Revenue of $112 million, down 22% year over year
Transaction Value of $193 million, down 19% year over year
- Transaction Value from Property & Casualty down 20% year over year to $118 million
- Transaction Value from Health down 1% year over year to $59 million

MediaAlpha, Inc. (NYSE:MAX) today announced its financial results for the first quarter ended March 31, 2023.

"We started the year with a good first quarter, as the anticipated ramp in marketing spend by our largest carrier partner resulted in 108% sequential Transaction Value growth in our P&C insurance vertical, which helped drive a return to year-over-year Adjusted EBITDA growth," said MediaAlpha co-founder and CEO Steve Yi. "However, the positive momentum we experienced in the first quarter has not continued, as the same carrier that helped drive our first quarter results has since reduced their advertising spend in light of renewed profitability concerns. While the amplitude and unpredictability of this underwriting cycle have been extraordinary, our first quarter results reinforce our conviction that P&C carriers will aggressively return to growth mode once underwriting profitability is restored."

First Quarter 2023 Financial Results

Revenue of $111.6 million, a decrease of 22% year over year;
Transaction Value of $193.2 million, a decrease of 19% year over year;
Gross margin of 16.5%, compared with 15.2% in the first quarter of 2022;
Contribution Margin⁽¹⁾ of 19.2%, compared with 16.5% in the first quarter of 2022;
Net loss was $(14.6) million, compared with $(9.8) million in the first quarter of 2022; and
Adjusted EBITDA⁽¹⁾ was $7.3 million, compared with $7.1 million in the first quarter of 2022.

⁽¹⁾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

Our guidance for Q2 2023 reflects a pullback in marketing spend by our largest P&C carrier partner as they look to address the key drivers of first quarter underwriting results and manage to full-year profitability targets. As a result, we expect second quarter Transaction Value in our P&C insurance vertical to decline year over year by 40% to 50%. In addition, we expect second quarter Transaction Value in our Health vertical to be roughly flat year over year.

For the second quarter of 2023, MediaAlpha currently expects the following:

Transaction Value between $107 million - $122 million, representing a 37% year-over-year decline at the midpoint of the guidance range;
Revenue between $74 million - $84 million, representing a 24% year-over-year decline at the midpoint of the guidance range;
Adjusted EBITDA between $0.5 million and $2.5 million, representing a 67% year-over-year decline at the midpoint of the guidance range. We are projecting our operating expenses after Adjusted EBITDA add backs to be approximately $1.5 million lower than Q1 2023 levels, driven primarily by workforce reductions, and to remain at these levels in Q3 2023.

With respect to the Company's projection of Adjusted EBITDA under "Financial Outlook," MediaAlpha is not providing a reconciliation of Adjusted EBITDA to net income (loss) because the Company is unable to predict with reasonable certainty the reconciling items that may affect net income (loss) 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 corresponding 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.

Conference Call Information

MediaAlpha will host a Q&A conference call today to discuss the Company's first quarter 2023 results and its financial outlook for the second quarter of 2023 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 (888) 330-2022 or (646) 960-0690, with passcode 3195092. 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, including without limitation statements regarding our expectation that P&C carriers will aggressively return to growth mode once their underwriting profitability is restored; and our financial outlook for the second quarter of 2023. 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 Form 10-K filed on February 27, 2023. 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 press release.

Non-GAAP Financial Measures and Operating Metrics

This press release includes Adjusted EBITDA 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 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, we believe that Transaction Value, Adjusted EBITDA and Contribution Margin provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Each of Transaction Value, Adjusted EBITDA 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.

MediaAlpha, Inc. and subsidiaries Consolidated Balance Sheets (Unaudited; in thousands, except share data and per share amounts)

	March 31, 2023			December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	19,529		$	14,542
Accounts receivable, net of allowance for credit losses of $325 and $575, respectively		43,126			59,998
Prepaid expenses and other current assets		4,603			5,880
Total current assets		67,258			80,420
Intangible assets, net		31,203			32,932
Goodwill		47,739			47,739
Other assets		7,240			8,990
Total assets	$	153,440		$	170,081
Liabilities and stockholders' deficit
Current liabilities
Accounts payable	$	46,313		$	53,992
Accrued expenses		10,074			14,130
Current portion of long-term debt		8,777			8,770
Total current liabilities		65,164			76,892
Long-term debt, net of current portion		172,100			174,300
Other long-term liabilities		4,882			4,973
Total liabilities	$	242,146		$	256,165
Commitments and contingencies (Note 6)
Stockholders' (deficit):
Class A common stock, $0.01 par value - 1.0 billion shares authorized; 44.3 million and 43.7 million shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		443			437
Class B common stock, $0.01 par value - 100 million shares authorized; 18.9 million and 18.9 million shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		189			189
Preferred stock, $0.01 par value - 50 million shares authorized; 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022		—			—
Additional paid-in capital		478,499			465,523
Accumulated deficit		(492,408	)		(482,142	)
Total stockholders' (deficit) attributable to MediaAlpha, Inc.	$	(13,277	)	$	(15,993	)
Non-controlling interests		(75,429	)		(70,091	)
Total stockholders' (deficit)	$	(88,706	)	$	(86,084	)
Total liabilities and stockholders' deficit	$	153,440		$	170,081

