Q2 2021 SelectQuote Inc Earnings Call
[music].
Welcome to select quote second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you'd like to ask the question. During this time because the press star followed by the number one on your telephone keypad. If he would like to withdraw your question press the pound key.
Just out of my pleasure to introduce net Gunter select quote Investor Relations. Mr. Gunther you may begin your conference.
Thank you and good afternoon, everyone welcome to the slot growth fiscal second quarter earnings call before we begin our call I would like to mention that on our website. We have provided a slide presentation to help guide our discussion this afternoon.
After today's call a replay will also be available on our website joining me from the company I of our Chief Executive Officer, Ken banker, and Chief Financial Officer <unk>.
The following Tim in RASK 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. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and Investor presentation on our website.
And finally, a reminder of that certain statements made today may be forward looking statements. These statements are made based upon management's current expectations and beliefs concerning future events impacting the company and therefore involve a number of uncertainties and risks, including but not limited to those described in our earnings release annual report on form 10.
K and other filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward looking statements.
And with that I'd like to turn the call over to our Chief Executive Officer, Tim Daiker Tim.
Tim.
Thank you, Matt and thank you as usual to our investors and analysts were excited to share of another very strong quarter of results for select quote driven in large part by our highly successful AEP and our senior business, let's start on slide three with some highlights from the second quarter, which exceeded our internal expectations yet again.
<unk> ended the second quarter with consolidated revenues of $358 million up 103% year over year, and adjusted EBITDA of $130 million up 88% over last year as for highlights in the second quarter. Our senior business was the main event again, we're most excited by another quarter of stable in <unk>.
<unk>, leading the Ltvs combined with our outsized revenue growth our senior division grew rapidly on a challenging year over year compare with revenue of 127% and adjusted EBITDA of 98%, Let me pause on that statement for a second to call out that the 127% year over year growth in topline and 98.
8% growth in EBITDA was on top of similar outsized growth, we experienced last year, specifically, we grew senior revenues by 62% and adjusted EBITDA by 51% in the second quarter of last year.
Emphasizing the highlight not only how significant and lasting the growth opportunity is for our business, but more importantly to note. The scalability of our differentiated model, they're not many businesses that can grow over 125% on top of of a year of 60% growth.
Even more impressive as we dig through the details of the quarter as we believe the profit growth could have been even better in terms of marketing efficiency, which Ralph will touch on in a minute.
Another highlight is our continued cash efficiency put simply we are growing faster, while using less cash than anticipated of.
Detail AEP in the second but the standout achievement on our growth is the continued improvement in agent productivity, which is up 32% over last year, Despite a 70% increase in productive agents.
In our life business final expense continues to be of winter with premium growing nearly 230% on a year over year basis, which shows the power of our technology and flex agent model and how we can monetize the deep knowledge, we have about our customer base.
Lastly on February one we purchased certain lead distribution assets from one of our lead vendors as we have stated in the past similar to the inside response acquisition, we would be opportunistic of assets became available on the lead generation front that were synergistic to our business. These assets will allow us to continue to refine our marketing capabilities and continued agenda.
The rate consistent and growing leads for our various lines of business and total cycle continues to excel in our large and rapidly growing industry and we are very pleased with the results continued to validate our differentiated strategy.
Based on the strength of AEP and our <unk> results, we are raising our fiscal 2021 annual guidance for adjusted EBITDA to a range of $230 million for $240 million Ralph will go into more detail later, but this is the third straight quarter, we have raised our guidance.
Let's turn to slide four and review the successful AEP. We just completed at an industry level. We continue to see strong demand for senior health products and more importantly, <unk> continues to grow at multiples of that trend some high level comparisons first.
We on boarded over 2000, new associates this AEP over half of which for sales agents as a result average productive agents increased 70% from last year. What was more impressive was our ability to replicate and in many ways enhance our unique training experience and the remote work from home environment. In addition to materially increasing the size.
Of our agent force, we experienced better agent retention rates through all stages of our flex agents sales process. We also utilized Martin rollers and customer care agents that we have in any previous AEP, which further enhanced our efficiency and service level all of that has a direct link to our volumes Ltvs and returns.
