MediaAlpha Announces Third Quarter 2021 Financial Results

Rhea-AI Summary

MediaAlpha, Inc. (NYSE: MAX) reported a 1% year-over-year revenue increase to $153 million for Q3 2021, highlighting a robust 17% growth in Transaction Value to $255 million. However, the Property & Casualty segment faced challenges, with revenue declining by 8%. The Health insurance sector saw a 25% growth in revenue. Despite these results, the company anticipates lower guidance for Q4 2021 due to reduced marketing investments from P&C partners, projecting an 18% revenue decline and a 23% drop in Adjusted EBITDA at midpoint.

Positive

• Transaction Value increased 17% year-over-year to $255 million.
• Health insurance revenue grew by 25% year-over-year to $34 million.
• Gross margin improved to 16.2%, up from 13.7% in Q3 2020.

Negative

• Revenue from Property & Casualty decreased 8% year-over-year to $105 million.
• Net loss of $(4.3) million compared to net income of $4.8 million in Q3 2020.
• Q4 revenue guidance expects an 18% year-over-year decline at the midpoint.

• Revenue of $153 million, up 1% year over year
  • Revenue from Property & Casualty down 8% year over year to $105 million
  • Revenue from Health up 25% year over year to $34 million
• Transaction Value of $255 million, up 17% year over year

LOS ANGELES--(BUSINESS WIRE)-- MediaAlpha, Inc. (NYSE: MAX), today announced its financial results for the third quarter ended September 30, 2021.

“We faced headwinds in the third quarter. While our Transaction Value grew 17% year over year, we underperformed relative to expectations due to market challenges in our property and casualty (P&C) insurance vertical,” said Steve Yi, CEO of MediaAlpha. “Many of our P&C carrier partners are experiencing higher than expected insurance losses, driven by a post-pandemic increase in accident frequency and severity, as well as elevated catastrophe losses. These carriers are taking actions to restore profitability and have temporarily scaled back their marketing investments, and we are reducing our full year guidance accordingly. But the secular shift to direct, online customer acquisition remains powerful, and we are confident that growth in the auto insurance advertising market, and our results, will bounce back as underwriting profitability is restored. Importantly, our other verticals are unaffected by these trends, and our Health insurance vertical, in particular, continued its robust growth and is expected to have a strong fourth quarter.”

Third Quarter 2021 Financial Results

• Revenue of $152.7 million, an increase of 1% year over year;
• Transaction Value of $255.1 million, an increase of 17% year over year;
• Gross margin of 16.2%, compared with 13.7% in the third quarter of 2020;
• Contribution Margin⁽¹⁾ of 17.1%, compared with 14.3% in the third quarter of 2020;
• Net loss was $(4.3) million, compared with net income of $4.8 million in the third quarter of 2020; and
• Adjusted EBITDA⁽¹⁾ was $13.8 million, compared with $14.0 million in the third quarter of 2020.

⁽¹⁾A reconciliation of GAAP to Non-GAAP financial measures has been provided at the end of this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Financial Outlook

For the fourth quarter of 2021, MediaAlpha currently expects the following:

• Transaction Value between $241 million - $256 million, representing a 3% year-over-year decline at the midpoint of the guidance range;
• Revenue between $151 million - $161 million, representing an 18% year-over-year decline at the midpoint of the guidance range;
• Contribution between $25 million - $28 million, representing a 13% year-over-year decline at the midpoint of the guidance range; and
• Adjusted EBITDA between $13 million - $15 million, representing a 23% year-over-year decline at the midpoint of the guidance range.

For the full year 2021, MediaAlpha currently expects the following:

• Transaction Value between $1,015 million - $1,030 million, representing 25% year-over-year growth at the midpoint of the guidance range;
• Revenue between $635 million - $645 million, representing 9% year-over-year growth at the midpoint of the guidance range;
• Contribution between $106 million - $109 million, representing 16% year-over-year growth at the midpoint of the guidance range; and
• Adjusted EBITDA between $58 million - $60 million, representing 2% year-over-year growth at the midpoint of the guidance range.

The Company expects total shares outstanding at the end of the fourth quarter of 2021 to be 60.6 million and 64.4 million on a basic and fully diluted basis, respectively.

