MediaAlpha, Inc.

Ladies and gentlemen, thank you for standing by. I would like to welcome everyone to the Media Alpha fourth quarter and full year 2023 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the one once again. Thank you. I will now hand the call over to Denise Garcia, Investor Relations. You may begin your conference.

Thank you, Bhavesh. After the market closed today, Media Alpha issued a press release and shareholder letter announcing results for the fourth quarter ended December 31st, 2023. These documents are available in the investor section of our website, and we will be referring to them on this call. Our discussion today will include forward-looking statements about our business and our outlook for future financial results, including our financial guidance for the first quarter of 2024, 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 February 20, 2024, 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 that are presented on a non-GAAP basis, including adjusted EBITDA and contribution, which we present in order to supplement your understanding and assessment of our financial performance. Non-GAAP measures should not be considered as 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 included in our press release and shareholder letter issued today. Finally, I'd like to remind everyone that this call is being recorded and will be made available for replay via a link on the investor section of the company's website at investors.medialpha.com. Now I'll turn the call over to Steve and Pat for a few introductory remarks before opening the call to your questions.

Thanks, Denise. Hi, everyone. Welcome to our fourth quarter 2023 earnings call. I'd like to make a few observations before turning the call over to our CFO, Pat Thompson, for his comments. After a difficult up and down year, we ended 2023 on a solidly positive note. Our fourth quarter results exceeded the high end of our guidance ranges across the board, driven by stronger than expected growth in our P&C insurance vertical. For the past several years, lingering pandemic-related inflationary pressures created the most difficult auto insurance market in decades. Going into 2024, we're now confident that a sustainable industry recovery is finally underway. During December, we saw a major carrier make meaningful increases in their marketing investments, and this positive trend has accelerated into the new year. Accordingly, we expect first quarter P&C transaction value to nearly double quarter over quarter, far surpassing typical seasonality. And we expect continued growth over the course of 2024 as more of our auto insurance carrier partners achieve target profitability and retrain their focus on customer acquisition. Q4 results in our health insurance vertical were in line with expectations. driven by continued strength in our under 65 business, which was offset by weakness in Medicare, as our partners face headwinds in adapting to recent regulatory changes, as well as medical cost inflationary pressures. We expect these broad trends in under 65 and Medicare to continue in the first quarter. Looking forward, we're optimistic that 2024 is the beginning of great things to come. Our unwavering focus on our partnerships and maximizing operating efficiency during what proved to be an exceptionally difficult market downturn, have laid the foundation for what we believe will be a period of significant top and bottom line growth. With that, I'll turn the call over to Pat.

Thanks, Steve. I'll begin with a few comments on our fourth quarter financial results and other recent business and market developments before reviewing our first quarter financial guidance and opening the call up for questions. As Steve mentioned earlier, our fourth quarter results exceeded the high end of our guidance ranges. Adjusted EBITDA increased 40% for $3.6 million year-over-year, driven primarily by higher contribution and continued expense discipline. Transaction value in our P&C insurance vertical was up 21% quarter-over-quarter, ahead of expectations as a major carrier ramped spend on our platform. Transaction value in our health vertical was roughly flat year-over-year, in line with expectations. Moving to first quarter guidance, we are highly encouraged by the trends we have seen thus far. In P&C, we expect transaction value to nearly double sequentially far in excess of typical seasonality. Despite these increases, we expect transaction value in our P&C vertical to be down modestly year over year as a major carrier is ramping customer acquisition at a more measured pace this year relative to their dramatic increase in the first quarter of 2023. In health, Q1 is typically a seasonally weaker quarter with a smaller contribution from Medicare. We expect the trend Steve highlighted earlier to continue with transaction value growing in the mid to high single digits year over year. Overall, for Q1, we expect strong year-over-year adjusted EBITDA growth, driven by higher contribution and continued expense discipline. As a result, we expect Q1 transaction value to be between $175 million and $190 million, a year-over-year decrease of 6% at the midpoint. We expect revenue to be between $105 million and $115 million, a year-over-year decrease of 1% at the midpoint. Lastly, we expect adjusted EBITDA to be between $9.5 million and $11.5 million, a year-over-year increase of 45% at the midpoint. For overhead, we expect contribution-less adjusted EBITDA to be approximately $500,000 to $1 million higher than Q4 2023. Touching briefly on expenses, we remain focused on driving efficiencies and have modest hiring plans for 2024. We therefore expect limited overhead growth for the full year, driving significant operating leverage as revenue growth picks up. Regarding share-based compensation, 2024 levels are expected to be approximately $20 million lower than 2023, as certain founder grants issued at the IPO were fully vested by the end of the year. Finally, Q1 legal costs associated with the ongoing FTC inquiry are expected to be approximately $750,000. Turning to the balance sheet, we continue to prioritize financial flexibility and using excess cash to decrease net debt. We ended the quarter with $17 million of cash on hand, and our focus remains on reducing financial leverage through a combination of net debt reduction and adjusted EBITDA growth.

