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Thank you for standing by. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the MediaAlpha Inc. Second Quarter 2025 Earnings Call. [Operator Instructions] I will now turn the call over to Alex Liloia. Please go ahead.

Thanks, Karen. Good afternoon, and thank you for joining us. With me are Co-Founder and CEO, Steve Yi, and CFO, Pat Thompson. On today's call, we'll make forward-looking statements relating to our business and outlook for future financial results, including our financial guidance for the third quarter of 2025. 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 this call reflect our assumptions and beliefs as of 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. Let me start with the FTC resolution we announced this afternoon. As we shared in our press release and Form 8-K filing, we've reached a settlement with the FTC that fully resolves its investigation into our under-65 health insurance business. The key terms include $45 million of payments, which we will fund from cash on hand as well as additional compliance measures to further strengthen our safeguards within our under-65 marketplace. While we strongly disagree with the FTC's allegations, we believe resolving this matter now is in the best interest of MediaAlpha and our shareholders. We view this as a positive step forward and are pleased to have this matter behind us. Now turning to the second quarter. We delivered solid results, driven by ongoing momentum in our P&C insurance vertical. Growth was again fueled by increased marketing investments from leading auto insurance carriers. With underwriting margins at robust levels, the impact of automotive tariffs are looking increasingly manageable and with slowing rate increases providing less of a tailwind for premium growth, gaining market share by acquiring new customers has become even more strategically important for most carriers. We expect these favorable industry dynamics to sustain healthy levels of auto insurance advertising spend in the second half of this year and beyond. New supply partner wins also contributed to our strong second quarter results, underscoring the growing competitive advantage of our marketplace technology, operating efficiency and industry-leading scale. In our health insurance vertical, we believe the most significant dollar decreases in under-65 transaction value are behind us. While we continue to expect year-over-year declines in the near-term, our health business remains solidly profitable and our relationships with leading Medicare Advantage carriers are as strong as ever. Over time, we're confident that health insurance carriers will allocate more marketing dollars to direct-to-consumer digital channels, which we continue to see as a meaningful long-term growth opportunity for MediaAlpha. With P&C firing in all cylinders and the FTC matter resolved, we're confident in our trajectory for the rest of the year and beyond. We remain intently focused on capturing the significant multiyear growth opportunities ahead, creating value for our partners and delivering strong long-term returns for our shareholders. With that, I'll hand it over to Pat.

Great. Thanks, Steve. I'll start by walking through the key drivers of our Q2 results. Transaction value was $481 million, up 49% year- over-year, driven by 71% year-over-year growth in our P&C vertical. In our health vertical, transaction value declined 32% year-over- year, coming in slightly below our expectations. Adjusted EBITDA for the quarter was $24.5 million, increasing 31% year-over-year. This slightly lagged our expectations due to a modestly lower take rate in the quarter, driven by our decision to accelerate our strategy to scale back parts of our higher-margin under-65 business, along with some nice incremental partner wins in P&C that are at lower- than-average take rates. For the quarter, adjusted EBITDA represented 62% of contribution, up from 56% in the prior year. Adjusted EBITDA included $35.3 million of add-backs related to the FTC matter, consisting of $2.3 million of legal expenses and an additional $33 million reserve recorded to reflect the total $45 million settlement payable. Looking ahead, we expect record third quarter transaction value as we benefit from continued strong demand from the largest carriers in our marketplace. Accordingly, we expect P&C transaction value to grow approximately 35% year-over-year. In our health vertical, we expect transaction value to decline approximately 40% to 45% year-over-year, reflecting a decrease in our under-65 business from Q2 levels as well as continued challenging conditions in Medicare Advantage. For under-65 specifically, we expect Q3 transaction value of approximately $18 million, reflecting a 54% year-over-year decline and contribution of about $1 million, a roughly 80% decline year-over-year. To provide greater transparency into the new baseline for our health vertical, this quarter's earnings materials include transaction value and contribution for our under-65 business over the past 6 quarters. We expect 2025 under-65 transaction value of $95 million to $100 million and contribution of about $10 million, resulting in a take rate of about 10% at the midpoint. By comparison, 2024 transaction value contribution and take rate were $179 million, $29 million and 16%, respectively. Looking ahead, we expect that under-65 will generate annual contribution in the single-digit millions, reflecting the reset in both scale and profitability for this subvertical. Moving to our consolidated financial guidance. We expect Q3 transaction value to be between $545 million and $570 million, representing a year-over-year increase of 23% at the midpoint. We expect revenue to be between $270 million and $290 million, representing a year-over-year increase of 8% at the midpoint. Adjusted EBITDA is expected to be between $25.5 million and $27.5 million, representing a year-over-year increase of 1% at the midpoint, including a $4 million impact from an expected year-over- year decline in under-65 contribution. We expect overhead to increase sequentially by approximately $1 million as we continue to selectively invest in headcount to support and drive growth. We generated significant cash flow and made solid progress in deleveraging our balance sheet during the quarter. In Q2, we generated $22 million of cash and ended the quarter with $85 million of cash and a net debt to adjusted EBITDA ratio of 0.6x. Excluding nonrecurring payments related to the FTC matter, with $33.5 million expected to be paid in Q3 and the remaining $11.5 million in Q4, we expect to convert a significant portion of adjusted EBITDA into unlevered free cash flow, providing us with substantial financial flexibility going forward. Finally, I'm pleased to announce that on August 4, we extended the maturity of $142.6 million of the $156.3 million of indebtedness outstanding under our credit facilities by 1 year through July of 2027. The remaining $14 million will mature in July of 2026. With that, operator, we are ready to take the first question.