With respect to the Company’s projections of Contribution and Adjusted EBITDA under “Financial Outlook,” MediaAlpha is not providing a reconciliation of Contribution or Adjusted EBITDA to the respective GAAP measures because the Company is unable to predict with reasonable certainty the reconciling items that may affect gross profit and net income without unreasonable effort, including equity-based compensation, transaction expenses and income tax expense. These reconciling items are uncertain, depend on various factors and could significantly impact, either individually or in the aggregate, the GAAP measures for the applicable period.

For a detailed explanation of the Company’s non-GAAP measures, please refer to the appendix section of this press release.

Conference Call Information

MediaAlpha will host a Q&A conference call today to discuss the Company's third quarter 2021 results and its financial outlook for the fourth quarter and full year of 2021 at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). A live audio webcast of the call will be available on the MediaAlpha Investor Relations website at https://investors.mediaalpha.com. To register for the webcast, click here. Participants may also dial-in, toll-free, at (888) 330-2022 or (646) 960-0690, with passcode 3195092. An audio replay of the conference call will be available for two weeks following the call and available on the MediaAlpha Investor Relations website at https://investors.mediaalpha.com.

We have also posted to our investor relations website a letter to shareholders. We have used, and intend to continue to use, our investor relations website at https://investors.mediaalpha.com as a means of disclosing material nonpublic information and for complying with our disclosure obligations under Regulation FD.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements regarding our expectation of growth once the P&C insurance market recovers, and our financial outlook for the fourth quarter and full year 2021. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including those more fully described in MediaAlpha’s filings with the Securities and Exchange Commission (“SEC”), including the Form 10-K filed on March 15, 2021, the Form 10-Q filed on May 14, 2021, the Form 10-Q filed on August 13, 2021, and the Form 10-Q as of and for the quarter ended September 30, 2021 to be filed on or about November 12, 2021. These factors should not be construed as exhaustive. MediaAlpha disclaims any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this press release.

Non-GAAP Financial Measures and Operating Metrics

This press release includes Adjusted EBITDA, Contribution, and Contribution Margin, which are non-GAAP financial measures. The Company also presents Transaction Value, which is an operating metric not presented in accordance with GAAP. See the appendix for definitions of Adjusted EBITDA, Contribution, Contribution Margin and Transaction Value, as well as reconciliations to the corresponding GAAP financial metrics, as applicable.

We present Transaction Value, Adjusted EBITDA, Contribution, and Contribution Margin because they are used extensively by our management and board of directors to manage our operating performance, including evaluating our operational performance against budget and assessing our overall operating efficiency and operating leverage. Accordingly, the Company believes that Transaction Value, Adjusted EBITDA, Contribution, and Contribution Margin provide useful information to investors and others in understanding and evaluating its operating results in the same manner as its management team and board of directors. Each of Transaction Value, Adjusted EBITDA, Contribution, and Contribution Margin has limitations as a financial measure and investors should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

MediaAlpha, Inc. and subsidiaries
Consolidated Balance Sheets
(Unaudited; in thousands, except share data and per share amounts)
		September 30, 2021				December 31, 2020
Assets
Current assets
Cash and cash equivalents		$	29,301			$	23,554
Accounts receivable, net of allowance for credit losses of $602 and $438, respectively		71,305				96,295
Prepaid expenses and other current assets		3,959				7,950
Total current assets		104,565				127,799
Property and equipment, net		1,060				762
Intangible assets, net		13,313				15,551
Goodwill		18,402				18,402
Deferred tax asset		92,348				31,613
Other assets		15,819				16,210
Total assets		$	245,507			$	210,337
Liabilities and stockholders' deficit
Current liabilities
Accounts payable		$	44,213			$	98,249
Accrued expenses		7,437				9,206
Current portion of long-term debt		6,345				—
Total current liabilities		57,995				107,455
Long-term debt, net of current portion		180,254				182,668
Liabilities under tax receivable agreement, net of current portion		77,272				22,498
Other long-term liabilities		2,907				2,834
Total liabilities		318,428				315,455
Commitments and contingencies (Note 7)
Stockholders' (deficit):
Class A common stock, $0.01 par value - 1.0 billion shares authorized; 39.4 million and 33.4 million shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		394				334
Class B common stock, $0.01 par value - 100 million shares authorized; 20.8 million and 25.5 million shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		208				255
Preferred stock, $0.01 par value - 50 million shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020		—				—
Additional paid-in capital		407,745				384,611
Accumulated Deficit		(422,631		)		(418,973		)
Total stockholders' (deficit) attributable to MediaAlpha, Inc.		$	(14,284	)		$	(33,773	)
Non-controlling interest		(58,637		)		(71,345		)
Total stockholders' (deficit)		$	(72,921	)		$	(105,118	)
Total liabilities and stockholders' deficit		$	245,507			$	210,337