MediaAlpha, Inc. and subsidiaries Consolidated Statements of Operations (Unaudited; in thousands, except share data and per share amounts)

	Three months ended March 31,
	2023			2022
Revenue	$	111,630		$	142,599
Costs and operating expenses
Cost of revenue		93,262			120,881
Sales and marketing		6,994			7,223
Product development		5,168			5,216
General and administrative		15,755			17,148
Total costs and operating expenses		121,179			150,468
(Loss) from operations		(9,549	)		(7,869	)
Other expenses (income), net		1,381			(523	)
Interest expense		3,576			1,359
Total other expense, net		4,957			836
(Loss) before income taxes		(14,506	)		(8,705	)
Income tax expense		78			1,143
Net (loss)	$	(14,584	)	$	(9,848	)
Net (loss) attributable to non-controlling interest		(4,318	)		(2,772	)
Net (loss) attributable to MediaAlpha, Inc.	$	(10,266	)	$	(7,076	)
Net (loss) per share of Class A common stock
-Basic and diluted	$	(0.23	)	$	(0.17	)
Weighted average shares of Class A common stock outstanding
-Basic and diluted		43,870,005			40,847,941

MediaAlpha, Inc. and subsidiaries Consolidated Statements of Cash Flows (Unaudited; in thousands)

	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities
Net (loss)	$	(14,584	)	$	(9,848	)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Non-cash equity-based compensation expense		14,341			13,773
Non-cash lease expense		167			177
Depreciation expense on property and equipment		96			98
Amortization of intangible assets		1,729			683
Amortization of deferred debt issuance costs		199			209
Impairment of cost method investment		1,406			—
Credit losses		(250	)		(88	)
Deferred taxes		—			1,110
Tax receivable agreement liability adjustments		6			(630	)
Changes in operating assets and liabilities:
Accounts receivable		17,122			15,019
Prepaid expenses and other current assets		1,260			2,613
Other assets		125			47
Accounts payable		(7,679	)		(10,261	)
Accrued expenses		(1,382	)		(4,597	)
Net cash provided by operating activities	$	12,556		$	8,305
Cash flows from investing activities
Purchases of property and equipment		(30	)		(40	)
Net cash (used in) investing activities	$	(30	)	$	(40	)
Cash flows from financing activities
Payments made for:
Repayments on long-term debt		(2,375	)		(2,375	)
Distributions		(1,104	)		(130	)
Payments pursuant to tax receivable agreement		(2,822	)		(216	)
Shares withheld for taxes on vesting of restricted stock units		(1,238	)		(820	)
Net cash (used in) financing activities	$	(7,539	)	$	(3,541	)
Net increase in cash and cash equivalents		4,987			4,724
Cash and cash equivalents, beginning of period		14,542			50,564
Cash and cash equivalents, end of period	$	19,529		$	55,288

Key business and operating metrics and Non-GAAP financial measures

Transaction Value

We define "Transaction Value" as the total gross dollars transacted by our partners on our platform. Transaction Value is a 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 Marketplace transactions. In our Open Marketplace model, Transaction Value is equal to revenue recognized and revenue share payments to our supply partners represent costs of revenue. In our Private Marketplace 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 March 31, 2023 and 2022:

	Three months ended March 31,
(dollars in thousands)	2023			2022
Open Marketplace transactions	$	107,659		$	138,096
Percentage of total Transaction Value		55.7	%		57.8	%
Private Marketplace transactions		85,506			100,916
Percentage of total Transaction Value		44.3	%		42.2	%
Total Transaction Value	$	193,165		$	239,012

The following table presents Transaction Value by vertical for the three months ended March 31, 2023 and 2022:

	Three months ended March 31,
(dollars in thousands)	2023			2022
Property & Casualty insurance	$	117,924		$	148,083
Percentage of total Transaction Value		61.0	%		62.0	%
Health insurance		59,412			60,255
Percentage of total Transaction Value		30.8	%		25.2	%
Life insurance		10,117			12,392
Percentage of total Transaction Value		5.2	%		5.2	%
Other⁽¹⁾		5,712			18,282
Percentage of total Transaction Value		3.0	%		7.6	%
Total Transaction Value	$	193,165		$	239,012

(1)

Our other verticals include Travel, Education and Consumer Finance.

