NYSE:MAX MediaAlpha Q3 2023 Earnings Report $9.62 -0.40 (-3.94%) As of 09:32 AM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast MediaAlpha EPS ResultsActual EPS-$0.29Consensus EPS -$0.34Beat/MissBeat by +$0.05One Year Ago EPSN/AMediaAlpha Revenue ResultsActual Revenue$74.57 millionExpected Revenue$71.25 millionBeat/MissBeat by +$3.32 millionYoY Revenue GrowthN/AMediaAlpha Announcement DetailsQuarterQ3 2023Date11/1/2023TimeN/AConference Call DateWednesday, November 1, 2023Conference Call Time5:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by MediaAlpha Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 1, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00You for standing by. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Media Alpha Q3 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:25If you would like to withdraw your questions. Thank you. I would now like to turn the floor over to Denise Garcia, Investor Relations. Denise, you may begin your conference. Speaker 100:00:38Thank you, Christina. After the market closed today, Media Alpha issued a press release and shareholder letter announcing results for the Q3 ended September 30, 2023. These documents are available in the Investors 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 Q4 of 2023, which are based on assumptions, forecasts, expectations and information currently available to management. Call. Speaker 100:01:10These 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 ks 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, November 1, 2023, 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 with MediaAlpha that are presented on a non GAAP basis, including adjusted EBITDA, 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 2 financial measures calculated in accordance with GAAP. Speaker 100:02:06Reconciliations 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 Investors section of the company's website at investors. Mediaalpha.com. Now I'll turn the call over to Steve and Pat for a few introductory remarks before opening the call to your questions. Speaker 200:02:34Thank you so much, Denise. Hi, everyone. Welcome to our Q3 2023 earnings call. I'd like to make a few observations before turning the call over to our CFO, Pat Thompson for his comments. We continue to execute well in a difficult market environment. Speaker 200:02:50Our 3rd quarter results came in at or above the high end of our guidance range due to strong top line growth and profitability in our health insurance vertical. For the Q4, we expect our health transaction value to be roughly flat year over year as continued strength in our under-sixty five segment is offset by near term weakness in Medicare as the industry adapts to recent regulatory changes. Q3 results in our P and C insurance vertical We're in line with our expectations as carriers have maintained consistent levels of advertising spend since June. While we expect TNC advertising spend to remain atornearcurrentlevels through the remainder of the year. We're encouraged by the industry's improving underwriting profitability and continue to expect a broader market recovery to take hold in 2024. Speaker 200:03:37Looking forward, our immediate focus is on delivering solid results in our health vertical during the current open and annual enrollment periods. Longer term, our objective remains to capitalize on the significant growth opportunities presented by the insurance industry's ongoing shift to digital customer acquisition, and we remain confident in our ability to drive significant top and bottom line growth in the years to come. With that, I'll turn the call over to Pat. Speaker 300:04:03Thanks, Steve. I'll begin with a few comments on our Q3 financial results and other recent business and market developments before reviewing our Q4 financial guidance and opening the call up for questions. As Steve mentioned earlier, our Q3 results were at or above the high end of guidance range. Adjusted EBITDA exceeded expectations, increasing $1,400,000 year over year despite a 26 percent or $38,000,000 decline in transaction value, with the annual growth driven by continued expense discipline. Transaction value in our P and C insurance vertical was down 46% year over year, in line with our expectations, In our health insurance vertical, we had another quarter of strong growth as transaction value grew 11% year over year, in line with expectations. Speaker 300:04:58Moving to Q4 guidance, we expect another quarter of positive year over year adjusted EBITDA growth as the impact of expense discipline and higher gross margins more than offsets the impact of continued headwinds in our P and C vertical. In P and C, we expect the impact of seasonality to be muted with transaction value dollars to be similar to 3rd quarter levels. In Health, we expect transaction value growth to be roughly flat year over year for the reasons Steve noted earlier. As a reminder, the 4th quarter typically represents about 40% of full year transaction value in our health vertical due to the timing of AEP and OEP. As a result, we expect Q4 transaction value to be between $145,000,000 $160,000,000 Moving to other noteworthy items. Speaker 300:06:23During Q3, we incurred approximately $2,000,000 of legal expenses, The majority of which were related to the ongoing FTC inquiry with the balance from a legal settlement unrelated to our core operations. We expect to incur $1,000,000 of fees associated with the FTC inquiry during Q4, a bit lower than Q3. We continue to believe we have been and remain fully compliant with all laws and