MediaAlpha, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. MediaAlpha operates a digital customer-acquisition platform connecting insurance carriers and distributors with high-intent consumers. It earns revenue from consumer referrals through Open and Private Marketplace transactions.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $142.6 million | $173.6 million |
| Gross profit / gross margin | $21.7 million / 15.2% | $26.4 million / 15.2% |
| Operating income (loss) | $(7.9) million | $1.9 million |
| Net income (loss) | $(9.8) million | $0.2 million |
| Net income (loss) attributable to MediaAlpha | $(7.1) million | $0.3 million |
| Diluted EPS | $(0.17) | $0.00 |
| Adjusted EBITDA (non-GAAP) | $7.1 million | $16.4 million |
| Cash from operating activities | $8.1 million | $(9.4) million |
| Cash and cash equivalents at quarter-end | $55.3 million | $12.9 million |
- Revenue declined 17.9% year over year. Transaction Value decreased 8.9% to $239.0 million, while purchased Consumer Referrals were nearly unchanged at 24.6 million versus 24.5 million.
- Contribution, a non-GAAP measure, was $23.6 million, with a 16.5% Contribution Margin, compared with $27.9 million and 16.1%.
- Cost of revenue was $120.9 million, or 84.8% of revenue, unchanged as a percentage of revenue. Operating expenses rose to $29.6 million from $24.5 million, including equity-based compensation of $13.8 million versus $10.6 million.
- Interest expense fell to $1.4 million from $2.3 million, primarily following the 2021 credit-facility refinancing. Income tax expense was $1.1 million despite a pretax loss; the reported effective tax rate was (13.1)%, reflecting, among other items, nondeductible equity compensation and losses attributable to non-controlling interests.
Material changes and drivers
- Property & casualty (P&C) revenue fell 30.3% to $87.5 million, mainly as carriers cut acquisition spending amid weaker underwriting profitability, higher repair and replacement costs, and inflation. Some activity also shifted from Open to Private Marketplace transactions, which are reported net.
- Health revenue increased 17.3% to $42.1 million, reflecting higher partner spending and referral supply, plus extended enrollment periods. Life revenue declined 11.1% to $7.1 million. Other revenue grew 42.2% to $6.0 million.
- Open Marketplace Transaction Value fell to $138.1 million from $169.3 million; Private Marketplace Transaction Value rose to $100.9 million from $93.1 million. Private Marketplace represented 42.2% of total Transaction Value, up from 35.5%.
- Operating cash flow improved from the prior-year use of cash, mainly because of lower working-capital usage, including changes in accounts receivable and payables. Investing cash use was minimal; financing cash use was $3.3 million, including term-loan principal repayment.
Liquidity, debt, outlook and risks
- At March 31, cash was $55.3 million; current assets were $124.3 million and current liabilities were $70.3 million. Debt carrying value was $184.6 million, including $8.7 million current and $175.9 million long-term. No revolver balance was outstanding at quarter-end under the $50 million facility.
- Management said cash, operating cash flow and available credit were expected to cover projected operating and debt-service requirements for at least 12 months. The term loan is variable-rate and matures July 2026. The filing estimates a hypothetical 1 percentage-point rate change would alter quarterly interest expense by $0.5 million.
- After quarter-end, on April 1, the company completed its acquisition of Customer Helper Team for $50 million cash, subject to working-capital adjustments, plus up to $20 million contingent consideration. It funded $25 million with a revolver draw and the remainder from cash. Purchase-price allocation was not complete at filing.
- The company authorized up to $5 million of Class A share repurchases, expected during Q2 and Q3 2022; none were repurchased under the program in Q1. Management said repurchase timing would depend on market conditions, capital needs and debt covenants.
- No formal revenue or earnings guidance is provided in the supplied filing text. Management could not estimate the duration or impact of the P&C downturn beyond Q2 2022. It does not expect Travel revenue to return to pre-pandemic levels or materially affect overall results in the foreseeable future.
- Risks include insurance-carrier spending cycles and partner concentration, dependence on search traffic and third-party data, regulation and privacy compliance, competition, seasonality, variable-rate debt, and technology and cybersecurity risks. One customer represented 13% of Q1 revenue; one supplier represented 11% of purchases. Management reported no material change to previously disclosed risk factors.
- The company has a Tax Receivable Agreement requiring payment of 85% of specified realized or deemed tax benefits. Expected future payments were $84.6 million at quarter-end. Management reported no litigation reserves and said pending proceedings were not expected to have a material adverse effect. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether P&C carrier spending and underwriting conditions improve after Q2 2022, and the resulting effects on revenue, margins and cash generation.
- How much of the shift toward Private Marketplace continues, given its lower net revenue recognition, and whether underlying Transaction Value translates into earnings.
- CHT’s post-acquisition performance, contingent-consideration exposure, purchase-price allocation and the effect of the $25 million revolver draw on liquidity and leverage.
- Actual share repurchases and their interaction with cash needs, debt covenants and the acquisition integration.
- Realization of deferred tax assets and the timing and amount of TRA payments; also monitor variable-rate borrowing costs.