MediaAlpha, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. MediaAlpha operates a digital marketplace connecting insurance carriers and distributors with high-intent consumers; revenue is earned from consumer referrals across open and private marketplaces.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $152.7 million | $151.5 million | $483.7 million | $394.6 million |
| Gross profit / margin | $24.7 million / 16.2% | $20.7 million / 13.7% | $76.1 million / 15.7% | $58.9 million / 14.9% |
| Operating income (loss) | $(0.1) million | $8.4 million | $3.8 million | $30.7 million |
| Net income (loss) | $(4.3) million | $4.8 million | $(4.5) million | $23.8 million |
| Adjusted EBITDA (non-GAAP) | $13.8 million | $14.0 million | $45.0 million | $39.9 million |
| Operating cash flow | Not separately provided | Not separately provided | $6.7 million | $39.3 million |
Q3 revenue was nearly flat year over year, while nine-month revenue rose 22.6%. Q3 P&C revenue fell 7.9% to $105.1 million, partly offset by 24.5% growth in health insurance revenue. Nine-month growth included increases in P&C and health. Private marketplace Transaction Value grew to $107.3 million in Q3 from $69.3 million, increasing its share of total Transaction Value to 42.1% from 31.9%.
Q3 operating results included $11.2 million of equity-based compensation, versus $0.6 million a year earlier. General and administrative expense also rose with public-company costs. The company recorded $2.1 million of income tax expense despite a pretax loss; the filing attributes the unusual effective tax rate in part to nondeductible compensation, state taxes, non-controlling interests, and equity-award tax effects.
Financial position and liquidity
- At September 30, cash and cash equivalents were $29.3 million, compared with $23.6 million at year-end 2020. Accounts receivable was $71.3 million, down from $96.3 million.
- Debt was $190.0 million principal, or $186.6 million net of issuance costs; $6.3 million was classified as current. The company had no revolver borrowings and reported $50.0 million of available revolving capacity.
- Current assets were $104.6 million and current liabilities $58.0 million. Total liabilities were $318.4 million; stockholders’ deficit was $72.9 million.
- Nine-month operating cash flow declined to $6.7 million from $39.3 million, primarily due to working-capital timing, especially accounts payable. Investing cash use was $0.6 million; financing cash use was $0.4 million.
- Management said cash, operating cash flow and available revolver capacity should meet projected operating and debt-service needs for at least the next 12 months.
Outlook, risks and unusual items
- Management said auto insurers reduced customer-acquisition spending amid higher claims and repair costs. The resulting P&C downturn led the company to lower its Q4 2021 revenue forecasts; its duration and effects beyond 2021 were uncertain. No numerical company-wide guidance was provided.
- Travel revenue remained below pre-pandemic levels, and management did not expect it to recover fully or materially affect overall revenue or profitability in the foreseeable future. Travel represented about 2.1% of Q3 revenue.
- In July 2021, the company refinanced its term loan with a $190.0 million senior secured facility and replaced its $5.0 million revolver with a $50.0 million facility. The loans mature in July 2026, bear variable interest, and are subject to financial and other covenants. The company reported covenant compliance at quarter-end.
- Class B-1 unit exchanges generated a $48.9 million deferred tax asset during the first nine months. The company recognized an additional $55.4 million tax receivable agreement liability; total expected TRA payments were $77.4 million at quarter-end. The agreement generally passes 85% of specified tax benefits to certain existing holders.
- The company accrued $0.8 million for Washington State consumer-protection claims and reached a final settlement and consent decree on October 22, 2021.
- Goodwill and finite-lived intangible assets were assessed for impairment after a share-price decline and reduced revenue and profitability forecasts. No impairment was recorded.
- Disclosure controls were deemed ineffective because of a previously reported material weakness in internal control over financial reporting. The company implemented equity-compensation software during the quarter, but said remediation was not complete pending sufficient operating history and testing. It expected to become a large accelerated filer and lose emerging-growth-company status beginning with its 2021 annual report.
Most important facts for investors to verify
- Whether reduced P&C insurer spending persists into 2022 and how it affects revenue, margins and Transaction Value.
- Whether operating cash flow improves, particularly as accounts payable and working capital fluctuate.
- Debt-service capacity under variable rates, covenant requirements, and planned term-loan amortization.
- The expected timing and realizability of deferred tax assets and the amount and timing of TRA payments.
- Completion and testing of internal-control remediation, including the external auditor’s required attestation for year-end 2021.
- Customer concentration: two customers represented about 30% of Q3 revenue; monitor their spending and receivable exposure.
- Settlement implementation and any further legal or regulatory costs arising from the Washington matter.