Q4 2020 SelectQuote Inc Earnings Call

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Welcome to slight quotes fourth quarter and fiscal year 2020 earnings call before we begin our call I would like to mentioned that on our website. We've provided a slide presentation to help guide our discussion this morning.

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 our Chief Financial Officer Rasta Dan.

Following Tim and Ralphs 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.

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 maybe forward looking statements. These statements are made based upon managed.

Its 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, and other filings with the FCC. Therefore, the actual results of operations or financial conditions.

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.

Thank you, Matt and thank you to all of our investors and analysts for joining US today as you likely saw in our press release, we're very pleased with the results for our fourth quarter and full fiscal year. We're excited to share those results with you, but before we do I'd like to begin with a heartfelt. Thank you to all of our customers and fellows.

Like what associates.

We had built for like what to deliver the best customer experience and that focus is core to our success. We're all very proud of the growth we've achieved so far better even more excited about the huge opportunity we see yet.

So with that let's get down to business on slide three what do you can see the highlights from our very strong fourth quarter, let me start by summarizing the high points.

Quote ended the fourth quarter with consolidated revenues of 141 million up 90% year over year, and adjusted EBITDA of 40 million up 106% year over year.

Both were ahead of our internal expectations and represent the continued strength in both our senior life Division, which we will detail in a minute.

On a consolidated basis, we reported net income of 20 million or diluted earnings per share of 13 cents. This dramatic growth reflects not only the very large growth opportunity in the senior market, but also the differentiated operational processes. We have built into our model over the last 35 years, they've been able to us.

Take advantage of this opportunity, we're going to spend some time talking to those differentiators today as well.

As you all know Flacco completed a very successful IPO in may of this year and we're excited to be speaking to you today on our first earnings call as a public company.

Over the quarter. We also closed the acquisition of inside response, which further bolsters, our leading customer acquisition capabilities.

I would also announced expansion of our diverse network could carry relationships by adding Kaiser permanente to our platform further extending our geographic reach with leading blue chip insurance carriers. Additionally, we've recently announced and strategic partnership with a leading primary care provider network IOER health.

Integrate value based care initiatives into our offering this furthers our role as a consumer advocate that puts healthier patient outcomes.

Forefront of its mission.

Lastly, in addition to our headline financials. We are most proud of how the company perform over the quarter. After the onset in evolution of carbon 19, the migration of over 1800 associates to nearly 100% work from home environment with Swift and effective.

We're extremely proud of our team is capitalized on increased consumer demand for health and protection products.

Having 27% premium growth in auto and home, 52% premium growth in wife, and 155% policy growth for our senior division in the quarter maximizing both efficiency and client service.

On slide four let me begin with some key stats about select quote to help describe who we are and what we do.

First like what is the leading technology enabled direct to consumer insurance distribution platform that provides consumers choice and assistance and choosing the right policy for them across the year health life in auto and home insurance.

Slide <unk> has over 35 years of operating history and over that time with optimizer business to drive attractive returns on invested capital.

Moving from top to bottom on the left we believe a key to success in our business is our highly trained and 100% in house agent Force, which now stands at over 1000, that's nearly doubled over the past two years.

<unk> gross story continues and we're pleased with the progress, we're making to higher onboard and train the agents, we need to achieve our objectives. During this upcoming ATP.

Our growing customer care organization that will number over 250 by the beginning of ATP also plays a vital role and delivering our leading lifetime values. These customer care associates are focused on making sure customers around the right policy. Following the initial approval this approach both.

From a front end and back in our core to customer persistency and our market leading ltvs.

On the right we have a healthy addiction to data and have invested heavily proprietary technology to utilize our over 1 billion unique data points select what leverages. This data to optimize across every facet of our business from marketing and lead generation to agent training and customer behavior in service.

This allows us to further accelerate or business operation flywheel.

Today, we have served over 2 million policyholders and believe in aggregate that our potential addressable market stands at over 180 billion across our senior life in auto and home divisions that is certainly a big number but in our opinion the opportunity is only tangible unattainable, but the underlying operation that's built.

Correctly across each piece of the business are built to last ROI mindset drives every decision we make.

To briefly touch upon the industry opportunity on slide five we play in a huge market currently representing about 60 million Medicare customers each year, an additional 4 million customers agent the eligibility and we expect the market to grow to about 77 million consumers by 2028.

Additionally, consumers are rapidly migrating from basic Medicare to Medicare advantage in Medicare supplement plans with each 1% increase and mayor and mass adoption, representing an incremental 750000 policies.

As we will discuss in subsequent slides slick what is incredibly well position to profitably grow it's huge and expanding market.

If we turn to slide six I'd like to speak to the rapidly changing landscape of insurance distribution on the left hand side depicts the traditional field agent model. The represented how most of our parents purchase their policies. This across the table model was and still as cumbersome for a number of reasons highlighted mainly by age and Afib.

It should see unlimited policy options are alternatives to shop on the right today's consumers demand choice and convenience and want to shopping compare those choices without a pitch for an angle.

As you know slack what was designed specifically to address these evolving consumer preferences. What you may not know is that it's estimated that well over 50% of the policies sold across our markets are still sold primarily through the legacy model in a way we believe the shift from old legacy models to newer highly efficient transparent.

And pro consumer distribution models is even more exciting and the demographic tailwinds as we think about like whats growth potential.

