Thank you all for joining us. I would like to welcome everyone to the MediaAlpha Fourth Quarter and Full Year 2023 Earnings Conference Call. I will now hand the call over to Denise Garcia from Investor Relations. You may begin your conference.

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.

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 refocus 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.

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.

Our first question comes from Cory Carpenter of JPMorgan. Please go ahead.

Hi, thanks for the question. Steve, I wanted to ask, in your view, what's different this time around? You mentioned a sustainable recovery is underway. So kind of what's different in what you saw this time last year that you would call out? And then secondly, you called out one major carrier ramping spend at the end of Q4. Curious what you're seeing from other carriers as the year progresses. Thank you.

Hi Cory. Sure. Yes. So I think what's different this time around is it's pretty evident when you look at the underlying profitability of all the carriers in the industry. What you've seen is really the second half of '23 being far better than the first half, and carriers such as Progressive, Allstate, really everyone who's coming out with their Q4 results showing stronger results in the second half of '23 and particularly strong results in Q4 of '23. That's really leading into, I think, justifiable optimism for where their rates are going into '24. I think as you look back into where the industry was in '22 coming into '23, I think you're just going to see a far different picture from a profitability perspective. And I think that goes to the second part of the question that you had as well, which is that in terms of other carriers, we do see broad-based sentiment that the market has turned. We're engaged in positive growth discussions with almost all of our major carriers. Certainly, the currently, the recovery has been driven by one primary direct writer. But we are starting to see an uptick in spend from many of our major carriers, and we expect that to really continue through '24 and into '25.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Michael Graham of Canaccord Genuity. Please go ahead.

Yes. Thank you. It's great to see the recovery taking shape. I wanted to ask a question on what kind of operating leverage you think you might be able to see as we move through the year? You just guided to, I think, 9.5% EBITDA margin, which is great and pretty consistent with what you were doing sort of a couple of years ago before the downturn, and I know you have cut some costs from then until now. So just wondering if you could kind of frame out how you're thinking about operating leverage, if we're fortunate enough to see this recovery gain momentum throughout the year.

Yes, this is Pat. Thank you for the question. I’ll break that down into a couple of parts. First, we typically provide guidance on a quarterly basis, so we won't be sharing any firm numbers beyond Q1. However, I can highlight a few things. This business has a largely fixed cost structure, meaning that as transaction values increase, our revenue and contributions also tend to rise, while overhead remains relatively fixed. We don’t have significant hiring plans this year; we will add capacity in certain areas, but we are not anticipating a major increase in our overhead costs this year. For your reference, our guidance for overhead growth this year is modest, with Q1 actually projected to be lower than Q1 of 2023. The comparisons get a bit tougher in Q2 due to some risk benefits included last year. In Q3 and Q4, we expect to operate at a lower level, with year-over-year reductions in Q1. We anticipate that Q3 and Q4 overhead expenses may be slightly higher than what we’re predicting for Q1. I hope this provides some clarity on operating expenses as you consider potential take rates as the business recovers.

Yes, that's helpful.

Thank you, Pat

Our next question comes from Tommy McJoynt from KBW. Please go ahead.

Hi, good afternoon, guys. Thanks for taking my questions. Are there any lessons learned sort of thinking about the this cycle relative to the last hard market and kind of exiting 2017 into 2018 and beyond? Just putting that kind of in context how we can think about the buildup and the ramp of the recovery in personal auto spend. And if you could put that answer in the context of acknowledging that the overall pie of the overall personal auto premium market size is evidently much larger right now than it was back then. So if you could just kind of put that in context as we think about building our forecast.

Yes, sure. That's nice. The key point I take away from the last hard market is how unpredictable the recovery can be and the potential magnitude of that recovery. Transitioning from the last hard market in 2016 and 2017 into 2018 marked our biggest growth year in the company's history. The timing of this recovery is still uncertain, which highlights the unpredictable nature of the cycle and how much deeper this hard market cycle has been compared to the previous one. During the last cycle, carrier advertising spend remained flat, whereas this time some estimates indicate that overall auto insurance carrier advertising spend decreased by 35% to 40%. When considering the recovery and its potential, we don't have exact predictions for the timing and magnitude, but our past experience shows that when the market recovers, it can do so rapidly and significantly.

Got it. That's good color. And then my second question, it was really a tough stretch year for any of the business models that are dependent on insurer customer acquisition spend over the past couple of years. Do you have any indication whether or not the competitive landscape has gotten more attractive simply by means of some competitors maybe not making it through or having to tamper down some of their growth expectations? Or do you view most of the competition to be pretty large and scaled players sort of have the capital resources to navigate, so it's a pretty unchanged competitive landscape?

Yes. I will say, listen, honestly, I think it's remained relatively unchanged. We measure our competitive landscape and our market share based on the number of supply partners we have who were in the marketplace. And so I mean, in this hard market when really advertisers weren't spending, we didn't see really any notable movement in market share, namely any losses of supply partners or gains of major supply partners. In the dry market, as we've seen over the last 2.5 to three years, that's totally to be expected. I think with that said, I think that the players in this space have largely remained. We didn't see anyone really drop out of the competitive marketplace. And so the competitive landscape hasn't changed, but we do expect that coming out of this hard market cycle that we're going to gain market share as we did coming out of the last hard market cycle, simply because we're the largest marketplace, we're a marketplace dedicated to carrier spend. And really, that's where the recovery is going to happen. And so we do anticipate that we're going to gain market share vis-à-vis our competitors and what you've seen over the past 2.5 to three years.

