MediaAlpha(MAX) - 2024 Q3 - Quarterly Report

General Information This section provides general filing information and details on the company's outstanding common stock classes - MediaAlpha, Inc. filed its Quarterly Report on Form 10-Q for the period ended September 30, 2024[2] Stock Information | Stock Class | Shares Outstanding (as of Oct 31, 2024) | Par Value | | :---------- | :-------------------------------------- | :-------- | | Class A Common Stock | 55,090,208 | $0.01 per share | | Class B Common Stock | 11,574,029 | $0.01 per share | Certain Definitions This section defines key operational terms used throughout the report, including consumer referral and marketplace types - "Consumer Referral" is defined as any consumer click, call, or lead purchased by a buyer on the platform[6] - "Open Marketplace" involves separate agreements with Demand and Supply Partners, where the Company earns fees from Demand Partners and pays revenue share to Supply Partners and internet search companies[7] - "Private Marketplace" involves direct contracts between Demand and Supply Partners, with the Company charging a platform fee to Supply Partners based on Transaction Value[9] Cautionary Statement Regarding Forward-Looking Statements and Risk Factor Summary This section highlights that forward-looking statements are subject to risks and uncertainties, summarizing key business risk factors - Forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from expectations[10] - Key risk factors include: - Ability to attract and retain supply and demand partners[10] - Reliance on a limited number of partners with no long-term contractual commitments[10] - Fluctuations in customer acquisition spending by P&C insurance carriers due to business cycles[10] - Existing and future laws and regulations affecting insurance verticals[11] - Competition in digital customer acquisition[11] - Impact of broad-based pandemics or public health crises[11] - Potential litigation and claims, including regulatory actions (e.g., FTC matter)[11] - Risks related to changes in tax laws or exposure to additional tax liabilities[11] PART I. FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements of MediaAlpha, Inc. and its subsidiaries for the period ended September 30, 2024, along with management's discussion and analysis of financial condition and results of operations, disclosures about market risk, and controls and procedures. It provides a comprehensive overview of the company's financial performance and position Item 1. Financial Statements This section includes the unaudited consolidated balance sheets, statements of operations, statements of stockholders' equity (deficit), and statements of cash flows, along with the accompanying notes, providing a detailed view of MediaAlpha's financial position and performance for the periods presented Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Consolidated Balance Sheet (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Assets | $236,110 | $153,925 | +$82,185 | | Total Liabilities | $295,731 | $248,350 | +$47,381 | | Total Stockholders' (Deficit) | $(59,621) | $(94,425) | +$34,804 | | Cash and Cash Equivalents | $32,304 | $17,271 | +$15,033 | | Accounts Receivable, net | $126,814 | $53,773 | +$73,041 | | Accounts Payable | $109,577 | $56,279 | +$53,298 | Consolidated Statements of Operations This section outlines the company's financial performance, including revenue, expenses, and net income or loss for the periods presented Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $259,133 | $74,573 | $564,056 | $270,975 | | Total Costs & Operating Expenses | $243,525 | $89,322 | $539,583 | $311,345 | | Income (Loss) from Operations | $15,608 | $(14,749) | $24,473 | $(40,370) | | Net Income (Loss) | $11,888 | $(18,698) | $14,817 | $(53,262) | | Net Income (Loss) Attributable to MediaAlpha, Inc. | $9,482 | $(13,502) | $11,989 | $(38,054) | | Basic EPS | $0.17 | $(0.29) | $0.23 | $(0.84) | | Diluted EPS | $0.17 | $(0.29) | $0.22 | $(0.84) | Consolidated Statements of Stockholders' Equity (Deficit) This section details changes in stockholders' equity (deficit), reflecting the impact of net income, compensation, and stock transactions - Total stockholders' deficit improved from $(94,425) thousand at December 31, 2023, to $(59,621) thousand at September 30, 2024, primarily due to net income and equity-based compensation, partially offset by exchanges of non-controlling interest for Class A common stock[19][15] Consolidated Statements of Stockholders' Equity (Deficit) (in thousands) | Metric | Balance at Dec 31, 2023 | Balance at Sep 30, 2024 | | :-------------------- | :---------------------- | :---------------------- | | Class A common stock | $474 | $551 | | Class B common stock | $181 | $116 | | Additional paid-in