SelectQuote, Inc.

question during this time, simply press Start followed by 1 on your telephone keypad. If you would like to withdraw your question, please press Start followed by 2. It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may now begin the conference.

Thank you and good morning, everyone, and welcome to SelectQuote's fiscal second 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 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 on 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 for the period ended December 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. What produced another very strong quarter in 2Q? which marks our eighth consecutive quarter of performance ahead of expectations across both our core senior and healthcare services businesses. Before getting to the quarter, I'd like to begin by reiterating our conviction and the value creation strategy we have executed against since 2022. For those that are new to the story, SelectQuote seeks to generate stable and attractive EBITDA margins and a range of selling environments with an emphasis on returns to invested capital and growing cash flow. We've optimized our sales force of tenured agents to focus on the best leads to generate the highest possible unit economics for Medicare Advantage policy. Our rapidly growing healthcare service business, led by SelectRx, has significantly scaled the return in cash flow generation of our holistic marketing spend. And as a result, our revenue to CAC is now over 4x, more than double what it was two years ago. Additionally, we delivered a third consecutive quarter of positive profitability in our healthcare services division, which will accelerate the overall earnings tower and cash flow of SelectQuote. Our strategic goal of building a truly unique and diversified platform, featuring information and service-driven insurance distribution, as well as value-added healthcare services, is increasingly becoming a reality. With this quarter, we have now produced positive operating cash flow in two consecutive quarters on an LTM basis, which is noteworthy given the first half of the fiscal year is our highest seasonal use of cash with the ramp to AEP and OEP for Medicare Advantage. As a result of this progress, we now expect SelectQuote to approach break-even free cash flow for fiscal 2024 and expect cash flow generation to expand as healthcare services continues to scale. From our vantage point, flood quote is not just healthier than it was two years ago, but is thriving, with a strong foundation to realize the significant intrinsic value for shareholders that we see in our unique model. With that confidence, we are pleased to say that we have increased the midpoints for both our revenue and adjusted EBITDA outlooks for fiscal 2024, which we will detail later in the call. Now let me turn to slide three to provide highlights of our two key results. Consolidated revenue grew by 27% year over year, driven by both policy and LTV growth in our senior division, and an increasing contribution from healthcare services, which more than doubled revenue year over year at $112 million for the quarter. Our consolidated adjusted EBITDA also beat expectations, growing by 6% compared to a year ago. As you will recall, our expectation for fiscal 24 was for EBITDA margins to moderate compared to a highly favorable Medicare Advantage season experienced by the industry in fiscal 2023. It is important to call out the significant mix shift we've experienced, given that EBITDA generation lags member growth in our healthcare services business. We'll speak to the drivers of each segment in a moment, but we want to emphasize the embedded EBITDA scale that exists across all of SelectQuote. In our senior segment, we continued to achieve strong efficiency of our tenured agent force in 2Q, even when comparing to a very favorable market backdrop in fiscal 2023. As a result, we generated strong EBITDA margins of 32% despite expected marketing cost increases, primarily due to the implementation of new CMS marketing roles, including the 48-hour rule. Lastly, observed persistency remains stable and healthy. In total, we take great pride in the tailored and unbiased service our highly trained agents provide to seniors every day, many of whom live in areas with limited access and in many cases suffer from multiple chronic conditions or are below national averages for income. Turning to our healthcare services segment, in 2Q we posted our third consecutive quarter of positive adjusted EBITDA despite elevated investment and new member growth that occurs concurrent with AEP. SelectRx has now nearly 63,000 members, which is well ahead of our original expectation for all of fiscal 24. In our view, the growth serves as an overwhelming endorsement of the value our service delivers to customers. With a much higher base of members and the continued growth in the operating leverage of the business, we are meaningfully increasing our outlook for revenue within healthcare services for fiscal 24 while maintaining our expectations for adjusted EBITDA margins as we make investments to capture increased market share at highly attractive economics. If we turn to slide four, let me briefly elaborate on what we have observed in our senior segment in the second quarter and more broadly what we saw in AEP this year compared to last. First, our refocus strategy has resulted in outsized efficiency gains for our tenured agent sales force. As you can see, our close rates in agent productivity have increased by 54% and 97% respectively compared to 2022. More impressive, though, is the resilience we've seen in these metrics compared to the fiscal 2023 season, which you will recall was very strong industry-wide. We credit this performance to our strategy to overweight tenured agents, as well as the