MediaAlpha, Inc. (NYSE: MAX), today announced its financial results
for the third quarter ended September 30, 2023.
“Our third quarter results reflected solid execution, as we grew
Adjusted EBITDA year over year despite continued challenging market
conditions in our property & casualty (P&C) insurance
vertical,” said Steve Yi, MediaAlpha CEO. “In the fourth quarter,
we expect continued Adjusted EBITDA growth year over year,
driven by gross margin expansion and disciplined expense
management. We continue to see the benefits of insurance shopping
migrating to online channels, and we expect growth to accelerate in
2024 as the P&C cycle turns and carrier advertising spending
starts to normalize.”
Third Quarter
2023 Financial Results
- Revenue of $74.6 million, a decrease of 16% year over
year;
- Transaction Value of $109.0 million, a decrease of 26% year
over year;
- Gross margin of 16.5%, compared with 14.2% in the third quarter
of 2022;
- Contribution Margin(1) of 20.2%, compared with 17.4% in the
third quarter of 2022;
- Net loss was $(18.7) million, compared with $(21.2) million in
the third quarter of 2022; and
- Adjusted EBITDA(1) was $3.6 million, compared with $2.2 million
in the third quarter of 2022.
(1)A reconciliation of GAAP to Non-GAAP
financial measures has been provided at the end of this press
release. An explanation of these measures is also included below
under the heading “Non-GAAP Financial Measures.”
Financial OutlookOur guidance for the fourth
quarter of 2023 reflects ongoing weakness in customer acquisition
spend levels by P&C carriers as they continue to prioritize
profitability over growth. As a result, we expect Transaction Value
in our P&C insurance vertical to be similar to Q3 2023 levels,
approximately 20% lower year over year. We expect fourth quarter
Transaction Value in our Health vertical to be roughly flat year
over year.
For the fourth quarter of 2023, MediaAlpha currently expects the
following:
- Transaction Value between $145 million - $160 million,
representing a 10% year-over-year decrease at the midpoint of the
guidance range;
- Revenue between $106 million - $116 million, representing a 10%
year-over-year decrease at the midpoint of the guidance range;
- Adjusted EBITDA between $9.5 million and $11.5 million,
representing a 16% year-over-year increase at the midpoint of the
guidance range. We are projecting our operating expenses, net of
Adjusted EBITDA addbacks, to be approximately $0.5 to $1.0 million
higher than Q3 2023 levels due in part to seasonality.
With respect to the Company’s projection of Adjusted EBITDA
under “Financial Outlook,” MediaAlpha is not providing a
reconciliation of Adjusted EBITDA to net income (loss) because the
Company is unable to predict with reasonable certainty the
reconciling items that may affect net income (loss) without
unreasonable effort, including equity-based compensation,
transaction expenses and income tax expense. These reconciling
items are uncertain, depend on various factors and could
significantly impact, either individually or in the aggregate, the
corresponding GAAP measures for the applicable period.
For a detailed explanation of the Company’s non-GAAP measures,
please refer to the appendix section of this press release.
Conference Call InformationMediaAlpha will host
a Q&A conference call today to discuss the Company's third
quarter 2023 results and its financial outlook for the fourth
quarter of 2023 at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time).
A live audio webcast of the call will be available on the
MediaAlpha Investor Relations website at
https://investors.mediaalpha.com. To register for the webcast,
click here. Participants may also dial-in, toll-free, at (888)
330-2022 or (646) 960-0690, with passcode 3195092. An audio replay
of the conference call will be available following the call and
available on the MediaAlpha Investor Relations website at
https://investors.mediaalpha.com.
We have also posted to our investor relations website a letter
to shareholders. We have used, and intend to continue to use, our
investor relations website at
https://investors.mediaalpha.com as a means of disclosing
material nonpublic information and for complying with our
disclosure obligations under Regulation FD.
