SelectQuote, Inc.

Welcome to SelectQuote's second 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. 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 second quarter earnings call. Before we begin our call, I'd 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, Raf Sadoon. Following Tim and Raf'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 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, as usual, to our investors and analysts. We're excited to share another very strong quarter of results for SelectQuote, driven in large part by a highly successful AEP in our senior business. Let's start on slide three with some highlights from the second quarter, which exceeded our internal expectations yet again. SelectQuote ended the second quarter with consolidated revenues of $358 million, up 103% year-over-year, and adjusted EBITDA of $130 million, up 88% over last year. As for highlights in the second quarter, our senior business was the main event again, We're most excited by another quarter of stable and industry-leading LTVs combined with our outsized revenue growth. Our senior division grew rapidly on a challenging year-over-year compare, with revenue up 127% and adjusted EBITDA up 98%. Let me pause on that statement for a second to call out that the 127% year-over-year growth in Topline and 98% growth in EBITDA was on top of similar outsized growth we experienced last year. Specifically, we grew senior revenues by 62% and adjusted EBITDA by 51% in the second quarter of last year. I'm emphasizing the highlight, not only how significant and lasting the growth opportunity is for our business, but more importantly, to note the scalability of our differentiated model. There are not many businesses that can grow over 125% on top of a year of 60% growth. Even more impressive, as we dig through the details of the quarter, is we believe the profit growth could have been even better in terms of marketing efficiency, which Raf will touch on in a minute. Another highlight is our continued cash efficiency. Put simply, we are growing faster while using less cash than anticipated. I'll detail AEP in a second, but the standout achievement on our growth is the continued improvement in agent productivity, which is up 32% over last year despite a 70% increase in productive agents. In our life business, final expense continues to be a winner, with premium growing nearly 230% on a year-over-year basis, which shows the power of our technology and flex agent model and how we can monetize the deep knowledge we have about our customer base. Lastly, on February 1st, we purchased certain lead distribution assets from one of our lead vendors. As we have stated in the past, similar to the inside response acquisition, we would be opportunistic if assets became available on the lead generation front that were synergistic to our business. These assets will allow us to continue to refine our marketing capabilities and continue to generate consistent and growing leads for our various lines of business. In total, FlatQuote continues to excel in our large and rapidly growing industry, We are very pleased that our results continue to validate our differentiated strategy. Based on the strength of AEP and our TQ results, we are raising our fiscal 2021 annual guidance for adjusted EBITDA to a range of $230 million to $240 million. Raf will go into more detail later, but this is the third straight quarter we have raised our guidance. Let's turn to slide four and review the successful AEP we just completed. At an industry level, we continue to see strong demand for senior health products, and more importantly, SelectQuote continues to grow at multiples of that trend. Some high-level comparisons first. We onboarded over 2,000 new associates this AEP, over half of which were sales agents. As a result, average productive agents increased 70% from last year. What was more impressive was our ability to replicate and, in many ways, enhance our unique training experience in the remote work-from-home environment. In addition to materially increasing the size of our agent force, we experienced better agent retention rates through all stages of our flex agent sales process. We also utilize more enrollers and customer care agents than we have in any previous AEP, which further enhanced our efficiency and service level, all that has a direct link to our volumes, LTVs, and returns. The best part about each of these highlights, of course, are the outsized results that are driven by our differentiated strategy. We drove 32% higher agent productivity in our senior division, despite growing agent headcount over 70%. As a result, we grew approved MA policies by 132% and total approved policies by 117% over last year. This was our fourth consecutive quarter of revenue growth over 100%. Our MA LTVs were flat compared to a year ago at $1,268, which stands out compared to peer LTVs, which are roughly 25% lower and have exhibited more volatility than ours. Furthermore, the stability of our LTVs in a period of rapid growth is a proof point to the solid foundation we built our model. Lastly, as you know, our model doesn't stop at point of sale. With our expanded CCA team, we called nearly every new customer and successfully connected with approximately 85% of them, which we believe is crucial to early-stage persistency and ultimately LTBs in our returns. Best of all, each of these strengths in our differentiated model are driving significant profitability as our adjusted EBITDA and senior grew 98% over last year and did so in an increasingly cash-efficient manner. What I'd like to do now is spend some time on our two most important factors of why we believe Selectwood outperforms, our