capital | $511,613 | $501,543 | | Accumulated deficit | $(522,562) | $(510,573) | | Non-controlling interest | $(84,131) | $(51,258) | | Total Stockholders' (Deficit) | $(94,425) | $(59,621) | Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities for the periods presented Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | | Net cash provided by operating activities | $31,343 | $14,937 | +$16,406 | | Net cash (used in) investing activities | $(607) | $(60) | $(547) | | Net cash (used in) financing activities | $(15,703) | $(14,223) | $(1,480) | | Net increase in cash and cash equivalents | $15,033 | $654 | +$14,379 | | Cash and cash equivalents, end of period | $32,304 | $15,196 | +$17,108 | Notes to the Consolidated Financial Statements This section provides detailed explanations and supplementary information for the consolidated financial statements, covering significant accounting policies, revenue disaggregation, goodwill and intangible assets, long-term debt, commitments and contingencies, equity-based compensation, fair value measurements, income taxes, earnings per share, and non-controlling interest 1. Summary of significant accounting policies This section outlines the company's key accounting policies, including changes in allowances, customer concentrations, and new accounting pronouncements - The Company's significant accounting policies did not materially change during the nine months ended September 30, 2024, and are consistent with those in the 2023 Annual Report on Form 10-K[26] - Accounts receivable are reported net of allowances for credit losses, which increased from $0.5 million at December 31, 2023, to $1.0 million at September 30, 2024[28] Concentration Information (in thousands) | Concentration Type | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue (customers > 10%) | 2 customers, $130M (50%) | 0 customers, $0M (0%) | 2 customers, $227M (40%) | 0 customers, $0M (0%) | | Purchases (suppliers > 10%) | 2 suppliers, $48M (22%) | 1 supplier, $9M (14%) | 0 suppliers, $0M (0%) | 1 supplier, $26M (12%) | - The Company received a letter from the FTC proposing injunctive and monetary relief and civil penalties, which significantly exceed existing liquidity and financial resources, potentially requiring additional capital or debt[34] - The P&C insurance vertical has rebounded strongly in 2024, with multiple carriers increasing spending, and the Company believes its liquidity is sufficient for the next twelve months[34] - Recent accounting pronouncements include: - ASU No. 2023-09 (Income Taxes): Requires disaggregated income taxes paid and standard categories for effective tax rate reconciliation, effective for annual periods after Dec 15, 2024[36] - ASU No. 2023-07 (Segment Reporting): Expands annual and interim disclosure requirements for reportable segments, effective for annual periods after Dec 15, 2023[37] 2. Disaggregation of revenue This section disaggregates revenue by marketplace type and insurance vertical, showing detailed performance across business segments Revenue by Marketplace (in thousands) | Revenue | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Open marketplace transactions | $253,016 | $73,053 | $546,949 | $263,568 | | Private marketplace transactions | $6,117 | $1,520 | $17,107 | $7,407 | | Total Revenue | $259,133 | $74,573 | $564,056 | $270,975 | Revenue by Vertical (in thousands) | Revenue by Vertical | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Property & casualty insurance | $219,036 | $31,933 | $422,700 | $126,532 | | Health insurance | $32,879 | $33,961 | $114,932 | $115,192 | | Life insurance | $5,227 | $5,341 | $19,308 | $18,321 | | Other | $1,991 | $3,338 | $7,116 | $10,930 | | Total Revenue | $259,133 | $74,573 | $564,056 | $270,975 | 3. Goodwill and intangible assets This section details the carrying amounts of goodwill and intangible assets, along with their associated amortization expenses and future schedules Goodwill and Intangible Assets (in thousands) | Asset | Sep 30, 2024 Net Carrying Amount | Dec 31, 2023 Net Carrying Amount | | :------------------- | :------------------------------- | :------------------------------- | | Customer relationships | $15,387 | $19,553 | | Trademarks, trade names, and domain names | $6,201 | $6,462 | | Total Intangible Assets | $21,588 | $26,015 | | Goodwill | $47,739 | $47,739 | - Amortization expense for intangible assets was $1.6 million for Q3 2024 (vs. $1.7 million in Q3 2023) and $4.8 million for the nine months ended Sep 30, 2024 (vs. $5.2 million in 2023)[41] Future Amortization Expense (in thousands) | Future Amortization Expense | Amount | | :--------------------------------------- | :----- | | 2024–Remaining Period | $1,603 | | 2025 | $5,776 | | 2026 | $5,173 | | 2027 | $4,140 | | 2028 | $2,336 | | Thereafter | $2,560 | | Total | $21,588 | 4. Long-term debt This section provides details on the company's long-term debt, including outstanding balances, interest expenses, and future principal payment schedules Long-Term Debt (in thousands) | Debt | Sep 30, 2024 | Dec 31, 2023 | | :------------------ | :----------- | :----------- | | 2021 Term Loan Facility | $160,828 | $171,000 | | 2021 Revolving Credit Facility | $5,000 | $5,000 | | Debt issuance costs | $(1,178) | $(1,701) | | Total Debt | $164,650 | $174,299 | | Less: current portion | $(8,839) | $(11,854) | | Total Long-Term Debt | $155,811 | $162,445 | - Interest expense on the 2021 Term Loan Facility was $3.3 million for Q3 2024 (vs. $3.8 million in Q3 2023) and $10.3 million for the nine months ended Sep 30, 2024 (vs. $10.9 million in 2023)[45] - As of September 30, 2024, the Company had $45.0 million available under the 2021 Revolving Credit Facility, with interest rates of 7.57% for the Term Loan and 7.68% for the Revolving Credit Facility[46] Expected Future Principal Payments (in thousands) | Expected Future Principal Payments | Amount | | :---------------------------------------------- | :----- | | 2024–Remaining Period | $2,375 | | 2025 | $9,500 | | 2026 | $153,953 | | Total Debt and Issuance Costs | $165,828 | 5. Commitments and contingencies This section addresses the company's commitments and contingencies, particularly focusing on the FTC matter and its potential financial and operational impacts - The FTC Staff proposes to seek injunctive and monetary relief and civil penalties against the Company for alleged violations of the FTC Act, Telemarketing Sales Rule, and Government and Business Impersonation Rule related to lead generation and telemarketing activities, particularly concerning health insurance products[50][51][52] - The proposed monetary relief significantly exceeds the Company's existing liquidity, potentially requiring additional capital or debt, and injunctive terms could materially affect the Health insurance vertical[52] - The Company strongly disagrees with the FTC Staff's allegations and believes a loss is probable, but the amount cannot be reasonably estimated due to inherent uncertainties[53][54] FTC-Related Legal Fees (in thousands) | Legal Fees | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | FTC-related legal fees | $200 | $1,600 | $2,000 | $3,000 | 6. Equity-based compensation This section details the types and amounts of equity-based compensation expenses, along with unrecognized compensation costs and their recognition periods Equity-Based Compensation (in thousands) | Equity-based Compensation | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | QLH restricted Class B-1 units | $3 | $14 | $16 | $73 | | Restricted Class A shares | $66 | $130 | $272 | $464 | | Restricted stock units | $7,985 | $14,310 | $25,230 | $43,406 | | Performance-based restricted stock units | $543 | $0 | $934 | $0 | | Total Equity-based Compensation | $8,597 | $14,454 | $26,452 | $43,943 | - Total unrecognized compensation cost related to unvested restricted stock units and PRSUs was $57.3 million and $0.8 million, respectively, as of September 30, 2024, to be recognized over weighted-average periods of 2.53 years and 0.45 years[59] 7. Fair Value Measurements This section discusses the fair value measurements of financial instruments, including contingent consideration, debt facilities, and equity investments - Contingent consideration related to the CHT acquisition was zero as of December 31, 2023, as minimum revenue targets were not achieved[60] - The carrying amount of the 2021 Term Loan Facility and Revolving Credit Facility approximated their fair values as of September 30, 2024, estimated using a discounted cash flow analysis with a 5.50% discount rate[61] - A minority equity investment was cancelled on March 29, 2024, with no impact on financial statements as its fair value was previously determined to be zero[62] 8. Income taxes This section details the company's income tax structure, effective tax rates, valuation allowances, and potential Tax Receivables Agreement liabilities - MediaAlpha, Inc. is taxed as a corporation on income allocated from QLH, which is a pass-through partnership[64] Income Tax Information (in thousands, except percentages) | Income Tax | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Income (loss) before income taxes | $12,200 | $(18,596) | $15,286 | $(52,932) | | Income tax expense | $312 | $102 | $469 | $330 | | Effective Tax Rate | 2.6% | (0.5)% | 3.1% | (0.6)% | - The effective tax rate differed from the U.S. federal statutory rate of 21% primarily due to the tax impacts of changes in valuation allowance[65] - A valuation allowance of $125.2 million (Sep 30, 2024) and $95.1 million (Dec 31, 2023) was recorded