MediaAlpha, Inc.(MAX)Q2 2026 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the MediaAlpha, Inc. Second Quarter 2026 Earnings Call. I'd like to remind everyone that this call is being recorded. I would now like to turn the call over to Alex Liloia. Please go ahead.

Thanks, Angela. Good afternoon, and thank you for joining us. With me, our 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 2026. 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 these 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 investor supplement issued today, which are available on the Investor Relations section of our website. I'll now turn this call over to Steve.

Thanks, Alex. Hi, everyone. Thank you for joining us. We delivered record second quarter results as demand continued to broaden across our marketplace. Each quarter, additional P&C carriers are unlocking advertising spend, expanding their campaigns, and leaning further into our marketplace. This is no longer just a story about concentrated growth among a handful of large partners. It's a widening base of carriers that keeps ramping. Although down from peak levels, underwriting profitability in personal auto remains historically strong. This is driving carriers to compete more aggressively by lowering rates and spending more on advertising to acquire new customers. We're seeing this intensified competition show up in a meaningful way across our marketplace. When we look at the current concentration of carrier advertising spend, we believe the inevitability of further broadening becomes clear. Since 2021, over 80% of P&C ad spend growth, both in our marketplace and others, has come from just two carriers. That leaves a wide segment of the market that has yet to meaningfully scale, and we're increasingly seeing those carriers begin to close the gap. To put this in perspective, our top two carriers spent a double-digit percentage of their total ad budgets with us in 2025, compared with the rest of our top 10 carriers, which collectively spent about 3% of their total ad budgets with us. We're seeing evidence that a growing number of carriers are preparing to allocate a meaningfully higher share of their advertising budgets to our marketplace. For example, our third, fourth, and fifth largest carriers nearly quadrupled their spend with us in the first half of 2026 as compared to the first half of 2025. We believe we're at the beginning of what we see as a massive growth opportunity in the years ahead, driven by the industry's ongoing transition from agent-based distribution, largely supported by brand advertising, to direct-to-consumer distribution supported by highly targeted performance-based advertising. Our scale and proprietary data allow carriers making this transition to target online insurance shoppers through our open marketplace with a level of precision that allows them to compete far more effectively than would otherwise be possible. As we continue to deliver significant value to these carriers, we're becoming more deeply embedded in their customer acquisition processes, resulting in stickier, higher-value partnerships. The better the outcomes we deliver, the more budget these carriers commit to us, and the wider that pool of active demand partners becomes. While we have long believed that most of the industry would transition to direct-to-consumer distribution over time, recent advances in AI suggest that the pace of this transition is likely to accelerate in the near term. On the carrier side, AI is making direct-to-consumer acquisition increasingly effective by allowing a greater percentage of consumers to purchase policies without interacting with a live agent, resulting in both higher conversion rates and lower acquisition costs. We believe these improved economics will make the online direct-to-consumer channel even more attractive to carriers, particularly those who have traditionally sold through agents. On the consumer side, AI-powered search has the potential to improve both the quality and quantity of online insurance shoppers by helping consumers become better informed before they begin their shopping process, which will result in higher-intent consumers entering the top of the funnel. Lastly, we're leveraging predictive AI throughout our marketplace to better target consumers and improve return on ad spend for our carriers and yield for our publishers. As a two-sided marketplace, we believe these dynamics reinforce our competitive position by connecting carriers and shoppers more efficiently, accelerating the industry shift towards direct-to-consumer distribution, and expanding our long-term market opportunity. As we look ahead, we're optimistic about our near-term and long-term growth opportunities. In the near term, it's about broadening demand as additional carriers allocate a more meaningful share of their ad budgets to our open marketplace in order to stay competitive in a changing market. Over the longer term, it's about the shift from the legacy model where carriers use brand advertising to drive foot traffic to agents to a model where carriers leverage rich data to target consumers directly with precision through measurable online advertising channels like ours. With carriers still incurring more than $2 in agent commissions for every $1 they spend on advertising, and with only 40% of that advertising dollar currently allocated to digital, we believe we have a long runway ahead of us to grow our business and deliver significant value to our shareholders. With that, I'll hand it over to Pat.