Contribution and Contribution Margin

We define "Contribution" as revenue less revenue share payments and online advertising costs, or, as reported in our consolidated statements of operations, revenue less cost of revenue (i.e., gross profit), as adjusted to exclude the following items from cost of revenue: equity-based compensation; salaries, wages, and related costs; internet and hosting costs; amortization; depreciation; other services; and merchant-related fees. We define "Contribution Margin" as Contribution expressed as a percentage of revenue for the same period. Contribution and Contribution Margin are non-GAAP financial measures that we present to supplement the financial information we present on a GAAP basis. 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 and efficacy of our online advertising costs to drive consumers to our proprietary websites, 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 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. For example, if Contribution increases and our headcount costs and other operating expenses remain steady, our Adjusted EBITDA and operating leverage increase. If Contribution Margin decreases, we may choose to re-evaluate and re-negotiate our revenue share agreements with our supply partners, to make optimization and pricing changes with respect to our bids for keywords from primary traffic acquisition sources, or to change our overall cost structure with respect to headcount, fixed costs and other costs. Other companies may calculate Contribution and Contribution Margin differently than we do. Contribution and Contribution Margin have their limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results presented in accordance with GAAP.

The following table reconciles Contribution with gross profit, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the three months ended March 31, 2023 and 2022:

	Three months ended March 31,
(in thousands)	2023			2022
Revenue	$	111,630		$	142,599
Less cost of revenue		(93,262	)		(120,881	)
Gross profit		18,368			21,718
Adjusted to exclude the following (as related to cost of revenue):
Equity-based compensation		966			398
Salaries, wages, and related		1,047			656
Internet and hosting		150			104
Other expenses		172			127
Depreciation		11			6
Other services		715			530
Merchant-related fees		(4	)		15
Contribution		21,425			23,554
Gross margin		16.5	%		15.2	%
Contribution Margin		19.2	%		16.5	%

Adjusted EBITDA

We define "Adjusted EBITDA" as net income excluding interest expense, income tax benefit (expense), depreciation expense on property and equipment, amortization of intangible assets, as well as equity-based compensation expense and certain other adjustments as listed in the table below. Adjusted EBITDA is a non-GAAP financial measure that we present to supplement the financial information we present on a GAAP basis. We monitor and present Adjusted EBITDA because it 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. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of Adjusted EBITDA. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects. In addition, presenting Adjusted EBITDA provides investors with a metric to evaluate the capital efficiency of our business.

Adjusted EBITDA is not presented in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures presented in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP. These limitations include the fact that Adjusted EBITDA excludes interest expense on debt, income tax benefit (expense), equity-based compensation expense, depreciation and amortization, and certain other adjustments that we consider useful information to investors and others in understanding and evaluating our operating results. In addition, other companies may use other measures to evaluate their performance, including different definitions of "Adjusted EBITDA," which could reduce the usefulness of our Adjusted EBITDA as a tool for comparison.

The following table reconciles Adjusted EBITDA with net (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, for the three months ended March 31, 2023 and 2022.

	Three months ended March 31,
(in thousands)	2023			2022
Net (loss)	$	(14,584	)	$	(9,848	)
Equity-based compensation expense		14,341			13,773
Interest expense		3,576			1,359
Income tax expense		78			1,143
Depreciation expense on property and equipment		96			98
Amortization of intangible assets		1,729			683
Transaction expenses⁽¹⁾		294			380
SOX implementation costs⁽²⁾		—			110
Impairment of cost method investment		1,406			—
Changes in TRA related liability⁽³⁾		6			(630	)
Changes in Tax Indemnification Receivable⁽⁴⁾		(14	)		—
Settlement of federal and state income tax refunds⁽⁵⁾		3			74
Legal expenses⁽⁶⁾		333			—
Adjusted EBITDA	$	7,264		$	7,142

(1)		Transaction expenses consist of $0.3 million of legal, and accounting fees incurred by us for the three months ended March 31, 2023, in connection with a resale registration statement filed with the SEC. For the three months ended March 31, 2022, transaction expenses consist of $0.4 million of expenses incurred by us in connection with our acquisition of CHT.
(2)		SOX implementation costs consist of $0.1 million of expenses for the three months ended March 31, 2022, for third-party consultants to assist us with the development, implementation, and documentation of new and enhanced internal controls and processes for compliance with SOX Section 404(b) for fiscal 2021.
(3)		Changes in TRA related liability consist of immaterial expenses for the three months ended March 31, 2023, and $0.6 million of income for the three months ended March 31, 2022, due to a change in the estimated future state tax benefits and other changes in the estimate resulting in reductions of the TRA liability.
(4)		Changes in Tax Indemnification Receivable consists of immaterial income for the three months ended March 31, 2023, related to a reduction in the tax indemnification receivable recorded in connection with the Reorganization Transactions. The reduction also resulted in a benefit of the same amount which has been recorded within income tax expense.
(5)		Settlement of federal and state tax refunds consist of immaterial expenses and $0.1 million of expense incurred by us for the three months ended March 31, 2023 and 2022, respectively, related to a payment to White Mountains for state tax refunds for the period prior to the Reorganization Transactions related to 2020 tax returns. The settlement also resulted in a benefit of the same amount which has been recorded within income tax expense.
(6)		Legal expenses of $0.3 million for the three months ended March 31, 2023, includes legal fees incurred in connection with a civil investigative demand received from the Federal Trade Commission (FTC) in February 2023.

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MediaAlpha Announces First Quarter 2023 Financial Results