Good afternoon, and welcome to the MediaAlpha Inc. Third Quarter 2025 Earnings Call. I am France, and I'll be the operator assisting you today. [Operator Instructions] I would now like to turn the call over to Alex Liloia, Investor Relations. Please go ahead.

Thanks, France. 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 fourth 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. I'm pleased to report that we delivered record third quarter results, driven by continued momentum in our P&C insurance vertical. Growth in the quarter was fueled by increased marketing investments from leading auto insurance carriers who continue to lean into customer acquisition in what remains a highly favorable operating environment. With underwriting margins at unusually high levels, carriers are in a strong position to pursue policy growth. Importantly, peak underwriting profitability does not mean that carrier advertising spending has peaked. To the contrary, we're seeing an increasing number of carriers turn their focus in earnest to capturing market share, and our marketplace continues to be the most efficient and scaled platform for them to acquire new customers. These dynamics give us significant runway for continued growth in the quarters ahead. In our health insurance vertical, our results were impacted by our recent reset in under-65, which was in line with expectations. Our partnerships with leading Medicare Advantage carriers continue to perform well, and we expect digital advertising to capture a larger share of health insurance distribution spend over time. As these secular tailwinds play out, we believe we're well positioned to restart growth from this new baseline. As we look ahead, we're encouraged by the strength of our P&C business, the long-term potential of our Medicare vertical and the expanding opportunities we see across digital insurance distribution. In our P&C vertical, we believe we're in the early stages of a multiyear soft market, characterized by strong carrier profitability and robust market share competition, which we expect to sustain healthy marketing spend for years to come. The combination of strong industry fundamentals, deep partnerships and the efficiency of our platform gives us conviction in our ability to deliver sustainable growth. We'll continue to balance investment in innovation with disciplined capital deployment, ensuring that we build enduring value for our partners and shareholders. In addition to favorable industry fundamentals, powerful technology shifts, particularly those related to AI, are likely to reshape how consumers discover, evaluate and purchase insurance. In the near to midterm, it's foreseeable that AI may disrupt traffic patterns and monetization models for some of our publishers while also creating entirely new supply side opportunities. Because our marketplace spans hundreds of publishers across multiple formats and media channels, we expect our ecosystem as a whole to adapt well to these changes, preserving a resilient and diversified supply base. With materially greater scale than our competitors and growing network effects, we expect to remain the partner of choice for both publishers and advertisers and to continue gaining share as AI adoption accelerates. We're also highly focused on leveraging AI to enhance the productivity of our organization and better serve our partners. We believe we're just scratching the surface here and look forward to keeping you updated in the coming quarters. With that, I'll hand it over to Pat.

Thanks, Steve. I'll start by walking through the key drivers of our Q3 results. Transaction value was $589 million, up 30% year-over-year, driven by 41% year-over-year growth in our P&C vertical. In our health vertical, transaction value declined 40% year-over-year, consistent with our expectations. Adjusted EBITDA for the quarter was $29.1 million, an increase of 11% year-over-year. Our efficient operating model and disciplined expense management allowed us to convert 64% of contribution to adjusted EBITDA, up from 63% in the prior year. Excluding under-65 Health, our core business performance was very strong with year-over-year transaction value and adjusted EBITDA growth of 38% and 31%, respectively. Our take rate, defined as contribution divided by transaction value, decreased year-over-year as expected for 3 main reasons. First, our under-65 subvertical, which was historically at high take rates, has declined. Second, our largest P&C carrier partners have continued to represent an outsized share of spend in our marketplace. These carriers were among the first to restore underwriting profitability, which has given them a head start, but we are confident that other carriers will enter the race in a more meaningful way. Lastly, our take rate was impacted by large-scale new supply partner wins. These factors together have increased the percentage of transaction value from private marketplace transactions, which carry lower take rates. Importantly, our open marketplace take rates have remained relatively stable. The pressure we're seeing is primarily a function of mix shift. Looking ahead, we expect our Q4 take rate to be approximately 7%, with private marketplace transactions representing approximately 54% of total transaction value. As we plan for 2026, our current base case assumes we will start the year with a take rate roughly consistent with Q4 levels before the broadening of carrier demand has a meaningful impact on our take rate.…

[Operator Instructions] And your first question comes from the line of [ Nelia Wickes ] from Canaccord.

This is Maria Ripps. It seems like a lot of investors are focused on carrier profitability sort of peak margins currently. And as you know, one of the largest carriers recently recorded a sizable credit expense to reflect excess profits. Can you maybe talk about sort of your view on how sustainable current profitability levels are and what that might mean for customer acquisition spend overall?

