SelectQuote, Inc.

Welcome to the Select Quotes 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. 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, Select Quote Investor Relations. Mr. Gunter, you may begin your 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, 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?

Thanks, Matt. Good morning, and thank you all for joining us. In my remarks today, I'll touch on two topics. First, I'll summarize the quarter and how we saw encouraging sequential improvement in our senior business during OEP, compared to AEP. Second, I'll provide an update on the strategic redesign we discussed on our last call. It is certainly too early to declare victory, but we observed tangible improvement over the past quarter due to our preliminary actions, which gives us confidence, a lower growth. Returns-focused strategy is the best way to capitalize on the significant value opportunity we still see in Medicare Advantage distribution. With that, let's start on slide three with highlights from our fiscal third quarter. As I noted, our senior business performed better in OEP as compared to AEP across a number of key performance indicators. Our agents delivered higher conversion rates, driven primarily by more comprehensive onboarding training and longer agent tenure. Again, early days, but this observed close rate improvement supports our plan to hire earlier and carry a higher mix of tenured core agents in future seasons. The second operating highlight in our senior business was a significant improvement in marketing costs, driven by our decision to optimize marketing partners and refine customer segmentation and targeting. Additionally, better conversion rates by our agents helped reduce costs per approved policy and overall marketing efficiency. Lastly, going forward, we are placing even greater emphasis on the cash flow and profitability of our business, and we are pleased with our early actions to reduce costs as part of our developed plan that should yield over $200 million of cost savings, excluding SelectRx. About 20% of that total comes from fixed cost reductions, which are implemented during the quarter. We'll provide more detail on those actions in a minute, but again, these early steps give us increased conviction and a redesigned path to profitability. Turning to our financials, the quarter was better than our expectations, driven largely by the actions I just summarized. Our revenue totaled $275 million, up 4% compared to a year ago, and our adjusted EBITDA for the quarter was $13 million, compressed primarily because of the year-over-year pressure on MALTVs. Lastly, our population health and SelectRx businesses continued their momentum in the quarter. We ended the third quarter with around 20,000 active SelectRx members and now total over 23,000 active members as of April 30th. we remain very confident in our ability to surpass 25,000 members by the end of fiscal 2022. That would equate to more than a tenfold increase in pharmacy members since we first acquired the business in May of 2021 and demonstrates the potential of the comprehensive healthcare services platform we are building to drive significant future revenue and profitability to our business. It is also important to understand our population health initiatives are much broader than just prescription drugs and SelectRx. Our holistic approach in partnering with a diverse set of leading healthcare service providers will continue to differentiate SelectQuote as well as deepen our relationships with policyholders and carriers. While many of the services beyond SelectRx are not yet significant revenue drivers in an explicit sense, we believe these diverse services will drive new revenue streams and deeper relationships with our customers, carriers, and providers over time and ultimately boost our returns and profitability. On slide four, I'd like to review our ongoing strategy and provide detail on progress we have made thus far. First, it's worth reiterating that the remainder of fiscal 2022 and next season will be a transition year for SelectQuote. That said, we've become increasingly confident in our plan over the past 90 days based upon the early impact we have seen in our results. As you can see here, our strategy encompasses four core pillars, which are all focused on improving Selectwood's profitability and the predictability of our returns. At Luft, we are committed to a growth strategy prioritizing returns, visibility, and growing cash flow over volume. To be clear, we believe the opportunity remains large and long-tailed in our senior business. That said, years of 100% plus growth in policies are candidly less likely in our future, and as we've noted, Our initial policy forecast for 2023 assumes a year-over-year decline in submitted policies to right-size our organization. That point leads to the second component of our strategy, which is to mitigate our operational risk or effectively reduce our operating leverage. As we noted last quarter, we are committed to a senior business strategy that can produce attractive returns in a wide range of environments. Clearly, the 2021 AEP season was unique, but we believe the cost savings we have identified thus far will go a long way in ensuring better returns even during challenging