MEDIAALPHA, INC. – 10-Q – MD&A and Analysis of Financial Condition and Results of Operations – InsuranceNewsNet

0
The following discussion and analysis of our financial condition and results of
operations should be read together with our unaudited consolidated financial
statements and related notes included in Part I, Item 1 of this Quarterly Report
on Form 10-Q.

This discussion, particularly information with respect to our future results of
operations or financial condition, business strategy and plans, and objectives
of management for future operations, includes forward-looking statements that
involve risks and uncertainties as described under the heading "Cautionary
Statement Regarding Forward-Looking Statements" in this Quarterly Report on Form
10-Q. You should review the disclosure under the heading "Risk Factors" in Part
II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of important
factors that could cause our actual results to differ materially from those
anticipated in these forward-looking statements.

Management Overview

Our mission is to help insurance carriers and distributors target and acquire
customers more efficiently and at greater scale through technology and data
science. Our technology platform brings together leading insurance carriers and
high-intent consumers through a real-time, transparent, and results-driven
ecosystem. We believe we are the largest online customer acquisition channel in
our core verticals of property & casualty ("P&C") insurance, health insurance,
and life insurance, supporting $859 million in Transaction Value across our
platform over the twelve-month period ended June 30, 2022.

We have multi-faceted relationships with top-tier insurance carriers and
distributors. A buyer or a demand partner within our ecosystem is generally an
insurance carrier or distributor seeking to reach high-intent insurance
consumers. A seller or a supply partner is typically an insurance carrier
looking to maximize the value of non-converting or low LTV consumers, or an
insurance-focused research destination or other financial website looking to
monetize high-intent users on their websites. For the twelve-month period ended
June 30, 2022, the websites of our diversified group of supply partners and our
proprietary websites drove an average of 8.2 million Consumer Referrals on our
platform each month.

We generate revenue by earning a fee for each Consumer Referral sold on our
platform. A transaction becomes payable upon a qualifying consumer action, such
as a click, call or lead, and is not contingent on the sale of a product to the
consumer.

We believe in the disruptive power of transparency. Traditionally, insurance
customer acquisition platforms operated in a black box. We recognized that a
consumer may be valued differently by one insurer versus another; therefore,
insurers should be able to determine pricing granularly based on the value that
a particular customer segment is expected to bring to their business. As a
result, we developed a technology platform that powers an ecosystem where buyers
and sellers can transact with full transparency, control, and confidence,
aligning the interests of the parties participating on our platform.

We believe our technology is a key differentiator and a powerful driver of our
performance. We maintain deep, custom integrations with partners representing
the majority of our Transaction Value, which enable automated, data-driven
processes that optimize our partners' customer acquisition spend and revenue.
Through our platform, our insurance carrier partners can target and price across
over 35 separate consumer attributes to manage customized acquisition
strategies.

Main factors affecting our business

Revenue

We believe that our future performance will depend on many factors, including
those described below and in Part I, Item 1A "Risk Factors" in the 2021 Annual
Report on Form 10-K.

Secular trends in the insurance industry

Our technology platform was created to serve and grow with our core insurance
end markets. We believe secular trends in the insurance industry are critical
drivers of our revenue and will continue to provide strong tailwinds for our
business. More insurance consumers are shopping online and direct-to-consumer
marketing, which fuels our revenue, is the fastest growing insurance
distribution channel. In addition, insurance customer acquisition spending is
growing over time. As mass-market customer acquisition spend is becoming more
costly, insurance carriers and distributors are increasingly focusing on
optimizing customer acquisition spend, which is at the core of the service we
deliver on our platform. As long as these secular trends persist, we expect
digital insurance customer acquisition spending to continue to grow over time,
and we believe we are well-positioned to benefit from this growth.
                                       22

————————————————– ——————————

Contents

Transaction value

Transaction Value from Open Marketplace transactions is a direct driver of our
revenue, while Transaction Value from Private Marketplace transactions is an
indirect driver of our revenue (see "Key business and operating metrics" below).
Transaction Value on our platform declined to $182.9 million and $421.9 million
for the three and six months ended June 30, 2022, respectively, from $256.5
million and $519.0 million for the three and six months ended June 30, 2021,
respectively, due primarily to a decrease in customer acquisition spending by
P&C insurance carriers in response to reductions in underwriting profitability.
We have developed multi-faceted, deeply integrated partnerships with insurance
carriers and distributors, who are often both buyers and sellers on our
platform. We believe the versatility and breadth of our offerings, coupled with
our focus on high-quality products, provide significant value to insurance
carriers and distributors, leading many of them to use our platform as their
central hub for broadly managing digital customer acquisition and monetization,
and resulting in strong retention rates. For the three and six months ended June
30, 2022, 95% and 98% of total insurance Transaction Value executed on our
platform, respectively, came from demand partner relationships in existence
during 2021.

Our demand and supply partners

We retain and attract demand partners by finding high-quality sources of
Consumer Referrals to make available to our demand partners. We seek to develop,
acquire and retain relationships with high-quality supply partners by developing
flexible platforms to enable our supply partners to maximize their revenue,
manage their demand side relationships in scalable and flexible ways and focus
on long-term sustainable economics with respect to revenue share. Our
relationships with our partners are deep and longstanding and involve most of
the top-tier insurance carriers in the industry. In terms of buyers, during the
three and six months ended June 30, 2022, 15 of the top 20 largest auto
insurance carriers by customer acquisition spend were on our platform.

Consumer recommendations

Our results depend in large part on the number of Consumer Referrals purchased
on our platform. The aggregate number of consumer clicks, calls and leads
purchased by insurance buyers on our platform declined to 22.3 million and 47.0
million for the three and six months ended June 30, 2022, respectively, from
22.9 million and 47.4 million for the three and six months ended June 30, 2021,
respectively. We seek to increase the number and scale of our supply
relationships and drive consumers to our proprietary properties through a
variety of paid traffic acquisition sources. We are investing in diversifying
our paid media sources to extend beyond search engine marketing, which has
historically represented the bulk of our paid media spend, into other online
media sources, including native, social, and display advertising.

Seasonality

Our results are subject to fluctuations as a result of seasonality. In
particular, our property & casualty insurance vertical is typically
characterized by seasonal strength in our quarters ending March 31 due to a
greater supply of Consumer Referrals and higher customer acquisition budgets
during the start of the year, and to seasonal weakness in our quarters ending
December 31 due to a lower supply of Consumer Referrals available on a
cost-effective basis and lower customer acquisition budgets from some buyers
during those quarters. Our health insurance vertical is typically characterized
by seasonal strength in our quarters ending December 31 due to open enrollment
periods for health insurance and annual enrollment for Medicare during those
quarters, with a material increase in consumer search volume for health products
and a related increase in buyer customer acquisition budgets.

Cyclicity

Our results are also subject to fluctuations as a result of business cycles
experienced by companies in the insurance industry. These cycles in the auto
insurance industry are characterized by periods of "soft" market conditions,
when carriers are profitable and are focused on increasing capacity and building
market share, and "hard" market conditions, when carriers are experiencing lower
or even negative underwriting profits and are seeking to increase their premium
rates to improve their profitability. As our demand partners in these industries
go through these market cycles, they often increase their customer acquisition
spending during soft markets and reduce it during hard markets, causing their
relative demand for Consumer Referrals from our platform to increase and
decrease accordingly. We believe that the auto insurance industry is currently
in a "hard" market due to higher than expected underwriting losses, and that
many P&C insurance carriers are reducing their customer acquisition spending
until they can increase their premium rates, the timing of which is difficult to
predict.
                                       23

————————————————– ——————————

Contents

Regulations

Our revenue and earnings may fluctuate from time to time as a result of federal,
state, international and industry-based laws, directives and regulations and
developing standards with respect to the enforcement of those regulations. Our
business is affected directly because we operate websites, conduct telemarketing
and email marketing and collect, process, store, share, disclose, transfer and
use consumer information and other data. Our business is affected indirectly as
our clients adjust their operations as a result of regulatory changes and
enforcement activity within their industries. For example, the California
Consumer Privacy Act ("CCPA"), became effective on January 1, 2020, and number
of other states, including Colorado, Connecticut, Utah, and Virginia, have
enacted or are considering similar laws, all of which may affect our business.
While it is unclear how this new legislation may be modified or how certain
provisions will be interpreted, the effects of this legislation are potentially
significant, and may require us to modify our data processing practices and
policies and incur substantial compliance-related costs and expenses. For a
description of laws and regulations to which we are generally subject, see Item
1 "Business" and Item 1A "Risk Factors." in our 2021 Annual Report on Form 10-K.

