Ladies and gentlemen, thank you for standing by, and welcome to SelectQuote's Fiscal Fourth Quarter and Full-Year 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Matt Gunter, Investor Relations. Thank you. Please go ahead.

Welcome to SelectQuote's fourth quarter and fiscal year 2020 earnings call. Before we begin our call, I would like to mention that on our Web site we have provided a slide presentation to help guide our discussion this morning. After today's call, a replay will also be available on our Web site. Joining me from the company I have our Chief Executive Officer, Tim Danker; and our Chief Financial Officer, Raff Sadun. Following Tim and Raff's comments today, we will have a question-and-answer session. In order to allow everyone the opportunity to participate, we do ask that you limit yourself to one question and one follow-up at a time, and then fall back into the queue for any additional questions. As referenced on slide two, during this call we will be discussing some non-GAAP financial measures, the most directly comparable GAAP financial measures, and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and investor presentation on our Web site. And finally, a reminder that certain statements made today may be forward-looking statements. These statements are made based upon management's current expectations and beliefs concerning future events impacting the company, and therefore, involve a number of uncertainties and risks, including but not limited to those described in our earnings release, Annual Report on Form 10-K and other filings with the SEC. Therefore, the actual results of operations or financial conditions of the company could differ materially from those expressed or implied in our forward-looking statements. And with that, I'd like to turn the call over to our Chief Executive Officer, Tim Danker. Tim?

Thank you, Matt, and thank you to all of our investors and analysts for joining us today. As you likely saw in our press release, we are very pleased with the results for our fourth quarter and full fiscal year. We're excited to share those results with you, but before we do, I'd like to begin with a heartfelt thank you to all of our customers and fellow SelectQuote associates. We have built SelectQuote to deliver the best customer experience, and that focus is core to our success. We are all very proud of the growth we've achieved so far, but are even more excited about the huge opportunity we see ahead. So, with that, let's get down to business on slide three, where you can see the highlights from our very strong fourth quarter. Let me start by summarizing the high points. SelectQuote ended the fourth quarter with consolidated revenues of $141 million, up 90% year-over-year, and adjusted EBITDA of $40 million, up 106% year-over-year. Both were ahead of our internal expectations, and represent the continued strength in both our Senior and Life Divisions, which we will detail in a minute. On a consolidated basis, we reported net income of $20 million, or diluted earnings per share of $0.13. This dramatic growth reflects not only the very large growth opportunity in the Senior market, but also the differentiated operational processes we had built into our model over the last 35 years that have enabled us to take advantage of this opportunity. We're going to spend some time talking to those differentiators today as well. As you all know SelectQuote completed a very successful IPO in May of this year, and we're excited to be speaking to you today on our first earnings call as a public company. Over the…

Thanks, Tim. I'll start on slide 11 with our consolidated results. For the fourth quarter, we generated $141 million of revenue, and $40 million of adjusted EBITDA representing growth of 90% and 106% respectively. We also increased our adjusted EBITDA margin to 28% in the fourth quarter. On a full fiscal year basis, we generated $532 million of revenue and $154 million of adjusted EBITDA, representing growth of 58% and 46% respectively, with an adjusted EBITDA margin of 29%. With that, let me now turn to our fourth quarter and full-year results by segment. I'll begin on slide 12 with our Senior Division, which is our largest division, as you can see, we had a very strong quarter generating revenue of $88 million and adjusted EBITDA of $33 million with a robust adjusted EBITDA margin of 38%, this represents year-over-year growth of 160% and 157% respectively, and actually represent accelerating growth compared to our full-year growth, as we leveraged the proceeds from the private placement, and IPO to continue to invest in the growth of our business. On a full-year basis, we generated revenue of $352 million and adjusted EBITDA of $146 million, representing year-over-year growth of 88% and 62% respectively, with an adjusted EBITDA margin of 40%. Quickly on our 40% adjusted EBITDA margin for the full-year, as I said before, while margins will always be important, we believe that historically we have operated the Senior business with margins that were probably a little too high at the expense of absolute EBITDA. As we continue to capitalize on the large market opportunity in front of us. There are going to be opportunities to maximize absolute EBITDA with slightly lower, but still very attractive and strong margins. Before speaking to our volumes, I'd also note that we closed the InsideResponse…

[Operator Instructions] Our first question comes from Jailendra Singh with Credit Suisse. Your line is open.

