Welcome to SelectQuote's First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may begin your conference.

Thank you, and good afternoon, everyone. Welcome to SelectQuote's fiscal first quarter earnings call. Before we begin our call, I would like to mention that on our website, we have provided a slide presentation to help guide our discussion this afternoon. After today's call, a replay will also be available on our website. Joining me from the company, I have our Chief Executive Officer, Tim Danker; and Chief Financial Officer, Raff Sadun. Following Tim and Raff's comment 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 2, 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 website. 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 condition 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 during this busy earnings and news week. We're excited to share another quarter of strong results and talk about how SelectQuote is well positioned for another great fiscal year ahead. Let's begin on Slide 3 with some highlights from the first quarter, which were ahead of our internal expectations. SelectQuote ended the first quarter with consolidated revenues of $124 million, up 91% year-over-year and adjusted EBITDA of $12 million, up $11 million year-over-year. Both were ahead of our internal expectations and represent the continued strength in both our Senior and Life divisions, which we'll detail in a minute. On a consolidated basis, we reported net income of $1 million or diluted earnings per share of $0.01. Raff will speak to our segment details in a moment, but I'd like to highlight that our Senior division continues to be our biggest growth driver, given the massive market and how our differentiated model is built to capitalize on that opportunity. Our Senior division revenue was up $46 million or 165%, and adjusted EBITDA was up $11 million to $9 million from a loss of $2 million last year, which speaks to the opportunity, as well as our ability to leverage the capital raised in our IPO earlier this year. A few summary highlights from the quarter include, first, we're excited that Senior agent productivity was up 8% in the quarter over last year, even with a 100% increase in productive core agents over last season. This is a meaningful increase and one that we attribute to the quality of our agent training, as well as the investments we've made in agent-facing tools like prescription drug and doctor matching. I'll speak more to this in a moment. Second,…

Thanks, Tim. I'll start on Slide 8 with our consolidated results. For the first quarter, we generated $124 million of revenue and $12 million of adjusted EBITDA. Revenue grew 91% and adjusted EBITDA increased by $11 million. As we'll discuss on the next few slides, the revenue growth was driven by our Senior business and by our investment in final expense policies within our Life segment. Our consolidated margins improved year-over-year during our seasonally weakest quarter, with each of our divisions improving their margins. As a reminder to investors who are new to our story, our fiscal first quarter is a quarter where we ramp up our investment for the upcoming AEP period. There is a significant amount of costs incurred during the quarter to bring on AEP flex agents enrollers, customer care agents and other support functions. During the quarter, we are training these individuals and making sure to get licensed. These flex agents don't start selling until October. So our adjusted EBITDA is impacted by having the costs associated with these investments, but no associated revenue. This obviously pays off during our second quarter when AEP starts and these flex agents start selling. Turning to Slide 9 and our Senior division. As you can see, we had a very strong quarter, generating revenue of $73 million and adjusted EBITDA of $9 million. This represents year-over-year growth of 165% and an improvement of $11 million in adjusted EBITDA, swinging from a loss to a profit year-over-year. It also represents accelerating growth compared to our fourth quarter growth rates. During the quarter, we incurred over $11 million in costs associated with ramping up for AEP. This included hiring, training and licensing costs for flex agents, enrollers and other support functions as we prepared for AEP. We have a very robust…

[Operator Instructions] Our first question comes from Sarah James with Piper Sandler. Your line is open.

Thank you. If I - I appreciate the comments on persistency and how that's developing this year. And one of the things that we think about is the time period of look-back is a little different between the different companies. And I think SelectQuote's look-back is a little bit longer. So maybe you could give us some clarity on your persistency by annual cohort? And then you just mentioned the differences and persistency between carriers. So wondering, are you agnostic on the carrier when selling given that?