On slide seven we present, the two foundational pillars, enabling slack what to scale into this opportunity without sacrificing customer experience and ultimately our returns.

I'll start on the left with our purpose built technology, which is too expensive to detail on this call and has been built and invested and over the 35 year history of the company, but I'll summarize by saying that we've deployed significant capital time and effort each and every piece of our value chain. These investments power all aspects of our business.

Including how and where we generate our leads to maximize the probable return relative to the cost of acquiring the customer how we tier in route leads the agents to optimize close rates and throughput and perhaps most importantly, these systems help our agents match customers with the best plan for their needs at point of sale.

Ill and deliver industry, leading retention through the customers' lives.

Turning to the right side of the page. We also firmly believes that are highly trained in 100% and house agent workforce was a key differentiating asset for select what the complexity and deciding upon an insurance policy is daunting for most people and mistakes pertaining to details like physician networks in prescription drugs canford costly.

We believe our internal emission agnostic agent led model is the best way to achieve the best outcome for our customers and simultaneously maximize the return select what earns on acquired in that same policy holder.

If we turn to slide eight let me briefly touch on another differentiators like whats model and that is the diversity of our policy offerings and our ability to flex our agent force based on the peak selling season for Medicare.

As you likely know, we traditionally deliver approximately 70% of our annual M&A NMS policies. During the two enrollment periods of ATP and ODP span from October through March.

To put it briefly we believe theres a lot of value and it tenured agent workforce that can work year round by shifting from our life for auto and home divisions into senior these flex agents, who returned with US further second year of the peak AGP Medicare season are on average 40% more productive an agent.

Is that have only been on the job for a year.

We believe this flex model plays a key role both in our agent productivity, but also in our strong agent retention, which currently stands at 93% for our top agents.

We will continue to invest in this model, particularly our life and health advisors, who sell both final expense and Medicare products, depending upon the season, we grew final expense premium 288% year over year and about half of all final expense customers are over 65, so weird.

Now gaining significant traction and transferring final expense customers to our senior agents to cross sell Medicare products.

Turning to slide nine I'd like to stress a few points about how and why we run select what the way that we do.

First and foremost and our business, we believe that customer satisfaction, that's crucial simply put a policy holder that gets help in selecting the right policy on day, one is much more likely to renew and extend the lifetime value or cash flow stream.

The carrier and select quote.

Second everything we do it the company is designed with the express purpose of driving the best return on our invested capital that we can.

And we believe that our focus on the consumer translates into a model that generates the best return as you can see in our market, leading lifetime value and EBITDA per policy.

Lastly, we're very confident in our ability to replicate the history of strong returns as we continue to scale into the business with a very large opportunity set that lies ahead of us over the next decade plus.

On Slide 10, you can see the recent output of the model, which has generated high growth and very attractive profitability over the past two years slick what has grown total revenue by 127% right a CAGR of 51% over the same period, our EBITDA is up over 104 million for CAGR of.

76%.

We will detail each of our segments in a minute, but as you can see on these charts that are senior division is fueling our growth and now represents 68% of revenue and 80% of our EBITDA before corporate expense, we expect that trend to continue given the large and growing opportunity and the senior health market.

Over the past two years or senior division revenues and EBITDA have grown by 253% and 297% respectively. RAF will provide further details on our operating results for the division, but I'll comment that these growth figures validate and our view that we built the right model scale and leverage bear.

Three large opportunity in Medicare for years to come with that let me turn the call over to our Chief Financial Officer, Rhapsody and to expand on our metrics and also detailed financial results rap.

Thanks, Tim I'll start on slide 11, with our consolidated results for the fourth quarter, we generated $141 million of revenue and $40 million of adjusted EBITDA, representing growth of 90% and 106% respectively. We also increased our adjusted EBITDA margin to 20.

8% in the fourth quarter on a full fiscal year basis, we generated $532 million of revenue and $154 million of adjusted EBITDA, representing growth of 58% and 46% respectively with an adjusted EBITDA margin of 29% with that let me now turning to our.

Fourth quarter and full year results by segment.

I'll begin on slide 12, with our senior Division, which is our largest division as you can see we had a very strong quarter generating revenue of $88 million and adjusted EBITDA of $33 million with a robust adjusted EBITDA margin of 38%. This represents year over year growth of 160%.

And 157%, respectively, and actually represent accelerating growth compared to our full year growth as we leverage the proceeds from the private placement and IPO to continue to invest in the growth of our business on a full year basis, we generated revenue of $362 million and adjusted EBITDA of one.

$146 million, representing year over year growth of 88% and 62%, respectively with an adjusted EBITDA margin of 40%.

Quickly on our 40% adjusted EBITDA margin for the full year as I've said before while margins will always be important we believe that historically, we have operated the senior business with margins that were probably a little too high at the expense of absolute EBITDA as we continue to capitalize on the large market opportunity in front of us.

There are going to be opportunities to maximize absolute EBITDA, which slightly lower but still very attractive and strong margins.

Before speaking to our volumes I'd also note that we close the inside response acquisition on May 1st and this business was included in our results for the last two months in the quarter.

Moving on to slide 13 in terms of our production for the fourth quarter, we had almost twice as many productive agents as a year ago and that combined with an increase in agent productivity allowed us to grow our total submitted policies a 136% and total proved policy is 155%.