Maria, I appreciate that question. Yes, as you're alluding to, I mean, we've been getting that question a lot as well. And so it's good to be able to clear things up with what people are doing with regards to like inflating peak profitability for carriers with either peak of the soft market cycle or peak of advertising spend. And so the short answer to that is conflating those things, they couldn't be further from the truth because -- and to understand this, I think you really need to take a step back and like think about hard markets and soft markets and how they work. And so we just emerged from, what, a 2.5-, 3-year hard market cycle. Hard markets are -- get kicked off when there is reduced profitability because higher-than-expected loss ratios. And so what ends up happening is carriers start to get tighter underwriting restrictions. As they raise rates, they pull back on marketing spend. And so what happens during a hard market is actually you have a baseline where you start from low margins and then you see margin expansion as the hard market progresses. Now it starts to tip over into a soft market. And when those margins sort of start to peak and get to adequate levels, carriers then start to get more competitive. They get looser with their underwriting guidelines, start to reduce pricing and then invest in customer acquisition. And so all of that has the impact of actually compressing margins during the course of a soft market cycle. So when we hear things about carriers being at peak profitability, in a lot of ways, what that tells us is that we're just kicking off the meat of -- or the heart of the soft market cycle. And what you can…

And Maria, this is Pat. I'll just add kind of one thing to what Steve said there, which is that we've got -- we're kind of 2 years into kind of an improving operating environment, and our guidance for Q4 envisions 45% year-over-year transaction value growth for us in P&C. So we feel like we've got the wind at our back right now, and we've got pretty nice operating momentum going into 2026.

Yes. That's great, that's very helpful. And then can you maybe share a little bit more color on the transition within your Health vertical? Is that largely complete at this point? And I guess, how are you thinking about the long-term opportunity within that vertical sort of outside of under-65?

Yes. I'll take the second part first, I think Pat can address the first part of your question, which is -- I mean, what we're looking with in the health insurance vertical is really focused on Medicare Advantage. We think that's a very strategic vertical. Again, I'll reiterate that it's a $0.5 trillion industry, really new to direct-to-consumer advertising. So we see a ton of opportunities there over the long term. It's a challenging market environment right now with medical loss ratios being elevated because of high utilization rates. And so what you're seeing is a lot of plan redesigns and carriers pulling out of certain markets. And so we have our own version within the Medicare Advantage space of a hard market that we saw in the P&C space. And so I think most people are expecting that, the market to recover, I think, starting next enrollment period. And certainly, we anticipate carriers starting to reinvest in growth during that time. But really for us, it's about the long-term opportunity that Medicare Advantage offers just because of the market size and really where the carriers are in terms of their adoption cycle of direct-to-consumer advertising and direct-to-consumer platforms. And we see a lot of opportunities for integrated solutions to really help that space navigate the transition to direct-to-consumer distribution model.

And Maria, I'll tackle the shorter-term portion of that question and kind of the near-term financial outlook. So I think in under-65, we've taken a number of actions to kind of rebaseline that business. We think Q4 is kind of approximating that new baseline for us. And so for the quarter, we're expecting plus or minus 65% year-over-year decline in transaction value with contribution down 80% to 90%. And so it's a business that should make us $1 million or $2 million in Q4, and we believe it will be kind of a mid-single-digit million dollar contribution business for us next year. And kind of from a compliance standpoint, we've already implemented effectively all of the necessary changes. There hasn't been a whole lot of cost that we've had to layer on to do that. And actually, we've embedded some AI technologies into that framework, which has allowed us to automate a lot of the monitoring that historically would have been labor intensive. So we feel like we're in a spot where kind of towards the middle of next year, the comps for the health vertical will start to normalize.

And your next question comes from Cory Carpenter from JPMorgan.

I was hoping you could drill down a bit more into what you're seeing in the discussions you're having with carriers. I think, Steve, last time we talked, carriers kind of hit the pause button a little bit just given the tariff uncertainty started to ramp in 3Q, and now you're guiding to accelerating growth in 4Q. So maybe just talk about some of the dynamics you saw intra-quarter? And then also, how much visibility do you have into year-end budgets at this point in the cycle?