Thanks, Steve. Before I begin, I wanted to highlight that we have posted an updated investor deck to our IR site with additional details on the themes Steve touched on. I'd encourage anyone who hasn't seen it to take a look. Turning to my remarks, I'll start by walking through the key drivers of our second quarter results, then cover capital allocation activity, before discussing our third quarter outlook. Revenue for the quarter was $317 million, up 26% year-over-year, above the high end of our guidance range, reflecting broader carrier participation in our marketplace. Contribution was $47.2 million, up 18% year-over-year, reflecting a modest mid-quarter dip in take rates that fully recovered by quarter end. Adjusted EBITDA for the quarter was $29.3 million, just above the midpoint of our guidance range, up 19% year-over-year. Excluding under-65 health, our core business performance was very strong, with revenue and adjusted EBITDA each growing over 30% year-over-year. On capital allocation, we remain committed to creating shareholder value by returning capital to shareholders. In the second quarter, we repurchased approximately 2.2 million shares for $20 million, representing an average share repurchase price of $9.22. We've repurchased $41 million of stock year-to-date and $88 million over the past four quarters, representing approximately 13% of our outstanding shares. We also took a meaningful step to reduce our long-term obligations under our Tax Receivable Agreement, or TRA. In June, we repurchased $69 million of our total TRA liability for $31 million, representing a 55% discount, which generated a $38 million gain that we recorded in the second quarter. We funded this transaction with a $15 million draw on the revolver and the remainder with cash on hand. We expect the transaction will generate a mid-teens, unlevered IRR, making it an attractive use of capital beyond our share repurchase program. We ended the quarter with $23.7 million in cash and $30 million undrawn on the revolver. We expect to complete the vast majority of the $45 million remaining under our $100 million authorization by year-end. Looking to next year and beyond, we'll continue to evaluate share repurchases against other uses of capital to drive long-term shareholder value. Turning to guidance, for the third quarter, we expect revenue of $330 million to $355 million, up approximately 12% year-over-year at the midpoint. Contribution of $51.5 million to $54.5 million, up approximately 16% year-over-year at the midpoint. Adjusted EBITDA of $32 million to $35 million, up approximately 15% year-over-year at the midpoint, including an approximately $1 million year-over-year decline in contribution from under-65 health. Excluding under-65 health, we expect contribution to increase by 20% and adjusted EBITDA to increase by 21% year-over-year at the midpoint. For Q3, we expect the health vertical to be approximately 1% of total revenue. Looking at the remainder of 2026, we continue to expect to generate $90 million to $100 million in free cash flow for the year. Overall, we remain confident in the strength of our position and the long-term opportunity ahead. With that, operator, we are ready to take the first question.

Your first question comes from the line of Maria Ripps with Canaccord.

Congrats on the strong quarter. First, you've talked about broadening carrier demand across the marketplace for several quarters now. Could you maybe give us a little bit more color on where we are in that recovery today? And then for the carriers that have yet to meaningfully reengage, what do you see as the primary gating factors holding them back?

Maria, yes, this is Steve. I'll take that question. So I think really where we are in the broader auto insurance cycle is that we're still firmly within a very robust growth-oriented soft market cycle. If you look at overall industry profitability, it's well above historical norms. What that's spurring is our carriers to grow their policies in force by reducing rates a bit to be more competitive, and then investing a lot more in advertising to really turbocharge their growth. That's driving the broadening of carrier demand within our marketplace. This broadening is happening in particular with many major agent-based carriers who are at various stages of adopting direct-to-consumer distribution. They are both leveraging our marketplace to support either their robust or nascent direct-to-consumer efforts, and tapping into our marketplace to connect their agents with online shoppers as well. The Farmers Lead Marketplace that we're powering on behalf of Farmers is a good example of that. Going forward, we expect continued broadening of this demand. We're seeing new carriers come on board and ramp their spend every quarter. We expect this cycle-driven growth to continue for the remainder of this year and well into 2027. In terms of gating factors for carriers, a lot of it is about capability. Many of these carriers are new to direct-to-consumer and to performance-based online channels. It's about us working with them and meeting them where their capabilities are, bringing our capabilities to the table. You've heard me talk about our platform solutions efforts, where we're expanding our offerings and services beyond being a marketplace and becoming a true customer acquisition platform partner. We've had meaningful success with that. For many carriers, we do more than create a hyper-efficient marketplace; we're helping to build technology, doing integrations with them, and hosting parts of the conversion process. We expect this part of the business to meaningfully scale as we work with more carriers who are at various stages of the learning and adoption curve for direct-to-consumer distribution, particularly online.