regulations, and we are cooperating with the FTC as they continue their inquiry. Turning to the balance sheet, we continue to prioritize financial flexibility and using excess cash to decrease net debt. We ended the quarter with $15,000,000 of cash on hand and our focus remains on reducing financial leverage through a combination of net debt and Adjusted EBITDA Growth. Speaker 300:07:12With that, operator, we are ready for the first question. Operator00:07:26And we'll pause for just a moment to compile the Q and A roster. Your first question comes from the line of Michael Graham with Canaccord Genuity. Michael, the floor is now yours. Speaker 400:07:41Okay. Thank you. And appreciate all the information and hopefully we're getting to the end of this tough period here. I had two questions related to P and C transaction value. The first one is, You had a peak of $183,000,000 in transaction value in P and C in Q1 of 2021 And this quarter was $45,000,000 If we are if you're right and we're fortunate enough to have A better year next year and we start growing again. Speaker 400:08:18Do you just have any high level thoughts on like how long it takes to kind of get back to that previous high. And just a related question you might want to leave in is just, I'm wondering How long historically or practically is the lead time that you have visibility into when carriers get ready to turn spending back How far in advance do they tend to notify you? Speaker 200:08:46Hey, Michael. I'll answer the last question first, which is the amount of lead time. I'd say that we get It differs, right? But I think we get at least several weeks, if not a couple of months of lead time before carriers start to turn on spend or turn down spend. Certainly, that has a lot of caveats. Speaker 200:09:10I would say this period right now, we're getting Plenty of notice from carriers as we're engaging in them in discussions just because we're starting to see the light at the end of the tunnel in what's been a historically difficult hard And so, now to go back to your original question, here's what I'd say. I'd say that we're looking forward to 2024. I mean, certainly, we're seeing positive signs as everyone else is, right? Higher rates are earning through And they're earning through at a rate that's actually far higher than moderated in a moderating claims cost. And so that's good. Speaker 200:09:47That's the industry really digging its way out of the profitability hole, that has been dug for it over the last couple of years. And so I think what you'll see in the beginning of next year is increased spend, because I think enough carriers will either be at target profitability or at the very least have good line of sight to reaching target profitability in 2024, Which means that when the annual combined rate combined ratio as well as advertising budget cycles renew in the beginning of Next year, the whole industry should see a benefit from that and we should see material increase in advertising spend in Q1. Now I will say that The increase in the upcoming Q1 is not likely to be as strong as what we've seen in the past, namely last year. And it's simply, I think, a concession to how unpredictable the cycle has been. And so this isn't just us, I think saying this from our discussions with carriers. Speaker 200:10:51You heard this in the earnings call that Progressive had earlier today. But what we expect to see is really the momentum starting to gain steam over 2024 as more and more carriers get comfortable with their rates. And then we expect this to really extend into 2025, right? I mean to answer your specific question of when things will get back to exactly that level, That's impossible to say. But we do think that the recovery is going to gain steam over the next year and a half. Speaker 200:11:21And I think with the elevated shopping levels that we expect to see for 18 months to 24 months, I think it's going to be a strong 2 to 3 years of Growth through what is increasingly softening market until we get to that level and beyond in the years to come. So I hope that answers your question, Michael. Speaker 400:11:40Yes. That's very helpful, Steve. Thanks so much. Conference Call. Operator00:11:47And your next question comes from the line of Mike Zaremski of Bank of Montreal. Mike, your line is open. Speaker 500:11:56Hey, good afternoon. I'm more of a P and C guy, so my question is on the health side So on the P and C side, when we just think about kind of how much inflation has come into the system, just the cost of our auto insurance policy versus a few years ago, right, pricing is up 50 plus percent, Which I guess I feel like should eventually help, right, your transaction revenue volumes in outer years. On the health side, can you remind us what type of inflationary levels are impacting the health side of the business. Speaker 300:12:43Yes. And Mike, this is Pat here. I can address that question. And I would say the trends the inflationary trends are pretty different between P&C and the health side of the house. So on P&C, the industry would call it severity, which is cost of resolving the claims and inflation there has been kind of running in the double digits for a while now. Speaker 300:13:09And I think that is in kind of stark contrast to where it was for the better part of 20 years before that, which was It was anywhere from 0 to low mid single digits. And really, I think what's caused a lot of the P and C hard market is The fact that they just haven't been able to take rate fast enough given how high the claims cost inflation has been. On the health