Sure, Cory. Yes, so I think that when carriers hit pause, it was related to the uncertainties around tariffs. I think that paused -- I guess that pause was relatively short-lived. And I think the carriers who were spending aggressively prior to Q3, I think, resumed their levels of spend. And we're continuing to see them grow their spend right now, as you can see from our estimates and our forecast. I think in terms of visibility into Q4, I mean, obviously, we're sharing that with the guidance that we have. We -- there has been a tendency in these types of markets for there to be excess budget being kind of made available to us as the quarter starts to wind down. And again, because we're a very efficient source and very tractable source, that excess budget does tend to accrue to us. But it's not something that we're planning on right now. And so our Q4 estimates really have our best estimate to what the carrier budgets are going to be for the remainder of the year. We are starting to have some early discussions about 2026 budget. And those discussions have been highly encouraging. And again, they really support the narrative that up to this point, really the recovery of the ad spend market coming out of the hard market has been very narrow and robustly driven by a narrow set of carriers. Really, what we're doing is having discussions with everyone else and starting to see that there really will be a meaningful broadening of demand in 2026. The timing of that, I think, is going to be hard to gauge. Certainly, those carriers that we're talking about who have an early lead have taken a sizable lead. So it will take a bit of time and a few quarters for the expansion or the broadening of demand to really start to have a positive impact on our take rates. But certainly, we've been very encouraged by the early discussions that we've had with a lot of the major carriers, again, outside the top couple. And really do anticipate that '26 is going to be a year where we see meaningful broadening of demand within our P&C marketplace.

You answered my second question, which was any early thoughts in '26 so I'll turn it back over.

And your next question comes from Tommy McJoynt from KBW.

A couple of questions on your comments around the take rate. Can you remind us, is there seasonality in 4Q? And then I just want to confirm that you're expecting both those quarters, the fourth quarter and then the start of 2026 to be 7% take rate. And then just your expectation about increasing the take rate over time, is that a function of a broader array of demand partners or supply partners or both?

Perfect. And Tommy, I can get started on that question, and then Steve and I can potentially tag team the last one. So on seasonality, historically, we had a good bit of seasonality in our business on take rate. And that was when P&C was a smaller percentage of the total mix and our Health vertical was significantly larger. Now we're in a spot in Q4 with under-65 having stepped down pretty meaningfully, where there is a lot less take rate seasonality in the business because the Medicare portion of that looks pretty similar to P&C overall. And to tackle the second part of the question, yes, our guidance for Q4 is for around a 7% take rate. As a reminder, for us, take rate is contribution divided by transaction value. And our view is that, that 7% plus or minus is kind of the right benchmark for the next couple of quarters. And kind of moving to the over time and the opportunity to drive take rate from -- to drive take rate over time, a broadening of demand would be kind of the primary driver of that happening. Obviously, broadening supply could help as well, but we believe that the demand side is the bigger opportunity. As a reminder, the largest advertisers with us tend to be relatively more private, smaller advertisers tend to be either fully open or very, very heavily open. And so as we see more people come into the marketplace and more people start to spend 7 figures a month, we would expect to see the business start to shift more to open over time.

Yes. And what I'll add is that as the demand starts to broaden out, which will be the key driver of take rate improvement on our end, one of the reasons that, that will primarily flow through the open marketplace is that the next set of carriers, right, who are underrepresented in our marketplace need a lot of help from us, right? So they leverage our managed services and our machine learning algorithms to optimize their campaigns on their behalf. They leverage our platform solutions and integrated platform solutions in order to help host and optimize certain parts of the conversion experience. And so we're putting a lot of effort behind those services that will better support and accelerate a lot of these carriers' journeys to really like embracing direct-to-consumer and embracing our channel and being successful in our channel. And again, all of those services are available really only through the open marketplace. And so that's why as demand starts to broaden now and we see other carriers within the top 25 really start to punch their weight in terms of allocation of advertising dollars to us, the way we make them successful is through these integrated solutions and managed services. And again, most of that spend is going to flow through the open exchange, which will have, over time, a very positive impact on our take rate.

Got it. And then switching over to some of our expectations for the overhead expenses. Do you guys have any plans to either add or account managers or technology headcount or make any other major new technology investments that we should be thinking about as we enter 2026 and think about the fixed expense leverage in the business next year?

Yes. And Tommy, thanks for the question. I would say we -- over the last couple of years, we've been consistently investing in the business, but doing so in a thoughtful and measured way. And we are a business that we've always run lean. We've got about 150 employees today. We're a bootstrap business. Efficiency is in our DNA. We will continue to invest to support the growth in our business, but we would expect to be a business where we would see leverage on those overhead items over time. And when I say leverage, I mean the mapping from contribution to adjusted EBITDA being flat to increasing over time.

And your next question comes from Andrew Kligerman from TD Cowen.

First question is around open versus private. And as private becomes a bigger proportion, I think first 9 months, it's now 48%. Steve and Pat, how do you see that kind of playing out long term, maybe 3 years out, 5 years out? Like where does that mix kind of settle down if it ever settles down?

