MediaAlpha Inc - Ordinary Shares - Class A Stock

Thank you. my name is Angela and I will be your conference operator today at this time I would like to welcome everyone to the media alpha Inc second quarter 2026 earnings call I'd like to remind everyone that this call is recorded and that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one in your telephone keypad to raise your hand and enter the queue. If you would like to withdraw press star 1 again thank you i would now like to turn the call over to alex laloya please go ahead.

Thanks, Angela. Good afternoon and thank you for joining us. With me, our co-founder and CEO, Steve Yee, and CFO Pat Thompson. On today's call, we'll make forward-looking statements relating to our business and outlook for future financial results. our financial guidance for the third quarter of 2026. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q for a fuller explanation of these risks and uncertainties and the limits applicable to forward-looking statements. All the forward-looking statements we make on this call reflect our assumptions and beliefs as of today, and we disclaim any obligation to update such statements except as required by law. Today's discussion will include non-GAAP financial measures, which are not a substitute for GAAP results.

Reconciliations of these non-GAAP financial measures to the corresponding GAAP measures can be found in our press release and investor supplement issued today, which are available on the investor relations section of our website.

I'll now turn this call over to Steve. Thanks, Alex. Hi, everyone. Thank you for joining us. We delivered record second quarter results as demand continued to broaden across our Each quarter, additional P&C carriers are unlocking advertising spend, expanding their campaign, and leaning further into our marketplace. This is no longer just a story about concentrated growth among a handful of large partners. It's a winding base of carriers that keeps ramping. Although down from peak levels, underwriting profitability in personal auto remains historically strong. This is driving carriers to compete more aggressively by lowering rates and spending more on advertising to acquire new customers.

We're seeing this intensified competition show up in a meaningful way across our marketplace. When we look at the current concentration of carrier advertising spend, we believe the inevitability of further broadening becomes clear. Since 2021, over 80% of P&C ad spend growth, both in our marketplace and others, has come from just two carriers. That leaves a wide segment of the market that has yet to meaningfully scale, and we're increasingly seeing those carriers begin to close the gap. To put this in perspective, our top two carriers spent a double-digit percentage of their total ad budgets with us in 2025, compared with the rest of our top 10 carriers, which collectively spent about 3% of their total ad budgets with us. We're seeing evidence that a growing number of carriers are preparing to allocate a meaningfully higher share of their advertising budgets to our marketplace. For example, our third, fourth, and fifth largest carriers nearly quadrupled their spend with us in the first half of 2026 as compared to the first half of 2025.

We believe we're at the beginning of what we see as a massive growth opportunity in the years ahead, driven by the industry's ongoing transition from agent-based distribution, largely supported by brand advertising, to direct-to-consumer distribution supported by highly targeted performance-based advertising. Our scale and proprietary data allow carriers making this transition to target online insurance shoppers through our open marketplace with a level of precision that allows them to compete far more effectively than would otherwise be possible. As we continue to deliver significant value to these carriers, we're becoming more deeply embedded in their customer acquisition processes, resulting in stickier, higher-value partnerships. The better the outcomes we deliver, the more budget these carriers commit to us, and the wider pool, then the wider that pool of active demand partners becomes. While we have long believed that most of the industry would transition to direct-to-consumer distribution over time, recent advances in AI suggest that the pace of this transition is likely to accelerate at the near term. On the carrier side, AI is making direct consumer acquisition increasingly attractive by allowing a greater percentage of consumers to purchase policies without interacting with the live agent. resulting in both higher conversion rates and lower acquisition costs. We believe these improved economics will make the online direct-to-consumer channel even more attractive to carriers, particularly those who have traditionally sold through On the consumer side, AI-powered search has the potential to improve both the quality and quantity of online insurance shoppers by helping consumers become better informed before they begin their shopping process, which will result in higher-intent consumers entering the top of the funnel.

Lastly, we're leveraging predictive AI throughout our marketplace to better target consumers and improve return on ad spend for our carriers and yield for our publishers. As a two-sided marketplace, we believe these dynamics reinforce our competitive position by connecting carriers and shoppers more efficiently. accelerating the industry shift towards direct-to-consumer distribution, and expanding our long-term market opportunity. As we look ahead, we're optimistic about our near-term and long-term growth opportunities. In the near term, it's about broadening demand as additional carriers allocate a more meaningful share of their ad budgets to our open marketplace in order to stay competitive in a changing Over the longer term, it's about the shift from the legacy model where carriers use brand advertising to drive flip traffic to agents to a model where carriers leverage rich data to target consumers directly with precision through measurable online advertising channels like ours. With carriers still incurring more than $2 in agent commissions for every dollar they spend on advertising, and with only 40% of that advertising dollar currently allocated to digital, we believe we have a long runway ahead of us to grow our business and deliver significant value to our shareholders. With that, I'll hand it over to Pat.

Thanks, Steve. Before I begin, I wanted to highlight that we have posted an updated investor deck to our IR site with additional details on the themes Steve touched on. I'd encourage anyone who hasn't seen it to take a look. Turning to my remarks, I'll start by walking through the key drivers of our second quarter results, then cover capital allocation activity. discussing our third quarter outlook. Revenue for the quarter was $317 million, up 26% year-over-year, above the high end of our guidance range, reflecting broader carrier participation in our marketplace. Contribution was $47.2 million, up 18% year-over-year, reflecting a modest mid-quarter dip in take rates that fully recovered by quarter end. Adjusted EBITDA for the quarter was $29.3 million, just above the midpoint of our guidance range, up 19% year over year. Excluding under 65 health, our core business performance was very strong, with revenue and adjusted EBITDA each growing over 30% year over year.

On capital allocation, we remain committed to creating shareholder value by returning capital to shareholders. In the second quarter, we repurchased approximately 2.2 million shares for $20 million, representing an average share repurchase price of $9.22. We've repurchased $41 million of stock year to date and $88 million over the past four quarters, representing approximately 13% of our outstanding shares. We also took a meaningful step to reduce our long-term obligations under our tax receivable agreement, or TRA. In June, we repurchased $69 million of our total TRA liability for $31 million, representing a 55% discount, which generated a $38 million gain that we recorded in the second quarter. We funded this transaction with a $15 million draw on the revolver and the remainder with cash on hand. We expect the transaction will generate a mid-teens, unlevered IRR, making it an attractive use of capital beyond our share repurchase program.

We ended the quarter with $23.7 million in cash and $30 million on drawn on the revolver. We expect to complete the vast majority of the $45 million remaining under our $100 million authorization by year end. Looking to next year and beyond, we'll continue to evaluate share repurchases against other uses of capital to drive long-term shareholder value. Turning to guidance, for the third quarter, we expect revenue of $330 million to $355 million, up approximately 12% year-over-year at the midpoint. Contribution of $51.5 million to $54.5 million, up approximately 16% year-over-year at the midpoint. Adjusted EBITDA of $32 million to $35 million, up approximately 15% year-over-year at the midpoint, including an approximately $1 million year-over-year decline. and contribution from under 65 health. Excluding under 65 health, we expect contribution to increase by 20% and adjusted EBITDA to increase by 21% year-over-year at the midpoint.

For Q3, we expect the health vertical to be approximately 1% of total revenue. Looking at the remainder of 2026, we continue to expect to generate $90 million to $100 million in free cash flow for the year. Overall, we remain confident in the strength of our position in the long-term opportunity ahead. With that, operator, we are ready to take the first question.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 in your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening by a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And your first question comes from the line of Maria Rips with Canaccord. Your line is now open.