Sure. So with respect to our persistency calculations, they're done on a 36-month rolling average, but it's a weighted average. So basically, as we've been growing, there's a bigger weight put on more recent experience, which has been the lower persistency that we've talked about. So I think with respect to the quarter, over 55% of the weighting with respect to the quarter is based on the most recent experience that we've seen, and so that's kind of embedded in the calculation. And then for the full-year, again, because of the growth implied in the business, we're expecting 87% of the weighting of persistency to reflect the most recent persistency. So, it allows us to basically reflect what we're seeing in the business, but not overreact either when it's going up or when it's going down. And so that's worked well for us, and those are the assumptions that are in there. In terms of different carriers having different persistency, in general, they are in a range, but yes, different carriers do have a slightly different persistency. And we have seen a mix shift towards carriers that have higher persistency. Now, that's not driven by our agents steering business one way or the other. We're an open platform. And so it's really a function of those carriers having plans, which are competitive in the marketplace, and those plans basically taking a larger piece of share.

Right, thank you.

Our next question comes from Jailendra Singh with Credit Suisse. Your line is open.

Hi, thanks, everyone. I want to dig more into the company's guidance increase of $65 million on revenues and $20 million EBITDA. Clearly, revenues, at least the guidance raised, it's more than the beat in the quarter. Help us understand a little bit more about the drivers there? Is it driven by some early positive trends you've seen during the first few weeks of AEP or is it that you have exceeded your hiring targets? You talked about the productivity. Just flesh out a little bit more about what has changed in the past three months that you are more comfortable raising guidance by $65 million at this point?

Yes, I think it's really a combination of several factors, some of which you mentioned. Yes, we beat in the first quarter compared to our internal expectations. So that obviously goes into the calculation. I think Tim mentioned, the first several weeks of October have been very robust and strong, and we've seen really good agent productivity specifically, on the flex side. So that's - that goes into the equation as well. And then also just given the investment that we're making in final expense policies, certainly, towards the back half of the year, that's driving some of that overperformance as well. So those are the primary drivers of our confidence in terms of being able to raise guidance at this point in time.

And a follow-up -

Hey, Jailendra, this is -

Sorry, go ahead.

Jailendra, this is - yeah, yeah, this is Tim. I would just say to add to Raff's points, we're seeing a very strong backdrop in the market. We're seeing real strength from a marketing standpoint with Bill and his team, obviously, we exceeded our hiring targets. And we are seeing, as we noted earlier, some really good movement in terms of agent productivity. We've got us joining the call Bill Grant, our Chief Operating Officer and Bob Grant, President of our Senior division. Bob, maybe you can speak a little bit about some of the investments that we have made that we think are playing through the results and that are part of the upward guide.

Yeah, absolutely. I'll actually start with the training portion. While the years of history we have dealing with and training remote agents really helped prepare us for this environment. We had already completely redone our training program this year to prep for larger AEP classes ends more of a virtual environment. So we were really prepared for COVID prior to COVID happening. And we've really seen that play through how that training worked. We also have spent a significant amount of money and investment in streamlining our process for our agents to not only assist them in picking better plans for consumers, so taking more factors into accounts, and then ultimately making plan recommendations, but also to make it a quicker process for our agents so that they are able to gain more efficiency. And that's one of the reasons we're seeing the productivity gains is both a mix of higher close rates and then also them able to take more leads, while writing higher quality business. So we're really proud of what we've done there over the last nine months in preparation for AEP and are really seeing it play through both in this quarter and then, yes, in some of the things, good positive trends we're seeing.

Yeah, that's helpful. A quick follow-up question here. Given that fiscal second quarter is so critical for your business, I was wondering if you can provide any guidance around MA LTV trends you expect in the quarter? Is it same as flat you expect for the full-year? And what are your growth expectations for MA approved policies in fiscal second quarter in particular?

Yeah, so maybe I'll cover the second one first. We're not necessarily providing quarterly guidance. So the guidance we've given has been annual. I think in general, it sort of follows a relatively similar pattern in terms of the quarterly spread of that annual guidance. And so some of the uptick in the guidance that we just gave sort of disproportionately probably in the second quarter than third quarter than fourth quarter just based on how the business works and the drivers that we laid out there. In terms of LTV of a policy, I think we still think that for the full-year, the LTV will be relatively flat. There can be some variance from quarter-to-quarter depending ultimately on sort of the mix of businesses written. But nothing really has changed in terms of our overall expectations there.

