- Revenue of $89 million, down 42% year over year
- Transaction Value of $147 million, down 42% year over
year
- Transaction Value from Property & Casualty down 53% year
over year to $83 million
- Transaction Value from Health down 5% year over year to $46
million
MediaAlpha, Inc. (NYSE: MAX), today announced its financial
results for the third quarter ended September 30, 2022.
“Our third quarter results exceeded our expectations, though
they declined significantly year over year as historic
profitability pressures in the property & casualty (P&C)
insurance industry, driven by ongoing loss cost inflation,
continued to hinder our results,” said MediaAlpha co-founder and
CEO Steve Yi. “We remain focused on operating discipline in the
current environment and are confident we will capture an outsized
share of P&C marketing investment when carrier profitability
improves.”
Third Quarter 2022 Financial Results
- Revenue of $89.0 million, a decrease of 42% year over
year;
- Transaction Value of $146.7 million, a decrease of 42% year
over year;
- Gross margin of 14.2%, compared with 16.1% in the third quarter
of 2021;
- Contribution Margin(1) of 17.4%, compared with 17.1% in the
third quarter of 2021;
- Net loss was $(21.2) million, compared with $(4.3) million in
the third quarter of 2021; and
- Adjusted EBITDA(1) was $2.2 million, compared with $13.8
million in the third quarter of 2021.
(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
Our guidance for Q4 2022 reflects a near-term pullback in
marketing spend by P&C insurers during the fourth quarter as
they continue to focus on improving full-year underwriting
profitability. As a result, we expect fourth quarter Transaction
Value in our P&C insurance vertical to decline year over year
by a similar percentage as in the third quarter. In our Health
vertical, we expect Transaction Value to be down slightly year over
year as robust spend from our carrier partners is offset by lower
spend from brokers.
For the fourth quarter of 2022, MediaAlpha currently expects the
following:
- Transaction Value between $155 million - $170 million,
representing a 34% year-over-year decline at the midpoint of the
guidance range;
- Revenue between $110 million - $120 million, representing a 29%
year-over-year decline at the midpoint of the guidance range;
- Adjusted EBITDA between $5.0 million and $7.0 million,
representing a 55% year-over-year decline at the midpoint of the
guidance range. We expect Adjusted EBITDA to decline year over year
in Q4 2022 at a greater rate than Transaction Value and revenue due
to the increases in our headcount and operating expenses over the
last year. We are projecting our operating expenses excluding
non-cash items to be $1.2 million to $1.7 million higher than Q3
2022 levels, driven by both temporary and seasonal increases in
non-headcount operating expenses.
With respect to the Company’s projection of Adjusted EBITDA
under “Financial Outlook,” MediaAlpha is not providing a
reconciliation of Adjusted EBITDA to net income (loss) because the
Company is unable to predict with reasonable certainty the
reconciling items that may affect net income (loss) 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
corresponding 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 2022 results and its financial outlook
for the fourth quarter of 2022 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 that we will capture an outsized share of P&C
marketing spend when industry profitability improves and our
financial outlook for the fourth quarter of 2022. 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 February 28, 2022. 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 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 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, we believe that Transaction Value, Adjusted EBITDA and
Contribution Margin provide useful information to investors and
others in understanding and evaluating our operating results in the
same manner as our management team and board of directors. Each of
Transaction Value, Adjusted EBITDA 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,
2022
December 31,
2021
Assets
Current assets
Cash and cash equivalents
$
30,208
$
50,564
Accounts receivable, net of
allowance for credit losses of $356 and $609, respectively
34,708
76,094
Prepaid expenses and other
current assets
4,951
10,448
Total current assets
69,867
137,106
Intangible assets, net
34,623
12,567
Goodwill
47,739
18,402
Deferred tax asset
103,584
102,656
Other assets
9,406
19,073
Total assets
$
265,219
$
289,804
Liabilities and stockholders' equity
(deficit)
Current liabilities
Accounts payable
$
42,336
$
61,770
Accrued expenses
12,723
13,716
Current portion of long-term
debt
8,760
8,730
Total current liabilities
63,819
84,216
Long-term debt, net of current portion
181,494
178,069
Liabilities under tax receivables
agreement, net of current portion
83,256
85,027
Other long-term liabilities
5,052
4,058
Total liabilities
$
333,621
$
351,370
Commitments and contingencies (Note 7)
Stockholders' equity (deficit):
Class A common stock, $0.01 par
value - 1.0 billion shares authorized; 42.7 million and 41.0
million shares issued and outstanding as of September 30, 2022 and
December 31, 2021, respectively
427
410
Class B common stock, $0.01 par
value - 100 million shares authorized; 19.2 million and 19.6
million shares issued and outstanding as of September 30, 2022 and
December 31, 2021, respectively
192
196
Preferred stock, $0.01 par
value - 50 million shares authorized; 0 shares issued and
outstanding as of September 30, 2022 and December 31, 2021
—
—
Additional paid-in capital
455,753
419,533
Accumulated deficit
(455,177
)
(424,476
)
Total stockholders' equity (deficit)
attributable to MediaAlpha, Inc.