In addition, we are impacted by the regulation of the insurance carriers with
whom we do business. In most states, insurance carriers are required to obtain
approval of their premium rates from the regulatory authority in such states.
The timing of such approval process, as well as the willingness of insurance
regulators to approve rate increases, can impact the profitability of new
policies and the level of customer acquisition spending by carriers in a given
period, which in turn can cause fluctuations in our revenue and earnings.

COVID-19[feminine]

While the COVID-19 pandemic has changed the physical working environment of the
substantial majority of our workforce to working from home, it has otherwise
caused only minor disruptions to our business operations with a limited impact
on our operating results thus far. Our Travel vertical is largely driven by
consumer spending on airfare, hotels, rentals and other travel products. As a
result of COVID-19, we have experienced a dramatic decline in revenue from the
Travel vertical and expect this trend to continue for the foreseeable future.
For the three and six months ended June 30, 2022, 2021, and 2020, revenue from
the Travel vertical comprised approximately 3.9%, 2.7%, and 0.3% and 3.2%, 2.0%,
and 3.9%, respectively, of our total revenue. While we have sought to maintain
our commercial relationships in the Travel vertical and remain positioned to
capitalize on transactions in the Travel vertical when travel activity resumes,
we do not expect that revenue from the Travel vertical will match our historical
results or have any material impact on our overall revenue or profitability for
the foreseeable future. In addition, supply chain disruptions and cost increases
caused by the pandemic and other inflationary pressures have contributed to
higher-than-expected property and casualty insurance claims costs, which has led
many carriers to continue to reduce their customer acquisition spending to
preserve their profitability. These reductions continue to impact revenue from
our P&C vertical, and the duration and extent of this impact are difficult to
estimate beyond the third quarter of 2022.

RECENT DEVELOPMENTS

On April 1, 2022, we closed the acquisition of substantially all of the assets
of Customer Helper Team, LLC ("CHT"), a provider of customer generation and
acquisition services for Medicare insurance, automobile insurance, health
insurance, life insurance, debt settlement, and credit repair companies on the
terms and subject to the conditions set forth in the Asset Purchase Agreement
(as amended, the "Agreement"). We believe the acquisition is a good strategic
fit with our long-term objectives and will increase our ability to generate
Consumer Referrals on various social media and short form video platforms. The
purchase price for the acquisition included cash consideration of $49.7 million
paid at closing plus contingent cash consideration of up to $20.0 million based
on CHT's achievement of revenue and profitability targets for the two successive
12-month periods following the closing. We funded the transaction in part by
drawing $25.0 million under the 2021 Revolving Credit Facility and the balance
from cash on hand as of the closing.

Key elements of our operating results

Revenue

We are mainly involved in property and casualty insurance, health insurance and life insurance
verticals and generate income through the purchase and sale of consumer goods
References.

The price and amount of Consumer Referrals purchased and sold on our platform
vary based on a number of market conditions and consumer attributes, including
(i) geographic location of consumers, (ii) demographic attributes of consumers,
(iii) the source of Consumer Referrals and quality of conversion by source,
(iv) buyer bids and (v) buyer demand and budget.
                                       24

————————————————– ——————————

Contents

In our Open Marketplace transactions, we have control over the Consumer
Referrals that are sold to our demand partners. In these arrangements, we have
separate agreements with suppliers and demand partners. Suppliers are not a
party to the contractual arrangements with our demand partners, nor are the
suppliers the beneficiaries of our demand partner agreements. We generate
revenue from the sale of consumer referrals from our demand partners and
separately pay (i) a revenue share to suppliers and (ii) a fee to internet
search companies to drive consumers to our proprietary websites. We are the
principal in the Open Marketplace transactions. As a result, the fees paid by
demand partners are recognized as revenue and the fees paid to suppliers are
included in cost of revenue.

With respect to our Private Marketplace transactions, buyers and suppliers
contract with one another directly and leverage our platform to facilitate
transparent, real-time transactions utilizing the reporting and analytical tools
available to them from use of our platform. We charge the supplier a platform
fee on the Consumer Referrals transacted. We act as an agent in the Private
Marketplace transactions and recognize revenue for the platform fee received.
There are no other payments made by us to suppliers in our Private Marketplace.

Operating costs and expenses

Operating costs and expenses primarily include the cost of revenue, sales and
marketing expenses, product expenses, and general and administrative expenses.

Revenue cost

Our cost of revenue is comprised primarily of revenue share payments to
suppliers and traffic acquisition costs paid to top tier search engines, as well
as telephony infrastructure costs, internet and hosting costs, and merchant
fees, and include salaries, wages and benefits, including non-cash equity-based
compensation, and other expenses.

Sales and Marketing

Sales and marketing expenses consist primarily of an allocation of personnel
expenses for employees engaged in demand side and supply side business
development, marketing and media acquisition activities, and include salaries,
wages and benefits, including non-cash equity-based compensation. Sales and
marketing expenses also include costs related to attracting partners to our
platform, including marketing and promotions, tradeshows and related travel and
entertainment expenses. Sales and marketing expenses also include an allocated
portion of rent and facilities expenses and depreciation and amortization
expense.

Product development

Product development expenses consist mainly of staff allocation
expenses for employees engaged in technology, engineering and products
development and include wages, salaries and benefits, including
stock-based compensation. Product development costs also include a
allocated share of rent and plant expenses and depreciation and
depreciation charge.

general and administrative

General and administrative expenses consist primarily of an allocation of
personnel expenses for executive, finance, legal, human resources, and business
analytics employees, and include salaries, wages and benefits, including
non-cash equity-based compensation. General and administrative expenses also
include professional services and an allocated portion of rent and facilities
expenses and depreciation and amortization expense and any change in fair value
of contingent consideration.

Interest expense

Interest expense mainly includes interest expense related to
outstanding borrowings under our loan and guarantee agreements and the
amortization of deferred financing costs associated with these agreements.

Provision for income taxes

MediaAlpha, Inc. is taxed as a corporation and pays corporate federal, state and
local taxes on income allocated to it from QLH based upon MediaAlpha, Inc.'s
economic interest held in QLH. QLH is treated as a pass-through partnership for
income tax reporting purposes and is not subject to federal income tax. Instead,
QLH's taxable income or loss is passed through
                                       25

————————————————– ——————————

Contents

to its members, including MediaAlpha, Inc. Like our stake in QLH
increases, our share of QLH’s taxable income (loss) also increases. From
June 30, 2022our stake in QLH was 68.8%.

Net income (loss) attributable to non-controlling interest

Net income (loss) is attributed to non-controlling interests in accordance with
QLH's limited liability company agreement. We allocate the share of net income
(loss) incurred subsequent to the Reorganization Transactions to the
non-controlling interest holders pro-rata to their holdings. The non-controlling
interests balance represents the Class B-1 units, substantially all of which are
held by Insignia and the Senior Executives.

