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

Thank you and good morning, everyone. Welcome to SelectQuote’s fiscal third 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 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. 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, quarterly report on Form 10-Q for the period ended March 31, 2023, 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?

Good morning and thank you all for joining the call. As you saw in our press release, SelectQuote delivered a strong third quarter and continues to post results that are better than internal forecasts. Management and the board couldn’t be more pleased with the execution against the strategic redesign and the continued momentum from AEP into OEP, which is our second highest volume quarter of the year. Better yet, we’ve driven consistent improvement in results over the past 5 quarters and firmly believe the company is well positioned to produce more predictable, profitable and cash accretive growth in the quarters and years ahead. That all said, the past few weeks have driven a lot of confusion in the market about the Medicare Advantage industry. I’d like to address some of those topics up front in my remarks, which we hope will be helpful, especially in considering the significant achievements we’ve made this year and plan to build upon in the years ahead. First, our value to the Medicare Advantage insurance carriers is critical when viewed through the lens of volume, capacity and scale. Not all brokers in our industry are created equal, and we firmly believe SelectQuote’s value as a significant source of quality volume is durable and strategic to the Medicare Advantage insurers. We know this because of the ongoing planning we are doing jointly with our carrier partners for the upcoming season and the role we expect to serve for America’s seniors. To that point, Wellcare recently named SelectQuote to its preferred sales and distribution partner program, which we feel serves as evidence of how SelectQuote’s differentiated agent and data-focused approach generates scaled volume at high quality. This competitive advantage and value is recognized by each of our carrier partners and we believe will be a market share…

Thanks, Tim. And as you well know, I’m very excited to continue our work to leverage SelectQuote’s model and drive the growth and value we all know is achievable. With that, I’ll begin on Slide 7 with a review of our consolidated financial results. As Tim noted, it was another strong quarter for SelectQuote with revenue growth of 9% to $299 million. This is the third highest revenue quarter in company history and trails the second highest from last quarter by just $20 million. The reason for the comparison versus last quarter is to highlight that SelectQuote has not only improved the quality of our core Senior business, but we have also made great strides to reduce the volatility and seasonality in our overall financials with the growth of our Healthcare Services business, increasing visibility and generating consistent returns through a range of Medicare Advantage seasons is a critical ask from our investors and we are very pleased to have delivered on that ask this season and even intra-quarter from AEP to OEP. To that point, our profitability of $44 million in adjusted EBITDA represents a consolidated margin of 15%, which is significantly improved despite the drag from our ramping Healthcare Services business, which I will summarize in a moment. If we move to Slide 8, you can see the financial performance in our Senior business. As Tim mentioned, the planned step down in growth was again smaller than expected, driven by the efficiency and persistency gains our model has achieved to date. Our Senior revenue of $185 million, while lower year-over-year was still the 5th highest in company history and is also all the more impressive as the LTVs associated with these revenues are nearly 30% lower compared to the revenues booked pre-2022. To reiterate Tim’s point, there is…

Thank you. [Operator Instructions] Okay. We have our first question comes from Jonathan Yong from Credit Suisse. Jonathan, your line is now open. Please go ahead.

Hey, thanks. And congratulations on the strong results here. So, I guess, to start, I appreciate all the commentary on the CMS marketing rule that kind of came out. From your perception, what does the rule change for you? And, I guess, how are you thinking about what the impact would be? Or is it really diminished in your mind that you and the carriers are going to be able to work together to really work around any issues kind of in any given year with this rule that came out?

Hey, Jonathan, good morning. This is Tim. Great to have you on the call and thank you for the high quality question. I’ll make a few comments and then maybe also ask our Chief Operating Officer, Bill Grant, to speak on this. But overall, our perspective I would share is, we’re 100% aligned with what CMS is striving to achieve, trying to improve the beneficiary experience, improve transparency. We also don’t see a world in which anyone wants to make it more difficult for Seniors to access MA. We’re very accustomed to changes in regulation. We’ve been in this business for a long time. And I think overall the good thing is everybody wants to accomplish the same thing that transparency and choice for the consumer. So we’re going to continue to work very closely as we have been with our carrier partners. We’re going to ensure we stay lockstep on any necessary modifications. But we do feel that our underlying process and approach has us very well positioned. We view this very much as a manageable event. Bill?

