Hello, and thank you for joining us. I would like to welcome everyone to the MediaAlpha, Inc. First Quarter 2024 Earnings Call. I will now hand it over to Alex. Please proceed.

Thank you, Jericho. After the market closed today, MediaAlpha issued a press release and shareholder letter announcing results for the first quarter ended March 31, 2024. These documents are available in the Investors section of our website, and we'll be referring to them on this call. Our discussion today will include forward-looking statements about MediaAlpha's business and outlook for future financial results, including its financial guidance for the second 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, May 1, 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 would 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, Alex. Hi, everyone. Welcome to our first quarter 2024 earnings call. I'd like to make a few comments before turning the call over to our CFO, Pat Thompson, for his remarks. We've had an outstanding start to the year. Our first quarter results exceeded the high end of our guidance ranges across the board as we saw an increasingly strong step-up in marketing investments by our P&C carrier partners during the back half of the quarter. We're confident that we're now firmly in the midst of an auto insurance market recovery, and we're expecting strong year-over-year growth in our second quarter P&C Transaction Value. First quarter results in our Health insurance vertical were also above expectations. This was driven by continued strength in our under-65 business as well as opportunistic carrier spend in Medicare. We expect high single to low double-digit year-over-year Transaction Value growth in our Health insurance business in the upcoming second quarter. As auto insurance carriers' rate increases continued to significantly outpace moderating loss cost inflation, the P&C industry's recovery from a period of unprecedented underwriting losses is quickly gaining momentum. We expect these favorable market conditions to be sustained for the remainder of this year and beyond as an increasing number of carriers achieve rate adequacy and begin to reinvest in customer acquisition. We believe these positive trends will enable us to drive meaningful cash flow growth and shareholder value in the years to come. Finally, Eugene Nonko, my co-founder and the company's Chief Technology Officer, will be transitioning out of his current role at the end of the year and handing the reins to Amy Yeh, our SVP of Technology. Amy has worked closely with Eugene during her 9 years at MediaAlpha and will take over as our CTO in 2025. I would like to personally thank Eugene for all he has done over his 13 years with the company. Without him, of course, we would not be where we are today. With that, I'll turn the call over to Pat.

Thanks, Steve. I'll begin with a few comments on our first quarter financial results and other recent business and market developments before reviewing our second quarter financial guidance and opening the call up for questions. As Steve mentioned earlier, our first quarter results exceeded the high end of our guidance ranges across all metrics, with year-over-year Transaction Value and adjusted EBITDA growth of 13% and 98%, respectively. Transaction Value in our P&C insurance vertical was up 150% quarter-over-quarter, driven by strong step-ups in marketing spend during the back half of the first quarter by our carrier partners, especially our largest advertiser. Transaction Value in our Health vertical was also up 16% year-over-year, above expectations. The adjusted EBITDA increase of $7.1 million year-over-year was driven by higher contribution and lower overhead. We are in a very different place now than where we were at this time last year when carriers were significantly pulling back on marketing spend. We expect 60% to 70% sequential growth in P&C Transaction Value, driven by a continuation of the positive trends we've been seeing. In Health, we expect Transaction Value to grow at a high single to low double-digit rate year-over-year. Moving to our consolidated financial guidance. We expect Q2 Transaction Value to be between $285 million and $300 million, a year-over-year increase of 132% at the midpoint. We expect revenue to be between $145 million and $155 million, a year-over-year increase of 77% at the midpoint. We expect adjusted EBITDA to be between $15.5 million and $17.5 million, a year-over-year increase of 359% at the midpoint, driven by higher contribution. We expect overhead to be approximately $500,000 higher than Q1 2024. Lastly, Q2 legal costs associated with the ongoing FTC inquiry are expected to be approximately $1 million, similar to Q1. Finally, a few comments on expenses and profitability going forward. We continue to have measured hiring plans for 2024 and expect limited overhead growth for the full year. Given our lean team and capital-efficient model, we expect to generate significant operating leverage and adjusted EBITDA as our top-line growth accelerates. Cash flow is expected to follow suit and our near-term priority remains on using excess cash to reduce net debt. To the extent attractive alternative capital deployment opportunities arise, we will reassess at that time.