Results of operations for the three months ended June 30, 2022 and 2021

The following table presents our results of operations in absolute dollars and as
a percentage of turnover for the three months ended June 30, 2022 and 2021:

                                                                                Three months ended
                                                                                     June 30,
(in thousands)                                                    2022                                       2021
Revenue                                           $    103,449                100.0  %       $    157,353                100.0  %
Costs and operating expenses
Cost of revenue                                         87,925                 85.0  %            132,305                 84.1  %
Sales and marketing                                      7,958                  7.7  %              5,724                  3.6  %
Product development                                      5,661                  5.5  %              3,840                  2.4  %
General and administrative                              12,316                 11.9  %             13,585                  8.6  %
Total costs and operating expenses                     113,860                110.1  %            155,454                 98.8  %
(Loss) income from operations                          (10,411)               (10.1) %              1,899                  1.2  %
Other expenses, net                                         44                  0.0  %                171                  0.1  %
Interest expense                                         1,956                  1.9  %              2,237                  1.4  %
Total other expense, net                                 2,000                  1.9  %              2,408                  1.5  %
(Loss) before income taxes                             (12,411)               (12.0) %               (509)                (0.3) %
Income tax expense (benefit)                               611                  0.6  %               (125)                (0.1) %
Net (loss)                                        $    (13,022)               (12.6) %       $       (384)                (0.2) %
Net (loss) attributable to non-controlling
interest                                                (3,883)                (3.8) %               (177)                (0.1) %
Net (loss) attributable to MediaAlpha, Inc.       $     (9,139)                (8.8) %       $       (207)                (0.1) %
Net (loss) per share of Class A common
stock
-Basic and diluted                                $      (0.22)                              $      (0.01)

Weighted average shares of Class A common
stock outstanding
-Basic and diluted                                  41,705,344                                 37,667,432


                                       26

————————————————– ——————————

Contents

Revenue

The following table presents our revenue, disaggregated by vertical, for the
three months ended June 30, 2022 and 2021, and the dollar and percentage changes
between the two periods:

                                                Three Months                                                Three Months
                                                    Ended                                                       Ended
(dollars in thousands)                          June 30, 2022            $                   %              June 30, 2021
Property & Casualty insurance                   $   57,571          $ (51,766)               (47.3) %       $  109,337
Percentage of total revenue                           55.7  %                                                     69.5  %
Health insurance                                    33,163               (525)                (1.6) %       $   33,688
Percentage of total revenue                           32.1  %                                                     21.4  %
Life insurance                                       7,005               (474)                (6.3) %       $    7,479
Percentage of total revenue                            6.8  %                                                      4.8  %
Other                                                5,710             (1,139)               (16.6) %       $    6,849
Percentage of total revenue                            5.5  %                                                      4.4  %
Revenue                                         $  103,449            (53,904)               (34.3) %       $  157,353


The decrease in P&C insurance revenue for the three months ended June 30, 2022,
compared with the three months ended June 30, 2021, was due to a decrease in
customer acquisition spending by certain insurance carriers to address
profitability concerns caused by higher-than-expected automobile repair and
replacement costs and overall inflationary pressures and certain carriers and
supply partners shifting their transactions with each other from our Open
Marketplace to our Private Marketplace due to lower platform fees for our
Private Marketplace, which are recognized on a net revenue basis . The auto
insurance industry began to experience a cyclical downturn in the second half of
2021, with many P&C carriers experiencing lower than expected underwriting
profitability, leading them to reduce marketing budget allocations to our
channel. We are currently unable to predict the duration of this cyclical
downturn or its impact on our revenue from the P&C insurance vertical, or our
profitability, beyond the third quarter of 2022.

The decrease in health insurance revenue for the three months ended June 30,
2022, compared with the three months ended June 30, 2021, was driven by reduced
customer acquisition spending in our marketplaces by Medicare insurance
partners, offset in part by additional revenue of $1.7 million during the three
months ended June 30, 2022 as a result of the CHT acquisition. In addition,
revenue from this vertical during the three months ended June 30, 2021 was
positively impacted by a special extended enrollment period during such period,
which did not repeat in the current year.

The decrease in life insurance revenue for the three months ended June 30, 2022,
compared with the three months ended June 30, 2021, was driven by a continued
decrease in customer shopping for life insurance as concerns related to COVID-19
eased.

The decrease in other revenue for the three months ended June 30, 2022, compared
with the three months ended June 30, 2021, was driven primarily by a decrease in
our consumer finance vertical due to a reduction in mortgage and refinancing
activity caused by rising interest rates, offset in part by the addition of
revenue generated from the credit vertical of CHT, which the Company exited
during the second quarter of 2022. In addition, revenue from our education
vertical decreased to $0.3 million during the three months ended June 30, 2022
from $0.5 million during the three months ended June 30, 2021. Revenue from the
education vertical is not material to our operations, and we expect to fully
exit such vertical during the third quarter of 2022.

Revenue cost

The following table presents our cost of revenue for the three months ended June
30, 2022 and 2021, and the dollar and percentage changes between the two
periods:

                               Three Months Ended                                  Three Months Ended
(dollars in thousands)           June 30, 2022             $             %           June 30, 2021
Cost of revenue               $         87,925        $ (44,380)      (33.5) %    $         132,305
Percentage of revenue                     85.0   %                                             84.1  %


                                       27

————————————————– ——————————

Contents

The decrease in cost of sales for the three months ended June 30, 2022,
compared to the three months ended June 30, 2021was mainly motivated by
lower revenue share payments to vendors due to overall decline
revenues, as well as a higher deal mix in our Private market,
which are accounted for on a net income basis.

Sales and Marketing

The following table presents our sales and marketing expenses for the three
months ended June 30, 2022 and 2021, and the dollar and percentage changes
between the two periods:

                               Three Months Ended                                Three Months Ended
(dollars in thousands)           June 30, 2022            $            %           June 30, 2021
Sales and marketing           $           7,958       $ 2,234        39.0  %    $           5,724
Percentage of revenue                       7.7  %                                            3.6  %


The increase in sales and marketing expenses for the three months ended June 30,
2022, compared with the three months ended June 30, 2021, was due to an increase
in equity-based compensation expense of $0.8 million, an increase in
personnel-related costs of $0.7 million resulting from headcount additions
related to our acquisition of CHT, and an increase in amortization expense of
$0.8 million related to intangible assets arising from our acquisition of CHT.

Product development

The following table presents our product development expenses for the three
months ended June 30, 2022 and 2021, and the dollar and percentage changes
between the two periods:

                               Three Months Ended                                Three Months Ended
(dollars in thousands)           June 30, 2022            $            %           June 30, 2021
Product development           $           5,661       $ 1,821        47.4  %    $           3,840
Percentage of revenue                       5.5  %                                            2.4  %


The increase in product development expenses for the three months ended June 30,
2022, compared with the three months ended June 30, 2021, was due primarily to
an increase in equity-based compensation expense of $1.0 million and an increase
in personnel-related costs of $0.7 million resulting from planned headcount
additions to continue to enhance our technology.

general and administrative

The following table presents our general and administrative expenses for the
three months ended June 30, 2022 and 2021, and the dollar and percentage changes
between the two periods:

                                 Three Months Ended                                 Three Months Ended
(dollars in thousands)             June 30, 2022            $             %           June 30, 2021
General and administrative      $         12,316        $ (1,269)       (9.3) %    $         13,585
Percentage of revenue                       11.9   %                                            8.6   %


The decrease in general and administrative expenses for the three months ended
June 30, 2022, compared with the three months ended June 30, 2021, was due
primarily to a gain of $2.8 million recorded on remeasurement of the contingent
consideration related to CHT for the three months ended June 30, 2022 as the
fair value declined due to lower projected revenue and gross profit targets for
CHT and lower professional fees, offset in part by an increase in equity-based
compensation expense of $1.8 million.

Share-based compensation

The following table presents our stock-based compensation expense which was
included in operating costs and expenses for the three months ended June 30th,
2022
and 2021, and dollar and percentage changes between the two periods:

                                       28

————————————————– ——————————

  Table of Contents

                                 Three Months Ended                                 Three Months Ended
(dollars in thousands)              June 30, 2022            $            %            June 30, 2021
Cost of revenue                 $             1,240      $   798       180.5  %    $               442
Sales and marketing                           2,769          788        39.8  %                  1,981
Product development                           2,646          981        58.9  %                  1,665
General and administrative                    9,188        1,755        23.6  %                  7,433
Total                           $            15,843      $ 4,322        37.5  %    $            11,521


The increase in equity-based compensation expense for the three months ended
June 30, 2022, compared with the three months ended June 30, 2021, was driven
primarily by expenses related to additional restricted stock units granted to
employees as part of the annual incentive process and to restricted stock units
granted to the employees added as part of our acquisition of CHT.