$
1,195
$
(4,337
)
Non-controlling interests
(69,597
)
(57,229
)
Total stockholders' (deficit)
$
(68,402
)
$
(61,566
)
Total liabilities and
stockholders' deficit
$
265,219
$
289,804
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,
2022
2021
2022
2021
Revenue
$
89,017
$
152,749
$
335,065
$
483,690
Costs and operating expenses
Cost of revenue
76,343
128,081
285,149
407,566
Sales and marketing
6,853
5,624
22,034
16,739
Product development
5,291
3,757
16,168
10,917
General and administrative
11,105
15,352
40,569
44,686
Total costs and operating
expenses
99,592
152,814
363,920
479,908
(Loss) income from operations
(10,575
)
(65
)
(28,855
)
3,782
Other expenses, net
8,602
316
8,123
337
Interest expense
2,593
1,765
5,908
6,303
Total other expense, net
11,195
2,081
14,031
6,640
(Loss) before income taxes
(21,770
)
(2,146
)
(42,886
)
(2,858
)
Income tax (benefit) expense
(544
)
2,125
1,210
1,636
Net (loss)
$
(21,226
)
$
(4,271
)
$
(44,096
)
$
(4,494
)
Net (loss) attributable to non-controlling
interest
(6,740
)
(737
)
(13,395
)
(1,038
)
Net (loss) attributable to
MediaAlpha, Inc.
$
(14,486
)
$
(3,534
)
$
(30,701
)
$
(3,456
)
Net (loss) per share of Class A common
stock
-Basic
$
(0.34
)
$
(0.09
)
$
(0.74
)
$
(0.09
)
-Diluted
$
(0.34
)
$
(0.10
)
$
(0.74
)
$
(0.09
)
Weighted average shares of Class A common
stock outstanding
-Basic
42,210,186
38,416,723
41,592,783
36,426,270
-Diluted
42,210,186
61,190,185
41,592,783
36,426,270
MediaAlpha, Inc. and
subsidiaries Consolidated Statements of Cash Flows (Unaudited;
in thousands)
Nine Months Ended
September 30,
2022
2021
Cash flows from operating
activities
Net (loss)
$
(44,096
)
$
(4,494
)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Non-cash equity-based
compensation expense
44,216
33,321
Non-cash lease expense
539
420
Depreciation expense on
property and equipment
295
272
Amortization of intangible
assets
4,064
2,238
Amortization of deferred debt
issuance costs
626
966
Change in fair value of
contingent consideration
(6,591
)
—
Impairment of cost method
investment
8,594
—
Credit losses
(109
)
136
Deferred taxes
1,054
1,195
Tax receivable agreement
liability adjustments
(576
)
(604
)
Changes in operating assets and
liabilities:
Accounts receivable
42,840
24,854
Prepaid expenses and other
current assets
5,451
4,191
Other assets
322
391
Accounts payable
(19,452
)
(54,033
)
Accrued expenses
(2,439
)
(2,177
)
Net cash provided by operating
activities
$
34,738
$
6,676
Cash flows from investing
activities
Purchases of property and
equipment
(93
)
(568
)
Cash consideration paid in
connection with CHT acquisition
(49,677
)
—
Net cash (used in) investing
activities
$
(49,770
)
$
(568
)
Cash flows from financing
activities
Proceeds received from:
Revolving credit facility
25,000
—
Payments made for:
Repayments on revolving line of
credit
(15,000
)
—
Proceeds from issuance of
long-term debt
—
190,000
Repayments on long-term
debt
(7,125
)
(186,375
)
Payments of debt issuance
costs
—
(866
)
Repurchases of Class A common
stock
(5,008
)
—
Distributions
(590
)
(338
)
Shares withheld for taxes on
vesting of restricted stock units
(2,601
)
(2,782
)
Net cash (used in) financing
activities
$
(5,324
)
$
(361
)
Net (decrease) increase in cash
and cash equivalents
(20,356
)
5,747
Cash and cash equivalents, beginning of
period
50,564
23,554
Cash and cash equivalents, end of
period
$
30,208
$
29,301