Congratulations on a good first quarter as a public company. First question, I was wondering, let me just -- can you elaborate a little bit more about your fiscal '21 guidance, some puts and takes we should keep in mind for each segment next year, and maybe any color on your margin expectations if you can elaborate more there?

Yes. So, I think you know, consistent with what we've said before, we definitely plan to push the growth profile of the Senior business and to maximize absolute revenue and absolute EBITDA, and so, when we think about margins in our Senior business, I think sort of mid-30s is sort of the right [length] [ph] for that, and obviously, that comes with higher revenue and EBITDA, which is embedded in our forecast, and then on a consolidated basis I think our guidance basically has margins in the mid-20s or so, and the biggest driver of that again is going to be the Senior business and then a slight uptick in corporate costs as a result of operating as a public company. I think in our Life and in our Auto & Home businesses the margins will be slightly higher than they were last year, but the biggest drivers are those two things that I mentioned before.

Okay, and then my follow-up on, maybe if you can provide some color around your expectations for the number of agents and agent productivity in fiscal '21. What are the key drivers there, and any thoughts on the expected mix between core and flexi you're expecting in fiscal '21? That will be helpful.

Yes. So, I guess, as we said before, the agent growth is going to be very consistent with the revenue growth, and so, I'd expect the agent growth to be in line with revenue growth, but certainly on the Senior side. In terms of agent productivity, it's basically flat with last year, down a little bit, but the mix of flex versus core agents is actually going to be slightly higher this year. Originally, we had anticipated it to be a little bit lower, but we've actually hired little more agents as part of OEP this year, so -- or AEP this year. So, probably [65%] [ph] flex with the remaining core, and that's on a full-year basis, and so that will naturally drive agent productivity on a weighted average basis down a little bit, but in terms of the assumptions for both flex and core, those are held relatively constant, and I will say that while we're holding them constant with respect to our forecasts, historically we have seen improvements there as evidenced obviously also in the fourth quarter here.

Okay, thanks a lot.

Our next question comes from Frank Morgan with RBC Capital Markets. Your line is open.

Good afternoon. I guess, you made a comment about the effect of -- a positive effect of carrier mix on that having higher persistency. I'm curious if you can maybe shed a little light on what are the attributes of those carriers, why they have the higher persistency? And then my second question would be when you think about your customer retention team and your model, any particular tweaks or changes you've made with the proliferation of zero premium plans? Thanks.

Yes, Frank, this is Tim, great to hear from you. On your first question about carrier mix, I mean we are always analyzing our footprint, our data that we get from analyzing our customer conversion. I think Bill and Bob had done excellent job building out a great national footprint with blue chip carriers, but we're also filling in gaps when we find that, and we've announced the relationship with Kaiser is a great example to do that. So, we have the capability to add additional carriers when we see that there's a market need there. Bob, do you want to talk about other things that we're doing to kind of drive that?

Yes, specific to your question, Frank, on why we see carriers increasing mix and, why their persistency may be better, you know, that comes down to competitiveness of plans, obviously, every year we go into it, there's a little bit of a mix shift there, and then the reason those carriers in a lot of cases have stronger persistency is some of the back-end action that they take on initiatives like we announced with more value-based and cost saving initiatives for the consumers. So, we believe that all carriers are really trying to follow those models, and we're working very closely with them, as you probably saw with our announcement of Iora and others to try to drive that value-based behavior, so that we can increase persistency of all carriers, kind of match those carriers that we see the best persistency with.

Bill, do you want to take the CCA?