And your first question comes from the line of Michael Graham with Canaccord.

Congrats on the really strong results. My first question, I just wanted to kind of ask how you were thinking about sort of like what the high watermark could be for the business in this early cycle? Like if we look back at your historical Transaction Value results to sort of peaked in the middle part of 2021, and you were sort of like on a run rate well north of $1 billion, I'm just wondering, like do you think the industry is set up for you to be at that level when this next cycle peaks or larger? Or just like how are you thinking about that topic?

Michael, I can address that question. As we assess our current position and what the future may bring, the first thing that comes to mind is the unique nature of this underwriting cycle. As the market recovers, we anticipate a significant level of unpredictability. This is reflected in our first quarter results and the way the second quarter is unfolding. Several factors are influencing this situation. First, we correctly anticipated that the recovery would begin with a few advertiser carriers re-entering the marketplace, and we expect this momentum to grow as more carriers achieve rate adequacy and begin to invest in growth through 2024 and into 2025. We have seen this trend as expected. Additionally, consumer sentiment regarding auto insurance shopping is currently at an all-time high, driven by rate increases of 30% to 40%, which encourage shopping behavior. We foresee this trend continuing into 2024 and 2025 due to ongoing rate increases. Currently, rates are climbing approximately 20% to 22% year-over-year, with some carriers still increasing rates this year and into 2025. As these rate hikes become evident in renewal notices, we expect to see continued elevated shopping behavior through this year and the next. However, we were surprised by the pricing unpredictability, primarily due to a limited number of national carriers re-entering the market early this year. These carriers were among the first to achieve rate adequacy, which contributed to pricing returning to pre-hard market levels in the first quarter and early second quarter, which was unexpected. We believe this pricing rebound can be attributed to the carriers' renewed eagerness after being sidelined for almost three years and the measurable nature of our marketplace, which allows for pricing based on expected lifetime value and return on ad spend rather than solely on competitive pressures. We are pleasantly surprised by how swiftly pricing has reverted to those pre-hard market levels. Moving forward, we expect that as more carriers enter the market, pricing will increase. States like California and New York are coming back online, which should raise average pricing across our network. However, we anticipate these price increases will be more gradual compared to the sharp rises we've seen so far this year. Michael, does that provide the insight you were looking for?

It does, Steve. And that was a complete answer, so I'll defer to the next caller.

Our next question comes from the line of Mike Zaremski with BMO Capital Markets.

I just have a follow-up question regarding whether we should be aware of any seasonality. It would be helpful if you could remind us about any seasonal trends we should consider. You provided a second quarter guidance, and I recall that there has been some seasonality around tax refund season. If that's indeed the case, it should be reflected in the second quarter guidance, assuming the Federal guidelines hold true. Is there anything specific about seasonality that we should be aware of?

Yes. And Steve, do you want me to take this one?

Yes. Go ahead, Pat.

Thanks for the question, Mike. Our two main verticals exhibit different seasonal trends. In property and casualty, typically, the first and third quarters are the busiest for consumer shopping, with the second quarter slightly lower and the fourth quarter even lower. As we've shared previously, we expect the first quarter to be 15% to 25% higher than the fourth quarter in a typical year. The guidance for the second quarter reflects a trend that deviates from normal seasonality in property and casualty, and we have not provided guidance for the third quarter or beyond. In the health vertical, that part of the business is largely concentrated in the fourth quarter, which usually accounts for about 40% of our business. The first quarter follows as the second-largest due to some enrollment periods extending into January, while the second and third quarters are generally smaller than the first. This overview should give you an idea of typical seasonality, and similar to the challenges we faced during the hard market downturn, it may be difficult to interpret the seasonal trends as the business recovers.