seasons. At this point, the bulk of the $200 million we have identified will come from lower growth in variable costs. That said, I want to emphasize that we will remain focused on high return on investment capital allocation. In the quarters ahead, you can expect updates across a number of these initiatives, including agent hiring, onboarding, marketing, and our G&A. Perhaps even more importantly, the planned pullback in Medicare policy production allows us to refine our sales, marketing, and operational approach, placing greater focus on cash efficiency, profitability, and riding business with greater potential to persist over the long term. For example, we plan to take a more conservative approach to our recruiting, training, and onboarding of new agents, ensuring all will be fully prepared for the AEP busy season. We anticipate by next AEP, our agent force will be a more tenured group than the 2021 AEP team. The pullback also allows us to reassess and optimize our training tools and systems that support our agents and their important role of advising customers on the best plan for their unique needs. And the pullback allows us to optimize our marketing sources and to refine our targeting to focus more investment on the highest LTV producing lead sources going forward. If we move to the next pillar, we continue to bake more conservatism into our expectations for LTV. Recall from the last quarter, we significantly increased our constraint from 6% to 15%. In addition, lower persistency in each of the recent cohorts has been incorporated into our LTV accounting. Raf will expand on this point. The key takeaway is that while we cannot confirm LTV as a bottom, we believe volatility going forward has been significantly reduced. While we're still in the very early stages of layering in additional retention-focused operational improvements following AEP, we are encouraged by the early indicators we are seeing from some of our efforts. For instance, layering in more and more refined customer targeting based upon revised data sets and optimizations of our marketing sources aided in our conversion rates in the third quarter, and we believe that we will eventually see observable improvements in persistency with these customers over the long term. Lastly, as I noted before in the update on SelectRx, we believe our differentiated approach to broader healthcare services will create a significant competitive advantage in the years ahead. From SelectRx to the creation of our Healthcare Advisory Board to the growing number of services we and our partners provide to customers, SelectQuote should become a stickier and more important relationship with customers, carriers, and providers. We are excited to share more about these growing capabilities in the quarters and years ahead. Lastly, let me turn to slide five to briefly describe some of the key differences we observed between the challenging AEP of last quarter and the recent OEP season. We know it can be difficult to track trends in our business, especially in a season as unique as this past one. To be clear, we're not providing this detail to suggest an ongoing trend, but instead want to give context, especially as it relates to the impact of our new strategy. First, we saw a significant improvement in our marketing cost per approved policy. which decreased 27% year over year. As I noted, less competition likely had some impact, but more importantly, we realized benefits from our work to optimize our marketing and to target higher return policyholders. Next, a more seasoned agent workforce in OEP relative to AEP confirmed our strategy to onboard and train earlier next season. We leveraged the interval between the conclusion of AEP and the start of OEP to provide additional product and sales training to our agents and to fine tune our plan recommendation engine. And we feel the conversion rate improvements we saw during third quarter demonstrate that these investments helped. Clearly a tight labor market impacted our 2022 season, but regardless of the recruiting environment, we believe we can drive better productivity and conversion rates in future seasons with earlier onboarding and training. Third, as I highlighted before, we've already identified significant cost savings I will continue to optimize our platform to drive sustainable scale and profitability. Lastly, we are most encouraged by the progress we continue to see in SelectRx and our broader population health initiatives. We continued our strong SelectRx customer growth momentum and ended April with over 23,000 active members. We look forward to sharing more, including our forward growth expectation in the coming quarters. That said, overall, we believe the biggest benefit to our business will come from our differentiated value proposition as we continue to evolve from a pure-play insurance distributor to a comprehensive healthcare services platform, addressing a far greater range of our customers' health needs. To conclude my prepared remarks, I'll summarize by noting that while our work is far from finished, we are pleased with the progress demonstrated in the quarter and have growing conviction in the value our company can generate for shareholders in the future. With that, let me turn the call over to Raf to review our financial results. Raf?