MediaAlpha, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. MediaAlpha operates a digital customer-acquisition platform focused primarily on insurance referrals, with P&C, health and life insurance as its principal verticals. Financial amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 |
|---|---|---|---|---|
| Revenue | $84.8 | $103.4 | $196.4 | $246.0 |
| Gross profit / gross margin | $13.8 / 16.2% | $15.5 / 15.0% | $32.1 / 16.4% | $37.2 / 15.1% |
| Operating loss | $(16.1) | $(10.4) | $(25.6) | $(18.3) |
| Net loss | $(20.0) | $(13.0) | $(34.6) | $(22.9) |
| Net loss attributable to MediaAlpha, Inc. | $(14.3) | $(9.1) | $(24.6) | $(16.2) |
| Adjusted EBITDA (non-GAAP) | $3.6 | $4.5 | $10.9 | $11.6 |
| Contribution margin (non-GAAP) | 19.5% | 18.1% | 19.3% | 17.2% |
Revenue decreased 18.1% in Q2 and 20.2% in H1 year over year. P&C revenue fell 31.4% in Q2 and 34.8% in H1; health revenue increased 7.4% and 7.9%, respectively. Q2 Transaction Value declined 31.1% to $125.9 million, while Consumer Referrals purchased increased to 24.3 million from 22.3 million. Q2 cost of revenue fell 19.2%, but G&A rose 46.7% to $18.1 million. Interest expense nearly doubled to $3.9 million in Q2 and rose 124.7% to $7.5 million in H1, primarily due to higher borrowing rates.
H1 operating cash flow was $16.3 million, down from $20.1 million. Investing cash outflow was $0.05 million, compared with $49.8 million in the prior year, which included the CHT acquisition. Financing cash outflow was $10.8 million. Cash increased to $20.0 million from $14.5 million at year-end 2022.
Financial position and liquidity
- At June 30, 2023, current assets were $56.1 million and current liabilities were $59.8 million. Total assets were $140.2 million; total liabilities were $234.6 million; stockholders’ deficit was $94.4 million.
- Debt principal outstanding was $180.8 million: $175.8 million under the term loan and $5.0 million under the revolver. Debt carrying value, net of issuance costs, was $178.7 million. The company had $45.0 million of revolver capacity available.
- Debt matures July 29, 2026; quarterly term-loan amortization continues. The credit agreement was amended in June to replace LIBOR with SOFR. The company reported compliance with its financial covenants at June 30 and stated it expects liquidity to support operations and covenant compliance for at least 12 months.
- Management cautioned that reduced P&C carrier spending has narrowed the forecasted covenant cushion. A hypothetical 1% interest-rate change would have affected H1 interest expense by $0.9 million.
Outlook, management commentary, risks and unusual items
- Management expects P&C carrier customer-acquisition spending to remain depressed at least through the rest of 2023, but said the duration and impact beyond Q3 cannot be reliably estimated. The downturn reflects higher claims costs, inflation and unfavorable prior-year reserve developments; premium-rate approval timing is uncertain. No specific numerical earnings or revenue guidance is provided.
- A major insurance carrier significantly reduced spending beginning in late March 2023, lowering expected near-term revenue and Adjusted EBITDA. The company reduced its workforce by 25 employees in May and recorded $1.5 million of related charges, including approximately $1.2 million in cash severance.
- The FTC issued a civil investigative demand in February concerning healthcare-related advertising and sales, consumer data, telemarketing, privacy and data security. MediaAlpha is cooperating; it incurred $1.4 million of related legal fees in H1 and said the outcome and potential significance cannot currently be predicted.
- Other notable items: a $1.4 million H1 impairment of a cost-method investment; CHT contingent consideration valued at zero, with up to $15.0 million of undiscounted payments theoretically remaining but management not expecting the second-period targets to be met; and a full valuation allowance against deferred tax assets. The IRS selected QLH’s 2020 tax return for audit.
- Key risks include cyclical insurance-carrier spending, reliance on partner relationships and online traffic sources, insurance and privacy regulation, variable-rate debt and covenant compliance, collections, cybersecurity, and seasonality. H1 revenue concentration included one customer at 11%; one supplier accounted for 11% of purchases.
Most important facts for investors to verify
- Whether P&C carrier spending stabilizes or recovers, particularly the major carrier’s spending and the outlook beyond Q3.
- Updated covenant headroom, revolver usage and liquidity under further revenue declines or higher interest costs.
- Developments in the FTC investigation, including any potential financial or operational consequences.
- Whether health growth and higher contribution margin can offset continued P&C weakness, and how Adjusted EBITDA trends alongside GAAP losses.
- Cash requirements from debt service, the tax receivables agreement and any future contingent consideration; confirm that no material changes have occurred since the filing.