Forward-Looking StatementsThis press release
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including without
limitation statements regarding our expectation of double-digit
year-over-year growth in Adjusted EBITDA in the fourth quarter of
2023, driven primarily by continued gross margin expansion and
disciplined expense management; our expectation of accelerated top
and bottom line growth in 2024 as P&C carrier advertising
spending normalizes; and our financial outlook for the fourth
quarter of 2023. These forward-looking statements reflect our
current views with respect to, among other things, future events
and our financial performance. These statements are often, but not
always, made through the use of words or phrases such as “may,”
“should,” “could,” “predict,” “potential,” “believe,” “will likely
result,” “expect,” “continue,” “will,” “anticipate,” “seek,”
“estimate,” “intend,” “plan,” “projection,” “would,” and “outlook,”
or the negative version of those words or other comparable words or
phrases of a future or forward-looking nature. These
forward-looking statements are not historical facts, and are based
on current expectations, estimates and projections about our
industry, management’s beliefs and certain assumptions made by
management, many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, we caution you that
any such forward-looking statements are not guarantees of future
performance and are subject to risks, assumptions and uncertainties
that are difficult to predict. Although we believe that the
expectations reflected in these forward-looking statements are
reasonable as of the date made, actual results may prove to be
materially different from the results expressed or implied by the
forward-looking statements.
There are or will be important factors that
could cause our actual results to differ materially from those
indicated in these forward-looking statements, including those more
fully described in MediaAlpha’s filings with the Securities and
Exchange Commission (“SEC”), including the Form 10-K filed on
February 27, 2023. These factors should not be construed as
exhaustive. MediaAlpha disclaims any obligation to update any
forward-looking statements to reflect events or circumstances that
occur after the date of this press release.
Non-GAAP Financial Measures and
Operating MetricsThis press release includes Adjusted
EBITDA and Contribution Margin, which are non-GAAP financial
measures. The Company also presents Transaction Value, which is an
operating metric not presented in accordance with GAAP. See the
appendix for definitions of Adjusted EBITDA, Contribution,
Contribution Margin and Transaction Value, as well as
reconciliations to the corresponding GAAP financial metrics, as
applicable.
We present Transaction Value, Adjusted EBITDA
and Contribution Margin because they are used extensively by our
management and board of directors to manage our operating
performance, including evaluating our operational performance
against budget and assessing our overall operating efficiency and
operating leverage. Accordingly, we believe that Transaction Value,
Adjusted EBITDA and Contribution Margin provide useful information
to investors and others in understanding and evaluating our
operating results in the same manner as our management team and
board of directors. Each of Transaction Value, Adjusted EBITDA and
Contribution Margin has limitations as a financial measure and
investors should not consider it in isolation or as a substitute
for analysis of our results as reported under GAAP.
Contacts:
InvestorsDenise
GarciaHayflower
PartnersDenise@HayflowerPartners.com
MediaAlpha, Inc. and subsidiaries |
Consolidated Balance Sheets |
(Unaudited; in thousands, except share data and per share
amounts) |
|
|
September 30,2023 |
|
December 31,2022 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