Amortization

The following table presents our amortization of intangible asset expense that
was included in costs and operating expenses for the three months ended June 30,
2022 and 2021, and the dollar and percentage changes between the two periods:

                                 Three Months Ended                               Three Months Ended
(dollars in thousands)              June 30, 2022           $           %            June 30, 2021

Sales and Marketing             $             1,525      $ 779       104.4  %    $               746

General and administrative                      152        152       100.0  %                      -
Total                           $             1,677      $ 931       124.8  %    $               746

The increase in amortization expense for the three months ended June 30, 2022,
compared to the three months ended June 30, 2021 was driven by the
amortization of intangible assets resulting from our acquisition of CHT.

Other expenses, net

The following table presents our other expenses for the three months ended June
30, 2022 and 2021, and the dollar and percentage changes between the two
periods:

                               Three Months Ended                                Three Months Ended
(dollars in thousands)            June 30, 2022           $            %           June 30, 2021
Other expenses, net           $            44          $ (127)      (74.3) %    $           171
Percentage of revenue                     0.0     %                                         0.1    %

The decrease in other expenses for the three months ended June 30, 2022,
compared to the three months ended June 30, 2021was not important.

Interest expense

The following table presents our interest expense for the three months ended
June 30, 2022 and 2021, and the dollar and percentage changes between the two
periods:

                               Three Months Ended                               Three Months Ended
(dollars in thousands)           June 30, 2022           $            %           June 30, 2021
Interest expense              $           1,956       $ (281)      (12.6) %    $           2,237
Percentage of revenue                       1.9  %                                           1.4  %

The decrease in interest expense for the three months ended June 30, 2022,
compared to the three months ended June 30, 2021was driven by a decline
interest rate on the 2021 credit facility resulting from the refinancing of our
2020 credit facilities, offset by interest on amounts drawn on our 2021
Revolving credit facility in connection with our acquisition of CHT.

                                       29

————————————————– ——————————

  Table of Contents


Income tax expense (benefit)

The following table presents our income tax expense for the three months ended
June 30, 2022 and 2021, and the dollar and percentage changes between the two
periods:

                                   Three Months Ended                                Three Months Ended
(dollars in thousands)               June 30, 2022           $            %             June 30, 2021
Income tax expense (benefit)      $           611         $ 736        (588.8) %    $           (125)
Percentage of revenue                         0.6    %                                          (0.1)   %


For the three months ended June 30, 2022, we recorded an income tax expense of
$0.6 million resulting from our effective tax rate of (4.9)%, which differed
from the U.S. federal statutory rate of 21%, due primarily to nondeductible
equity-based compensation, losses associated with non-controlling interests not
taxable to us, state taxes, and other nondeductible permanent items. For the
three months ended June 30, 2021, we recorded an income tax benefit of $0.1
million resulting from our effective tax rate of 24.6% which differed from the
U.S. federal statutory rate of 21%, due primarily to nondeductible equity-based
compensation, state taxes, income not taxable to us associated with the
non-controlling interest, and the impact of tax benefits associated with
equity-based awards.

Results of operations for the six months ended June 30, 2022 and 2021

The following table presents our results of operations in absolute dollars and as
a percentage of revenue for the six months ended June 30, 2022 and 2021:

                                                                                 Six Months Ended
                                                                                     June 30,
(in thousands)                                                    2022                                       2021
Revenue                                           $    246,048                100.0  %       $    330,941                100.0  %
Costs and operating expenses
Cost of revenue                                        208,806                 84.9  %            279,485                 84.5  %
Sales and marketing                                     15,181                  6.2  %             11,115                  3.4  %
Product development                                     10,877                  4.4  %              7,160                  2.2  %
General and administrative                              29,464                 12.0  %             29,334                  8.9  %
Total costs and operating expenses                     264,328                107.4  %            327,094                 98.8  %
(Loss) income from operations                          (18,280)                (7.4) %              3,847                  1.2  %
Other (income) expenses, net                              (479)                (0.2) %                 21                  0.0  %
Interest expense                                         3,315                  1.3  %              4,538                  1.4  %
Total other expense, net                                 2,836                  1.2  %              4,559                  1.4  %
(Loss) before income taxes                             (21,116)                (8.6) %               (712)                (0.2) %
Income tax expense (benefit)                             1,754                  0.7  %               (489)                (0.1) %
Net (loss)                                        $    (22,870)                (9.3) %       $       (223)                (0.1) %
Net (loss) attributable to non-controlling
interest                                                (6,655)                (2.7) %               (301)                (0.1) %
Net (loss) income attributable to
MediaAlpha, Inc.                                  $    (16,215)                (6.6) %       $         78                  0.0  %
Net (loss) income per share of Class A
common stock
-Basic and diluted                                $      (0.39)                              $       0.00

Weighted average shares of Class A common
stock outstanding
-Basic and diluted                                  41,279,146                                 35,414,548


                                       30

————————————————– ——————————

Contents

Revenue

The following table presents our revenue, disaggregated by vertical, for the six
months ended June 30, 2022 and 2021, and the dollar and percentage changes
between the two periods:

                                                Six months ended                                               Six months ended
(dollars in thousands)                           June 30, 2022              $                   %               June 30, 2021
Property & Casualty insurance                   $   145,025            $ (89,853)               (38.3) %       $   234,878
Percentage of total revenue                            58.9    %                                                      71.0    %
Health insurance                                     75,272                5,688                  8.2  %       $    69,584
Percentage of total revenue                            30.6    %                                                      21.0    %
Life insurance                                       14,072               (1,360)                (8.8) %       $    15,432
Percentage of total revenue                             5.7    %                                                       4.7    %
Other                                                11,679                  632                  5.7  %       $    11,047
Percentage of total revenue                             4.7    %                                                       3.3    %
Revenue                                         $   246,048              (84,893)               (25.7) %       $   330,941


The decrease in P&C insurance revenue for the six months ended June 30, 2022,
compared with the six months ended June 30, 2021, was due to a decrease in
customer acquisition spending by certain insurance carriers to address
profitability concerns caused by higher-than-expected automobile repair and
replacement costs and overall inflationary pressures and certain carriers and
supply partners shifting their transactions with each other from our Open
Marketplace to our Private Marketplace due to lower platform fees for our
Private Marketplace, which are recognized on a net revenue basis. The auto
insurance industry began to experience a cyclical downturn in the second half of
2021, with many P&C carriers experiencing lower than expected underwriting
profitability, leading them to reduce marketing budget allocations to our
channel. We are currently unable to predict the duration of this cyclical
downturn or its impact on our revenue from the P&C insurance vertical, or our
profitability, beyond the third quarter of 2022.

The increase in health insurance revenue for the six months ended June 30, 2022,
compared with the six months ended June 30, 2021, was driven by increased
customer acquisition spending in our marketplaces by health insurance carriers
and brokers, as well as by an increased supply of customer referrals to our
marketplaces by our supply partners and our proprietary websites due to the
increased demand, as well as by the addition of $1.7 million of revenue during
the second quarter of 2022 as a result of the CHT acquisition. Additionally, the
Open and Annual Enrollment periods for fiscal 2021, which typically end by
December 15th, were extended until January 15, 2022, resulting in increased
revenue from our health insurance vertical during the first quarter of 2022.
These increases were offset in part by reduced customer acquisition spending in
our marketplaces by Medicare insurance partners in the second quarter of 2022.

The decrease in life insurance revenue for the six months ended June 30, 2022,
compared with the six months ended June 30, 2021, was driven by a decrease in
customers shopping for life insurance as concerns related to COVID-19 eased.