Great, thanks.

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

Hi, guys. Thanks so much for the question. I have a question. How are you seeing the marketing expense trend in AEP and sort of how should we think about it going forward, obviously, with all the election spending, I would imagine some channels were more expensive, but as that hopefully resolves itself shortly, that should be maybe a tailwind for you? Can you guys sort of talk around some color around that?

Yeah, absolutely. So it's a great question. Certainly, the marketing spend, as it relates to the election has ramped up through Q1, and then certainly, both the combination of marketing spend and then breaking news the last couple of days absolutely affects the marketing expense. I think one of the reasons tying back to the previous question, though, that we felt so confident about how we were doing in Q1, even though we were seeing all the spend going on with the election. I think it's a real testament to our model that we were able to really keep costs under control and drive really high-quality leads that led to some of the things that Tim talked about earlier, which were both really good close rates with our agents, as well as AEP, a lot of AEP rep appointments, which are really, really good for - really good leading indicators for how AEP is going to go. As we've gotten into - as we've gotten into AEP, certainly, again, it's a tough environment, as it relates to the election, you got breaking news, you got channels being bumped, all those things, with that said, I feel like we've done and feel really good about where we are right now and how we performed through that, which makes us all the more confident when we get on the pack side of this and some of that stuff starts to kind of taper away, I think it bodes really well for the rest of AEP and then also as we get out through the year, that we're able to perform that strongly kind of through that environment.

Perfect. That's very helpful. And then you mentioned in the first quarter, your Medicare Advantage came in as an upside to your expectations. Can you - is there something you could point to or can you sort of unpack where that upside came from? Was it a result of like more efficient marketing, some better efficiency on the sales side that you mentioned or something else?

Yeah, there's a couple of comments there, Elizabeth. You hit on two of them. I mean, really strength in marketing, I think Bill and his team have done an excellent job. We're always optimizing for our marketing engine, and we are seeing a lot of strength, really flushed with leads there. And then really, agent productivity, we indicated the first quarter, 8% improvement in agent productivity. We're also seeing - while it's early in AEP, we're seeing a lot of strength in our flex agents in terms of productivity per day. And I think that ties back to some of the comments that Bob Grant made regarding investments in technology. I'd also say our talent acquisition team that Bill manages has really just made a step function improvement in the quality of folks that we're attracting. We had tested remote prior to COVID and had some good early wins. We've accelerated that now. We're recruiting on a national basis. It's really because of the way that we recruit all backgrounds, all walks of life can be successful at our company. So that's really opened up the talent footprint for us, which makes us feel very bullish about our ability to continue to scale profitably into the opportunity.

Perfect. Thanks so much.

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

Good afternoon. So during the earnings season, all the managed care companies have talked about an expectation for lower plan switching this year. And so I just kind of wanted to get your reaction to that in terms of the impact you felt that would have on your business? And then the second question is, you've got new carriers coming on board, and what has been your history when you do bring new carriers on board? Do you normally get a sort of a higher hit rate early on in the process or does it have to build over time? And I guess related to that too, I think you comment about certain carriers have higher persistency, like, what are the characteristics of the company's policies that have higher persistency versus lower persistency? Thanks.

Those are all really good questions. And as far as the plan designs and the carriers feeling good kind of around what's going to happen this year, we are definitely seeing really strong plan designs from the carriers. They took a lot of the money from the HIF and some other things I think that happened this year and really put that into benefits for consumers. So we feel really strong about that, especially in regards to kind of our book and the conversations that we get to have with our book, which would be - on the first one as far as the switchers. And then to your second question, as far as when we bring a carrier on, it really depends on the size, scale and competitiveness of that carrier. Since we are an agnostic platform, it will really depend on the size of that. So like, for example, we brought on WellCare as a partner last year, and we've seen them be a good kind of material portion of our book, because they have a really strong plan, they've got a lot of scale, and then they're expanding quickly. Some of the smaller carriers, they don't get quite as big a percentage, but we really try to focus on carriers that can increase our offering. So we can touch more of the country, as Tim alluded to. So even a 1% to 2% impact for us can be really meaningful, because it can increase our close rates by that because it's pure incremental business depending on the carrier. So I know that, that was a long-winded way to say that, but it just depends on the carrier.