With that, operator, we are ready for the first question. Thank you.

If any participant would like to ask a question, please press the star followed by the one on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster. Our first question comes from Paulie Carpenter of J.P. Morgan. Please go ahead.

Hey, thanks for the question. Steve, I wanted to ask, you know, in your view, what's different this time around? You mentioned a sustainable recovery is underway. So kind of what's different than what you saw this time last year that you would call out? And then secondly, you called out one major carrier ramping spin at the N4Q. Curious what you're seeing from other carriers as the years progressed. Thank you.

Sure. Hey, Corey.

Yeah, so, you know, I think what's different this time around is it's pretty evident when you look at the underlying profitability of all the carriers in the industry. You know, what you've seen is really the second half of 23 carriers. being far better than the first half, and carriers such as Progressive, Allstate, really everyone who's coming out with their Q4 results, showing stronger results in the second half of 23, and particularly strong results in Q4 of 23. That's really leading into, I think, I think justifiable optimism or justified optimism as for where their rates are going into 24. I think as you look back into where the industry was in 22 coming into 23, I think you're just going to see a far different picture from a profitability perspective. I think that goes to the second part of the question that you had as well, which is that in terms of other carriers, We do see sort of broad-based sentiment that the market has turned. We're engaged in positive growth discussions with almost all of our major carriers. Certainly, currently, the recovery has been driven by one primary direct rider, but we are starting to see an uptick in spend from many of our major carriers, and we expect that to really continue through 2024 and into 2025.

Okay, great. Thank you. Thank you.

Our next question comes online.

Michael Graham of Canaccord Generity. Please go ahead.

Yeah, thank you. It's great to see the recovery taking shape. I wanted to ask a question on, you know, what kind of operating leverage you think you might be able to see as we move through the year. You just guided to, I think, 9.5% EBITDA margin, which – which is great and pretty consistent with what you were doing sort of a couple years ago before the downturn. And I know you have cut some costs sort of from then until now, so just wondering if you could kind of frame out how you're thinking about operating leverage, if we're fortunate enough to see this recovery gain momentum throughout the year.

Yeah, and Michael, this is Pat. Thank you for the question. You know, would probably, you know, take that question in a couple chunks. You know, first piece would be to say that, you know, we're generally in the business of giving guidance, you know, kind of one quarter at a time. So there's not going to be, you know, any firm numbers kind of beyond Q1 that we'll share. But, you know, probably a couple things, you know, I would point you towards. You know, one would be that, you know, this is a largely fixed cost business. And, you know, as transaction value goes up, revenue tends to go up, you know, as well, and contribution tends to go up, and, you know, overhead tends to be, you know, relatively more fixed. And, you know, I think we're in a spot where, you know, we don't have grandiose or ambitious hiring plans. You know, of course, we're going to be adding capacity, you know, in a few places, but we're not planning on anything, you know, no step function change in our overhead base over the course of this year. And, you know, regarding, you know, kind of the overhead guidance we did give for the year of, you know, modest growth, you know, would kind of point you towards the comps on that, which was on May 1st of last year, we did a RIF. So our Q1 overhead guidance has us down versus Q1 of 2023. Q2, the comp got a little harder because we had, you know, some of the RIF benefit in there. And, you know, Q3 and Q4 were kind of run rating at the lower level. And so as you, you know, think about this year, Q1 will be down year over year, and then the growth rate will, you know, kind of step up as we go through the year and, you know, wouldn't be, you know, we'll probably expect, you know, Q3, Q4 overhead to be a bit above where we're projecting for Q1. And so, you know, hopefully that gives you some color on OpEx to be able to kind of forecast what the take rates could look like as the business recovers.

Yep, that's helpful. Thank you, Pat.

Thank you. As a reminder, if any teleconference participant would like to ask a question, please press the star followed by the number one on your telephone keypad. Our next question comes from the line of Tommy McJoynt from KBW. Please go ahead.

Hey, good afternoon, guys. Thanks for taking my questions. Are there any lessons learned sort of thinking about this cycle relative to the last hard market and kind of exiting 2017 into 2018 and beyond? Just putting that kind of in context, how we can think about the buildup and the ramp of the recovery and personal auto spend. And if you could put that answer in the context of acknowledging that just the overall pie, I guess, of the overall personal auto premium market size is evidently much larger than right now than it was back then. So, if you could just kind of put that in context as we think about building our forecast.