Okay, I understand. Yes, that is helpful. It seems like you've managed well despite the challenges of expense cuts in recent years. As the market begins to stabilize or improve significantly, will you take a cautious approach initially to ensure that revenues are secure before reinvesting? Or do you have enough visibility that we can expect you to return to your usual reinvestment strategies regarding margins?

Yes, Mike. I would say that efficiency is an integral part of our company. As a bootstrap company, we have been profitable since the beginning, and we take that very seriously. I believe we have navigated the challenging market fairly well. We plan to make some investments this year, focusing on both capacity and core technology product analytics. Our guidance for the year indicates limited growth in dollar overhead for 2024 compared to 2023. We expect an increase of about $500,000 in Q2 compared to Q1 and anticipate further increases in Q3 relative to Q2 and Q4 relative to Q3 as we begin to reinvest with greater confidence.

And Pat, as a last follow-up, is there any way you could size up by level like what percentage of your expense base is fixed versus variable?

That's not something we disclose, Mike. The one thing I would say is that the vast majority of our headcount is included in the operating expenses category. And so we would deem it to be fixed or semi-fixed. Obviously, there are some roles in there that probably are variable at some point, which is, hey, if you've got a bunch more business happening, do you need another account manager or something like that. But I'd say that the vast majority of our headcount, I would deem as being fixed.

Our next question comes from the line of Cory Carpenter with JPMorgan.

Steve, could you just give us a sense of how close the wave 1 carrier is back to normal, fully normalized spending levels? And then if we think of, I'll call them, the wave 2, wave 3 carriers, how much are they contributing? How material was that to 1Q? And how do you expect them to ramp in 2Q?

Yes. So Cory, if I heard your question correctly, I think you're asking about, I think, the small number of carriers who right now are getting close to normal levels. And I think I just answered your question by saying that. I think the small number of carriers who have achieved rate adequacy are really starting to reinvest in growth, are actually getting close to normal levels. And so we've been, again, surprised by that very pleasantly so. And again, I think that's really attributable to the fact that there's been 3 years of muted growth investments and the industry is really ready to start reinvesting in growth once each of the carriers in the industry achieve rate adequacy. In terms of color into what that next wave looks like, I mean, we're certainly engaged in positive discussions with all of the other carriers. I think that one thing that we're seeing that's a little bit different than the last hard market cycle is just the sheer number of other carriers, right, who typically haven't been big players within the online direct-to-consumer space and just how hard bank they are versus when they emerged from the last hard market. And what I mean by that is just in terms of the level of technical integrations that we have with them, their understanding of how to measure expected lifetime value, how to match that to media cost to achieve target return on ad spend, the value of programs to gain additional monetization from visitors like our carrier publishing program and the strong adoption we got during the hard market period. And even with the personnel that are within the marketing departments of a lot of these carriers and just the level of sophistication they have. And so the timing of the second tier or the next wave of carriers to come on, I think, really will be dictated by how quickly they achieve rate adequacy. And I think you and I have the same access to that data. Again, I'm not going to go out and say that they're going to return ahead of getting profitability where they need to be. It was a tough cycle. But when they come back, really what we're excited about is just how many more carriers are actually in a good place to really scale their spend with us. And I think that, that really bodes well for this vertical for us over the next couple of years, again, of what we are expecting to be sort of the opposite of the hard market cycle, which is a soft market cycle where a number of carriers are really aggressively spending in growth and in marketing in order to gain market share. And we're excited about working with just a growing number of carrier partners to really realize and help them realize their growth objectives.

Our next question comes from the line of Tommy McJoynt with KBW.

With so much auto consumer shopping going on, you mentioned that carriers are certainly thinking pretty hard about lifetime values of customers. Can you talk about some of the advantages that MediaAlpha has over its competitors in terms of helping carriers evaluate this really important input as carriers are looking to kind of seek out new customers? Basically, just what is the value proposition that MediaAlpha goes to market to its carriers?