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

Hey, Maria. Yes, this is Steve. I'll take that question. So, I'm going to start with the question, I think really where we are in the broader insurance, the auto insurance cycle is that I think we're still firmly within a very robust growth-oriented soft market cycle. And so, you know, first of all, I think if you look at overall industry profitability, it's well-designed. above, you know, historical norms. You know, what that's spurring is our carriers to grow their policies in force by reducing the rates a bit to be more competitive, and then investing a lot more in advertising to really turbocharge their growth. And so, I think that's really what's driving the broadening of the carrier demand within our marketplace. You know, what you're seeing is this broadening happening in particular with a lot of major agent-based carriers who are at various stages of really adopting direct-to-consumer distribution. And both leveraging our marketplace both to support either their robust or nascent direct-to-consumer efforts. but then also tapping into our marketplace to connect their agents with online shoppers as well.

Farmers Lead Marketplace that we're powering on behalf of farmers is a really good example of that. And so what we expect to see, I think, going forward is just continuing to, continued broadening of this demand, you're going to see more carriers really start to spend meaningfully within our marketplace. We're seeing new carriers really come on board and ramping their spend every quarter. And we expect to continue to see this growth and this cyclical growth or cycle driven growth really continue for the of this year and I think well into 2027. In terms of the second part of your question, which one to gating factors for carriers, I think it's really, you know, a lot of it's about capability. I think a lot of these carriers are new to direct-to-consumer, new to performance-based online channels, and it's really about us working with them and sort of meeting them where their capabilities are in order to bring our capabilities to the table. And I think you've heard me talk a lot about our platform solutions efforts, where we're expanding our offerings and our services to these carriers beyond just being a marketplace. and becoming a true customer acquisition platform partner for them.

And so we've had meaningful success with that. A lot of the carriers that I was referring to, we do a lot more for them than just creating a hyper-efficient marketplace. We're actually helping to build technology, doing integrations with them, hosting parts of the conversion process. We expect this part of the business to meaningfully scale as we start to work with more and more carriers who, again, are interested. various stages of the learning curve and adoption curve for direct-to-consumer distribution, particularly within the online space.

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

Sure. And what I can share with you is what we're hearing from partners. Again, we work rely on primarily third-party publishers to acquire traffic into the marketplace, and that's our model. So what we're hearing from our partners is that it continues to organically scale as a referral source. You know, it's, I think I mentioned last time that we're hearing from some partners that it's a source that is starting to become volume-wise on par with something like Google Organic Search. We're hearing similar things this quarter as well. well. We continue to hear that it's a high quality source, typically higher quality than super organic. And this makes sense because of just how much more granular these searches tend to be.

And I think that you're starting to see Google really talk about their LLMs as being something that's really incremental to their paid search and organic search, and that these LLM-driven searches are, in fact, far more valuable because of the level of granularity that they offer. And just in terms of overall impact in our marketplace, I think it's still relatively small. But, you know, we expect to continue to see that to grow and having the ad ecosystems really layered on top of these LLMs like Gemini is already doing and that I think OpenAI is doing. I think we would expect, you know, a lot more partners to tap into the advertising ecosystem to generate a lot more traffic.

for companies, LLMs going forward. Got it, thank you, Steve.

Your next question comes from the line of Tommy McChoin with KBW. Your line is now open. Hey, good evening. Thanks for taking our questions.

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

Yes, and Tommy, thanks for the question. This is Pat here. I would say that as you think about our business, we have, as you know, kind of two main models with which our partners transact. There's the private marketplace and the open marketplace, and the private marketplace is product for our top publishers with the top couple of advertisers. And those tend to be advertisers that have very deep in-house capabilities. for how they manage spend both with us and in our channel more broadly. And And the three, four, five players, and then six through 10, and 11 through however many hundred we have. those folks overwhelmingly transact on the open marketplace with us. And as Steve alluded to, those partners, are much more likely to utilize a lot of the tools that we have to offer. And so you can think of managed services where we do the bidding on behalf of the advertiser.

Or some of the tools where we manage some of the technology flow for them. And so, kind of given that, the take rates we have, so the percentage of transaction value that we recognize are markedly higher in the open marketplace. And one nuance that's important to note is that, The revenue treatment in the open marketplace is gross. So, if an advertiser spends $100 with us, we recognize 100 of revenue and we would have a contribution margin, kind of typically in the teens on that. For the private marketplace, we recognize it on a net basis. And so if there's $100 of spend, we would have low single-digit dollars of revenue, and that would all drop down to contribution.

Got it. Thanks for that. Is that clear? Yes, yes. No, that's a good refresher. Thanks. Thanks, guys. Thanks, guys. Thanks, guys. Thanks, guys. Thanks, guys. And another question on the health side, the health segment side of the business. the decline in revenues there was a bit more than we expect to understand the under 65 dynamic is going on but was there anything else sort of unusual that happened in the second quarter and just remind me when we sort of lap the headwinds around that yes.

And Tommy, we guided to it being around 1% of revenue in Q2, and it was around 1% of revenue in Q2. So I would say it was basically in line with our expectations, and we've guided to it. that same 1% in Q3. You know, I think with each quarter, the comp gets easier for that business. And I think as we get into Q4 of this year and into Q1 of next year, the comp starts to get pretty clean for us.

Got it. Thanks. Thanks, Tommy. Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is now open.

Thanks for taking the questions. You talked a fair bit about AI in your prepared remarks and it's a little bit deeper in how you're utilizing AI in your business, both as a driver of productivity and efficiency gains in the business and also as a potential tool to improve conversion. and attract more advertisers and attract more revenue into the ecosystem and just how you think about the priorities of investing behind those themes versus those themes building a momentum in the P&L looking out of the next 12 to 24 months. Thanks so much, guys.

Sure, Eric. Yes, I mean, I think primarily, I think you talked about us investing in AI. In some of the similar ways that you hear from other companies, obviously, our tech team has embraced it wholeheartedly to accept the technology. accelerate our product development efforts to allow us to gain more leverage from an outstanding technology team that we have up in Bellevue, Washington. In addition to that, the second thing I'd point out is really about the predictive AI that we've been leveraging for years and the machine learning capabilities that we have to leverage all of the data that's within our marketplace because we have millions of insurance shoppers coming through our marketplace every month. We see all the characteristics, we know a ton of attributes about them, we see exactly what they're doing, what carriers they're going to, who they're getting a quote from, who they're binding with. And so what we're able to do is really with a lot of machine learning and predictive AI, I just do a much, much better job of matching consumers to carriers than we've been able to before. And that obviously, has a profound effect on the return on ad spend that we're able to deliver for carriers and the yield that we're able to deliver for publishers. And so I would say that that's And it's again, it's predictive AI.

I have a feeling that you're asking more about sort of LLM and generative AI investments that we're making, but that's really an area of investment that's been very important for us and something that's allowed us to really outpace our competition. Just in terms of our, you know, leveraging predictive AI, I mean, our generative AI elsewhere, we're certainly leveraging that within our product suite to make a lot of the features a lot more intuitive. I think this has been really important for, you know, our newer efforts to work with agents. You know, we've been able to scale the number of agents that we're working with geometrically while keeping that size of that team that's based in Phoenix, Arizona. It's an outstanding team. We've been able to keep the size of that team relatively lean. And again, we wouldn't have been able to do that without incorporating AI into a lot of the features that we're making available for agents. And so overall, I mean, we're absolutely just fundamentally just huge believers in the power of that technology to really create a ton of internal efficiencies and product development enhancements.

