SelectQuote (NYSE: SLQT)
Q3 2024 Earnings Call
May 09, 2024, 9:00 a.m. ET
Key Discussions and Insights:
- Company’s Performance Overview
- Financial Highlights
- Future Growth Strategies
Executive Commentary:
Operator
Hello, all, and welcome to SelectQuote’s fiscal third-quarter earnings conference call [Operator instructions]. It’s now my pleasure to introduce Matt Gunter, SelectQuote investor relations. Mr. Gunter, you may begin your conference.
Matt Gunter — Investor Relations
Thank you, and good morning, everyone, and 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, Ryan Clement.
Following Tim and Ryan’s comments today, we will have a question-and-answer session. As referenced on Slide 2, 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.
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These forward-looking statements by management reflect expectations and beliefs about future company events, entailing uncertainties and risks outlined in our filings with the SEC. Actual company results could differ from these predictions. Now, let’s hand over the call to our CEO, Tim Danker. Tim?
Tim Danker — Chief Executive Officer
Good morning and thank you for joining. The past quarter was remarkable for SelectQuote, marked by progress across various fronts. I’ll kick off today’s call by summarizing our achievements in three key areas. First, our Senior Medicare Advantage business is leveraging foundational changes from over two years ago, consistently achieving robust policy production with stable unit economics.
For the ninth consecutive quarter, our senior business surpassed internal expectations, generating $204 million in revenue at a 30% EBITDA margin. This record senior revenue for an OEP exemplifies operational efficiency amidst modest year-over-year expense increases. Our healthcare services segment also saw exceptional growth in membership, surpassing 75,000, exceeding initial forecasts.
Furthermore, progress continues in enhancing funding costs and overall leverage through receivables securitization, standing at over $1 billion at quarter end. This initiative aims to boost returns and cash efficiency, highlighting our commitment to financial prudence and sustainable growth. We are optimistic about the prospects this move holds for SelectQuote.
In conclusion, SelectQuote stands poised for success as a prominent healthcare services provider for a burgeoning American demographic. Tangible outcomes from our operational enhancements are becoming increasingly apparent. With expectations of positive operating cash flow in fiscal 2024, paving the way for compounded future returns, we view 2024 as a transformative year, unlocking our model’s shareholder value potential.
Referring to Slide 4 reflects the steadfast stability in our Senior Medicare Advantage business, demonstrating operational resilience through different MA selling seasons, maintaining core strategic efficiencies.
Our operating expenses per
Unveiling SelectQuote’s Resilient Financial Roadmap
Enhanced Operational Efficiency Reigns Supreme
In a strategic move akin to pruning a flourishing bonsai tree, SelectQuote has deftly trimmed its workforce by nearly 30% from the 2021 vintage, primarily by redirecting efforts away from Flex agents. The emphasis on nurturing core senior agents – known for their exceptional productivity, nearly double that of their less seasoned counterparts – has paid off handsomely. Furthermore, arming these agents with cutting-edge tools has not only bolstered CECO’s operational efficiency but has also fostered a symbiotic relationship with policyholders, thereby ensuring mutual success. This symbiosis is most palpable in the unwavering persistency in LTV, a testament to satisfied policyholders opting to retain their policies, a true win-win-win scenario for policyholders, SelectQuote, and carrier partners alike.
Steering Towards High-Quality Growth
Driven by a laser focus on superior growth, SelectQuote has witnessed a significant reduction of over 30% in marketing costs per approved policy for the past two years when compared to 2021. This remarkable feat, underpinned by sustainable and scalable performance, transcends mere fortuity. It stems from a meticulous strategy of honing in on targeted leads, thereby managing marketing expenditures and elevating the caliber and velocity of policies sold.
Reaping the Fruits of Process Enhancements
The strategic process refinements in the senior business, coupled with the organic growth of the Select Rx division, have yielded a substantial uptick in the revenue multiple derived from customer acquisition costs. Achieving a revenue-to-CAC ratio surpassing four times in the third quarter exemplifies a twofold increase compared to the metrics from two years prior. This symbiotic growth paves the way for fortifying SelectQuote’s financial footing, thus invigorating its overall value proposition to stakeholders.
Unlocking Further Capitalization Potential
The contemplation of a securitization deal as a funding avenue for SelectQuote offers a trifecta of advantages aiming to enhance the company’s balance sheet. Not only would the infusion of proceeds facilitate substantial loan repayment, but it also presents an opportunity to elongate the maturities on existing term loans, positioning SelectQuote favorably for prospective debt reduction and refinancing in the future. Beyond the tangible balance sheet benefits, operational advantages are also envisaged, with securitization poised to expedite cash flows for the Medicare Advantage business, thereby enhancing returns and cash efficacy.
Innovative Financial Modeling Propels SelectQuote Forward
Illustrating the potential impact of securitizing new policy tranches on cash flows, SelectQuote envisions a paradigm shift in payback cycle acceleration, transcending the confines of traditional timelines. The augmentation of returns on new policies through upfront cash infusions heralds a new era of financial dynamism, further underscoring SelectQuote’s commitment to ardent financial stewardship.
Thriving in the Financial Jungle: A Closer Look at Recent Growth
Unveiling Impressive Performance
Revealing a storyline of consistent growth and exceeding expectations, the recent financial results of the company have once again painted a picture of prosperity. With members swelling to $75,000, marking a 20% upsurge from the previous quarter, the trajectory of success is unmistakable.
