Q1 2020 Earnings Call
Dead dead dead dead.
Thursday Thursday
Thursday
Thursday
Thursday Thursday
Dead dead dead.
Good day everyone. Welcome to the benefit Technologies Inc. First quarter earnings call today's conference is being recorded at this time. I would like to turn the conference over to Michael senior Vice President of Finance, please go ahead.
Thank you for call and good morning everyone. We're excited to have you join us today for discussion about benefit Technologies first quarter 2020 Financial results by now. You should receive the copy of the earnings release and presentation. You do not have a copy would like one, please visit our website at benefit. On the call with me. We have got himself well benefits video on President and Chief Financial Officer as a reminder may be recorded and replay the call will be available on our investor relations website after this call will be making forward-looking payments on the call all statements other than statements of historical facts are forward-looking statements made a future plans objectives or goals or looking statements are subject to Future risks and uncertainties, including the risks outline in the company's form 10-K these risks on Mondays include among other things the potential future impact of the covid-19 pandemic on the company and its business the company's ability to maintain relationships develop new relationships with health insurance carriers and Distributors dead.
The ability to retain numbers, you're not a commission paid to the company or changes in the health insurance plan pricing practices Regulatory Compliance and changes in the United States health insurance systems, and laws wage results could differ materially from those projected or expected in these forward-looking statements listeners are urging review and consider the various disclosures made by the company in this conference call and the risk factors disclosed in the company's annual report on form 10-K as well as other reports filed with the Securities and Exchange Commission copies of the company's SEC reports are available on our website and benefits and on SEC website sucks claims any objection to update any forward-looking statement after this call. I'll turn the call over to our CEO.
Like Mike, I'm good morning everyone and thank you for joining the call compared to most Industries which is significantly impacted by the current environment our Market continues to grow and I'll technology-driven model in real. Well Position will grow as a help consumers connect with Medicare and other health and life insurance products something but it now more important than ever took the safe and easy manner via e-commerce on the telephone of a licensed agent.
You're working remotely having successfully executed the move of our entire Workforce, including all taxes and Outsource agents to a safe and effective work at home environment.
Building upon initial success in 2019-2020 is a year where we expect to rapidly scale the Medicare business you make good progress on there in the first place position for the 2021 annual enrollment period later video, Angela.
The Medicare Market continues to have significant growth potential and we are seeing involving Tailwinds in the ifp market open.
Before discussing the results of the quarter. Let me comment on the ongoing strategic review process. Have you previously announced we are engaged in an ongoing process to explore review and evaluate strategic everything's so it's a maximizing shareholder balance and the company is in discussions with interested parties, including both strategic and financial institution fraud which were you continue under an open-ended involve duration and potential outcomes month.
Tending to our first quarter Financial results, the outperformer revenue expectation earnings are slightly below expectations with ebitda margin impacted by approximately 3.5 million dollars to do accounting adjustments related to Prior. Lifetime bonds or LTZ.
Adjusted ebitda with it being largely in line with our expectations.
In Medicare our business has two parts the man generation and demand conversions demand generation is impacted in March as we saw the cost associated with innuendo always increasing and different active March or April. This is showing an improvement as we have developed and rolled out New Creations to further Drive demand generation.
I'm conversion or enrollment with impacted mainly by challenges in our BPO or Outdoors agent relationships resulting in a under performance in the. Last name agent continue to stay local and grow a plant.
You cannot compare the forward to the first quarter of last year and we were not operating in the Medicare Market this time last year. However, as a reference together how the Medicare business that we purchased a mid 2019 generated approximately eight million dollars of revenues and it's third quarter of 2019. So we are now about three times larger or two hundred and fifty bucks at the same point in 2020.
I see a table past 2020 28 a year where we expect to rapidly scale the Medicare business in order to be in a strong position for the 20 21 years and we made good progress on that in the first quarter despite some of the challenges we represented presented with and it's been to overcome which I will describe in detail the 24 month.
An Ife, the main positive impact was involved. Where is d was significantly ahead of plan with the disruption caused by the pandemic to the economy creating significant demands in the job market and the continued which was also significantly ahead of time. We attracting this closely and one of data forecast at the end of Q2 off once it's emerging opportunity becomes more developed you continue to add new insurance carriers that is without any delays and expect to add several new well-known Brands throughout throughout 2022 and I gave you a business is focused on e-commerce with online enrollment making up most of the business.