MediaAlpha, Inc. and subsidiaries
Consolidated Statements of Operations
(Unaudited; in thousands, except share data and per share amounts)
		Three months ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Revenue		$	152,749			$	151,548			$	483,690			$	394,609
Cost and operating expenses
Cost of revenue		128,080				130,830				407,563				335,692
Sales and marketing		5,620				2,916				16,721				8,866
Product development		3,754				1,766				10,904				5,482
General and administrative		15,349				7,605				44,677				13,907
Total cost and operating expenses		152,803				143,117				479,865				363,947
(Loss) income from operations		(54		)		8,431				3,825				30,662
Other expenses, net		316				1,998				337				1,998
Interest expense		1,765				1,594				6,303				4,844
Total other expense		2,081				3,592				6,640				6,842
(Loss) income before income taxes		(2,135		)		4,839				(2,815		)		23,820
Income tax expense		2,125				20				1,636				20
Net (loss) income		$	(4,260	)		$	4,819			$	(4,451	)		$	23,800
Net income attributable to QLH prior to Reorganization Transactions		—				4,819				—				23,800
Net (loss) attributable to non-controlling interest		(733		)		—				(1,021		)		—
Net (loss) attributable to MediaAlpha, Inc.		$	(3,527	)		$	—			$	(3,430	)		$	—
Net (loss) per share of Class A common stock
-Basic		$	(0.09	)		$	—			$	(0.09	)		$	—
-Diluted		$	(0.10	)		$	—			$	(0.09	)		$	—
Weighted average shares of Class A common stock outstanding
-Basic		38,416,723				—				36,426,270				—
-Diluted		61,190,185				—				36,426,270				—

MediaAlpha, Inc. and subsidiaries
Consolidated Statements of Cash Flows
(Unaudited; in thousands)
		Nine Months Ended September 30,
		2021				2020
Cash flows from operating activities
Net (loss) income		$	(4,451	)		$	23,800
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Non-cash equity-based compensation expense		33,321				1,762
Depreciation expense on property and equipment		272				210
Amortization of intangible assets		2,238				2,402
Amortization of deferred debt issuance costs		966				334
Loss on extinguishment of debt		—				1,998
Credit losses		136				356
Deferred taxes		1,195				—
Tax receivable agreement liability adjustments		(604		)		—
Changes in operating assets and liabilities:
Accounts receivable		24,854				(7,428		)
Prepaid expenses and other current assets		4,191				(147		)
Other assets		391				(11,665		)
Accounts payable		(54,033		)		21,242
Accrued expenses		(1,800		)		6,436
Net cash provided by operating activities		6,676				39,300
Cash flows from investing activities
Purchases of property and equipment		(568		)		(156		)
Purchase of cost method investment		—				(10,000		)
Net cash (used in) investing activities		(568		)		(10,156		)
Cash flows from financing activities
Proceeds received from:
Revolving line of credit		—				7,500
Payments made for:
Repayments on revolving line of credit		—				(7,500		)
Proceeds from issuance of long-term debt		190,000				210,000
Repayments on long-term debt		(186,375		)		(100,023		)
Payments of debt issuance costs		(866		)		(4,467		)
Repurchase of Class B units at QLH up to fair value		—				(1,453		)
Distributions		(338		)		(131,224		)
Shares withheld for taxes on vesting of restricted stock units		(2,782		)		—
Net cash (used in) financing activities		(361		)		(27,167		)
Net increase in cash and cash equivalents		5,747				1,977
Cash and cash equivalents, beginning of period		23,554				10,028
Cash and cash equivalents, end of period		$	29,301			$	12,005

Key business and operating metrics

Transaction Value

We define “Transaction Value” as the total gross dollars transacted by our partners on our platform. Transaction Value is a driver of revenue, with differing revenue recognition based on the economic relationships we have with our partners. Our partners use our platform to transact via Open and Private Marketplace transactions. In our Open Marketplace model, Transaction Value is equal to the revenue recognized and revenue share payments to our supply partners represent costs of revenue. In our Private Marketplace model, revenue recognized represents a platform fee billed to the demand partner or supply partner based on an agreed-upon percentage of the Transaction Value for the Consumer Referrals transacted, and accordingly there are no associated costs of revenue. We utilize Transaction Value to assess revenue and to assess the overall level of transaction activity through our platform. We believe it is useful to investors to assess the overall level of activity on our platform and to better understand the sources of our revenue across our different transaction models and verticals.