Thank you.

Our next question comes from Jonathan Yong with Barclays. Your line is open.

Hi, thanks for the question. Just on the marketing and productivity improvement that you're kind of saying. I'm curious if you're hitting all the calls that are coming in given the improved productivity or are you still kind of leaving some left kind of on the wayside because you're getting so much, just any color on that?

Yeah, I could talk a little bit about how we deal with that. So certainly, when you're managing TV spends and things like that, you do get spikes in volume. We absolutely try to take the best advantage of all fixed costs that we possibly can. We have kind of a waterfall effect between the quality of lead that we think we're going to get from a specific channel. So let's say in terms of some channel, History Channel, let's say we think that generates really great leads. We'll try to match those with our level one agents. And we have an algorithm that we basically built on how long we will only try to match it to our level one agents before we waterfall it down. We have multiple lines of defense in terms of how we waterfall leads. First, it's going to go to all of our agents, then if we get one - a big call spike, then it's going to start going to other departments such as maybe it's CCAs or what we call SDAs, which are basically screening reps, things like that, right, that are going to try to ultimately open up the waterfall, so we can make sure that we're able to answer every call. We also have options. If we're seeing a really big call spike, where certainly we could put that call in queue in terms of, let's say that somebody more down the funnel answers it, basically takes the message and we say, hey, we'll call you back within whatever timeframe they want to set, so that we can get back to them later. So that way we're leveraging all the fixed costs we can. But certainly, if we run on a big channel and there's a lot of eyeballs on TV right now, some of those spikes are uncontrolled. But when we do, we make a really good job of maximizing everything we can and also making sure that we're - the calls that we do ever drop, they're the right calls that we're dropping, meaning really low intent consumers versus high-converting consumers.

Great. And I'm curious on the pod relationships. Is there any deviation between the pods versus non-pod agents in terms of productivity? And are carriers, whether new or legacy, looking to add or expand that pod relationship? Thanks.

In terms of productivity, no, really, it just depends. I mean, we have more agents in, obviously, our exchange, pods, so I would say there's more level one agents in just our normal SelectQuote core force. But we see some of our top producing agents in the company within our pods. I think one of the things that they have to think about less right when they're pitching the plan, so they know the plan designs in and out, they know the benefits of every little thing there. So they can get really, really zeroed in on how to do those and they do a really good job there. Bob, do you have anything you want to add to that?

Yeah, I think it was an interesting question on the pod expansion and whether the carriers kind of asked for that. Yes, I think that depending on what investments those carriers are making and kind of how they work closely with us, they will ask us at times to expand that. That's tricky given like enter period, but we can plan ahead and plan for shifting folks over to the pod, if need be, if we see strength on either platform. Especially, this year, I mean, I think you've heard the carriers speak to it, but they are extremely dependent right now on telephonic and digital channels. So we are having really meaningful and strong conversations with the carriers around growth and some of that growth can come through our pod and some of that can come through our core platform.

Thank you.

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

Hi, congrats on the quarter guys. Thanks for taking the question. And that last answer was actually a good segue into what I've been wondering about on this quarter. So as you mentioned, all the carriers are investing heavily in the telephonic channel, both external distribution and internally. So I want to focus really on that internal investment of the telephonic channel. How do you think that's going to impact the competitive environment this AEP? And then looking forward to 2022 as they become more comfortable with that internal telephonic channel, how do you think that impacts 2020 - for AEP in 2021 for plan year 2022?