See if my great detail of a financial results later in the court.
And I want to talk about generation of consumer engagement in the first quarter. We had a marketing officer who joined it after 15 years of age and experience in marketing to seniors across all channels. We are executing on our plan to build out a comprehensive demand generation platform a large part.
About future Medicaid demand generation strategy involved digital marketing and we are pleased with our progress having already submitted online marketing materials to our carrier partners for a month in advance for the annual election.
We lost our digital enrollment in March. And this is the first opportunity. We have had to develop new enhanced marketing materials digital channel, which is an important step in our Evolution open till now as plan. We have rely almost entirely on Direct response to create consumer engaging our Medicare Revenue success in the first quarter took the directions from feeding is a great foundation for our business and we will build on the strong foundation with a comprehensive and diversified multi-channel consumer engagement and demand generation model which we will roll out freely in coordination of our funding provided as we can expand our direct-to-consumer channels. We are building deadline a living wage which will allow us to better develop targeting in decision-making the second and third Quarters New campaign via paid digital search and other programs that will allow wage.
Schedule a successful campaign as we head into the important fourth quarter.
I never thought about the generation platform that we are building is our partnership Channel, which we created in red 2019 adding a senior leader for the suspension experience of building strategic relationship with large hospitals and poverty groups and a proven track record of success. This channel has the potential to be a substantial drivers in the business office and we are making great progress to a bar in 2020 and basically revenue-generating follow later in the year while production from the channel can save some time to develop the advantage to his channel a small number of strategic partnership can provide a substantial amount of Revenue and earnings when they realize
I need to eat corn-bread the insurance. Coming march with a transformational and we are pleased about problems. This has the potential to become a truck driver, you know Medicare segments and looking ahead to the fourth quarter. We expect digital demand generation to become an even more important Channel as our Market of roles and seniors often wish to engage and enroll in a safe and easy manner. It is important to note that we are only aware of one of them publicly traded business, which had the powerful online enrollment period is becoming a more important part of consumer engagement.
the second call
Okay, we will continue to invest in refining in adjusting SEO and user experience as well as finalized are paid digital marketing campaign strategies for the upcoming month this investment in the second quarter will help us get an enhanced return on our paper clip of digital marketing spend as we progress through the years.
mark
It's like you have you continue to build our eCommerce digital marketing plan with a focus on the forequarter. We expect to generate a large amount of consumer demand, which will convert to enroll either by fully self-guided online enrollment or support telephonically by our calculations, and we look forward to updating investors at the end of the month. And how do I calculate our calculations have responded? Well leading to a work-at-home model and we completed the move of all internal and Outdoors the agents over a few days in mid-march. We have experienced operating work-at-home teens having done this for several years in high school.
What about trading and onboarding materials work? Well in a work-at-home model and we have continued to add new agents including in the last month. We have implemented enhance recording came back on Netflix Track Performance is captivating most of most of human news. And so aggravated become season, the anticipated benefits from increase performance home telephone sales element of a captive agent compared to some compatibility was face-to-face with computers and the powerful technology available for those agents name is an attractive choice in a competitive market to attract the best talent as we finalize our plans for a full quarter in the second quarter. There is an emerging opportunities for additional growth of custody of them. Although I can still see the potential shift in our Market.
No, I'm supposed to be expanded relationships in keeping with our plans to ramp agent out as we head towards the fourth quarter or encouraged by our Revenue production results, which were in line with guidance. We were not satisfied with operating performance at certain PPO providers office had a negative impact on Medicare. We proactively took action to scale down one relationship and it made changes to the event and announcing and improved performance.
I was this quote that we work closely with the house was provided to improve the timeliness and accuracy over folding they were providing to us and we're in a much stronger position off contracts with performance obligation. We expect to be profitable going forward as a result of the operating Improvement and data analytics. We put in place long as you progress over the next several months in the lead-up the evening, we will continue to assess performance and it's just our mix BPO and captivating in a manner that enables us to achieve the greatness.