Sure. First, the measurability of our marketplace is key. All the media here is performance media, directly tied to actual sales. Each dollar spent is fully accountable and linked to a policy sale, justifying media pricing. Additionally, the scale of our marketplace stands out. Carrier spending here is often two to three times higher than in other marketplaces. This abundance of data provides carriers with a clearer understanding of the expected lifetime value for the consumer segments they target. It enables them to better estimate the lifetime value of the customers acquired through our channel, leading to improved ROI or return on ad spend across 300 to 400 publishers. In times like these, when advertisers are aiming to expand, the detailed transparency and scale we offer in our marketplace will help carriers grow while maintaining their efficiency targets.

Got it. And then just a second question here. From your perspective, have you seen a lot of unbundling of customers in terms of looking to separate home and auto? And kind of how has that impacted? What carriers are kind of willing to bid for customers who are looking to acquire?

Yes, I think that's certainly a topic that many people are discussing, especially regarding the dynamics in the marketplace. Both auto and home have encountered their own challenges with dislocated markets and significant pricing. I believe this is indeed occurring in the market. However, we don't have complete visibility into that. Our marketplace is mainly focused on auto, with home being a smaller segment. Nevertheless, we are noticing a rise in demand for home insurance, which seems to stem, in part, from the difficulties carriers face in retaining some of their bundled customers.

Our next question comes from the line of Ben Hendrix with RBC Capital Markets.

Congratulations on the quarter. Maybe a couple of quick ones here. First, just if you could follow up on this opportunistic partner spend in Medicare. Can you remind us kind of the nature of that arrangement, kind of what you saw in terms of magnitude this quarter? And how should we think about that going forward?

Yes. I would say that on the Medicare side, a few carriers in late February and March increased their spending with us, likely because they noticed a promising market opportunity and favorable returns. Their feedback was largely positive, indicating they felt they received a good return on that investment. It's important to note that, considering the size of our Health vertical in Q1, the level of spending wasn't substantial, yet it resulted in a 6 to 10 percentage point increase compared to expectations, which we view as clearly positive.

Got you. We noticed a less than ideal rate announcement for Medicare Advantage next year. Some of the major players, like Humana and CPS, are discussing ways to maintain profit margins by reducing benefits for the upcoming year. It appears that the shopping conditions are gradually improving. I’d like to know if you share this perspective and how you view the Transaction Value opportunity developing for the Open Enrollment Period this year.

I believe you provided a good overview of the various market dynamics at play. Over time, we have observed that both Medicare and our under-65 business are influenced by regulatory and market changes, which can have long-term effects. I am confident that the industry will adapt successfully to any upcoming changes. In the near term, there may be some challenges or unexpected positives, but we are enthusiastic about the long-term prospects. We have received encouraging feedback from our advertising partners in publishing, and we feel optimistic about the second quarter. We will offer more guidance as we approach that time and gain further clarity on market sentiments. We are prepared to respond to whatever developments arise.

And there's a follow-up question from Mike Zaremski with BMO Capital Markets.

I have a quick follow-up question. Regarding the Property & Casualty Insurance segment, if we look back to when the industry was profitable, revenue was highly concentrated among a few carriers. As we consider the first half of 2024, is it still very concentrated, or have we seen some deconcentration? Could you provide some insights on this?

Yes, Mike, I believe you expressed that perfectly. Since we are still in the early stages of recovery, with only a few carriers returning to or nearing normal spending levels, we will likely see more concentration in our Property and Casualty marketplace. As more carriers reach rate adequacy and begin to invest in growth again, I anticipate seeing greater diversity in demand within our P&C marketplace. Exiting this hard market, as I've mentioned previously, we have a range of additional carriers that we are collaborating with, and I believe they are well-positioned to adopt this channel in the upcoming growth cycle. Therefore, I expect to see more fragmentation and diversification in demand as the soft market truly begins to take hold.

It seems that there are no further questions at this time. And this concludes today's conference call. You may now disconnect.