The following table presents Transaction Value by platform model for the three and nine months ended September 30, 2021 and 2020:

		Three months ended September 30,								Nine months ended September 30,
(dollars in thousands)		2021				2020				2021				2020
Open Marketplace transactions		$	147,800			$	148,240			$	469,670			$	386,224
Percentage of total Transaction Value		57.9		%		68.1		%		60.7		%		69.1		%
Private Marketplace transactions		107,290				69,320				304,410				172,590
Percentage of total Transaction Value		42.1		%		31.9		%		39.3		%		30.9		%
Total Transaction Value		$	255,090			$	217,560			$	774,080			$	558,814

The following table presents Transaction Value by vertical for the three and nine months ended September 30, 2021 and 2020:

		Three months ended September 30,								Nine months ended September 30,
(dollars in thousands)		2021				2020				2021				2020
Property & Casualty insurance		$	175,375			$	161,323			$	535,448			$	390,955
Percentage of total Transaction Value		68.8		%		74.2		%		69.2		%		70.0		%
Health insurance		48,692				33,650				146,275				98,739
Percentage of total Transaction Value		19.1		%		15.5		%		18.9		%		17.7		%
Life insurance		13,361				11,628				41,736				31,717
Percentage of total Transaction Value		5.2		%		5.3		%		5.4		%		5.7		%
Other (1)		17,662				10,959				50,621				37,403
Percentage of total Transaction Value		6.9		%		5.0		%		6.5		%		6.7		%
Total Transaction Value		$	255,090			$	217,560			$	774,080			$	558,814

(1)

Our other verticals include Travel, Education and Consumer Finance.

Contribution and Contribution Margin

We define “Contribution” as revenue less revenue share payments and online advertising costs, or, as reported in our consolidated statements of operations, revenue less cost of revenue (i.e., gross profit), as adjusted to exclude the following items from cost of revenue: equity-based compensation; salaries, wages, and related; internet and hosting; amortization; depreciation; other services; and merchant-related fees. We define “Contribution Margin” as Contribution expressed as a percentage of revenue for the same period. Contribution and Contribution Margin are non-GAAP financial measures that we present to supplement the financial information we present on a GAAP basis. We use Contribution and Contribution Margin to measure the return on our relationships with our supply partners (excluding certain fixed costs), the financial return on and efficacy of our online advertising costs to drive consumers to our proprietary websites, and our operating leverage. We do not use Contribution and Contribution Margin as measures of overall profitability. We present Contribution and Contribution Margin because they are used by our management and board of directors to manage our operating performance, including evaluating our operational performance against budget and assessing our overall operating efficiency and operating leverage.

The following table reconciles Contribution with gross profit, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the three and nine months ended September 30, 2021 and 2020:

		Three months ended September 30,								Nine months ended September 30,
(in thousands)		2021				2020				2021				2020
Revenue		$	152,749			$	151,548			$	483,690			$	394,609
Less cost of revenue		(128,080		)		(130,830		)		(407,563		)		(335,692		)
Gross profit		24,669				20,718				76,127				58,917
Adjusted to exclude the following (as related to cost of revenue):
Equity-based compensation		447				18				1,289				58
Salaries, wages, and related		501				434				1,523				1,175
Internet and hosting		105				107				315				328
Other expenses		103				69				320				205
Depreciation		7				6				22				17
Other services		300				189				847				616
Merchant-related fees		56				130				286				447
Contribution		26,188				21,671				80,729				61,763
Gross margin		16.2		%		13.7		%		15.7		%		14.9		%
Contribution Margin		17.1		%		14.3		%		16.7		%		15.7		%

Adjusted EBITDA

We define “Adjusted EBITDA” as net income excluding interest expense, income tax benefit (expense), depreciation expense on property and equipment, and amortization of intangible assets, as well as equity-based compensation expense and certain other adjustments as listed in the table below. Adjusted EBITDA is a non-GAAP financial measure that we present to supplement the financial information we present on a GAAP basis. We monitor and present Adjusted EBITDA because it is a key measure used by our management to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of Adjusted EBITDA. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects. In addition, presenting Adjusted EBITDA provides investors with a metric to evaluate the capital efficiency of our business.