Now, I will point out that we've always been very, very lean by nature. You know, I always like to point out that we were 80 people when we went public. We're still only about 160, 170 people. So we're extraordinarily lean. And so you're not going to see a ton of headcount savings from us. us announcing, you know, just because we're adopting AI, but certainly it's allowing us to grow and leverage our outstanding team, you know, in ways that we hadn't imagined before. And we continue to expect to be able to grow, you know, just by doing that. geometrically and exponentially with the size of the market opportunity ahead of us, with adding only meaningful or incremental additions to our headcount. And so we do look forward to continuing to embrace AI to be able to grow in that way.

Thank you. Your next question comes from the line of Randy Biner with Texas Capital. Your line is now open.

Hey there. I think this one might be for Pat, but the, and I apologize if I missed this, the responses have been very detailed, but the contribution margin was a little bit lower than modeled. You guided that higher, I think, for third quarter. But I think you mentioned a little bit. a dynamic where there was a mid quarter take rate dip. And then I guess what's been a pretty fast recovery. So I guess just trying to understand what we're seeing what the, like, what was the nature of the lower take rate and just kind of how you turned it around so quickly?.

Yes, Randy. Yes, I would say in May and early June, we saw a bit of weakness. on the take rate side and you know really what was what happened there was we made a couple of kind of partner specific investments there And they were investments that were obviously at short-term cost for us, but we believe had meaningful long-term benefits. And, you know, kind of what we saw is by the end of Q2, you know, take rate was, you know, right where we wanted it. Q3, it's, you know, off to a good start. The guide we have kind of, you know, I think shows that it has recovered. And, you know, as we think about that short-term investment we made in Q2, you know, we're starting to harvest some of that goodness. you know, here in Q3. And, you know, as we look forward into Q4 and beyond, you know, we kind of like our positioning, both from a competitive standpoint and in terms of partner relationships. So, you know, we feel good right now.

Okay, and is that nature of that investment, like is that AI related or is it just bringing someone new on? Is it kind of in the AI funnel or is it just a new partner? Yes, and Randy, I would say it was more with existing partners. Okay, got you. That we have the vast majority of our partner relationships are very long term in nature. And I would say they were some short-term investments with long-standing partners that we believe will pay long-term dividends. Okay, understood on that. And then I had another one, if you don't mind. So, and I think this is received. I guess I can use a little bit more. explanation on, you mentioned that, I think you mentioned the customers are higher quality that are coming through the, you know, kind of the AI funnel broadly. And I guess it's not clear to me, is that because it's just better interface and technology or are they providing more data? What is making them higher quality?.

Yes, it's because it's what they're doing with an LLM search is that they're expressing, they're just going deeper and expressing more nuances and more details around the insurance that they're looking for. And so what you have is more targeted consumer. It's a consumer who didn't just search for auto insurance quote on Google. It's a consumer who has been researching auto insurance. told the LLM that they're married and they have two cars and two kids. And so what you have is a far more granular search. And that's really what I meant by quality is that you actually have a consumer coming through about whom you know a lot more. And typically you see that these consumers are higher in. because they've actually taken a few steps in the process inside an LLM that they wouldn't otherwise do through.

through Google search. All right, got it. That's helpful, thank you.

Again, if you would like to ask a question, press star 1 in your telephone keypad and your next question comes from the line of Mike Zaramski with BMO. Your line is now open.

Hey, thanks. Okay, maybe just one. On the TRA agreement, you know, clearly a great IRB. there are, is there more potential for those to happen? I believe there are other counterparties other than Insignia or was that kind of a special one-off? I don't know if there's.

that you can add to that, thanks. Yes, Mike, I'm happy to cover that. You know, I think following the Insignia transaction, the remaining recorded liability we have is about $55 million total. The remaining holders essentially break into three categories. There are the founders, there are some early employees, and there's an external third party. And I would say we would evaluate any further TRA repurchases the exact same way we evaluated the one that we completed June with insignia, you know, where we look at the expected IRR versus alternative uses of capital. And, you know, I think like any transaction, there's no obligation for any holder to sell.

So, you know, in order to do a deal, we'll need to have the double coincidence of wants where, you know, they want to sell at a price. where we're willing to buy. But I think we'd be very open to it if it makes sense for shareholders.

Got it. Okay. And Pat, maybe lastly, you know, CLEARLY YOU ALL HAVE THE CASH FLOW TO CONTINUE BUYING BACK SHARES. WE KNOW THAT YOU PLAN ON CONTINUING Is there price sensitivity to the extent there was a – the stock did continue to move north? Would you be price sensitive or should we just earmark it?.

the full amount. Yes, and Mike, I would say, you know, we've kind of continued to reiterate our guidance of we, you know, expect to complete the vast majority of the outstanding buyback, which is, you know, $45 million is authorized. Okay. today. And you know I think you know going forward over the longer term you know we evaluate share repurchases alongside other uses of capital and we base the decisions you know around what we think represents the highest long term return for our shareholders. But I think you know having said that we had the end of the quarter we had 24 million of cash, 30 million undrawn on the revolver, and we think we're going to generate 90 to 100 million of free cash flow this year. So we feel good about our ability to fulfill the commitment that we've made. And I think we have been believers in the stock. I think we continue to feel like the stock is an attractive opportunity for us.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Thank you for standing by, and welcome to MediaAlpha, Inc. First Quarter 2026 Earnings Call. I'd like to remind everyone that this call is being recorded. [Operator Instructions]

I would now like to turn the call over to Investor Relations. You may begin.

Thanks, Angela. 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 second quarter of 2026. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q for a fuller explanation of those risks and uncertainties. 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. We're off to a strong start in 2026, delivering record results across all of our key financial metrics. First quarter transaction value came in above the midpoint of our guidance range, reflecting continued strength in auto insurance carrier spend and further broadening of carrier participation on our platform. These dynamics drove a favorable mix shift to our open marketplace, pushing both revenue and adjusted EBITDA above the high end of our guidance.

Within P&C, we've seen a number of carriers that were previously punching under the weight in our marketplace take meaningful steps over the last several quarters to increase their spend. As anticipated, this is resulting in a mix shift towards our higher-margin open marketplace, where our estimated 3x scale advantage and unmatched proprietary data fuel highly differentiated predictive AI optimizations that drive better outcomes for our partners.

Moving forward, I'm encouraged by the productive conversations we're having with a growing number of leading carriers about further leveraging our trusted infrastructure and AI targeting capabilities to maximize the return on ad spend and gain market share.

The underlying auto insurance industry remains healthy. Carriers are strongly profitable and are competing more aggressively by lowering their rates and increasing their advertising spend as they prioritize policy growth. While underwriting margins have begun to decline from record levels, they remain robust by historical standards. We believe these conditions support further growth in our P&C vertical, which continues to benefit from the secular shift in carrier distribution spend from agent commissions and off-line advertising to a direct-to-consumer model supported by online performance marketing.

While not yet material to our results, our strong first quarter P&C traffic growth suggests that consumers who are starting their insurance shopping experience on LLMs are driving incremental referrals to our marketplace. During the quarter, we were pleased to see a significant strategic shift by a leading LLM to place greater emphasis on advertising monetization to support the consumer product. We view this as a favorable development that could meaningfully accelerate LLM referral traffic and revenue growth for us and our partners.

We remain confident that carriers will stay central to the quoting and binding experience regardless of how the consumer shopping experience evolves, reinforcing our highly defensible position as the core infrastructure layer connecting carriers with insurance shoppers.