Revenue Reaches New Heights
Akin to the rapid member growth, the revenue numbers also witnessed a meteoric rise. Surging to $124 million in the third quarter, the financial figures were propelled by a concoction of fresh members and the evolution of existing members over the year. Noteworthy is the staggering 76% surge in third-quarter revenue compared to a year ago, a feat that is both impressive and commendable.
Delving Into Healthcare Services
While the Healthcare Services EBITDA of $2 million appears subdued, it finds its roots in the onboarding process that accommodated over 12,000 new SelectRx members, setting a record for quarterly increments. The associated onboarding costs temporarily obscured the steady and appealing margins reaped from prescription sales. The horizon, however, illuminates a future where this segment can cultivate double-digit EBITDA margins as member onboarding stabilizes.
Life & Auto & Home Segment
Entering the realm of Life & Auto & Home, a segment that showcased stability in revenue and adjusted EBITDA with figures resting at $50 million and $7 million, respectively. The Auto and Home division’s resilience was spearheaded by robust agent productivity paired with escalating industrywide premiums. Meanwhile, the Life division witnessed over 10% growth in revenues, propelled by a robust quarter for the final expense business, underscoring the segment’s contribution to the company’s overall cash flow efficiency.
Peering Into the Future: Fiscal ’24 Outlook
Raising the revenue bar yet again, the updated fiscal ’24 outlook points towards a range of $1.25 billion to $1.3 billion, translating to a 27% year-over-year surge at the midpoint. The surge is predominantly fuelled by the swift adoption rate observed in SelectRx membership. As the fiscal fourth quarter rolls in, expectations involve a tempered pace of member growth compared to the previous quarter. The adjusted EBITDA outlook, now standing at $100 million to $110 million, congruently paints a rosy picture, showcasing a 41% year-over-year growth rate at the midpoint.
Embracing Investor Queries
Laying the groundwork for an interactive session, the Q&A segment unveiled investor curiosity with a focus on fine-tuning financial strategies and embracing market intricacies. The conversation delved into securitization structures, balance sheet management, potential leverage implications, and the regulatory landscape, painting a thorough canvas of insight and understanding.
Final Thoughts: In the volatile fiscal landscape, where growth is a coveted prize, the company stands tall, navigating challenges and opportunities with exceptional prowess. As the financial jungle thickens, their resolve shines through, promising continued growth, resilience, and success in the ever-evolving market ecosystem.
The Growth Trajectory of SelectQuote Unveiled Through Financial Insights
Financial Strategy and Stability
Reflecting on the recent quarter’s expansion spree, SelectQuote witnessed a surge akin to a speeding express train, albeit with a hint of moderation. The growth derived from AEP (Annual Enrollment Period) contributed significantly, although it led to a slight economic adjustment.
However, as time unfolds, the economic landscape begins to stabilize, enhancing the profitability per box. An emphasis on enhancing unit economics over a box’s lifecycle proved fruitful, thanks to a reduction in churn.
Moreover, operational enhancements, particularly in optimizing scale efficiencies and automation within facilities, emerged as the cornerstone of SelectQuote’s economic progression. This relentless focus on growth and operational efficiency instills profound confidence in the company’s financial trajectory.
Strategic Financial Positioning
Under the visionary leadership of Chief Financial Officer Ryan Clement and CEO Tim Danker, SelectQuote demonstrated robust customer acquisition, onboarding over 12,000 clients. While initial enrollment costs may pose a short-term burden, the sturdy drug margins underpin SelectQuote’s value proposition and the creation of a business teeming with intrinsic worth.
Being a recurring business model, revenue recognition tied to drug dispatches signifies a promising future. As customer maturity evolves towards adopting full boxes, a progressive margin trend comes to the fore, in line with the company’s long-term financial goals.
Business Expansion and Future Outlook
President Bob Grant outlined SelectQuote’s ambitious growth plans, hinting at diversification within healthcare services. Encroaching into new sectors adjacent to the pharmacy business, with a strong emphasis on addressing complex chronic ailments among underprivileged rural segments, underscores the strategic foresight aimed at augmenting consumer value and fostering stronger carrier partnerships.
CEO Tim Danker applauded the rapid growth witnessed in the Rx domain, underscoring the tangible consumer demand and the company’s prowess in leveraging core competencies to drive immediate healthcare benefits. Armed with data, streamlined processes, and robust customer engagement, a bright future looms for SelectQuote’s expanded service offerings.
Market Trends and Growth Strategies
Segueing into a broader market perspective, President Bob Grant shed light on the evolving shopping environment post the Annual Enrollment Period (AEP) and Open Enrollment Period (OEP). Despite anticipations of a soft market, strategic investments by players igniting a robust environment bode well for SelectQuote.
Amidst carrier profitability concerns and a general pullback, SelectQuote’s calculated market approach capitalizes on inherent stability and anticipates higher close rates. The company’s optimism in navigating short-term profitability quagmires and steering towards sustained growth underscores a strategic financial acumen.
Closing Remarks
Closing the insightful financial update, CEO Tim Danker expressed unwavering enthusiasm for SelectQuote’s future trajectory. The groundwork laid positions the company to deliver tangible shareholder value, both in the insurance distribution domain and burgeoning healthcare services sector. The company’s commitment to transparency and strategic foresight affirms a promising journey ahead.