MediaAlpha, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. MediaAlpha operates a technology platform connecting insurance buyers and suppliers with high-intent consumers. Revenue is primarily generated from consumer referrals across property and casualty (P&C), health, and life insurance. Comparisons below are with 2020; the company cautions that interim results are not necessarily indicative of full-year results.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $157.4 million (+27.3%) | $123.6 million | $330.9 million (+36.2%) | $243.1 million |
| Operating income | $1.9 million | $11.7 million | $3.9 million | $22.2 million |
| Consolidated net income (loss) | $(0.4) million | $10.1 million | $(0.2) million | $19.0 million |
| Adjusted EBITDA | $14.7 million (+11.2%) | $13.2 million | $31.2 million (+20.2%) | $25.9 million |
| Gross margin | 15.9% | 15.7% | 15.5% | 15.7% |
| Contribution / Contribution Margin | $26.7 million / 16.9% | $20.4 million / 16.5% | $54.5 million / 16.5% | $40.1 million / 16.5% |
Adjusted EBITDA, Contribution, and Contribution Margin are non-GAAP measures. Net income attributable to MediaAlpha, Inc. was a loss of $0.2 million in Q2 and income of $0.1 million for the first half; the consolidated results also include non-controlling interests. 2020 periods preceded the IPO reorganization, so the company’s attributable-income and per-share comparisons are not directly presented on the same basis.
- Revenue mix and activity: Q2 revenue growth was led by P&C (+23.4%) and health (+28.6%); first-half P&C grew 46.2% and health 28.7%. Transaction Value rose 46.4% to $256.5 million in Q2 and 52.1% to $519.0 million in the first half. Private-platform transactions increased as a share of activity.
- Profitability: Despite higher revenue, operating income fell sharply and the company recorded a consolidated net loss. Management attributed the decline primarily to higher equity-based compensation, personnel costs, public-company professional expenses, and, for the first half, $2.7 million of Secondary Offering costs. Equity compensation was $11.5 million in Q2 and $22.1 million in the first half.
- Cash flow: First-half operating cash flow was negative $5.8 million, versus positive $39.3 million in 2020, mainly due to the timing of payables, partly offset by improved receivables management. Investing cash outflow was $0.5 million; financing cash outflow was $2.3 million. Cash declined to $15.0 million from $23.6 million at year-end.
- Balance sheet and liquidity: At June 30, current assets were $94.7 million and current liabilities $53.8 million. Accounts receivable was $74.3 million. Long-term debt was $183.3 million net of issuance costs ($186.4 million principal); no amount was drawn on the then-existing $5 million revolver. Total liabilities were $315.6 million, and stockholders’ deficit was $79.2 million.
Changes, outlook, and risks
- Post-quarter refinancing: On July 29, 2021, the company amended its credit agreement, refinancing the existing term loan with a $190 million term facility and replacing the revolver with a $50 million facility. Both mature July 29, 2026; the term loan has quarterly amortization beginning December 2021. The company said available liquidity, including operating cash flow and the new revolver, should meet projected operating and debt-service needs for at least 12 months.
- Tax receivable agreement: Exchanges of Class B-1 units generated a $47.2 million deferred tax asset. The company recorded an additional $53.5 million TRA liability; expected total TRA payments were $75.9 million at June 30, with no payments made in the first half. The balance sheet reported a $92.2 million deferred tax asset and $75.8 million noncurrent TRA liability.
- COVID-19 and travel: Travel revenue remained affected by the pandemic. Management did not expect the vertical to recover fully to pre-pandemic levels or materially affect overall revenue or profitability in the foreseeable future. Travel represented approximately 2.7% of Q2 revenue and 2.0% of first-half revenue.
- Other operating risks: Management noted seasonality, insurance-market cycles, dependence on a limited number of carriers and internet search companies, changing regulation and privacy requirements, partner spending, customer credit, cybersecurity, and variable-rate debt. Two customers represented approximately 28% of Q2 revenue; the two largest customers represented 29% of receivables at quarter-end.
- Controls and contingencies: Disclosure controls were deemed ineffective because of a previously identified material weakness in internal control over financial reporting. Remediation was ongoing. The company expected to lose emerging-growth-company status and become a large accelerated filer for 2021, bringing auditor attestation requirements. Management reported no litigation expected to have a material adverse effect and no litigation reserves.
- Guidance: The filing provides no quantified revenue or earnings guidance. Management cited strong P&C and health demand, but also noted early signs of easing growth in spending by some P&C carriers.
Investor facts to verify
- Whether revenue growth and platform activity persist, particularly in P&C and health, and how carrier spending trends develop.
- Whether higher equity compensation and public-company costs continue to pressure GAAP earnings and operating margins; assess non-GAAP adjustments alongside GAAP results.
- Cash conversion and working-capital movements, especially accounts payable and receivables collection.
- Terms, interest-rate exposure, covenant compliance, and liquidity under the amended credit facilities; the filing estimates a 1% rate change would alter first-half interest expense by $0.9 million.
- Realizability of deferred tax assets and the timing and amount of future TRA payments.
- Progress in remediating the material weakness and the outcome of the required internal-control audit attestation.