That's great. Thank you.

Thank you. Our next question comes from the line of Andrew Kligerman from TD Cowen. Please go ahead.

Hi. Good evening. Congrats on your persistency in having a great quarter.

Thanks, Andrew.

I think it's definitely a positive experience to be on this call, especially after some challenging quarterly calls. Considering how your revenue might rebound, I have a question that relates to two aspects. Looking ahead to 2025, do you believe there is a possibility to achieve a transaction value run rate that surpasses 2019 figures? Additionally, regarding private versus open transactions, does this significant customer you're referencing lean more towards the private market? As advertising activity increases, could we expect more business from open transactions, potentially leading to higher margins and profitability compared to what we're currently observing in the first quarter?

Great. So Andrew, I can take that. I'll answer the second question first. It was about the large customer and its orientation towards the private marketplace. Yes, that's correct. There are a couple of points to consider. One is that our Property & Casualty (P&C) business generally has slightly lower take rates compared to our Health business. Additionally, P&C tends to be more private than Health, and our largest advertiser in P&C is predominantly private, more so than the rest of the P&C sector. Given these trends, we observed that margins decreased in January, as we had less Health activity than in Q4, but spending picked up from January into February. In February, the take rates slightly declined, and for March, we expect them to decrease a bit more, primarily due to changes in mix for us. In terms of take rate, which we define as contribution over transaction value, that figure is slowly decreasing as the market recovers. This aligns with some trends you've noticed over the past few years during strong periods. Now, regarding your first question about what 2025 might look like—I'll just say we provide guidance based on what we have confidence in, which is Q1. From my experience over the past two years, as we look further out, the range of potential outcomes broadens. Right now, we feel optimistic about 2025, but it could turn out better or worse than my expectations or yours. It’s difficult to specify, so I prefer not to provide firm numbers on that while we focus on executing in Q1 and into Q2 before our next update.

Very fair, Pat. But just taking that, if I'm assuming a good health growth level, we could see more margin coming from the open transactions, which would be more profitable, again, but that would be my view, not yours. Is that a fair kind of assumption if we see a nice trajectory in growth, more could come from open given that this big account is private?

Yes. And Andrew, I would say it's going to be very dependent on the spend dynamics within the P&C vertical, which is, one major carrier is more private. They've been stepping in, in a meaningful way. And as others come back, could that mix start to shift more open? Sure, it could.

Got it. If I could ask one final question regarding the Medicare Advantage business, considering this challenging year with new regulations, how do you anticipate that influencing the significant fourth quarter of 2024? Do you believe you will be more adaptable? Do you see other carriers who are nimble and proactive in this market possibly benefiting from their adjustments to these regulations? It would be helpful if you could provide some details about the regulation and how companies might be positioned in 2024.

Yes. I believe the trends for 2023 and what we might see in 2024 are somewhat different. In 2023, we experienced new marketing rules that required carriers to approve the marketing messages presented to consumers, along with changes to waiting periods for working leads and outbound dialing. The most significant change was these marketing rules, which left several publishers struggling to adjust from one type of marketing messaging to another. Some adapted more quickly than others. Additionally, different carriers and some major brokers had to approve creative content, leading to inconsistencies regarding what was permissible. This process took time as they were trying to implement it in real-time, impacting the industry. Looking ahead to 2023, we anticipate that the next round of these regulatory changes will benefit the industry significantly. Regarding the future, regulators are consistently seeking to optimize regulations, and various carriers have commented on their current situations. I believe that CMS rule changes have made great strides in addressing poor practices in the industry, ultimately enhancing the user experience for seniors. These developments are long-term positives for the industry, and we expect regulators to continue seeking ways to build on this progress. We've been quite effective at adapting to these changes, which represent opportunities, and we remain excited about the future of the Medicare Advantage business.

Awesome. Thanks so much.

Thanks, Andrew.

Thank you. Our final question for the day comes from the line of Ben Hendrix from RBC Capital. Please go ahead.

Hi, thank you very much. Just a quick question on the health care business. We saw a lot, very turbulent period for earnings season for the carriers and saw some market share go to one carrier, in particular, CVS, versus slower growth than some of the others. Just wanted to see kind of how that translated to your transaction mix this quarter, if you saw anything in the fourth quarter that was unusual in terms of mix and then how that's translating to OEP thus far in the season? Thank you.

Yes. And Ben, I would say, of course, we saw changes on an individual carrier level basis and we do every year on that, which is seen as some people are a little bit more bullish, a little bit more bearish. But I would say that the macro trends have been pretty stable over time, their carriers continue to find our marketplace attractive and be leaning in to try to find pockets of customers that make sense for them. And as far as translating into the special enrollment period that's underway now, I would say the business is down significantly from the AETP and I would say the trends are not all that different from kind of what we saw during AEP or quite frankly, what we're seeing even going in AEP.

Thank you for squeezing me in.

Thank you, Ben.

Thank you. Ladies and gentlemen, as we have no further questions at this time, we will conclude today's conference call. We thank you for participating, and you may now disconnect.