SelectQuote, Inc.

Welcome to SelectQuotes first quarter earnings conference call. All lines will be muted. All lines have been placed on mute to prevent any background noise. After the speaker 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, please press pound key. It is now my pleasure to introduce Matt Gotzer, SelectQuote Investor Relations. Mr. Gotzer, you may begin the conference.

Thank you and good morning, 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. 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 Interim Chief Financial Officer, Ryan Clement. Following Tim and Ryan'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, quarterly report on Form 10-Q for the period ended September 30, 2022, 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, everyone, and thanks for joining us. Succo produced strong results for the first quarter of fiscal 2023, and we're very pleased with the output and metrics being delivered by the strategic redesign we announced last year. Across the board, our results were ahead of internal expectations, including strong growth in our SelectRx business. Similarly, our core senior business has never been better prepared for the Medicare Advantage season than it is this year, and we saw very positive trends in each of the key drivers of our core senior economics, including better persistency and marketing efficiency. Lastly, the strategic approach being applied to our core senior distribution business are also benefiting our life and home segments, which also had strong quarters. Overall, I'm very proud of what the team has done to rise to the challenge, and the organization is excited to deliver our strategic goals in the season and years ahead. Let's start on slide three with a quick review of the headlines for our quarter. First, at the top of the page, SelectQuote now has delivered three consecutive quarters of positive momentum and the key performance metrics that drive our major business lines. In core senior, we saw agent close rates increase 14% year over year, which has been driven by our return focus decision to heavily await our agent population to more tenured core agents. That strategy, in combination with enhanced customer targeting and segmentation, also benefit the efficiency of our marketing, where cost per approved policy declined 38% compared to a year ago. In the face of a lower LTV reality, which we discussed for the past year, these operating improvements are clearly critical. That said, the progress we've made to date is ahead of plan, and we have a lot of conviction and excitement in our strategy for this year's AEP. Better yet, we continue to see improved customer persistency, which is encouraging for LTV in the future. We'll speak more about that in a minute. All in all, a lot of good things happening with our strategy for our course in your business. Moving down the page, let me touch on this year's AEP and how Selectwood has never been better prepared. First, as mentioned, our agent workforce was hired, licensed, and onboarded by the end of July, which you'll recall compares to last season when Flex agents were onboarded much later in the season. More important, this year's mix of tenured core agents is about 70%, which compares to roughly 20% last year. Similar to our selective approach to best agents, we've also resegmented how we approach our marketing and customer acquisition. And we've armed our agents with enhanced tools to better serve customers. The bottom line here, of course, is to drive better return and cash flow for policy. As we've said before, shareholders and analysts will have to judge us based upon what we produce and the seasons ahead, but from our vantage point, the strategy is indeed working. Lastly, while not part of the strategy, we believe the headwind presented to our business by planned feature uniformity and Medicare Advantage policies last year has been addressed aggressively by the insurance carriers this season. We believe the ongoing AEP season has a number of benefits to our business compared to last season. First, we believe enhanced plan options and benefits for policyholders will drive better customer engagement. Additionally, as you've heard from our carrier partners, there is an increasing focus on retention and quality. As a result, we've partnered even more closely with our carrier partners and areas such as healthcare services, as well as targeted Medicare distribution and value-based onboarding for our Medicare clients. This certainly aligns to the needs of our carrier partners while strengthening our overall cash position. Again, a lot of positive trends, and we're eager to execute this year. Turning to our summary financials, Ryan will provide more detail, but the key takeaways here are, one, that our core senior life and auto and home divisions performed ahead of plan and with improving economics and cash flow. Two, our healthcare services segment, which at this time is predominantly SelectRx, continues to grow rapidly, which again is outstanding. As promised, we've added disclosure for our healthcare services segment this quarter as the business scales and becomes a bigger driver of our financials. To this point, Brian will give detail on the pace of EBITDA relative to revenue for healthcare services later in the presentation. In summary, Our EBITDA was dampened in the quarter given the stronger than expected growth of members and the upfront costs associated with onboarding those SelectRx customers. Put more directly, we're happy about the spend because of the return in cash flow we believe those members will drive in a relatively short period of time. To that point, we're reaffirming our full year fiscal 2023 guides range of $850 to $950 million in revenue, and negative 20 million to positive 10 million in adjusted EBITDA, and feel very good about the start of fiscal 2023. We are ahead of plan, and thus far in AEP, feel very good about the progress we can continue to make against our strategic goals. With that, let's turn to slide four, where I will briefly update the strategic approach we've deployed over the past year. First, at left, SelectQuilt remains committed to driving improved returns in cash flow per Medicare Advantage policy and believe there are a number of early signs that we are doing just that. First, we now have seen two consecutive quarters of improved early life policyholder retention and believe our targeted approach to growth should continue that trend. Second, with a heavier mix of tenured agents pursuing more selective and higher quality leads, we expect to derive improving operating metrics like close rates and cost per policy, which I'll detail in a minute. Moving to the green column. The team deserves thanks for simultaneously right-sizing our business, yielding over $250 million in cost efficiency, while also preparing us very well for the upcoming season. In sum, we believe Secwit has significantly de-risked the operating leverage in season-to-season risk in our business. If