against deferred tax assets due to a history of pre-tax losses. The Company expects to potentially release a portion or all of this allowance as early as Q4 2024 due to significant improvement in pre-tax income[68] - No payments were made under the Tax Receivables Agreement (TRA) during the three and nine months ended September 30, 2024, as the liability was determined to be zero due to the valuation allowance on deferred tax assets. If the valuation allowance is released, a TRA liability of approximately $121 million would be recorded[70][71] 9. Earnings (Loss) Per Share This section presents the basic and diluted earnings per share, along with the weighted-average shares outstanding and potentially dilutive shares Earnings Per Share (in thousands, except share data) | EPS | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) attributable to MediaAlpha, Inc. | $9,482 | $(13,502) | $11,989 | $(38,054) | | Basic EPS | $0.17 | $(0.29) | $0.23 | $(0.84) | | Diluted EPS | $0.17 | $(0.29) | $0.22 | $(0.84) | | Weighted-average shares outstanding - Basic | 54,909,772 | 46,229,672 | 52,293,622 | 45,095,417 | | Weighted-average shares outstanding - Diluted | 54,909,772 | 46,229,672 | 66,087,041 | 45,095,417 | Potentially Dilutive Shares | Potentially Dilutive Shares | Sep 30, 2024 | Sep 30, 2023 | | :-------------------------- | :----------- | :----------- | | QLH Class B-1 Units | 11,609,982 | 18,155,446 | | Restricted stock units | 3,664,754 | 4,342,036 | | PRSUs | 93,000 | 0 | | Total Potentially Dilutive Shares | 15,367,736 | 22,550,055 | 10. Non-Controlling Interest This section describes non-controlling interests, their ownership in QLH, and the impact of unit exchanges on the company's ownership - Non-controlling interests represent Class B-1 units in QLH, primarily held by Insignia and Senior Executives, which have no voting rights[77] - During the nine months ended September 30, 2024, holders of non-controlling interests exchanged 6,496,800 Class B-1 units for Class A common stock[78] Ownership Interest in QLH | Ownership Interest in QLH | Sep 30, 2024 | Dec 31, 2023 | | :------------------------ | :----------- | :----------- | | MediaAlpha, Inc. | 82.6% | 72.3% | | Non-controlling interests | 17.4% | 27.7% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on MediaAlpha's financial performance, condition, and future outlook, analyzing key factors affecting the business, operational results for the three and nine months ended September 30, 2024, and liquidity and capital resources Management overview This section outlines MediaAlpha's mission to connect insurance carriers with high-intent consumers through its technology platform - MediaAlpha's mission is to help insurance carriers and distributors efficiently acquire customers through its technology platform, which connects leading insurance carriers with high-intent consumers[82] - The platform supported over $1.1 billion in Transaction Value across P&C, health, and life insurance verticals for the twelve months ended September 30, 2024[82] - The company generates revenue by earning a fee for each Consumer Referral (click, call, or lead) sold on its platform, which is generally not contingent on product sales[84] Executive Summary This section provides a high-level summary of the company's financial performance, highlighting significant increases in revenue and net income Executive Summary (in millions, except percentages) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | YoY Change | | :------------------------------------- | :------------------------------ | :------------------------------ | :--------- | | Revenue | $259.1 | $74.6 | +247.5% | | Transaction Value | $451.8 | $109.0 | +314.4% | | Contribution | $41.5 | $15.0 | +175.9% | | Net Income (Loss) | $11.9 | $(18.7) | n/m | | Adjusted EBITDA | $26.3 | $3.6 | +632.6% | - Revenue and Transaction Value significantly increased due to higher customer acquisition spending by P&C carrier partners responding to improving underwriting profitability[87] - Net income improved to $11.9 million from a net loss of $18.7 million, driven by increased gross profit and lower equity-based compensation[89] Key factors affecting our business This section discusses critical drivers and challenges impacting the business, including industry trends, transaction value, consumer referrals, seasonality, and regulatory changes - Secular trends in the insurance industry, such as growing customer acquisition spending and the shift to direct-to-consumer marketing, are critical drivers of revenue[90] - Transaction Value increased to $451.8 million (Q3 2024) and $992.7 million (YTD Sep 2024) from $109.0 million and $428.1 million (Q3/YTD Sep 2023), primarily due to increased P&C insurance carrier spending[91] - 97% of total insurance