As a trusted partner to carriers and a leader in AI-powered insurance distribution, we recently launched autoinsurance.net, a ChatGPT-powered shopping experience that simplifies the consumer journey while keeping carriers in full control of their brand, compliance standards and quoting processes. This is an early proof-of-concept product, and we're excited about what comes next as we continue to build out this capability to better support our partners.

On the health insurance side, our under 65 business continues to represent a diminishing portion of our overall mix, which is in alignment with our plans. We continue to believe that Medicare Advantage is the long-term growth opportunity for this vertical. Importantly, we remain focused on utilizing our significant free cash flow to maximize shareholder value. We are executing aggressively on our outstanding share repurchase authorization and have returned over $25 million of capital to shareholders already this year.

As we look ahead, we're energized by the opportunities in front of us. Carrier and agent participation in our marketplace continues to expand and the innovations we're bringing to market are opening new doors for consumers to discover and connect with both carriers and agents. Overall, we believe we're well positioned to deliver both sustained profitable growth and long-term shareholder value.

Before turning the call over to Pat, I'm proud to share that MediaAlpha has earned a Great Place to Work certification for the 10th consecutive year with 95% of our team members affirming that our company is indeed a great place to work. This recognition reflects the strength of our culture and our exceptional team, which underpins everything that we do.

Great. Thank you, Steve. I'll start by walking through the key drivers of our Q1 results and then cover our Q2 outlook. As Steve mentioned, transaction value came in above the midpoint of our guidance range. Revenue was $310 million, above the high end of our guidance range, reflecting a favorable open marketplace mix shift driven by broader carrier participation in our marketplace. Adjusted EBITDA for the quarter was $31.4 million, up 7% year-over-year. Our efficient operating model and disciplined expense management allowed us to convert 64% of contribution to adjusted EBITDA. Excluding under 65 Health, our core business performance was very strong with year-over-year revenue and adjusted EBITDA each growing 28%.

Turning to the balance sheet. We completed the refinancing of our credit facilities during the quarter. As detailed in the Form 8-K we filed with the SEC, we put in place a new $150 million senior secured term loan and a $60 million revolving credit facility, both maturing in March of 2031. The refinancing replaces our prior arrangements, extends our debt maturity profile meaningfully and provides enhanced financial flexibility. We drew modestly on the revolver in connection with closing, and we ended the quarter with $26.1 million in cash and $45 million undrawn on the revolver.

On capital allocation, since the beginning of the year, we have repurchased approximately 2.6 million shares for $25 million, representing approximately 4% of the company. We remain committed and on track to complete the vast majority of the remaining $60 million of our $100 million authorization in 2026.

Turning to Q2. We will be changing how we present guidance. We will be guiding to contribution and we will no longer report transaction values as we think contribution is a more relevant metric for investors evaluating the company's performance relative to our publicly traded peers. For Q2, we expect revenue of $290 million to $310 million, up approximately 19% year-over-year at the midpoint. Contribution of $45.5 million to $48.5 million, up approximately 18% year-over-year at the midpoint. Adjusted EBITDA of $28 million to $30.5 million, up approximately 19% year-over-year at the midpoint, including an approximately $2 million year-over-year decline in contribution from under 65 Health. Excluding under 65 Health, we expect contribution to increase by 25% and adjusted EBITDA to increase by 31% year-over-year.

For Q2, we expect the health vertical to be approximately 1% of total revenue, as we made a strategic decision to limit under 65 Health open marketplace participation to carriers only, simplifying our operations.

Looking at the remainder of 2026, we are entering a more normalized growth environment in P&C. Accordingly, we expect growth rates to moderate in the back half of 2026 as we lap increasingly strong prior year comparisons. For the year, we expect to generate $90 million to $100 million in free cash flow. Overall, we remain confident in the strength of our position and the long-term opportunity ahead.

With that, operator, we are ready to take the first question.

[Operator Instructions] And your first question comes from the line of Tommy McJoynt with KBW.

Steve, could you go into a bit more detail and specifics about the LLM comments that you made? You seem to suggest a strategy shift in LLM that's monetizing advertising leads. Could you add some more details and specifics around that?

Yes. So what I was referring to was OpenAI's announcement that ChatGPT was going to increase, I guess, reliance on advertising monetization. And I think the number that they threw out was that by 2030, they wanted to generate about $100 billion in ad revenue by then, which is about 4x the previous forecast for ad revenue that they had released, I think, earlier this year. And so, for us, that was a really clear sign that OpenAI and ChatGPT, at least with the consumer-facing product, we're going to monetize primarily using an advertising model. I mean, certainly, I think with Gemini being owned by Google, you can expect Gemini to do something similar.

And so, what we really was saying was that with the adoption of this advertising model as opposed to a closed commerce model as some people had expected, I think that means a good thing for our overall industry because what I have full confidence in is our supply partners to be able to adapt to this new upstream traffic acquisition source and really be able to tap into the incremental demand and shopping behavior that the LLMs are going to generate. And we think ultimately, over the next 2 to 3 years, this is going to be a significant tailwind to our business, both on the publisher side and for us as a whole.

And then switching gears, we often talk about the carriers being stratified into those leading players that were first to reengage in advertising spend and then more carriers catching up. Have you seen any of the leading carriers start to pull back on advertising spend as they seem to maybe notice that the underwriting cycle is nearing its peak?

No. No, we haven't. I think what we're seeing is really accelerating growth from the non-leading carriers more than any pullback from the leading carriers. I think they were obviously the first ones to come back and really lean into growth mode by acquiring customers. And really the spending came back very quickly within our marketplace from a couple of the leading carriers. I think they're maintaining the levels of spend, we continue to see growth there. But really, what you're seeing, and you're seeing that coming out in our numbers with the higher growth rate that we're seeing from our open marketplace is really just the growth that we're seeing from a lot of the other top 15, top 20 carriers as they continue to -- or they increasingly start to lean into growth marketing.

And so, we're obviously very encouraged by that. It's really the broadening of the demand that we have been expecting for the last couple of years. It represents both, I think, really the strong cyclical tailwinds that you're seeing, as carriers start to lower rates and really pour money into advertising to grow their policy counts. And then in addition to that, really the cyclical tailwind really fueling the secular shift that we're starting to see again from an increasing number of carriers as they pivot from being primarily reliant on agent-based distribution to really building a strong direct-to-consumer channel as well, which effectively means that a lot of the distribution costs that a lot of these agent-based carriers were incurring really is starting to shift from agent commissions into advertising dollars, which is a net positive for our industry and clearly a net positive for us.

Your next question comes from the line of Cory Carpenter with JPMorgan.

I just wanted to ask, last quarter, you talked about an expectation for carriers to enter the year kind of with a more prudent start and then kind of save some, if you will, for later in the year should the opportunity present itself. Maybe could you just give an update on kind of that? And has any of the macro uncertainty that we've seen unfold over the last couple of months changed kind of your expectations for how you expect spend to trend through the year?

Yes, sure. I think that what I said in the last comment, I think, really holds for this one, which is that they may have started the year a little bit conservatively. Certainly, the big ones have continued to grow organically, but it's really the body of the demand for carriers who are, again, top 15, top 20 carriers, but weren't big spenders in the past within our marketplace. And we've been really pleasantly surprised to see the level of growth that we're seeing from them.

Now the -- I'll say a couple of things there, right, which is, we still think that, that broadening of demand has a ways to go because all of those outside of the top carriers that you're referring to are still only allocating, let's say, 2% to 3% of their overall advertising budget to our marketplace. If you look at benchmarks and really where we expect them to be, it's really somewhere between 10% to 20%. So they have somewhere between 5 to 10x to go in terms of the level of spend that they could support with us, right, once they eventually get to a point where the industry leaders are. And so, even though we're seeing really strong demand, robust growth in our open marketplace by the broadening of demand, we think that there's still a ways to go there.