we move to the right, there's no change to our LTV methodologies, and we believe we remain appropriately conservative with the new reality of Medicare Advantage LTVs. To that point, We're pleased to note that our 2022 cohort is performing in line with expectations. Additionally, as I alluded to, the carriers are taking a similar approach to policyholder persistency, which we believe is well aligned with our strategy. Specifically, we continue to derive revenue from existing services that we've been providing for years through enhancements to our sales, customer care, and Medicare customer onboarding that support the joint strategy. In addition, We continue to work with our carrier partners to find synergistic ways to drive incremental revenue through our healthcare services business. Put simply, SelectQuote can generate cash flow faster and can be rewarded for our differentiated service quality. Lastly, at Wright, we'll talk more here as well, but our healthcare services strategy continues to succeed. SelectRx has more than 32,000 members at the end of the quarter, and we continue to expect revenues of $275 million for 2023. We anticipate that healthcare services division will turn adjusted EBITDA positive by the end of 2023. Again, a lot to be optimistic about in the strategy. If we turn to slide five, I'd like to take a second to detail some of the key operating metrics that we use to manage and evaluate the business. As I noted at the top, each of these four metrics are trending positively, which is very encouraging given each is a building block to the ultimate return in cash flow produced by our senior distribution business. If we start at top left, marketing expense per policy improved by 38% in the first quarter, which marks three consecutive quarters of improvement. The driver here is our effort to optimize the best and highest return lead channels, which on a lower level of volume is performing exceptionally well. Moving right, our efficiency per lead has also improved significantly, with agent close rates improving 14% year over year this quarter. The strategy to overweight our core Tenured agent force is the driver here, and we expect the trend to continue in the ongoing AEP season. At the lower left, maybe the most encouraging metric is the improvement we've seen in our 90-day persistency, which has recovered meaningfully compared to the challenges from a year ago. While we expect season-to-season factors like plan design to impact persistency at the margin, we believe the actions we have taken in our tighter agent and marketing focus have driven the lion's share of the improvement. Lastly, at lower right, our cost actions combined with more efficient agents and targeted marketing spend has driven a significant improvement in our cost per policy, which is down more than 35% compared to a year ago. Again, very encouraging, and we're looking forward to running this playbook throughout AET. As we turn to slide six, let me emphasize the improvements we have made in cost structure, margins, and cash flow. As we've said, we took significant action not just to right-size our senior business, but to also reduce operating leverage through measured policy production, better marketing efficiency, and fixed cost optimization. Since undergoing our cost and operational improvement efforts earlier this calendar year, we've seen significant year-over-year improvements in each of the last three consecutive quarters, with Q1 per unit operating costs for approved policy down 36%. As I indicated earlier, the carrier rate plan environment seems favorable this AEP compared to last, But regardless, our margin and cash focus approach is yielding improving returns. For AET, let's flip to slide seven, where I'll provide brief color on cyclist positioning heading into the season. As I noted a few times before, we're in excellent shape and have already seen tangible benefits in the early weeks of this AEP compared to last year. Our higher mix of core tenured agents at roughly 70% has been hugely beneficial and better yet, These agents are more advantaged than prior years across a number of factors. First, we're giving them higher quality leads to pursue. Second, we've armed them with the best set of desktop tools to deliver the most efficient and best level of customer service in our business. We are especially excited here as we feel we have met the market extremely well given the wide range of planned features offered by carriers this year. Third, SelectLit benefits from the breadth of our services with over 32,000 active SelectRx members. I'll speak more to it in a few minutes, but we believe SelectLook is not only best prepared for the ongoing AEP, but we've also had the competitive advantage as a uniquely capable connector across healthcare. Let's now turn to my last page on slide eight. We've given a lot of airtime in these calls to SelectRx, and rightfully so, given the success of the business. While it remains the major driver of our healthcare services segment, we think it's important to provide context why we're in the business and our philosophy on how select quote is so well positioned to add value and the healthcare ecosystem the simple answer on why we're in the select rx business is that the recurring revenue and margin profile is highly attractive which ryan will speak to more in a minute that said as the business scales over 2023 we want to make sure that our broader approach to healthcare services through population health isn't lost as you all know healthcare as an industry is in the midst of a shift towards outcome-based care with a significant focus on best and most cost-efficient service for patients. The themes you've heard us speak to, including value-based care, at-home versus at-clinic, custom and individual-focused health profiling, are all part of how each participant in the industry is moving. Healthcare providers working with managed care insurance carriers, working for the needs of the patient. SelectQuote sits at the middle of all of this, and we have long-held conviction that we're best positioned to add value to a wide number of contact points and steps in the spectrum. I'm reiterating the point here because while we're intensely focused on repositioning our core senior business, we believe the case study that is playing out in SelectRx has broader application across many points in the right-hand column of this page. In certain cases, these patient needs present a revenue opportunity for SelectQuote. In more cases, our information advantage offers tremendous value to our carrier partners and healthcare providers, which in turn makes us stickier and more important partner to them. Best of all, the opportunities I'm speaking about leverage existing infrastructure and spend. The punchline here is stay 10. But similar to our confidence in the strategy for Medicare Advantage, we're seeing a lot of good things happen here as well. And with that, let me turn the call over to Ryan to detail our financial results. Ryan?