In summary results show a strong Revenue performance despite disruptions of a global economy.
The American Market remains a growing and attractive market and we see the potential for Accelerated growth throughout the rest of 2020 Armada live in a position of strength with our marketing a digital and telephonic model shoots a work-at-home model. Well and our consumer engagement platforms are expanding we continue and continue to learn where we can put the key in Michigan was to enhance the report in analysis to the better optimize our investment in consumer engagement in the first and second quarters, and we have also worked hard. I was supposed to get more detailed and more timely reporting having had challenges from the first part of the year the identified on the performance issues and we taken action to resolve this month will make investments in the second quarter. Are they continue to build towards the important for process and we are enhancing our models for the potential Tailwinds. We see in our Market.
And now I will have to call over to our CFO. He will review our first quarter Financial results in more detail.
Good morning. Everyone total recorded revenues was strong with significant outperformance and particularly when you experiencing exhilaration of sales activity Page Avenue in line with guidance. Both segments recorded Revenue adjustments related to policies sold and prior. The ifp segment Revenue was impacted not a 2.9 Million dollars off the slightly lower persistency and policies cohorts from the fourth quarter of 2018 Medicare segment. Revenue was impacted knowledge at one point nine million related to reconciliation wrote it for our first email election. That reconciliation work reflected that we had slightly less need and Medicare policies than previously expected as a reminder commission paid on policies wage. Medicare are significantly higher than it was paid on Medicare policies that are simply switching plans.
Important to note that the one point nine billion dollar impact represents less than 3% of 2019.
Excluding the impact from the change in estimate relating policy. Medicare revenues would have been seated the top of the guidance range. Again. This is very encouraging as together help generated only eight million in the first quarter of last year and nearly two hundred and fifty percent increase year-over-year.
Not for the $50 in the quarter driven primarily by a $41 pre tax reduction in Goodwill associated with the IRP business.
The reduction in good role as a result of the company taking actions in the first quarter of 2022 executed stated objective to be emphasized esinc business in order to focus attention to services and growing the Medicare.
Important to note that the analysis of Goodwill quantitative Gap prescribed practice and for which there is little ability to make qualitative assessment while the right down eliminates the vast majority of the Goodwill package the IP business, we believe better RSP business will continue to create value for shareholders over time and perhaps most importantly to know the Goodwill reduction is a non-cash item has no money back to ongoing operations and has no impact on her debt Covenants.
Corded 900,000 of adjusted even as in the quarter which was slightly below our expectations.
You bet on our genes or negatively impacted by approximately 3.5 million dollars from the previously mentioned adjustments related. Excluding the impact that would have been four point four million dollars, which is largely in line with our expectation higher do outperform it, but this was offset by lower margins in our Medicare Center.
You haven't mentioned in our Medicare and Medicare our revenues hit guide into earnings expectation. We saw a higher cost per call. Every result of the lower was on straight to our drug tv ads and the height of the Panthers which contribute approximately 1.5 million dollars negative service reported in addition as we are executing our plan to rapidly scale and diversified. Our BTO relationships are Partners office. Some challenges and set up taking longer than planned. And this also had an approximate 1.5 million regular periods as well. So in total you have to be the impact of Medicare even as a result of this truck is approximately 3 million dollars in the quarter. These issues have since been addressed as we've modified accents develop new creative specifically tailored to address covid-19 impact and it takes action to adjust the agents both in our relationship and our capital.
You got the quarter with approximately $5 in cash up slightly from the previous quarter. We were expecting cash flows to be approximately break. Even for the quarter after giving consideration to approximately $50,000 payment related to Regeneration activities in Medicare from the fourth quarter annual election.
Order cash flow from operations ended up being negative. I approximately twelve million dollars in the quarter the main drivers at variance with approximately ninety million dollars of lower IOP cash flow primarily as a result of wage should have answered related to the significantly higher sales than expected as a reminder for most producers. We did not stop the initial investors until March 1st and for our eCommerce enable producer, they continue to make advances in the corner and events relating to the covid-19 outbreak unfolded. We saw an acceleration of the month of March.
