SelectQuote, Inc.

Hello and welcome to SelectQuote's fiscal fourth quarter and full year 2023 earnings call. My name is Elliott and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. It's now my pleasure to introduce Matt Gunther, SelectQuote Investor Relations. Mr. Gunther, you may begin the conference.

Thank you and good morning, everyone. Welcome to SelectQuote's fiscal fourth quarter and full year 2023 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 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. Mike SanClements, Including but not limited to those described in our earnings release annual report on form 10 K, for the period ended June 30 2023 and other filings with the SEC. Mike SanClements, 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 banker TIM.

Thank you all for joining us today. We're pleased to, yet again, share a very strong quarter, which caps a very strong year for SelectQuote. Today, we will detail the ways that our strategic redesign has solidified our market-leading competitive position in Medicare Advantage, but more importantly, we will demonstrate our conviction that SelectQuote has built a diversified platform to drive consistent profit and cash flow in the quarters and years ahead. We'll also review our incredible success with SelectRx, where we have rapidly grown a profitable business with annual revenue now totaling over $239 million. This impressive trajectory was accomplished in a little over two years' time. Beyond the financial results in this business, we're even more excited to review SelectLo's unique ability to create additional businesses and healthcare services, given how our information advantage and comprehensive platform adds value to the full spectrum of stakeholders within the healthcare ecosystem. If we turn to slide three, let me recap the quarter. As noted, SelectQuote outperformed our internal forecast yet again. Fourth quarter revenue of $222 million and adjusted EBITDA of negative $6 million represents the sixth consecutive quarter of outperformance, driven by great execution across each of our businesses. The call out here is the improved profitability produced in what is a seasonally slower and high investment quarter. This is an important result, given our stated strategy to reduce the volatility of our results throughout a given year. Additionally, the strength over the year positions us well for the upcoming 2024 season, as we've been able to invest early, which worked really well for us in 2023. Specifically, our new agents are already hired in our ramping, And similar to the past year, we expect a higher mix of tenured agents. Healthcare services also performed well in 4Q. As planned, we purposely slowed SelectRx member growth to accelerate profitability. And we're proud to have accomplished our goal to drive a positive EBITDA contribution exiting the year. Lastly, our priority to drive cash flow in 2023 is a point of pride and was certainly the case again in 4Q. Specifically, we generated $72 million of cash EBITDA for the year, which includes investments we've made ahead of the upcoming season, as well as the ramp for SelectRx. In fact, excluding the ramp for SelectRx, Fluqua would have driven positive operating cash flow in fiscal 2023. We also significantly improved the cash efficiency of our business given the materially lower operating cost per policy. Our payback period of just over two years on a new MA policy compares very favorably to prior periods despite lower MALTVs. We start fiscal 24 in a strong cash position and feel confident about the season ahead. Overall, Sleco delivered across the board in 2023, and I'd like to personally thank everyone in the organization for the hard work that drove our success. We certainly aren't done yet, but clearly a lot to be proud of as we look to 2024. Let's flip to slide four, where I'd like to briefly give context on the scale of SWCWIS fiscal 23 outperformance, in which the company generated revenue of just over $1 billion and adjusted EBITDA of $74 million. During our 2022 year-end earnings call, we presented four guiding principles for how we'd operate the business during fiscal 23 and beyond. First, discipline policy production with a focus on margins and cash flow. Second, reduced operating leverage. Third, leveraging the scale of SelectRx and healthcare services. And finally, reduced volatility of our results. We're proud to say we executed on each of these principles during fiscal 2023, which resulted in the strong financial results you see on the page. Beginning on the left, it's important to remember that we slowed our policy growth with a specific goal to improve the quality and operating efficiency of our core senior business. In 2023, our MA policy production declined 13% year over year, which you'll recall is well ahead of the original expectation for a 35% to 45% decline. The reason for the outperformance in volume was driven by improved agent close rates, which carried across to our most important financial KPIs, including marketing costs per approved policy. In aggregate, our full year 2023 adjusted EBITDA margin for senior was 26%, which is driven by broad-based improvement in policy throughput. more focused and effective policyholder targeting, and an overall strong AEP and OEP season. As Ryan will detail in our 2024 outlook, we believe our operational improvement is durable and we believe Selectwood is well positioned to generate 20% plus EBITDA margins and core senior in a wide range of Medicare Advantage seasons. The year also underscores the power of our tenured agent model paired with our technology and information. Ultimately, we believe the durability and performance of our unique model sets SelectQuote apart as a distribution partner that can drive high-quality volume rather than simply growing for growth's sake. Better yet, the information advantage SelectQuote has is critical to how we built SelectRx, and we continue to leverage our platform to build other healthcare services revenue streams. In 2023, SelectRx grew by nearly 24,000 members and exited fiscal 23 approaching 50,000 members. This membership growth incurred minimal incremental marketing expense as nearly all of our SelectRx members came from the marketing funnel of our various insurance lines of business. I'll speak more to SelectRx and the power of our healthcare services strategy on the next few slides. Lastly, the six consecutive quarters of execution relative to expectations is a metric we're determined to grow. As you know, 2022 is a challenging year But the success and consistency due to our strategic redesign gives us confidence that SelectWOT will continue to earn credibility and the market through performance. Now, if we shift to the right, let me provide context to the magnitude of our outperformance in 2023. The bars in gray show our original expectations when we provided our full year 2023 guide this time last year. In contrast, the bars in orange show our actual full year results. Our revenue production exceeded the midpoint of our original guide by over 11% to end the year. Additionally, our expectation to break even on adjusted EBITDA in a year was significantly surpassed as SelectQuote generated $74 million in adjusted EBITDA, which represents an overall margin of 7%, all delivered through an increasingly cash efficient and cash