Yeah, sure.

I think the most important takeaway that I have from the lactar market is really about how unpredictable the recovery can be and the magnitude of the potential recovery. really making that transition from the last hard market in 2016 and 17 into 2018, that was our biggest growth year in the history of our company. And so the timing of this recovery, I think, is still to be determined. And I think that's really a testament to how unpredictable the cycle has been and how much deeper this hard market cycle was than the last one, where really, Carrier advertising spend remained flat as opposed to this time around where, by some estimates, overall auto insurance carrier advertising spend went down by 35%, 40%. And so, but, you know, when we think about the recovery and where the market could come back to, you know, certainly I don't think we don't have a magic formula. fall as it comes to exactly the timing and the magnitude of the recovery. But we do know from past experience that when the market does recover, it can recover pretty quickly and in a very fulsome way.

Got it. That's good color.

And then my second question, it was really a tough stretch here for any of the business models that are dependent on insurer customer acquisition spend over the past couple of years. Do you have any indication whether or not the competitive landscape has gotten more attractive simply by means of some competitors maybe not making it through or having to tamper down some of their growth expectations? Or do you view most of the competition to be pretty large and scaled players who sort of have the capital resources to navigate, so it's a pretty unchanged competitive landscape?

Yeah, I would say, listen, honestly, I think it's remained relatively unchanged. You know, we measure our competitive landscape and our market share based on the number of supply partners we have, but we're a marketplace. And so, I mean, in this hard market, when really advertisers weren't spending, we didn't see really any notable movement in market share, namely any losses of supply partners or gains of major supply partners. In a dry market, as we've seen over the last two and a half to three years, that's totally to be expected. I think with that said, I think that the players in this space have largely remained. We didn't see anyone really drop out of the competitive marketplace. And so the competitive landscape hasn't changed, but we do expect that coming out of this hard market cycle that we're going to gain market share as we did coming out of the last hard market cycle. You know, simply because we're the largest marketplace, we're a marketplace dedicated to carrier spend, and really that's where the recovery is going to happen. And so, we do anticipate that we're going to gain market share vis-a-vis our competitors and what you've seen over the past two and a half to three years.

That's great. Thank you. Thank you.

Our next question comes online of Andrew Feigerman from TD Cowen. Please go ahead.

Hey, good evening and congrats on your persistency and having a great quarter. Thanks, Andrew. Sure. I mean, it's been a lot of tough quarterly calls, so great to be on this one. But, you know, thinking about the cadence of how your revenue might come back, I guess the first question, and the two are intertwined, do you think, and again, I know you only give quarterly guidance, as Pat says, but looking out to 2025, do you see a potential where you could be at a run rate on transaction value that looks like it can grow on top of 2019-type numbers? And then tied into that question, private versus open transactions, is this large customer that you're talking about more geared toward the private market? And so... As advertising opens up and more activity occurs, could that come from more open-type business, and could that be a lot higher in margin and profitability than what we're seeing out of the gate in the first quarter?

Great.

So, Andrew, I can take that. I'll maybe answer the second question first, actually.

Okay.

which was, you know, regarding, you know, large customer and, you know, kind of gearing to the private marketplace. So, you know, yes, that is true. You know, we have, you know, I would say a couple things. One is our P&C business, you know, generally has, you know, slightly lower take rates than our health business. And within P&C, P&C tends to be, you know, more private than is health. And our largest advertiser in P&C tends to be more heavily private than the rest of P&C. And so, you know, I think kind of, you know, given those couple of trends, actually, you know, what we've seen is, you know, margins stepped down in January, you know, which was, you know, we had less health in January than we did in Q4. And then, you know, spend kind of ramped up in January and February, you know, February, you know, take rates come down a bit. And, you know, as we're forecasting March, we think they're going to come down a bit more. And that's, you know, going to be, you know, largely mixed driven for us. But in terms of take rate, which we kind of think of as being contribution over transaction value, you know, that number, you know, is kind of gently coming down as the market recovers. And that's probably, you know, consistent with, some of the trends that you've seen, you know, over the last few years as we've, you know, had periods of, you know, relative strength, periods of relative strength. And, you know, flipping to your first question, which is, you know, what could 2025 be like? And, you know, I would just say that, you know, we guide to what we have confidence in, which is Q1. And, you know, one of the things in my, you know, two plus years I've seen here is that The further out we get, the wider our fan of potential outcomes gets. And, you know, I think, you know, 20, you know, given what we see right now, you know, we're feeling pretty good about what 2025 could look like. But, you know, it could be better than I'm expecting, worse than I'm expecting, better than you're expecting, worse than you're expecting. And so, you know, it's kind of hard to say and so don't want to get into the business of, you know, given hard numbers on that when we just quite frankly are focused on executing in Q1 and in the Q2 before we talk to you again.

