Hello and welcome to SelectQuote’s second quarter fiscal year 2023 earnings conference call. My name is Dru and I’ll be your operator today. If you would like to ask a question during today’s call, please press star followed by one. If you change your mind, please press star followed by two. I would now like to turn the call over to Matt Gunter, SelectQuote Investor Relations. Please go ahead.

Thank you and good morning everyone. Welcome to SelectQuote’s fiscal second 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. 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 our interim Chief Financial Officer, Ryan Clement. Following Tim and Ryan’s comments today, we will have a question and answer session. 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. 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, quarterly report on Form 10-Q for the period ended December 31, 2022, and other filings with the SEC, therefore the actual results or operations or financial condition of the company could differ materially from those expressed or implied in our forward-looking statements. With that, I’d like to turn the call over to our Chief Executive Officer, Tim Danker. Tim?

Good morning everyone and thanks for joining us. We’re pleased to share a strong set of results for our fiscal second quarter. As you know, we previewed our outperformance in a pre-announcement earlier this year. As we noted in that release and will speak to today, the most important takeaway is the tangible reinforcement we have observed in our strategic redesign. We firmly belief SelectQuote has optimized their senior segment to drive the right balance of profitability, cash efficiency and growth. Better yet, we believe the strategy is repeatable in a range of future Medicare Advantage seasons. We will speak to our observations and execution in AEP, but as you’ve seen from carriers and our peers, it was a successful season which certain benefited SelectQuote as well. That said, the majority of our outperformance was not simply market driven but was instead achieved through strategic changes we’ve made to our operations and the resulting efficiency of our agents and marketing. Overall, we’re very proud of our team and there’s a lot of excitement within the organization about the ability to leverage our strategy in the future. With that, let’s review our consolidated results and highlights for the quarter on Slide 3. First, SelectQuote has now achieved four consecutive quarters of incremental improvement in the key performance indicators for our senior business. As we’ve said over the past year, we will not declare victory but instead strive to continue and accelerate this positive trend in the years ahead. What we can state definitively, though, is our conviction that this redesign strategy is the way to succeed in the future. For the fiscal second quarter, our strategy produced excellent results, specifically a 64% year-over-year growth in consolidated revenue and a $228 million year-over-year improvement in adjusted EBITDA, or $83 million excluding the…

Thanks Tim. Let me begin with a quick review of our consolidated results, then I’ll review our segments and provide the detail for our senior business that Tim alluded to. Our consolidated results were quite strong with revenue totaling $319 million for the quarter, driving consolidated adjusted EBITDA of $64 million. Across the board, our results were ahead of expectations but most notably in our core senior division. As I’ll review in a moment, our healthcare services business weighed modestly on consolidated EBITDA with a drag of $9 million, but importantly the profit improvement was on a lower level of sequential revenue growth. We are pleased with the scale and remain on a path to approach breakeven by fiscal year-end. It is worth reminding investors and analysts that AEP is our heaviest cash use season. For context on our cash position, as of January 31 we had $96 million of cash-on-hand with zero drawn on our revolving credit line. This compares to a cash position of $36 million as of December 31, where we also had zero drawn on our revolving credit line. Most importantly from a capital and liquidity perspective, the business is in a significantly stronger position than it was a year ago, and we are well situated to drive continued growth in cash efficient profitability, which is certainly helpful when speaking with capital providers as we plan for the years ahead. With that overview, let me turn to Slide 7. Clearly we are very pleased with the outperformance produced in our core senior division through AEP. Senior revenue grew over 50% year-over-year to $224 million, and as I will detail on the next slide, we were able to drive that growth on a lower volume of approved policies booked in the quarter compared to last year. The…

Thank you, we will now start today’s Q&A session. [Operator instructions] Our first question today comes from Daniel Grosslight from Citigroup. Your line is now open.

Hi guys, congrats on the strong quarter here, and thanks for taking the question. You had a nice improvement in revenue to CAC. How should we think about unit economics going forward given your renewed focus on profitability? Is that three times multiple the right multiple, or do you think we’re going to see some degradation there as you hire earlier for future AEPs?