Yeah, I’ll just echo what Tim said. We’ve been working with our carrier partners since kind of the initial draft of some of the rules have come out. We’ve been navigating changes for years and feel like we’re in a really good position to be able to execute our strategy both with the changes that are presented now and potential future changes. So feel like we are really like, where we are and that our model sets us up to be able to navigate those and do a variety of things to operate successfully within any environment.

Okay, great. And then just turning to the Wellcare preferred distribution partner program, what does this mean for you and how does this make this different from your prior relationship and any color on it? Thanks.

Sure. I’ll start Jonathan and hand it off to Bob Grant, our President. Quickly, I think overall it points to a general theme that you’re seeing in the industry and really the managed care organization’s flight-to-quality. We think this validates our model, our critical importance to the ecosystem, and I think it’s a proof point of our combination of quality and scale. Bob?

Yeah. Good question on how will it really change our relationship. And I would say from a distribution standpoint, it really won’t because we obviously are a choice platform, who will distribute the policy that makes the most sense for consumers as competitive as a carrier, that’s really the mix that they get. What it does change, though, is really to Tim’s point, that flight-to-quality and I’d say partnership on quality and experience of onboarding. We will continue to invest with Wellcare-Centene to create a greater customer experience that should improve 90-day persistency even more than we already have. And, I think, Tim and Ryan really walked through improvements, we’re seeing that across the board, including carriers who struggled with that in the past, and we believe we can make even more material strides on that as we partner with them to create a really seamless consumer experience.

Great. Thanks.

[Operator Instructions] And our next question comes from Daniel Grosslight from Citigroup. Daniel, your line is now open. Please go ahead.

Hi, guys. Thanks for taking the question, and congrats on the strong quarter here. Maybe more of a macro question for you. Given the advance rate notice and some stars had wins, I think it’s safe to assume that we’ll see a slowdown in MA growth, and some carriers have, as commented on that for plan year 2024. Realizing you’re not guiding for 2024 quite yet, I’m just curious how you’re thinking about MA growth in general for 2024, and then specifically, one of your major carriers, Centene-Wellcare announced that they will be slowing growth pretty dramatically for 2024. It’s been a little while since you filed your last 10-K, but I’m curious if there has been any material change in the percent of your revenue that Centene represents, I think it was around 19% in your last 10-K. Thanks.

Yeah, Daniel, good morning. I’ll start and then hand it off to Bob for the question around the rate notice. But again, as you said, we’re not at this point guiding to fiscal 2024, and we’re happy to do that in August. But I do think we’re very well positioned, I think, when you look at the last 5 consecutive quarters, we really believe that our foundation is very strong across all of the major elements of the business, and we’ll share more about that growth trajectory. But we just reiterate that we feel the changes that we’ve made over the last 5 quarters, I think demonstrate the strength of that foundation. We are going to continue to stay focused on these improvements in unit margins, profitability over growth, but we still see, certainly, growth potential. Bob?

Yeah, I mean, I think that’s a great point. And to your point, Daniel, on a general slowdown, right, one, the advanced rate notice ended up being a little bit more favorable than the carriers originally looked at. I’d say also, as you know, there’s a little bit of a disparity between certain carriers and the impact of that to others. And what we’re hearing is to Tim’s point, they are going to focus on quality growth kind of across the board, which we feel like we can provide, as evident by Centene saying, “Hey, we’re going to slow down overall, but then also separately announcing that they’re going to partner with us more closely.” I think that’s going to be a fairly consistent thing, where carriers are going to really hone into their benefits. They’ve made a lot of investments in other assets that can really help consumers and they are going to focus on the producers like us that can create an integrated customer experience and put up quality policies with good 90-day persistency in a unique portion of the marketplace that we sit in. So we don’t feel like it’s going to be a deal for us at all. We feel really, really good about this upcoming year. I don’t know if that’s going to be the case kind of across the board, but we feel really good about our positioning going into this next year.

Yeah, that makes sense. You mentioned that you’re seeing good productivity out of agents, not just your core agents, but also flex agents too. I’m wondering if you can help size us for the full year, what percent of your agent force will be core versus flex. And how are you thinking about that for the full year 2024? And are there any metrics you can give us around the differential in close rates or productivity between core and flex agents?