Very fair. But just taking that, if I'm assuming a good growth level, we could see more margin coming from the open transactions, which would be more profitable. Again, but that would be my view, not yours. Is that a fair kind of assumption? If we see a nice trajectory and growth, more could come from open, given that this big account is private?

Yeah, and Andrew, I would say it's going to be very dependent on the spend dynamics within the PNC vertical, which is, you know, one major carrier is more private. You know, they've been, you know, stepping in in a meaningful way. And, you know, as others come back, you know, could that mix start to shift more open? You know, sure it could.

Got it. And if I could sneak one last one in. On the Medicare Advantage business, Would you expect – this was a very tough year in terms of new regulations into play. Do you see that – how do you see that dynamic playing in in the big fourth quarter of 2024? Do you think that you'll be more nimble? More the case, will carriers be more nimble and active in that market, given that they may have adapted to this regulation? if you could give a little color on, on what the regulation was and, and how companies might be in 2024, that would, that would be really helpful.

Yeah. And, and, and Andrew, I think the, you know, the trends for 2023 and, and, you know, what could be coming in 2024 are a little bit different in order, which is, um, you know, I think on the, you know, 2023, you know, what we saw was, uh, new marketing rules put into place. And that was around, you know, kind of what you could say in creative with the carriers, you know, ultimately having to approve marketing messaging that was put in front of consumers. And, you know, and also some changes around, you know, waiting periods for, you know, kind of working leads and outbound dialing. The, you know, the biggest change was the marketing rules. And essentially, we saw some set of publishers struggle to adapt to those new marketing rules to say, hey, you've always used marketing messaging A, and you've got to pivot to B. And some people were able to adapt more quickly than others on that. And on the approval side, different carriers and some major brokers as well had to approve creative. And there was a degree of inconsistency between them as to what was allowed and what wasn't. And so, and it took them a while because they were kind of ramping the process in real time. And so that had, you know, kind of knock-on effects onto the industry. And, you know, as I think about 2023 and those regulatory changes, we're feeling like it would be a lot better as an industry the second time around. moving to the second part of your question which is you know kind of going forward and you know i think cms is always uh looking to optimize things as far as you know regulation goes and you know i think they're talking about you know a number of things and there's been commentary from a number of different carriers around uh you know kind of where they're at but you know i would say that rule changes by cms have generally made you know, real and meaningful progress and cleaning up some of the bad practices in the industry. And they've ultimately improved the user experience for seniors. And, you know, those are things that, you know, we think are actually really long-term positives for the industry. And we think they're going to keep, you know, continuing to look for ways to build on that progress. And, you know, quite frankly, you know, we've been pretty good at adapting to these changes over time because they, you know, represent an opportunity. and we'll continue to do that going forward, and we're really excited about the future of the Medicare Advantage business.

Awesome. Thanks so much.

Thanks, Andrew. Thank you. Our final question for the day comes from the line of Ben Hendrix from RBC Capitals. Please go ahead.

Hey, thank you very much. Just a quick question on the healthcare business. We saw a lot of very turbulent MA period for earnings season for the carriers and saw some market share go to one carrier in particular, CVS, versus slower growth in some of the others. Just wanted to see kind of how that translated to your transaction mix this quarter. If you saw anything in the fourth quarter that was unusual in terms of mix and then how that's translating to OEP thus far in the season. Thank you.

Yeah. And Ben, I would say, you know, of course, we saw changes on an individual carrier level basis. And we do every year on that, which is, you know, some people are a little bit more bullish, a little bit more bearish. You know, but I would say that the macro trends, you know, have been pretty stable over time. You know, their carriers continue to find our marketplace attractive and be, you know, leaning in to try to find, you know, pockets of customers that make sense for them. And, you know, as far as translating into, you know, the special enrollment period that's underway now, you know, I would say, you know, that business is, you know, down significantly from the AEP peak and, you know, would say the trends are you know, not all that different from, you know, kind of, you know, what we saw during AAP or, quite frankly, what we were seeing even going into AAP.

Thank you for squeezing me in. Thank you, Ben.

Thank you, ladies and gentlemen. As we have no further questions at this time, we will conclude today's conference call. We thank you for participating, and you may now disconnect. Thank you. © transcript Emily Beynon you Music Playing Bye. Thank you.