Key business and operating metrics and Non-GAAP financial
measures
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 relationship 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 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, 2022 and
2021:
Three months ended
September 30,
Nine months ended
September 30,
(dollars in thousands)
2022
2021
2022
2021
Open Marketplace transactions
$
86,279
$
147,800
$
324,008
$
469,670
Percentage of total Transaction Value
58.8
%
57.9
%
57.0
%
60.7
%
Private Marketplace transactions
60,438
107,290
244,592
304,410
Percentage of total Transaction Value
41.2
%
42.1
%
43.0
%
39.3
%
Total Transaction Value
$
146,717
$
255,090
$
568,600
$
774,080
The following table presents Transaction Value by vertical for
the three and nine months ended September 30, 2022 and 2021:
Three months ended
September 30,
Nine months ended
September 30,
(dollars in thousands)
2022
2021
2022
2021
Property & Casualty insurance
$
83,165
$
175,375
$
343,179
$
535,448
Percentage of total Transaction Value
56.7
%
68.8
%
60.4
%
69.2
%
Health insurance
46,190
48,692
152,839
146,275
Percentage of total Transaction Value
31.5
%
19.1
%
26.9
%
18.9
%
Life insurance
11,580
13,361
36,438
41,736
Percentage of total Transaction Value
7.9
%
5.2
%
6.4
%
5.4
%
Other
5,782
17,662
36,144
50,621
Percentage of total Transaction Value
3.9
%
6.9
%
6.4
%
6.5
%
Total Transaction Value
$
146,717
$
255,090
$
568,600
$
774,080
(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
costs; internet and hosting costs; 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. For example,
if Contribution increases and our headcount costs and other
operating expenses remain steady, our Adjusted EBITDA and operating
leverage increase. If Contribution Margin decreases, we may choose
to re-evaluate and re-negotiate our revenue share agreements with
our supply partners, to make optimization and pricing changes with
respect to our bids for keywords from primary traffic acquisition
sources, or to change our overall cost structure with respect to
headcount, fixed costs and other costs. Other companies may
calculate Contribution and Contribution Margin differently than we
do. Contribution and Contribution Margin have their limitations as
analytical tools, and you should not consider them in isolation or
as substitutes for analysis of our results presented in accordance
with GAAP.
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, 2022 and 2021:
Three months ended
September 30,
Nine months ended
September 30,
(in thousands)
2022
2021
2022
2021
Revenue
$
89,017
$
152,749
$
335,065
$
483,690
Less cost of revenue
(76,343
)
(128,081
)
(285,149
)
(407,566
)
Gross profit
12,674
24,668
49,916
76,124
Adjusted to exclude the following (as
related to cost of revenue):
Equity-based compensation
999
447
2,637
1,289
Salaries, wages, and
related
989
501
2,679
1,523
Internet and hosting
126
105
349
315
Other expenses
189
104
531
323
Depreciation
12
7
30
22
Other services
492
300
1,598
847
Merchant-related fees
40
56
99
286
Contribution
15,521
26,188
57,839
80,729
Gross margin
14.2
%
16.1
%
14.9
%
15.7
%
Contribution Margin
17.4
%
17.1
%
17.3
%
16.7
%
Adjusted EBITDA
We define “Adjusted EBITDA” as net income excluding interest
expense, income tax benefit (expense), depreciation expense on
property and equipment, 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.