side, I think long term inflation for kind of health care claims has run higher than it has for auto insurance, but it's also been more consistent and more predictable. And so I think on the Medicare side, you've seen some of the big players talk about Medical claims coming in above expectations. It's a point or 2 above expectations. Speaker 300:14:00And that's in stark contrast to P and C where For 2021 2022, it may have been 10 points above people's expectations. And so I think the health side, Yes, there's been a bit of noise about that, but in our mind, that's not a particularly big issue, just given the kind of range at which it normally operates. Speaker 500:14:24Okay, got it. Yes, we've been hearing and seeing data points about health inflation picking up a bit. Okay. On the P and C vertical, my last question. Just in the past, you've talked about maybe seeing Some larger carriers, entered the marketplace that weren't larger carriers that weren't big players in the marketplace in the past. Speaker 500:14:50Do you still do you sense that in the coming year or so, there are some carriers that are trying to be bigger direct to consumer players through your marketplace or it's just too early to tell? Speaker 200:15:08Hey, Mike, this is Steve. No, I think we're continuing to see that trend. I think that when you look at the list of the largest P and C carriers, I think they're Punching according to the weight and varying degrees within our marketplace. And so there certainly are large carriers who traditionally have relied on agent based distribution, whether it's be captive agents or independent agents, who are looking to invest and have invested in direct to consumer capabilities. And their various stages of actually investing in those capabilities. Speaker 200:15:39And so we continue to expect large carriers, Cup 1 or 2 top 5, certainly within the top 25 carriers to start to come into the marketplace in the upcoming years and become more relevant players in the marketplace according to our thesis, which is that agent based distribution certainly isn't going to go away. But really every top carrier needs to invest in direct distribution, because of the success that the direct to consumer model has had and really Changing the landscape over the last 10 years and league table over the last 10 years. And so we continue to see that trend. I think what you've seen really in the hard market Essentially a pause in that secular trend, but as the market emerges from into a soft market and carriers get back into a growth mindset, I think you'll see a continuation of that. And so you should see other larger carriers, who again have traditionally focused on different types of distribution methods to really start to resume their direct to consumer investments and then become bigger players in our marketplace as a result. Speaker 500:16:50Thank you. Operator00:16:54Thank you. Group. And our next question comes from the line of Ben Hendricks from RBC. Ben, your line is open. Speaker 600:17:05Great. Thank you very much, guys. I just was hoping to get a quick update on your thoughts thus far in Medicare AEP. We heard from Humana This morning stating that perhaps broadly planned design degradation has progressed to a lesser degree than expected amid risk model changes and maybe that could point to less shocking behavior this year than they had initially expected. Just wanted to see how things are trending so far from your perspective and if there's any change to the way you're thinking about the transaction value activity this year? Speaker 600:17:38Thanks. Speaker 300:17:41Great. Ben, thanks for the question. This is Pat here. So I would say, AEP has gotten off to a slower start We would have hoped. We'd say that some carriers I think are doing well, others are maybe having a few more challenges from at least what we've gleaned from the public calls and from what they've told us. Speaker 300:18:02And I would say that really there have been kind of 2 primary issues. First, I would say is that we have some partners that have been struggling to adapt quickly to some of the new marketing rules that have been put into place by CMS. And we have other partners that have seen delays in getting marketing creative approved to be able to run-in a timely manner for the start of AEP. And so we've seen partners, whether they're publishers Carriers working through adjustments to try to adapt to this new world order and get things to where they need to be. And but it looks like it's going to be a slower AEP than we hoped. Speaker 300:18:45But having said that, we're as bullish as we've ever been regarding the long term potential in Medicare Advantage. It's a product that over half of Americans chosen to opt into. That number keeps going up into the right and that's trend that we think will continue in the years to come and one that should benefit us and quite frankly benefit the consumers and the carriers. It's a win win win. Speaker 600:19:11Very helpful. Thank you. Speaker 300:19:16Conference Call. Operator00:19:16And our next question comes from the line of Thomas McJoynt from KBW. Thomas, your line is now open. Speaker 700:19:26Hey guys, thanks for taking my questions. The first one is on the P and C side. Is it appropriate to think of the potential kind of carrier advertising spends perhaps next year, perhaps the year after As getting back to the same percentage of premiums as it was a few years ago, and I ask just because given the robust growth in the overall personal auto premium pool that could suggest a pretty tremendous revenue