Sure, absolutely. To add, Frank, a little bit about what we're doing in terms of the action that we're taking internally to address persistency, [technical difficulty] we continue to learn about our customers and get smarter and smarter to develop more and more technology in terms of how we reach out to them, what affects [technical difficulty]so whether that be your point about zero premium plans, whether it be something in, special election periods, whatever it may be, we use those that data to drive us to reach out to those calls. So, then the next step from that data and those tools is the people. We're rooting with our technology around 70,000 customers per month in terms of contacts, and from there, it's a lot about what we're talking to them about, and Tim mentioned it, Bob mentioned it, it’s these extra offerings that we can offer, the outcomes in terms of outcomes on overall healthcare and other products when we talk about cross-sells and things that we can offer them that continue to tie them closer to SelectQuote and build persistency.

Okay, thank you.

Our next question comes from Sarah James with Piper Sandler. Your line is open.

Thank you, and congrats on a great quarter. I was hoping that you can help us with contexts, what portion of churn factors are outside of your control, like carrier offerings and back-end initiatives versus under your control, and for the levers of churn under your control, are there certain levers that have a higher ROI for you to pull than others?

Yes. Sarah, great to hear from you, this is Tim. I mean there's multiple things that the team is really working on, but to your point are within our control. So, maybe I'll start with kind of the front-end and then maybe ask Bill to also comment on things that are working on the back-end, but really with respect to the front-end, there's a lot of things we're doing on the marketing front that allow us really to concentrate on the highest profitability opportunities. I think we've talked about our marketing tech or wide funnel, it allows us really to concentrate on the highest lifetime revenue to CAC relationship. I'd also point out we're doing a lot with technology. Bob has really spearheaded that to make sure that while we do a great job, matching consumers with prescription drugs, as well as primary care physicians, we've made enhancements into that technology to even better improve that matching, I think we touched upon kind of the mid part of the process and funnel from a product perspective things, we're doing to build out additional carrier relationships, as well as significant investments in our agent plan. Bill, is there anything you'd like to add kind of on the back-end to elaborate things that we're doing proactively on our part really to manage churn?

Yes, absolutely. So I'll talk about some of the specific things and what drives that more than others, there absolutely are critical elements of someone's plan that may drive persistency, and then the action we take, we will correlate basically with what may have happened. So, we have scores for every consumer in terms of their persistency score and how we look at okay, well what may have changed with their plan, or what may have changed within the environment that would allow us to how aggressive we're going to be in reaching out to that consumer. So things like that could include changes in pharmacy networks, they could include changes in specialists, different things that might affect someone's coverage. So that rating right in terms of how we rank those folks and that's a combination of our data feedback that we get from the carriers, all those different things feed into our score, our score drives been our efforts, and we're constantly updating that to try to get in front of that as best we can, and make sure that, we continue to improve that recapture rates should something have changed with their plan where another plan is a better fit for them.

Great, and maybe just one follow-up, on the recapture rate increasing. That's great, but can you help us understand what that means financially? So, as your capture rate goes up, do you guys get a performance bonus or is well attach on the captured Life, or how should we think about that metric changing?

I guess the way to think about recapture rate is it's kind of broken out into customers that are buying another plan, but with the same carrier, and so in that scenario, it's not a churn event. This is part of the persistency rates that we've used upfront to calculate persistency for that carrier and that represent about 40% of the recaptured policies, and then 60% are actually recaptured with a different carrier, and so, in that scenario, it would be viewed as a churn event, and it would be a new policy with that new carrier with a new tale associated with it, and again, that is captured in the persistency rates that we use. The one thing I would add to that is that to the extent that that customer is recaptured with the same carrier, so it's not a churn event, it is effectively sold then at the commission rates in place at that point in time, which given the commission rates have been increasing over time. We benefit from a higher commission rate at that point. Bob, would you add anything to that?

Yes, I think that the one thing I would add is that recapture rate going up this year also underscores how strong our scoring is of our book that Bill talked about, especially with some of the SCPs that were introduced this year with COVID and the other second OEP being out there. Our scoring and risk profile and then driving marketing towards that group on the backend, so we get those folks back in the funnel really spills how much of an impact are scoring tad on that recapture rate.

Our next question comes from David Styblo with Jefferies. Your line is open.

Hi, there. Good afternoon. Thanks to the question. I just wanted to start off to get a better sense of understanding the factors that might gate your growth, obviously the senior business has been doing really well on the top line, 85% or 90% growth the last couple of years consistently, what in your mind sort of cache that in terms of how faster you want to grow, what can the infrastructure hold in terms of being able to adequately train your sales agency and make sure that it's quality growth versus things that would just sort of start to really impair the model. So maybe those areas would just be of interest.

