Ladies and gentlemen, thanks for standing by and welcome to the MediaAlpha Third Quarter 2020 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Denise Garcia, Investor Relations. Thank you. Please go ahead..

Thank you, operator. Our discussion today will include forward-looking statements about our outlook for future financial results, including our financial guidance for full year 2020, 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 today's guidance.

Please refer to the earnings release we filed with the SEC on Form 8-K and the shareholder letter we posted to the Investor Relations section of our website today, for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements.

MediaAlpha will routinely post information that may be important to investors on our IR website, investors.mediaalpha.com. And we'll use this website address as a means of disclosing material information to the public in a broad non-exclusionary manner for the purposes of the SEC's regulation fair disclosure.

In addition, we will be referring to certain actual and projected financial metrics of MediaAlpha, which are non-GAAP financial metric -- 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. The most directly comparable GAAP measures, as well as reconciliations of non-GAAP measures to those GAAP measures are available in our third quarter earnings release.

As a reminder, we published a shareholder letter on our IR website that will refer to during this Q&A session. Now, I'll turn the call over to Steve..

Thanks, Denise. Hi, everyone. Welcome to our first earnings call as a public company. Before we open the call to question, I want to recap some important concepts we discussed during our IPO process. I'll start with the enormity of our market opportunity.

Insurance carrier spend and digital distribution is projected to increase from $4 billion in 2019 to $16 billion by 2025. We believe we're still in the early stages of the $2 trillion insurance industry shift to a digital direct-to-consumer distribution model.

We've built the leading technology platform to connect insurance consumers with insurance carriers at/or near the point of purchase. Our transparent data science based approach has enabled us to achieve tremendous scale, one that is now two to three times larger than other insurance customer acquisition marketplaces.

Our platform is unique in it's ability to serve insurance carriers needs holistically, whether they are looking to acquire new customers, or generate revenue from their non-converting shoppers by intelligently referring these consumers to other insurance carriers and distributors.

As a company, transparency underlies and inspires everything we do; from our product development, to how we work with our partners, to how we treat our team members. Our company was self-funded until our IPO; we believe in growing profitably and the importance of stewardship.

Most of all, the only scorecard that has ever mattered to us, is one that measures the enduring value we have created for our partners. We're pleased with our third quarter performance, and we anticipate a strong record-breaking fourth quarter. With that said, I'm looking forward to discussing our most recent results with you.

So we'll open the call to questions now..

[Operator Instructions] Our first question comes from Doug Ayman [ph] with JP Morgan. Your line is open..

Great, thanks for taking the questions. One for Steve and one for Tigran. Just -- first, Steve, the shareholder letter, you talked about spend through 10 largest carrier partners increased 95% year-over-year in 3Q.

Can you just talk about what's driving the momentum that you're seeing with some of the bigger carriers? And then, also perhaps to tell us some of those conversations are evolving with some of the carriers who are not on your platform today.

And then second, Tigran, the 4Q guide does imply some slowdown in growth, just relative to the 40%-ish kind of transaction value growth, the first nine months of the year. And you talked about strong health seasonality given annual enrollment, maybe you could just talk about some of the puts and takes around growth in 4Q. Thanks..

Hey, Doug. Thanks. So to your first question about the increasing trend from our Top 10 insurance carriers. Now, keep on that Top 10 as of right now, and so it was growth from some who are new to the Top 10.

And so here is what I'll tell you is that, what we're discovering is that when these large insurance companies, the traditional ones, that typically had relied on agents and offline channels to sell their policies; when they make a transition to online, direct-to-consumer, they tend to do so and spend rapidly to increase their investments there.

And so, I think the high growth rates that you saw from the Top 10 partners as of Q3 of this year reflect outsized [ph] growth rates from some of the large traditional insurance carriers, most notably in the P&C space, who rapidly increased their investment in our ecosystem in 2020.

In terms of insurance carriers, who are not on our platform; what I'll tell you is that we're always looking to add new carriers to our platform, both on the demand and the supply side. We did -- I mean in Q3, add a top carrier who had never advertised in this channel before.

But really, the growth for us is coming from the growth from existing partnerships.

We work with all of the top insurance carriers already, both as demand partners, and many as by-partners; and so for us it's about the day-to-day account management, the day-to-day consultative work that we do with each of those insurance carriers to make sure that all of their spend, all of their investments are measured as granularly and as efficiently as possible.

And so -- so while there are some new carriers that will be coming into the platform, our focus really is in growing the existing partnerships that we already have, just because we've already worked with so many of the major carriers across all of the insurance verticals already..

Okay, that's great. That's helpful.

Any thoughts on just 4Q guide; some of the puts and takes, and any seasonality dynamics perhaps?.