The following table reconciles Adjusted EBITDA with net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the three and nine months ended September 30, 2021 and 2020.

		Three months ended September 30,								Nine months ended September 30,
(in thousands)		2021				2020				2021				2020
Net (loss) income		$	(4,260	)		$	4,819			$	(4,451	)		$	23,800
Equity-based compensation expense		11,198				606				33,321				2,553
Interest expense		1,765				1,594				6,303				4,844
Income tax expense		2,125				20				1,636				20
Depreciation expense on property and equipment		99				73				272				210
Amortization of intangible assets		746				799				2,238				2,402
Transaction expenses(1)		1,152				6,049				3,883				6,049
Employee-related costs(2)		270				—				619				—
SOX implementation costs(3)		348				—				797				—
Settlement costs(4)		800				—				800				—
Changes in TRA related liability(5)		(448		)		—				(604		)		—
Reduction in Tax Indemnification Receivable(6)		—				—				147				—
Adjusted EBITDA		$	13,795			$	13,960			$	44,961			$	39,878

(1)		Transaction expenses include $1.2 million and $3.9 million of expenses incurred by us for the three and nine months ended September 30, 2021, respectively, for legal and accounting fees and other costs in connection with the Secondary Offering, and other registration statements, and the refinancing of our 2020 Credit Facilities. Transaction expenses of $6.0 million for the three and nine months ended September 30, 2020, include $4.0 million in legal, accounting, and professional fees in connection with the Reorganization Transaction and IPO and $2.0 million in loss on extinguishment of debt related to the termination of the 2019 Credit Facilities.
(2)		Employee-related costs include $0.3 million and $0.5 million of expenses incurred by us for the three and nine months ended September 30, 2021, respectively, for amounts payable to recruiting firms in connection with the hiring of certain executive officers to support our operation as a publicly-reporting company.
(3)		SOX implementation costs include $0.3 million and $0.8 million of expenses incurred by us for the three and nine months ended September 30, 2021, respectively, for third-party consultants to assist us with the development, implementation, and documentation of new and enhanced internal controls and processes for compliance with SOX Section 404(b). During the three months ended June 30, 2021, we updated our Adjusted EBITDA definition to exclude these costs and accordingly determined that it was appropriate to recast our Adjusted EBITDA calculation for the three months ended March 31, 2021 to exclude these costs of $0.2 million.
(4)		Settlement costs include $0.8 million of expenses incurred by us for the three and nine months ended September 30, 2021, to settle certain claims made by the Attorney General's Office of the State of Washington.
(5)		Changes in TRA related liability includes $0.4 million and $0.6 million of income for the three and nine months ended September 30, 2021, respectively, due to a change in the estimated future state tax benefits and other changes in the estimate resulting in reduction of the TRA liability created in connection with the Reorganization Transactions.
(6)		Reduction in Tax Indemnification Receivable includes $0.1 million of expenses incurred by us for the nine months ended September 30, 2021 related to a reduction in the tax indemnification receivable recorded in connection with the Reorganization Transactions.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20211110006300/en/

Investors

Denise Garcia

Hayflower Partners

Denise@HayflowerPartners.com

Press

Louise@MediaAlpha.com

Source: MediaAlpha, Inc.

FAQ

What are MediaAlpha's Q3 2021 financial results?

MediaAlpha reported Q3 2021 revenue of $153 million, up 1% year-over-year, with a net loss of $(4.3) million.

How did the Property & Casualty segment perform in Q3 2021?

Revenue from the Property & Casualty segment declined by 8% year-over-year to $105 million.

What is MediaAlpha's guidance for Q4 2021?

The company expects Q4 2021 revenue between $151 million and $161 million, representing an 18% year-over-year decline.

What was the Transaction Value reported by MediaAlpha for Q3 2021?

The Transaction Value for Q3 2021 was $255 million, reflecting a 17% year-over-year increase.

What growth did MediaAlpha expect for the full year 2021?

For the full year 2021, MediaAlpha projects a Transaction Value between $1,015 million and $1,030 million, representing 25% year-over-year growth.