MediaAlpha, Inc. (NYSE:MAX) Q4 2023 Earnings Call Transcript
MediaAlpha, Inc. (NYSE:MAX) Q4 2023 Earnings Call Transcript February 20, 2024
MediaAlpha, Inc. beats earnings expectations. Reported EPS is $-0.05, expectations were $-0.21. MAX isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. I would like to welcome everyone to the MediaAlpha Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Denise Garcia, Investor Relations. You may begin your conference.
Denise Garcia: Thank you, Bhavesh. After the market close today, MediaAlpha issued a press release and shareholder letter announcing results for the fourth quarter ended December 31, 2023. These documents are available in the Investors section of our website, 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 first quarter of 2024, 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, February 20, 2024, 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 and contribution, 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 website 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: Thanks, Denise. Hi, everyone. Welcome to our fourth 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. After a difficult up and down year, we ended 2023 on a solidly positive note. Our fourth quarter results exceeded the high end of our guidance ranges across the board, driven by stronger-than-expected growth in our P&C insurance vertical. For the past several years, lingering pandemic-related inflationary pressures created the most difficult auto insurance market in decades. Going into 2024, we're now confident that a sustainable industry recovery is finally underway. During December, we saw a major carrier make meaningful increases in their marketing investments, and this positive trend has accelerated into the new year.
Accordingly, we expect first quarter P&C transaction value to nearly double quarter-over-quarter, far surpassing typical seasonality, and we expect continued growth over the course of 2024 as more of our auto insurance carrier partners achieve target profitability and retrained our focus on customer acquisition. Q4 results in our health insurance vertical were in line with expectations, driven by continued strength in our under-65 business, which was offset by weakness in Medicare, as our partners face headwinds in adapting to recent regulatory changes as well as medical care cost inflationary pressures. We expect these broad trends in under-65 and Medicare to continue in the first quarter. Looking forward, we're optimistic that 2024 is the beginning of great things to come.
Our unwavering focus on our partnerships and maximizing operating efficiency during what proved to be an exceptionally difficult market downturn, have laid the foundation for what we believe will be a period of significant top and bottom line growth. With that, I'll turn the call over to Pat.
Pat Thompson: Thanks, Steve. I'll begin with a few comments on our fourth quarter financial results and other recent business and market developments before reviewing our first quarter financial guidance and opening the call up for questions. As Steve mentioned earlier, our fourth quarter results exceeded the high end of our guidance ranges. Adjusted EBITDA increased 40% or $3.6 million year-over-year, driven primarily by higher contribution and continued expense discipline. Transaction value in our P&C insurance vertical was up 21% quarter-over-quarter, ahead of expectations as a major carrier ramped spend on our platform. Transaction value in our health vertical was roughly flat year-over-year, in line with expectations. Moving to first quarter guidance.
We are highly encouraged by the trends we have seen thus far. In P&C, we expect transaction value to nearly double sequentially far in excess of typical seasonality. Despite these increases, we expect transaction value in our P&C vertical to be down modestly year-over-year, as a major carrier is ramping customer acquisition at a more measured pace this year relative to their dramatic increase in the first quarter of 2023. In Health, Q1 is typically a seasonally weaker quarter with a smaller contribution from Medicare. We expect the trends Steve highlighted earlier to continue, with transaction value growing in the mid- to high single digits year-over-year. Overall for Q1, we expect strong year-over-year adjusted EBITDA growth, driven by higher contribution and continued expense discipline.
As a result, we expect Q1 transaction value to be between $175 million and $190 million, a year-over-year decrease of 6% at the midpoint. We expect revenue to be between $105 million and $115 million, a year-over-year decrease of 1% at the midpoint. Lastly, we expect adjusted EBITDA to be between $9.5 million and $11.5 million, a year-over-year increase of 45% at the midpoint. For overhead, we expect contribution less adjusted EBITDA to be approximately $500,000 to $1 million higher than Q4 2023. Touching briefly on expenses. We remain focused on driving efficiencies and have modest hiring plans for 2024. We, therefore, expect limited overhead growth for the full year, driving significant operating leverage as revenue growth picks up. Regarding share-based compensation, 2024 levels are expected to be approximately $20 million lower than 2023, as certain founder grants issued at the IPO were fully vested by the end of the year.
Finally, Q1 legal costs associated with the ongoing FTC inquiry are expected to be approximately $750,000. Turning to the balance sheet. We continue to prioritize financial flexibility and using excess cash to decrease net debt. We ended the quarter with $17 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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