Yes, Doug. I think you hit it on that seasonality. So, as a reminder, Q4 tends to be a seasonally weaker period in P&C. And so you do see Q4 come down from Q3 a little bit in the P&C vertical, and we have seen through November, a strong open enrollment period in both, Medicare and Health; so that's driving the guidance in Q4.

Another note is, in our other verticals last year, obviously that was pre-COVID, travel would be considered on the top line. In other this year, obviously that vertical is a big challenge..

And just following up there, how do you think about travel coming back? In 2021, are you starting to see any pickup in that vertical?.

Doug, it's Steve. We're not. I mean, we're seeing some increases in air travel, and that's something that we monitor, the GSA stat. It hasn't translated into a big increase in terms of advertising spend from travel companies that we work with.

For us right now, it's hard to predict one, that markets kind of come back; but we feel that we're well positioned for when the market comes back..

Okay, great. Thank you, both..

Our next question comes from Michael Zaremski with Credit Suisse. Your line is open..

Hey, good evening. I guess, first question, back to your comments about adding a top carrier who had never advertised in your ecosystem.

Curious, do -- should we be thinking about that carrier differently than maybe some of the other carriers on your platform, given as a kind of a more niche client base? Like, should we be thinking it -- it's spend might be kind of maybe somewhat disproportionately smaller, given it's niche? Just trying to -- it's a pretty big carrier from what I understand..

Hey, Mike. I don't think so. I think that they are -- I mean, it's still early stages. And what I'll tell you is that when we start to work with either new carriers in our ecosystem or carriers who've been working with for years; who start to then, begin the transition to focus more on direct-to-consumer and then start to invest more in our ecosystem.

You know, that's -- that's the growth curve that takes one to two years to come up.

And so, the carrier that you're referring to has a lot of direct experience; so they may come up that curve or learning curve or adoption curve more quickly than some of the traditional agency riders, who are the ones who've made that transition over the last two years.

But right now, it's too early to tell what that adoption curve is going to look like..

Okay, that's helpful. Just switching gears to the contribution margin; you pointed out that there was a partner that I think might have -- I think you're saying, it may be had a one-time negative influence.

I just want to make sure I'm interpreting that correctly, or are there any other kind of just secular trends on the contribution margin we should be thinking about?.

Mike, this is Steven, let me take that. Just the first step, on the contribution margin.

That's a partner that commenced their relationship with us early, we had signed a long-term deal earlier in 2020 that contemplated the economic relationship starting in October 1; they wanted to start early but had really through the transition period a fee to pay to the prior platform provider.

And so to be a good partner there, we took on that business but took no margin in Q3; really a one-time temporary [ph] issue where you see revenue in Q3, but no contribution from that partner..

And Tigran, did you call out the impact to quantify it for us? Is that we should think about?.

Yes. On a pro forma basis, that partner would have added a little over 1%, right, one percentage point to the contribution margin; so that would have been a little over 15% in Q3, had we taken our revenue share, our contractual revenue share, which commenced on October 1..

Okay.

And so -- and other than that, no -- no other trends we should be thinking about into outer years [ph]?.

No..

Okay. Lastly, if we can kind of go back to travel; I know that the outlook might be a little cloudy, given the pandemic.

But I mean, I guess -- should we -- but should we eventually be thinking about travel could kind of eventually right -- hopefully, come back and not in a real way if you're saying it's the primary driver of the -- almost $10 million year-over-year drop in revenues in the other segment?.

Yes, Mike. I think you can assume that it will come back but it's really hard to say what the timing will be.

On this one, I mean, we study the industry, we're looking at what's going on; but to be honest with you, with the uncertainty around, what's happened this year and now to see what -- going into next, I would say that I feel comfortable saying your guess is as good as mine, in terms of what the timing would be..

Okay, understood. Thank you very much..

[Operator Instructions] Our next question comes from Daniel Grossman with Citi. Your line is open..

Hi, guys. Thanks for taking the question, and congrats on a good quarter out of the gate. I want to focus a little bit on the Medicare AEP period that just ended.

Anything that was different this year versus last year? Obviously, everything has kind of moved online now, so just curious, if you've seen anything different from a demand partner perspective or kind of -- the amount of customer referrals coming through clicks, calls, or leads; any trends that were different this year versus previous years?.

I would say there was nothing specific to call out, right. I think that the demand was strong, and so we've had very strong AEP performance.

And -- but it was in the form of just increased demand, increased adoption of direct-to-consumer; some of our partners now starting to support an online-only experience which then precipitates a heavier investment in online customer acquisition, the growing adoption of Medicare advantage among new entrants into the Medicare pool.