opportunity in the out years once it does normalize. So just want to get your sense on if you think as a percentage of premium, it should revert back to where it was a few years ago. Speaker 200:20:06Hey, Thomas. Yes, that's a good question. So carriers typically Benchmark their advertising spend or measure the effectiveness of their advertising spend based on the expected lifetime value of the customer and so or the policy that they're acquiring. And so I think to the extent that there's been a significant amount of inflation On the dollar value of all the policies that are being sold, I think you can expect the advertising spend to go up In rough proportion of that, assuming that they're going to continue to measure the effectiveness of their advertising spend, based on Just the percentage of customer lifetime value that they're pegging the return on ad spend to. Speaker 600:20:54Okay. Yes, that makes sense. Speaker 700:20:57And then my second question, is there any concern out there that just the amount of shopping behavior and really the kind of high velocity of switching that we're seeing in light of the rate increases that carriers are pushing through, means that carriers won't have to Feel the need to pay for leads as much as they have in the past just because there's so much kind of natural turnover in the books already? Speaker 200:21:21Yes, that's also a very good question. Well, I think what you're hearing about is a little bit of slowdown in terms of ambient or organic shopping Because we've been in an environment where rates have been going up for the better part of 2 years. And so I do think that in this case and in the upcoming years, what's really going to drive the market is the desire for growth that carriers are going to have. And our belief is that whenever there's desire for growth, I think the advertising spend will follow And be in proportion with that desire to grow. And so what you're going to see is what you're going to see are carriers who have large sat on the sidelines for the better part of 2 to 2.5 years, really not growing their policies in force. Speaker 200:22:08And so I think once target profitability is Saved by a lot of these carriers, I think the growth pressures will start to build. And regardless of I think the amount of organic shopping behavior that you expect to see in the marketplace. I think the carriers are going to invest in growth and the way they invest in growth is really through advertising. Operator00:22:40Question. Speaker 100:22:45Q3 Operator00:22:502020. Thank you. And with no further questions, we do thank everyone for joining. This does conclude today's Media Alpha Q3 2023 earnings call and you may now disconnect. Have a great day,Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallMediaAlpha Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) MediaAlpha Earnings HeadlinesFY2026 EPS Estimates for MediaAlpha Cut by William BlairMay 5 at 3:15 AM | americanbankingnews.comMediaAlpha Inc (MAX) Q1 2025 Earnings Call Highlights: Record Growth in P&C Vertical and ...May 1, 2025 | finance.yahoo.comElon Reveals Why There Soon Won’t Be Any Money For Social SecurityElon Musk's Near-Death Experience Sparks Dire Warning for Americans After cheating death twice—once in a terrifying supercar crash with billionaire Peter Thiel, then from a deadly strain of malaria—Elon Musk emerged with a stark warning for Americans about looming financial dangers. 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There are 8 speakers on the call. Operator00:00:00You for standing by. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Media Alpha Q3 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:25If you would like to withdraw your questions. Thank you. I would now like to turn the floor over to Denise Garcia, Investor Relations. Denise, you may begin your conference. Speaker 100:00:38Thank you, Christina. After the market closed today, Media Alpha issued a press release and shareholder letter announcing results for the Q3 ended September 30, 2023. These documents are available in the Investors 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 Q4 of 2023, which are based on assumptions, forecasts, expectations and information currently available to management. Call. Speaker 100:01:10These 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 ks 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, November 1, 2023, 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 with MediaAlpha that are presented on a non GAAP basis, including adjusted EBITDA, 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 2 financial measures calculated in accordance with GAAP. Speaker 100:02:06Reconciliations 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 Investors section of the company's website at investors. Mediaalpha.com. Now I'll turn the call over to Steve and Pat for a few introductory remarks before opening the call to your questions. Speaker 200:02:34Thank you so much, Denise. Hi, everyone. Welcome to our Q3 2023 earnings call. I'd like to make a few observations before turning the call over to our CFO, Pat Thompson for his comments. We continue to execute well in a difficult market environment. Speaker 200:02:50Our 3rd quarter results came in at or above the high end of our guidance range due to strong top line growth and profitability in our health insurance vertical. For the Q4, we expect our health transaction value to be roughly flat year over year as continued strength in our under-sixty five segment is offset by near term weakness in Medicare as the industry adapts to recent