Also during the quarter we continue to work diligently to address certain medicine issue to approximately 3 million dollars of higher-level Professional Service. So all we spent more money in the office on the expected. We believe that was money. Well spent to generate growth and reduce risk.
As previously disclosed the expected to generate approximately $18 a positive cash flow from tax refunds throughout the year as a result of the passage of the cares after we now expect that number to be a 24 million dollars as a result of being able to carry back in.
That said because we were dependent on this line for a million of tax refunds to fund growth in 2020 and there are some level of uncertainty related to the timing but not the ultimate receivables refund page decided to draw the remaining $15 of a revolving credit facility balance this week in order to keep investing in our boat. And with that I'll turn it back over again. I'm not happy call prepared remarks before meeting on the key made some key. Take away. The the first quarter ended with an impression of it. Of disruption. If you're impact impact all of our Lives the challenges they continued until today compared to most Industries, which is significantly impacted by the current environment our Market continues to grow and our technology-driven model. You're welcome to continue to grow as we help consumers connect with Medicare and other health and life insurance products making now is more important than ever and a safe and easy manner.
Did you leave yet?
I want the telephone with a license page building Upon Our initial Medicare success in 2019-2020. You are very exclusive expect to stay on the Medicare business in order to be in a strong position for the 2021 C. Later this year. I mean a good progress on that in the first quarter, but we are now open the line for Q&A operator. Thank you. Ladies and gentlemen, if you would like to ask a question today, please press star and then one on your touch-tone telephone if you are using a speakerphone, it might be necessary to pick up your handset, or do you press the mute functions on the signal can reach our equipment again that is star and then one if you would like to signal to ask a question today, we'll take our first question from Iraq dinner with be Riley.
Hey, good morning. Thanks. You know you addressed someone in the in the in the opening remarks, but I'm still struggling a little bit with what the right level of marketing and advertising space is kind of through the middle part of the Year understanding it's going to ramp again in fourth quarter, but can we just take a little bit deeper and kind of help us size the right level for that in the model after the second and third quarter of this year.
You're ready. This is Eric. Hey, you know the marketing for Medicare spending was you know, roughly about $15,000 in the first quarter. We did have some carryover marketing for higher. But luxury happening. That should that should reduce your over to the second survey and be a much smaller amounts. I think I think in general, you know, second quarter, you know each should be in the $15 range and then, you know something very similar to be a little bit higher in the third quarter and then you know, you know significantly higher than fourth quarter for obvious reasons, but that's when you know, that's when they should. So that's how we're looking at it.
Okay, and then on legal you said it was three million higher that line item would be going to be is the 7 in the quarter. So is there a is there kind of legal costs that we should be modeling? We have not been modeling that high number but is it is that going to run and kind of three or four million?
Yeah ready? So it's a good point. Yeah, we definitely, you know, front-loaded a lot of illegal spend here in the first quarter. So it was a lot of work that happened the tail end of the fourth quarter and walk a lot. So I don't expect that line to be, you know, roughly seven billion dollars going forward. It should be, you know, roughly half of that.
Okay, and just one more if I can just go higher and higher there is some national drag, I guess in the in this quarter from the advances that generally speaking. I think that is being a more cash flow positive business and Medicare. So if I have Kia sales continue to grow like this month ahead of your piece for your guide. Would that be kind of cash flow positive over the course of the year? How would that work?
Yeah.
Right. I think the short answer is it depends upon the manner in which we move forward in ioc and you know a big piece of that is watching kind of how long the events unfold here in the summer quarter and how we choose to respond. And so, you know in my remarks, you know, they know that we really didn't shut down, you know, the bulk of our advances until March 1st, and you know back in March we continue to advance with a couple of producers that had very big month since I that was, you know, big part of the drag on cash flow. And so so we continue to advance on this program. So the question then came, you know, what are we doing about advances if we want to, you know take advantage of the opportunity to any of these places. So so it's too early to answer that question. We're working on it. Obviously, we're looking at it off in you know, we'll have a better, you know beat on the handle on that when we when we get out second-quarter results.
All right. Thanks.
And we'll move on to our next question from Argento with Lake Street Capital markets.