agents and our technology. First, on slide five, we'd like to reemphasize how our unique agent model serves to continually improve efficiency and returns. First and most important is that our agent force is 100% internal and each agent is hired through a rigorous onboarding process. Our new agents undergo an extensive 10-week training program to ensure that they are subject matter experts the day they begin speaking with customers. Our continuous education platform reinforces that training year-round. Once trained, we then arm our agents with robust technology to allow for the most efficient volume throughput while maintaining industry-leading quality as defined by LTV. We then add our flex agent model and the utilization of licensed enrollers to drive additional volume and efficiency. In summary, we have built a highly scalable and increasingly efficient model as evidenced by the 32% increase in agent productivity this quarter. Turning to quality and returns, our agents don't just process information efficiently, but they conduct a thorough, personalized, needs-based assessment for each customer to make sure they find the right policy for them. And our customer engagement does not end at the initial sale but continues through the life of the policy with our customer care CCA team. This additional investment in care, which some of our competitors are only now trying to build, is more significant than you know, providing long-term value to consumers and our book of business. Now, we believe in a market as large as ours, there are many ways to approach and interface with the customer. At a high level, we believe many models were built to focus on volume first and customer value second. SelectWood's focus on quality first and volume second is the major difference in our agent model and is a key driver of our superior LTVs. Let's now turn to SelectQuote's second most important differentiator, our technology on slide six. We're clearly proud to have driven a 32% increase in agent productivity, and the natural question is how we drove that improvement on significantly higher volume, all while going the extra mile on customer service. The answer is our commitment to technology is a strategic advantage in how both we serve our customers and optimize our volumes and returns. The challenge for you, the investor and analyst, is that our technology is not something that can be fully explained in a bullet or two. It's very important to understand that our technology took years to build and hundreds of millions of dollars to develop. From a competitive standpoint, it puts a significant moat around how we approach the business compared to others, and it's not the kind of thing that can be stood up quickly. There certainly isn't time in this call to speak to each component of our technology, so let me provide one example across our marketing and lead workflow on slide 7. At the highest level, we have built custom technology at every step of the process, from the lead buying decision to how those leads are scored, enriched, and routed. We begin with our wide funnel approach to aggregate leads from a variety of sources that can be toggled up and down based upon what the market environment presents us. From there, we've developed proprietary technology called SelectBid. By leveraging investments in data science, SelectBid allows us to make intelligent, real-time lead buying and pricing decisions by combining the lead data with our historical performance data, third-party data, and custom algorithms to predict the expected LTV of the customer, then prices the bid accordingly. From there, we apply similar data science to best match leads to the right agents based on close rates and service quality. When the agent enters the process, we apply just as much technology at the customer service level. We've developed robust tools to match customers and plans against the best combination of doctors, prescription drugs, and their future medical needs. This happens both at the sales agent level and at the CCA level post-initial sale. The final point I make here is that in addition to being difficult to replicate, our technology is built with the full knowledge that none of the variables and factors I just discussed are static from one season to the next. Things like changing plan features or customer habits and health background can influence this business significantly, and as a result, our technology has been built to interpret these factors in real time and drive the optimal throughput and service. Again, difficult to articulate. But this technology paired with our unique agent model is the difference in why we drive best-in-class LTVs on very high levels of volume. With that, let me quickly sum up on slide eight and review the highlights of a very successful quarter. First, this was the most successful AEP in our company's history with senior revenue growth of 127% following a 2020 in which we grew by 62%. We've said it a few times now, but we couldn't be more excited about the validation of our model and what it means for this company as we look to the massive growth opportunity ahead. Second, our 98% EBITDA growth in Senior and the better than expected cash efficiency of our growth are equally exciting and speak to our return-focused approach to growth. Third, our market-leading and stable LTVs continue to be the proof point in our differentiated agent and technology-driven model. Lastly, given how important our agents and fellow associates are to our strategy, we are very proud to have been awarded top workplaces awards, both on a regional and national basis in a number of categories. With that, let me turn the call over to Raf to detail our results.