The best part of on each of these highlights of the course of the outsized results that are driven by our differentiated strategy, we drove 32% higher agent productivity and our senior division despite growing agent head count over 70% as a result, we grew approved MAA policies by 132% and total approved policies by 117%.
Over the last year. This was our fourth consecutive quarter of revenue growth over 100%.
Our MAA ltvs were flat compared to a year ago at $1268, which stands out compared to peer ltvs, which are roughly 25% lower kind of exhibited more volatility than ours. Furthermore of the stability of our ltvs in the period of rapid growth as a proof point to the solid foundation, we built our model.
As you know our model doesn't stop at point of sale with our expanded CCA team, we call nearly every new customer and successfully connected with approximately 85% of them, which we believe is crucial to early stage persistency and ultimately ltvs in our returns.
First of all each of these strengths and our differentiated model are driving significant profitability as our adjusted EBITDA and senior grew 98% over last year and did so in an increasingly cash efficient manner.
What I'd like to do now is spend some time on the two most important factors of why we believe <unk> outperforms, our agents and our technology.
Firstly on slide five wed like to reemphasize, how our unique agent model serves to continually improve efficiency and returns first and most important is that our agent force is 100% internal and each agent is higher through a rigorous onboarding process or new agents undergo an extensive 10 week training program to ensure that they are subject matter.
Parts of the day, they began speaking with customers our continuous education platform of reinforces that training year round. Once trained we then arm of our agents with robust technology to allow for the most efficient volume throughput, while maintaining industry, leading quality is defined by LTV. We then out of our flex agent model and the utilization of licensed enroll.
<unk> to drive additional volume and efficiency in summary, we have built a highly scalable and increasingly efficient model as evidenced by the 32% increase in agent productivity. This quarter turning to quality of returns our agents don't just process information efficiently, but the conduct a thorough personalized.
Needs based assessment for each customer to make sure. They find the right policy for them and our customer engagement does not end of the initial sale of that continues for the life of the policy with our customer care CCA team. This additional investment in care, which some of our competitors are only now trying to build is more significant than you are now providing long term.
The consumers and our book of business.
Now we believe in a market as large as ours. There are many ways to approach and interface with the customer at a high level. We believe many models were built to focus on volume of <unk> and customer value second select loads focus from quality first and volume second the major difference in our agent model and is a key driver of our superior LTE.
These.
Let's now turn to slide towards the second most important differentiator of our technology on slide six we are clearly proud of revenue of 32% increase in agent productivity and the natural question is how we drove that improvement on significantly higher volume all while going the extra mile in customer service. The answer is our commitment to the technology as a strategic advantage.
How both we serve our customers and optimize our volumes and returns the.
The challenge for you the Investor and analyst is that our technology is not something that can be fully explained in a bullet or two it's very important to understand that our technology took years to build and hundreds of millions of dollars to develop from a competitive standpoint. It puts the significant moat around how we approach the business compared to others and it's not the kind of thing that can be stood up.
Theres certainly isn't time in this call to speak to each component of our technology. So let me provide one example of across our marketing and lead workflow on slide seven.
At the highest level, we have built custom technology at every step of the process from the lead buying decision to how those leads are scored enriched and route it will.
Begin with our wide funnel approach the aggregate leads from a variety of sources that can be toggled up and down based upon what the market environment presents us from there we've developed proprietary technology called selected by leveraging investments in data science selected allows us to make intelligent real time lead buying and pricing decisions by combining the lead.
Data with our historical performance data third party data and custom algorithms to predict the expected LTV of the customer then prices the bid accordingly from there we apply similar data science. The best match leads to the right agents based on close rates and service quality.
When the agent enters the process, we applied just as much technology at the customer service level, we've developed robust tools to match customers and plans against the best combination of doctor's prescription drugs in the future medical needs. This happens both of the sales agent level and at the CCA level post initial sale of <unk>.
Final point I'll make here is the in addition to being difficult to replicate our technology is built with the full knowledge that none of the variables and factors I. Just discussed are static from one season to the Max things like changing planned features our customer habits and health background can influence this business significantly and as a result of our technology has been built.
