Business Wire | Dec 10, 2020 04:15PM EST

MediaAlpha Announces Third Quarter 2020 Financial Results

Dec. 10, 2020

LOS ANGELES--(BUSINESS WIRE)--Dec. 10, 2020--MediaAlpha, Inc. (NYSE: MAX), today announced its financial results for the third quarter ended September 30, 2020.

"We are pleased to announce a strong start to our journey as a public company, with record Transaction Value surpassing $200 million, driven by continued growth in our Property & Casualty insurance vertical," said Steve Yi, Co-founder and CEO. "We continue to benefit from positive secular trends in the insurance industry, and our transparent, data science-based approach continues to drive outstanding results for our demand and supply partners. Customer acquisition investment from our Top 10 demand partners increased 95% year-over-year, which enabled us to expand our partnerships with existing suppliers as well as to attract new supply partners. With a robust ecosystem, we confidently expect to reach record revenue for the year, as reflected in our fourth quarter and full year revenue guidance."

Third Quarter 2020 Financial Results

* Revenue of $151.5 million, an increase of 37% year-over-year; * Transaction Value of $217.6 million, an increase of 44% year-over-year; * Gross margin of 13.7%, as compared to 16.0% from the same period in 2019; * Contribution Margin of 14.3%, as compared to 16.9% from the same period in 2019; * Net income was $4.8 million, as compared to $7.8 million in the third quarter of 2019; and * Adjusted EBITDA was $14.0 million, compared to Adjusted EBITDA of $11.7 million in the third quarter of 2019

A reconciliation of GAAP to Non-GAAP financial measures has been provided at the end of this press release. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Financial Outlook

For the fourth quarter of 2020, MediaAlpha currently expects the following:

* Transaction Value between $223 - $225 million, representing 32% year-over-year growth at the midpoint of the guidance range * Revenue between $163 - $165 million, representing 30% year-over-year growth at the midpoint of the guidance range * Contribution between $24.5 - $25.5 million, representing 16% year-over-year growth at the midpoint of the guidance range * Adjusted EBITDA between $15.0 - $15.5 million, representing 9% year-over-year growth at the midpoint of the guidance range

For the full year 2020, MediaAlpha currently expects the following:

* Transaction Value between $782 - $784 million, representing 40% year-over-year growth at the midpoint of the guidance range * Revenue between $558 - $560 million, representing 37% year-over-year growth at the midpoint of the guidance range * Contribution between $86 - $87 million, representing 25% year-over-year growth at the midpoint of the guidance range * Adjusted EBITDA between $54.5 - $55.5 million, representing 28% year-over-year growth at the midpoint of the guidance range

We expect total shares outstanding to be 58.5 million and 64.5 million on a common and fully diluted basis at the end of Q4 2020.

With respect to the Company's projections of Contribution and adjusted EBITDA under "Financial Discussion - Q4 and FY 2020 Outlook", MediaAlpha is not providing a reconciliation of Contribution or adjusted EBITDA to the respective GAAP measures because the Company is unable to predict with reasonable certainty the reconciling items that may affect gross profit and net income without unreasonable effort, including equity-based compensation, transaction expenses and income tax expense. These reconciling items are uncertain, depend on various factors and could significantly impact, either individually or in the aggregate, the GAAP measures for the applicable period.

For a detailed explanation of the Company's non-GAAP measures, please refer to the appendix section of this press release.

As of and for the three and nine months ended September 30, 2020, the periods covered by this release, MediaAlpha, Inc. had engaged solely in activities incidental to its formation. QL Holdings LLC and its subsidiaries have been determined to represent the predecessor entity to MediaAlpha, Inc. prior to the IPO. As such, the interim unaudited condensed consolidated financial statements and related notes of QL Holdings LLC and its subsidiaries as of and for the three and nine months ended September 30, 2020 and 2019 have been included in this release and on the Form 10-Q.

Conference Call Information

MediaAlpha will host a Q&A conference call today to discuss the Company's Q3 2020 results at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). A live audio webcast of the call will be available on the MediaAlpha Investor Relations website at https://investors.mediaalpha.com. To register for the webcast, click here. Participants may also dial-in, toll-free, at (833) 350-1346 or internationally at (236) 389-2445 with Conference ID#2271129. An audio replay of the conference call will be available for two weeks following the call and available on the MediaAlpha Investor Relations website at https://investors.mediaalpha.com.