introduction of our latest agent desktop tools, which further enhance efficiency, plan fit, and the value to the policyholder and our carrier partners. Now, let me provide our high-level observations of this season's AEP compared to last. First, at the industry level, competition from other distribution platforms continued to be much more rational than a few years ago. For our model specifically, we shifted certain processes to incorporate the new CMS marketing roles and are very pleased to have mitigated higher marketing costs for policy with stable agent efficiency. Lastly, the bigger impact of Suclut Senior Segment was a 7% increase in LTV to $934 per policy. Ryan will expand on our LTV, but to summarize, we continue to see stable policyholder persistency and the business we write. If we turn to slide five, let me speak to the efficiency from a cost and return perspective. We've shown these KPIs in the past, but wanted to highlight the power and operating leverage Sequit has created, both from an Asian productivity and scaling perspective. First, our overall operating cost per policy for the past year remains highly attractive and is now over 30% lower compared to two years ago. Similarly, we have seen a 38% decrease in our marketing expense per policy compared to two years ago. We'll speak more about marketing costs for this AEP, but the important takeaway here is the interplay between an efficient tenured agent workforce and how a focus on quality leads can drive unit profitability and cash flow. Finally, we would marry that concept with how powerful Selectwood is as a holistic healthcare information hub for more than just Medicare Advantage customers. As we've noted before, the customer acquisition spend we invest to drive returns and cash flow has synergy across more than just senior shopping for Medicare Advantage policies. As you can see in the last set of bars, our revenue to CAC has more than doubled from two years ago and is now at 4.2x. which is remarkable from a return on invested capital perspective, especially considering that the timing of these cash flows are becoming increasingly front-loaded as SelectRx continues to grow as a mix of our overall business. To summarize, we're very pleased with the foundation we have built to drive stable unit economics and operating leverage in our senior segment. More importantly, we're reaping the benefits of our unique ability to scale the same variable costs to create significant revenue streams within other large market needs in the healthcare ecosystem. As we've said before, our infrastructure and approach gives SelectQuote the unique opportunity to be the connective tissue for a very large population of Americans, carriers, and caregivers. Best of all, as we've done with SelectRx, we believe there are a range of ways to capture market share by leveraging our existing expense structure. If we turn to slide six, let's talk in more detail about SelectRx and healthcare services. As I noted up top, our growth in the segment year to date has significantly surpassed expectations. As you will recall, our original full-year 2024 outlook anticipated SelectRx membership at the end of this year at just over 60,000 members. At the end of 2Q, we are nearing 63,000 members. It's worth noting that the growth in members has been nearly all through our Medicare Advantage lead set. As we highlighted last quarter, we believe SelectRx's compelling value proposition has the opportunity to be more broadly adopted through targeted marketing outside of our core Medicare Advantage platform. To be very clear, we do not plan to grow members just for the sake of growth, but rather see significant EBITDA opportunity, which is underpinned by what we are seeing and the attractive economics of our in-place membership. In fact, the increase that we are showing in our outlook for the business on the right side of this page now includes both from selective lead targeting as well as through our existing Medicare Advantage funnel. This investment is the primary driver of the stable margin expectations we now forecast for the year. We now expect member growth in the range of 40% to 50% compared to our original expectation of 25%. We expect the larger base of maturing members to drive revenue growth of 80% to 100% year over year, which is nearly double our original expectation. We believe this rapid growth in members clearly demonstrates the significant value Sector X provides to customers. We also remain excited about the embedded EBITDA we expect from these sticky revenue streams. As mentioned previously, SelectRx EBITDA generation lags member growth as members flow through the onboarding process. So with such rapid growth, we will be onboarding a large population of new members in 2024, which impacts the pace of our adjusted EBITDA margin progression. Given our strategic decision to lean into member growth, Healthcare services EBITDA margins are now forecasted to exit 4Q and the low single-digit range, but on a much higher base of revenue than previously expected. Take a step back. We'll exit 2024 with a business that will have annualized and growing run rate revenues and the $550 to $600 million range with positive EBITDA margins that will continue to improve as the business matures. To be clear, we aren't guiding for 2025 or beyond. but we do believe SelectQuote's market valuation fails to recognize the embedded value being scaled in healthcare services and the strong improved fundamentals exhibited over the past two years in our distribution businesses. As we've said since 2022, only measure us based on what we accomplish, but it's clear we have accomplished quite a bit across the organization, most notably in healthcare services. With that, let me turn the call over to Ryan, to detail our financial results and updated outlook for 2024. Brian?