The increase in other revenue for the six months ended June 30, 2022, compared
with the six months ended June 30, 2021, was driven primarily by an increase in
our travel vertical, due to the easing of concerns related to COVID-19, and to
the addition of revenue generated from the credit vertical of CHT, which the
Company exited during the second quarter of 2022, offset in part by a decline in
revenue from our consumer finance vertical due to a reduction in mortgage and
refinancing activity caused by rising interest rates. In addition, revenue from
our education vertical decreased to $0.9 million during the six months ended
June 30, 2022 from $1.0 million during the six months ended June 30, 2021.
Revenue from the education vertical is not material to our operations, and we
expect to fully exit such vertical during the third quarter of 2022.

Revenue cost

The following table presents our cost of revenue for the six months ended June
30, 2022 and 2021, and the dollar and percentage changes between the two
periods:

                                                       Six months ended                                               Six months ended
(dollars in thousands)                                  June 30, 2022              $                   %               June 30, 2021
Cost of revenue                                        $   208,806            $ (70,679)               (25.3) %       $   279,485
Percentage of revenue                                         84.9    %                                                      84.5    %


                                       31

————————————————– ——————————

Contents

The decrease in cost of revenue for the six months ended June 30, 2022, compared
with the six months ended June 30, 2021, was driven by lower revenue share
payments to suppliers due to the overall decrease in revenue as well as a higher
mix of transactions in our Private Marketplace, which are recorded on a net
revenue basis.

Sales and Marketing

The following table presents our sales and marketing expenses for the six months
ended June 30, 2022 and 2021, and the dollar and percentage changes between the
two periods:

                                                         Six months ended                                                 Six months ended
(dollars in thousands)                                    June 30, 2022               $                   %                June 30, 2021
Sales and marketing                                     $     15,181             $   4,066                 36.6  %       $     11,115
Percentage of revenue                                            6.2     %                                                        3.4     %


The increase in sales and marketing expenses for the six months ended June 30,
2022, compared with the six months ended June 30, 2021, was due primarily to an
increase in equity-based compensation expense of $1.8 million, an increase in
personnel-related costs of $1.5 million resulting from planned headcount
additions, and an increase in amortization expense of $0.7 million related to
the amortization of intangible assets arising from our acquisition of CHT.

Product development

The following table presents our product development expenses for the six months
ended June 30, 2022 and 2021, and the dollar and percentage changes between the
two periods:

                                                         Six months ended                                                 Six months ended
(dollars in thousands)                                    June 30, 2022               $                   %                June 30, 2021
Product development                                     $     10,877             $   3,717                 51.9  %       $      7,160
Percentage of revenue                                            4.4     %                                                        2.2     %


The increase in product development expenses for the six months ended June 30,
2022, compared with the six months ended June 30, 2021, was due primarily to an
increase in equity-based compensation expense of $1.9 million and an increase in
personnel-related costs of $1.5 million resulting from planned headcount
additions to continue to enhance our technology.

general and administrative

The following table presents our general and administrative expenses for the six
months ended June 30, 2022 and 2021, and the dollar and percentage changes
between the two periods:

                                                          Six months ended                                                Six months ended
(dollars in thousands)                                     June 30, 2022               $                   %               June 30, 2021
General and administrative                               $     29,464             $     130                 0.4  %       $     29,334
Percentage of revenue                                            12.0     %                                                       8.9     %


The increase in general and administrative expenses for the six months ended
June 30, 2022, compared with the six months ended June 30, 2021, was due
primarily to an increase in equity-based compensation expense of $3.0 million
and an increase in personnel-related costs of $0.8 million resulting from
planned headcount additions offset by a gain of $2.8 million recorded on
remeasurement of the contingent consideration related to CHT as the fair value
declined due to lower projected revenue and gross profit targets for CHT and by
lower legal and professional fees incurred in the current year period due to
expenses incurred in the prior year period related to the Secondary offering and
our first year of being subject to Section 404(b) of the Sarbanes-Oxley Act that
did not repeat in the current year period.

Share-based compensation

The following table presents our stock-based compensation expense which was
included in operating costs and expenses for the six months ended June 30, 2022
and 2021, and dollar and percentage changes between the two periods:

                                       32

————————————————– ——————————

  Table of Contents

                                                           Six months                                                    Six months
                                                         ended June 30,                                                ended June 30,
(dollars in thousands)                                        2022                  $                   %                   2021
Cost of revenue                                          $      1,638          $     796                 94.5  %       $        842
Sales and marketing                                             5,474              1,791                 48.6  %              3,683
Product development                                             4,895              1,898                 63.3  %              2,997
General and administrative                                     17,609              3,008                 20.6  %             14,601
Total                                                    $     29,616          $   7,493                 33.9  %       $     22,123


The increase in equity-based compensation expense for the six months ended June
30, 2022, compared with the six months ended June 30, 2021, was driven primarily
by expenses related to additional restricted stock units granted to employees as
part of the annual incentive process and to restricted stock units granted to
the employees added as part of our acquisition of CHT.

Amortization

The following table presents our amortization of intangible asset expense that
was included in costs and operating expenses for the six months ended June 30,
2022 and 2021, and the dollar and percentage changes between the two periods:

                                                         Six months ended                                               Six months ended
(dollars in thousands)                                    June 30, 2022              $                   %               June 30, 2021

Sales and Marketing                                      $       2,208          $     716                 48.0  %       $       1,492

General and administrative                                         152                152                100.0  %                   -
Total                                                    $       2,360          $     868                 58.2  %       $       1,492

The increase in amortization expense for the six months ended June 30, 2022
compared to the half-year ended June 30, 2021 was linked to the intangible
assets arising from our acquisition of CHT.

Other (income) expenses, net

The following table presents our other income for the six months ended June 30,
2022 and 2021, and the dollar and percentage changes between the two periods:

                                                      Six months ended                                                   Six months ended June
(dollars in thousands)                                 June 30, 2022                $                    %                      30, 2021
Other (income) expenses, net                        $        (479)             $    (500)              (2,381.0) %       $           21
Percentage of revenue                                        (0.2)     %                                                            0.0       %


The increase in other income for the six months ended June 30, 2022, compared
with the six months ended June 30, 2021, was driven primarily by adjustments to
the estimated future state tax benefits related to the tax receivables agreement
("TRA").

Interest expense

The following table presents our interest expense for the six months ended June
30, 2022 and 2021, and the dollar and percentage changes between the two
periods:

                                                         Six months ended                                                 Six months ended
(dollars in thousands)                                    June 30, 2022               $                   %                June 30, 2021
Interest expense                                        $      3,315             $  (1,223)               (27.0) %       $      4,538
Percentage of revenue                                            1.3     %                                                        1.4     %


The decrease in interest expense for the six months ended June 30, 2022,
compared with the six months ended June 30, 2021, was driven by a lower interest
rate on the 2021 Credit Facility resulting from the refinancing of our 2020
Credit Facilities offset by the interest on amounts drawn on our 2021 Revolver
Credit Facility in connection with our acquisition of CHT.
                                       33

————————————————– ——————————

Contents

Income tax expense (benefit)

The following table presents our income tax expense for the six months ended
June 30, 2022 and 2021, and the dollar and percentage changes between the two
periods:

                                                     Six months ended                                                   Six months ended
(dollars in thousands)                                June 30, 2022               $                    %                 June 30, 2021
Income tax expense (benefit)                        $      1,754           
 $   2,243                (458.7) %       $        (489)
Percentage of revenue                                        0.7     %                                                         (0.1)     %


For the six months ended June 30, 2022, we recorded an income tax expense of
$1.8 million resulting from our effective tax rate of (8.3)%, which differed
from the U.S. federal statutory rate of 21%, due primarily to nondeductible
equity-based compensation, losses associated with non-controlling interests not
taxable to us, state taxes, and other nondeductible permanent items. For the six
months ended June 30, 2021, we recorded an income tax benefit of $0.5 million
resulting from our effective tax rate of 68.7% which differed from the U.S.
federal statutory rate of 21%, due primarily to nondeductible equity-based
compensation, state taxes, income not taxable to us associated with the
non-controlling interest, nondeductible transaction costs associated with the
Secondary Offering and the impact of tax benefits associated with equity-based
awards.