[Operator Instructions] The first question comes from Maria Ripps from Canaccord Genuity.

Congrats on the settlement. So now with the SEC matter sort of resolved and with you committing to the stronger compliance framework, how do you see sort of this enhancing your competitive positioning in the under-65 vertical? And maybe talk about how this new sort of content review and partner screening processes might impact sort of user experience and conversion quality.

Maria, thanks for that question. Well, I think in terms of, I think, what the measures that we've taken prior to the settlement as well as the terms of the settlement that we will implement in the upcoming weeks, I think what that's going to do is set a new baseline for our under-65 health insurance business. And again, let me just remind everyone that the terms of the settlement really focus just on the under-65 side. So, it will have no material impact on the Medicare side of our business or the P&C side of our business. I think what that's going to do is really create a new baseline for us to start to build from. The reason that we continue to stay in the under-65 business is because we still think that there is an opportunity for us to work with consumers and help them navigate through sort of the myriad of choices that they have if they don't qualify for Medicare and if they don't have an employer-sponsored plan. I think with the recent changes from the Trump Administration, right, disenrolling a number of millions of people from Medicaid as well as making eligibility requirements or tightening eligibility requirements for ACA subsidies. I think what that's going to do is increase the number of consumers who need to be matched with carriers and brokers who can offer them the right set of plans depending on their life situation and their financial situation. So, we still see an opportunity there and believe that we can operate in this space with the constraints that we have under the terms of the settlement agreement. And we look forward to really building on this with a great team that we have in that space and seeing what we can do to really serve consumers and advertisers in a better way than we did before.

Got it. That's very helpful. I appreciate all the color. And then just on P&C, I think you called out sort of continued strength in carrier spend in the second half. I mean, still given sort of the uncertainty around tariffs and inflation, could you maybe give us a little bit more color sort of on key variables around carrier budgets in the back half of the year and maybe into next year?

Yes. I mean, I think for that time period that you're talking about, the back half of this year and the early part of this year, we're very optimistic about carrier budgets. So, I think overall, let me just start with where the industry is and the industry -- the underlying dynamics of the industry are still outstanding. The underlying profitability is strong in the personal auto space, meaning combined ratios for a lot of the carriers, particularly the leading carriers are actually lower than or better than, right, long-term targets. And so, what that's led to is strong advertising investments in Q2 as you saw from our results. And as you see from our guidance for Q3, we expect very strong budgets to continue into the next quarter. We certainly expect this trend to continue for the remainder of the year and beyond. In terms of automotive tariffs, I mean, certainly, I don't want to dismiss those out of hand. I think a lot of carriers are still taking a bit of a wait-and-see approach. But I think as the second quarter progressed, I think what we saw was that profitability within the auto insurance industry held up very well. And I think that's led to a lot of carriers really having the growing confidence that the inflationary impact of the automotive tariffs were looking increasingly manageable. And so again, as we reminded everyone last quarter, the carriers are sort of on the heels of what was a generationally hard market. So, I think that they're especially attuned to inflationary pressures that could start to affect the results. But again, since our call last quarter, I think what we've seen is really positive in terms of the ongoing profitability of insurance carriers. And again, I think the growing consensus that the industry can absorb some of the single-digit inflationary impacts that we can foresee from the automotive tariffs.

The next question comes from Tommy McJoynt from KBW.

It's [indiscernible] on for Tommy. My first question is on the P&C side. You mentioned that P&C transaction value grew 71% year- over-year, driven by sustained demand from leading carriers and also growing partner base. Can you provide some more color on the mix between existing carrier spend increases versus new carrier additions?

Yes. Happy to -- this is Pat. Happy to answer that. I would say that on the carrier side, the vast majority of the increase in spend was from existing carriers. And that's not to say we didn't have any new ones come in. It's just the typical trajectory we see with a new carrier is when they come in, they start small. And so, the growth we saw on the carrier side in the quarter was really driven primarily by the head, so the couple of biggest carriers. And that's a trend we're seeing kind of continue into Q3. Moving to the other side on the supplier, the publisher side, I would say we've been gaining share pretty consistently for the last 5, 6 quarters. That's a trend we think will continue to -- will continue. And I would say we've been gaining share of wallet with existing shared partners, and we've been winning some exclusive partners as well. And both of those, we think, are testaments to the technology we have, the account management we have, the overall monetization capabilities of our offering. And we feel very optimistic about that trend continuing in the future as well.

Got it. My second question is on -- so I guess some of the transaction value was driven by new supply partner and then kind of offset by a modest take rate compression. I'm just wondering like what's your strategy to optimize this trade-off between volume growth and profitability as you scale.