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Ladies and gentlemen, thank you for standing by. I would like to welcome everyone to the Media Alpha fourth quarter and full year 2023 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the one once again. Thank you. I will now hand the call over to Denise Garcia, Investor Relations. You may begin your conference.

Thank you, Bhavesh. After the market closed today, Media Alpha issued a press release and shareholder letter announcing results for the fourth quarter ended December 31st, 2023. These documents are available in the investor section of our website, and we will be referring to them on this call. Our discussion today will include forward-looking statements about our business and our outlook for future financial results, including our financial guidance for the first quarter of 2024, 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 February 20, 2024, 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 that are presented on a non-GAAP basis, including adjusted EBITDA and contribution, which we present in order to supplement your understanding and assessment of our financial performance. Non-GAAP measures should not be considered as 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 included in our press release and shareholder letter issued today. Finally, I'd like to remind everyone that this call is being recorded and will be made available for replay via a link on the investor section of the company's website at investors.medialpha.com. Now I'll turn the call over to Steve and Pat for a few introductory remarks before opening the call to your questions.

Thanks, Denise. Hi, everyone. Welcome to our fourth quarter 2023 earnings call. I'd like to make a few observations before turning the call over to our CFO, Pat Thompson, for his comments. After a difficult up and down year, we ended 2023 on a solidly positive note. Our fourth quarter results exceeded the high end of our guidance ranges across the board, driven by stronger than expected growth in our P&C insurance vertical. For the past several years, lingering pandemic-related inflationary pressures created the most difficult auto insurance market in decades. Going into 2024, we're now confident that a sustainable industry recovery is finally underway. During December, we saw a major carrier make meaningful increases in their marketing investments, and this positive trend has accelerated into the new year. Accordingly, we expect first quarter P&C transaction value to nearly double quarter over quarter, far surpassing typical seasonality. And we expect continued growth over the course of 2024 as more of our auto insurance carrier partners achieve target profitability and retrain their focus on customer acquisition. Q4 results in our health insurance vertical were in line with expectations. driven by continued strength in our under 65 business, which was offset by weakness in Medicare, as our partners face headwinds in adapting to recent regulatory changes, as well as medical cost inflationary pressures. We expect these broad trends in under 65 and Medicare to continue in the first quarter. Looking forward, we're optimistic that 2024 is the beginning of great things to come. Our unwavering focus on our partnerships and maximizing operating efficiencies during what proved to be an exceptionally difficult market downturn, have laid the foundation for what we believe will be a period of significant top and bottom line growth. With that, I'll turn the call over to Pat.

Thanks, Steve. I'll begin with a few comments on our fourth quarter financial results and other recent business and market developments before reviewing our first quarter financial guidance and opening the call up for questions. As Steve mentioned earlier, our fourth quarter results exceeded the high end of our guidance ranges. Adjusted EBITDA increased 40% for $3.6 million year-over-year, driven primarily by higher contribution and continued expense discipline. Transaction value in our P&C insurance vertical was up 21% quarter-over-quarter, ahead of expectations as a major carrier ramped spend on our platform. Transaction value in our health vertical was roughly flat year-over-year, in line with expectations.

Moving to first quarter guidance, we are highly encouraged by the trends we have seen thus far.

In P&C, we expect transaction value to nearly double sequentially far in excess of typical seasonality. Despite these increases, we expect transaction value in our P&C vertical to be down modestly year over year as a major carrier is ramping customer acquisition at a more measured pace this year relative to their dramatic increase in the first quarter of 2023. In health, Q1 is typically a seasonally weaker quarter with a smaller contribution from Medicare. We expect the trend Steve highlighted earlier to continue with transaction value growing in the mid to high single digits year over year. Overall, for Q1, we expect strong year-over-year adjusted EBITDA growth, driven by higher contribution and continued expense discipline. As a result, we expect Q1 transaction value to be between $175 million and $190 million, a year-over-year decrease of 6% at the midpoint. We expect revenue to be between $105 million and $115 million, a year-over-year decrease of 1% at the midpoint. Lastly, we expect adjusted EBITDA to be between $9.5 million and $11.5 million, a year-over-year increase of 45% at the midpoint. For overhead, we expect contribution-less adjusted EBITDA to be approximately $500,000 to $1 million higher than Q4 2023. Touching briefly on expenses, we remain focused on driving efficiencies and have modest hiring plans for 2024. We therefore expect limited overhead growth for the full year, driving significant operating leverage as revenue growth picks up. Regarding share-based compensation, 2024 levels are expected to be approximately $20 million lower than 2023, as certain founder grants issued at the IPO were fully vested by the end of the year. Finally, Q1 legal costs associated with the ongoing FTC inquiry are expected to be approximately $750,000. Turning to the balance sheet, we continue to prioritize financial flexibility and using excess cash to decrease net debt. We ended the quarter with $17 million of cash on hand, and our focus remains on reducing financial leverage through a combination of net debt reduction and adjusted EBITDA growth.

