MediaAlpha(MAX) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's Q2 2024 financial statements reflect a significant turnaround with doubled revenue, $4.4 million net income, and improved balance sheet and cash flow Consolidated Balance Sheets As of June 30, 2024, total assets increased to $198.2 million, total liabilities rose to $276.2 million, and the stockholders' deficit improved to ($78.0) million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $198,225 | $153,925 | | Cash and cash equivalents | $28,659 | $17,271 | | Accounts receivable, net | $90,696 | $53,773 | | Total Liabilities | $276,195 | $248,350 | | Long-term debt, net | $158,023 | $162,445 | | Total Stockholders' (Deficit) | ($77,970) | ($94,425) | Consolidated Statements of Operations Q2 2024 saw a significant financial turnaround with revenue up 110.3% to $178.3 million, resulting in a $4.4 million net income compared to a prior-year loss Statement of Operations Summary (in thousands, except EPS) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $178,274 | $84,772 | $304,923 | $196,402 | | Income (loss) from operations | $6,493 | ($16,072) | $8,865 | ($25,621) | | Net income (loss) | $4,420 | ($19,980) | $2,929 | ($34,564) | | Diluted EPS | $0.07 | ($0.32) | $0.04 | ($0.55) | Consolidated Statements of Cash Flows Net cash from operations increased to $23.3 million in H1 2024, contributing to an $11.4 million increase in cash and cash equivalents despite $11.7 million used in financing Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,287 | $16,341 | | Net cash (used in) investing activities | ($164) | ($47) | | Net cash (used in) financing activities | ($11,735) | ($10,807) | | Net increase in cash | $11,388 | $5,487 | Notes to the Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation, debt, and contingencies, highlighting a significant P&C revenue increase and ongoing FTC cooperation - The company believes its near-term revenue, cash on hand, and available credit are sufficient to meet operating requirements for at least the next twelve months, despite uncertainty in the P&C insurance market recovery[34] Revenue by Vertical - Six Months Ended June 30 (in thousands) | Vertical | 2024 | 2023 | Change % | | :--- | :--- | :--- | :--- | | Property & casualty insurance | $203,664 | $94,599 | +115.3% | | Health insurance | $82,053 | $81,231 | +1.0% | | Life insurance | $14,081 | $12,980 | +8.5% | | Other | $5,125 | $7,592 | -32.5% | | Total | $304,923 | $196,402 | +55.3% | - The company is cooperating with a Federal Trade Commission (FTC) civil investigative demand regarding its marketing and data practices, incurring legal fees of $1.8 million in the first six months of 2024, with the ultimate outcome currently unpredictable[47] - As of June 30, 2024, the company maintained a valuation allowance of $125.9 million against its deferred tax assets due to a recent history of pre-tax losses, with a future release potentially materially impacting net income[60] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 2024 performance, including 110.3% revenue growth and return to profitability, to the P&C insurance market recovery, with Adjusted EBITDA surging 421.7% Executive Summary Q2 2024 saw significant growth with revenue up 110.3% to $178.3 million, Transaction Value up 155.6%, and Adjusted EBITDA surging 421.7% to $18.7 million Q2 2024 Financial Highlights (in millions) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $178.3 | $84.8 | 110.3% | | Transaction Value | $321.8 | $125.9 | 155.6% | | Contribution | $33.7 | $16.5 | 104.1% | | Net Income (Loss) | $4.4 | ($20.0) | N/A | | Adjusted EBITDA | $18.7 | $3.6 | 421.7% | Key factors affecting our business Key factors influencing performance include secular growth in digital insurance advertising, the cyclical P&C market recovery, seasonality, and evolving FTC/FCC regulations - The auto insurance industry has entered a recovery phase after a 'hard' market, leading to meaningfully increased spending in MediaAlpha's marketplaces in H1 2024, a trend expected to continue[84] - Regulatory changes, including new interpretations of the Telemarketing Sales Rule (TSR) by the FTC and amendments to the Telephone Consumer Protection Act (TCPA), may require adjustments to telemarketing practices and could significantly impact the market for leads[85] Operating results H1 2024 revenue grew 55.3% to $304.9 million, driven by P&C insurance, leading to $8.9 million operating income and a 39.5% decrease in equity-based compensation Revenue by Vertical - Six Months Ended June 30 (in thousands) | Vertical | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Property & Casualty insurance | $203,664 | $94,599 | $109,065 | 115.3% | | Health insurance | $82,053 | $81,231 | $822 | 1.0% | | Total Revenue | $304,923 | $196,402 | $108,521 | 55.3% | - Total equity-based