Got it. That's very helpful. And maybe if I could ask you one more. Last quarter you flagged that LLM-driven insurance shopping was beginning to generate incremental referral traffic. Could you help us frame how the channel has evolved since then, whether it's beginning to move the needle for you? How are conversion characteristics compared to your more established acquisition channels?

Sure. What I can share is what we're hearing from partners. We rely primarily on third-party publishers to acquire traffic into the marketplace, and that's our model. What we're hearing from our partners is that LLM-driven referrals continue to organically scale. Last time I mentioned some partners had said it was becoming volume-wise on par with something like Google organic search; we're hearing similar things this quarter. We continue to hear that it's a high-quality source, typically higher quality than Google organic. This makes sense because these searches tend to be more granular. Google has talked about their LLMs being incremental to paid and organic search, and these LLM-driven searches can be far more valuable because of that granularity. In terms of overall impact in our marketplace, it's still relatively small, but we expect it to grow. As the ad ecosystems layer on top of these LLMs, like Gemini and others, we expect more partners to tap into the advertising ecosystem to generate more traffic from LLM-driven sources going forward.

Your next question comes from the line of Tommy McJoynt with KBW.

I thought it was a pretty interesting data point that you gave around the growth in the top three to five P&C advertisers. As you continue to see this expansion of advertisers outside of the top two, can you talk about the impact of how that will flow through specifically on your contribution margin or your gross profit margin? Just thinking about the economics of those relationships with those carriers outside of the top two.

Yes, Tommy, thanks for the question. We have two main models with which our partners transact: the private marketplace and the open marketplace. The private marketplace is really a product for our top publishers with the top couple of advertisers, and those advertisers tend to have deep in-house capabilities for how they manage spend, both with us and in our channel more broadly. The third, fourth, and fifth players, and then sixth through tenth and beyond, overwhelmingly transact on the open marketplace with us. Those partners are much more likely to utilize many of the tools that we offer, such as managed services where we do the bidding on behalf of the advertiser, or tools where we manage some of the technology flow for them. Given that, the take rates—the percentage of transaction value that we recognize—are markedly higher in the open marketplace. One important nuance is that revenue treatment in the open marketplace is gross. So if an advertiser spends $100 with us, we recognize $100 of revenue and would have a contribution margin typically in the teens on that. For the private marketplace, we recognize it on a net basis. If there's $100 of spend, we would have low single-digit dollars of revenue, and that would all drop down to contribution.

Got it.

Is that clear?

Yes, yes. No, that's a good refresher. And another question on the health segment of the business. The decline in revenues there was a bit more than we expected. I understand the under-65 dynamic is going on, but was there anything else unusual that happened in the second quarter and just remind me when we lap the headwinds around that business?

Tommy, we guided to the health business being around 1% of revenue in Q2, and it was around 1% of revenue in Q2. So it was basically in line with our expectations, and we've guided to that same 1% in Q3. With each quarter, the comp gets easier for that business, and as we get into Q4 of this year and into Q1 of next year, the comps start to get pretty clean for us.

Your next question comes from the line of Eric Sheridan with Goldman Sachs.

You talked a fair bit about AI in your prepared remarks. Could you go a little deeper in how you're utilizing AI in your business, both as a driver of productivity and efficiency gains and as a potential tool to improve conversions and attract more advertisers and revenue into the ecosystem? How do you think about the priorities of investing behind those themes versus those themes building momentum in the P&L over the next 12 to 24 months?