Transaction Value for the three and nine months ended September 30, 2024, came from demand partner relationships existing in 2023, indicating strong retention[91] - Consumer Referrals increased to 30.5 million (Q3 2024) and 83.3 million (YTD Sep 2024) from 23.2 million and 72.4 million (Q3/YTD Sep 2023), driven by scaling the business and expanding market share[94] - The P&C insurance vertical experiences seasonal strength in Q1 and weakness in Q4, while health insurance sees seasonal strength in Q4 due to open enrollment periods[95] - The P&C insurance industry has turned from a "hard" market to an improving market in 2024, with carriers increasing customer acquisition spending[96] - Regulatory changes, including new FTC and FCC positions on telemarketing consent (TSR, TCPA), and state privacy laws (CCPA, CPRA), may require the Company and its partners to adjust operations and incur compliance costs[97][98] Key components of our results of operations This section explains how revenue is generated and recognized across marketplace types, along with the definitions of key expense categories - Revenue is generated from the purchase and sale of Consumer Referrals in P&C, health, and life insurance verticals, with pricing and volume influenced by market conditions and consumer attributes[99][100] - In Open Marketplace transactions, the Company acts as principal, recognizing fees from Demand Partners as revenue and payments to Supply Partners as cost of revenue[101] - In Private Marketplace transactions, the Company acts as an agent, charging Supply Partners a platform fee based on Transaction Value, with no associated cost of revenue[102] - Key components of results of operations include: - Cost of revenue: Revenue share payments, traffic acquisition costs, telephony, internet, hosting, merchant fees, and personnel expenses for media buying[103][104] - Sales and marketing: Personnel expenses for business development, marketing, promotions, and travel[105] - Product development: Personnel expenses for technology, engineering, and product development[107] - General and administrative: Personnel expenses for executive, finance, legal, HR, business analytics, and professional services[108] - Other expense (income), net: Non-ordinary course expenses/income[109] - Interest expense: Associated with 2021 Credit Facilities and amortization of deferred financing costs[110] - Income tax expense (benefit): Corporate taxes on income allocated from QLH[111] - Net income (loss) attributable to Non-controlling interest: Share of QLH's pre-tax income/loss allocated to non-controlling interest holders[112] Operating results for the three months ended September 30, 2024 and 2023 This section analyzes the company's financial performance for the three months ended September 30, 2024, compared to the prior year, detailing revenue and expense changes Operating Results (in thousands) | Metric | Q3 2024 | Q3 2023 | Change | % Change | | :-------------------- | :------ | :------ | :----- | :------- | | Revenue | $259,133 | $74,573 | $184,560 | 247.5% | | Cost of revenue | $219,907 | $62,277 | $157,630 | 253.1% | | Sales and marketing | $6,496 | $6,101 | $395 | 6.5% | | Product development | $5,328 | $4,296 | $1,032 | 24.0% | | General and administrative | $11,794 | $16,648 | $(4,854) | (29.2)% | | Income (loss) from operations | $15,608 | $(14,749) | $30,357 | n/m | | Net income (loss) | $11,888 | $(18,698) | $30,586 | n/m | - P&C insurance revenue surged by 585.9% to $219.0 million, driven by increased customer acquisition spending as the industry's "hard market" cycle improved[115][116] - Health insurance revenue decreased by 3.2% to $32.9 million, mainly due to reduced supply from a partner ceasing operations, partially offset by higher Private Marketplace spending[115][117] - Life insurance revenue decreased by 2.1% to $5.2 million, primarily due to reduced supply from a partner ceasing operations, partially offset by a higher mix of Open Marketplace transactions[115][118] - General and administrative expenses decreased by 29.2% due to lower equity-based compensation ($4.9 million decrease) and reduced legal costs related to the FTC investigation ($1.6 million decrease)[124] - Equity-based compensation expense decreased by 40.5% to $8.6 million, mainly due to certain IPO-related Restricted Stock Units (RSUs) being fully vested[125] - Interest expense decreased by 9.8% to $3.6 million, driven by lower interest rates and outstanding debt balances[129] Operating results for the nine months ended September 30, 2024 and 2023 This section analyzes the company's financial performance for the nine months ended September 30, 2024, compared to the prior year, detailing revenue and expense changes Operating Results (in thousands) | Metric | YTD Sep 2024 | YTD Sep 