You do have an Eric just a couple quick ones. I don't know if you if you mentioned it but to strike you sound bar. Is that carried through in April? And I'm I'm guessing that just a function of the volatility and employment and people looking for Alternatives and on the short-term medical side and then off quickly on distribution, you know, you talk about kind of a copy of you know, BTO the type of call centers. Can you just refresh us kind of what what your distribution footprint looks like right now in terms of, you know in-house third-party, you know Medicare vs. Ifp. Thanks.
Great great question and resolving situation. We we did see I see dead in you to be significantly ahead at the start of key to it. Didn't change our overall strategy with we remain focused on on rapidly grown. No, no the the Medicare fee and we will capitalize on the this this emerging opportunity in in Ife Ife is is rebuilt on on Thursday, So it's it's very scalable without them having to build anything here. It's already it's already in place and then the second part question, you know kind of captive and BPL. We we send him a private school too about adding additional CP or Partners. The first quarter is the perfect birthday.
To do that. We we identified areas of improvement and and we took proactive action.
And we are on track with our Captain Bills. We've had agents this month. Our training materials work well to keep a teenager's work at home environment. But we also we now have three locations with state-of-the-art technology. So we're also looking forward to welcoming imagines back when when able to mark. This is Erica a couple of thoughts on specifically on the building. So I remember there that we didn't shut off the advances on a broad-based basis until March 1st. So we had essentially all of our distribution in place for the first two months after we shut off advances for most of those a significant portion of not it wasn't all of them. But the significant portion of them have stopped producing and then Thursday.
2 is the first quarter tends to be seasonally strong. And so I think I think it's a forum for for you and everyone else understand. So we still expect in a second quarter be down here. Oh, yeah, it's also likely even with the strength that it's going to be down sequentially when the first quarter as well.
It's helpful. Thanks guys.
A question comes from Michael McDonald with Northland securities.
Yeah, thanks guys, maybe specifically how many cats did Brokers do you have at the end of the quarter? And how many are planned for for Kia open enrollment?
Yeah. Hey Mike. This is Eric still at the end of the first quarter. We had our Tampa captive. I believe we had another one in Texas and then we had our month after that was just getting started. And so I believe we actually just started, you know, seating agents here in the last week or two and and they're they're now on the phone. So I'm at the moment. That's that's our plan is to have you know, three basically captives ready to go and you know, we got a lot of space, you know in those locations to basically see agents by the time that we get to 8 a.m. So we're able to three captive, you know slots with the seats available. We should have plenty of Agents operating.
Yeah, and in terms of customer acquisition cost on the Medicare side, how do you handicap those in the quarter life? How do you think about those going forward?
Yeah, so that that was you know that customer acquisition cost per app was that's where you know, the lower response rates of the experience in the quarter really shows up in age know it's not that we actually spent more money than we expected. It was just that the you know number of consumers that basically picked up the phone and enrolled in a Medicare Advantage policy or is it lower because of the pandemic operation, you know, basically just the fear that into it and if you think about you know, who's buying obviously Medicare Advantage policy their role be eight people turning sixty five sixty five and over and so, you know, this is the most accurate portion of the population. So so in some way understandable that you know people were, you know worried about other issues and just not picking up the phone as much as well. So that's really what drives uh, you know, the higher sort of unit cost and you know, and as we as we go through the year, you know, they make a choice.
TV is it's a great foundation. And so we you know, we are building out a comprehensive and diversifies multi-channel consumer engagement and and demand generation model.
Which are rolling out free the digital is going to become a much bigger part. And we we submitted a lot of marketing materials for approval live our plan provided. I will be will be rolling out the only Channel approach as we go through the at also add that, you know, we're looking at our Span in our response raised in a pretty granular level on a daily basis. And so, you know, we're we're modifying and you know pretty quickly now with remotes as well with modifying our spots as well. So we've been testing a couple of new ones that we just created and they've been testing pretty well in order to get rolling those out here within the next week Thursday.
Got it. And then just lastly. Can you repeat what you said about sort of expected cash flows or usage for the year kind of on an overall basis?