The largest driver this growth and they policies, where we grew our M&A submitted policies, 186% and our and they approved policies, 184%. We benefited from our strategy of hiring a larger flex class for a piano weepy and keeping a larger percent of those flux agents as full time core.

Agents after only be.

This strategy allows us to grow and non peak selling periods, our first quarter and fourth quarter, but more importantly allows us to increase the number of core agents selling during ATM sleepy when core agent tend to be over 50% more productive and flex agents. We also benefited from the special election period in May and June.

Allowed seniors to make a change to that plan. If they had been impacted by coven. While this special election period was onetime in nature and beneficial to the quarter. It just added to the already strong growth we were seeing in April the for the special election period.

Moving on to Lpvs.

For the quarter LTV of and they policy was flat year over year, which was the net result of two main crosscurrents.

First with the introduction about weepy and the ability for seniors to switch plan more easily we have experienced slightly lower overall persistency, especially in the first couple of renewal years of a plan.

This lower persistency is included in our LTV calculations.

We'll point out, though that the impact of the slightly lower persistency is more than offset by the volume we are able to generate because of the special election period.

As evidenced by our 184% growth and they policies during the quarter.

Second as an additional offset we had a positive mix shift in our volumes towards carriers that have higher persistency and lastly, we have benefited from increasing commission rates and additional fees from carriers for services that we're able to provide for them.

I would note that walk churn is important it is not the only factor that drives the business. We would suggest that investors not get too hung up on churn as a single Casey I. There are things that we can do to intact LTV, specifically, we work hard to influence LTV with our focused on recapture rates our management of carrier mix.

Additional services that we can provide carriers and the amount of the LTV, which comes from first year versus renewal revenue.

On the topic of recapture rates are recapture rate now stands at over 25% and has improved each of the last few years due to some initiatives that we have launched to increase the size of our customer care team and targeted programs to retain lapse and customers. Let me state clearly nothing has fundamentally changed on the persistency front.

In the last five months and and they ltvs for the fourth quarter and full year. We're actually slightly ahead of our expectations as one would reasonably expect these are weepy and sep periods are driving slightly lower persistency. However in the last few quarters. They have been a huge net win for select quote and we.

But that to be the case going forward not every distributor will benefit from these periods, but we clearly are.

Lastly from a cost perspective, our sales and fulfillment costs were up in line with the increasing the number of agents and fulfillment stuff.

However, our marketing costs grew slightly faster than our revenue as we deliberately use the proceeds from the IPO to generate higher absolute revenue and EBITDA at the expense of slightly lower margins consistent with my margin comments earlier important to note, though that while our marketing costs were up year over year they were stable.

Thanks to our expectations for the fourth quarter as we implemented some new initiatives that increased our close rates and allowed us to buy media more efficiently.

On slide 14, before I move onto our life Division I'd like to touch on the topic were received many questions from investors.

Vincent confusion in the industry about Kt eyes for our senior division compared to other competitors as we've stated key metrics like revenue to CAC or LTV to CAC are not apples to apples in most cases and cannot be compared amongst the three public companies on this slide we have attempted to create an apples to apples comparison based on the pub.

With the available information across each Companys total consolidated senior segment revenue cost and profit.

As we can see we estimate that we had the highest revenue and EBITDA per policy, which we believe is driven by our higher policyholder persistency, which is a result of how we operate the business.

Based on the result select quote currently drive EBITDA per approved and they Ns policy that is approximately $150 to $250 higher than our peers.

On the top right of this slide and attempt to address the different methodologies and definitions for revenue to cat or LTV to CAC is calculated the total senior revenue generated for every dollar of cost incurred this is apples to apples as is possible based on what is currently publicly disclosed to be clear the cost measure.

Should we use here is inclusive of all cost for each company senior segment not just marketing for every dollar of cost we incur in our senior segment, we generate 1.7 times that amount of revenue. While this is similar to one of our peers. We'd also note that our EBITDA per policy is the highest and something we are very focused.

I want to Tim's earlier point about returns on invested capital.

If we turn to slide 16, our life Division grew revenue, 37% to $42 million and adjusted EBITDA, 35% to $12 million. This was driven by 52% increase in total premium which was a combination of our term life premium declining, 6% and our ancillary premium which is mostly our final.

<unk> expense products growing 288% as mentioned before our term life products has been impacted by some cobot 19 headwinds as consumers initially delayed getting blood worked on and completing the process to get their policies in force. This improves towards the end of the quarter, but it remains to be seen if this is sustainable it's continued.

Downs occur later in the year.

Our final expense product over the last several quarters, we had significantly ramped up our investment in agents and marketing to sell this product. It's a great example of leveraging the platform that we have built to be able to launch new products, we actually generated more premium from our ancillary products and the fourth quarter than we did our term life product.

While this may have been a bit of an anomaly given the kobin impacts this quarter. It is reflective of what we think could happen over the next several quarters in years, namely that premium from sales of final expense products may end up eclipsing premium of term life products.

As a reminder, our full year fiscal results were impacted by our decision to spend life's agents to our senior division during 18 only be and based on the success of that program, we expect that to continue going forward.

Turning to auto and home on slide 16.

We grew revenue, 24% to $12 million, an adjusted EBITDA, 36% $3 million. This was driven by 27% increase in new premium while the quarter demonstrated good year over year growth the results of our auto and home business for the year were impacted by our decision to swing auto and home agent to our senior Division due.

And 18 LP.

