolutely one of many hallmarks of our market.

And so we welcome, you realize, brokers in addition to carriers of their efforts to actually get a greater bearing on anticipated lifetime worth. So, Meyer, I do not know if that solutions your query or if there’s something extra particular I can let you know.

Meyer Shields — KBW — Analyst

No, I feel it does. I wish to assume via what you mentioned, however I feel it is useful. A follow-up, if I can, simply switching to P&C. Final quarter, you talked about how there was nonetheless like a bunch of firms within the high 20 that had been rising their spend.

I hoped you may replace that or give us some kind of replace on that cohort.

Steven Yi — Co-Founder and Chief Govt Officer

Positive. I imply why do not we step again and simply provide you with our outlook on simply usually how that market is doing, proper? You realize, not a lot has modified, you realize, because the outlook that we shared with everybody final quarter. It is nonetheless a brilliant dynamic underwriting setting, you realize, notably with respect to severity as a result of as everyone knows, inflationary pressures have endured via ’22. Now, you realize, carriers are making fairly good progress with pricing will increase.

And we usually agree with others who’re speaking a few second half restoration, and I feel that is directionally right. However I feel actually once you peel issues again a layer, you begin to perceive that the state of affairs is somewhat bit extra sophisticated than that. I imply, to begin with, you will have the essential challenge of being — having to foretell the precise timing of every provider’s price approvals throughout a number of states, proper? You’ve dozens of carriers searching for price will increase in dozens of states. And all of those states have barely totally different views, the sorts of price will increase that they are open to permitting, proper? Along with that, when carriers really take the speed will increase, among the carriers who’re early to take them really change into much less aggressive.

And so their conversion charges go down for the straightforward undeniable fact that their value is now increased than everybody else’s. And so typically, these conversion charges keep down till extra carriers that observe swimsuit can absorb price themselves. After which when the speed actions have been taken, like, actually how rapidly they earn via to truly enhance underwriting profitability will differ by carriers as a result of every provider has a novel mixture of, you realize, six- to 12-month insurance policies. And it is actually upon the renewal that these pricing will increase take impact, proper? And so it’s a must to contemplate all of those elements, proper, once you begin to consider precisely, you realize, when every particular provider will begin to return to extra regular ranges of development advertising funding.

You realize, the factor that we do know is, you realize, primarily based on our expertise within the trade is that when the market turns, proper, one of many hallmarks of our programmatic market with a whole lot of provide companions is absolutely how quickly carriers can take all of the spend when the market turns. I imply, this occurred over the past exhausting market cycle. This occurred through the first COVID, once we had a sudden and an enormous acceleration within the migration of offline promoting {dollars} on-line. And so it has been our expertise, too, that the pace and steepness of the churn to a development earnings setting may also be exhausting to foretell.

However clearly, on this case, it is type of very constructive.

Meyer Shields — KBW — Analyst

OK. That was very thorough. Thanks very a lot.

Operator

Your subsequent query comes from the road of Daniel Grosslight with Citi. Your line is open.

Daniel Grosslight — Citi — Analyst

Hello, guys. Thanks for taking the query. I would like to return to the well being section and the challenges within the e-broker channel particularly. I do know you talked about you’ll be able to’t actually get away your publicity to the e-brokers.

However I assume I am extra involved round 2022 AEP given should you have a look at what the publicly traded of us have mentioned, you realize, they’re actually titrating development down from 30%, 40%, even 50% to market development, which might be round 10%. So a reasonably dramatic drop in lead consumption for 2022 AEP. So I am simply curious should you assume that your direct provider accomplice consumption and your Below 65 consumption can offset these pressures and you’ll keep development in type of that 30% transaction worth vary for 2022. Or are we going to see somewhat little bit of a deceleration in development for subsequent 12 months’s AEP?

Steven Yi — Co-Founder and Chief Govt Officer

No, thanks, Dan. Effectively, I imply, what I can let you know is that we’re not anticipating a slowdown of our Medicare enterprise this 12 months. You realize, it is early, however we’re off to a powerful begin in 2022 with our Medicare section with spend being up 12 months over 12 months from each carriers in addition to the Medicare brokers. So, you realize, with respect to, I feel, the nearer look that a whole lot of the Medicare brokers are taking with their advertising sources and the anticipated lifetime worth from every of their advertising sources and actually deaveraging and taking a granular have a look at that you realize, once more, as I alluded to in an earlier reply, I imply, that sort of improvement is one thing that we welcome as a result of that is precisely what our market was constructed to allow.

And so we have gone via all these cycles throughout the P&C area as carriers have gotten good about actually deaveraging like how their anticipating — what the worth of a coverage that is acquired in our channel is, proper, after which making use of anticipated lifetime worth on deaverage foundation to then actually refine, you realize, what they’re bidding for these very granular, you realize, shopper segments throughout a whole lot of various provide companions. And so I feel we’re very well-built to proceed to help both the identical or a better degree of funding from a whole lot of the Medicare brokers as they actually reassess, proper, what the environment friendly advertising channels are and which of them are the much less environment friendly ones. And once more, I am going to level to what we’re seeing now, once more, which is early, however we have maintained a reasonably robust degree of spend, once more, each from carriers, in addition to the Medicare brokers to this point this 12 months.

Daniel Grosslight — Citi — Analyst

OK. That is useful. After which on CHT, can you get away what % of their enterprise has carried out with the carriers immediately versus the third-party brokers?

Patrick Thompson — Chief Monetary Officer

Yeah. And I am glad to take this one, Dan. That isn’t one thing we’re disclosing at the moment.

Daniel Grosslight — Citi — Analyst

Bought you. OK. OK. After which final one for me.