To answer the last part of your question, are we seeing any slowdown with some of the macro effects? I'm guessing that you're referring to the war and rising gas prices and then fears of increasing inflation. I mean, certainly, those things could have an impact on loss ratios. We're not seeing the carriers really taking any action right now based on any fears of inflation. I think it's going to cut both ways because gas prices going up means that people are going to drive less, that's going to reduce frequency. But certainly, higher gas prices or higher oil prices is likely to result in inflation of car prices, which could have a negative effect on severity.

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

Just a couple of numbers questions. On the -- I heard loud and clear about reiterating the free cash flow. Did you mention why the cash flow didn't come through this quarter? And then just another numbers question. Did you specify the new terms on the debt so we can calculate the potential savings?

Sorry, on mute. Mike, on the cash flow side, the -- a couple of things happened in Q1. So first off, we had an $11.5 million payment to the FTC. That was our second and final payment to the FTC. So that was obviously a use of cash. And Q1 is a quarter where we have a couple of kind of annual payments that go out the door. So we've got annual bonuses to employees, which is kind of -- it's a mid-, high single-digit million number, and we've got annual payments that go out the door on our tax receivable agreement.

And I would say that Q1 had those kind of 3 one-timers or once annual items. The rest of the year should not have those. And so, the adjusted EBITDA to free cash flow conversion should be very strong for the balance of the year.

And moving to the debt side of the house. The refinance had essentially very minimal changes to the overall interest profile of the debt. Probably the most meaningful change to cash flow is that the amortization is going to be slightly lower. We have $7.5 million annually of amortization, kind of paid 1/4 of that every quarter. So there's a little bit less paydown that occurs naturally on the debt. But I would say otherwise, the economics of the debt are largely unchanged from the prior agreement to this one.

Got it. And probably for Steve, on the removing transaction value, I'd say investors did find that helpful. Are you saying you feel like it's proprietary and some of your competitors don't disclose it, so you'd rather not disclose it?

Yes. And Mike, this is Pat. I'll take that one. I would say that for us, transaction value was something we originally disclosed at the time of the IPO to show our scale, and it's something we've shown since to show our scale. And as Steve said in his scripted remarks, we estimate from a transaction value standpoint, we're close to 3x the size of our nearest competitor. And so, we think we've kind of probably pretty clearly proven that point and investors understand it.

And as we think about the most important metrics for understanding the business, those really are revenue contribution and adjusted EBITDA. And those are the exact metrics that all of our public peers show. And so, we're just in a spot where we thought from a simplicity standpoint and a conformity standpoint that it made sense to focus on the same things that everybody else does.

That concludes our question-and-answer session and as well as today's call. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Hello, and welcome to the MediaAlpha Inc. Q4 2025 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to our Investor Relations, Alex Liloia. Please go ahead.

Thanks, Dustin. 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 first quarter of 2026. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q for a fuller explanation of 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 investor supplement 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. 2025 was a pivotal year for MediaAlpha. We delivered exceptional results in our P&C insurance vertical as auto insurance carriers and agents accelerated advertising spend, and we captured more than our fair share of that growth. At the same time, we narrowed the scope of our Under-65 health insurance business, improving our risk profile and sharpening our strategic focus. We generated significant free cash flow, reflecting the strength of our operating model and our disciplined approach to expense management. We returned a significant portion of that capital to shareholders, completing $47.3 million worth of share repurchases or roughly 7% of shares outstanding.

Our fourth quarter results were strong with adjusted EBITDA above the high end of our guidance range. While transaction value came in modestly below guidance due to more normalized seasonality in our P&C vertical, open marketplace demand partners leaned in, driving solid revenue growth and a higher-than-expected take rate during the quarter.

Our P&C business is off to a strong start in 2026, and we expect continued positive momentum for the full year and beyond. Carriers remain solidly profitable and are increasingly focusing on growing their customer base. As is typical in the early stages of a soft market, competition is beginning to intensify with many carriers lowering rates to gain share.

Beyond pricing, advertising is the other primary growth lever available to carriers, and we expect advertising budgets to continue to increase. Given our unmatched scale and targeting capabilities across hundreds of supply partners, we expect carriers to allocate a growing share of wallet to our platform. We're particularly focused on the significant opportunity to scale underpenetrated carriers in our marketplace, helping them optimize their campaigns and drive profitable policy growth. As these partnerships ramp, we expect our transaction value mix to shift gradually to our open marketplace where we offer highly differentiated, predictive AI-driven optimizations for our partners.

Looking ahead, I want to address the rapid pace of AI innovation and the tailwinds it's creating for our business. AI-driven search is emerging as an important new starting point for insurance shopping. Against the backdrop of accelerating LLM-driven traffic growth, we increased P&C click volume by more than 20% year-over-year in the fourth quarter, and we expect even stronger growth in Q1. This performance reflects our role as a core infrastructure layer, connecting carriers with high-intent shoppers regardless of where they start their journey.

At the same time, we're embedding AI across our platform to price media with far greater precision, leveraging our massive proprietary data set as the largest marketplace in the category. This allows us to price traffic more granularly, improving publisher yield while simultaneously delivering strong return on ad spend for carriers and agents. Our industry-leading scale and data advantage make these AI systems increasingly more effective over time, further strengthening our already powerful network effects. As we think about the potential for AI to reshape the insurance shopping and purchase experience, it's important to distinguish between how a consumer initiates a search and how a transaction is ultimately completed. Quoting and binding require real-time integration with proprietary carrier rating systems and carriers are highly protective about how and where their rates are displayed. Major carriers invest billions each year in their brands, underwriting and distribution, and they have historically resisted any model that commoditizes their product into a side-by-side price comparison or transfers transactional control to a third-party technology platform. As a result, we believe that most major carriers will continue to keep their pricing from being freely accessible through third parties, including through LLMs.

While AI is likely to influence where and how shopping begins and create incremental advertising-based acquisition channels, we believe the infrastructure we provide to connect online shoppers to carrier-controlled quoting and binding systems will remain essential and highly defensible. Taken together, we believe the current industry backdrop, including the evolution of AI, is strengthening our role in the ecosystem. As demand expands and distribution channels evolve, scale, data and performance will matter more, not less, and we believe we're well-positioned to capture that opportunity and to continue delivering sustainable, profitable growth in the years to come. With that, I'll hand it over to Pat.

Thanks, Steve. I'll start with some full year highlights, followed by key drivers of our Q4 results and then cover our outlook. 2025 was a record year. We crossed several significant milestones, $2 billion of transaction value, $1 billion of revenue and $100 million of adjusted EBITDA, all for the first time. Transaction value grew 45%, driven by 65% growth in our P&C vertical, which was more than -- which more than offset the expected reset in Under-65 Health. Excluding contribution from Under-65 Health, our core business delivered adjusted EBITDA growth of approximately 55%.

Turning to the fourth quarter. Transaction value was $613 million, up 23% year-over-year. Our P&C vertical grew 38% year-over-year, while our health vertical declined 40%.