Sure. Primarily, our tech team has embraced AI wholeheartedly to accelerate product development efforts, allowing us to get more leverage from our team in Bellevue. The second area is predictive AI and machine learning that we've been leveraging for years to make use of all the data within our marketplace. We have millions of insurance shoppers coming through each month; we see their behaviors, attributes, which carriers they're going to, who they're getting a quote from, and who they're binding with. With machine learning and predictive AI, we can do a much better job of matching consumers to carriers than before, which has a profound effect on return on ad spend for carriers and yield for publishers. That predictive AI work is a meaningful area of investment for us. Regarding generative AI and large language models, we are leveraging those within our product suite to make features more intuitive. This has been important for our efforts to work with agents; we've been able to scale the number of agents we work with significantly while keeping that Phoenix-based team relatively lean. We were 80 people when we went public and we're still only about 160 to 170 people, so we're extraordinarily lean. You're not going to see massive headcount reductions just from adopting AI, but AI is allowing us to grow and leverage our team in ways we hadn't imagined before. We expect to continue embracing AI to drive internal efficiencies and product development enhancements, and to grow with only meaningful or incremental additions to headcount.

Your next question comes from the line of Randy Binner with Texas Capital.

I think this one might be for Pat, but the contribution margin was a little bit lower than modeled. You guided it higher for third quarter. I think you mentioned a dynamic where there was a mid-quarter take rate dip and then a pretty fast recovery. Can you help me understand what the nature of the lower take rate was and how you turned it around so quickly?

Randy, in May and early June we saw a bit of weakness in the take rate, and what happened was we made a couple of partner-specific investments. Those were short-term costs for us, but we believe they have meaningful long-term benefits. By the end of Q2, the take rate was right where we wanted it. Q3 is off to a good start and our guidance shows that it has recovered. As we think about the short-term investment we made in Q2, we're starting to harvest the benefits here in Q3. Looking into Q4 and beyond, we like our positioning from a competitive standpoint and in terms of partner relationships, so we feel good right now.

Okay, and was that investment AI related or was it bringing someone new on? Was it in the AI funnel or just a new partner?

Randy, it was more with existing long-standing partners. The vast majority of our partner relationships are long-term in nature. These were some short-term investments with long-standing partners that we believe will pay long-term dividends.

Okay, understood on that. I had another one, and I think this is for Steve. You mentioned that customers coming through the AI funnel are higher quality. Is that because of a better interface and technology or are they providing more data? What is making them higher quality?

It's because with an LLM-driven search, consumers express more nuances and details about the insurance they are seeking. Instead of just searching for 'auto insurance quote' on Google, a consumer might tell the LLM they are married, have two cars, and two kids. You therefore get a far more granular search and a consumer about whom you know a lot more. Typically, these consumers are higher intent because they've taken additional steps inside an LLM that they wouldn't otherwise do through a basic search.

Your next question comes from the line of Michael Zaremski with BMO.

On the TRA agreement, clearly a great IRR. Is there more potential for those to happen? I believe there are other counterparties other than Insignia or was that kind of a special one-off? Is there anything you can add?

Mike, following the Insignia transaction, the remaining recorded TRA liability is about $55 million total. The remaining holders break into three categories: the founders, some early employees, and an external third party. We'll evaluate any further TRA repurchases the same way we evaluated the June Insignia transaction, by comparing the expected IRR versus alternative uses of capital. There's no obligation for any holder to sell, so to do a deal we'd need a double coincidence of wants where they want to sell at a price where we're willing to buy. We'd be open to it if it makes sense for shareholders.

Got it. And Pat, you have the cash flow to continue buying back shares and plan on continuing. Is there price sensitivity if the stock moves up? Would you be price sensitive or should we assume you'll earmark the full amount?

Mike, we expect to complete the vast majority of the outstanding buyback, which is $45 million authorized today. Going forward over the longer term, we evaluate share repurchases alongside other uses of capital and base decisions on what we think represents the highest long-term return for shareholders. At the end of the quarter we had $24 million of cash, $30 million undrawn on the revolver, and we expect to generate $90 million to $100 million of free cash flow this year. We feel good about our ability to fulfill the commitment we've made and continue to view the stock as an attractive opportunity.

Ladies and gentlemen, that concludes the question-and-answer session and that also concludes today's call. Thank you all for joining. You may now disconnect.