Good afternoon. My name is Emma, and I will be your conference operator today. At this time I would like to welcome everyone to the MediaAlpha Q3 2021 Earnings Call. [Operator Instructions] Thank you. Denise Garcia, Investor Relations, you may begin your conference.

Thank you, Emma. After the market closed today, MediaAlpha issued a press release and shareholder letter, announcing results for the third quarter, ended September 30, 2021. These documents are available in the Investors section of our website and we will be referring to them on this call. On our discussion today, our discussion today will forward-looking statements about our business and our outlook for future financial results including our financial guidance for the fourth quarter and the full year 2021, which are based on assumptions, forecasts, expectations and information currently available to management. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from those reflected in those statements. Please refer to the company's SEC filings including its annual report on Form 10-K and its quarterly reports on Form 10-Q for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements. These forward-looking statements are based on assumptions as of today, November 10, 2021 and the company undertakes no obligation to revise or update them. In addition, on today's call, we will be referring to certain actual and projected financial metrics of MediaAlpha, which are non-GAAP financial measures. These metrics include adjusted EBITDA, contribution and contribution margin and we present them in order to supplement your understanding and assessment of our financial performance. Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our press release and shareholder letter issued today. Finally, I would like to remind everyone that this call is being recorded and will be made available for replay via a link on the Investors section of the company's website at investors.mediaalpha.com. Now I'll turn the call over to Steve for a few introductory remarks before opening the call to your questions.

Thanks, Denise, and thank you everyone for joining the call. Our transaction value in the third quarter of 2021 was $255.1 million, an increase of 17% year-over-year. While this was a healthy growth rate in light of our outstanding performance in the second half of 2020, it fell short of our expectations as we faced headwinds in our P&C insurance vertical with many of our auto insurance parts temporarily scaling back their marketing investments in response to higher-than-expected underwriting losses. These headwinds are what is also leading us to revise our guidance downward for the remainder of the year. We've been through these auto insurance cycles before and remain confident in our future growth. Despite the general pullback, nine of our top 20 P&C insurance carrier partners increased their investments with us in the third quarter by 50% or more compared to the prior year period. We believe this illustrates the continuing strength of the insurance industry's secular shift to online direct-to-consumer distribution models. In addition, our lean operating model puts us in an enviable position to invest in growth as others may be pulling back. We believe that these factors will enable us to scale rapidly once the carriers restore their profitability. One very bright spot during the quarter was our higher-than-expected year-over-year growth of 44% in our health insurance vertical, which is unaffected by the trends in the auto insurance market. We continue to see outstanding performance in this vertical in the current open and annual enrollment periods and expect this team to have a very strong fourth quarter. During these times, we will continue to focus on what has made us successful: Disciplined execution, a growth mindset and putting our partners' needs first. We approached the last hard market with this as our foundation and we emerged from that market cycle into a period of tremendous growth that saw us pull away from our competition by leaps and bounds. We have no doubt that we will also come out of this period stronger than ever and ready to seize the opportunities ahead. With that we'll open it up to your questions.

[Operator Instructions] Your first question comes from the line of Michael Graham with Canaccord Genuity. Your line is open.

Hi. Thanks a lot. Just a couple of questions. The first one Steve maybe just comment on in past experience how long some of these auto cycles have taken to sort of trough and rebound? And you mentioned that nine of the top 20 grew by over 50% year-over-year, which is pretty astounding given the overall environment. I'm just wondering if you could comment on like was there a common thread for those carriers? Were these the ones who were already more fully embracing DTC, or is there any common thread to those carriers that had heavy spending persist?