15,196 |
|
|
$ |
14,542 |
|
Accounts receivable, net of allowance for credit losses of $314 and
$575, respectively |
|
33,051 |
|
|
|
59,998 |
|
Prepaid expenses and other current assets |
|
2,773 |
|
|
|
5,880 |
|
Total current assets |
|
51,020 |
|
|
|
80,420 |
|
Intangible assets, net |
|
27,744 |
|
|
|
32,932 |
|
Goodwill |
|
47,739 |
|
|
|
47,739 |
|
Other assets |
|
6,529 |
|
|
|
8,990 |
|
Total assets |
$ |
133,032 |
|
|
$ |
170,081 |
|
Liabilities and
stockholders' deficit |
|
|
|
Current liabilities |
|
|
|
Accounts payable |
$ |
38,749 |
|
|
$ |
53,992 |
|
Accrued expenses |
|
12,708 |
|
|
|
14,130 |
|
Current portion of long-term debt |
|
8,797 |
|
|
|
8,770 |
|
Total current liabilities |
|
60,254 |
|
|
|
76,892 |
|
Long-term debt, net of current
portion |
|
167,697 |
|
|
|
174,300 |
|
Other long-term
liabilities |
|
4,760 |
|
|
|
4,973 |
|
Total liabilities |
$ |
232,711 |
|
|
$ |
256,165 |
|
Commitments and contingencies
(Note 7) |
|
|
|
Stockholders' (deficit): |
|
|
|
Class A common stock, $0.01 par value - 1.0 billion shares
authorized; 46.6 million and 43.7 million shares issued and
outstanding as of September 30, 2023 and December 31,
2022, respectively |
|
466 |
|
|
|
437 |
|
Class B common stock, $0.01 par value - 100 million shares
authorized; 18.1 million and 18.9 million shares issued and
outstanding as of September 30, 2023 and December 31,
2022, respectively |
|
181 |
|
|
|
189 |
|
Preferred stock, $0.01 par value - 50 million shares authorized; 0
shares issued and outstanding as of September 30, 2023 and
December 31, 2022 |
|
— |
|
|
|
— |
|
Additional paid-in capital |
|
503,303 |
|
|
|
465,523 |
|
Accumulated deficit |
|
(520,196 |
) |
|
|
(482,142 |
) |
Total stockholders' (deficit)
attributable to MediaAlpha, Inc. |
$ |
(16,246 |
) |
|
$ |
(15,993 |
) |
Non-controlling interests |
|
(83,433 |
) |
|
|
(70,091 |
) |
Total stockholders'
(deficit) |
$ |
(99,679 |
) |
|
$ |
(86,084 |
) |
Total liabilities and stockholders' deficit |
$ |
133,032 |
|
|
$ |
170,081 |
|
MediaAlpha, Inc. and subsidiaries |
Consolidated Statements of Operations |
(Unaudited; in thousands, except share data and per share
amounts) |
|
|
Three Months EndedSeptember
30, |
|
Nine Months EndedSeptember
30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Revenue |
$ |
74,573 |
|
|
$ |
89,017 |
|
|
$ |
270,975 |
|
|
$ |
335,065 |
|
Costs and operating
expenses |
|
|
|
|
|
|
|
Cost of revenue |
|
62,277 |
|
|
|
76,343 |
|
|
|
226,545 |
|
|
|
285,149 |
|
Sales and marketing |
|
6,101 |
|
|
|
6,853 |
|
|
|
19,802 |
|
|
|
22,034 |
|
Product development |
|
4,296 |
|
|
|
5,291 |
|
|
|
14,525 |
|
|
|
16,168 |
|
General and administrative |
|
16,648 |
|
|
|
11,105 |
|
|
|
50,473 |
|
|
|
40,569 |
|
Total costs and operating expenses |
|
89,322 |
|
|
|
99,592 |
|
|
|
311,345 |
|
|
|
363,920 |
|
(Loss) from operations |
|
(14,749 |
) |
|
|
(10,575 |
) |
|
|
(40,370 |
) |
|
|
(28,855 |
) |
Other (income) expense, net |
|
(100 |
) |
|
|
8,602 |
|
|
|
1,165 |
|
|
|
8,123 |
|
Interest expense |
|
3,947 |
|
|
|
2,593 |
|
|
|
11,397 |
|
|
|
5,908 |
|
Total other expense, net |
|
3,847 |
|
|
|
11,195 |
|
|
|
12,562 |
|
|
|
14,031 |
|
(Loss) before income taxes |
|
(18,596 |
) |
|
|
(21,770 |
) |
|
|
(52,932 |
) |
|
|
(42,886 |
) |
Income tax expense (benefit) |
|
102 |
|
|
|
(544 |
) |
|
|
330 |
|
|
|
1,210 |
|
Net (loss) |
$ |
(18,698 |
) |
|
$ |
(21,226 |
) |
|
$ |
(53,262 |
) |
|
$ |
(44,096 |
) |
Net (loss) attributable to
non-controlling interest |
|
(5,196 |
) |
|
|
(6,740 |
) |
|
|
(15,208 |
) |
|
|
(13,395 |
) |
Net (loss) attributable to MediaAlpha, Inc. |
$ |
(13,502 |
) |
|
$ |
(14,486 |
) |
|
$ |
(38,054 |
) |
|
$ |
(30,701 |
) |
Net (loss) per share of Class A
common stock |
|
|
|
|
|
|
|
-Basic and diluted |
$ |
(0.29 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.84 |
) |
|
$ |
(0.74 |
) |
Weighted average shares of Class
