MediaAlpha Announces Second Quarter 2023 Financial Results
- Revenue of $85 million, down 18% year over year
- Transaction Value of $126 million, down 31% year over year
- Transaction Value from Property & Casualty down 46% year over year to $61 million
- Transaction Value from Health up 10% year over year to $51 million
LOS ANGELES--(BUSINESS WIRE)-- MediaAlpha, Inc. (NYSE: MAX), today announced its financial results for the second quarter ended June 30, 2023.
“Our second quarter results exceeded expectations, driven primarily by strength in our Health insurance vertical,” said MediaAlpha co-founder and CEO Steve Yi. “In our Property & Casualty (P&C) insurance vertical, customer acquisition spend remains at cyclically low levels as carriers are taking longer than expected to restore underwriting profitability, and we expect this to continue for the balance of the year. Our ability to operate profitability in the current market environment is a tribute to the efficiency of our business model and the agility of our team, which we believe will enable us to capture outsized growth as the auto insurance market recovers.”
Second Quarter 2023 Financial Results
- Revenue of $84.8 million, a decrease of 18% year over year;
- Transaction Value of $125.9 million, a decrease of 31% year over year;
- Gross margin of 16.2%, compared with 15.0% in the second quarter of 2022;
- Contribution Margin(1) of 19.5%, compared with 18.1% in the second quarter of 2022;
- Net loss was $(20.0) million, compared with $(13.0) million in the second quarter of 2022; and
- Adjusted EBITDA(1) was $3.6 million, compared with $4.5 million in the second 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 Outlook
Our guidance for the third quarter of 2023 reflects a continuation of low customer acquisition spend levels by P&C carriers as they prioritize profitability over growth. As a result, we expect third quarter Transaction Value in our P&C insurance vertical to decline year over year by 40% to 50%. In addition, we expect third quarter Transaction Value in our Health vertical to grow year over year at a rate similar to the second quarter.
For the third quarter of 2023, MediaAlpha currently expects the following:
- Transaction Value between $95 million - $110 million, representing a 30% year-over-year decline at the midpoint of the guidance range;
- Revenue between $65 million - $75 million, representing a 21% year-over-year decline at the midpoint of the guidance range;
- Adjusted EBITDA between $1.5 million and $3.5 million, representing a 15% 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 $1.5 million lower than Q2 2023 levels, driven primarily by a full quarter impact of the workforce reductions we implemented in May 2023 and continued expense discipline.
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 Information
MediaAlpha will host a Q&A conference call today to discuss the Company's second quarter 2023 results and its financial outlook for the third 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 for two weeks 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 Statements
This 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 that customer acquisition spend by carriers will remain at cyclically low levels for the balance of this year, our belief that we will capture outsized growth as the auto insurance market recovers, and our financial outlook for the third 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 Metrics