Hi, Michael, thanks. Great questions. With regard to our past experiences, I mean, we have been through this before, right? What we saw in the last cycle that was back in 2015 and 2016 that cycle was driven by three big things: lower-than-expected gas prices, higher-than-expected employment, increase in distracted driving all which led to higher-than-expected frequency. What you saw unfold there was a hard market cycle that lasted about a little over two years. I think this time around there's still a lot of uncertainty. The market dynamics are still fluid. But I think what we're hearing from most of our carrier partners is that this underwriting cycle is going to unfold much more quickly. And it makes sense when you think about what the reasons are behind this cycle right because it's related to post-pandemic driving patterns, pandemic-related supply chain issues that's leading to severity issues and then losses from major cat events like Hurricane Ida, right? The one thing that we know about the duration of this cycle is that as many large carriers have announced we do expect them to continue to take rate well into the first half of 2022. And having been through these cycles before for us, it is hard to foresee the market coming back in full until they're done with this rate-taking process. Now as the profitability is addressed again having been through this before we fully expect to know that the industry is going to revert back to growth mode pretty quickly particularly in our ecosystem because of the overall efficiency and how quickly they can scale back in our ecosystem. And so what we're focused on in this period is really about laying the foundation and the groundwork to accelerate out of this profitability cycle. What the current carrier…

Got it. Super helpful. Thank you, Steve.

Sure. Thanks, Michael.

Your next question comes from the line of Daniel Grosslight with Citigroup. Your line is now open.

Hi, Guys. Noting that they're increasing certainty on Medicare Advantage advertising requiring all Medicare Advantage marketing materials to be submitted to CMS prior to use just wondering if you guys have seen any slowdown in lead generations from your supply partners or your own interest assets in this?

Yes, understood. And sorry you broke up a little bit but I think you're asking about whether the CMS pre-approval requirement for Medicare Advantage advertisement has led to any kind of slowdown in our ecosystem.

Yes.

Yes. It hasn't. We actually -- we're having a very strong enrollment period and we haven't seen any material impact from these new CMS guidelines. I think, first is, our owned and operated websites aren't subject to the CMS pre-approval requirements. And then we do work with demand and supply partners who are subject to those requirements. Those partners haven't pulled back with us in any way. And in fact some of those partners are the ones increasing their budgets two to three times what they were in the last enrollment period. And I think the overall feedback that they're giving us is that getting the pre-approval for digital advertising copy has been a lot quicker than for offline ad copies, such as TV ad copy and radio ad copy.

Got you. Okay. Thank you. That's helpful. And then, as a follow-up, we saw that the conversion in P&C was pretty different than we had expected. So just wondering what the private market dynamics were in P&C this quarter?

Yes. That's a great question. So what we saw in Q3 is that we had some large supply partners, who scaled this tremendously over the years, to establish direct relationships with a couple of larger P&C carriers. That resulted in this shift. But as you know, we don't provide guidance related to the mix of open and private marketplace transaction. And I think this is exactly right, like, we don't -- because there can be near-term fluctuations that are largely partnership-driven. So the thing to keep in mind though and the point I want to emphasize is that, the growth of our private marketplaces is fundamentally a good thing for our business and we think for the industry as well. This product was designed for at-scale supply partners who, just in broad strokes, need more of a technology platform solution than a full service marketplace solution. And so, the growth in our private marketplace partnerships, well, first and foremost means that we've succeeded in helping these supply partners scale through our open exchange to levels that were really hard to imagine just a few years ago, and we see the growing adoption of our private marketplace product by many of these at-scale supply partners. We take that to mean that we've been able to actually evolve our offerings to meet their changing needs. Because these are very important partners, their needs are going to be different when they're a midsized partner or a smaller partner in the open exchange and when they're an at-scale partner. And so, for these larger partners, keep in mind that our private marketplace is a strongly differentiated platform offering that no other company has been able to offer in any credible way. We have nine to 10 such partnerships. No one else has even one, and believe me, it's not for lack of trying. I think, for us it also leads to far more deeply integrated partnerships. And these are some of the largest supply partners in the industry who then enter into a multi-year exclusive partnership with us to become a private marketplace partner. Now keep in mind the dynamics here that will shift more to the open exchange. It will be the growth of new demand partners, because new demand partners or midsized demand partners typically can't support as many direct relationships as large demand partners can. And then it's going to be the growth of newer supply partners as well, smaller partners, midsized partners as they scale and then the increase in carrier partners, because regardless of scale of our carrier supply partners, the private marketplace product really isn't a product that's designed for them. And so over the long run, for us, it's just really about maintaining a healthy balance of both of these models, because it tells me that we're doing a pretty good job of serving the needs of both our small and midsized supply partners, as well as our largest ones.