Yeah, so great question. Our core agents typically are more productive than our flex agents. This most recent year, we went in with a more senior group of agents, and obviously the results were incredibly strong. We did take a different approach to hiring onboarding, and as shared – in Q4, we’re running that play again, right. We’ve recognized that a lot of the tactics used this most recent plan year work really well, so we’ll continue to execute on that. In general, our core agents are 1.5 to 3 times more productive. But again, with the recent strategies and onboarding, we are seeing the flex agents perform closer to being in line with the core agents. So really, really pleased with how the onboarding process has worked with past year.

Yeah. And are you able to share the split between core and flex for this full fiscal year and what you’re thinking about for next fiscal year?

We’re not guiding on fiscal year 2024. We look forward to sharing additional details in the next quarter. But at a macro level, the most recent AEDC [ph] then we were north of 70% in the core category, so meaningfully higher than years past.

Got it. Thanks for that.

I think as a general theme, Daniel, we kind of indicated last quarter, managing the business more around a year round, agent force less peaks and valleys than we had historically. That’s really the way we’ve been running this year. And Ryan’s point about the playbook, it’s certainly working, and we plan to continue down that path.

Yeah. Makes sense. Thanks.

Our next question comes from Ben Hendrix from RBC. Ben, your line is now open. Please go ahead.

Thank you. Just specifically about the work you’ve done with carriers ahead of the CMS rule and the changes you’ve made to ensure compliance. From a consumer perspective, what specifically changes based on what the work you’ve done with the carriers? If I’m a consumer and I come onto your platform, what specifically changes in terms of the way I engage your platform or the way your agents communicate with the carrier going forward?

Yeah, I can take that. This is Bill. Really from a consumer perspective right now in the way we’re discussing, there’s not much that would change in terms of the way that they engage with us. Obviously, there’s still some things that we will get clarity on in terms of that you’ve seen the things around inbound versus outbound, and some of those things and obviously we’re working really closely with them. But we feel like no matter what those end up or any changes in the future, we’re well positioned to be able to navigate those and work with the consumers. But I think in terms of the way they initially engage, it’s very, very little change, if any. And again, we feel like we’re lockstep with the carriers and understand what CMS is trying to accomplish and thing that we’re well positioned to be able to do that, right. Then, we confidently know that CMS wants to be able to provide transparency and real time feedback to those consumers. So we think as we navigate it, we’ll be well positioned to do that.

Thanks. It’s just clearly a lot more throughput on better overall expense. I was wondering if you could just kind of help us get an understanding of kind of how fixed and variable cost kind of progress and how should we think about that from a modeling perspective going forward into your new guidance?

Yeah, maybe I’ll…

It’s from a…

Go ahead, Ryan.

No. You go ahead, Tim. I will follow-up.

Yeah, I was just going to say overall, Ben, just like thematically how we’re driving these improvements and unit costs. And again, we continue to see very focused on our marketing both the customer segmentation drive into the highest ROI sources, but also great job by Bill and his team on disciplined cost management. I think we’ve hit on the agent side today, very proud of what our agents are. Agents are performing. The mix of those agents, we’re seeing very low attrition rates and all of this efficiency, if you will, is dropping to the bottom line. And I think while we continue to work very intently on LTVs and we’re seeing some very good signs that we highlighted in the prepared materials today. We’re really proud of back to back over 30% margins in our Senior business. And again, we feel like it’s durable. We continue to do that moving forward. Ryan, [to the specifics of fixed and variable.] [ph]

Yeah. I mean, we – as shared and going into this year, we did take a sizable expense cut in kind of this time last year, taking $40 million out. And we have been very disciplined with respect to the investments we’re making. One of those investments was in the infrastructure for SelectRx and the Healthcare Services platform. And, obviously we’re approaching breakeven, each marginal – each customer is coming on, and is driving strong marginal unit profitability. And so, we see the business inflecting on breakeven towards year end. But business has absolutely been focused on expense management.

We currently have no further questions. So I would like to hand the call back to Tim Danker, our CEO, for final remarks. Tim, please go ahead.

Thank you, Bruno. And thanks, everyone. I’ll just end by echoing Ryan’s comments about our excitement to share more with you about the quarters and years ahead. We’re really proud of what SelectQuote has accomplished over the past 5 quarters. It’s taken a lot of talent and hard work by our teams, but we really believe we’ve rebuilt a stronger and durable operation. We feel that we’re well positioned and in the process of capitalize on what remains a significantly large opportunity in health care for American seniors. So thank you all again. We look forward to speaking to you towards the end of the summer and sharing our outlook for fiscal 2024. We appreciate it. Thank you.

Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines. Thank you.