To interpret these factors in real time and drive the optimal throughput in the service again difficult to articulate, but this technology paired with our unique agent model the difference and why we drive best in class Ltvs on very high levels of volume.
With that let me quickly sum up on slide eight and review the highlights of a very successful quarter. First this was the most successful AEP in our company's history.
Senior revenue growth of 127% following the 2020 of which we grew by 62%. We've said it a few times now, but we couldnt be more excited about the validation of our model and what it means for this company as we look to the massive growth opportunity ahead.
Second our 98% EBITDA growth in senior and the better than expected cash efficiency of our growth are equally exciting and speak to our returns focused approach to growth.
Our market, leading and stable Ltvs continues to be the proof point and our differentiated agent and technology driven model lastly, given how important our agents and fellow associates are to our strategy. We are very proud of been awarded top Workplaces Award both on a regional and national basis in a number of categories.
With that let me turn the call over to Ralph to detail our results.
Thanks, Tim I'll start on slide nine with our consolidated results for the second quarter, we generated $358 million of revenue and $130 million of adjusted EBITDA revenue grew 103% and adjusted EBITDA grew 88% as we discussed last quarter the inverse.
Since we made in the first quarter and hiring and training paid off from the second quarter as we had a very successful AEP season will discuss the performance of the divisions in more detail on the next few slides, but the revenue growth was driven by our senior segment and by our investment in the final expense policies within our life segment our consol.
<unk> margins were down a little consistent with our stated strategy of growing faster and producing more absolute revenue and EBITDA at slightly lower margins.
Turning to slide 10, and our senior Division as you can see we had a very strong AEP season generating revenue of $316 million and adjusted EBITDA of $135 million. During the second quarter. This represents year over year revenue growth of 127% and adjusted EBITDA growth of the.
The 98%.
Also represents the fourth quarter and of ROE that we have grown revenue over 100%.
Adjusted EBITDA margins were down a little from 49% to 43% consistent with our stated strategy of growing faster in producing more absolute revenue and EBITDA at slightly lower but still highly attractive margin to.
To expand on that point for the second quarter last year. When we had margins of 49%. We grew revenue of 62% year over year and added $23 million of adjusted EBITDA. The.
This year with margins at 43%, we grew revenue, 127% and added $66 million of adjusted EBITDA, almost three times more EBITDA year over year.
We believe this was absolutely the right trade off and again consistent with what we said we were going to do with the proceeds of the IPO.
Moving on to slide 11 for the second quarter, we had approximately 1300 total average productive agents up roughly 70% year over year average agent productivity was up 32% with both core and flex agent productivity improving this is really remarkable when you take into consideration.
Net all hiring Onboarding training licensing and selling was done virtually.
Multiple factors contributed to the improvements in agent productivity, including recruiting nationally, which on average allowed us to bring in higher quality candidate with the bigger pool to select from select what University, which allowed us to train our agents more efficiently and more consistently than before our improvements to our doctor and drug <unk>.
<unk> and other technology changes that allow the agent to be more productive and lastly continued refinement of our operational workflows. Both on the front end and backend, which allowed us to increase conversion rates and speed up the overall sales process.
This increased agent head count combined with the increase in average agent productivity drove significant growth during the quarter total submitted policies were up 108% and total approved policies, 117%. The largest driver of this growth with MA policies, where we grew our MAA.
<unk> policies, 128% and approved policies 132%.
Moving onto Ltvs for the quarter LTV of an MA policy was flat year over year, which was slightly above our internal expectations. As a reminder, we use a 36 month weighted average for persistency assumptions and the lower persistency, we experienced last year now represents around 90% of.
The weighted average calculation.
I think one important thing to highlight is that the percentage of our revenue, which is driven by first year Commission and production bonus versus renewal revenue, where the cash will come in over time has gone up significantly last year of 34% of our second quarter senior revenue was from year, one cash items for this year of 45.
Percentage of our revenue is from year, one cash items. This improved cash flow and reduces the amount of revenue that is at risk from renewals. This was driven by the restructured deals with our carrier partners with more emphasis on the first year revenue versus renewal revenue and the advertising revenue generated by inside response, which is all upfront.