2023 | Change | % Change | | :-------------------- | :----------- | :----------- | :----- | :------- | | Revenue | $564,056 | $270,975 | $293,081 | 108.2% | | Cost of revenue | $469,465 | $226,545 | $242,920 | 107.2% | | Sales and marketing | $18,608 | $19,802 | $(1,194) | (6.0)% | | Product development | $14,743 | $14,525 | $218 | 1.5% | | General and administrative | $36,767 | $50,473 | $(13,706) | (27.2)% | | Income (loss) from operations | $24,473 | $(40,370) | $64,843 | n/m | | Net income (loss) | $14,817 | $(53,262) | $68,079 | n/m | - P&C insurance revenue increased by 234.1% to $422.7 million, driven by increased customer acquisition spending from multiple carriers as the industry's "hard market" cycle improved[132][133] - Health insurance revenue remained largely flat, decreasing by 0.2% to $114.9 million, primarily due to reduced Open Marketplace transactions offset by higher Private Marketplace spending[132][134] - Life insurance revenue increased by 5.4% to $19.3 million, driven by a higher mix of Open Marketplace transactions, despite reduced supply from a partner ceasing operations[132][135] - General and administrative expenses decreased by 27.2% due to a $14.8 million decrease in equity-based compensation and reduced legal costs[142] - Equity-based compensation expense decreased by 39.8% to $26.5 million, primarily due to certain IPO-related RSUs being fully vested[143] - Other (income) expense, net, improved significantly by $(3.1) million, primarily due to a $1.7 million contract termination fee and the non-recurrence of a $1.4 million impairment charge from the prior year[146] - Interest expense decreased by 2.1% to $11.2 million, driven by lower outstanding debt balances[147] Key business and operating metrics This section presents key non-GAAP business and operating metrics, including Adjusted EBITDA, Contribution, and Transaction Value, used to evaluate performance - Adjusted EBITDA is a non-GAAP measure used by management to evaluate operating performance, excluding interest, taxes, depreciation, amortization, equity-based compensation, and other adjustments[151] Adjusted EBITDA (in thousands) | Adjusted EBITDA | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $11,888 | $(18,698) | $14,817 | $(53,262) | | Equity-based compensation expense | $8,597 | $14,454 | $26,452 | $43,943 | | Interest expense | $3,562 | $3,947 | $11,158 | $11,397 | | Income tax expense | $312 | $102 | $469 | $330 | | Depreciation & Amortization | $1,674 | $1,817 | $5,018 | $5,463 | | Adjusted EBITDA | $26,271 | $3,586 | $59,430 | $14,442 | - Contribution (revenue less revenue share and online advertising costs) and Contribution Margin are non-GAAP measures used to assess return on supply partner relationships and operating leverage[158][160] Contribution and Contribution Margin (in thousands, except percentages) | Contribution | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :-------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $259,133 | $74,573 | $564,056 | $270,975 | | Gross profit | $39,226 | $12,296 | $94,591 | $44,430 | | Contribution | $41,482 | $15,037 | $102,900 | $52,991 | | Gross margin | 15.1% | 16.5% | 16.8% | 16.4% | | Contribution Margin | 16.0% | 20.2% | 18.2% | 19.6% | - Transaction Value, defined as total gross dollars transacted by partners on the platform, increased significantly, driven by P&C insurance carriers[162][91] Transaction Value by Marketplace (in thousands) | Transaction Value | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Open Marketplace transactions | $253,016 (56.0%) | $73,053 (67.0%) | $546,949 (55.1%) | $263,568 (61.6%) | | Private Marketplace transactions | $198,759 (44.0%) | $35,963 (33.0%) | $445,742 (44.9%) | $164,524 (38.4%) | | Total Transaction Value | $451,775 | $109,016 | $992,691 | $428,092 | Transaction Value by Vertical (in thousands) | Transaction Value by Vertical | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Property & Casualty insurance | $387,451 (85.8%) | $44,715 (41.0%) | $777,521 (78.3%) | $223,305 (52.2%) | | Health insurance | $55,615 (12.3%) | $51,210 (47.0%) | $179,980 (18.1%) | $161,450 (37.7%) | | Life insurance | $6,261 (1.4%) | $7,566 (6.9%) | $24,384 (2.5%) | $26,042 (6.1%) | | Other | $2,448 (0.5%) | $5,525 (5.1%) | $10,806 (1.1%) | $17,295 (4.0%) | | Total Transaction Value | $451,775 | $109,016 | $992,691 | $428,092 | - Consumer Referrals are clicks, calls, or leads, with revenue recognized on a pay-per-click, duration-based call, or lead transfer basis[165] Transaction Value by Type | Transaction Value by Type | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Clicks | 88.6% | 66.1% | 84.2% | 73.0% | | Calls | 6.6% | 19.9% | 9.4% | 16.0% | | Leads | 4.8% | 14.0% | 6.4% | 11.0% | Segment information This section states that