Adjusted EBITDA is not presented in accordance with GAAP and
should not be considered in isolation of, or as an alternative to,
measures presented in accordance with GAAP. There are a number of
limitations related to the use of Adjusted EBITDA rather than net
income, which is the most directly comparable financial measure
calculated and presented in accordance with GAAP. These limitations
include the fact that Adjusted EBITDA excludes interest expense on
debt, income tax benefit (expense), equity-based compensation
expense, depreciation and amortization, and certain other
adjustments that we consider useful information to investors and
others in understanding and evaluating our operating results. In
addition, other companies may use other measures to evaluate their
performance, including different definitions of “Adjusted EBITDA,”
which could reduce the usefulness of our Adjusted EBITDA as a tool
for comparison.
The following table reconciles Adjusted EBITDA with net (loss),
the most directly comparable financial measure calculated and
presented in accordance with GAAP, for the three and nine months
ended September 30, 2022 and 2021.
Three months ended
September 30,
Nine months ended
September 30,
(in thousands)
2022
2021
2022
2021
Net (loss)
$
(21,226
)
$
(4,271
)
$
(44,096
)
$
(4,494
)
Equity-based compensation
expense
14,600
11,198
44,216
33,321
Interest expense
2,593
1,765
5,908
6,303
Income tax (benefit)
expense
(544
)
2,125
1,210
1,636
Depreciation expense on
property and equipment
98
99
295
272
Amortization of intangible
assets
1,704
746
4,064
2,238
Transaction expenses(1)
106
1,152
636
3,883
Employee-related costs(2)
—
270
—
619
SOX implementation costs(3)
—
348
110
797
Fair value adjustment to
contingent consideration(4)
(3,746
)
—
(6,591
)
—
Impairment of cost method
investment
8,594
—
8,594
—
Settlement costs(5)
—
800
—
800
Changes in TRA related
liability(6)
13
(448
)
(577
)
(604
)
Changes in Tax Indemnification
Receivable(7)
(15
)
—
(44
)
147
Settlement of federal and state
income tax refunds(8)
—
—
92
—
Adjusted EBITDA
$
2,177
$
13,784
$
13,817
$
44,918
(1)
Transaction expenses consist of $0.1
million and $0.6 million of legal, accounting and other consulting
fees incurred by us for the three and nine months ended September
30, 2022, respectively, in connection with the acquisition of CHT.
For the three and nine months ended September 30, 2021, transaction
expenses consist of $1.2 million and $3.9 million for legal,
accounting, and other consulting fees in connection with the
Secondary Offering and other registration statements, and the
refinancing of our 2020 Credit Facilities, respectively.
(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 consist of $0 and
$0.1 million of expenses incurred by us for the three and nine
months ended September 30, 2022, respectively, and $0.3 million and
$0.8 million of expenses 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) for 2021.
(4)
Fair value adjustment to contingent
consideration consists of $3.7 million and $6.6 million of gain for
the three and nine months ended September 30, 2022, respectively,
in connection with the remeasurement of the contingent
consideration for the acquisition of CHT as of September 30,
2022.
(5)
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.
(6)
Changes in TRA related liability consist
of immaterial expenses and $0.6 million of income for the three and
nine months ended September 30, 2022, respectively, and $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 reductions of the TRA liability.
(7)
Changes in Tax Indemnification Receivable
consists of immaterial income incurred by us for the three and nine
months ended September 30, 2022, and $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. The
reduction also resulted in a benefit of the same amount which has
been recorded within income tax (benefit) expense.
(8)
Settlement of federal and state tax
refunds consist of $0 and $0.1 million of expense incurred by us
for the three and nine months ended September 30, 2022,
respectively, related to a payment to White Mountains for state tax
refunds for the period prior to the Reorganization Transaction
related to 2020 tax returns. The settlement also resulted in a
benefit of the same amount which has been recorded within income
tax (benefit) expense.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221103006071/en/
Investors Denise Garcia Hayflower Partners Denise@HayflowerPartners.com
Press Louise Rasho Louise@MediaAlpha.com
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