This 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.
|
MediaAlpha, Inc. and subsidiaries Consolidated Balance Sheets (Unaudited; in thousands, except share data and per share amounts) |
|||||||
|
|
June 30, |
|
December 31, |
||||
|
Assets |
|
|
|
||||
|
Current assets |
|
|
|
||||
|
Cash and cash equivalents |
$ |
20,029 |
|
|
$ |
14,542 |
|
|
Accounts receivable, net of allowance for credit losses of $325 and $575, respectively |
|
32,589 |
|
|
|
59,998 |
|
|
Prepaid expenses and other current assets |
|
3,484 |
|
|
|
5,880 |
|
|
Total current assets |
|
56,102 |
|
|
|
80,420 |
|
|
Intangible assets, net |
|
29,474 |
|
|
|
32,932 |
|
|
Goodwill |
|
47,739 |
|
|
|
47,739 |
|
|
Other assets |
|
6,885 |
|
|
|
8,990 |
|
|
Total assets |
$ |
140,200 |
|
|
$ |
170,081 |
|
|
Liabilities and stockholders' deficit |
|
|
|
||||
|
Current liabilities |
|
|
|
||||
|
Accounts payable |
$ |
37,815 |
|
|
$ |
53,992 |
|
|
Accrued expenses |
|
13,241 |
|
|
|
14,130 |
|
|
Current portion of long-term debt |
|
8,787 |
|
|
|
8,770 |
|
|
Total current liabilities |
|
59,843 |
|
|
|
76,892 |
|
|
Long-term debt, net of current portion |
|
169,899 |
|
|
|
174,300 |
|
|
Other long-term liabilities |
|
4,852 |
|
|
|
4,973 |
|
|
Total liabilities |
$ |
234,594 |
|
|
$ |
256,165 |
|
|
Commitments and contingencies (Note 7) |
|
|
|
||||
|
Stockholders' (deficit): |
|
|
|
||||
|
Class A common stock, $0.01 par value - 1.0 billion shares authorized; 45.9 million and 43.7 million shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively |
|
459 |
|
|
|
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 June 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 June 30, 2023 and December 31, 2022 |
|
— |
|
|
|
— |
|
|
Additional paid-in capital |
|
489,831 |
|
|
|
465,523 |
|
|
Accumulated deficit |
|
(506,694 |
) |
|
|
(482,142 |
) |
|
Total stockholders' (deficit) attributable to MediaAlpha, Inc. |
$ |
(16,223 |
) |
|
$ |
(15,993 |
) |
|
Non-controlling interests |
|
(78,171 |
) |
|
|
(70,091 |
) |
|
Total stockholders' (deficit) |
$ |
(94,394 |
) |
|
$ |
(86,084 |
) |
|
Total liabilities and stockholders' deficit |
$ |
140,200 |
|
|
$ |
170,081 |
|
|
MediaAlpha, Inc. and subsidiaries Consolidated Statements of Operations (Unaudited; in thousands, except share data and per share amounts) |
|||||||||||||||
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
Revenue |
$ |
84,772 |
|
|
$ |
103,449 |
|
|
$ |
196,402 |
|
|
$ |
246,048 |
|
|
Costs and operating expenses |
|
|
|
|
|
|
|
||||||||
|
Cost of revenue |
|
71,006 |
|
|
|
87,925 |
|
|
|
164,268 |
|
|
|
208,806 |
|
|
Sales and marketing |
|
6,707 |
|
|
|
7,958 |
|
|
|
13,701 |
|
|
|
15,181 |
|
|
Product development |
|
5,061 |
|
|
|
5,661 |
|
|
|
10,229 |
|
|
|
10,877 |
|
|
General and administrative |
|
18,070 |
|
|
|
12,316 |
|
|
|
33,825 |
|
|
|
29,464 |
|
|
Total costs and operating expenses |
|
100,844 |
|
|
|
113,860 |
|
|
|
222,023 |
|
|
|
264,328 |
|
|
(Loss) from operations |
|
(16,072 |
) |
|
|
(10,411 |
) |
|
|
(25,621 |
) |
|
|
(18,280 |
) |
|
Other (income) expense, net |
|
(116 |
) |
|
|
44 |
|
|
|
1,265 |
|
|
|
(479 |
) |
|
Interest expense |
|
3,874 |
|
|
|
1,956 |
|
|
|
7,450 |
|
|
|
3,315 |
|
|
Total other expense, net |
|
3,758 |
|
|
|
2,000 |
|
|
|
8,715 |
|
|
|
2,836 |
|
|
(Loss) before income taxes |
|