Yeah, I think, Daniel, great question. I mean, we are - we really are partnered with carriers on multiple levels, and we've hit on a few today. And it's - one is just at a fundamental level being aligned with them on their fundamental growth. And I think you've heard one of the recent managed care organizations talk about the importance of their channel partners and the growth, phenomenal growth of direct-to-consumer. So we think that's important validation of, I guess what we've been saying is we're - really one of the big growth drivers. We also touched recently here on the pod relationships as ways for us to really kind of accelerate our relationships with strategic partners. And then finally, Bob and his team have been doing a lot of great work with respect to helping our carrier partners achieve some of their strategic goals. I think value-based care is a great example of ways that we're integrating with them to do education with kind of our joint policyholders around ways that they can take advantage of value-based care. With respect to direct and that growing, I think we have really kind of proven that our model is very efficient. We've got the highest lifetime values in the industry. We have a very efficient mousetrap, if you will, for carriers, and I think that's why they continue. This is going on before the COVID environment. It's only been accentuated post-COVID with carriers coming to proven models, highly efficient models like SelectQuote for growth. Bob, is there anything you'd like to add to that?

Yeah, I think one thing to add to that, too, is there are just certain consumers that are not going to respond to the direct carrier ads and things like that, because they know that it's not going to necessarily be an agnostic platform. And I think the market is getting more and more comfortable with agnostic choice-based platforms, helping them navigate through plan choice. And they understand better than they have in the past that even though there may be multiple zero-premium plans, we see sometimes upwards of multi-thousand dollar differences in total costs when you take into account drugs and doctors and all those things for a consumer between the different carriers. So I think the carriers really know that they need to rely on us because we may have better response rates, and we may be more efficient to them, to Tim's point. So we don't really view it as a massive competition. We actually kind of work in concert with each other and don't see that changing anytime soon.

Yep, yep, that makes sense. And then I guess just not on the final expense product. You noted there is a tremendous cross-sell opportunity there between that product and the Senior product, I think you mentioned 650 core Medicare policies were sold from a final expense referral. Is that right? And what about the other way, how many final expense policies were sold from a Senior referral?

Yeah, great question, Daniel. The - we're very excited about final expense. I just want to get that out there. It is another large market opportunity. There is a fundamental consumer need here. And I think we cited our growth statistics, which are pretty phenomenal, 179% versus prior year and 397% in the quarter with a very attractive cash flow profile. Bob, do you want to speak to what we're doing with the cross-sell opportunities between the two and as well as anything kind of coming back the other way?

Yeah, we do see success coming back the other way. We're not disclosing kind of exactly what that is, but we can get some color there. But our CCA team works with our Medicare population to ensure that they round out their overall benefits, and final expense is one of the choices that we add there. As far as final expense as a business, though, to Tim's point, we are really excited. It's a large market that's traditionally dominated by street agents, who have really kind of low-tech exclusive partnerships with carriers. So similar to what we saw as we got into Medicare, we feel like it's really ripe for disruption and use of technology and unique plan designs to put somebody into the right plan for their needs, while kind of maximizing savings for that client. And it sounds funny even to ask how you save folks money on those types of plans? Well, it really just depends on their underwriting because final expense has different layers of choice. So there's some that have 25 health questions, some that have five and some that really have zero, and it depends on how a carrier takes on that risk. And we provide that choice in that way just like we do in the other divisions. So we're really excited as we get into that on how we can scale and what we can do.

Got it. All right, guys. Thanks very much.

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

Great, thanks so much. Maybe just piggybacking a little bit back - piggybacking a little bit on that last one. From a bigger picture perspective, I think there's been some concern in the market around the white-space opportunity or the TAM for the direct-to-consumer brokers like yourself. Would love to hear your counter to that? And then as a piece of that, how are you thinking about the competitive landscape more broadly, particularly, Walmart's announced that they're entering the market as well?

