MediaAlpha Announces Third Quarter 2020 Financial Results

  • Revenue of $152 million, growing 37% year-over-year

    • Revenue from Property & Casualty grew 73% year-over-year
  • Transaction Value reaches a record $218 million, with 44% growth year-over-year

LOS ANGELES–(BUSINESS WIRE)–MediaAlpha, Inc. (NYSE: MAX), today announced its financial results for the third quarter ended September 30, 2020.

“We are pleased to announce a strong start to our journey as a public company, with record Transaction Value surpassing $200 million, driven by continued growth in our Property & Casualty insurance vertical,” said Steve Yi, Co-founder and CEO. “We continue to benefit from positive secular trends in the insurance industry, and our transparent, data science-based approach continues to drive outstanding results for our demand and supply partners. Customer acquisition investment from our Top 10 demand partners increased 95% year-over-year, which enabled us to expand our partnerships with existing suppliers as well as to attract new supply partners. With a robust ecosystem, we confidently expect to reach record revenue for the year, as reflected in our fourth quarter and full year revenue guidance.”

Third Quarter 2020 Financial Results

  • Revenue of $151.5 million, an increase of 37% year-over-year;
  • Transaction Value of $217.6 million, an increase of 44% year-over-year;
  • Gross margin of 13.7%, as compared to 16.0% from the same period in 2019;
  • Contribution Margin of 14.3%, as compared to 16.9% from the same period in 2019;
  • Net income was $4.8 million, as compared to $7.8 million in the third quarter of 2019; and
  • Adjusted EBITDA was $14.0 million, compared to Adjusted EBITDA of $11.7 million in the third quarter of 2019

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 2020, MediaAlpha currently expects the following:

  • Transaction Value between $223 – $225 million, representing 32% year-over-year growth at the midpoint of the guidance range
  • Revenue between $163 – $165 million, representing 30% year-over-year growth at the midpoint of the guidance range
  • Contribution between $24.5 – $25.5 million, representing 16% year-over-year growth at the midpoint of the guidance range
  • Adjusted EBITDA between $15.0 – $15.5 million, representing 9% year-over-year growth at the midpoint of the guidance range

For the full year 2020, MediaAlpha currently expects the following:

  • Transaction Value between $782 – $784 million, representing 40% year-over-year growth at the midpoint of the guidance range
  • Revenue between $558 – $560 million, representing 37% year-over-year growth at the midpoint of the guidance range
  • Contribution between $86 – $87 million, representing 25% year-over-year growth at the midpoint of the guidance range
  • Adjusted EBITDA between $54.5 – $55.5 million, representing 28% year-over-year growth at the midpoint of the guidance range

We expect total shares outstanding to be 58.5 million and 64.5 million on a common and fully diluted basis at the end of Q4 2020.

With respect to the Company’s projections of Contribution and adjusted EBITDA under “Financial Discussion – Q4 and FY 2020 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.

As of and for the three and nine months ended September 30, 2020, the periods covered by this release, MediaAlpha, Inc. had engaged solely in activities incidental to its formation. QL Holdings LLC and its subsidiaries have been determined to represent the predecessor entity to MediaAlpha, Inc. prior to the IPO. As such, the interim unaudited condensed consolidated financial statements and related notes of QL Holdings LLC and its subsidiaries as of and for the three and nine months ended September 30, 2020 and 2019 have been included in this release and on the Form 10-Q.

Conference Call Information

MediaAlpha will host a Q&A conference call today to discuss the Company’s Q3 2020 results 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 (833) 350-1346 or internationally at (236) 389-2445 with Conference ID#2271129. 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. 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 final prospectus filed with the SEC pursuant to Rule 424(b) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), on October 29, 2020 and the Quarterly Report on Form 10-Q that will be filed following this earnings release. 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 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.