A common stock outstanding |
|
|
|
|
|
|
|
-Basic and diluted |
|
46,229,672 |
|
|
|
42,210,186 |
|
|
|
45,095,417 |
|
|
|
41,592,783 |
|
MediaAlpha, Inc. and subsidiaries |
Consolidated Statements of Cash Flows |
(Unaudited; in thousands) |
|
|
Nine Months EndedSeptember
30, |
|
|
2023 |
|
|
|
2022 |
|
Cash flows from
operating activities |
|
|
|
Net (loss) |
$ |
(53,262 |
) |
|
$ |
(44,096 |
) |
Adjustments to reconcile net
(loss) to net cash provided by operating activities: |
|
|
|
Non-cash equity-based compensation expense |
|
43,943 |
|
|
|
44,216 |
|
Non-cash lease expense |
|
508 |
|
|
|
539 |
|
Depreciation expense on property and equipment |
|
275 |
|
|
|
295 |
|
Amortization of intangible assets |
|
5,188 |
|
|
|
4,064 |
|
Amortization of deferred debt issuance costs |
|
597 |
|
|
|
626 |
|
Change in fair value of contingent consideration |
|
— |
|
|
|
(6,591 |
) |
Impairment of cost method investment |
|
1,406 |
|
|
|
8,594 |
|
Credit losses |
|
(220 |
) |
|
|
(109 |
) |
Deferred taxes |
|
— |
|
|
|
1,054 |
|
Tax receivable agreement liability adjustments |
|
6 |
|
|
|
(576 |
) |
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
|
27,167 |
|
|
|
42,840 |
|
Prepaid expenses and other current assets |
|
3,059 |
|
|
|
5,451 |
|
Other assets |
|
375 |
|
|
|
322 |
|
Accounts payable |
|
(15,243 |
) |
|
|
(19,452 |
) |
Accrued expenses |
|
1,138 |
|
|
|
(2,223 |
) |
Net cash provided by operating activities |
$ |
14,937 |
|
|
$ |
34,954 |
|
Cash flows from
investing activities |
|
|
|
Purchases of property and equipment |
|
(60 |
) |
|
|
(93 |
) |
Cash consideration paid in connection with CHT acquisition |
|
— |
|
|
|
(49,677 |
) |
Net cash (used in) investing activities |
$ |
(60 |
) |
|
$ |
(49,770 |
) |
Cash flows from
financing activities |
|
|
|
Proceeds received from: |
|
|
|
Revolving credit facility |
|
— |
|
|
|
25,000 |
|
Payments made for: |
|
|
|
Repayments on revolving line of credit |
|
— |
|
|
|
(15,000 |
) |
Repayments on long-term debt |
|
(7,125 |
) |
|
|
(7,125 |
) |
Repurchases of Class A common stock |
|
— |
|
|
|
(5,008 |
) |
Contributions from QLH’s members |
|
196 |
|
|
|
— |
|
Distributions |
|
(1,572 |
) |
|
|
(590 |
) |
Payments pursuant to tax receivable agreement |
|
(2,822 |
) |
|
|
(216 |
) |
Shares withheld for taxes on vesting of restricted stock units |
|
(2,900 |
) |
|
|
(2,601 |
) |
Net cash (used in) financing activities |
$ |
(14,223 |
) |
|
$ |
(5,540 |
) |
Net increase (decrease) in cash and cash equivalents |
|
654 |
|
|
|
(20,356 |
) |
Cash and cash equivalents,
beginning of period |
|
14,542 |
|
|
|
50,564 |
|
Cash and cash equivalents, end
of period |
$ |
15,196 |
|
|
$ |
30,208 |
|
|
Key business and operating metrics and Non-GAAP
financial measures
Transaction Value
We define “Transaction Value” as the total gross dollars
transacted by our partners on our platform. Transaction Value is a
driver of revenue, with differing revenue recognition based on the
economic relationship we have with our partners. Our partners use
our platform to transact via Open and Private Marketplace
transactions. In our Open Marketplace model, Transaction Value is
equal to revenue recognized and revenue share payments to our
supply partners represent costs of revenue. In our Private
Marketplace model, revenue recognized represents a platform fee
billed to the demand partner or supply partner based on an
agreed-upon percentage of the Transaction Value for the Consumer
Referrals transacted, and accordingly there are no associated costs
of revenue. We utilize Transaction Value to assess revenue and to
assess the overall level of transaction activity through our
platform. We believe it is useful to investors to assess the
overall level of activity on our platform and to better understand
the sources of our revenue across our different transaction models
and verticals.