Main commercial and operational indicators

In addition to traditional financial metrics, we rely upon certain business and
operating metrics that are not presented in accordance with GAAP to estimate the
volume of spending on our platform, estimate and recognize revenue, evaluate our
business performance and facilitate our operations. Such business and operating
metrics should not be considered in isolation from, or as an alternative to,
measures presented in accordance with GAAP and should be considered together
with other operating and financial performance measures presented in accordance
with GAAP. Also, such business and operating metrics may not necessarily be
comparable to similarly titled measures presented by other companies.

Adjusted EBITDA

We define "Adjusted EBITDA" as net income excluding interest expense, income tax
benefit (expense), depreciation expense on property and equipment, amortization
of intangible assets, as well as equity-based compensation expense and certain
other adjustments as listed in the table below. Adjusted EBITDA is a non-GAAP
financial measure that we present to supplement the financial information we
present on a GAAP basis. We monitor and present Adjusted EBITDA because it is a
key measure used by our management to understand and evaluate our operating
performance, to establish budgets and to develop operational goals for managing
our business. We believe that Adjusted EBITDA helps identify underlying trends
in our business that could otherwise be masked by the effect of the expenses
that we exclude in the calculations of Adjusted EBITDA. Accordingly, we believe
that Adjusted EBITDA provides useful information to investors and others in
understanding and evaluating our operating results, enhancing the overall
understanding of our past performance and future prospects. In addition,
presenting Adjusted EBITDA provides investors with a metric to evaluate the
capital efficiency of our business.

Adjusted EBITDA is not presented in accordance with GAAP and should not be
considered in isolation of, or as an alternative to, measures presented in
accordance with GAAP. There are a number of limitations related to the use of
Adjusted EBITDA rather than net income, which is the most directly comparable
financial measure calculated and presented in accordance with GAAP. These
limitations include the fact that Adjusted EBITDA excludes interest expense on
debt, income tax benefit (expense), equity-based compensation expense,
depreciation and amortization, and certain other adjustments that we consider
useful information to investors and others in understanding and evaluating our
operating results. In addition, other companies may use other measures to
evaluate their performance, including different definitions of "Adjusted
EBITDA," which could reduce the usefulness of our Adjusted EBITDA as a tool for
comparison.
                                       34

————————————————– ——————————

Contents

The following table reconciles the adjusted EBITDA with the net (loss), the most
directly comparable financial measure calculated and presented in accordance with
with GAAP, for the three and six month periods ended June 30, 2022 and 2021.

                                                         Three months ended                     Six months ended
                                                              June 30,                              June 30,
(in thousands)                                        2022                2021               2022               2021
Net (loss)                                        $  (13,022)         $    (384)         $ (22,870)         $    (223)
Equity-based compensation expense                     15,843             11,521             29,616             22,123
Interest expense                                       1,956              2,237              3,315              4,538
Income tax expense (benefit)                             611               (125)             1,754               (489)
Depreciation expense on property and
equipment                                                 99                 91                197                173
Amortization of intangible assets                      1,677                746              2,360              1,492
Transaction expenses(1)                                  150                 66                530              2,731
Employee-related costs(2)                                  -                 99                  -                349
SOX implementation costs(3)                                -                297                110                449
Fair value adjustment to contingent
consideration(4)                                      (2,845)                 -             (2,845)                 -
Changes in TRA related liability(5)                       40                  -               (590)              (156)
Changes in Tax Indemnification
Receivable(6)                                            (15)               147                (29)               147
Settlement of federal and state income tax
refunds(7)                                                 4                  -                 92                  -
Adjusted EBITDA                                   $    4,498          $  14,695          $  11,640          $  31,134


(1)Transaction expenses consist of $0.2 million and $0.5 million of legal,
accounting and other consulting fees incurred by us for the three and six months
ended June 30, 2022, respectively, in connection with the acquisition of CHT.
For the three and six months ended June 30, 2021, transaction expenses consist
of $0.1 million and $2.7 million for legal, accounting, and other consulting
fees in connection with the Secondary Offering, respectively.

(2)Employee-related costs include $0.1 million and $0.3 million of expenses
incurred by us for the three and six months ended June 30, 2021, respectively,
for amounts payable to recruiting firms in connection with the hiring of certain
executive officers to support our operation as a publicly-reporting company.

(3)SOX implementation costs consist of $0.1 million of expenses incurred by us
for the six months ended June 30, 2022, and $0.3 million and $0.4 million of
expenses for the three and six months ended June 30, 2021, respectively, for
third-party consultants to assist us with the development, implementation, and
documentation of new and enhanced internal controls and processes for compliance
with SOX Section 404(b) for 2021.

(4)Fair value adjustment to contingent consideration consists of $2.8 million of
gain for the three and six months ended June 30, 2022, in connection with the
remeasurement of the contingent consideration for the acquisition of CHT as of
June 30, 2022.

(5)Changes in TRA related liability consist of immaterial expenses for the three
months ended June 30, 2022, and $0.6 million and $0.2 million of income for the
six months ended June 30, 2022 and 2021, respectively, due to a change in the
estimated future state tax benefits and other changes in the estimate resulting
in reductions of the TRA liability.

(6)Changes in Tax Indemnification Receivable consists of immaterial income
incurred by us for the three and six months ended June 30, 2022, and
$0.1 million of expenses incurred by us for the three and six months ended June
30, 2021, related to a reduction in the tax indemnification receivable recorded
in connection with the Reorganization Transactions. The reduction also resulted
in a benefit of the same amount which has been recorded within income tax
(benefit).

(7)Settlement of federal and state tax refunds consist of immaterial expenses
and $0.1 million of expense incurred by us for the three and six months ended
June 30, 2022, respectively, related to reimbursement to White Mountains for
state tax refunds for the period prior to the Reorganization Transaction related
to 2020 tax returns. The settlement also resulted in a benefit of the same
amount which has been recorded within income tax expense (benefit).
                                       35

————————————————– ——————————

Contents

Contribution and contribution margin

We define "Contribution" as revenue less revenue share payments and online
advertising costs, or, as reported in our consolidated statements of operations,
revenue less cost of revenue (i.e., gross profit), as adjusted to exclude the
following items from cost of revenue: equity-based compensation; salaries,
wages, and related costs; internet and hosting costs; amortization;
depreciation; other services; and merchant-related fees. We define "Contribution
Margin" as Contribution expressed as a percentage of revenue for the same
period. Contribution and Contribution Margin are non-GAAP financial measures
that we present to supplement the financial information we present on a GAAP
basis. We use Contribution and Contribution Margin to measure the return on our
relationships with our supply partners (excluding certain fixed costs), the
financial return on and efficacy of our online advertising costs to drive
consumers to our proprietary websites, and our operating leverage. We do not use
Contribution and Contribution Margin as measures of overall profitability. We
present Contribution and Contribution Margin because they are used by our
management and board of directors to manage our operating performance, including
evaluating our operational performance against budget and assessing our overall
operating efficiency and operating leverage. For example, if Contribution
increases and our headcount costs and other operating expenses remain steady,
our Adjusted EBITDA and operating leverage increase. If Contribution Margin
decreases, we may choose to re-evaluate and re-negotiate our revenue share
agreements with our supply partners, to make optimization and pricing changes
with respect to our bids for keywords from primary traffic acquisition sources,
or to change our overall cost structure with respect to headcount, fixed costs
and other costs. Other companies may calculate Contribution and Contribution
Margin differently than we do. Contribution and Contribution Margin have their
limitations as analytical tools, and you should not consider them in isolation
or as substitutes for analysis of our results presented in accordance with GAAP.