generative model. These results give us a high level of conviction that the changes we've made to our operating model are working and position the company to continue to deliver attractive returns well into the future. Moving to slide five, let me give additional context to the evolution of SelectRx as we're increasingly asked about the business from our investors. Here you can see the trajectory of member and revenue growth in what is a very short period of time. In 2021, SelectRx acquired two smaller pharmacy operations, with approximately 4,500 members with a wide range of use cases and prescriptions. Today, we have built a sophisticated and easy to use platform for seniors to save time and importantly, achieve better medication adherence. The value proposition to the patient is clear as we've grown to nearly 50,000 members in just 10 quarters and nearly doubled our membership over just the past year. Given the vast majority of our membership growth today has come from existing Medicare customers, you can see the powerful impact this rapidly growing business, alongside a significantly improved senior business, has had upon our revenue to CAC ratio, which finished the year at over 4x. Most importantly, the business has hit critical mass, and our member onboarding has become increasingly efficient over the past year. Best of all, we have recently been recognized with the patient-centered pharmacy home accreditation, which is an endorsement of the quality and service level we brought to bear to America's seniors with our uniquely well-positioned model. We look forward to talking more about this business in 2024, but ultimately we expect to leverage the platform to drive both top and bottom line growth for years to come. If we turn to slide six, let me give a quick refresh on our approach to healthcare services and how Selectwood is uniquely positioned to capitalize on this market opportunity. There are two key takeaways from this page for when to drive home. First, it's obvious that healthcare in the United States is a tremendously large market where seniors are becoming a larger and larger percentage of the population each day. Additionally, the way that American seniors are treated by healthcare providers and managed care organizations is shifting rapidly in favor of health outcomes. At a high level, that means providing services that are tailored to the individual. In order for a caretaker to provide that level of service or for a carrier to underwrite that care, a substantial amount of information is required. SelectQuote's agent-led model across each of our businesses, combined with the investments we've made in technology, afford us the unique ability to be the facilitator and connective tissue between each of these stakeholders. As we've talked about in the past, there's a tremendous amount of value that SelectQuote provides in brokering the connection of each of these participants within healthcare Our core senior business is a reflection of the value we create for both a policyholder and a carrier when we match the best fit. SelectRx is an example of the differentiated value we deliver for seniors by leveraging a platform built to provide bespoke services at scale. The market opportunities for these services are broad, given the more than 55 million Americans over the age of 65. In the future, we expect to create additional businesses similar to how we've built SelectRx. What we can share today is that our strategies and healthcare services will leverage our existing platform and will share in our aim to drive consistent profitability and cash flow. Put another way, we plan to provide better solutions and higher value, knowing what we know about the needs of healthcare stakeholders. We do not intend to create markets, but instead we'll seek to capitalize on demand and less efficient markets that already exist. The second takeaway is our firm belief that SelectQuote wins because of the value we provide to each party within the healthcare ecosystem. Similar to my comments on our core senior business, we provide quality at scale as opposed to just one or the other. And it's foundational to our approach in healthcare services that any business we pursue benefits SelectQuote only if we deliver value to each and every other participant in the service. Clearly, this is something we're excited about. and we look forward to sharing more about the healthcare services opportunity in the future. If we now turn to slide seven, I'd like to end my remarks on the strides we've made with regard to cash efficiency and long-term value creation. As we've talked about, SelectQuote's strategic redesign prioritized improvement in cash flow in two main categories. First, each of our businesses from our core senior, to life and auto and home, have made significant improvements in operating efficiency which in turn has improved cash conversion. For instance, in Core Senior, our shift to more tenured agents and a refined set of lead targets has driven a significant benefit in our cash EBITDA, in line with our decision to slow policy generation in 2023. As you can see at the top of the page, both our adjusted EBITDA and cash EBITDA were materially better year over year. As we've spoken about, these metrics were aided by a strong season but more so by improvements in our own execution. In 2023, our agent close rate was 24% higher than in 2022. Similarly, our marketing cost for approved policy was down 34% compared to a year ago. Lastly, we would note that LTV stabilized over fiscal year 2023. And while we don't forecast increases in LTV as a practice, we can contextualize the improvement from two perspectives. First, Starting early in 2022, we undertook a rigorous overhaul of our policyholder underwriting, and as a result, we have significantly improved our own observed persistency. Second, our carrier partners have become more discerning in the quality of their volume, and as a result, competitive pressure that existed in seasons past has eased as carriers exhibit a flight to quality partners like SelectClose. The second way we're improving cash flow is through the mix of our businesses, as well as the way that we partner with carriers. First, in terms of business mix, we believe Suckwood has become a business that generates more year-round profit and revenue, given our strong SelectRx and Life and Auto and Home businesses. These and additional healthcare services opportunities dampen the seasonality of our business, but also benefit our cash conversion, given the upfront nature of their cash flow streams compared to the Medicare Advantage business. Second, Medicare Advantage continues to evolve, where carriers are focused on working with distribution partners that can generate high quality policy volume. This was evident in 2023, as the percentage of revenues received in year one increased 63%, up from 53% the year prior. In the Medicare Advantage seasons ahead, we expect carriers to continue to move towards partners like SelectQuote and believe the best distribution partners will earn better structures, which may improve commission timing or lead to better overall LTBs. In both cases, we believe SelectQuote is very well positioned to take high-quality market share without taking on marginal risk. With that, let me turn the call over to Ryan to detail our strong financial results. Ryan?