Revenue was $291 million, down 3% year-over-year as reported, but up 9%, excluding Under-65 Health. Health declines were mostly offset by P&C growth. Under-65 Health contributed approximately $7 million of revenue in 2025, down from $41 million in 2024. Adjusted EBITDA was $30.8 million, down 16% year-over-year. Excluding contribution from Under-65 Health, our core business delivered adjusted EBITDA growth of approximately 10%, reflecting the strong momentum in our P&C vertical. We converted 66% of contribution to adjusted EBITDA, which reflects our efficient operating model. Our Q4 take rate was 7.6%, slightly above expectations, driven by favorable open marketplace mix. We expect take rates in Q1 to be above Q4 levels.

Moving to the balance sheet and cash flow. In 2025, we generated $99 million of free cash flow, which for us is operating cash flow less CapEx, excluding the FTC payment of $34 million or $65 million on a net basis. We ended the year with $47 million in cash, providing us with continued financial flexibility to support our strategic priorities. Also on the balance sheet, we met the U.S. GAAP requirements to release the valuation allowance on our deferred tax assets and recognize the related tax receivable agreement liability, resulting in a gross up to our balance sheet. As a reminder, our long-standing Up-C structure generates tax benefits from which we retain 15% of the savings through basis step-ups over the next 15 years.

On capital allocation, we remain committed to returning capital to shareholders through share repurchases. In Q4, we repurchased approximately 1.1 million shares for $14 million. Full year share repurchases were $47 million, representing approximately 7% of the company. Based on our strong and growing free cash flow outlook, our Board has authorized a $50 million increase in our share repurchase program to $100 million. We expect to complete the vast majority of this program in 2026.

Now turning to Q1 guidance. We expect transaction value of $570 million to $595 million. up approximately 23% year-over-year at the midpoint, with P&C growing approximately 35% year-over-year, driven by strong carrier demand and continued share gains. We expect first quarter transaction value in our health insurance vertical to decline approximately 50% year-over-year, driven primarily by Under-65 Health.

Revenue, we expect to be $285 million to $305 million, up approximately 12% year-over-year at the midpoint. We expect adjusted EBITDA of $29.5 million to $31.5 million, up approximately 4% at the midpoint. Excluding contribution from Under-65 Health, adjusted EBITDA is expected to grow approximately 25% year-over-year at the midpoint of the guidance range. And finally, we expect contribution less adjusted EBITDA to be approximately $500,000 to $1 million higher than in the fourth quarter of 2025.

And while we're not giving formal 2026 annual guidance today, let me frame how we're thinking about the year. We expect P&C transaction value will continue driving growth with healthy year-over-year gains as carriers increasingly seek to grow in this attractive soft market operating environment.

In Health, our transformation into a smaller, more focused operation is ongoing. While we expect this vertical to account for a mid-single-digit percentage of total transaction value this year, we continue to believe Medicare Advantage represents a meaningful long-term growth opportunity.

Finally, we expect to generate $90 million to $100 million in free cash flow, including the final $11.5 million FTC payment we made in January. This gives us plenty of firepower as we look to execute on the vast majority of our $100 million buyback program in 2026.

With that, operator, we are ready to take the first question.

[Operator Instructions]

And we will take our first question from Tommy McJoynt of KBW.

Yes. My first question, I appreciate some of your comments around some of the changes that are happening through the developments in AI. I want to expand on that. Does anything functionally or financially change with your role and your value proposition to carriers when a consumer starts their search with an LLM rather than through Google?

Well, yes, I'll take that, Tommy. I mean the short answer is no. What we expect AI -- the impact that we expect AI to have is really focused on the upper part of the funnel, the research and shopping experience. I think what really what you have to understand is that no matter really where they start their shopping experience, ultimately, as they start to get closer to the quote and the buying, that's where the carriers really want to maintain control over where their quotes are displayed and obviously, where their policies are bound. And so typically and historically, well over 2/3 of the marketplace made up by direct -- the big direct-to-consumer carriers, as well as the captive agent carriers, have been very reluctant to let their rates be shown anywhere else on third-party sites, particularly in a side-by-side rate comparison environment. And certainly, they've been very reluctant to let anyone bind their policies anywhere other than through their agents or their websites. And so ultimately, we're the infrastructure that facilitates that handoff between the insurance shoppers and the publishers where that insurance shopping activity takes place with the quoting and binding infrastructure that the carriers maintain. And regardless of whether they start their search on Google or on an insurance comparison site or on an LLM, ultimately, that connection and handoff has to be made. And so at the end of the day, we believe that the ecosystem with the LLMs, again, being an important starting point for insurance search is going to look a lot more like the current system than not.

And to clarify, so did the LLMs become their own supply partners, or did the supply partners that you currently partner with, perhaps they will integrate within the LLMs directly?

I think it's a good question. I see either possibilities happening. I think, we think it's more likely that it's more of the latter, that the LLMs become a traffic source for most of our existing supply partners. I mean, certainly, some of our supply partners may not make the adjustment and are not able to acquire traffic in an efficient way from the LLMs. But once the LLMs layer on an advertising model, we think that, that could be a tremendous tailwind for our supply partners as that introduces an incremental advertising traffic acquisition source for them.

Right now, I think they're making some good headway in acquiring traffic from the LLMs. I think anecdotally, our supply partners are telling us that somewhere in the mid- to high single digits of their traffic is coming from the LLMs, and this is in the early stages. I think as you've seen a couple of our supply partners have introduced apps for the LLMs. We're certainly benefiting from that because the traffic is hitting their site ultimately that we're monetizing on their behalf. And so as our publishers and the supply partners get smarter about doing that and building more apps, finding ways to be discovered by the LLMs and then ultimately, taking advantage of the advertising ecosystem that the LLMs are going to create, we think that ecosystem is going to look a lot more like the current Google ecosystem than one where the LLMs are connecting directly with us as a supply partner. I mean, certainly, we've had discussions with them. And if they are open to doing that, we would welcome that. But again, our guess is that the LLMs will evolve into something more like Google than one of our supply partners.

Got it. That all makes sense. And then just my second topic of questions here. You made some encouraging remarks about continuing to scale with the underpenetrated carriers in the marketplace. Is there anything different about your go-to-market strategy or sales pitch that's getting more of these underpenetrated carriers to sign up? What's resonating with them that, that works around the cycle?

Well, I think that's a great question, and I appreciate that. It's -- there is a different message, right? And that's where we're investing heavily into our platform solutions capabilities. And really, what that means is that we're moving beyond just creating a marketplace layer for the media that's transacted and really working directly with these carriers who have been, again, historically underpenetrated in our channel to provide more of a platform where we own parts of the pre-quote conversion process so that we can optimize more of that conversion funnel for them. As you can imagine, we have capabilities and we have access to data that enable us to do that very well and oftentimes better than a lot of carriers who are less experienced in that area. And so the ability for us to really go in and again, not just offer media from our marketplace, but also to offer a hosted optimized conversion experience that, again, takes the first 1 to 2 to 3 steps of that conversion process and really optimize that on behalf of a lot of these historically underpenetrated carriers, I think has gone over really well, has enabled us to optimize their campaigns in our marketplace really well and enable them to be a lot more competitive in our marketplace than they otherwise would have been had we not offered these types of solutions.

Our next question comes from the line of Mike Zaremski from BMO Capital Markets.

First question is on the P&C side, on seasonality, and I appreciating it's already late February. So I'm just -- so your guidance is clearly robust. But are we not seeing as much seasonality as you had maybe thought 6 months ago or 3 months ago? Or is this kind of the normal expectations you'd say?