(19,830 |
) |
|
|
(12,411 |
) |
|
|
(34,336 |
) |
|
|
(21,116 |
) |
|
Income tax expense |
|
150 |
|
|
|
611 |
|
|
|
228 |
|
|
|
1,754 |
|
|
Net (loss) |
$ |
(19,980 |
) |
|
$ |
(13,022 |
) |
|
$ |
(34,564 |
) |
|
$ |
(22,870 |
) |
|
Net (loss) attributable to non-controlling interest |
|
(5,694 |
) |
|
|
(3,883 |
) |
|
|
(10,012 |
) |
|
|
(6,655 |
) |
|
Net (loss) attributable to MediaAlpha, Inc. |
$ |
(14,286 |
) |
|
$ |
(9,139 |
) |
|
$ |
(24,552 |
) |
|
$ |
(16,215 |
) |
|
Net (loss) per share of Class A common stock |
|
|
|
|
|
|
|
||||||||
|
-Basic and diluted |
$ |
(0.32 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.55 |
) |
|
$ |
(0.39 |
) |
|
Weighted average shares of Class A common stock outstanding |
|
|
|
|
|
|
|
||||||||
|
-Basic and diluted |
|
45,160,646 |
|
|
|
41,705,344 |
|
|
|
44,518,890 |
|
|
|
41,279,146 |
|
|
MediaAlpha, Inc. and subsidiaries Consolidated Statements of Cash Flows (Unaudited; in thousands) |
|||||||
|
|
Six Months Ended June 30, |
||||||
|
|
|
2023 |
|
|
|
2022 |
|
|
Cash flows from operating activities |
|
|
|
||||
|
Net (loss) |
$ |
(34,564 |
) |
|
$ |
(22,870 |
) |
|
Adjustments to reconcile net (loss) to net cash provided by operating activities: |
|
|
|
||||
|
Non-cash equity-based compensation expense |
|
29,489 |
|
|
|
29,616 |
|
|
Non-cash lease expense |
|
337 |
|
|
|
357 |
|
|
Depreciation expense on property and equipment |
|
188 |
|
|
|
197 |
|
|
Amortization of intangible assets |
|
3,458 |
|
|
|
2,360 |
|
|
Amortization of deferred debt issuance costs |
|
398 |
|
|
|
418 |
|
|
Change in fair value of contingent consideration |
|
— |
|
|
|
(2,845 |
) |
|
Impairment of cost method investment |
|
1,406 |
|
|
|
— |
|
|
Credit losses |
|
(250 |
) |
|
|
(127 |
) |
|
Deferred taxes |
|
— |
|
|
|
1,630 |
|
|
Tax receivable agreement liability adjustments |
|
6 |
|
|
|
(589 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
||||
|
Accounts receivable |
|
27,659 |
|
|
|
38,691 |
|
|
Prepaid expenses and other current assets |
|
2,364 |
|
|
|
4,057 |
|
|
Other assets |
|
250 |
|
|
|
198 |
|
|
Accounts payable |
|
(16,177 |
) |
|
|
(28,354 |
) |
|
Accrued expenses |
|
1,777 |
|
|
|
(2,629 |
) |
|
Net cash provided by operating activities |
$ |
16,341 |
|
|
$ |
20,110 |
|
|
Cash flows from investing activities |
|
|
|
||||
|
Purchases of property and equipment |
|
(47 |
) |
|
|
(79 |
) |
|
Cash consideration paid in connection with CHT acquisition |
|
— |
|
|
|
(49,677 |
) |
|
Net cash (used in) investing activities |
$ |
(47 |
) |
|
$ |
(49,756 |
) |
|
Cash flows from financing activities |
|
|
|
||||
|
Proceeds received from: |
|
|
|
||||
|
Revolving credit facility |
|
— |
|
|
|
25,000 |
|
|
Payments made for: |
|
|
|
||||
|
Repayments on long-term debt |
|
(4,750 |
) |
|
|
(4,750 |
) |
|
Repurchases of Class A common stock |
|
— |
|
|
|
(3,382 |
) |
|
Distributions |
|
(1,296 |
) |
|
|
(590 |
) |
|
Payments pursuant to tax receivable agreement |
|
(2,822 |
) |
|
|
(216 |
) |
|
Shares withheld for taxes on vesting of restricted stock units |
|
(1,939 |
) |
|
|
(1,786 |
) |
|
Net cash (used in) provided by financing activities |
$ |
(10,807 |
) |
|
$ |
14,276 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
5,487 |
|
|
|
(15,370 |
) |
|
Cash and cash equivalents, beginning of period |
|
14,542 |
|
|
|
50,564 |
|
|
Cash and cash equivalents, end of period |
$ |
20,029 |
|
|
$ |
35,194 |
|