With that, operator, we are ready for the first question. Thank you.

If any participant would like to ask a question, please press the star followed by the one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes online from Corey Carpenter of J.P. Morgan. Please go ahead.

Hey, thanks for the question. Steve, I wanted to ask, you know, in your view, what's different this time around? You mentioned a sustainable recovery is underway. So, kind of what's different than what you saw this time last year that you would call out And then secondly, you called out one major carrier ramping spin at the N4Q. Curious what you're seeing from other carriers as the years progressed. Thank you.

Sure. Hey, Corey.

Yeah, so, you know, I think what's different this time around is it's pretty evident when you look at the underlying profitability of all the carriers in the industry. You know, what you've seen is really the second half of 23 carriers being far better than the first half, and carriers such as Progressive, Allstate, really everyone who's coming out with their Q4 results, showing stronger results in the second half of 23, and particularly strong results in Q4 of 23. That's really leading into, I think, I think justifiable optimism or justified optimism as for where their rates are going into 24. I think as you look back into where the industry was in 22 coming into 23, I think you're just going to see a far different picture from a profitability perspective. I think that goes to the second part of the question that you had as well, which is that in terms of other carriers, We do see sort of broad-based sentiment that the market has turned. We're engaged in positive growth discussions with almost all of our major carriers. Certainly, currently, the recovery has been driven by one primary direct rider, but we are starting to see an uptick in spend from, you know, many of our major carriers, and we expect that to really continue, you know, through 24 and into 25.

Okay, great. Thank you. Thank you. Our next question comes online.

Michael Graham of Canaccord Generity. Please go ahead.

Yeah, thank you. It's great to see the recovery taking shape. I wanted to ask a question on, you know, what kind of operating leverage you think you might be able to see as we move through the year. You just guided to, I think, 9.5% EBITDA margin, which is which is great and, you know, pretty consistent with what you were doing sort of a couple years ago before the downturn. And I know, you know, you have cut some costs, you know, sort of from then until now. So, just wondering if you could kind of frame out, you know, how you're thinking about operating leverage, if we're fortunate enough to see this recovery gain momentum throughout the year.

Yeah, and Michael, this is Pat. Thank you for the question. You know, would probably, you know, take that question in a couple chunks. You know, first piece would be to say that, you know, we're generally in the business of giving guidance, you know, kind of one quarter at a time. So there's not going to be, you know, any firm numbers kind of beyond Q1 that we'll share. But, you know, probably a couple things, you know, I would point you towards. You know, one would be that, you know, this is a largely fixed cost business. And, you know, as transaction value goes up, revenue tends to go up, you know, as well, and contribution tends to go up and, you know, overhead tends to be, you know, relatively more fixed. And, you know, I think we're in a spot where, you know, we don't have grandiose or ambitious hiring plans. You know, of course, we're going to be adding capacity, you know, in a few places, but we're not planning on anything, you know, no step function change in our overhead base over the course of this year. And, you know, regarding, you know, kind of the overhead guidance we did give for the year of, you know, modest growth, you know, would kind of point you towards the comps on that, which was on May 1st of last year, we did a RIF. So our Q1 overhead guidance has us down versus Q1 of 2023. Q2, the comp got a little harder because we had, you know, some of the RIF benefit in there. And Q3 and Q4 were kind of run rating at the lower level. And so as you think about this year, Q1 will be down year over year, and then the growth rate will kind of step up as we go through the year. And we'll probably expect Q3, Q4 overhead to be a bit above where we're projecting for Q1. And so hopefully that gives you some color on OpEx to be able to kind of forecast what the take rates could look like as the business recovers.

Yep, that's helpful. Thank you, Pat.

Thank you. As a reminder, if any teleconference participant would like to ask a question, please press the star followed by the number one on your telephone keypad. Our next question comes from the line of Tommy McJoynt from KBW. Please go ahead.

Hey, good afternoon, guys. Thanks for taking my questions. Are there any lessons learned sort of thinking about this cycle relative to the last hard market and kind of exiting 2017 into 2018 and beyond? Just putting that kind of in context, how we can think about the buildup and the ramp of the recovery and personal auto spend. And if you could put that answer in the context of acknowledging that just the overall pie, I guess, of the overall personal auto premium market size is evidently much larger than right now than it was back then. So if you could just kind of put that in context as we think about building our forecast.