We have also posted to our investor relations website a letter to shareholders. We have used, and intend to continue to use, our investor relations website at https://investors.mediaalpha.com as a means of disclosing material nonpublic information and for complying with our disclosure obligations under Regulation FD.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would," and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including those more fully described in MediaAlpha's filings with the Securities and Exchange Commission ("SEC"), including the final prospectus filed with the SEC pursuant to Rule 424(b) promulgated under the Securities Act of 1933, as amended (the "Securities Act"), on October 29, 2020 and the Quarterly Report on Form 10-Q that will be filed following this earnings release. These factors should not be construed as exhaustive. MediaAlpha disclaims any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this release.

Non-GAAP Financial Measures and Operating Metrics

This press release includes Adjusted EBITDA, Contribution, and Contribution Margin, which are non-GAAP financial measures. The Company also presents Transaction Value, which is an operating metric not presented in accordance with GAAP. See the appendix for definitions of Adjusted EBITDA, Contribution, Contribution Margin and Transaction Value, as well as reconciliations to the corresponding GAAP financial metrics, as applicable.

We present Transaction Value, Adjusted EBITDA, Contribution, and Contribution Margin because they are used extensively by our management and board of directors to manage our operating performance, including evaluating our operational performance against budget and assessing our overall operating efficiency and operating leverage. Accordingly, the Company believes that Transaction Value, Adjusted EBITDA, Contribution, and Contribution Margin provide useful information to investors and others in understanding and evaluating its operating results in the same manner as its management team and board of directors. Each of Transaction Value, Adjusted EBITDA, Contribution, and Contribution Margin has limitations as a financial measure and investors should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

QL Holdings LLC and subsidiaries

Unaudited condensed consolidated balance sheets

(In thousands, except unit and per unit data)

September December 30, 31,

2020 2019

Assets

Current assets

Cash and cash equivalents $ 12,005 $ 10,028

Accounts receivable, net of allowance for doubtful 63,084 56,012 accounts

Prepaid expenses and other current assets 1,623 1,448

Total current assets 76,712 67,488

Property and equipment, net 701 755

Intangible assets, net 16,350 18,752

Goodwill 18,402 18,402

Other assets 21,665 -

Total assets $ 133,830 $ 105,397

Liabilities, redeemable Class A units and Members' Deficit

Current liabilities

Accounts payable $ 61,697 $ 40,455

Accrued expenses 12,651 6,532

Current portion of long-term debt 6,262 873

Current portion of deferred rent 71 52

Total current liabilities 80,681 47,912

Long-term debt, net of current portion 199,146 96,665

Deferred rent, net of current portion 331 319

Other long-term liabilities 276 -

Total liabilities 280,434 144,896

Commitments and contingencies (Note 9)

Redeemable Class A units, 284,211 at redemptionvalue of approximately

$637.08 and $260.71 per unit as of September 30, 181,066 74,097 2020 and

December 31, 2019, respectively

Members' (deficit) equity

Class A units, 1,136,842 units authorized; 852,631units issued

and outstanding (excluding 284,211 units subjectto possible 73,003 73,003

redemption) as of September 30, 2020 and December31,

2019, respectively

Class B units, 177,300 units authorized; 177,300and 163,800

issued and outstanding as of September 30, 2020 9,097 6,544 and

December 31, 2019, respectively

Accumulated deficit (409,770 ) (193,143 )

Total members' deficit (327,670 ) (113,596 )

Total liabilities, redeemable Class A units and $ 133,830 $ 105,397 members' deficit

QL Holdings LLC and subsidiaries

Unaudited condensed consolidated statements of operations

(In thousands)