Yes. And Mike, this is Pat. I would say that I think the last few years, we've seen pretty robust volume in Q4. I would say Q4 of this year maybe was a little bit less robust than we maybe thought it would be, but it was robust. And kind of what we've seen in Q1 is probably a little bit muted versus what we maybe have seen in some past years. Having said that, what we've seen is some of the smaller carriers that have underpunched their weight historically in our marketplace, being the ones that have really been leaning in so far in Q1 and some of the bigger ones have maybe taken their foot off the gas just a tiny bit on it. And we're in a spot where it's been probably a number of years since we've had a really normal year from a seasonality standpoint. And we feel like Q1 is off to a good start. We're feeling pretty good about where the rest of February and March are going to end up, and we're feeling optimistic about the year. So we're obviously feeling pretty good, although it's still early overall in the year.

Got it. That's helpful. And moving back to, I know it's not easy to forecast the future in regards to AI and your comments have been very thoughtful so far. If we were to kind of bucket up into a profile of insurance carrier that was much more sophisticated data-wise than peers and also offered on average, a much lower cost or a lower cost policy on average, would that profile make that insurance carrier more likely to test the waters to offer their pricing to third parties and LLMs? Or I don't know if there's any kind of way to maybe differentiate your broad strokes to kind of a certain subset of insurance carriers?

Yes, and infact -- yes, I think the I think you can think about the universe of auto insurance carriers as being split up into the captive agent carriers where you have exclusive agents. The State Farm is a typical example that you think of that a network of agents who only sell State Farm policies. And so you have the captive agent carriers, you have the direct-to-consumer carriers or the direct writers, again, big brands like GEICO and Progressive. And then typically, you have a lot of smaller carriers that write through independent agents. And so it's as you think about historically, the carriers that have allowed their rates to be aggregated and put into a comparison environment, something akin to a kayak for auto insurance, right? It's really been those smaller midsized independent agent carriers that are used to selling in, in a multi-carrier environment through independent agents. And so what we expect is that to the extent that the LLMs start to pull in rates, right, typically by working with an insurance agency, right, that the rates that they'll be pulling in are going to be limited largely to those rates from independent agent carriers. And again, the captive agents and the direct agents -- direct-to-consumer model make up over 2/3 of the overall ecosystem. And so what you'll see is some rates, but you'll see really a subset of the carriers that the typical consumer is looking for.

And to analogize it back to Kayak, it would be like doing a search on Kayak for airfare and seeing rates from a couple of -- a handful of carriers, but really missing the rates from an American Airlines, United Airlines and Delta Airlines. And so it's a good consumer experience. Some of our publishers have that type of consumer experience. But by no means is it a complete and holistic search. And so to the extent that rates are pulled into an LLM environment, we expect that it's going to remain similar to what it is now, which is -- and being limited to those independent agency carriers.

Patrick Thompson

That's helpful. And just lastly for Pat, on some free cash flow, quick clarification. The $90 million to $100 million, is that subtracting the final payment? So we should -- and also, is there any cash taxes or cash receivable payments within the $90 million or whatever that's the number you're guiding.

Yes. And Mike, the guidance is for $90 million to $100 million of free cash flow this year, and that includes the $11.5 million payment that was made to the FTC. So kind of absent that, we would be at $101 million to $111 million. And from a cash tax standpoint, there is a TRA payment that's going out in Q1. It's kind of a mid-single-digit millions payment going out, and that's kind of the star of the show from a cash tax standpoint for calendar 2026.

Our next question comes from the line of Andrew Kligerman from TD Cowen.

And I'm a little confused still from your response to Mike's question about 2/3 of the market being tied up in captive and direct -- and that it would be just focused on the LLMs would be just focused on the smaller midsized independent carriers. Because if I think of the large ones, that do go independent. And I'm not necessarily pointing to them, but Progressive has a big independent channel. Allstate has a growing independent channel. I think GEICO might be starting to dip into that. So my question is, is it possible down the road, or is it actually happening now that big names such as the ones that I mentioned, and it doesn't have to be those specifically. Is it possible that they're already in the mix and starting in these early stages with the LLMs? And why wouldn't that be the case a few years from now regardless?

Sure. It's a great question. And so we talk to our carrier partners. And by and large, most of them -- and these are the carriers that, again, are the typical large brand captive agent carriers as well as the primarily direct-to-consumer direct writing model that you referred to. And really, I don't think that they're in any hurry to make their rates available through the LLMs. Again, I think that what you have to understand is that these carriers spend billions of dollars, right, every year in being part of a small consideration set through brand advertising. And they invest similar amounts, right, in building their underwriting capabilities and the distribution capabilities. And to the extent that they make their rates available through the LLMs, really the only reason that they would want to do that or an LLM would want to do that is to make that comparison, that rate comparison model right, much more readily available. And that's really the model that the carriers have really fought strenuously against for the past 20 years. The technology to be able to pull in rates into a third-party environment has been there for 20-plus years, right? The technology to actually have rates be compared side by side has been there for 20-some years. It's really the carriers and those carriers that I mentioned and their reluctance to see that type of a model really evolve in the United States, which has been the limiting factor in actually offering a Kayak for auto insurance model. And there's some real good business reasons for that as well because it's extraordinarily hard to actually get a bindable rate across multiple carriers through one user experience. And I think the carriers are justifiably concerned not just about being commoditized just to the lowest price, right, but also making sure that the consumers aren't being shown one price when really after all the inputs have been answered that the carrier specifically needs to deliver a bindable quote that there is no significant change from the quote that they saw when they started that process. And so overall, you're right in that some of these carriers are building independent agency capabilities or the capability of selling through those agencies. But I think at the end of the day, those big direct writers, the big captive agent carriers are going to prevent rates from their major brands, right? Maybe their subsidiary brands might be included, but they're certainly going to prevent rates from their big brands from being aggregated onto the LLMs.

And then the other question, I think Pat mentioned earlier that he sees Med Advantage being a strong long-term growth opportunity. And I know it's been a tough -- I don't know, I want to say 3, maybe 4 years -- no probably 3 -- yes, 3 or 4 years of pressures in that area for distribution. Could you talk a little bit about why you kind of -- it sounds like you're seeing an inflection point now. And why do you see that? And how do you see the trajectory of Med Advantage business on your platform?

Yes. And this is Pat. I'm happy to take that one. So I think we're probably now in the fourth year of a challenging market for Medicare. I think '23 was probably when it started. And I think this year is going to be another challenging year in Medicare. And looking at the crystal ball, I think early signs point to next year being challenging as well given some of the reimbursement news that's out there. And I would say for our health vertical, we've given the guidance for this year that we expect it to be a mid-single-digit percentage of total transaction value, so a very small portion of the mix. Having said that, when we look at Medicare Advantage, this is a large product that there are tens of millions of consumers that have opted into Medicare Advantage. It is a product set where the number of eligible people is growing and the number of people opting in are growing.

In terms of total spend on Medicare Advantage premiums, it's a bigger market than personal auto. And it's a market that has the wind at its back in terms of seniors aging into Medicare, you are much more likely to look to the Internet either as part of their shopping journey or their first port of call when it comes to shopping. And so while the market backdrop for Medicare has been and likely will continue to be challenging for the next year or 2, we look at all of these market dynamics and all of these wins are blowing in the right direction and in a direction that suits us very well. And so as a result, we're long-term bullish, but not banking on kind of significant financial contribution from that business in the short term.

Got it. And maybe I could sneak one more in. Do you see the proprietary component kind of continuing to pick up? Or do you see that -- because I guess private this quarter was about 53.7%, up from 41% last year and the full year was a similar pickup. So it's been happening. Where do you see the private percentage of transaction value leveling out? Are we there yet? Or does it get bigger?