Yes, I'll take a first crack at that. Well, I think right now, we're still optimizing for market share and transaction value. What that's doing is creating a lot more transaction within our marketplace, giving us a lot more data that we can use to optimize spend on behalf of our major carrier partners. And so, I do think that in the upcoming quarters, right, as the turn from a hard market environment to a soft market environment really settles, I think you will see us start to optimize more for gross profit going forward. And I believe that with the data that we have and the market share that we have, that we'll be able to do that better than anyone else in the industry.

The next question comes from Michael

This is Jack on for Mike. Just a follow-up on kind of the margin outlook and the adjusted EBITDA outlook. Is that the result this quarter and kind of the change going forward, mostly attributable to the under-65 business being smaller? And you just talked about some of the new supply partner wins in the P&C side, too. Just any additional color on the margin profile of those relative to your existing business? And maybe just a way for us to think about EBITDA margins and how those might trend over time?

Yes. And this is Pat here. I would say we really think about 2 margins when we manage our business. The first of those is take rate, which for us is contribution divided by transaction value. And we've seen some compression there over the -- between Q1 and Q2. And the primary driver of that compression is that under-65 is a smaller portion of the mix, and it's a lower-margin business. And we've given some detail in our shareholders' letter to that effect, so you can see that. I would say within P&C, we've seen a bit of take rate compression there, and that really has been driven by 2 different things. One is the spend is shifting a bit private and which is more or less code for its shifting to the very top carriers there. And so that's one driver. And then the second piece, Steve touched on this some in the last question actually, which is we've onboarded on the supply side, in particular, one nice new partner that was at lower-than-average take rates. And so once again, it's profit dollar positive, but it was negative in terms of impact on the overall take rate. And then talking about the second margin that we focus on, that is kind of how we convert contribution to EBITDA. And we've seen that number trend upwards very nicely year-over-year for a while now, and that's a trend that we feel good about and efficiency is in our DNA. We ended the quarter with 148 employees, and we will always be laser- focused on running this business as efficiently and as intelligently as possible.

The next question comes from Ben Hendrix from RBC Capital Markets.

This is Michael Murray on for Ben. Congrats on the FTC settlement. With shares trading at depressed levels relative to your historical levels and then also the company having pretty modest leverage levels, could you provide your thoughts on your capital structure and the potential for share repurchases?

Yes. This is Pat here. I'm happy to talk to that. I would say that we are long-term shareholders of the stock, and we're definitely focused on driving long-term returns. I would say we're in a spot where we've got $45 million of cash that are going to be going out the door in the next 3 to 4 months, depending on timing of court approvals for the FTC settlement. So that will be a big short-term use of cash. We're a business that is generating cash at a pretty good clip right now, and that's a trend that we think will continue. And we think we've got some nice flexibility going forward to invest in the business, both organically and potentially inorganically, and also to reduce debt and/or return capital to shareholders. I would say we don't have any firm targets or commitments on that. I think the one thing I can say is that we are all about deploying capital intelligently and putting it to the best use possible to drive long-term returns.

Okay. And then just shifting gears. I'm curious to hear your expectations for AEP. Peers have indicated there may be some pullback in benefits and brokers believe this could lead to shopping -- increased shopping behavior. So curious how you feel your platform is positioned if there is, in fact, increased shopping behavior.

Yes. I'll address the first part of that, and Pat can jump in as well. I mean, I think we do anticipate there'll be increased shopping behavior. I think there'll be a bit of a churn in the marketplace as a lot of the Medicare Advantage carriers actually rebalance their coverage or their portfolio mix and actually drop plans from a lot of geographies. And I think that's going to lead a lot of consumers to shop around. In addition to that, I think you're going to see some repricing and the dropping of benefits or the adding of benefits, which again is going to create a bit of churn -- or consumer churn in the marketplace. And so, I think that's one part of the equation that I think bodes well. But at the other side of it is, I think really the Medicare Advantage carriers, I think, inherent conservatism coming into this upcoming AEP. I think what you've seen is a couple of pioneers, '24 and '25 pioneers, and they haven't done so well. And so even though with Medicare Advantage, you can reprice and change your benefits on an annual basis. And our expectation is that the pricing is something right now that you feel comfortable with. I think because of the churn and some of the unexpected consumers they may get coming into their products as well as some uncertainty about the upcoming medical loss ratios, I think it's going to lead a lot of demand in our marketplace, namely the willingness of the Medicare Advantage carriers to spend to acquire new customers be a bit muted coming into this AEP. So, in summary, I think there will be a lot of consumer shopping behavior. But what we're anticipating is that the carrier budgets going into this AEP will be lighter than previous years.

Yes. And I would probably add one thing to what Steve said there, which is -- our -- the demand profile for us in Medicare Advantage, it's a blend of carriers and brokers. And I would say the carriers definitely are -- their belts are pretty tight right now. I think the brokers are doing maybe a bit better on average, and there may be a bit more willingness there. And so, I think the net trend is not looking great in Medicare, but we do have demand from the broker side, which looks to be hanging in a bit better than the carrier side.