It's too early to have concrete data on MA persistency based on the renewals that happened in January it usually takes several months to validate policy status is with data that we get from the carriers in part due to rapid this enrollment of these figures will continue to bake through the end of March having said that we do have an <unk>.
Early read based on what we know so far in first term persistency look to be roughly in line with what it was last year.
I'll also remind you of comments we've made previously that while there can always be short term swings in the LTV. We continue to think there are more long term tailwind to the drivers that impact of LTV than headwinds, including commission rates carrier mix operational improvements that can improve persistency and our lapse rates and other.
Other fees for additional services that we can provide the carriers.
Lastly from a cost perspective with the improvement in agent productivity, we saw our sales and fulfillment costs as a percentage of revenue become more efficient with a 16% improvement as Tim alluded to earlier, our lead Gen marketing cost as the percentage of revenue were up.
This was expected with our strategy to lean into the growth more heavily with some higher marketing spend especially during periods, where we can drive significant volume roughly.
Roughly half of this increase was driven by the fact that our exchange platform grew faster than some of our carrier direct relationships where carriers provide us leads and then reduce our commissions when we set of policy on their behalf. The those carrier direct relationships represented a lower mix of our volume this year.
Some of the other increase was driven by marketing spend towards the end of AEP. The generated leads that we didn't have enough capacity to handle and therefore monetize through our lead gen business, but at lower margin.
We are always testing new ideas and we will take some of the learnings from this year with US as we plan for next year, which also won't have an election during AEP.
If we turn to slide 12, our life Division grew revenue, 26% to $36 million, while adjusted EBITDA was up slightly.
Revenue was driven by growth in our final expense revenue as a reminder, we did flex over a significant amount of our agents. The itself final expense interest senior sell during AEP and <unk> and halfway through the quarter, we flexed over additional agents to help with enrollment given the strength of our AEP.
This impacted the sequential growth of the final expense premium, which was down sequentially, but still up 229% year over year.
It also impacted EBITDA and EBITDA margins as we incurred expense to hire and train. Some of these agents that didn't fully realize the benefit of revenue within our life business for the quarter as the flex into the senior business.
As we hire more new LH agents and some of the flex Lecce agents come back to life at the end of the OSP, we expect to significantly grow premium both sequentially and year over year.
Adjusted EBITDA was also impacted by lower profitability on our term life business, where we continue to see headwinds due to COVID-19 and a delay in consumers getting the blood work done and completing the process to get their policies in force.
Some of the carriers of also instituted waiting periods and other restrictions around COVID-19, which is temporarily having a negative impact on the business.
We do expect these conversion rates to trend back to normal levels. However, the next several quarters may still be impacted by the lingering effects of COVID-19.
Turning to auto and home.
On slide 13 revenue declined 15% to $70 million and adjusted EBITDA increased 42% to $2 million.
As discussed in prior quarters, the decision to reallocate agents from our auto and home business to our senior Division and final expense efforts has had an impact on the auto and home revenue, while we didn't write as much premium and revenue was down our adjusted EBITDA was actually up again year over year. This was primarily driven by the fact that the agents.
We did have in our auto and home business for more tenured agents and therefore more productive which meant on a relative basis, we could generate more EBITDA with fewer agents and with more efficient marketing as tenured agent close rates are also higher.
Just to Hammer home. This point average productive agents were down 31%, but revenue was only down 15%.
Turning to slide 14, we've updated this slide from our December investor deck that shows how we have been able to grow revenue and adjusted EBITDA faster than our internal expectations since the IPO using significantly less cash normally when we grow faster it requires more capital upfront, but we've been able to operate.
More efficiently than our original expectation is driven by our operational efficiencies agent productivity and growth in our final expense business for the three quarters since our IPO, we have generated 29% more revenue and 69% more of adjusted EBITDA compared to internal expectations, while using 25%.
Less cash from operations.
Turning to slide 15 for the quarter, specifically, we used $94 million in cash from operations as we grew our senior business, 127% during AEP.
In addition, we used about $5 million in cash for general Capex.
We ended the quarter with $246 million in cash and cash equivalents $325 million of term loan debt and zero drawn on our $75 million revolver.