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 six months ended June 30, 2023 and 2022:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||
|
(dollars in thousands) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
Open Marketplace transactions |
|
$ |
82,856 |
|
|
$ |
99,633 |
|
|
$ |
190,515 |
|
|
$ |
237,729 |
|
|
Percentage of total Transaction Value |
|
|
65.8 |
% |
|
|
54.5 |
% |
|
|
59.7 |
% |
|
|
56.3 |
% |
|
Private Marketplace transactions |
|
|
43,055 |
|
|
|
83,237 |
|
|
|
128,561 |
|
|
|
184,154 |
|
|
Percentage of total Transaction Value |
|
|
34.2 |
% |
|
|
45.5 |
% |
|
|
40.3 |
% |
|
|
43.7 |
% |
|
Total Transaction Value |
|
$ |
125,911 |
|
|
$ |
182,870 |
|
|
$ |
319,076 |
|
|
$ |
421,883 |
|
The following table presents Transaction Value by vertical for the three and six months ended June 30, 2023 and 2022:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||
|
(dollars in thousands) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
Property & Casualty insurance |
|
$ |
60,666 |
|
|
$ |
111,930 |
|
|
$ |
178,590 |
|
|
$ |
260,014 |
|
|
Percentage of total Transaction Value |
|
|
48.2 |
% |
|
|
61.2 |
% |
|
|
56.0 |
% |
|
|
61.6 |
% |
|
Health insurance |
|
|
50,828 |
|
|
|
46,394 |
|
|
|
110,240 |
|
|
|
106,649 |
|
|
Percentage of total Transaction Value |
|
|
40.4 |
% |
|
|
25.4 |
% |
|
|
34.5 |
% |
|
|
25.3 |
% |
|
Life insurance |
|
|
8,359 |
|
|
|
12,467 |
|
|
|
18,476 |
|
|
|
24,858 |
|
|
Percentage of total Transaction Value |
|
|
6.6 |
% |
|
|
6.8 |
% |
|
|
5.8 |
% |
|
|
5.9 |
% |
|
Other(1) |
|
|
6,058 |
|
|
|
12,079 |
|
|
|
11,770 |
|
|
|
30,362 |
|
|
Percentage of total Transaction Value |
|
|
4.8 |
% |
|
|
6.6 |
% |
|
|
3.7 |
% |
|
|
7.2 |
% |
|
Total Transaction Value |
|
$ |
125,911 |
|
|
$ |
182,870 |
|
|
$ |
319,076 |
|
|
$ |
421,883 |
|
| (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 six months ended June 30, 2023 and 2022:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||
|
(in thousands) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
Revenue |
|
$ |
84,772 |
|
|
$ |
103,449 |
|
|
$ |
196,402 |
|
|
$ |
246,048 |
|
|
Less cost of revenue |
|
|
(71,006 |
) |
|
|
(87,925 |
) |
|
|
(164,268 |
) |
|
|
(208,806 |
) |
|
Gross profit |
|
|
13,766 |
|
|
|
15,524 |
|
|
|
32,134 |
|
|
|
37,242 |
|
|
Adjusted to exclude the following (as related to cost of revenue): |
|
|
|
|
|
|
|
|
||||||||
|
Equity-based compensation |
|
|
981 |
|
|
|
1,240 |
|
|
|
1,947 |
|
|
|
1,638 |
|
|
Salaries, wages, and related |
|
|
907 |
|
|
|
1,034 |
|
|
|
1,954 |
|
|
|
1,690 |
|
|
Internet and hosting |
|
|
130 |
|
|
|
119 |
|
|
|
280 |
|
|
|
223 |
|
|
Other expenses |
|
|
162 |
|
|
|
215 |
|
|
|
334 |
|
|
|
342 |
|
|
Depreciation |
|
|
10 |
|
|
|
12 |
|
|
|
21 |
|
|
|
18 |
|
|
Other services |
|
|
566 |
|
|
|
576 |
|
|
|
1,281 |
|
|
|
1,106 |
|
|
Merchant-related fees |
|
|
7 |
|
|
|
44 |
|
|
|
3 |
|
|
|
59 |
|
|
Contribution |
|
|
16,529 |
|
|
|
18,764 |
|
|
|
37,954 |
|
|
|
42,318 |
|
|
Gross margin |
|
|
16.2 |
% |
|
|
15.0 |
% |
|
|
16.4 |
% |
|
|
15.1 |
% |
|
Contribution Margin |
|
|
19.5 |
% |
|
|
18.1 |
% |
|
|
19.3 |
% |
|
|
17.2 |
% |
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 six months ended June 30, 2023 and 2022:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||
|
(in thousands) |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
Net (loss) |
|
$ |
(19,980 |
) |
|
$ |