Yeah, sure.

I think the most important takeaway that I have from the lactar market is really about how unpredictable the recovery can be and the magnitude of the potential recovery. Really, you know, making that transition from the last hard market in 2016 and 17 into 2018, that was our biggest growth year in the history of our company. And so the timing of this recovery, I think it's still, you know, to be determined. And I think that's really a testament to how unpredictable the cycle has been and how much deeper this hard market cycle was than the last one, where really carrier advertising spend remained flat as opposed to this time around, where by some estimates, overall auto insurance carrier advertising spend went down by 35%, 40%. And so, but, you know, when we think about the recovery and where the market could come back to, you know, certainly I don't think we don't have a magic formula fall as it comes to exactly the timing and the magnitude of the recovery. But we do know from past experience that when the market does recover, it can recover pretty quickly and in a very fulsome way.

Got it. That's good color. And then my second question, it was really a tough stretch here for any of the business models that are dependent on insurer customer acquisition spend over the past couple of years. Do you have any indication whether or not the competitive landscape has gotten more attractive simply by means of some competitors maybe not making it through or having to tamper down some of their growth expectations? Or do you view most of the competition to be pretty large and scaled players who sort of have the capital resources to navigate, so it's a pretty unchanged competitive landscape?

Yeah, I would say, listen, honestly, I think it's remained relatively unchanged. You know, we measure our competitive landscape and our market share based on the number of supply partners we have, but we're a marketplace. And so, I mean, in this hard market, when really advertisers weren't spending, we didn't see really any notable movement in market share, namely any losses of supply partners or gains of major supply partners. In a dry market, as we've seen over the last two and a half to three years, that's totally to be expected. I think with that said, I think that the players in this space have largely remained. We didn't see anyone really drop out of the competitive marketplace. And so the competitive landscape hasn't changed, but we do expect that coming out of this hard market cycle that we're going to gain market share as we did coming out of the last hard market cycle. You know, simply because we're the largest marketplace, we're a marketplace dedicated to carrier spend, and really that's where the recovery is going to happen. And so we do anticipate that we're going to gain market share vis-a-vis our competitors and what you've seen over the past two and a half to three years.

That's great. Thank you. Thank you.

Our next question comes online of Andrew Kliegerman from TD Cowen. Please go ahead.

Hey, good evening and congrats on your persistency and having a great quarter. Thanks, Andrew. Sure. I mean, it's been a lot of tough quarterly calls, so great to be on this one. But, you know, thinking about the cadence of how your revenue might come back, I guess the first question, and the two are intertwined, do you think, and again, I know you only give quarterly guidance, as Pat says, but looking out to 2025, Do you see a potential where you could be at a run rate on transaction value that looks like it can grow on top of 2019-type numbers? And then tied into that question, private versus open transactions, is this large customer that you're talking about more geared toward the private market and so forth? As advertising opens up and more activity occurs, could that come from more open-type business, and could that be a lot higher in margin and profitability than what we're seeing out of the gate in the first quarter?

Great.

So, Andrew, I can take that. I'll maybe answer the second question first, actually.

Okay.

which was, you know, regarding, you know, large customer and, you know, kind of gearing to the private marketplace. So, you know, yes, that is true. You know, we have, you know, I would say a couple things. One is our P&C business, you know, generally has, you know, slightly lower take rates than our health business. And within P&C, P&C tends to be, you know, more private than is health. And our largest advertiser in PNC tends to be more heavily private than the rest of PNC. And so, you know, I think kind of, you know, given those couple of trends, actually, you know, what we've seen is, you know, margins stepped down in January, you know, which was, you know, we had less health in January than we did in Q4. And then, you know, spend kind of ramped up in January and February. You know, February, you know, take rates come down a bit. And, you know, as we're forecasting March, we think they're going to come down a bit more. And that's, you know, going to be, you know, largely mixed driven for us. But in terms of take rate, which we kind of think of as being contribution over transaction value, you know, that number, you know, is kind of gently coming down as the market recovers. And that's probably, you know, consistent with, some of the trends that you've seen, you know, over the last few years as we've, you know, had periods of, you know, relative strength, periods of relative strength. And, you know, flipping to your first question, which is, you know, what could 2025 be like? And, you know, I would just say that, you know, we guide to what we have confidence in, which is Q1. And, you know, one of the things in my, you know, two plus years I've seen here is that The further out we get, the wider our span of potential outcomes gets. And, you know, I think, you know, 20, you know, given what we see right now, you know, we're feeling pretty good about what 2025 could look like. But, you know, it could be better than I'm expecting, worse than I'm expecting, better than you're expecting, worse than you're expecting. And so, you know, it's kind of hard to say and so don't want to get into the business of, you know, giving hard numbers on that when we just quite frankly are focused on executing in Q1 and into Q2 before we talk to you again.