Yes. I think it's a good question. I think we're at unusually high levels favoring the private marketplace right now. And again, I think that's really a nature of how the market has recovered on the heels of this generationally difficult hard market cycle. What we had was a couple of leading carriers who are early to take rate, right, step on the gas a full 1.5 years or so ahead of everyone else. And these are carriers who are very sophisticated in direct-to-consumer advertising, very sophisticated and well experienced in our marketplace. And the private marketplace product was designed to support advertisers like this and their relationships with some of our biggest publishers. And so I think the way that the market has recovered has really lent itself to us being over-indexed on the private side. And I think as the long term plays out, again, as the industry and the recovery and the demand starts to broaden out, not just because carriers who are later to take rate and get to rate adequacy start to spend in advertising and growth again, but because the whole secular trend towards direct-to-consumer advertising, which means online advertising and greater budgets allocated to measurable sources like us, as that's starting to really take foot again, right, or take hold again, what we expect are just more and more of the top 25 carriers allocating a greater percentage of their overall customer acquisition spend and converting in effect, right, a lot of commissions that they're paying to agents into advertising dollars that they spend with us as they prioritize their direct channels. And again, this growth based on the support that they'll need, right, and being relatively new to this channel, the services and the platform support that they're going to require to be successful in our channel, we believe that is predominantly going to flow through the open exchange. And so I think what you're going to see over time is the shift back to the open exchange. And again, we don't have any views as to exactly what that level should be. But certainly, I think internally, what we think is that the private open mix is kind of at a high watermark because of the unusual nature of the heaviness of demand right now, which is really a byproduct of how this market recovered after the most recent hard market cycle.

I see. So maybe even next year, it could start to inflect more toward open again?

I think that's our anticipation. And again, I think what we're expecting is that for the next few quarters, the take rates will stay about where they are, right? But we do anticipate that next year, the demand will start to broaden out. And so you're going to see carriers 10 and 11 and 12 and 15 and 20 really start to spend more in our marketplace. And again, that's going to flow through the open exchange. And over time, that's really going to start to skew that mix back towards open from, I think, what we internally see as a high watermark right now.

Got it, Steve. And then in your shareholder letter, you talked about how most carriers were investing well below their full potential. And there's this kind of analysis where you say that the investing was below 2019 levels last year, 2024, even though premium was up 44%. So I'm kind of -- here we are a year later, premium has kind of leveled out year-over-year, I think. What -- where are we versus 2019 in where carriers are investing? I'm kind of curious as to where we are now as opposed to the '24 number.

Sure. And let me try to answer the question and tell me if I'm not answering the question that you're asking. But I think where we are versus 2019, I think we've highlighted that stat just to show that even though the overall volume has gone up within our marketplace, with a couple of leading carriers really investing heavily in growth in '24 and '25, that the vast majority of other carriers, again, top 25 carriers, really weren't back to the pre-hard market levels of 2019 and 2020. And that's one of the reasons that we're still -- we're top heavier now than we were in 2020. Now if you're asking where the carriers are right now versus 2019, what I'll tell you is that I'll point back to the FEHB of having 13 carriers spending more than $1 million a month. That's an all-time high for us. I know that sounds a bit paradoxical with what I just said. But what that means is that, a, our marketplace has scaled tremendously as everyone knows. But b, we do see more carriers now than 2019 and 2020 who are really ready to adopt this channel. We have more integrations with more carriers than before to enable them to be successful in this channel. And so we see the nascent broadening of demand. We see a lot of encouraging signs from the discussions that we're having with these carriers. And so we see more carriers than ever before really poised to be able to grow in this channel and to advertise and punch their weight in this channel than we have ever seen and certainly a lot more than what we saw in 2019 or 2020. Now Andrew, did that answer your question?

Yes, it did. It feels like directionally, there's still a lot of momentum there. Is that kind of the right take on what you're saying [indiscernible]...

100%. That's absolutely right. I mean I think because of what happened with the pandemic-related hard market cycle and not transitioning to a soft market cycle, what, in some ways, gotten lost in a lot of that is just the secular shift that the whole industry is undergoing, right? And so really, at the heart of it is really that people are shopping for insurance online. The best way to connect with these consumers and sell policies to consumers is through advertising online and enabling policy sales online, yet still 2/3 of policies are still sold offline where the main expense -- distribution expense is commissions paid to agents. And so what you would expect to see are the advertising budgets continue to go up right, over time because what you're essentially doing is converting commissions that are paid to agents, which are in the neighborhood of -- for U.S. personal auto, like $17 billion, $18 billion a year, you would expect to see more of that being converted into advertising dollars as more and more carriers really adopt direct-to-consumer marketing as a necessary part of their distribution strategy. And so it's that secular story that I think got lost in the cyclical story that we've had over the past few years, and we're seeing that play out. And again, we're seeing that play out in the form of having 13, 15, 20 carriers at this point, who I think are really well poised to start to grow in our channel over the next several years during the upcoming soft market cycle.