The following table presents Transaction Value by platform model
for the three and nine months ended September 30, 2023 and
2022:
|
|
Three Months EndedSeptember
30, |
|
Nine Months EndedSeptember
30, |
(dollars in thousands) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Open Marketplace transactions |
|
$ |
73,053 |
|
|
$ |
86,279 |
|
|
$ |
263,568 |
|
|
$ |
324,008 |
|
Percentage of total
Transaction Value |
|
|
67.0 |
% |
|
|
58.8 |
% |
|
|
61.6 |
% |
|
|
57.0 |
% |
Private Marketplace
transactions |
|
|
35,963 |
|
|
|
60,438 |
|
|
|
164,524 |
|
|
|
244,592 |
|
Percentage of total
Transaction Value |
|
|
33.0 |
% |
|
|
41.2 |
% |
|
|
38.4 |
% |
|
|
43.0 |
% |
Total Transaction Value |
|
$ |
109,016 |
|
|
$ |
146,717 |
|
|
$ |
428,092 |
|
|
$ |
568,600 |
|
|
The following table presents Transaction Value by vertical for
the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months EndedSeptember
30, |
|
Nine Months EndedSeptember
30, |
(dollars in thousands) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Property & Casualty insurance |
|
$ |
44,715 |
|
|
$ |
83,165 |
|
|
$ |
223,305 |
|
|
$ |
343,179 |
|
Percentage of total Transaction
Value |
|
|
41.0 |
% |
|
|
56.7 |
% |
|
|
52.2 |
% |
|
|
60.4 |
% |
Health insurance |
|
|
51,210 |
|
|
|
46,190 |
|
|
|
161,450 |
|
|
|
152,839 |
|
Percentage of total Transaction
Value |
|
|
47.0 |
% |
|
|
31.5 |
% |
|
|
37.7 |
% |
|
|
26.9 |
% |
Life insurance |
|
|
7,566 |
|
|
|
11,580 |
|
|
|
26,042 |
|
|
|
36,438 |
|
Percentage of total Transaction
Value |
|
|
6.9 |
% |
|
|
7.9 |
% |
|
|
6.1 |
% |
|
|
6.4 |
% |
Other(1) |
|
|
5,525 |
|
|
|
5,782 |
|
|
|
17,295 |
|
|
|
36,144 |
|
Percentage of total Transaction
Value |
|
|
5.1 |
% |
|
|
3.9 |
% |
|
|
4.0 |
% |
|
|
6.4 |
% |
Total Transaction Value |
|
$ |
109,016 |
|
|
$ |
146,717 |
|
|
$ |
428,092 |
|
|
$ |
568,600 |
|
(1) |
Our other verticals include Travel, Education and Consumer
Finance. |
|
|
Contribution and Contribution Margin
We define “Contribution” as revenue less revenue
share payments and online advertising costs, or, as reported in our
consolidated statements of operations, revenue less cost of revenue
(i.e., gross profit), as adjusted to exclude the following items
from cost of revenue: equity-based compensation; salaries, wages,
and related costs; internet and hosting costs; amortization;
depreciation; other services; and merchant-related fees. We define
“Contribution Margin” as Contribution expressed as a percentage of
revenue for the same period. Contribution and Contribution Margin
are non-GAAP financial measures that we present to supplement the
financial information we present on a GAAP basis. We use
Contribution and Contribution Margin to measure the return on our
relationships with our supply partners (excluding certain fixed
costs), the financial return on and efficacy of our online
advertising costs to drive consumers to our proprietary websites,
and our operating leverage. We do not use Contribution and
Contribution Margin as measures of overall profitability. We
present Contribution and Contribution Margin because they are used
by our management and board of directors to manage our operating
performance, including evaluating our operational performance
against budget and assessing our overall operating efficiency and
operating leverage. For example, if Contribution increases and our
headcount costs and other operating expenses remain steady, our
Adjusted EBITDA and operating leverage increase. If Contribution
Margin decreases, we may choose to re-evaluate and re-negotiate our
revenue share agreements with our supply partners, to make
optimization and pricing changes with respect to our bids for
keywords from primary traffic acquisition sources, or to change our
overall cost structure with respect to headcount, fixed costs and
other costs. Other companies may calculate Contribution and
Contribution Margin differently than we do. Contribution and
Contribution Margin have their limitations as analytical tools, and
you should not consider them in isolation or as substitutes for
analysis of our results presented in accordance with GAAP.