QL Holdings LLC and subsidiaries

Unaudited condensed consolidated balance sheets

(In thousands, except unit and per unit data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,005

 

 

$

10,028

 

Accounts receivable, net of allowance for doubtful accounts

 

 

63,084

 

 

 

56,012

 

Prepaid expenses and other current assets

 

 

1,623

 

 

 

1,448

 

Total current assets

 

 

76,712

 

 

 

67,488

 

Property and equipment, net

 

 

701

 

 

 

755

 

Intangible assets, net

 

 

16,350

 

 

 

18,752

 

Goodwill

 

 

18,402

 

 

 

18,402

 

Other assets

 

 

21,665

 

 

 

 

Total assets

 

$

133,830

 

 

$

105,397

 

Liabilities, redeemable Class A units and Members’ Deficit

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

61,697

 

 

$

40,455

 

Accrued expenses

 

 

12,651

 

 

 

6,532

 

Current portion of long-term debt

 

 

6,262

 

 

 

873

 

Current portion of deferred rent

 

 

71

 

 

 

52

 

Total current liabilities

 

 

80,681

 

 

 

47,912

 

Long-term debt, net of current portion

 

 

199,146

 

 

 

96,665

 

Deferred rent, net of current portion

 

 

331

 

 

 

319

 

Other long-term liabilities

 

 

276

 

 

 

 

Total liabilities

 

 

280,434

 

 

 

144,896

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Redeemable Class A units, 284,211 at redemption value of approximately

$637.08 and $260.71 per unit as of September 30, 2020 and

December 31, 2019, respectively

 

 

181,066

 

 

 

74,097

 

Members’ (deficit) equity

 

 

 

 

 

 

 

 

Class A units, 1,136,842 units authorized; 852,631 units issued

and outstanding (excluding 284,211 units subject to possible

redemption) as of September 30, 2020 and December 31,

2019, respectively

 

 

73,003

 

 

 

73,003

 

Class B units, 177,300 units authorized; 177,300 and 163,800

issued and outstanding as of September 30, 2020 and

December 31, 2019, respectively

 

 

9,097

 

 

 

6,544

 

Accumulated deficit

 

 

(409,770

)

 

 

(193,143

)

Total members’ deficit

 

 

(327,670

)

 

 

(113,596

)

Total liabilities, redeemable Class A units and members’ deficit

 

$

133,830

 

 

$

105,397

 

QL Holdings LLC and subsidiaries

Unaudited condensed consolidated statements of operations

(In thousands)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

151,548

 

 

$

110,397

 

 

$

394,609

 

 

$

281,857

 

Cost and operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

130,830

 

 

 

92,707

 

 

 

335,692

 

 

 

237,130

 

Sales and marketing

 

 

2,916

 

 

 

3,227

 

 

 

8,866

 

 

 

10,586

 

Product development

 

 

1,766

 

 

 

1,609

 

 

 

5,482

 

 

 

5,174

 

General and administrative

 

 

7,595

 

 

 

3,171

 

 

 

13,897

 

 

 

16,265

 

Total cost and operating expenses

 

 

143,107

 

 

 

100,714

 

 

 

363,937

 

 

 

269,155

 

Income from operations

 

 

8,441

 

 

 

9,683

 

 

 

30,672

 

 

 

12,702

 

Other expense

 

 

1,998

 

 

 

 

 

 

1,998

 

 

 

 

Interest expense

 

 

1,594

 

 

 

1,920

 

 

 

4,844

 

 

 

5,259

 

Total other expense

 

 

3,592

 

 

 

1,920

 

 

 

6,842

 

 

 

5,259

 

Provision for income taxes

 

 

20

 

 

 

 

 

 

20

 

 

 

 

Net income

 

$

4,829

 

 

$

7,763

 

 

$

23,810

 

 

$

7,443

 

QL Holdings LLC and subsidiaries

Unaudited condensed consolidated statements of cash flows

(In thousands)

 

 

 

Nine months ended

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

23,810

 

 

$

7,443

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Non-cash equity-based compensation expense

 

 

1,762

 

 

 

1,795

 

Depreciation expense on property and equipment

 

 

210

 

 

 

208

 

Amortization of intangible assets

 

 

2,402

 

 

 

4,158

 

Amortization of deferred debt issuance costs

 

 

334

 

 

 

551

 

Loss on extinguishment of debt

 

 

1,998

 

 

 

 

Bad debt expense

 

 

356

 

 

 

263

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,428

)