Three months ended

September 30,

Nine months ended

September 30,

2020

2019

2020

2019

Revenue

$

151,548

$

110,397

$

394,609

$

281,857

Cost and operating expenses

Cost of revenue

130,830

92,707

335,692

237,130

Sales and marketing

2,916

3,227

8,866

10,586

Product development

1,766

1,609

5,482

5,174

General and administrative

7,595

3,171

13,897

16,265

Total cost and operating expenses

143,107

100,714

363,937

269,155

Income from operations

8,441

9,683

30,672

12,702

Other expense

1,998

-

1,998

-

Interest expense

1,594

1,920

4,844

5,259

Total other expense

3,592

1,920

6,842

5,259

Provision for income taxes

20

-

20

-

Net income

$

4,829

$

7,763

$

23,810

$

7,443

QL Holdings LLC and subsidiaries

Unaudited condensed consolidated statements of operations

(In thousands)

Three months ended Nine months ended September 30, September 30,

2020 2019 2020 2019

Revenue $ 151,548 $ 110,397 $ 394,609 $ 281,857

Cost and operating expenses

Cost of revenue 130,830 92,707 335,692 237,130

Sales and marketing 2,916 3,227 8,866 10,586

Product development 1,766 1,609 5,482 5,174

General and administrative 7,595 3,171 13,897 16,265

Total cost and operating 143,107 100,714 363,937 269,155 expenses

Income from operations 8,441 9,683 30,672 12,702

Other expense 1,998 - 1,998 -

Interest expense 1,594 1,920 4,844 5,259

Total other expense 3,592 1,920 6,842 5,259

Provision for income taxes 20 - 20 -

Net income $ 4,829 $ 7,763 $ 23,810 $ 7,443

QL Holdings LLC and subsidiaries

Unaudited condensed consolidated statements of cash flows

(In thousands)

Nine months ended

September 30,

2020

2019

Cash flows from operating activities

Net income

$

23,810

$

7,443

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Non-cash equity-based compensation expense

1,762

1,795

Depreciation expense on property and equipment

210

208

Amortization of intangible assets

2,402

4,158

Amortization of deferred debt issuance costs

334

551

Loss on extinguishment of debt

1,998

-

Bad debt expense

356

263

Changes in operating assets and liabilities:

Accounts receivable

(7,428

)

(16,799

)

Prepaid expenses and other current assets

(147

)

47

Other assets

(11,665

)

-

Accounts payable

21,242

14,038

Accrued expenses

6,395

(341

)

Deferred rent

31

(70

)

Net cash provided by operating activities

39,300

11,293

Cash flows from investing activities

Purchases of property and equipment

(156

)

(109

)

Purchase of cost method investment

(10,000

)

-

Net cash used in investing activities

(10,156

)

(109

)

Cash flows from financing activities

Proceeds from revolving line of credit

7,500

-

Repayments on revolving line of credit

(7,500

)

-

Proceeds from issuance of long-term debt

210,000

100,000

Repayments on long-term debt

(100,023

)

(14,823

)

Payments of debt issuance costs

(4,467

)

(2,303

)

Cash paid to repurchase Class B units up to fair value

(1,453

)

(4,467

)

Cash paid for repurchases of Class A units

-

(62,806

)

Member contributions

-

62,806

Member distributions

(131,224

)

(88,934

)

Net cash used in financing activities

(27,167

)

(10,527

)

Net increase in cash and cash equivalents

1,977

657

Cash and cash equivalents, beginning of period

10,028

5,662

Cash and cash equivalents, end of period

$

12,005

$

6,319

Supplemental disclosures of cash flow information

Cash paid for interest

$

4,503

$

4,750

Cash paid for repurchase of Class B units in excess of fair value

$

791

$

1,286

Transaction Value

We define "Transaction Value" as the total gross dollars transacted by our partners on our platform. Transaction Value is a direct driver of revenue, with differing revenue recognition based on the economic relationship we have with our partners. Our partners use our platform to transact via open and private platform transactions. In our open platform model, revenue recognized represents the Transaction Value and revenue share payments to our supply partners represent costs of revenue. In our private platform model, revenue recognized represents a platform fee billed to the demand partner or supply partner based on an agreed-upon percentage of the Transaction Value for the Consumer Referrals transacted, and accordingly there are no associated costs of revenue. We utilize Transaction Value to assess revenue and to assess the overall level of transaction activity through our platform. We believe it is useful to investors to assess the overall level of activity on our platform and to better understand the sources of our revenue across our different transaction models and verticals.