Great. I'll start that one Dave. I mean, clearly a big market as we all know and have covered, we don't necessarily view that there is any operational constraints to growth. With that said, I think, we had been very disciplined about our approach very much as we've grown these businesses, we've tried to really nail it and optimize the unit economics and in a very disciplined manner grow into those. So with that said, I mean, we continue to focus I think on two levers for growth are very important, and maybe I've asked our Chief Operating Officer Bill to speak to them out a little bit more color, but it's really around people are highly skilled agents, everything we're doing to build that as well as obviously our people in the lead side the capabilities that we're really building there to make sure that we can grow into the opportunity, and then I'll let him speak to those two and maybe come back and talk about the other divisions. Bill?

Yes. Great, Tim. Thanks. I think two factors that are near and dear to me. Certainly we concentrate on day in and day out in terms of growth would certainly be the recruiting of our agents and in marketing. So I think on both those fronts, we feel really good about the teams and the approach and the technology we've put together, you know as it relates to marketing. Certainly, I think that our approach has always been a white funnel approach, and what I mean by that is, we're able to consume all different types of media and really react to the market in a fluid way. So whether it be TV paid search clicks affiliates, we built technology to consume all different types of media, which really allows us to be wide funnel and pivot very quickly if we see trends on one that's very profitable for us and we can move very fluidly. So, on that front, we feel really good about what we've done. As it relates to recruiting also feel really good about we've done, we've had a great team, we treat recruiting just like we do sales floor in terms of a resume, as a lead, through our resume, we have a great understanding for someone that we think is going to be successful within our organization. Also think we've been benefited certainly with this environment with COVID by the fact if you look at the field model certainly right now is struggling and we see a lot of those people turning towards us for employment, and just in general with some of our expansion of our remote, certainly expanding to a lot more states than we've been in the past. We're seeing some more and more resumes, which allows us to be more and more selective about the talent that we bring to the organization.

That's great.

Yes, Dave, just coming back to your other points about the other divisions in a really quickly. We have had really great strength in the final expense offering I'd asked Bobby Grant to really speak to that, because it's a great growth opportunity within our Life Segment. We're growing in our core term business. There is a few headwinds there with respect to the paramedical exams in COVID, but overall, we're seeing a lot of great top line growth as well as very attractive kind of payback periods on final expense. Bob, can you speak to that real quick? I think it's important.

Yes, I mean, I think that we are very, very bullish on our final expense offering and we're relatively new in that market as you've seen by our growth, but we see similar trends within the marketing space, and then ultimately the carrier portfolio that we've put together as we saw in our Medicare business. So we are extremely excited about the future, and we see also -- it's a little bit more of a transactional sales. So we see agents get to quote tenure a little bit quicker, which has allowed us to scale very quickly there, and we feel like we can continue to do that given what we've built and what we are going to continue to build the future.

Our next question comes from Lauren Cassel with Morgan Stanley. Your line is open.

Great, thanks so much. I'm just wondering if there is a way to quantify how much the special enrollment period during COVID benefited the quarter certainly came in better than we were expecting, or gets another way. Was there any sort of underlying organic increase in productivity that was better versus your expectations?

I was going to say maybe I'll hit on the financials and then head it over to Bobby for the quarter, but we were seeing very strong results in April. Before the special election period even hit, I think we were up 143% in terms of MA/MS submissions, and so, obviously, that increased in May and June, but we are seeing very strong results already beginning in April. Bob, do you want to comment on that?

Yes. It's a good point on the agent productivity front, even without that SEP, we are seeing 20 plus percent year-over-year agent productivity increases, and I think it really spells the quality of growth that Raff discussed earlier, and Tim, on the responsible way that we try to grow, while really building our technology to enable our agent productivity to rise. So even with the dramatic scale, we've seen recently, we have seen close rates actually rise and we've really seen the number of leads that our agents can take also rise through the technology that we've built and we continue to focus all of our technology efforts on those things to drive more leads and higher close rates for agents driving obviously better agent productivity with that.