 

 

(16,799

)

Prepaid expenses and other current assets

 

 

(147

)

 

 

47

 

Other assets

 

 

(11,665

)

 

 

 

Accounts payable

 

 

21,242

 

 

 

14,038

 

Accrued expenses

 

 

6,395

 

 

 

(341

)

Deferred rent

 

 

31

 

 

 

(70

)

Net cash provided by operating activities

 

 

39,300

 

 

 

11,293

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(156

)

 

 

(109

)

Purchase of cost method investment

 

 

(10,000

)

 

 

 

Net cash used in investing activities

 

 

(10,156

)

 

 

(109

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from revolving line of credit

 

 

7,500

 

 

 

 

Repayments on revolving line of credit

 

 

(7,500

)

 

 

 

Proceeds from issuance of long-term debt

 

 

210,000

 

 

 

100,000

 

Repayments on long-term debt

 

 

(100,023

)

 

 

(14,823

)

Payments of debt issuance costs

 

 

(4,467

)

 

 

(2,303

)

Cash paid to repurchase Class B units up to fair value

 

 

(1,453

)

 

 

(4,467

)

Cash paid for repurchases of Class A units

 

 

 

 

 

(62,806

)

Member contributions

 

 

 

 

 

62,806

 

Member distributions

 

 

(131,224

)

 

 

(88,934

)

Net cash used in financing activities

 

 

(27,167

)

 

 

(10,527

)

Net increase in cash and cash equivalents

 

 

1,977

 

 

 

657

 

Cash and cash equivalents, beginning of period

 

 

10,028

 

 

 

5,662

 

Cash and cash equivalents, end of period

 

$

12,005

 

 

$

6,319

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

4,503

 

 

$

4,750

 

Cash paid for repurchase of Class B units in excess of fair value

 

$

791

 

 

$

1,286

 

Transaction Value

We define “Transaction Value” as the total gross dollars transacted by our partners on our platform. Transaction Value is a direct 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 platform transactions. In our open platform model, revenue recognized represents the Transaction Value and revenue share payments to our supply partners represent costs of revenue. In our private platform 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 months ended September 30, 2020 and 2019, and the nine months ended September 30, 2020 and 2019:

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

(dollars in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Open platform transactions

 

$

148,240

 

 

$

108,146

 

 

$

386,224

 

 

$

275,991

 

Percentage of total Transaction Value

 

 

68.1

%

 

 

71.7

%

 

 

69.1

%

 

 

70.7

%

Private platform transactions

 

 

69,320

 

 

 

42,654

 

 

 

172,590

 

 

 

114,493

 

Percentage of total Transaction Value

 

 

31.9

%

 

 

28.3

%

 

 

30.9

%

 

 

29.3

%

Total Transaction Value

 

$

217,560

 

 

$

150,800

 

 

$

558,814

 

 

$

390,484

 

The following table presents Transaction Value by vertical for the three months ended September 30, 2020 and 2019, and the nine months ended September 30, 2020 and 2019:

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

(dollars in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Property & casualty insurance

 

$

161,323

 

 

$

94,770

 

 

$

390,955

 

 

$

233,746

 

Percentage of total Transaction Value

 

 

74.2

%

 

 

62.8

%

 

 

70.0

%

 

 

59.9

%

Health insurance

 

 

33,650

 

 

 

25,683

 

 

 

98,739

 

 

 

68,168

 

Percentage of total Transaction Value

 

 

15.5

%

 

 

17.0

%

 

 

17.7

%

 

 

17.5

%

Life insurance

 

 

11,628

 

 

 

8,735

 

 

 

31,717

 

 

 

26,841

 

Percentage of total Transaction Value

 

 

5.3

%

 

 

5.8

%

 

 

5.7

%

 

 

6.9

%

Other(1)

 

 

10,959

 

 

 

21,612

 

 

 

37,403

 

 

 

61,729

 

Percentage of total Transaction Value

 

 

5.0

%

 

 

14.3

%

 

 

6.7

%

 

 

15.8

%

Total Transaction Value

 

$

217,560

 

 

$

150,800

 

 

$

558,814

 

 

$

390,484

 

