MediaAlpha, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial amounts below are in U.S. dollars; statement amounts are in millions unless stated otherwise.
Business context
MediaAlpha operates a digital customer-acquisition platform, primarily for insurance carriers and distributors. It earns revenue from consumer referrals transacted through Open and Private Marketplaces. Management reported $859 million of platform Transaction Value for the 12 months ended June 30, 2022, and an average of 8.2 million Consumer Referrals per month.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $103.4 | $157.4 | $246.0 | $330.9 |
| Gross profit | $15.5 | $25.0 | $37.2 | $51.5 |
| Gross margin | 15.0% | 15.9% | 15.1% | 15.5% |
| Operating income (loss) | $(10.4) | $1.9 | $(18.3) | $3.8 |
| Net income (loss) | $(13.0) | $(0.4) | $(22.9) | $(0.2) |
| Net income (loss) attributable to MediaAlpha | $(9.1) | $(0.2) | $(16.2) | $0.1 |
| Adjusted EBITDA (non-GAAP) | $4.5 | $14.7 | $11.6 | $31.1 |
Q2 basic and diluted loss per Class A share was $0.22, versus $0.01 in Q2 2021; first-half loss per share was $0.39, versus break-even in the prior-year period. Q2 Contribution Margin, a non-GAAP measure, increased to 18.1% from 16.9%; first-half Contribution Margin was 17.2%, compared with 16.5%.
Cash flow: First-half operating cash flow was $19.9 million, versus cash used of $5.8 million in 2021. Investing cash outflow was $49.8 million, mainly reflecting the CHT acquisition; financing cash inflow was $14.5 million, including a $25 million revolving-credit draw. Cash declined $15.4 million to $35.2 million.
Liquidity and debt: At June 30, cash was $35.2 million and total debt carrying value was $207.4 million, including $25 million drawn on the $50 million revolving facility. Term-loan and revolver borrowings mature July 29, 2026; the facilities bear variable interest rates. The company also reported $83.3 million of long-term tax receivables agreement liabilities and $2.8 million of current TRA accruals. Management said available cash, operating cash flow and credit-facility availability should cover projected operating and debt-service needs for at least 12 months, subject to business conditions and covenant compliance.
Material changes and key developments
- Revenue fell 34.3% in Q2 and 25.7% in the first half year over year. Property and casualty insurance revenue declined 47.3% in Q2 and 38.3% in the first half, the principal driver of the overall decline.
- Q2 health-insurance revenue was approximately flat year over year; first-half health revenue rose 8.2%, supported by enrollment-period timing and increased marketplace activity. Life-insurance revenue declined in both periods.
- Transaction Value fell 28.7% in Q2 and 18.7% in the first half. The mix shifted toward Private Marketplace transactions, whose platform fees are reported net, affecting reported revenue and cost of revenue.
- On April 1, MediaAlpha acquired substantially all of Customer Helper Team’s assets for $49.7 million cash plus contingent consideration of up to $20 million. The contingent-consideration liability was valued at $4.2 million at quarter-end, after a $2.8 million fair-value gain. CHT contributed $2.1 million of Q2 revenue and a $0.8 million pretax loss.
- Cash, accounts receivable and accounts payable declined from year-end; goodwill and intangible assets increased following the acquisition. Total stockholders’ deficit was $59.5 million at June 30.
- The company authorized up to $5 million of Class A share repurchases and reported $3.5 million of repurchases during the first half.
Outlook, management commentary and risks
- Management attributed continued P&C weakness to carriers reducing customer-acquisition spending amid elevated claims costs, supply-chain disruption and inflation. It could not estimate the duration or impact of this downturn beyond Q3 2022; no numerical revenue or earnings guidance is provided in the filing.
- Management described the auto-insurance market as being in a hard cycle, with carrier spending dependent on underwriting profitability and the timing of approved premium-rate increases. Seasonal patterns and changes in insurance enrollment periods can also affect results.
- Other disclosed exposures include partner and supplier concentration, reliance on search traffic, competition, privacy and insurance regulation, cybersecurity and data protection, variable-rate debt, and the ability to collect receivables. One customer represented 13% of Q2 revenue; one supplier represented 10% of purchases.
- A 1% change in interest rates would have changed first-half interest expense by approximately $1.0 million, according to the filing. Travel remained a small revenue contributor and management did not expect it to materially affect overall results in the foreseeable future.
- Management reported no material change to the risk factors in the 2021 Form 10-K. It considered ordinary-course litigation unlikely to materially affect the company and reported no litigation contingency reserves. Disclosure controls were deemed effective; acquired CHT was excluded from the relevant controls assessment as permitted during the post-acquisition period.
Important facts for investors to verify
- Whether P&C carrier spending and underwriting conditions improve, and the revenue and profitability effects after Q3 2022.
- Underlying platform activity and economics, including Transaction Value, marketplace mix, referral volume, and the reconciliation of non-GAAP Contribution and Adjusted EBITDA to GAAP results.
- CHT’s performance against its contingent-payment targets, integration progress, and any subsequent changes to the contingent-consideration valuation.
- Liquidity, variable-rate borrowing costs, debt-covenant headroom, and the cash demands of debt service, the TRA, acquisitions and repurchases.
- Customer and supplier concentration, receivables collection, and any material developments in legal, regulatory, privacy or cybersecurity matters.