the company operates as a single operating segment, with consolidated financial information reviewed by the CEO - The Company operates primarily in the United States and in a single operating segment, with the CEO reviewing consolidated financial information for resource allocation and performance evaluation[167] Liquidity and capital resources This section discusses the company's liquidity sources and uses, market conditions, potential impacts of the FTC matter, and debt obligations - Principal liquidity sources are cash flows from operations and the 2021 Revolving Credit Facility; principal uses include operations, interest, and debt payments[168] Liquidity and Capital Resources (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $32,304 | $17,271 | | Outstanding 2021 Term Loan Facility | $160,828 | $171,000 | | Available 2021 Revolving Credit Facility | $45,000 | N/A | - The P&C insurance market has improved, with increased customer acquisition spending, but the pace of recovery beyond Q4 2024 is uncertain[169] - The FTC Staff's proposed monetary relief and civil penalties significantly exceed existing liquidity, potentially requiring additional capital or debt, and could materially affect the Health insurance vertical[170] - Management believes current liquidity is sufficient for the next twelve months, but may need to reduce costs, amend credit facilities, refinance debt, or raise capital if financial results are below expectations or FTC claims require significant payments[171] Cash Flow Activities (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Net cash provided by operating activities | $31,343 | $14,937 | $16,406 | 109.8% | | Net cash (used in) investing activities | $(607) | $(60) | $(547) | 911.7% | | Net cash (used in) financing activities | $(15,703) | $(14,223) | $(1,480) | 10.4% | - Operating cash flow increased due to higher net income and improved net working capital from increased accounts receivable and timing of accounts payable[175] - Investing cash flow increased due to the purchase of intangible assets[176] - Financing cash flow increased due to a required Excess Cash Flow principal payment on the 2021 Term Loan Facility, partially offset by lower TRA payments and non-controlling interest distributions[177] - The 2021 Credit Facilities (Term Loan and Revolving Credit) mature on July 29, 2026, with variable interest rates based on SOFR plus an applicable margin[178][179][180][181] - The Tax Receivables Agreement (TRA) requires payments of 85% of realized tax benefits from tax basis increases due to Class B-1 unit exchanges and certain net operating losses. No payments were due as of September 30, 2024, due to a valuation allowance on deferred tax assets[184][185][186] Recent accounting pronouncements This section refers to Note 1 for a discussion of recently adopted and not yet adopted accounting pronouncements - For a discussion of new accounting pronouncements recently adopted and not yet adopted, refer to Note 1 to the consolidated financial statements[187] Critical accounting policies and estimates This section confirms that critical accounting policies and estimates remained consistent with the prior annual report - The Company's critical accounting policies and estimates did not materially change during the nine months ended September 30, 2024, and are consistent with those in the 2023 Annual Report on Form 10-K[188] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk due to variable-rate debt and concentrations of credit risk related to cash and accounts receivable, as well as customer and supplier concentrations - The Company is exposed to interest rate risk from its variable-rate 2021 Credit Facilities; a hypothetical 1.0% change in interest rate would impact interest expense by $1.3 million for the nine months ended September 30, 2024[190] - Concentrations of credit risk exist in cash and cash equivalents (exceeding FDIC insured amounts) and unsecured accounts receivable. Credit risk is managed by assessing customer creditworthiness and recording allowances for credit losses[191][192] Concentration of Risk (in thousands) | Concentration Type | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue (customers > 10%) | 2 customers, $130M (50%) | 0 customers, $0M (0%) | 2 customers, $227M (40%) | 0 customers, $0M (0%) | | Purchases (suppliers > 10%) | 2 suppliers, $48M (22%) | 1 supplier, $9M (14%) | 0 suppliers, $0M (0%) | 1 supplier, $26M (12%) | | Accounts receivable (customers > 10%) | 2 customers, $66M (52%) | 1 customer, $7M (14%) | N/A | N/A | | Accounts payable (suppliers > 10%) | 3 suppliers, $39M (36%) | 1 supplier, $12M (21%) | N/A | N/A | Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2024, providing reasonable assurance that information is recorded, processed, summarized, and