Yes Daniel, good morning, this is Tim. Great question. I’ll take that and see if Bill Grant, our COO also has some comments. But I would say overall, we’re very pleased with the progress we’ve made over the last four quarters. Certainly the AEP environment kind of accentuated those results, and we certainly believe the changes we’ve made across both marketing and our agent plan have really set us up for very durable results moving forward. We’re very proud of the 37% margins in senior and certainly we think this is indicative of a step function improvement in our model, and we certainly believe that is something that we can continue to focus on. As you can tell from the tone of the call, we’re very much focused on improving our unit margins, which we think we’ve done this quarter. I think our full year guide also implies improvements in our unit profitability and cash efficiency. Bill, any comments you want to make with respect to broader marketing as we look forward and rev to cap?

Yes, just other than I think we feel optimistic to keep that gap moving in the right direction and that the market dynamics are such that we feel like we’re poised to do that, both with the global market as well as the positive changes that we’ve made internally in terms of how we’re appropriating the market.

Yes, that makes sense. On liquidity, you’re ahead of expectations in terms of cash, but at least in my model, it seems like you’re going to need to fund yourself externally in some manner over the next year or two, whether that’s drawing on the revolver or new debt, etc. Can you just comment on your liquidity needs over the next year or so and how you intend to fund yourself in the near term?

Yes, sure. I’ll take that. We are well ahead of our cash plan. As we alluded to, we had $36 million as of 12/31, nothing drawn on the revolver, and approaching $100 million at this point in the year, so we are well ahead. Obviously operational results put us in a great spot. We are actively in discussions with our lenders. That said, our current capital structure as it exists gives us adequate runway for the duration of calendar year 2023, so we’re in a great spot but we are actively engaging with our lenders on a more permanent solution with regard to the capital structure.

Got it, appreciate the color. Thanks guys.

Our next question today comes from Ben Hendrix from RBC. Your line is now open.

Hey, thanks guys. Just a quick question on LTV dynamics that you mentioned on Slide 9. With strategic decision making and resulting shifts in carrier mix accounting for most of the year-over-year LTV decline, should we think about the current LTV in the $875 guidance as representing kind of a permanent re-basing, to a certain extent, versus year-ago levels? To follow that, where do we think LTV could go under the current strategy, and how should we think about the pacing of recovery given your methodology and as we move into next year? Thanks.

Thank you Ben, this is Tim. Great question. I’ll address it, and maybe ask Ryan to also speak to it. We certainly wanted to provide increased transparency here on this particular slide that you’re referencing. LTV, clearly an important metric, not the only metric that’s out there. We are managing the business across broader policy economics. LTV is one of those factors, the cost to acquire the policy, approval rates, first year revenue re also other factors, so strategically, as we’ve mentioned, very focused on cash and profitability and prioritizing, really, kind of end-to-end total policy economics over just LTVs. Before Ryan speaks to LTVs, I do think it should be noted the significant progress we’ve made with respect to our operating cost per approved policy. We shared both results for the quarter-over-quarter and LTM basis that really have brought this down materially while we continue to work and improve LTVs. Ryan, on the LTV front?

Yes, I guess the only thing I would add is LTVs did exceed our internal expectations for 2Q. We do still expect full year FY23 LTVs to come in north of or at $875, and furthermore continue to be encouraged by the trends we’re seeing with respect to retention and leading indicators.

Thanks guys.

Thank you Ben.

Just to reiterate, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. We have no further questions at this time, so I’ll hand you back over to Tim Danker, CEO for closing remarks.

Thank you Dru. Well, thanks everyone for joining. We certainly look forward to seeing many of you at conferences on the road in the coming months. To conclude, we’re very pleased with the progress and proof points of our strategic redesign. While we’ve had success for four straight quarters now, we will continue to anchor our responsibility to delivering consistent results and profitable growth for shareholders. We’ll share more as the year progresses, but suffice it to say we have a lot to look forward to across all of our business lines. Again, we thank you for your participation. We look forward to speaking to you again next quarter. Have a good morning.

Thank you for joining SelectQuote’s second quarter and fiscal year 2023 earnings conference call. You may now disconnect your line.