Thank you for standing by. My name is Kath and I will be your operator today. At this time, I would like to welcome everyone to the MediaAlpha, Inc. Third Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Alex Liloia. You may begin.

Thanks, Kath. Good afternoon and thank you for joining us. With me are Co-Founder and CEO, Steve Yi and CFO, Patrick Thompson. On today's call, we will make forward-looking statements relating to our business and outlook for future financial results, including our financial guidance for the fourth quarter of 2024. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q, for a fuller explanation of those risks and uncertainties, and the limits applicable to forward-looking statements. All the forward-looking statements we make on his call reflect our assumptions and beliefs as today and we disclaim any obligation to update such statements except as required by law. Today's discussion will include non-GAAP financial measures, which are not a substitute for GAAP results. Reconciliations of these non-GAAP financial measures to the corresponding GAAP measures can be found in our press release and shareholder letter issued today, which are available on the Investor Relations section of our website. I'll now turn the call over to Steve.

Thanks, Alex. Hi, everyone. Thank you for joining us. Our performance in the third quarter set new high watermarks across all of our key metrics. Our transaction value and adjusted EBITDA both reached record levels and exceeded the high end of our guidance. Before turning the call over to our CFO, Patrick Thompson, I'd like to remind you of a few highlights of our business model and review some key drivers of our third quarter results. We operate the largest insurance customer acquisition media marketplace with strong long-term partnerships that easily reputable by competitors. Our media marketplace enables leading insurance carriers to reach millions of high intent insurance shoppers through our partnerships with hundreds of insurance websites and apps. The reach and transparency of our marketplace is unmatched, allowing carriers to scale their direct-to-consumer marketing investments rapidly and efficiently. This marketplace model is a key differentiator and competitive advantage that has established us as a growth partner of choice among carriers and brokers and underpins our ongoing success. For the third quarter, our results were primarily driven by momentum in our property and casualty vertical as auto insurance underwriting profitability continued to improve. On the supply side, highlight in the quarter was executing a multiyear extension with Insurify, one of our largest and longest standing partners. We believe this agreement reflects our market leadership position, and we continue to evaluate strategic opportunities to further expand and deepen our supply partnerships. On the demand side, we see plenty of headroom for further market share and revenue growth as additional auto insurance carriers reach target profitability, return to growth mode and increase their investments in online direct customer acquisition. In health insurance, we're entering our seasonally strongest quarter, driven by annual Medicare and ACA enrollment periods. Notwithstanding some of the transitory headwinds in Medicare, we believe the investments we've made in our partner network position us well over the long term. Finally, I'd like to provide some context on the upcoming TCPA one-to-one consent rules affecting our broader industry that will take effect in January of 2025. These rules require sellers to obtain specific consent from consumers before contacting them using an automated dialing system or prerecorded or artificial voice system. While this change is expected to meaningfully limit the volume of shared leads sold, we see this as an extremely positive development for consumers and our industry as a whole. It's important to keep in mind that these shared leads make up only 5% to 6% of our total transaction value and because our marketplace is heavily focused on clicks rather than leads, we do not expect these changes to have a significant impact on our business. With that, I'll turn the call over to Pat for a more detailed review of our third quarter performance and fourth quarter guidance.

Thanks, Steve. Our third quarter results exceeded the high end of our guidance ranges across all metrics, including record transaction value and adjusted EBITDA of $451 million and $26.3 million respectively. P&C transaction value was up 52% sequentially, above our expectations of 40% to 45%, driven by increased year over year pricing and higher volumes as participation in our marketplaces continued to scale. Transaction value in our Health vertical was up 9% year-over-year, in line with our expectations. As expected, our take rates were somewhat lower as our business continued to mix to P&C, which is more private exchange based and some of our largest supply partners benefited from volume-based pricing. Overhead was in line with expectations. The net impact of all this was that adjusted EBITDA increased by $22.7 million representing over 600% growth year-over-year. Looking forward to Q4, we expect P&C transaction value levels to be flat to slightly up as compared to Q3, reflecting stronger performance than normal seasonal trends. In Health, where Q4 is our seasonally strongest quarter due to the timing of both the Medicare and ACA enrollment periods, we expect transaction value growth to be down mid-single digits year over year due to the well documented headwinds in the Medicare payer space. Moving to our consolidated financial guidance. We expect Q4 transaction value to be between $470 million and $495 million a year-over-year increase of 192% at the midpoint. We expect revenue to be between $275 million and $295 million a year-over-year increase of 143% at the midpoint. We expect adjusted EBITDA to be between $29.5 million and $32.5 million a year-over-year increase of 144% at the midpoint. We expect overhead to increase sequentially by approximately $500,000 to $1 million as we continue to selectively add headcount to support and drive growth. Lastly, we expect our Q4 adjusted EBITDA add back for legal costs, including costs associated with the FTC inquiry to be similar to Q3. Turning to the balance sheet. We've made solid progress in deleveraging, ending the quarter with a net debt to adjusted EBITDA ratio of less than 2 times. To capitalize on market opportunities and grow our market share, we have been strategically investing in our business and working capital. We continue to expect high conversion rates of adjusted EBITDA into cash over time due to the operating efficiencies in our business, including minimal capital expenditures and low working capital needs. With that, operator, we are ready for the first question.

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

Thank you, and congrats on the great momentum. I wanted to ask a couple of questions. The first was just on the middle innings comment that you gave in the shareholder letter. I just wonder if you could kind of put a little more context around that. Does that mean middle innings like some of the carriers have not come back yet? Or is it more like broadly spread to a lot of carriers and they're just still kind of getting ramped up? And then I just wanted to ask if you can make a comment on the hurricanes in the Southeast and whether you're seeing any impact from those?