Yes. And we're in a spot where I think the trend is the guidance for Q1 envisions the business move shifting a bit private or a bit open, apologies, towards the open marketplace and away from private. And I think we talked pretty consistently in our earnings calls and our materials last year that we have this view that as kind of more carriers caught up in terms of rate adequacy that we would see some of the smaller and midsized carriers and some of the folks that historically underpunch their weight in our marketplace start to lean in. And we saw that kind of happen as we went through Q4 of this year, and we've seen kind of a furtherance of that trend thus far in Q1, and we've envisaged that in our guidance for Q1. And so we're feeling like we're in a pretty good spot as far as that goes. We, as a company, go quarter-to-quarter with guidance, so we don't give long-term numbers on that, but we feel pretty good kind of about where we're at, at this point in time.

I see. So that would be the driver of why guidance in revenue is like $285 million to $305 million against a consensus number that's lower than the lower end of the range. That's kind of the bigger piece of why you have such really solid guidance going forward, correct? Yeah.

That would be correct. Yes, that the business is effectively more open than folks may have been expecting.

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

I'll just really ask one. As you see this underpenetrated opportunity playing out in the coming quarters, how much of it is a dynamic in which you need to execute on putting the right tools and mechanisms in place of folks across the carrier landscape to incent them to come on to the platform, invest in the platform? And how much of it is just an output of some of the competitive environment we're seeing today? It's sort of the in your control, out of your control component of scaling the underpenetrated opportunity.

Yes, Eric, that's a great question. I think ultimately, it's both, but I would say that the more important factor is the fact that just the overall market ecosystem, the competitive dynamics at play there. I think that the -- as our numbers are starting to reflect, I think it is a broadly growth-oriented marketplace, and it's to an extent that I certainly haven't seen in my history at a company. And so I think that after several years of really not acquiring new policies and over the last 1.5 years to 2 years, we've really seen a softening of the market as a very small number of carriers started to lean into growth and spend heavily to acquire new policies. The vast majority of carriers just didn't do that. And so I think this year, what you're seeing is that the overall personal auto marketplace is firmly in a soft market cycle. And you have essentially every single carrier really leaning into growth and finding ways to actually increase their policy count and being open to new ways of doing that and new partnerships to really accelerate their -- the impact that they can have by investing in a channel like ours. And so really, where we come in with our platform solutions, as well as the AI that we apply to enable these carriers to bid far more efficiently than they could on their own, right, in our marketplace. That really stems from our ability and our willingness to really help them scale up their spend once they make the decisions to really lean in. And so I don't know which one is more important. I would say maybe the latter is more important and that market forces are certainly driving them to lean into marketing and customer acquisition, and we expect those market forces to last for the next 2 to 3 years.

But certainly, I think our capabilities, both with predictive AI and the experience that we have and the scale that we have to be able to offer the platform solutions that no one else can, certainly is, I think, has a really big part in helping these advertisers and these carriers, these underpenetrated carriers really scale much more effectively than they would otherwise on their own.

Thank you. There are no further questions. That concludes our question-and-answer session. That also concludes our call for today. Thank you all for joining. You may now disconnect.

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. Given the strong momentum we are seeing in carrier spend and our usual OpEx discipline, we believe we are well positioned to deliver adjusted EBITDA growth and maintain strong free cash flow generation next year.

Longer term, we expect an uplift in take rates as more of our carrier partners ramp up their marketing spend to compete for policy growth, resulting in an increasing percentage of spend being transacted on our open marketplace. We expect record fourth quarter transaction value as we benefit from continued strong demand from the largest carriers in our marketplace. Accordingly, we expect P&C transaction value to grow approximately 45% year-over-year.

In our Health vertical, which includes both Medicare and under-65 Health, we expect transaction value to decline approximately 45% year-over-year, driven primarily by under-65, which is stabilizing at a lower baseline. On a year-over-year basis, we expect fourth quarter transaction value and contribution from under-65 Health to decline by $34 million to $38 million or 61% to 68% and $8 million to $9 million or 80% to 90%, respectively.

To provide additional insight into the new baseline for our Health vertical, similar to last quarter, we've included in this quarter's shareholder letter, both transaction value and contribution for our under-65 business. As a reminder, we expect 2025 under-65 transaction value of $95 million to $100 million and contribution of about $10 million to $11 million, with around $1 million to $2 million of that contribution coming in the fourth quarter. Looking ahead, we expect that under-65 will generate annual contribution dollars in the mid-single-digit millions, reflecting the reset in both scale and profitability for this subvertical.

Moving to our consolidated financial guidance. We expect Q4 transaction value to be between $620 million and $645 million, representing a year-over-year increase of 27% at the midpoint. We expect revenue to be between $280 million and $300 million, representing a year-over-year decrease of 4% at the midpoint. We expect revenue as a percentage of transaction value to decrease meaningfully year-over-year as private marketplace transactions, which are recognized on a net basis, are expected to represent around 54% of transaction value, up from 41% in Q4 of last year. Adjusted EBITDA is expected to be between $27.5 million and $29.5 million, representing a year-over-year decrease of 22% at the midpoint, including $8 million to $9 million of impact from an expected year-over-year decline in under-65 contribution. Excluding under-65 Health, we expect adjusted EBITDA to be roughly flat year-over-year. Finally, we expect overhead to be roughly flat to Q3 levels.

Turning to the balance sheet. We generated $23.6 million of free cash flow in the third quarter. We ended the quarter with a net debt to adjusted EBITDA ratio below 1x and cash of $39 million plus restricted cash of $33.5 million. Earlier this month, the restricted cash was used to make the initial FTC settlement payment and the remaining $11.5 million is payable in Q1 of 2026. Excluding these settlement payments, we expect to convert a substantial portion of adjusted EBITDA into free cash flow, providing us with continued financial flexibility to support our strategic priorities.

Given our confidence in our strategy and long-term growth opportunities, we think our stock is an attractive investment and share buybacks are an accretive use of excess cash, particularly at current levels. During the quarter, we repurchased approximately 5% of our outstanding shares at a discount to market for $32.9 million. In addition, earlier today, we announced a new share repurchase authorization of up to $50 million, consistent with our disciplined approach to capital allocation and focus on maximizing shareholder value.

With that, operator, we are ready to take the first question.

[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 see from our marketplace is that demand remains very, very top heavy. On one hand, we have 13 carriers who spend more than $1 million a month this quarter. That's the greatest number that we've had in history. And so we're seeing a lot of nascent broadening of demand. But again, we're as top heavy as ever with some of the leading carriers who are early to take rate, stepping on the gas in terms of marketing spend that continue to dominate our marketplace.

And so with rates starting to come down, right, with profitability starting to come down as well, I think what you're going to start to see are a lot more carriers really stepping on the gas in 2026 and beyond, right, as we really enter into the meat of the soft market cycle and a broadening of demand that I think will continue and be a tailwind for us for the years to come.

I do think it's worth pointing out that soft market cycles tend to last a lot longer than hard market cycles. Hard market cycles tend to be in about 2- to 3-year increments, and soft market cycles historically have been 2 to 3x that, so about 5 to 7 years on average. And so what we're expecting is several years of tailwind in terms of carrier advertising spend growth. We also expect to see the next level of growth in advertising spend really being from a broader set of top carriers in the top 25 with a lot of that spend, as Pat mentioned, coming through the open exchange, again, as demand broadens out.

And so I hope that explains sort of our position and what we're hearing in the marketplace about peak carrier profitability. Certainly, that doesn't concern us at all. And if anything, that gets us excited that really the heart of the soft market is just beginning.

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.