On the opposite income, are you able to get away how a lot of that is because of journey? And any expectations for journey to select up in 2022 because the pandemic wanes?

Patrick Thompson — Chief Monetary Officer

Yeah. And I can even take that one, Dan. We do not get away how a lot of it’s journey versus training versus monetary providers, but it surely’s a, you realize, chunk of all three, and none are the overwhelming majority of the general. And, you realize, the factor I’d say on journey is COVID actually hit that enterprise exhausting for the market however us particularly.

And, you realize, we have seen some development off the underside in 2021, and we’re nonetheless seeing that in the present day. And so the expansion charges are fairly good, but it surely’s off of a reasonably low base. And I feel it is, you realize, a enterprise that type of, you realize, time will inform what it will get again to because the journey market absolutely normalizes.

Daniel Grosslight — Citi — Analyst

Bought it. Admire the colour. Thanks, guys.

Operator

[Operator instructions] Your subsequent query comes from the road of Cory Carpenter with J.P. Morgan. Your line is open.

Bryan Smilek — J.P. Morgan — Analyst

It is Bryan Smilek on for Cory. Thanks for taking my query. You realize, you talked about that ’22 is shaping as much as be an funding 12 months. Are you able to simply parse out, you realize, what your key development priorities are into the brand new 12 months? After which particularly, what are the following steps in scaling the brokers enterprise? And simply excited about well being, do you see additional potential for M&A going ahead? Thanks.

Steven Yi — Co-Founder and Chief Govt Officer

Yeah. Thanks. So we’re — so your first query about the place we’re investing. You realize, I am going to say, at first, we’re all the time investing in our folks and know-how, proper? We have now from day one.

We proceed to try this now. I do know you are listening to a whole lot of, you realize, uncertainty from us about, you realize, what the close to time period goes to carry, proper, within the P&C vertical. However what that — you realize, what the [Inaudible] is simply an amazing confidence in having been on this enterprise for now near a decade of what the long-term traits might be and the way all these markets, once more, whereas troublesome to foretell within the close to time period, are very straightforward to foretell what occurs in the long run should you’ve been via all these cycles earlier than. And so for us, a whole lot of the funding is absolutely about persevering with to put money into the folks, know-how, and our merchandise to actually greatest serve our companions.

Now, to get extra particular. You realize, organically, we’re investing on actually enhancing our owned and operated capabilities. And clearly, inorganically, you realize, you see this with our acquisition of CHT. We’re additionally investing in product improvement to higher help improved shopper purchasing experiences for lots of our provide companions who’re more and more seeking to supply a greater rate-based shopper expertise for his or her clients.

And we’re all the time investing in deeper integrations, but in addition have now a give attention to constructing down-funnel partnership capabilities with provider companions, which is a specific want for lots of latest provider companions, each throughout P&C but in addition in well being and life insurance coverage of carriers who’re newer to direct-to-consumer advertising, who would profit from extra built-in down-funnel options. Now, let me shift right here and discuss somewhat bit in regards to the agent enterprise. We nonetheless see the agent enterprise, i.e., working immediately with brokers to promote them leads and calls. We nonetheless see that as a very attention-grabbing alternative, definitely over the long run, and we proceed to take a position.

We have narrowed our focus a bit primarily based on what we’re seeing on this market and what we have realized from this market over the previous 12 months. I feel, extra importantly, within the present market setting, we’re simply tremendous centered on laying the muse, proper, and enhancing the muse of our core enterprise, the core provider enterprise to place ourselves able, proper, to actually speed up our market share features and our aggressive place upon the return of the market as a result of we have seen this earlier than, proper? We have carried out this earlier than in previous cycles. We all know the sorts of investments that we have now to make, proper, sorts of integrations and suggestions that carriers that we’re open to now. And so we’re actually busy simply laying that basis as a result of in the end, you realize, when the market turns, the expansion is all going to be from the carriers actually returning to their regular growth-oriented ranges of spend, proper? And that is the place we see the best space of funding proper now in the midst of this market cycle.

Patrick Thompson — Chief Monetary Officer

Nice. And I can hop in on the M&A portion. And so simply to offer you somewhat little bit of colour on how we’re excited about M&A usually, traditionally, MediaAlpha has all the time had a really excessive bar relating to M&A. And the CHT deal is the third deal that we have ever carried out and the most important one we have carried out from a purchase order value perspective.

And so the factor I’d say is like our bar is excessive, and it’ll stay excessive, and that we’ll purchase issues that we perceive, that we like and that we predict can add worth. I’d additionally say that, you realize, I’ve expertise of being at an organization for a very long time that generated vital returns from M&A and have additionally, you realize, seen firms which have destroyed a whole lot of worth from it. So, you realize, to the extent that we discover good companies which might be complementary to us, that match into our technique and that we are able to purchase them at a horny value in order that’s financially engaging, we’ll go exhausting after these belongings. And if we’re not discovering something that meets these standards, we cannot be going exhausting at it.

And so, you realize, I feel we’ll type of be pursuing the trail we’re on proper now, and, you realize, we’ll see the way it performs out over time.

Bryan Smilek — J.P. Morgan — Analyst

Thanks for taking my questions once more.

Steven Yi — Co-Founder and Chief Govt Officer

Thanks.

Operator

[Operator signoff]

Length: 28 minutes

Name individuals:

Denise Garcia — Investor Relations

Steven Yi — Co-Founder and Chief Govt Officer

Patrick Thompson — Chief Monetary Officer

Charlie Lederer — Wolfe Analysis — Analyst

Meyer Shields — KBW — Analyst

Daniel Grosslight — Citi — Analyst

Bryan Smilek — J.P. Morgan — Analyst

Extra MAX evaluation

All earnings name transcripts