regulatory changes. Q3 results in our P and C insurance vertical We're in line with our expectations as carriers have maintained consistent levels of advertising spend since June. While we expect TNC advertising spend to remain atornearcurrentlevels through the remainder of the year. We're encouraged by the industry's improving underwriting profitability and continue to expect a broader market recovery to take hold in 2024. Speaker 200:03:37Looking forward, our immediate focus is on delivering solid results in our health vertical during the current open and annual enrollment periods. Longer term, our objective remains to capitalize on the significant growth opportunities presented by the insurance industry's ongoing shift to digital customer acquisition, and we remain confident in our ability to drive significant top and bottom line growth in the years to come. With that, I'll turn the call over to Pat. Speaker 300:04:03Thanks, Steve. I'll begin with a few comments on our Q3 financial results and other recent business and market developments before reviewing our Q4 financial guidance and opening the call up for questions. As Steve mentioned earlier, our Q3 results were at or above the high end of guidance range. Adjusted EBITDA exceeded expectations, increasing $1,400,000 year over year despite a 26 percent or $38,000,000 decline in transaction value, with the annual growth driven by continued expense discipline. Transaction value in our P and C insurance vertical was down 46% year over year, in line with our expectations, In our health insurance vertical, we had another quarter of strong growth as transaction value grew 11% year over year, in line with expectations. Speaker 300:04:58Moving to Q4 guidance, we expect another quarter of positive year over year adjusted EBITDA growth as the impact of expense discipline and higher gross margins more than offsets the impact of continued headwinds in our P and C vertical. In P and C, we expect the impact of seasonality to be muted with transaction value dollars to be similar to 3rd quarter levels. In Health, we expect transaction value growth to be roughly flat year over year for the reasons Steve noted earlier. As a reminder, the 4th quarter typically represents about 40% of full year transaction value in our health vertical due to the timing of AEP and OEP. As a result, we expect Q4 transaction value to be between $145,000,000 $160,000,000 Moving to other noteworthy items. Speaker 300:06:23During Q3, we incurred approximately $2,000,000 of legal expenses, The majority of which were related to the ongoing FTC inquiry with the balance from a legal settlement unrelated to our core operations. We expect to incur $1,000,000 of fees associated with the FTC inquiry during Q4, a bit lower than Q3. We continue to believe we have been and remain fully compliant with all laws and regulations, and we are cooperating with the FTC as they continue their inquiry. Turning to the balance sheet, we continue to prioritize financial flexibility and using excess cash to decrease net debt. We ended the quarter with $15,000,000 of cash on hand and our focus remains on reducing financial leverage through a combination of net debt and Adjusted EBITDA Growth. Speaker 300:07:12With that, operator, we are ready for the first question. Operator00:07:26And we'll pause for just a moment to compile the Q and A roster. Your first question comes from the line of Michael Graham with Canaccord Genuity. Michael, the floor is now yours. Speaker 400:07:41Okay. Thank you. And appreciate all the information and hopefully we're getting to the end of this tough period here. I had two questions related to P and C transaction value. The first one is, You had a peak of $183,000,000 in transaction value in P and C in Q1 of 2021 And this quarter was $45,000,000 If we are if you're right and we're fortunate enough to have A better year next year and we start growing again. Speaker 400:08:18Do you just have any high level thoughts on like how long it takes to kind of get back to that previous high. And just a related question you might want to leave in is just, I'm wondering How long historically or practically is the lead time that you have visibility into when carriers get ready to turn spending back How far in advance do they tend to notify you? Speaker 200:08:46Hey, Michael. I'll answer the last question first, which is the amount of lead time. I'd say that we get It differs, right? But I think we get at least several weeks, if not a couple of months of lead time before carriers start to turn on spend or turn down spend. Certainly, that has a lot of caveats. Speaker 200:09:10I would say this period right now, we're getting Plenty of notice from carriers as we're engaging in them in discussions just because we're starting to see the light at the end of the tunnel in what's been a historically difficult hard And so, now to go back to your original question, here's what I'd say. I'd say that we're looking forward to 2024. I mean, certainly, we're seeing positive signs as everyone else is, right? Higher rates are earning through And they're earning through at a rate that's actually far higher than moderated in a moderating claims cost. And so that's good. Speaker 200:09:47That's the industry really digging its way out of the profitability hole, that has been dug for it over the last couple of years. And so I think what you'll see in the beginning of next year is increased spend, because I think enough carriers will either be at target profitability or at the very least have good line of sight to reaching target