The following table reconciles Contribution with gross profit,
the most directly comparable financial measure calculated and
presented in accordance with GAAP, for the three and nine months
ended September 30, 2023 and 2022:
|
|
Three Months EndedSeptember
30, |
|
Nine Months EndedSeptember
30, |
(in thousands) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Revenue |
|
$ |
74,573 |
|
|
$ |
89,017 |
|
|
$ |
270,975 |
|
|
$ |
335,065 |
|
Less cost of revenue |
|
|
(62,277 |
) |
|
|
(76,343 |
) |
|
|
(226,545 |
) |
|
|
(285,149 |
) |
Gross profit |
|
|
12,296 |
|
|
|
12,674 |
|
|
|
44,430 |
|
|
|
49,916 |
|
Adjusted to exclude the
following (as related to cost of revenue): |
|
|
|
|
|
|
|
|
Equity-based compensation |
|
|
1,012 |
|
|
|
999 |
|
|
|
2,959 |
|
|
|
2,637 |
|
Salaries, wages, and related |
|
|
878 |
|
|
|
989 |
|
|
|
2,832 |
|
|
|
2,679 |
|
Internet and hosting |
|
|
138 |
|
|
|
126 |
|
|
|
418 |
|
|
|
349 |
|
Other expenses |
|
|
179 |
|
|
|
189 |
|
|
|
513 |
|
|
|
531 |
|
Depreciation |
|
|
9 |
|
|
|
12 |
|
|
|
30 |
|
|
|
30 |
|
Other services |
|
|
514 |
|
|
|
492 |
|
|
|
1,795 |
|
|
|
1,598 |
|
Merchant-related fees |
|
|
11 |
|
|
|
40 |
|
|
|
14 |
|
|
|
99 |
|
Contribution |
|
|
15,037 |
|
|
|
15,521 |
|
|
|
52,991 |
|
|
|
57,839 |
|
Gross margin |
|
|
16.5 |
% |
|
|
14.2 |
% |
|
|
16.4 |
% |
|
|
14.9 |
% |
Contribution Margin |
|
|
20.2 |
% |
|
|
17.4 |
% |
|
|
19.6 |
% |
|
|
17.3 |
% |
|
Adjusted EBITDA
We define “Adjusted EBITDA” as net income
excluding interest expense, income tax benefit (expense),
depreciation expense on property and equipment, amortization of
intangible assets, as well as equity-based compensation expense and
certain other adjustments as listed in the table below. Adjusted
EBITDA is a non-GAAP financial measure that we present to
supplement the financial information we present on a GAAP basis. We
monitor and present Adjusted EBITDA because it is a key measure
used by our management to understand and evaluate our operating
performance, to establish budgets and to develop operational goals
for managing our business. We believe that Adjusted EBITDA helps
identify underlying trends in our business that could otherwise be
masked by the effect of the expenses that we exclude in the
calculations of Adjusted EBITDA. Accordingly, we believe that
Adjusted EBITDA provides useful information to investors and others
in understanding and evaluating our operating results, enhancing
the overall understanding of our past performance and future
prospects. In addition, presenting Adjusted EBITDA provides
investors with a metric to evaluate the capital efficiency of our
business.
Adjusted EBITDA is not presented in accordance
with GAAP and should not be considered in isolation of, or as an
alternative to, measures presented in accordance with GAAP. There
are a number of limitations related to the use of Adjusted EBITDA
rather than net income, which is the most directly comparable
financial measure calculated and presented in accordance with GAAP.
These limitations include the fact that Adjusted EBITDA excludes
interest expense on debt, income tax benefit (expense),
equity-based compensation expense, depreciation and amortization,
and certain other adjustments that we consider useful information
to investors and others in understanding and evaluating our
operating results. In addition, other companies may use other
measures to evaluate their performance, including different
definitions of “Adjusted EBITDA,” which could reduce the usefulness
of our Adjusted EBITDA as a tool for comparison.
