MediaAlpha, Inc. Q2 FY2025 earnings call

• FTC Settlement: Reached a settlement with the FTC resolving its investigation into the under-65 health insurance business, involving $45 million in payments funded from cash on hand and additional compliance measures for the under-65 marketplace. - Q2 Results: Solid results driven by P&C insurance vertical growth fueled by increased marketing investments from auto insurance carriers. Underwriting margins in P&C are robust, and new supply partner wins contributed to strong Q2 results. Health vertical transaction value declines are seen as behind us in terms of significant dollar decreases, though near-term year-over-year declines continue, but the health business remains profitable. - Financial Metrics: Q2 generated $22 million of cash, ended with $85 million of cash, and net debt to adjusted EBITDA ratio of 0.6x. Extended the maturity of $142.6 million of indebtedness under credit facilities by 1 year through July 2027.

For the second quarter, transaction value was $481 million, up 49% year-over-year. The P&C vertical drove 71% year-over-year growth in transaction value. In the health vertical, transaction value declined 32% year-over-year. Adjusted EBITDA for the quarter was $24.5 million, increasing 31% year-over-year. Adjusted EBITDA represented 62% of contribution, up from 56% in the prior year. Adjusted EBITDA included $35.3 million of add-backs related to the FTC matter, consisting of $2.3 million of legal expenses and a $33 million reserve for the $45 million settlement.

• Q3 Expectations: Expect record third quarter transaction value, with P&C transaction value expected to grow ~35% year-over-year. Health vertical transaction value expected to decline ~40% to 45% year-over-year. Q3 transaction value expected between $545 million and $570 million, revenue between $270 million and $290 million, adjusted EBITDA between $25.5 million and $27.5 million. - Under-65 Projections: Expect 2025 under-65 transaction value of $95 million to $100 million and contribution of about $10 million, resulting in a take rate of about 10% at the midpoint. - Cash Flow: Expect to convert significant portion of adjusted EBITDA into unlevered free cash flow, providing financial flexibility. $33.5 million of FTC-related payments expected in Q3 and $11.5 million in Q4.

• FTC Settlement Implementation: The new compliance measures and content review/partner screening processes for the under-65 vertical could impact operations. - Market Conditions: Challenging conditions in Medicare Advantage affecting health vertical transaction value. Potential impact of automotive tariffs and inflation on P&C carrier profitability and budgets. - Carrier Budget Uncertainty: Uncertainty around carrier budgets in the back half of the year and into next year, especially in Medicare Advantage due to potential pullback in benefits and broker behavior.

Q: Congrats on the settlement. Now with the SEC matter resolved and stronger compliance framework, how does it enhance competitive positioning in the under-65 vertical and impact user experience and conversion quality?

A: The measures taken, including settlement terms, set a new baseline for the under-65 health insurance business. It creates an opportunity to work with consumers navigating under-65 choices, and the changes from the Trump Administration may increase consumer need for the service. The compliance measures will help build from a new baseline without material impact on Medicare or P&C sides.

Q: On the P&C side, mix between existing carrier spend increases versus new carrier additions?

A: Vast majority of spend increase in P&C was from existing carriers. New carriers start small, so growth was driven primarily by biggest existing carriers. On the supplier side, gaining share with existing shared partners and winning exclusive partners, testament to technology, account management, and monetization capabilities.

Q: Margin outlook and adjusted EBITDA outlook, attributable to under-65 business being smaller and new supply partner wins in P&C?

A: Take rate compression due to under-65 being a smaller, lower-margin business and new supply partner wins in P&C at lower-than-average take rates. Focus on two margins: take rate and conversion from contribution to EBITDA. EBITDA margins trend upwards, and the company is laser-focused on efficiency.

Q: Thoughts on capital structure and potential for share repurchases?

A: $45 million of FTC-related payments will be a short-term cash use. The company is generating cash, has flexibility to invest, reduce debt, or return capital to shareholders, but no firm targets or commitments yet, focusing on intelligent capital deployment.

Q: Expectations for AEP and platform positioning with increased shopping behavior?

A: Anticipate increased shopping behavior due to Medicare Advantage carrier rebalancing, repricing, and benefit changes. However, carrier budgets going into AEP may be lighter than previous years. Broker side may have more willingness, but net trend in Medicare is not great, with carrier budgets tight.