Similar to our life Division based on the success of that program, we expect to continue that strategy going forward.

In addition, during the fourth quarter. We also made the decision for the next several quarters to reallocate agents from our auto and home business to our senior Division and final expense efforts. This will impact the financial results of our auto and home business over the next several years.

This decision is also a good example of how we allocate our capital to balance optimizing the trade off between absolute revenue EBITDA cash flow and return on investment as an example, and new policy in our auto and home business has the longest breakeven period of all of our products over four years and EBITDA policies Sims.

Selling a final expense policy. However final expense policies have an approximately one year breakeven period and agents can sell more final expense policies. During the course of the day than auto and home policies. Therefore for now is a more efficient products for us to sell.

That's not to say, we plan to get out of the auto and home business by any means but as we think about capital allocation. This is the right capital allocation decision for now.

Turning to slide 17, let me briefly detail our capital position post IPO and then I'll discuss how we see cash flows for our business and the chart displayed here.

During the quarter, we used $20 million in cash from operations as we significantly grew our policies that are seeing that division.

In addition, we used about $5 million in cash for general Capex and $36 million to fund the upfront purchase price of the inside response acquisition.

Lastly from a capitalization perspective, we had net proceeds from our private placement and IPO of approximately $475 million, we used to $100 million to pay down a portion of our term debt and another $28 million to unwind the securitization of our auto and home policies.

We ended the quarter with $369 million in cash and cash equivalents.

Hundred $25 million of term loan debt and zero drawn on our $75 million revolver. We also ended the fiscal year with $597 million of accounts receivable and short and long term commissions receivable balances.

With that said, let me review this cash flow chart.

It can be confusing just looking at cash flow from operations and seeing losses to understand the underlying trends and attractiveness of the investments we are making at a high level. It takes about two to three years to breakeven on a new policies sold at our senior Division, which is the largest piece of the business as we grow and certainly at the rate that we have been growing.

Hi over 100% the last two quarters in our senior business the cost of writing new policies exceed the first year cash, we're receiving and the renewal cash from past cohorts, which leads to the use of cash on the cash flow statement.

However, with that growth, we're building a bigger and bigger book of business that will bring in cash flow overtime and the best way to understand do these investments make sense is looking at the return of specific cohorts.

This slide demonstrates the cash flow profiles of customer cohorts from each of the past six years.

For example, if you look at the 2015 bars, the Orange bar represents all the cost of writing policies in 2015. The bar next to it represents a lifetime cash expected from those cohorts broken out into four components. The first Gray bar is the first year cash we received from these cohorts in 2000.

15.

The Blue bar is the cash we've received already from these renewals of policies sold in 2015. So it would represent five years' worth of renewals that have already renewed the yellow bar represents cash we expect to receive from policies that have already renewed to the renewal events has happened, but because we get paid monthly we haven't.

Steve all the cash yet and lastly, the green bar represents the future cash we still expect to receive through the 10th renewal year on those original policies.

Anytime the gray in Blue bars are above the Orange bar. It means we've already broken even on the investment we made up front to write those policies and it's all profit from here on out as you can see we're already well into cash flow positive territory for cohorts sold in 2015, 16 and 17 for that.

2018 cohort, we have just broken even so basically all future renewal cash we received from this cohort will be profit from here on out and that fits with the two to three years to breakeven on a policy.

For 2019 with almost already broken even on this cohort that's a little faster than normal and has to do with the market development funds, we received that year, which as a percentage of our total revenue was higher than it has historically been and the fact that we had 47% margin is that year and our senior business.

You can see we've more than recoup the cost of writing policies for the five years before 2020 and going forward they will all be profitable.

We added 2020 to this graph and while we still have not yet broken even we would expect that cohort to follow the same trajectory and breakeven within two to three years. This is why we're so confident about the investments, we're making we it's clear visibility into how and when they start producing positive cash flow and what the returns are.

Which we think are highly attractive.

Last point I would make is there have been a lot of questions around churn and persistency and the impact of that has.

We already addressed some of this earlier as you can see here, yes, and I want to stress. The word if there are additional reductions in persistency. They will take a small portion off the top of the green bar, but the overall profitability from these cohorts will still be very positive and there were turned very attractive.

And this only represent the expected cash through the 10th renewal period, but there will be policies that renewed beyond that and thats not captured on this graph at all.

The key takeaways here are one so let quote earn substantial returns on invested capital to our payback period tends to be in the two to three year range and is very consistent and predictable and three while we get the question often about when select what will become cash flow positive on a consolidated basis would simply.

Say that we built the company to take advantage, they very large and long tailed opportunity at the types of returns that we generate it is in our best interest and the interest of our shareholders to continue to pursue those returns instead of focusing on immediate positive cash flow generation.

Another way.

While we do not expect to be cash flow positive in the near term on a consolidated basis, given our growth trajectory. We are significantly cash flow positive when viewed on a cohort level, which in our opinion is what really matters.

Turning to our guidance for fiscal year 2021 on slide 18.

As discussed earlier this year, we will be providing annual consolidated guidance or revenue adjusted EBITDA and net income we expect consolidated revenue to be in the range of $775 million to $815 million. This would imply consolidated revenue growth of between 46%.

And 53% year over year.

We expect adjusted EBITDA to be in the range of $200 million to $215 million, which would imply consolidated adjusted EBITDA growth of between 30%, 40% year over year.