profitability in 2024, Which means that when the annual combined rate combined ratio as well as advertising budget cycles renew in the beginning of Next year, the whole industry should see a benefit from that and we should see material increase in advertising spend in Q1. Now I will say that The increase in the upcoming Q1 is not likely to be as strong as what we've seen in the past, namely last year. And it's simply, I think, a concession to how unpredictable the cycle has been. And so this isn't just us, I think saying this from our discussions with carriers. Speaker 200:10:51You heard this in the earnings call that Progressive had earlier today. But what we expect to see is really the momentum starting to gain steam over 2024 as more and more carriers get comfortable with their rates. And then we expect this to really extend into 2025, right? I mean to answer your specific question of when things will get back to exactly that level, That's impossible to say. But we do think that the recovery is going to gain steam over the next year and a half. Speaker 200:11:21And I think with the elevated shopping levels that we expect to see for 18 months to 24 months, I think it's going to be a strong 2 to 3 years of Growth through what is increasingly softening market until we get to that level and beyond in the years to come. So I hope that answers your question, Michael. Speaker 400:11:40Yes. That's very helpful, Steve. Thanks so much. Conference Call. Operator00:11:47And your next question comes from the line of Mike Zaremski of Bank of Montreal. Mike, your line is open. Speaker 500:11:56Hey, good afternoon. I'm more of a P and C guy, so my question is on the health side So on the P and C side, when we just think about kind of how much inflation has come into the system, just the cost of our auto insurance policy versus a few years ago, right, pricing is up 50 plus percent, Which I guess I feel like should eventually help, right, your transaction revenue volumes in outer years. On the health side, can you remind us what type of inflationary levels are impacting the health side of the business. Speaker 300:12:43Yes. And Mike, this is Pat here. I can address that question. And I would say the trends the inflationary trends are pretty different between P&C and the health side of the house. So on P&C, the industry would call it severity, which is cost of resolving the claims and inflation there has been kind of running in the double digits for a while now. Speaker 300:13:09And I think that is in kind of stark contrast to where it was for the better part of 20 years before that, which was It was anywhere from 0 to low mid single digits. And really, I think what's caused a lot of the P and C hard market is The fact that they just haven't been able to take rate fast enough given how high the claims cost inflation has been. On the health side, I think long term inflation for kind of health care claims has run higher than it has for auto insurance, but it's also been more consistent and more predictable. And so I think on the Medicare side, you've seen some of the big players talk about Medical claims coming in above expectations. It's a point or 2 above expectations. Speaker 300:14:00And that's in stark contrast to P and C where For 2021 2022, it may have been 10 points above people's expectations. And so I think the health side, Yes, there's been a bit of noise about that, but in our mind, that's not a particularly big issue, just given the kind of range at which it normally operates. Speaker 500:14:24Okay, got it. Yes, we've been hearing and seeing data points about health inflation picking up a bit. Okay. On the P and C vertical, my last question. Just in the past, you've talked about maybe seeing Some larger carriers, entered the marketplace that weren't larger carriers that weren't big players in the marketplace in the past. Speaker 500:14:50Do you still do you sense that in the coming year or so, there are some carriers that are trying to be bigger direct to consumer players through your marketplace or it's just too early to tell? Speaker 200:15:08Hey, Mike, this is Steve. No, I think we're continuing to see that trend. I think that when you look at the list of the largest P and C carriers, I think they're Punching according to the weight and varying degrees within our marketplace. And so there certainly are large carriers who traditionally have relied on agent based distribution, whether it's be captive agents or independent agents, who are looking to invest and have invested in direct to consumer capabilities. And their various stages of actually investing in those capabilities. Speaker 200:15:39And so we continue to expect large carriers, Cup 1 or 2 top 5, certainly within the top 25 carriers to start to come into the marketplace in the upcoming years and become more relevant players in the marketplace according to our thesis, which is that agent based distribution certainly isn't going to go away. But really every top carrier needs to invest in direct distribution, because of the success that the direct to consumer model has had and really Changing the landscape over the last 10 years and league table over the last 10 years. And so we continue to see that trend. I think what you've seen really in the hard market Essentially a pause in that secular trend, but as the market emerges from into a soft market and carriers get back into a growth mindset, I think you'll see a continuation of that. And so you should see other larger carriers, who again have traditionally focused on different types of distribution methods to really