Contribution and Contribution Margin

The following table reconciles Contribution and Contribution Margin with gross profit, the most directly comparable financial measure calculated and presented in accordance with GAAP, the three months ended September 30, 2020 and 2019, and the nine months ended September 30, 2020 and 2019:

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

(in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

151,548

 

 

$

110,397

 

 

$

394,609

 

 

$

281,857

 

Less cost of revenue

 

 

(130,830

)

 

 

(92,707

)

 

 

(335,692

)

 

 

(237,130

)

Gross profit

 

 

20,718

 

 

 

17,690

 

 

 

58,917

 

 

 

44,727

 

Adjusted to exclude the following (as related to cost of revenue):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

18

 

 

 

19

 

 

 

58

 

 

 

158

 

Salaries, wages, and related

 

 

434

 

 

 

302

 

 

 

1,175

 

 

 

1,027

 

Internet and hosting

 

 

107

 

 

 

116

 

 

 

328

 

 

 

393

 

Other expenses

 

 

69

 

 

 

66

 

 

 

205

 

 

 

194

 

Amortization

 

 

 

 

 

170

 

 

 

 

 

 

510

 

Depreciation

 

 

6

 

 

 

5

 

 

 

17

 

 

 

18

 

Other services

 

 

189

 

 

 

193

 

 

 

616

 

 

 

523

 

Merchant-related fees

 

 

130

 

 

 

105

 

 

 

447

 

 

 

273

 

Contribution

 

$

21,671

 

 

$

18,666

 

 

$

61,763

 

 

$

47,823

 

Gross margin

 

 

13.7

%

 

 

16.0

%

 

 

14.9

%

 

 

15.9

%

Contribution Margin

 

 

14.3

%

 

 

16.9

%

 

 

15.7

%

 

 

17.0

%

Adjusted EBITDA

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 months ended September 30, 2020 and 2019, and the nine months ended September 30, 2020 and 2019.

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

(in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

4,829

 

 

$

7,763

 

 

$

23,810

 

 

$

7,443

 

Equity-based compensation expense

 

 

606

 

 

 

520

 

 

 

2,553

 

 

 

3,081

 

Interest expense

 

 

1,594

 

 

 

1,920

 

 

 

4,844

 

 

 

5,259

 

Income tax expense

 

 

20

 

 

 

 

 

 

20

 

 

 

 

Depreciation expense on property and equipment

 

 

73

 

 

 

65

 

 

 

210

 

 

 

208

 

Amortization of intangible assets

 

 

799

 

 

 

1,385

 

 

 

2,402

 

 

 

4,158

 

Transaction expenses(1)

 

 

6,049

 

 

 

 

 

 

6,049

 

 

 

8,831

 

Adjusted EBITDA

 

$

13,970

 

 

$

11,653

 

 

$

39,888

 

 

$

28,980

 

(1)

For the nine months ended September 30, 2019, transaction expenses included $7.2 million in legal, investment banking and other consulting fees and $1.6 million in transaction bonuses related to a transaction with Insignia in February 2019. For the months ended September 30, 2020, transaction expenses included $4.0 million in legal, and other consulting fees and $2.0 million in loss on debt related to the termination of the 2019 Credit Facilities.

Key business and operating metrics

“Transaction Value” represents the total gross dollars transacted by our partners on our platform. Transaction Value is a direct driver of revenue, with differing revenue recognition based on the economic relationship we have with our partners. We utilize Transaction Value to assess revenue and to assess the overall level of transaction activity through our platform.

“Contribution” represents revenue less revenue share payments and online advertising costs, or, as reported in our consolidated statement of operations, revenue less cost of revenue, 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. “Contribution Margin” represents Contribution expressed as a percentage of revenue for the same period. 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 our online advertising, 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 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.

“Adjusted EBITDA” represents 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 transaction expenses. Adjusted EBITDA 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. In addition, presenting Adjusted EBITDA provides investors with a metric to evaluate the capital efficiency of our business.

Contacts

Investors

Denise Garcia

Hayflower Partners

Denise@HayflowerPartners.com

Press

SHIFT

MediaAlpha@SHIFTComm.com