Lastly, we expect net income to be in the range of $115 million to $127 million. This revenue and EBITDA growth is primarily driven by growth in our senior business and growth in our sales. The final expense policies somewhat offset by higher corporate costs associated with operating as a public company.

It also assumes that the LTV of M&A policies will be relatively flat year over year for the full year based on the factors, we discussed earlier and with that let me now turn the call back to the operator for your questions.

As a reminder, asked a question you'll need to press star one on your telephone to withdraw your question press the pound or hash key please limit yourself to one question and one follow up till now other participants time for questions. Please standby heavily compiled the Q and a roster.

Our first question comes from your lenders Singh with Credit Suisse. Your line is open.

Yes.

Graduations on a good first quarter public company.

First question I was wondering let me just can you elaborate a bit more about your fiscal 21 guidance up some puts and takes we should keep in mind for each segment next year and <unk>.

And it got on me a margin expectation. So if you can elaborate more there.

Yes, I think consistent with what we've said before yeah, we definitely plan to to push the growth profile of the senior business and Ah to maximize absolute revenue in absolute EBITDA up and something we think about margins in our.

Senior business I think sort of mid Thirtys is sort of the rights are right range for that and obviously that comes with high revenue and EBITDA, which is embedded in our forecast and that on a consolidated basis I think our guidance I'm basically has margins in the mid twentys or so and the biggest driver that again is going to be.

The senior business and a slight uptick in corporate costs as a result of operating as a public company I think in our life and at our auto and home businesses the margins.

We'll be slightly higher than they were last year, that's but the biggest driver. So there's two things that I mentioned before.

Okay, and then my follow up on a maybe a if you can provide some color that argue the expectations for the number of agents and agent productivity in fiscal <unk> 20 run what are the key drivers there and any talks on the expected mix between cord and flex you were expecting in fiscal 21 that'd be helpful.

Yes, I guess as we said before you have the agent growth is going to be very consistent with a with the revenue growth and side expect.

The Asian growth to be in line with with revenue growth. That's certainly on the senior side in terms of agent productivity. Its basically flat with last year down a little bit, but the knicks flex versus a core agents is actually going to be slightly higher. This year. Originally we had anticipated.

Yeah, a little lower but that was actually higher livermore agents as part of I'll repeat this year, so or a few this year so.

Probably 65% flex.

With the remaining a core and that's on a full year basis.

And so that might actually that will naturally you know.

Dr. agent productivity on a on a weighted average basis down a little bit but in terms of.

The assumptions for both flex and core those are held relatively constant and I will say that well, while we are holding them costs and with respect to our forecast historically, we have seen improvements there as evidenced obviously also in the fourth quarter here.

Okay. Thanks, a lot.

Our next question comes from Frank Morgan with RBC capital markets. Your line is open.

Good afternoon, I guess, you made a comment about the the effect of a positive effect of carrier mix on having that having higher persistency.

And I'm curious if you can maybe shed a little light on what are the attributes are those carriers why they have that higher persistency and then my second question would be you know when you when you think about your customer attention.

And in your model any particular tweaks or changes you've made it with the proliferation of zero premium plants. Thanks.

Yeah, Yeah. Frank This is Tim my Great to hear from you on your first question about carrier mix I mean, we are.

You know always analyzing our footprint our data that we get from.

From analyzing our customer conversion I think build Bob's on excellent job building out a great international for footprint with Blue chip carriers, but we're also filling in gaps when we when we find that and we announced a you know the relationship with Kaiser is a great example to do that so we have the capability to.

Additional carriers, when we see that Theres a market need there.

Bob do you want to talk about other things that we're doing to kind of key dried up.

Yes specific to your question Frank on why we see carriers, increasing mix of the why they're persistency may be better.

That comes down your competitiveness and plans obviously every year. We go into it there is a little bit of a mix shifts there.

And the reason those carriers and a lot of cases have stronger persistency as some of the backend action that they take on initiatives like we announced with more value based and cost saving initiatives for the consumers. So.

We believe that all carriers are really trying to follow.

Those models and we are working very closely with them as you probably saw with our announcement by Ora and others to try to drive that value based behavior. So that we can increase persistency of all carriers to kind of match those carriers that we see the best persistency with.

Ill do you want to take the C.C.J.

Sure absolutely to add frankly, a little bit about what we're doing in terms of the action that that we're taking a internally to address.

Persistency.

First you know weve been touched the last.

Five six years, developing our customer care team and the technology.

To determine who is the most likely a person to churn out we continue to learn about our customers and get smarter and smarter and to develop more and more technology in terms of how we reach out to them.

So.

To your point about zero premium plans, whether it be something.

A special election period, whatever it may be.

We use those.

Data to drive us to reach out to those call. So then the next step from that data in those tools as the people, we're reaching with our technology around.

Okay.

In terms of contacts and from there.

And Tim mentioned it.

These extra offerings that we can offer.

The outcomes in terms of outcomes on.

On overall healthcare.

And the other products when we talk about cross sells and things that we can offer them that continue its a tie them closer to select quote and build persistency.

Okay. Thank you.

Our next question comes from Sarah James with Piper Sandler Your line is open.

Thank you congrats on a great quarter.

I was hoping that you can help us with contacts what portion of churn factors are outside of your control like carrier offerings and back end initiatives versus under your control.

For the levers on churn under your control are there certain levers that have a higher ROI.

For you to pull than others.