Yeah, Lauren, great question, great to hear from you. On the FE side, just real quickly on the addressable market, we think that's upwards of a $10 billion market opportunity. With respect to the kind of core Senior business, that's really our perspective that this is about a, call it a $30 billion market opportunity for Senior, 60 million eligibles today growing to 77 million. And we really feel like the growth opportunity really surpasses just the incremental people that are becoming Medicare eligible. And that's really because of this shift in terms of distribution, as well as the 10% growth in MA. So we really feel like there's a massive market out there. I think there's been multiple research analysts have said, hey, the big four direct-to-consumer players are somewhere around, call it 5% or so of the market. So I think any way you kind of define it, we think it's a pretty big market opportunity. In terms of Walmart, there's not a lot of new news here that - we do know that this is not their first foray into Medicare. They had partnered with a direct-to-consumer broker a few years ago. They've done some in-store trials. We're hearing in the market that this is - for this AEP less than, call it, 100 agents. So they're clearly a reputable company, fundamentally, a giant retailer. We view this as an entirely different business model. At our core, right, it's - we're a technology company, a data company. We're utilizing highly skilled agents to help consumers make important decisions both upfront and on an ongoing basis because we know that this is not static. So we play an important role as an educator and advisor. Additionally, this is a pretty operationally heavy business, kudos to Bill, to Bob, to rest of the team. There is a lot of complexity in this business across carriers, technology, marketing, hiring agents, retaining agents, compliance, a lot to do it right. I think the final point I'd make is, it's - tie it back to the TAM. This is a massively underpenetrated market. Even right now, with the four large direct-to-consumer players, there's literally thousands of agents selling Medicare policies right now during AEP, again, making up less than 5% of the market. So even if Walmart decides to add hundreds of agents next year, it'll still be relatively small in the grand scheme of things given the size of the market. So we don't take it lightly because it's Walmart. We'll monitor it and we'll see how it evolves.

Great. Thank you so much.

Our next question comes from Meyer Shields with KBW. Your line is open.

Great, thanks. I wanted to ask about the impact of the OEP, and I know it's early. But I was wondering if you have - what you've been able to extract so far about the persistency of customers that did change carriers during the OEP and those that did not in terms of future persistency?

So I think we saw lower persistency based off of last year's OEP. Having said that, I think one positive trend that we are seeing is that the lapse rates throughout the course of the year have gotten better on a year-over-year basis. And so while that's - you have to wait to sort of get to your annual renewal in January to sort of completely tie that back to a persistency direction. I think that's a good leading indicator in terms of how those policies are doing and the fact that we're seeing really positive trends on a year-over-year basis. The other thing I would note is that it's - and maybe Bob, you can touch on this as well. But since June, we made some operational changes within the business and we have seen significant improvements in lapse rates since those changes. Maybe Bob, you want to touch on some of those changes that we made.

Yeah, absolutely. We've said before, we use data to really help us define process and ultimately make decisions, and our book is no different than what we do upfront. So we've been collecting data really for years to figure out how to target different risks - risk audiences on our book and ultimately provide them additional value so that they'll stick with SelectQuote. And we've seen - we made some pretty material changes in June and July, as Raff alluded to, and we've seen that be really impactful on how we treat that population. We will use the same datasets that we have been using on our new model during OEP. And we anticipate that, that could be extremely impactful as well. And to be clear, we don't have that in any of our models, that's purely kind of upside for us. But we do - we have seen the impact of different treatment plans that we do with certain risk pools of our population.

Okay, fantastic. Thank you so much.

Thank you. There are no further questions at this time. I'll turn the call back over to Tim Danker, CEO, for closing remarks.

Well, thank you all. We appreciate all of the interest in SelectQuote and all of the great questions. I want to close by restating our excitement and confidence in our position in this rapidly growing sector really given the quality and the profitability and the long-term durability of the model we built. We do expect to continue to deliver high-quality results. We're very encouraged about the trajectory that we are seeing in AEP. It's our 9th AEP. I think it's easy to say that we've never been as well positioned as we are right now for growth. So I also want to thank all of our dedicated SelectQuote associates who work tirelessly every day to provide Americans the protection that they need. So thank you all again for joining, and we look forward to talking to you again this winter.

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