The following table presents Transaction Value by platform model for the three months ended September 30, 2020 and 2019, and the nine months ended September 30, 2020 and 2019:

QL Holdings LLC and subsidiaries

Unaudited condensed consolidated statements of cash flows

(In thousands)

Nine months ended September 30,

2020 2019

Cash flows from operating activities

Net income $ 23,810 $ 7,443

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Non-cash equity-based compensation expense 1,762 1,795

Depreciation expense on property and equipment 210 208

Amortization of intangible assets 2,402 4,158

Amortization of deferred debt issuance costs 334 551

Loss on extinguishment of debt 1,998 -

Bad debt expense 356 263

Changes in operating assets and liabilities:

Accounts receivable (7,428 ) (16,799 )

Prepaid expenses and other current assets (147 ) 47

Other assets (11,665 ) -

Accounts payable 21,242 14,038

Accrued expenses 6,395 (341 )

Deferred rent 31 (70 )

Net cash provided by operating activities 39,300 11,293

Cash flows from investing activities

Purchases of property and equipment (156 ) (109 )

Purchase of cost method investment (10,000 ) -

Net cash used in investing activities (10,156 ) (109 )

Cash flows from financing activities

Proceeds from revolving line of credit 7,500 -

Repayments on revolving line of credit (7,500 ) -

Proceeds from issuance of long-term debt 210,000 100,000

Repayments on long-term debt (100,023 ) (14,823 )

Payments of debt issuance costs (4,467 ) (2,303 )

Cash paid to repurchase Class B units up to fair (1,453 ) (4,467 )value

Cash paid for repurchases of Class A units - (62,806 )

Member contributions - 62,806

Member distributions (131,224 ) (88,934 )

Net cash used in financing activities (27,167 ) (10,527 )

Net increase in cash and cash equivalents 1,977 657

Cash and cash equivalents, beginning of period 10,028 5,662

Cash and cash equivalents, end of period $ 12,005 $ 6,319

Supplemental disclosures of cash flow information

Cash paid for interest $ 4,503 $ 4,750

Cash paid for repurchase of Class B units in $ 791 $ 1,286 excess of fair value

Transaction Value

We define "Transaction Value" as the total gross dollars transacted by our partners on our platform. Transaction Value is a direct driver of revenue, with differing revenue recognition based on the economic relationship we have with our partners. Our partners use our platform to transact via open and private platform transactions. In our open platform model, revenue recognized represents the Transaction Value and revenue share payments to our supply partners represent costs of revenue. In our private platform model, revenue recognized represents a platform fee billed to the demand partner or supply partner based on an agreed-upon percentage of the Transaction Value for the Consumer Referrals transacted, and accordingly there are no associated costs of revenue. We utilize Transaction Value to assess revenue and to assess the overall level of transaction activity through our platform. We believe it is useful to investors to assess the overall level of activity on our platform and to better understand the sources of our revenue across our different transaction models and verticals.

The following table presents Transaction Value by platform model for the three months ended September 30, 2020 and 2019, and the nine months ended September 30, 2020 and 2019:

Three months ended Nine months ended September 30, September 30,

(dollars in thousands) 2020 2019 2020 2019

Open platform transactions $ 148,240 $ 108,146 $ 386,224 $ 275,991

Percentage of total 68.1 % 71.7 % 69.1 % 70.7 %Transaction Value

Private platform 69,320 42,654 172,590 114,493 transactions

Percentage of total 31.9 % 28.3 % 30.9 % 29.3 %Transaction Value

Total Transaction Value $ 217,560 $ 150,800 $ 558,814 $ 390,484

The following table presents Transaction Value by vertical for the three months ended September 30, 2020 and 2019, and the nine months ended September 30, 2020 and 2019:

Three months ended Nine months ended September 30, September 30,

(dollars in thousands) 2020 2019 2020 2019

Property & casualty $ 161,323 $ 94,770 $ 390,955 $ 233,746 insurance

Percentage of total 74.2 % 62.8 % 70.0 % 59.9 %Transaction Value

Health insurance 33,650 25,683 98,739 68,168

Percentage of total 15.5 % 17.0 % 17.7 % 17.5 %Transaction Value

Life insurance 11,628 8,735 31,717 26,841

Percentage of total 5.3 % 5.8 % 5.7 % 6.9 %Transaction Value

Other(1) 10,959 21,612 37,403 61,729

Percentage of total 5.0 % 14.3 % 6.7 % 15.8 %Transaction Value

Total Transaction Value $ 217,560 $ 150,800 $ 558,814 $ 390,484

Contribution and Contribution Margin

The following table reconciles Contribution and Contribution Margin with gross profit, the most directly comparable financial measure calculated and presented in accordance with GAAP, the three months ended September 30, 2020 and 2019, and the nine months ended September 30, 2020 and 2019:

Three months ended Nine months ended September 30, September 30,

(in thousands) 2020 2019 2020 2019

Revenue $ 151,548 $ 110,397 $ 394,609 $ 281,857

Less cost of revenue (130,830 ) (92,707 ) (335,692 ) (237,130 )

Gross profit 20,718 17,690 58,917 44,727

Adjusted to excludethe following (as related to cost ofrevenue):

Equity-based 18 19 58 158 compensation

Salaries, wages, and 434 302 1,175 1,027 related

Internet and hosting 107 116 328 393

Other expenses 69 66 205 194

Amortization - 170 - 510

Depreciation 6 5 17 18

Other services 189 193 616 523

Merchant-related 130 105 447 273 fees

Contribution $ 21,671 $ 18,666 $ 61,763 $ 47,823

Gross margin 13.7 % 16.0 % 14.9 % 15.9 %

Contribution Margin 14.3 % 16.9 % 15.7 % 17.0 %

Adjusted EBITDA

The following table reconciles Adjusted EBITDA with net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the three months ended September 30, 2020 and 2019, and the nine months ended September 30, 2020 and 2019.

Three months ended Nine months ended September 30, September 30,

(in thousands) 2020 2019 2020 2019

Net income $ 4,829 $ 7,763 $ 23,810 $ 7,443

Equity-based compensation 606 520 2,553 3,081 expense

Interest expense 1,594 1,920 4,844 5,259

Income tax expense 20 - 20 -

Depreciation expense on 73 65 210 208 property and equipment

Amortization of intangible 799 1,385 2,402 4,158 assets

Transaction expenses^(1) 6,049 - 6,049 8,831

Adjusted EBITDA $ 13,970 $ 11,653 $ 39,888 $ 28,980

(1)

For the nine months ended September 30, 2019, transaction expenses included $7.2 million in legal, investment banking and other consulting fees and $1.6 million in transaction bonuses related to a transaction with Insignia in February 2019. For the months ended September 30, 2020, transaction expenses included $4.0 million in legal, and other consulting fees and $2.0 million in loss on debt related to the termination of the 2019 Credit Facilities.

Key business and operating metrics

"Transaction Value" represents the total gross dollars transacted by our partners on our platform. Transaction Value is a direct driver of revenue, with differing revenue recognition based on the economic relationship we have with our partners. We utilize Transaction Value to assess revenue and to assess the overall level of transaction activity through our platform.

"Contribution" represents revenue less revenue share payments and online advertising costs, or, as reported in our consolidated statement of operations, revenue less cost of revenue, as adjusted to exclude the following items from cost of revenue: equity-based compensation; salaries, wages, and related; internet and hosting; amortization; depreciation; other services; and merchant-related fees. "Contribution Margin" represents Contribution expressed as a percentage of revenue for the same period. We use Contribution and Contribution Margin to measure the return on our relationships with our supply partners (excluding certain fixed costs), the financial return on our online advertising, and our operating leverage. We do not use Contribution and Contribution Margin as measures of overall profitability. We present Contribution and Contribution Margin because they are used extensively by our management and board of directors to manage our operating performance, including evaluating our operational performance against budget and assessing our overall operating efficiency and operating leverage.

"Adjusted EBITDA" represents net income excluding interest expense, income tax benefit (expense), depreciation expense on property and equipment, and amortization of intangible assets, as well as equity-based compensation expense and transaction expenses. Adjusted EBITDA is a key measure used by our management to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. In addition, presenting Adjusted EBITDA provides investors with a metric to evaluate the capital efficiency of our business.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201210005983/en/

CONTACT: Investors Denise Garcia Hayflower Partners Denise@HayflowerPartners.com

CONTACT: Press SHIFT MediaAlpha@SHIFTComm.com