Yeah. If there are great to hear from me. This is Tom I mean, there's there's multiple things that the team is really working on that to your point are within our control. So maybe I'll I'll start with kind of the front end and then maybe ask bill. The also comment on things are working on the backend but really.

With respect to the front end Theres a lot of things we're doing on the marketing front.

That allow us really to concentrate on the highest profitability.

Opportunities I think we've talked about our marketing takhar wide funnel that allows us really to concentrate on the highest lifetime revenue to CAC relationship I'd also point out you know, we're doing a lot with technology.

Bob Bob is really spearheaded that to make sure that while we do a great job matching consumers.

With a prescription drugs as well as.

Our primary care physicians, we've made enhancements into that technology to even better improve that matching I think we touched upon kind of the mid part of the process than funnel.

From a product perspective things, we're doing to build out additional carrier relationships.

As well as you know significant investments in our agent plant Bill is there anything you'd like to add kind of on the backend to elaborate.

Things that we're doing proactively on our part really to to manage churn.

Yeah, absolutely. So I'll talk about we talked about some of the specific things than what drives that more than others. There absolutely are critical elements of someone's plan.

You know that May drive persistency and then the action we take.

Will correlate basically with you know what may have happened. So we have scores for every consumer in terms of their persistency score and how we look at okay, well what may have changed with their plan.

They have changed within the environment that would allow us at how aggressive we're going to be in reaching out to that consumer so things like that could include changes in pharmacy networks. They could include changes and changes in specialist different things that might affect someone's coverage. So that rating right in terms of how we rank those folks know.

A combination.

Our data feedback that we get from the carriers all those different things feed into our score our score drive then our efforts we're constantly update updating that to try to get in front of that as best we can make sure that we continue to improve that recapture rates should something changed.

Their plan, where another plan to better fit for them.

Great and maybe just one follow up on the recapture rate increasing that's that's great. But can you help us understand what that means financially. So as recapture rate goes up Keith I get a performance bonus or is Oh, well, let's talk on the top survive. So how should we think about that.

Much TJ.

I guess the way to think about recapture rate is its kind of broken out into.

Customers that are buying another plan, but with the same carrier.

And so in that scenario, it's not a churn event. That's just part of the persistency rates that we've used up front to calculate persistency for that carrier.

Represents about 40% of the recaptured a policies and then 60% or actually recaptured with a different carrier and so in that scenario. It would be viewed as a churn events and it would be a new policy with that new carrier with a new tail associated with it and again that is that's.

Captured in the persistency rates that we use the one thing I would add to that is that to the extent that that a customer is recaptured with the same carrier. So it's not a churn event is effectively sold then at the.

At the commission rates in place at that point in time, which given the commission rates of increasing over time.

We benefit from a higher commission rate at that point, Bob you anything at anything to that.

Yeah, I think that that one thing I would add is the recapture rate going up this year also underscores how strong our scoring is up our book to Bill talked about especially with somebody Sep is that were introduced this year with coded and you know the second weepy.

Being out there are scoring and risk profile, and then driving marketing towards that group on the backend absolutely get those folks back in the funnel really spells how how much of an impact our screens had on that recapture rate.

Our next question comes from Dave Styblo with Jefferies. Your line is open.

Hi, there good afternoon mix and the question.

I just want to start out to get a better spent the of understanding the factors that might gate. Your growth obviously, the senior business has been doing really well on the topline.

85, or 90% growth the last couple of years consistently there what in your buying.

Sort of Cafs that in terms of how fast you want to grow what can what can the infrastructure hold in terms of being able to adequately adequately trained your sales agents to ensure that its quality growth.

Versus you know things that what would just sort of.

Start to really impair the model so maybe those areas what would just be of interest.

Great all I'll start that one Dave and I mean, clearly a big market as we all know.

Covered we don't necessarily view that theres any operational constraints to growth.

With that said I think you know we have been very disciplined about our approach a very much as you've grown. These businesses, we tried to really nail it and optimize the unit economics, and then a very disciplined manner, you know grow into though so with that said I mean, we continue to focus I think on two lovers.

For growth are very important and maybe of that.

Our chief operating officer build to speak to them a little bit more color, but it's really around people are highly skilled agents everything we're doing to build that as well as you know obviously.

Our our people and then the lead side the capabilities that were really building there to make sure that that we can grow into the opportunity and then I'll, let him speak to those two and then maybe come back and talk about the other divisions Bill.

Yeah.

Great. Thanks, I think you know two factors that are near and Dear to me certainly in the we concentrate on day in day out in terms of growth would certainly be the recruiting of our agents.

And in marketing so I think on both those funds front.

We feel really good about the teams in the approach in the technology, we've put together as it relates to marketing I'm certainly I think that our approach has always been a wide funnel approach in what I mean by that is we're able to consume all different types of media and really react to the market and a fluid way so whether it be.

TV paid search clicks affiliate, we've built technology to consume all different types of media, which really allows us to be wide funnel and pivot very quickly. If we see trends on one that's very profitable for us than we can move very fluid like so.

On that front, we feel really good about what we've done a as it relates to recruiting also feel really good about we've done we've had a great team we treat recruiting just like we do up sales for our sales floor in terms of a resume at the leading scorer resumes we have a great understanding for someone that's that we think is going to be successful within our organization I also think we've.

Benefited certainly with this environment with toll that.

By the back if you look that the field model certainly.