start to resume their direct to consumer investments and then become bigger players in our marketplace as a result. Speaker 500:16:50Thank you. Operator00:16:54Thank you. Group. And our next question comes from the line of Ben Hendricks from RBC. Ben, your line is open. Speaker 600:17:05Great. Thank you very much, guys. I just was hoping to get a quick update on your thoughts thus far in Medicare AEP. We heard from Humana This morning stating that perhaps broadly planned design degradation has progressed to a lesser degree than expected amid risk model changes and maybe that could point to less shocking behavior this year than they had initially expected. Just wanted to see how things are trending so far from your perspective and if there's any change to the way you're thinking about the transaction value activity this year? Speaker 600:17:38Thanks. Speaker 300:17:41Great. Ben, thanks for the question. This is Pat here. So I would say, AEP has gotten off to a slower start We would have hoped. We'd say that some carriers I think are doing well, others are maybe having a few more challenges from at least what we've gleaned from the public calls and from what they've told us. Speaker 300:18:02And I would say that really there have been kind of 2 primary issues. First, I would say is that we have some partners that have been struggling to adapt quickly to some of the new marketing rules that have been put into place by CMS. And we have other partners that have seen delays in getting marketing creative approved to be able to run-in a timely manner for the start of AEP. And so we've seen partners, whether they're publishers Carriers working through adjustments to try to adapt to this new world order and get things to where they need to be. And but it looks like it's going to be a slower AEP than we hoped. Speaker 300:18:45But having said that, we're as bullish as we've ever been regarding the long term potential in Medicare Advantage. It's a product that over half of Americans chosen to opt into. That number keeps going up into the right and that's trend that we think will continue in the years to come and one that should benefit us and quite frankly benefit the consumers and the carriers. It's a win win win. Speaker 600:19:11Very helpful. Thank you. Speaker 300:19:16Conference Call. Operator00:19:16And our next question comes from the line of Thomas McJoynt from KBW. Thomas, your line is now open. Speaker 700:19:26Hey guys, thanks for taking my questions. The first one is on the P and C side. Is it appropriate to think of the potential kind of carrier advertising spends perhaps next year, perhaps the year after As getting back to the same percentage of premiums as it was a few years ago, and I ask just because given the robust growth in the overall personal auto premium pool that could suggest a pretty tremendous revenue opportunity in the out years once it does normalize. So just want to get your sense on if you think as a percentage of premium, it should revert back to where it was a few years ago. Speaker 200:20:06Hey, Thomas. Yes, that's a good question. So carriers typically Benchmark their advertising spend or measure the effectiveness of their advertising spend based on the expected lifetime value of the customer and so or the policy that they're acquiring. And so I think to the extent that there's been a significant amount of inflation On the dollar value of all the policies that are being sold, I think you can expect the advertising spend to go up In rough proportion of that, assuming that they're going to continue to measure the effectiveness of their advertising spend, based on Just the percentage of customer lifetime value that they're pegging the return on ad spend to. Speaker 600:20:54Okay. Yes, that makes sense. Speaker 700:20:57And then my second question, is there any concern out there that just the amount of shopping behavior and really the kind of high velocity of switching that we're seeing in light of the rate increases that carriers are pushing through, means that carriers won't have to Feel the need to pay for leads as much as they have in the past just because there's so much kind of natural turnover in the books already? Speaker 200:21:21Yes, that's also a very good question. Well, I think what you're hearing about is a little bit of slowdown in terms of ambient or organic shopping Because we've been in an environment where rates have been going up for the better part of 2 years. And so I do think that in this case and in the upcoming years, what's really going to drive the market is the desire for growth that carriers are going to have. And our belief is that whenever there's desire for growth, I think the advertising spend will follow And be in proportion with that desire to grow. And so what you're going to see is what you're going to see are carriers who have large sat on the sidelines for the better part of 2 to 2.5 years, really not growing their policies in force. Speaker 200:22:08And so I think once target profitability is Saved by a lot of these carriers, I think the growth pressures will start to build. And regardless of I think the amount of organic shopping behavior that you expect to see in the marketplace. I think the carriers are going to invest in growth and the way they invest in growth is really through advertising. Operator00:22:40Question. Speaker 100:22:45Q3 Operator00:22:502020. Thank you. And with no further questions, we do thank everyone for joining. This does conclude today's Media Alpha Q3 2023 earnings call and you may now disconnect. Have a great day,Read morePowered by