So, all of those are trends and secular trends and demographic trends that we've seen for a while. So all of those things and just a continuation of those trends, we believe contributed to a strong AEP for us; not any one thing that we're seeing in this period that we really hadn't anticipated..

Got you. Okay, that makes sense. And then, one of the newer channels for you is kind of -- the agency channel.

Any comments you can make on the progress going into selling leads to the traditional agents? And you're hiring sales folks to address that channel?.

Yes, absolutely. I think we're making good progress, something that we launched in Q3.

And you're right to point out, how's the hiring going; the hiring is going very well, we have a great team there that's ramping up, many of them that are in Arizona, because it does require a different team in place to outreach and work with agents as opposed to insurance carriers, as our team is typically used to doing.

And so we're happy with the ramp up of that team, we are starting to generate revenue from that business but right now, we're really focused on building that organization and making sure that with the early adopters, the agency that we're working with, that we're making sure to dig in and understand what their needs are, and what their feedback is.

Because in this space the one thing that we are seeing early on, that -- it's very encouraging to us is that, there is room for innovation here, there is room for disruption here; transparency in a granularity -- control all of those things that we brought to our ecosystem, I think are lacking here.

We have to address it in different ways but we see a lot of opportunities here; so we're very happy with what we're seeing and the progress we're making. And -- and then, the results are coming in and we expect strong growth from this business going forward..

Got you. And last one, maybe for Tigran; it looks like transaction expenses was double of what you were expecting from the flashed numbers in the IPO perspective.

Just curious, what caused that to double? And how we should think about that for the rest of the year?.

Okay, Dan. So those are one-time IPO-related transaction expenses that when we were formulating, the flash range were reflected as balance sheet items; and on closing, we determined that some of those needs to be expensed as one-time, not recurring items. You can expect to see a similar number in Q4, the monthly close of the IPO.

And then, obviously, going forward beyond that you expect to see that normalize and adjustments to EBITDA not to reflect these one-time transaction items..

Got it. All right. Thanks, guys..

Our next question comes from Michael Graham with Canaccord. Your line is open. Michael Graham, your line is open..

Hey, sorry, I was on mute. Hey guys, thanks for taking the question.

My first question is just on, wondering if you can comment on the dynamic of demand [ph] partners turning into supply partners, as well on your platform? And are most of the carriers that you're working with taking advantage of that opportunity? And is converting more of those folks into that dynamic would be opportunity for you?.

Hey Michael, it's Steve. Yes, absolutely. I think that we -- I don't know, most we work with, over 35 insurance carriers; both as demand partners and supply partners, and so a lot are.

What we're happy about is, the progress that we've made recently, in terms of expanding those partnerships, getting new partnerships, to be sure; but also expanding the partnerships that we already have in place.

As we've tried to explain in the past, there is a development cycle, relationship cycle, with the supply partnerships with insurance carriers; typically, they're dipping their toes in the water, and then expanding from there, and that can take two to three years to really expand those partnerships.

And what we've been happy about is, is the openness that these insurance carriers have now to expanding this; and I believe that a lot of it is due to how competitive the marketplace has become for customer acquisition.

Because this is a great way to offset customer acquisition costs, and as customer acquisition costs start to increase with increased competition in the stock market, particularly in the P&C space; we are seeing greater interest in this program, not just in adopting it but then expanding these relationships that we may have had in place for one or two years or more..

Okay, thanks for that. And then, I wanted to ask a bigger picture question just on -- as DTC becomes more prominent, and specifically, I guess, the auto insurance market; it seems like we should see consumers switching policies more frequently.

So, if you shop and compare, and -- just wondering, if you think that's true? And does that -- I think more transactions is going to be a better outcome for your platform? Just wondering if you foresee any longer term issues where carrier LTVs might be under pressure from that dynamic because they're losing customers more frequently? And how do you see those two -- sort of higher transaction volumes versus the potential for lower LTVs that are playing out?.

Yes, that's a good question, Michael. It's hard to say, right. I -- what we're seeing is that -- that the non-standard drivers have been open to switching policies more, and that's been for some period of time now.

I mean, now what we're seeing are standard drivers, as standard consumers are being more open to switching policies and comparing policies, because the ease with which they can do so. And so, how will that impact the expected lifetime value of these consumers? I mean, again, it's hard to say.

I mean, right -- if there is increased switching comparison then it would lower it a bit but what I have confidence in is, are the insurance carriers that we work with to be able to factor that in, and factor that in quickly when it comes to assessing what the expected lifetime value is of these consumers..

Yes. Okay, thanks a lot..

And ultimately for us that's what's important, right, that they factor that in or accurately being able to evaluate the expected LTV..

Yes. Okay. Thank you, Steve. I appreciate it..

There are no further questions at this time. This concludes today's conference call. You may now disconnect..