Right now is struggling we see a lot of those people turning towards us.

For employment and just in general with some of our expansion of our remote to certainly expanding to a lot more states than we've been in the past, we're seeing more and more resumes.

Allows us to be more and more selective about the talent that we bring to the organization.

That's great straight Dave just.

Dave just coming back to your other points about the other divisions really quickly you know I had we have had really great strength in the final expense offering I'd ask.

You know Bobby granted it really speak to that because it's a great growth opportunity within our life segment, we're growing in our core term business as a few headwinds there with respect to the pair medical exams encoded but overall, we're seeing a lot of great topline growth as well as very attractive kind of payback periods on final expense Bob can you speak.

Got it real quick I think it's important.

Yeah, I mean, I think that we are very very bullish on our final Spence offering and were relatively new in that market as you've seen by our growth till we see similar trends within the marketing space and then ultimately the carrier portfolio that we put together as we saw in our Medicare Bank.

So we are extremely excited.

About the future and we see also you know, it's a little bit more of a transactional sales. So we see agents gets you quote 10, you're a little bit quicker, which has allowed us to scale very quickly there on that we feel like we can continue to do that given given what we dealt in what we're going to continue to build the feature.

Our next question comes from Lorne Castle with Morgan Stanley. Your line is open.

Great. Thanks, so much I'm just wondering if there's a way to quantify how much the.

You know this special enrollment period during cold that benefited the quarter Sonicone and better than from you were expecting I guess another way, but is there any sort of underlying organic increasing productivity that was better versus your expectations.

[noise] all right, Yeah, I mean, I think grant.

I was going to say, maybe I'll hand, the financials and handed over to Bobby for the quarter, but.

We were seeing very strong results in April.

Before the special election period, even even hit I think we're up 143% in terms of and they M.S. submissions.

So obviously.

That that increased in May and June, but but we're seeing very strong results already beginning in April Bob you want to comment on that.

Yeah, and it's a good point on the agent productivity front, even without that Sep you know we are seeing 20 plus percent year over year agent productivity increases and I think it really styles the quality of growth at raft discussed earlier and Tim on the responsible way that we try to grow well really building our technology.

[music] enable our agent productivity to rise so even with the dramatic scale we've seen.

Recently.

We have seen close rates actually rise and we've really seen the number of leads that are agents can take also rise through the technology that we've built and we continue to focus all of our technology efforts on those.

Things to drive more leads and higher close rates for four agent striving, obviously better agent productivity with that.

Bank. Thank you.

Our next question comes from Steve Okay with Barclays. Your line is open.

Thanks, Jonathan Young on Steve I, just had a question on the LTV assumption for my 21, I'm kind of given the positive mix shift that you're talking about and the higher persistency with those specific carriers I guess, what else is what else is coming into that plant LTV assumptions. It just that because of the.

Slightly lower persistency for the other carriers that that's just dragging down the whole thing just curious to get that color that [noise].

Yes, and I think a great great question. So when we think about LTV, we use our own historical experience for that Alex said about 36.

Month weighted average and I think as we've talked up before anytime you have these so sort of additional election period that allow consumers to to change that plans that naturally going to drive slightly lower persistency and we have seen that this year.

And so when we think about fiscal 21, instead of the expectations for Lcvs being flat, we basically are holding persistency flat to our experience, but because we use a 36 month weighted average theres more periods now that are being brought in at slightly lower persistency. So on average the persistency is a little bit lower.

In fiscal 21.

That is being offset with rate increases and then changes in mix.

To carry that just naturally have a higher persistency and we're adding cares and apart from that actually have higher persistency as well and then obviously all of that is just being offset by the incremental volume that we can sell during these special election periods as evidenced by the hundred 84% growth and then they policies. This.

This quarter.

Okay, and just turning to your relationship with the IR Health can you just kind of go over over that relationship where the economics or what exactly are you doing for them. Thanks.

Yes, absolutely.

So.

The economics directly to that deal are not really anything material, but what we're trying to do there is partner with groups like I or a health.

Order to add more value to our consumers and more education.

Rounds, what value based care is and ultimately that their outcomes could be better and the customer satisfaction could be better at those facilities and what we've seen in the data what the carriers we partnered with on this that the.

Retention rates can be materially better I mean, if we educate and kind of get folks to switch over to that model, we would not be doing that though our relationship with them as pure education, and then sending consumers over to them to see if they would be eligible.

Or see if it would be a good fit for that consumer but again those are just pure effort to try to drive consumer satisfaction and better health outcomes for our base.

Than we've seen.

Great. Thanks.

Our next question comes from Elizabeth Anderson with Evercore. Your line is open.

Hi, Good afternoon, guys. Thanks, and that question and I was wondering if you could talk a little back about inside response, I guess like white, you've seen as your early successes in my name's from that business and I'm not sure get surprised you there.

I Love the system, yes, great great Great question, I mean again, we're always.

Working as we've mentioned before around people and leads this is a great acquisition for us in terms of enhancing our marketing capabilities, but I might ask bill to talk about some of the early wins, we've really seen on relationship.

Yeah, absolutely so.

One of the we were.

I think our thesis around that.

Investments was that they had a channel that we felt really good about in terms of being able to scale that channel in a method that they were using to basically how.

Helped drive lead volume, obviously, they've been a partner of ours for a long time.

Our main thesis was around that and we felt by working closer with them that we could continue to even optimize that channel even further.