reported timely. No material changes to internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were deemed effective as of September 30, 2024, ensuring timely and accurate financial reporting[194] - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2024[195] - Management acknowledges inherent limitations in controls, which can only provide reasonable assurance due to resource constraints and judgment application[196] PART II. OTHER INFORMATION This part covers non-financial information, including legal proceedings, updated risk factors, details on unregistered sales of equity securities, and other miscellaneous disclosures Item 1. Legal Proceedings This section incorporates by reference the detailed discussion of legal proceedings, including the FTC matter, from Note 5 to the consolidated financial statements, stating that management does not believe current claims will have a material adverse effect on the company's financial position, results of operations, or cash flows - The Company is subject to legal proceedings and claims in the normal course of business, and management believes any resulting liability will not materially adversely affect financial position, results of operations, or cash flows[48] - Information regarding legal proceedings, including the FTC matter, is incorporated by reference from Note 5 to the Consolidated Financial Statements[197] Item 1A. Risk Factors This section updates previously disclosed risk factors and introduces new ones, highlighting the company's transition from a "controlled company" status, potential capital needs, litigation risks (especially the FTC matter), and the impact of evolving privacy and marketing regulations - The Company is no longer a "controlled company" under NYSE rules but may rely on exemptions during a one-year transition period, potentially affecting corporate governance[198][199] - Operating and growing the business may require additional capital, and if not available, especially for potential material monetary relief or civil penalties from the FTC Matter, it could severely impact the business[200][201] - The Company faces litigation risks, including claims related to regulatory violations, breach of contract, and intellectual property, which can be costly and divert management's time[202] - Unauthorized or unlawful acts by sellers, vendors, or their affiliates could lead to significant liability, loss of demand partners, and revenue, as the Company cannot fully control third-party activities[203] - The FTC Staff proposes injunctive and monetary relief and civil penalties for alleged violations of the FTC Act, TSR, and Impersonation Rule related to lead generation and telemarketing in the healthcare vertical. These proposed items significantly exceed existing liquidity[204][205][206] - Evolving laws and regulations concerning privacy, data protection (e.g., CCPA, CPRA, HIPAA), and marketing practices (TCPA, TSR, CAN-SPAM Act) could materially affect the business, requiring operational changes, increasing costs, and exposing the Company to significant fines or litigation[207][208][209][210][211][212][213][214][215][217][218][219] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's share repurchase activity for the three months ended September 30, 2024, specifically for Class A Common Stock withheld to cover tax withholding obligations on restricted stock unit vesting Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | | :----- | :--------------------- | :--------------------------- | | August 1 through August 31, 2024 | 88,376 | $16.97 | | September 1 through September 30, 2024 | 707 | $17.52 | | Total (Q3 2024) | 89,083 | $16.97 | - These share repurchases were for Class A Common Stock withheld to satisfy tax withholding obligations related to the vesting of restricted stock units issued to employees[221] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[223] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Not applicable[224] Item 5. Other Information This section discloses that no director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2024 - No director or officer adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended September 30, 2024[225] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, officer certifications, and XBRL data files, providing supporting documentation for the report - This section lists various exhibits filed with the Form 10-Q, including amendments to the Certificate of Incorporation and By-Laws, certifications of the CEO and CFO (Sarbanes-Oxley Act), and Inline XBRL documents[226] Signatures This section confirms the official signing of the report by the Chief Financial Officer and Treasurer - The report was signed by Patrick R. Thompson, Chief Financial Officer & Treasurer, on November 4, 2024[228]