Yeah, I think you might yeah, my my tests it's not very different than it was when we you know, you know back in the early March when we gave guidance on what we were expecting wage. Obviously the first quarter came in a little hot for some specific reason, but I think the rest of the year we should be largely coming behind with what we were expecting. I think the two things that I'm sort of looking at the hardest is one is the timing of the tax refunds and again, you know, there's no doubt about the 24 million dollars and we're going to collect that. The only question is, there's no doubt about it. The only question that the ones that going to happen because you know IRS agents just like, you know a number of most of us also had to stay at home and and you know in a large percentage of them quit work and so there's just a big backlog right now. So we're just not really sure when we're going to get our $24 and the other item that we're looking at really is is kind of this ifp.
No Dynamic and what that's going to look like through the second quarter and if there's an opportunity to do more there, you know, how do we sort of address advances?
Got it. Okay. Thank you.
Thanks, Mike.
Our next question comes from Richard close canaccord genuity.
Is this is Brian Hoffman on for Richard? All the detail that you guys provided a very helpful if I could ask one more on the ISP guy to ask about a slightly different. I'm curious why there is no change to the guidance given the strength that we saw in 1 q and continue to see into queue and I'm only think about the guide this year as being conservative or or perhaps. You have a greater likelihood of achieving the high end.
It's a great question. I think really it's it's it's an evolving situation. So we certainly see these Tailwinds a.m. And we're tracking it very closely. So it's something that we think is really still you know, emerging. I mean, I reckon yeah, I mean it really it is not showing but the other thing to be on sort of the second quarter that we also have to keep an eye on right and that's you know, what's the outcome of the presidential election? And what does that mean for the ifp space wage that has in the past been a question? So we got to be careful about that and the other difficulty is what I just mentioned in the previous question is you know, how do we go forward and now he's given IP phone or a different now than it did three months ago. And you know, what is that model look like in terms of advancing and distribution partners and things like that. So so those are just question marks that we've got to get through here over a quarter dead.
And I think that'll line of sight on the 2020 looks like in total, you know, one of the you know, the second quarter earnings.
Right. Thank you. And then one more on the Medicare bill.
Don't you said with respect you would be peer relationships. You scaled one down and made some changes to the others. If you could just give us a bit more color on um, what happened there that off.
Can you please the plan is to install your growth and expansion early in the are the perfect addition to the I department and you know, when we saw under performance issues we we we quickly took action. It's it's a right timer action. So, you know scaling down one of the relationships making improvements to the others, but generally, you know Palm is taking longer than anticipated time to get set up and and and not being able to hit the the the tire that's expected which is something that we have that I can result for it is it's as simple as that.
All right. Thank you very much.
Thanks.
And we'll take our final question from Steve helper with Cantor Fitzgerald.
Hi, good morning. So in light of you covet and you work from home, have you sort of rethought your used on Earth, you know where to set these captive agents that you plan to hire, you know, do they have to be call center-based or you know, are there certain advantages just keeping them work from home of your thoughts on that?
Yeah, it's a really interesting point. I mean we're adding a lot of new agents this year and and previously it was it was about three locations. And and now it's a work-at-home model. We can obviously add agents on a much broader and and bigger pool of people which is which is an advantage and operating just fine and in a work-at-home model I think for for a business where we are we're we're rapidly growing the number with agent you do get benefits for information see coming season. And so having people are into our our our spaces wage and and helping them season and become become more effective and we we see an advantage of them being in that that that call center environment. So I think there's a birth
A couple of pieces to it. I think it's helpful to have a model available. I think I think that's that's that's certainly helpful. Um, but I think that overall as we as we're growing a new agents are going to see them and become as as effective as possible that there are advantages to to be able to put them into that and environment with the support, South Carolina.
And that concludes today's Q&A session. I would like to turn the conference back over to Gavin southwell for any concluding remarks.
Thank you. Thank you everybody for your interest in in our business. We look forward to to a big new on progress as we go through them. Everybody stay safe and have a great day.
Once again, ladies and gentleman that does conclude today's conference. We appreciate your participation today.
Dead dead dead dead.
Thursday
And welcome to the event center an event specialist will join you shortly. If you're a speaker or presenter. Please notify. The event specialist. You may be asked to provide a confirmation code speak his name or the title of your event. Please be prepared to provide that information. Once you have provided that information you'll be placed on hold with music or please listen to your event. Hello and welcome to the events.