Very fair. But just taking that, if I'm assuming a good health growth level, we could see more margin coming from the open transactions, which would be more profitable. But that would be my view, not yours. Is that a fair kind of assumption? If we see a nice trajectory and growth, more could come from open, given that this big account is private?

Yeah, and Andrew, I would say it's going to be very dependent on the spend dynamics within the PNC vertical, which is, you know, one major carrier is more private. You know, they've been, you know, stepping in in a meaningful way. And, you know, as others come back, you know, could that mix start to shift more open? You know, sure it could.

Got it. And if I could sneak one last one in. On the Medicare Advantage business, Would you expect, this was a very tough year in terms of new regulations into play. Do you see that, how do you see that dynamic playing in in the big fourth quarter of 2024? Do you think that you'll be more nimble, more the case will carriers be more nimble and active in that market given that they may have adapted to this regulation? if you could give a little color on, on what the regulation was and, and how companies might be in 2024, that would, that would be really helpful.

Yeah. And, and, and Andrew, I think the, you know, the trends for 2023 and, and, you know, what could be coming in 2024 are a little bit different in order, which is, um, you know, I think on the, you know, 2023, you know, what we saw was, uh, new marketing rules put into place. And that was around, you know, kind of what you could say in creative with the carriers, you know, ultimately having to approve marketing messaging that was put in front of consumers. And, you know, and also some changes around, you know, waiting periods for, you know, kind of working leads and outbound dialing. The, you know, the biggest change was the marketing rules. And essentially, we saw some set of publishers struggle to adapt to those new marketing rules to say, hey, you've always used marketing messaging A, and you've got to pivot to B. And some people were able to adapt more quickly than others on that. And on the approval side, different carriers and some major brokers as well had to approve creative. And there was a degree of inconsistency between them as to what was allowed and what wasn't. And so, and it took them a while because they were kind of ramping the process in real time. And so that had, you know, kind of knock-on effects onto the industry. And, you know, as I think about 2023 and those, you know, regulatory changes, we're feeling, you know, like it would be a lot better as an industry the second time around. Moving to the second part of your question, which is kind of going forward, and I think CMS is always looking to optimize things as far as regulation goes. And I think they're talking about a number of things, and there's been commentary from a number of different carriers around that. kind of where they're at. But I would say that rule changes by CMS have generally made real and meaningful progress in cleaning up some of the bad practices in the industry, and they've ultimately improved user experience for seniors. And those are things that we think are actually really long-term positives for the industry, and we think they're going to keep continuing to look for ways to build on that progress. And Quite frankly, we've been pretty good at adapting to these changes over time because they represent an opportunity, and we'll continue to do that going forward, and we're really excited about the future of the Medicare Advantage business.

Awesome. Thanks so much.

Thanks, Andrew. Thank you. Our final question for the day comes from the line of Ben Hendricks from RBC Capitals. Please go ahead.

Hey, thank you very much. Just a quick question on the healthcare business. We saw a lot of very turbulent MA period for earnings season for the carriers and saw some market share go to one carrier in particular, CVS, versus slower growth in some of the others. Just wanted to see kind of how that translated to your to your transaction mix this quarter. If you saw anything in the fourth quarter that was unusual in terms of mix and then how that's translating to OEP thus far in the season. Thank you.

Yeah, and Ben, I would say, you know, of course we saw changes on an individual carrier level basis and we do every year on that, which is, you know, some people are a little bit more bullish, a little bit more bearish, you know, but I would say that the macro trends you know, have been pretty stable over time. You know, their, you know, carriers continue to find our marketplace attractive and be, you know, leaning in to try to find, you know, pockets of customers that make sense for them. And, you know, as far as translating into, you know, special enrollment period that's underway now, you know, I would say, you know, that business is you know, down significantly from the AEP peak and, you know, would say the trends are, you know, not all that different from, you know, kind of, you know, what we saw during AEP or, quite frankly, what we're seeing even going into AEP.

Thank you for squeezing me in. Thank you, Ben.

Thank you, ladies and gentlemen.

As we have no further questions at this time, we will conclude today's conference call. We thank you for participating, and you may now disconnect.