So I'll, let wrap your talk a little bit here about the financial results, but up from just to kind of a strategic aspect. We're incredibly pleased with how it's played out that channel has continued to scale very well continue to see better and better results with that channel. So our primary thesis is very good. We've also seen from a kind of integrations.

Endpoint other synergies between the two organizations. They continue to play out very positively about Ralph I'll turn it over to you on kind of.

Uh huh.

Yes, I mean, obviously, we closed the acquisition they first and so it was included in our results. The last few months since the year. It was a couple of million dollars in terms of profitability that added to the quarter. So that's.

I think that's what we can say in terms of the fourth quarter.

Okay. Okay. That's helpful. Thank you and then in terms of as you I knew you touched on this a little met before I bet intent was how you're thinking about marketing for HCP. What do you what would you say listen it's like the biggest difference as you're looking at as you approach this season.

And then also sort of how you think about.

ROI on your investments there.

Yes, so I think we have a very specific plan.

In terms of this or that we put our putting together right now.

The most for kind of finally finalized in terms of where we expect our leads to come from.

That said right, we'll build and then every eight the theres a channel or something that for whatever reason it takes off more than another channel. So one of the things about our model is we're extremely nimble and if we see something like that going on we're able to really attack that channel quickly and I mean quickly like you know within a day.

They are an hour.

It really just turning dials and we could start taking more volume from those sources and really optimized our ROI in our marketing spend as we see that revenue to cap relationship being more and more beneficial on certain channels than others. So I.

I think that we're prepared we have our plan, but what we know what we like about our model is that you know our plan will open up we'll see opportunities that are outside of our plans that will be able to to optimize to those.

Yeah, I think what bills really in a team of Bill on this point has really been attracted to the company and it's a differentiator really this wide funnel approach that allows us to work with all different types of ways that consumers in seniors may want to interact combining that with marketing talk with our our rich data that we are.

If you know we've been in the space nearly a decade on some really sophisticated workflow allows us.

To really make raw material work that.

Many other shops can we think that puts us in a really good space as.

We continue to scale and the opportunity.

Our final question comes from Daniel go slate with Citi. Your line is open.

Hi, guys congrats on the quarter and thanks for taking my questions here.

So I want to go back to a comment you made on agent recruitment.

Two competitors have noted that they are trying to pretty aggressively higher internal agents and as you ramp up for HCP in the coming weeks as it become more difficult to higher agents and do you anticipate having to increase retention at all.

I didn't know the system I would say that this is one of the benefits that we've really had.

And the businesses the fact that.

Since the beginning of the company, we've really focused on 100% and turn all agent force and if we think we got a lot of benefits from you know from our agents and not approach and not really trying to outsource and higher temporary folks like we've talked in previous calls about our ability to leverage the diversity of our platform for.

Flex agents as well so that you know folks from our final expense for auto and home can pivot.

Into Medicare during the peak selling season, which they're returning kind of sophomore year, if you will or 40% more per talk productive we do a great job of keeping our top agents, 93% top agent.

Retention, so we feel like we've built.

A really good mousetraps, it's allowed us to be more consistent with with our deliveries. We continue to scale I think our folks.

Really complement them other bought into our mission of helping consumers. So.

We've got a a really good thing going there and just Magnolia coveted environment, it's really enabled us to recruit on a nationwide basis. So I feel very good going into this year's ATP and feel really good about the platform the Sun belt.

Got it thanks.

And just a follow up can you can you speak out some of the revenue contribution this quarter for for IR production bonuses in any adjustment revenues included in the senior segment.

So in terms of IR I think we talked about it before a couple of million dollars or in terms of profitability I'm probably around four so in terms of revenue.

Contribution for the quarter.

And that type production bonus and other line item.

Okay and there is there any other bonus or adjustment revenue included in the senior segment other than that 4 million.

Yeah, I mean, our traditional marketing development funds are also book to that line item and so the combination of those two things that go to to production by this line item for singer.

Okay and in aggregate is that what is that number.

[noise] in aggregate for the quarter.

Yes.

So for the quarter or it was about $19 million on a consolidated Oh consolidated basis.

Got it okay, great. Thank you very much.

Yeah.

This concludes the question and answer session I will now turn the call back over to Tinker Chief Executive Officer for closing remarks.

So just wanted to thank everyone again for the time today I would just want to route today's call with a quick review of our value proposition on slide 19 at Investor Day again first we compete in a large and growing market, it's not really just driven by.

Demographics, but also by a significant shift and the way that insurance is bought and sold.

Second with over 35 years of experience, we've really thoughtfully bill our two foundational pillars proprietary technology highly skilled agent drilling optimized each stage of the business. So we can profitably scale into this immense opportunity.

Third our business is really a line both with our customers and our carriers that write their policies and we think about positive feedback loop deepens our relationship with both of them, which is critical to growing market share fourth. We you know we continue to be laser focused on return on invested capital.

Model is built to optimize those returns across every function on the value chain.

And finally, we just don't talk about it enough, but it's like was 2000 plus follow associates are really where the magic happens and how this all works were very passionate about serving our customers. That's what drives our success. So on that note in all all in this with a thank you to all of our slick what associates.

As well as our investors and analyst community. We're excited about the opportunity ahead, we look forward to talking to you again very soon thank you very much.

Yeah.

This concludes today's conference call you may now disconnect.

[music].