Thank you.

Our next question comes from Steve Valiquette with Barclays. Your line is open.

Thanks. It's Jonathan Young on for Steve, I just had a question on the LTV assumptions for FY '21, kind of given the positive mix shift that you're talking about and the higher persistency with those specific carriers. I guess, what else, is coming into that plan LTV assumptions is just that, because of the slightly lower persistency for the other carriers that that's just dragging down the whole thing, just care to get the color there?

Yes, no, I think, great, great question. So when we think about LTVs. We use our own historical experience for that, which is sort of a 36-month weighted average, and I think as we've talked about before anytime you have these sort of additional election periods that allow consumers to change the plans that's naturally going to drive slightly lower persistency and we have seen that this year, and so, when we think about fiscal 21 and sort of the expectations throughout this being flat, we basically are holding persistency flat to our experience, but because we use a 36-month weighted average, there's more periods now that are being brought in at slightly lower persistency. So on average, the persistency is a little bit lower in fiscal 21, and that is being offset with rate increases and then changes in mix to just naturally have a higher persistency and we're adding carriers to the platform that actually have higher persistency as well, and then obviously, all of that is just being offset by the incremental volume that we can sell during these special election periods as evidenced by the 184% growth and then the policies this quarter.

Okay, and then, turning to your relationship with your health, can you just kind of go over that relationship or the economics, what exactly are you doing for them? Thanks.

Yes, absolutely. So the economics directly to that deal are not really anything material, but what we're trying to do there is partner with groups like Iora health. In order to add more value to our consumers and more education around what value-based care is and ultimately that their outcomes could be better and the customer satisfaction could be better at those facilities, and what we've seen in the data with the carriers we partnered with on this, that the retention rates can be materially better, if we educate and kind of get folks to switch over to that model, we would not be doing that though our relationship with him is pure education, and then, sending consumers over to them to see if they would be eligible or see if it would be a good fit for that consumer, but again, those are just pure effort to try to drive consumer satisfaction and better health outcomes for our base than we've seen.

Okay, thanks.

Our next question comes from Elizabeth Anderson with Evercore. The line is open.

Hi, good afternoon guys. Thanks for the question, and I was wondering, if you could talk a little bit about inside response sort of like what you've seen as your early successes and learnings from that business and much of its surprised you there?

Hi, Elizabeth, this is Tim. Yes, great, great, great question. I mean, again we're always working as we mentioned before around people and leads. This is a great acquisition for us in terms of enhancing our marketing capabilities, but I'll ask Bill to talk about some of the early wins, we've really seen on relationship.

Yes, absolutely. So we were, I think our thesis around that investments was that they had a channel that we felt really good about in terms of being able to scale that channel, and a method that they were using to basically help drive lead volume. Obviously, they've been a partner of ours for a long time. So our main thesis was around that, and we felt by working closer with them that we could continue to even optimize that channel even further. So I'll let Raff here talk a little bit here about the financial results, but from just a kind of a strategic aspect, we're incredibly pleased with how it's played out. That channel has continued to scale very well, and we continue to see better and better results with that channel. So, our primary thesis is very good. We've also seen from a kind of integration standpoint, other synergies between the two organizations that continue to play out very positively, but Raffele, I will turn it over to you on kind of that?

Yes, so I mean obviously, we closed the acquisition May 1, and so it was included in our results the last two months of the year. It was a couple million dollars in terms of profitability that added to the quarter. So that's, I think that's what we can say in terms of the fourth quarter.

Okay, perfect. That's helpful. Thank you, and then in terms of as you I know, you touched on this a little bit before, but in terms of how you're thinking about marketing for AEP, what would you say was sort of like the biggest differences you're looking at as you approach this season? And then also sort of how you think about the ROI on your investments there?