(13,022 |
) |
|
$ |
(34,564 |
) |
|
$ |
(22,870 |
) |
|
Equity-based compensation expense |
|
|
15,148 |
|
|
|
15,843 |
|
|
|
29,489 |
|
|
|
29,616 |
|
|
Interest expense |
|
|
3,874 |
|
|
|
1,956 |
|
|
|
7,450 |
|
|
|
3,315 |
|
|
Income tax expense |
|
|
150 |
|
|
|
611 |
|
|
|
228 |
|
|
|
1,754 |
|
|
Depreciation expense on property and equipment |
|
|
92 |
|
|
|
99 |
|
|
|
188 |
|
|
|
197 |
|
|
Amortization of intangible assets |
|
|
1,729 |
|
|
|
1,677 |
|
|
|
3,458 |
|
|
|
2,360 |
|
|
Transaction expenses(1) |
|
|
254 |
|
|
|
150 |
|
|
|
548 |
|
|
|
530 |
|
|
SOX implementation costs(2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
110 |
|
|
Fair value adjustment to contingent consideration(3) |
|
|
— |
|
|
|
(2,845 |
) |
|
|
— |
|
|
|
(2,845 |
) |
|
Impairment of cost method investment |
|
|
— |
|
|
|
— |
|
|
|
1,406 |
|
|
|
— |
|
|
Changes in TRA related liability(4) |
|
|
— |
|
|
|
40 |
|
|
|
6 |
|
|
|
(590 |
) |
|
Changes in Tax Indemnification Receivable(5) |
|
|
(14 |
) |
|
|
(15 |
) |
|
|
(28 |
) |
|
|
(29 |
) |
|
Settlement of federal and state income tax refunds(6) |
|
|
— |
|
|
|
4 |
|
|
|
3 |
|
|
|
92 |
|
|
Legal expenses(7) |
|
|
1,106 |
|
|
|
— |
|
|
|
1,439 |
|
|
|
— |
|
|
Reduction in force costs (8) |
|
|
1,233 |
|
|
|
— |
|
|
$ |
1,233 |
|
|
$ |
— |
|
|
Adjusted EBITDA |
|
$ |
3,592 |
|
|
$ |
4,498 |
|
|
$ |
10,856 |
|
|
$ |
11,640 |
|
| (1) |
Transaction expenses consist of $0.3 million and $0.5 million of legal, and accounting fees incurred by us for the three and six months ended June 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 six months ended June 30, 2022, transaction expenses consist of $0.2 million and $0.5 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 six months ended June 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 $2.8 million of gain for the three and six months ended June 30, 2022, in connection with the remeasurement of the contingent consideration for the acquisition of CHT as of June 30, 2022. |
|
| (4) |
Changes in TRA related liability consist of immaterial expenses for the six months ended June 30, 2023, and immaterial expenses and $0.6 million of income for the three and six months ended June 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 six months ended June 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. |
|
| (6) |
Settlement of federal and state tax refunds consist of immaterial expenses incurred by us for the six months ended June 30, 2023, and immaterial expenses and $0.1 million of expense incurred by us for the three and six months ended June 30, 2022, respectively, 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. |
|
| (7) |
Legal expenses of $1.1 million and $1.4 million for the three and six months ended June 30, 2023, respectively, consist of legal fees incurred in connection with a civil investigative demand received from the Federal Trade Commission (FTC) in February 2023. |
|
| (8) |
Reduction in force costs for the three and six months ended June 30, 2023 consist of $1.2 million of severance benefits provided to the terminated employees in connection with the plan to reduce our workforce implemented in May 2023. Additionally, equity-based compensation expense includes $0.3 million of charges related to the plan for the three and six months ended June 30, 2023. |
Investors
Denise Garcia
Hayflower Partners
Denise@HayflowerPartners.com