Got you. That was helpful. Thanks for the color.

Thank you.

Your next question comes from the line of Meyer Shields with KBW. Your line is now open.

Great. Thanks. Two basic questions, if I can. First, within P&C, are you getting any -- are you seeing any signs of concern about insurance companies wanting to raise rates but having some regulatory friction?

I could answer that pretty quickly. That is something that we're seeing mostly quite honestly and just in the trade press and not any specific feedback that our partners are giving us.

Okay. Perfect. And then, I don't know whether this is manifesting itself at all, but a number of the, I guess, senior health brokers are struggling with retention. I was hoping you could walk us through what impact that has to MediaAlpha if any?

Well, those brokers are both demand and supply partners of ours. And again, to the extent that they're going to struggle with retention that would lead them to actually sign potentially a lower expected lifetime value to the customers that they require. And so that would lead them to pull back on the bids that they have in our ecosystem. And so for us in our channel, we're not seeing that. In fact, we're seeing actually some of the biggest budget increases coming from these brokers in our ecosystem. And then keep in mind, the vast majority of the demand, is also directly from the carriers themselves and not from these types of brokers.

Okay. Perfect. Thank you so much.

Yeah. Thanks, Meyer.

[Operator Instructions] Your next question comes from the line of Frank Morgan with RBC Capital Markets. Your line is now open.

Good afternoon. So, it sounds like in terms of the cycle itself on the P&C side that 2023 is the year where hopefully things get back to normal. Is there a lag from the time the underwriting improves and where marketing spend goes up, or is it pretty much simultaneous with the improvement in the underwriting margins. What would be your experience from past cycles on that?

Yeah. Hey, Frank. So I would not characterize the market coming back in 2023, I would characterize it as we don't know exactly when it will, right? And so, I mean we do have some partners calling us that they expected back in early part of this year again, and then we have other partners calling us, they'll be back later. And then we also see the rate filings and the pace of the approvals that are happening and we see that companies announcing that these rate takings will continue well into 2022, right? Now when it does come back, we tend to see little to no lag from taking rate to coming back to marketing. Honestly, that's like a partner just told us that yesterday. There maybe some differences this time around because there is a bit of uncertainty around what the severity is going to look like. Because keep in mind, the underlying issue here, right, which is that we're emerging from a once-in-a-lifetime pandemic and a lot of the patterns that people are seeing both in terms of frequency and severity are kind of once-in-a-lifetime events that have been hard to predict. And so -- but what the carriers are telling us, they'll be back very quickly after the rates are taking effect simultaneously with the rates being taken. But keep in mind that other factor is that this industry is dealing with something that's an uncertainty that is new to a lot of people.

Understand. And just one more on this topic. I think last quarter you called out two of the large of your top carriers were you saying that more than two that that number has increased since last quarter in terms of those who are either contemplating or have cut budgets?

Yeah. Frank, that's right. That's right. I think we started to see the early signs, right? And those are early signs that we were seeing in Q3, right? And there is one aspect of this cycle that I alluded to which is different from the last one, which is it did unfold quickly and more uniformly across all carriers -- or most carriers than in the last cycle. And again, it's really because there's a multitude of factors but really the unexpected severity stemming from supply chain issues that are pandemic-related that a lot of carriers weren't foreseeing.

Got you. Well, I guess having diversity is a good thing now with the strength you're seeing on the health side of the business. So maybe just one question there you had earlier question on churn. But I'm just curious, as we listen to the DTC brokers report this season, there does seem to be a bigger focus on quality of new business that they add. So, I'm just curious does that maybe even drive more demand for you, if the desire to have quality members come on board so to reduce churn, does the consumption of leads go up, or what would you -- how do you think that would affect the business?

Well, I think it would affect the business positively. And I think that that's part of why we're seeing very high levels of demand from some of those broker partners that you're referring to. We're seeing demand at levels of two to three times previous periods from those demand partners. And so, as they focus on quality to the extent that their budgets with us and their investment with us is going up, I think that's exactly what you're alluding to.

Okay. Thank you.

Thanks Frank.

[Operator Instructions] There are no further questions. This ends today's conference call. Thank you for all attending. You may now disconnect.