Yes, so I think we have a very specific plan in terms of this, that we put or putting together right now are for the most part kind of finalized in terms of where we expect our leads to come from. With that said, right, we'll build that, and then every AEP, there's a channel or something that for whatever reason, it takes off more than another channel. So one of the things about our model is we're extremely nimble, and we see something like that going on, we're able to really attack that channel quickly, and I mean quickly like within a day or an hour, it's really, really just turning dials and we can start taking more volume from those sources, and really optimize our ROI and our marketing spend, as we see that revenue to CAC relationship being more and more beneficial on certain channels than others. So I think that we're prepared, we have our plan, but what we know and what we like about our model is that, our plan will open-up, we'll see opportunities that are outside of our plans, and we'll be able to optimize to those.

Yes, I think what Bill's really and the team has built on this point is it really been attracted to the company, and it's a differentiator really this wide funnel approach that allows us to work with all different types of ways that consumers and seniors may want to interact, combining that with marketing tech with our rich data that we have, we've been in the space nearly a decade, and some really sophisticated workflow allows us to really make raw material work that many other shops can and we think that puts us in a really good space, we continue to scale into the opportunity.

Our final question comes from Daniel Grosslight with Citi. Your line is open.

Hi guys, congrats on the quarter, and thanks for taking my questions here. So I want to go back to a comment you made on agent recruitment. Two of your competitors have noted that they are trying to pretty aggressively hire internal agents, and as you ramp-up for AEP in the coming weeks, as it become more difficult to hire agents, and do you anticipate having to increase retention at all?

Hi, Daniel, this is Tim. I would say that this is one of the benefits that we've really had, and the business is the fact that since the beginning of the company, we've really focused on 100% internal agent force, and we think we get a lot of benefits from our agents in that approach and not really trying to outsource and hire temporary folks. I think we've talked in previous calls about our ability to leverage the diversity of our platform for flex agents as well. So that folks from our final expense router at home can pivot into Medicare during the peak selling season, which you know, and they're returning kind of sophomore year, if you will, or 40% more productive, we do a great job of keeping our top agents, 93% top agent retention. So, we feel like we've built really good mousetraps, it allowed us to be more consistent with our deliveries we continue to scale. I think our folks really compliment them. They're bought into our mission of helping consumers. So, we've got a really good thing going there, and I just may add, in the COVID environment, it's really enabled us to recruit on a nationwide basis. So, I feel very good going into this year's AEP, and feel really good about the platform that's been built.

Got it, thanks, and just to follow-up, can you spike out some of the revenue contribution this quarter for IR production bonuses and any adjustment revenues included in the Senior segment?

So, in terms of IR, I think we talked about it before, the couple million dollars in terms of profitability, probably around four or so in terms of revenue contribution for the quarter, and that is both production bonus and other line items.

Okay, and is there any other bonus or adjustment revenue included in the Senior Segment other than $4 million?

Yes, I mean our traditional marketing development funds are also booked to that line item, and so, the combination of those two things that go to a production bonus line item for Senior.

Okay, and in aggregate, is that what is that number?

In aggregate for the quarter?

Yes.

So, for the quarter, it was about $19 million on a consolidated basis.

Got it, okay. Great, thank you very much.

Yes.

This concludes the question-and-answer session. I will now turn the call back over to Tim Baker, Chief Executive Officer, for closing remarks.

So, I just want to thank everyone again for the time today. I would just want to wrap today's call with a quick review of our value proposition on slide 19 of the investor deck. Again, first we compete in a large and growing market. It's not really just driven by demographics, but also by a significant shift in the way that insurance bought and sold. Second, with over 35 years of experience, we've really thoughtfully build our two foundational pillars, proprietary technology, highly skilled agents to really optimize each stage of the business, so that we can profitably scale into this immense opportunity. Third, our businesses really aligned both with our customers and our carriers that write their policies, and we think that positive feedback loop deepens our relationship with both of them, which is critical to growing market share. Fourth, we continue to be laser focused on return on invested capital. Our model is built to optimize those returns across every function of the value chain. Finally, we just don't talk about it enough, but SelectQuote's 2,000 plus fellow associates are really where the magic happens and how this all works. We're very passionate about serving our customers that's what drives our success. So, on that note, I'll end this with a thank you to all of our SelectQuote associates, as well as our investors and analyst community. We are excited about the opportunity ahead. We look forward to talking to you again very soon. Thank you very much.

This concludes today's conference call. You may now disconnect.