The following table reconciles Contribution with gross profit, the most directly
comparable financial measure calculated and presented in accordance with GAAP,
for the three and six months ended June 30, 2022 and 2021:

                                                        Three months ended                     Six months ended
                                                             June 30,                              June 30,
(in thousands)                                        2022               2021               2022               2021
Revenue                                           $ 103,449          $ 157,353          $ 246,048          $ 330,941
Less cost of revenue                                (87,925)          (132,305)          (208,806)          (279,485)
Gross profit                                         15,524             25,048             37,242             51,456
Adjusted to exclude the following (as
related to cost of revenue):
Equity-based compensation                             1,240                442              1,638                842
Salaries, wages, and related                          1,034                558              1,690              1,022
Internet and hosting                                    119                108                223                210
Other expenses                                          215                112                342                219
Depreciation                                             12                  8                 18                 15
Other services                                          576                256              1,106                547
Merchant-related fees                                    44                139                 59                230
Contribution                                         18,764             26,671             42,318             54,541
Gross margin                                           15.0  %            15.9  %            15.1  %            15.5  %
Contribution Margin                                    18.1  %            16.9  %            17.2  %            16.5  %


Transaction Value

We define "Transaction Value" as the total gross dollars transacted by our
partners on our platform. Transaction Value is a driver of revenue, with
differing revenue recognition based on the economic relationship we have with
our partners. Our partners use our platform to transact via Open and Private
Marketplace transactions. In our Open Marketplace model, Transaction Value is
equal to revenue recognized and revenue share payments to our supply partners
represent costs of revenue. In our Private Marketplace model, revenue recognized
represents a platform fee billed to the demand partner or supply partner based
on an agreed-upon percentage of the Transaction Value for the Consumer Referrals
transacted, and accordingly there are no associated costs of revenue. We utilize
Transaction Value to assess revenue and to assess the overall level of
transaction activity through our platform. We believe it is useful to investors
to assess the overall level of activity on our platform and to better understand
the sources of our revenue across our different transaction models and
verticals.
                                       36

————————————————– ——————————

Contents

The following table shows the transaction value by platform model for the three
and six months ended June 30, 2022 and 2021:

                                                  Three months ended               Six months ended
                                                       June 30,                        June 30,
(dollars in thousands)                           2022            2021            2022            2021
Open Marketplace transactions                $  99,633       $ 152,522       $ 237,729       $ 321,870
Percentage of total Transaction Value             54.5  %         59.5  %         56.3  %         62.0  %
Private Marketplace transactions                83,237         104,005         184,154         197,119
Percentage of total Transaction Value             45.5  %         40.5  %         43.7  %         38.0  %
Total Transaction Value                      $ 182,870       $ 256,527       $ 421,883       $ 518,989

The following table presents the value of the transaction by vertical sector for the three and six
months ended June 30, 2022 and 2021:

                                                  Three months ended               Six months ended
                                                       June 30,                        June 30,
(dollars in thousands)                           2022            2021            2022            2021
Property & Casualty insurance                $ 111,930       $ 176,646       $ 260,014       $ 360,073
Percentage of total Transaction Value             61.2  %         68.9  %         61.6  %         69.4  %
Health insurance                                46,394          47,240         106,649          97,583
Percentage of total Transaction Value             25.4  %         18.4  %         25.3  %         18.8  %
Life insurance                                  12,467          13,933          24,858          28,374
Percentage of total Transaction Value              6.8  %          5.4  %          5.9  %          5.5  %
Other (1)                                       12,079          18,708          30,362          32,959
Percentage of total Transaction Value              6.6  %          7.3  %          7.2  %          6.4  %
Total Transaction Value                      $ 182,870       $ 256,527       $ 421,883       $ 518,989

(1)Our other verticals include travel, education and consumer finance.

Consumer recommendations

We define "Consumer Referral" as any consumer click, call or lead purchased by a
buyer on our platform. Click revenue is recognized on a pay-per-click basis and
revenue is earned and recognized when a consumer clicks on a listed buyer's
advertisement that is presented subsequent to the consumer's search (e.g., auto
insurance quote search or health insurance quote search). Call revenue is earned
and recognized when a consumer transfers to a buyer and remains engaged for a
requisite duration of time, as specified by each buyer. Lead revenue is
recognized when we deliver data leads to buyers. Data leads are generated either
through insurance carriers, insurance-focused research destination websites or
other financial websites that make the data leads available for purchase through
our platform, or when consumers complete a full quote request on our proprietary
websites. Delivery occurs at the time of lead transfer. The data we generate
from each Consumer Referral feeds into our analytics model to generate
conversion probabilities for each unique consumer, enabling discovery of
predicted return and cost per sale across the platform and helping us to improve
our platform technology. We monitor the number of Consumer Referrals on our
platform in order to measure Transaction Value, revenue and overall business
performance across our verticals and platform models.

The following table shows the transaction value generated from clicks, calls and
leads for the three and six months ended June 30, 2022 and 2021:

                  Three months ended                 Six months ended
                       June 30,                          June 30,
                   2022              2021            2022             2021
Calls                   79.1  %     81.5  %              78.3  %     82.1  %
Clicks                  12.0  %      7.4  %              11.8  %      7.3  %
Leads                    8.9  %     11.1  %               9.9  %     10.6  %



                                       37

————————————————– ——————————

Contents

Segment information

We operate in the United States and in a single operating segment. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. Our chief operating decision maker is
our chief executive officer, who reviews financial information presented on a
consolidated basis for purposes of allocating resources and evaluating financial
performance. No expense or operating income is evaluated at a segment level. Our
acquisition of CHT did not create any additional segments as our chief executive
officer continues to review financial information and allocate resources on a
consolidated basis. Since we operate in one operating segment and reportable
segment, all required financial segment information can be found in the
consolidated financial statements.

Cash and capital resources

Insight

Our principal sources of liquidity are our cash flows generated from operations.
Our principal uses of cash include to fund operations, interest payments, and
mandatory principal payments on our long-term debt. As of June 30, 2022 and
December 31, 2021, our cash and cash equivalents totaled $35.2 million and $50.6
million, respectively.

We believe that our current sources of liquidity, which include cash flow
generated from operations, cash and funds available under the 2021 Credit
Facilities, will be sufficient to meet our projected operating and debt service
requirements, and to continue to comply with our financial covenants under the
2021 Credit Facilities, for at least the next 12 months. To the extent that our
current liquidity is insufficient to fund future activities or we do not remain
in compliance with our financial covenants under the 2021 Credit Facilities, we
may need to raise additional funds or negotiate amendments to or waivers of the
terms of such credit facilities with our lenders. Our business is seasonal and
cyclical in nature and these trends, if continued for a long period of time,
could impact the cash flows generated from operations requiring us to draw on
our available borrowing capacity under the 2021 Revolving Credit Facility or
raise additional funds in the short term. During the second half of 2021, the
auto insurance industry began to experience a cyclical downturn, as supply chain
disruptions and cost increases caused by the pandemic and overall inflationary
pressures contributed to higher-than-expected property and casualty insurance
claims costs, which led many carriers to reduce their customer acquisition
spending to preserve their profitability. These reductions continue to impact
revenue from our P&C vertical and we are currently unable to estimate their
impact beyond the third quarter of 2022. We have historically not used funds
available under our credit facilities to fund our operations and payments under
the credit facilities.

On April 1, 2022, we closed the acquisition of substantially all of the assets
of Customer Helper Team, LLC ("CHT") for cash consideration of $49.7 million at
closing, plus contingent consideration of up to $20.0 million based on CHT's
achievement of revenue and profitability targets for the two successive 12-month
periods following the closing. We funded the transaction in part by drawing
$25.0 million under the 2021 Revolving Credit Facility and the balance from cash
on hand as of the closing. We expect to be able to pay the contingent
consideration, if any, from our cash balances.

On March 14, 2022, our Board of Directors approved the repurchase of shares of
our Class A common stock having an aggregate value of up to $5.0 million from
time to time in open market transactions at prevailing market prices or by other
means in accordance with federal securities laws. The timing and amount of the
share repurchases are determined by our management team based on their ongoing
evaluation of market conditions, our capital needs, debt covenants and other
factors. The repurchases are financed from our cash balances. During the three
and six months ended June 30, 2022, we repurchased 321,150 shares of Class A
common stock for aggregate consideration of $3.5 million, and we expect to
complete the repurchase program in August 2022.