Super helpful. And if I could just sneak one last one in. Do you -- with all the turbulence in Medicare Med Advantage over the last 3 to 4 years, and it's been brutal, do you ever see that business getting back to -- because I think a lot has shifted to Med Supplement now. Do you ever see that business getting back to what it looked like in 2021 or 2020 or 2019? I forget what year, but it's been a rough number of years.

Yes. I mean I think that's a great question. I think that -- I think people in the industry don't expect a return to, I think, the frothiness that you saw in those markets when, quite honestly, the Medicare Advantage payers or the carriers in this case were probably making a little bit too much from Medicare Advantage policies. And again, there's been a resetting of payment rates, right, a resetting a lot of the plan. And the fact remains that it's a $0.5 trillion industry, right? Medicare Advantage policies are still profitable and big profit centers for these major carriers like UHC and Humana just because in the past, it used to be 2 to 3x as profitable to sell a Medicare Advantage policy as another policy. The fact that it's probably going to come down and to be maybe nearly as profitable as other health insurance policies they see, I mean, certainly, I think the frothiness will go away. But I do think that as that market matures, you're going to start to see it evolve more like the auto insurance industry where a lot of the carriers, depending on how they're feeling about their plan design, start to get aggressive about advertising and taking market share away from other carriers. And so we do see the market starting to settling down over time. And again, one that's going to look a lot more like the auto insurance industry than it does today. But certainly, I think a lot of the frothiness that you saw in the early period, I think, probably will be gone for a while.

Yes. And Steve, and this is Pat. I'll probably just add 1 or 2 things to what Steve said on that, which is I think the consumer penetration of Medicare Advantage plans continues to tick up a point or 2 every year. I think this year -- for this plan year, 54% of the enrollees chose it, and the estimates show that number going up to about 64% by 2034. And the other nice tailwind we think we have in the Medicare market for a number of years to come is online shopping. And so as you get 65-year-olds aging into Medicare, they are much more Internet savvy than the average Medicare consumer. And so we think that trend is going to be continuing every year, and we're going to have more and more Internet-native seniors coming into the market, which should be very, very good for our business over time.

[Operator Instructions] And your next question comes from Ben Hendrix from RBC Capital Markets.

This is Michael Murray on for Ben. Congrats on the strong results. It looks like normalizing for the under-65 segment, adjusted EBITDA grew 31%. But then looking at your guidance, you expect EBITDA to be flat on transaction value growth of 38%, excluding the under-65 segment. So is there a level of conservatism baked in there? Any color on the puts and takes would be helpful.

Yes. And Michael, this is Pat. I would say that our philosophy from a guidance standpoint is we guide to kind of based on what we know as of today and what we have a high degree of confidence in. And I think the -- our track record against guidance has been pretty good over time, and we're guiding based on 28 days of actuals we've seen in this quarter and our view on how things are going to play out. So I think our goal is always to deliver the best numbers that we can, and we're going to be looking to do that this quarter. And I think we'll have more to report when we come out with earnings in February, but we try to be realistic and put out numbers that we believe we can achieve.

Okay. And just shifting gears. So a large MA payer recently indicated that they would be suspending their relationship with a large telebroker, which had high complaints to Medicare and also the least engaged members. Do you see any opportunity to gain share here just given payers' increased focus on quality leads?

Yes, I do. The way I see it is that is that I think there is a growing trend with payers to actually start to acquire customers directly and rely less on brokers and telebrokers. And so again, it's unfortunate that these types of things happen, right? Certainly, I think one of the reliance on telebrokers of this industry is that a lot of the carriers within the Medicare space are relatively new direct-to-consumer and certainly new to online customer acquisition. So I think as that industry gets more well versed in that area, I think there will be a shift from reliance almost entirely on brokers and telebrokers and e-brokers to sell policies and, again, a greater shift to carriers selling policies directly. And that's something that you saw in the auto insurance industry in the early days, and we expect that trend to take hold within the Medicare Advantage space over time.

Okay. There are no further questions at this time. And that's all for now. Ladies and gentlemen, thank you all for joining. And that concludes today's conference call. All participants may now disconnect.