compensation expense decreased by $11.6 million (39.5%) in the first six months of 2024 compared to the same period in 2023, primarily due to certain RSUs granted at the IPO being fully vested by the end of 2023[127] Key business and operating metrics This section defines non-GAAP metrics, showing H1 2024 Adjusted EBITDA at $33.2 million and Transaction Value at $540.9 million, with P&C dominating at 72.1% Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net income (loss) | $2,929 | ($34,564) | | Equity-based compensation | $17,855 | $29,489 | | Interest expense | $7,596 | $7,450 | | Income tax expense | $157 | $228 | | Depreciation & Amortization | $3,344 | $3,646 | | Other Adjustments | $1,288 | $3,207 | | Adjusted EBITDA | $33,159 | $10,856 | Transaction Value by Vertical - Six Months Ended June 30 (in thousands) | Vertical | 2024 | 2023 | | :--- | :--- | :--- | | Property & Casualty insurance | $390,070 | $178,590 | | Health insurance | $124,365 | $110,240 | | Life insurance | $18,123 | $18,476 | | Other | $8,358 | $11,770 | | Total Transaction Value | $540,916 | $319,076 | Liquidity and capital resources Primary liquidity sources include cash from operations and a $50.0 million credit facility, deemed sufficient for the next twelve months, with a $3.0 million debt prepayment made - As of June 30, 2024, the company had $28.7 million in cash and cash equivalents and $45.0 million available under its 2021 Revolving Credit Facility[150] - The company made a mandatory prepayment of approximately $3.0 million on its 2021 Term Loan Facility during Q2 2024, as required by the Excess Cash Flow provision for the year ended December 31, 2023[161] - The company determined that payments under the Tax Receivables Agreement (TRA) were not probable and remeasured the liability to zero as of June 30, 2024, due to the full valuation allowance against its deferred tax assets[165] Item 3. Quantitative and Qualitative Disclosures About Market Risk Main market risks include interest rate fluctuations, with a 1.0% change impacting H1 2024 interest expense by $0.9 million, and significant customer/supplier concentration - The company is exposed to interest rate risk on its variable-rate 2021 Credit Facilities, where a hypothetical 1.0% increase or decrease would have resulted in a $0.9 million impact on interest expense for the six months ended June 30, 2024[169] Customer and Supplier Concentration - Six Months Ended June 30, 2024 | Type | Number > 10% | Aggregate Value (millions) | % of Total | | :--- | :--- | :--- | :--- | | Revenue | 2 | $95 | 31% | | Purchases | 1 | $25 | 10% | Item 4. Controls and Procedures As of June 30, 2024, disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q2 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[180] - No changes in internal control over financial reporting occurred during Q2 2024 that have materially affected, or are reasonably likely to materially affect, the company's internal controls[181] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section incorporates legal matters from Note 5, including an ongoing FTC civil investigative demand and a City of Los Angeles tax assessment - Details regarding legal proceedings, including an FTC investigation, are incorporated by reference from Note 5 to the Consolidated Financial Statements[184] Item 1A. Risk Factors No material changes to risk factors, but the company is no longer a 'controlled company' and is transitioning to meet NYSE corporate governance requirements - The company is no longer a 'controlled company' under NYSE rules and has a one-year transition period to ensure its nominating and corporate governance committee is composed entirely of independent directors[185][186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred, but the company repurchased Class A Common Stock shares to satisfy tax withholding obligations for RSU vesting - There were no unregistered sales of equity securities during the period[187] Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April, 2024 | 2,232 | $20.06 | | May, 2024 | 88,294 | $18.99 | | June, 2024 | — | $— | Item 5. Other Information CEO Steve Yi and CTO Eugene Nonko adopted Rule 10b5-1 trading plans in May 2024 for the potential sale of up to 1,000,000 Class A common shares each - CEO Steve Yi and CTO Eugene Nonko each adopted a new Rule 10b5-1 trading plan in May 2024[192] - Each plan provides for the sale of up to 1,000,000 shares of Class A common stock and terminates by April 15, 2025, or when all shares are sold[192] Item 6. Exhibits This section lists all exhibits filed, including employment agreement amendments, CEO/CFO certifications, and Inline XBRL documents - The report includes exhibits such as amendments to employment agreements for the CEO and CTO, CEO/CFO certifications (Sections 302 and 906), and Inline XBRL data files[194][195]