We may engage in additional merger and acquisition or other activities including
share repurchases that could require us to draw on our existing credit
facilities or may need to raise additional funds. In the future, we may attempt
to raise additional capital through the sale of equity securities or through
debt financing arrangements. If we raise additional funds by issuing equity
securities, the ownership of our existing stockholders will be diluted. The
incurrence of additional debt financing would result in debt service
obligations, and any future instruments governing such debt could provide for
operating and financing covenants that could restrict our operations. Our
material cash requirements include our long-term debt, operating lease
obligations, liabilities under the TRA, and any contingent consideration payable
in connection with our acquisition of CHT.
                                       38

————————————————– ——————————

Contents

Cash flow

The following table presents a summary of our cash flows for the six months
ended June 30, 2022 and 2021, and the dollar and percentage changes between the
periods:

                                                  Six months                                                      Six months
                                                ended June 30,                                                  ended June 30,
(dollars in thousands)                               2022                  $                    %                    2021
Net cash provided by (used in) operating
activities                                      $     19,894          $  25,694                 (443.0) %       $     (5,800)
Net cash used in investing activities                (49,756)           (49,286)              10,486.4  %               (470)
Net cash provided by (used in) financing
activities                                            14,492             16,776                 (734.5) %             (2,284)


Operational activities

Cash flows provided by operating activities were $19.9 million for the six
months ended June 30, 2022, compared with cash flows used in operating
activities of $5.8 million for the six months ended June 30, 2021. The increase
resulted from lower working capital usage due primarily to the timing of our
payables and receivables and higher working capital usage in 2020 and 2021
driven primarily by growth in our business, offset in part by the higher net
loss in the current period.

Investing activities

Cash flows used in investing activities were $49.8 million for the six months
ended June 30, 2022, compared with $0.5 million for the six months ended June
30, 2021. The increase resulted primarily from the payment of cash consideration
for our acquisition of CHT, which closed on April 1, 2022.

Fundraising activities

Cash flows provided by financing activities were $14.5 million for the six
months ended June 30, 2022, compared with cash flows used in financing
activities of $2.3 million for the six months ended June 30, 2021. The increase
in net cash provided was due to the amounts drawn on the 2021 Revolving Credit
Facility to partially fund the CHT acquisition, offset in part by principal
payments on the 2021 Term Loan Facility and payments made under the share
repurchase program.

Senior secured credit facilities

Credit facilities 2021

On July 29, 2021, we entered into an amendment (the "First Amendment") to the
2020 Credit Agreement (as amended by the First Amendment, the "Amended Credit
Agreement"). The Amended Credit Agreement provides for a new senior secured term
loan facility in an aggregate principal amount of $190.0 million (the "2021 Term
Loan Facility"), the proceeds of which were used to refinance all of the
$186.4 million of the existing 2020 Term Loan Facility outstanding and the
unpaid interest thereof as of the date of the First Amendment, to pay fees
related to these transactions, and to provide cash for general corporate
purposes, and a new senior secured revolving credit facility with commitments in
an aggregate amount of $50.0 million (the "2021 Revolving Credit Facility" and,
together with the 2021 Term Loan Facility, the "2021 Credit Facilities"), which
replaced the 2020 Revolving Credit Facility. Our obligations under the 2021
Credit Facilities are guaranteed by QLH and secured by substantially all assets
of QLH and QuoteLab, LLC.

Borrowings under the 2021 Credit Facilities bear interest at a rate equal to, at
our option, the London Interbank Offered Rate plus an applicable margin, with a
floor of 0.00%, or base rate plus an applicable margin. The applicable margins
will be based on our consolidated total net leverage ratio as calculated under
the terms of the Amended Credit Agreement (the "Leverage Ratio") for the prior
fiscal quarter and range from 2.00% to 2.75% with respect to the London
interbank offered rate and from 1.00% to 1.75% with respect to the base rate.

Loans under the 2021 Credit Facilities will mature on July 29, 2026. Loans under
the 2021 Term Loan Facility will amortize quarterly, beginning with the first
business day after December 31, 2021 and ending with June 30, 2026, by an amount
equal to 1.25% of the aggregate outstanding principal amount of the term loans
initially made. The 2021 Revolving Credit Facility does not require amortization
of principal and will mature on July 29, 2026.

As of June 30, 2022, we had $182.4 million of outstanding borrowings, net of
deferred debt issuance costs of $2.8 million, and $25.0 million under the 2021
Term Loan Facility and 2021 Revolver Credit Facility, respectively.
                                       39

————————————————– ——————————

  Table of Contents


Tax receivables agreement

Our purchases (through Intermediate Holdco) of Class B-1 units from certain
unitholders in connection with the IPO, as well as exchanges of Class B-1 units
subsequent to the IPO (together with an equal number of shares of our Class B
common stock) for shares of our Class A common stock (or, at our election, cash
of an equivalent value) ("Exchange"), and the Pre-IPO Leveraged Distribution and
other actual or deemed distributions by QLH to its members pursuant to the
Exchange Agreement, have resulted and are expected to continue to result in
increases in our allocable tax basis in the assets of QLH. These increases in
tax basis are expected to increase (for tax purposes) depreciation and
amortization deductions allocable to us and, therefore, reduce the amount of tax
that we otherwise would be required to pay in the future. This increase in tax
basis may also decrease gain (or increase loss) on future dispositions of
certain assets to the extent tax basis is allocated to those assets.

In connection with the IPO, we entered into the TRA with Insignia, the Senior
Executives, and White Mountains related to the tax basis step-up of the assets
of QLH and certain net operating losses of Intermediate Holdco. The agreement
requires us to pay Insignia and the Senior Executives or any assignees 85% of
the cash savings, if any, in U.S. federal, state and local income tax we realize
(or are deemed to realize) as a result of (i) any increases in tax basis of
assets of QLH resulting from any Exchange, and (ii) certain other tax benefits
related to making our payments under the TRA. The TRA also requires us to pay
White Mountains 85% of the amount of the cash savings, if any, in U.S. federal,
state and local income tax that we realize (or are deemed to realize) as a
result of the utilization of the net operating losses of Intermediate Holdco
attributable to periods prior to the IPO and the deduction of any imputed
interest attributable to our payment obligations under the TRA.

In addition to tax expenses, we will also make payments under the TRA, which we
expect to be significant. We account for the income tax effects and
corresponding TRA effects resulting from any Exchange by recognizing an increase
in our deferred tax assets, based on enacted tax rates at the date of the
Exchange. Further, we evaluate the likelihood that we will realize the benefit
represented by the deferred tax asset and, to the extent that we estimate that
it is more likely than not that we will not realize the benefit, we will reduce
the carrying amount of the deferred tax asset with a valuation allowance. The
amounts to be recorded for both the deferred tax assets and the liability for
our obligations under the TRA are estimated at the time of any purchase or
exchange as a reduction to stockholders' equity, and the effects of changes in
any of our estimates after this date will be included in net income (loss).
Similarly, the effect of subsequent changes in the enacted tax rates will be
included in net income (loss). Judgment is required in assessing the future tax
consequences of events that have been recognized in our consolidated financial
statements. A change in our assessment of such consequences, such as realization
of deferred tax assets, changes in blended tax rates, changes in tax laws or
interpretations thereof could materially impact our results.

Recent accounting statements

For a discussion of new accounting pronouncements recently adopted and not yet
adopted, see Note 1 to the consolidated financial statements appearing in Part
I, Item 1 of this Quarterly Report on Form 10-Q.

Significant Accounting Policies and Estimates

Our critical accounting policies and estimates are included in the 2021 Annual
Report on Form 10-K and did not materially change during the six months ended
June 30, 2022.
Share.

Comments are closed.