MediaAlpha, Inc. (NYSE:MAX) Q3 2023 Earnings Call Transcript
MediaAlpha, Inc. (NYSE:MAX) Q3 2023 Earnings Call Transcript November 1, 2023
MediaAlpha, Inc. beats earnings expectations. Reported EPS is $-0.29206, expectations were $-0.34.
Operator: Thank you for standing by. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome to MediaAlpha Q3 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. I would now like to turn the floor over to Denise Garcia, Investor Relations. Denise, you may begin your conference.
Denise Garcia: Thank you, Christina. After the market closed today, MediaAlpha issued a press release and shareholder letter announcing results for the third quarter ended September 30, 2023. These documents are available in the Investors section of our Web site and we will be referring to them on this call. Our discussion today will include forward-looking statements about our business and our outlook for future financial results, including our financial guidance for the fourth quarter of 2023, which are based on assumptions, forecasts, expectations and information currently available to management. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from those reflected in those statements.
Please refer to the company's SEC filings, including its Annual Report on Form 10-K and its quarterly reports on Form 10-Q for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements. These forward-looking statements are based on assumptions as of today, November 1, 2023, and the company undertakes no obligation to revise or update them. In addition, on today’s call, we will be referring to certain actual and projected financial metrics of MediaAlpha that are presented on a non-GAAP basis, including adjusted EBITDA, which we present in order to supplement your understanding and assessment of our financial performance. Non-GAAP measures should not be considered as a substitute for or superior to financial measures calculated in accordance with GAAP.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our press release and shareholder letter issued today. Finally, I’d like to remind everyone that this call is being recorded and will be made available for replay via a link on the Investors section of the company’s Web site at investors.mediaalpha.com. Now, I'll turn the call over to Steve and Pat for a few introductory remarks before opening the call to your questions.
Steve Yi: Thank you so much, Denise. Hi, everyone. Welcome to our third quarter 2023 earnings call. I'd like to make a few observations before turning the call over to our CFO, Pat Thompson, for his comments. We continue to execute well in a difficult market environment. Our third quarter results came in at or above the high end of our guidance range due to strong top line growth and profitability in our health insurance vertical. For the fourth quarter, we expect our health transaction value to be roughly flat year-over-year as continued strength in our under 65 segments is offset by near term weakness in Medicare as the industry adapts to recent regulatory changes. Q3 results in our P&C insurance vertical were in line with our expectations as carriers have maintained consistent levels of advertising spend since June.
While we expect P&C advertising spend to remain at or near current levels through the remainder of the year, we're encouraged by the industry's improving underwriting profitability and continue to expect a broader market recovery to take hold in 2024. Looking forward, our immediate focus is on delivering solid results in our health vertical during the current open and annual enrollment periods. Longer term, our objective remains to capitalize on the significant growth opportunities presented by the insurance industry's ongoing shift to digital customer acquisition, and we remain confident in our ability to drive significant top and bottom line growth in the years to come. With that, I'll turn the call over to Pat.
Pat Thompson: Thanks, Steve. I'll begin with a few comments on our third quarter financial results and other recent business and market developments before reviewing our fourth quarter financial guidance and opening the call up for questions. As Steve mentioned earlier, our third quarter results were at or above the high end of the guidance range. Adjusted EBITDA exceeded expectations, increasing $1.4 million year-over-year despite a 26% or $38 million decline in transaction value with the annual growth driven by continued expense discipline. Transaction value in our P&C insurance vertical was down 46% year-over-year in line with our expectations as carriers continued to focus on restoring underwriting profitability over acquiring new customers.
In our health insurance vertical, we had another quarter of strong growth as transaction value grew 11% year-over-year in line with expectations. Moving the fourth quarter guidance. We expect another quarter of positive year-over-year adjusted EBITDA growth as the impact of expense discipline and higher gross margins more than offsets the impact of continued headwinds in our P&C vertical. In P&C, we expect the impact of seasonality to be muted with transaction value dollars to be similar to third quarter levels. In health, we expect transaction value growth to be roughly flat year-over-year for the reasons Steve noted earlier. As a reminder, fourth quarter typically represents about 40% of full year transaction value in our health vertical due to the timing of AEP and OEP.
As a result, we expect Q4 transaction value to be between $145 million and $160 million, a year-over-year decrease of 10% at the midpoint. We expect revenue to be between $106 million and $116 million, a year-over-year decrease of 10% at the midpoint. Lastly, we expect adjusted EBITDA to be between $9.5 million and $11.5 million, a year-over-year increase of 16% at the mid point. Q4 operating expenses after adjusted EBITDA add-backs are expected to be approximately $500,000 to $1 million higher than Q3 levels due in part to seasonality. Moving to other noteworthy items. During Q3, we incurred approximately $2 million of legal expenses, the majority of which were related to the ongoing FTC inquiry with the balance from a legal settlement unrelated to our core operations.
We expect to incur $1 million of fees associated with the FTC inquiry during Q4, a bit lower than Q3. We continue to believe we have been and remain fully compliant with all laws and regulations and we are cooperating with the FTC as they continue their inquiry. Turning to the balance sheet. We continue to prioritize financial flexibility and using excess cash to decrease net debt. We ended the quarter with $15 million of cash on hand and our focus remains on reducing financial leverage through a combination of net debt reduction and adjusted EBITDA growth. With that, operator, we are ready for the first question.
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