The following table reconciles Adjusted EBITDA with net (loss),
the most directly comparable financial measure calculated and
presented in accordance with GAAP, for the three and nine months
ended September 30, 2023 and 2022:
|
|
Three Months EndedSeptember
30, |
|
Nine Months EndedSeptember
30, |
(in thousands) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net (loss) |
|
$ |
(18,698 |
) |
|
$ |
(21,226 |
) |
|
$ |
(53,262 |
) |
|
$ |
(44,096 |
) |
Equity-based compensation expense |
|
|
14,454 |
|
|
|
14,600 |
|
|
|
43,943 |
|
|
|
44,216 |
|
Interest expense |
|
|
3,947 |
|
|
|
2,593 |
|
|
|
11,397 |
|
|
|
5,908 |
|
Income tax expense (benefit) |
|
|
102 |
|
|
|
(544 |
) |
|
|
330 |
|
|
|
1,210 |
|
Depreciation expense on property and equipment |
|
|
87 |
|
|
|
98 |
|
|
|
275 |
|
|
|
295 |
|
Amortization of intangible assets |
|
|
1,730 |
|
|
|
1,704 |
|
|
|
5,188 |
|
|
|
4,064 |
|
Transaction expenses(1) |
|
|
5 |
|
|
|
106 |
|
|
|
553 |
|
|
|
636 |
|
SOX implementation costs(2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
110 |
|
Fair value adjustment to contingent consideration(3) |
|
|
— |
|
|
|
(3,746 |
) |
|
|
— |
|
|
|
(6,591 |
) |
Impairment of cost method investment |
|
|
— |
|
|
|
8,594 |
|
|
|
1,406 |
|
|
|
8,594 |
|
Changes in TRA related liability(4) |
|
|
— |
|
|
|
13 |
|
|
|
6 |
|
|
|
(577 |
) |
Changes in Tax Indemnification Receivable(5) |
|
|
(20 |
) |
|
|
(15 |
) |
|
|
(48 |
) |
|
|
(44 |
) |
Settlement of federal and state income tax refunds(6) |
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
92 |
|
Legal expenses(7) |
|
|
1,979 |
|
|
|
— |
|
|
|
3,418 |
|
|
|
— |
|
Reduction in force costs (8) |
|
|
— |
|
|
|
— |
|
|
|
1,233 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
3,586 |
|
|
$ |
2,177 |
|
|
$ |
14,442 |
|
|
$ |
13,817 |
|
(1) |
Transaction expenses consist of immaterial expenses and
$0.6 million of legal, and accounting fees incurred by us for
the three and nine months ended September 30, 2023, respectively,
in connection with the amendment to the 2021 Credit Facilities, the
tender offer filed by the Company's largest shareholder in May
2023, and a resale registration statement filed with the SEC. For
the three and nine months ended September 30, 2022, transaction
expenses consist of $0.1 million and $0.6 million of
expenses, respectively, incurred by us in connection with our
acquisition of CHT. |
(2) |
SOX implementation costs consist
of $0.1 million of expenses for the nine months ended
September 30, 2022 for third-party consultants to assist us with
the development, implementation, and documentation of new and
enhanced internal controls and processes for compliance with SOX
Section 404(b) for fiscal 2021. |
(3) |
Fair value adjustment to
contingent consideration consists of $3.7 million and $6.6 million
of gain for the three and nine months ended September 30, 2022,
respectively, in connection with the remeasurement of the
contingent consideration for the acquisition of CHT as of September
30, 2022. |
(4) |
Changes in TRA related liability
consist of immaterial expenses for the nine months ended September
30, 2023, and immaterial expenses and $0.6 million of income
for the three and nine months ended September 30, 2022,
respectively, due to a change in the estimated future state tax
benefits and other changes in the estimate resulting in reductions
of the TRA liability. |
(5) |
Changes in Tax Indemnification
Receivable consists of immaterial income for the three and nine
months ended September 30, 2023 and 2022, related to a reduction in
the tax indemnification receivable recorded in connection with the
Reorganization Transactions. The reduction also resulted in a
benefit of the same amount which has been recorded within income
tax expense (benefit). |
(6) |
Settlement of federal and state
tax refunds consist of immaterial expenses incurred by us for the
nine months ended September 30, 2023, and $0.1 million of expense
incurred by us for the nine months ended September 30, 2022,
related to a payment to White Mountains for state tax refunds for
the period prior to the Reorganization Transactions related to 2020
tax returns. The settlement also resulted in a benefit of the same
amount which has been recorded within income tax expense
(benefit). |
(7) |
Legal expenses of
$2.0 million and $3.4 million for the three and nine
months ended September 30, 2023, respectively, consist of legal
fees incurred in connection with the civil investigative demand
received from the Federal Trade Commission (FTC) in February 2023
and costs associated with a legal settlement unrelated to our core
operations. |
(8) |
Reduction in force costs for the
nine months ended September 30, 2023 consist of $1.2 million
of severance benefits provided to the terminated employees in
connection with the RIF Plan. Additionally, equity-based
compensation expense includes $0.3 million of charges related to
the RIF Plan for the nine months ended September 30, 2023. |
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