Hey, Michael. Yes. Thanks for that question. With the middle income, the context for that was really, I think, two-fold and they're similar to what we talked about last time, which is, one is, we've had great recovery in the market in 2024, but it continues to be primarily driven by a small number of very large carriers. We're very sophisticated when it comes to direct-to-consumer advertising and so when we say from that perspective that the recovery we feel like is still in the middle innings, it's about the broader participation of other top carriers. Certainly, there's been progress within the certainly there's been progress within the industry since from a quarter ago and so there has been incremental, I guess, increases in budget from a larger number of carriers, but I would say that when you look at the list of the top 10 to 15 carriers, still several large carriers jump out as carriers who are either still on the sidelines or otherwise somewhere below where we would expect them to be based on their market share and historical spend levels. In addition to that, I think a smaller factor is really the geography that we mentioned. We still have states like California, New York, New Jersey, very large states, which in aggregate make up about 20% of the U.S. Market, where there's been incremental progress in terms of carriers getting rate increases approved, but those three states, again, in particular, really aren't where they normally would be in terms of overall market share, media pricing and overall volume and so I think those two perspectives are really what color the middle innings comment from our perspective. With regard to the hurricane, obviously, it's a big event for the insurance industry. It's a notable one, but for us, it's really these types of things tend to be almost nonevent from our marketplace perspective. It's for the primary reason being that we're very heavily skewed to auto insurance and so what tends to happen during these periods is that advertisers will turn off their campaigns or pause their campaigns for a few days leading up to the event and then almost immediately turn back on. So even though obviously it was a human tragedy, it was a notable insurance event for our P&C Auto Insurance media marketplace, it was a relatively not event for us.

Okay. Thank you, Steve.

Your next question comes from the line of Danny Pfeiffer with J.P. Morgan.

For the first, can you maybe parse out some of the different scenarios on how the health business would be impacted as it relates to ACA in your under 65 business if we have a Republican versus a Democratic administration? And I have a follow-up. Thanks.

Yes, sure. Again, Patrick might have something to add to this. But I think really at a high level, we've grown our health insurance business pretty steadily, I believe over the last 9 to 10 years and so that's been through both Democratic and Republican administrations and so regardless of the outcome of the upcoming election, I think we remain confident in our ability to grow that business over the long term. I think again at a very high level, I think that our Medicare Advantage business is maybe at the margins would benefit from a Republican administration. It's a product that has brought bipartisan support, but again Republicans have generally -- though the party has generally been more in favor of Medicare Advantage, but then the countervailing factor there is that for the under 65 business, again, we tend to have more activity there under Democratic administration, because they put more emphasis on marketing and promoting under 65 plans or ACA plans and so overall, I would say that that doesn't change the high level assessment that, again, will grow through both Democratic and Republican administrations and the marginal impacts that one or the other could have, I think tend to wash each other out.

Got you. That's helpful. And then for my second question, in regards to carriers that were early in turning spend back on, can you give any color as to whether their budgets continue to grow? Or have they started to level off and kind of back to more normalized rates of spend? Thanks.

I think as you've seen from our results and our forecast, I mean, we still continue to see pretty strong momentum from those carriers. I think that pricing wise, I think we can foresee some leveling off in terms of pricing, even as additional carriers come back into the fold and provide for more competitive environment. I'll point you though in terms of something that goes to the sustainability of the pricing and the media investments being made to the Investor Presentation that Progressive made in August of this year that really highlighted the fact that as a carrier who's been very disciplined about understanding the expected lifetime value of the policies that are selling, Their target customer acquisition costs that they're incurring through paid media channels like ours remain at or below the threshold that they set and so that certainly match what we're hearing from them directly and from other carriers who have started to invest heavily into our space that the levels of investment that we're seeing as well as the media price levels are sustainable.

Thank you.

Your next question comes from the line of Tommy McJoynt with KBW. Your line is open. Mr. McJoynt, your line is open. Please ask your question. I will proceed to the next question with Mike Zaremski with BMO Capital Markets. Your line is open. Mike Zaremski, please ask your question. Your line is open. I will proceed to the next questioner, Ben Hendrix with RBC Capital Markets. Your line is open.

Great. Hey, thanks guys. Just wanted to get some more color on the expectations for lower transaction value year over year in this coming AEP. I know there's been some pullback and some pressure in Medicare Advantage, but we're expecting an active season. I'm wondering if you're seeing just more spend to go internal towards internal channels and carriers or if we're seeing just more shopping behavior rather than actual transaction. Just any color you can provide there would be great. Thank you.

Yes. And Ben, thanks for the question. This is Pat. I'll tackle this one. So I'd say for the health vertical overall, we're guiding to transaction value being down mid-single digits year-over-year, and we said that we believe Medicare will be weaker under 65 in the upcoming quarter and I think the challenges that the Medicare payers are seeing have been kind of pretty well documented as they're seeing higher service utilization. They're seeing star ratings go down and they're I think different carriers are in different spots, but we've seen a number of carriers that have tightened their belts in terms of interest in spending heavily on marketing. I think the counter to that is there have been a number of planned design changes that have happened that have spurred increased consumer shopping and I think that some of the payers are maybe tightening their belts. I think there could be some folks in the broker community that are maybe benefiting from the change. We're also only 15 days into AEP, so it's a little bit hard to say. But the long story short, I think pricing trends are weak, volume trends are pretty good and the net of that we think is going to be down slightly, but over a three-to-five-year time horizon, I think we're as bullish now as we've ever been about the opportunity for us in Medicare Advantage.

Thanks for the color.

Ladies and gentlemen, that concludes today's Q&A session and conference call. [Operator Closing Remarks].