We also ended the quarter with $879 million of accounts receivable and short and long term commissions receivable balances.
Lastly, as you may remember as part of the inside of response acquisition. There was an earn out component the enabled them to earn up to an additional $32 $3 million payment if certain metrics, where net the acquisition has exceeded our expectations and we expect to pay the full earn out we had the ability to pay this earn out 60 for.
The 5% in cash and 35% in stock given where our stock has been trading we have opted to make 100% of the payment in cash and expect that to happen this quarter.
Turning to guidance on slide 16, given the performance of the second quarter because of above our internal expectations. We are raising our guidance for our full fiscal year 2021.
We currently expect consolidated revenue to be in the range of $920 million for $940 million.
This would imply consolidated revenue growth of between 73% and 77% year over year.
We expect adjusted EBITDA to be in the range of $230 million to $240 million, which would imply consolidated adjusted EBITDA growth of between 49% and 56% year over year. Lastly, we expect net income to be in the range of $138 million to $146 million the.
The increase in guidance is primarily driven by the outperformance of the business and our second quarter.
In addition, there are several investments we are making in our fourth quarter net are embedded in our forecast are key investments are threefold. One we plan to hire several classes of the new core agents into our senior business in the fourth quarter as we get ready for next year's AEP. We believe this will position us.
For an even better next year and gives us better visibility into flex hiring needs to we're ramping up some investment dollars and enhancing our offering and our value based care initiatives that we believe will have long term benefits to our business customers and carrier partners and finally, three we are spending more in technology does.
<unk> resources, specifically to support the value based care initiatives.
As we think about the cadence of the rest of the year the third quarter should represent in the high 20% of total annual fiscal year revenue with margins in the mid twenties and fourth quarter should represent about 20% of total annual fiscal year revenue with margins in the mid teens and with that let me now turn the call back.
For the operator for your questions.
As a reminder to ask the question you will need to press star one on your telephone to withdraw your question press the pound of hash key the.
The standby, while we compile the Q&A roster.
The first question comes from Elizabeth Anderson with Evercore ISI. Your line is open.
And most of this Anderson your line is open.
Hi, sorry, I was talking to myself on mute apologies congrats on a nice AEP season.
If you could talk a little bit more about the sales productivity because that hasnt that was pretty interesting given the idea of COVID-19 and you didn't have sort of the ability.
To be there with people in terms of how the.
The new to the process and things like that what kind of could you maybe give a couple of examples of that and then sort of what do you see sort of going forward as areas that you could see chair of invest net additional productivity there.
There are a lot of it this is Tim great question I'll start and then maybe kick it over to.
Bob <unk> President of our senior division for more commentary, but as we've talked about on the call right.
The activity gains are really a function of our model in total the investments we're making in marketing are workflow our skilled agents technology of the backend of customer care. So it's really all aspects of the business model that impacts the whole. If you will we feel very confident that the investments that we're making of the underlying operation everything for.
Our national hiring platform to the Virtualized training that we did in the covenant environment all of the technology enhancements that drove both efficiency as well as good plan alignment and the coaching a really.
Working well I think we have built a model that.
As the very fortunate to have excellent sales conversion and history of relating the ltvs that has allowed us really of lean into the the massive market opportunity with the incremental investments on the marketing profit. So we really saw gains both from.
There were a function of improved conversion on wage as well as the agents being able to consume our leads for that.
I'll turn it over to Bob.
Yes, I think for.
For Tims point, we really focused in on on making sure.
Debt.
The improved our technology that was available for the agents to make sure that they can take more raw material.
And with that we really improved our raw material and.
Really focused in on the quality of lead which we talked about a lot as we were looking at last year's opportunity, we could've taken more of our call it more expensive raw material, but at the higher close rates, we really honed in on that this year.
Increased our close rates, but in order to do that we also really had the focus our training to improve our curve because if you look at the more extensive leads read of our close rates aren't where they need to be on our newer agents.
When we struggle of taking that raw materials, the university's focus on getting people more ready and faster even in a remote environment really paid off for us and we completely redid, our training modules and actually made it feel a lot more like a smaller training environment, even though it was sort of a larger class so what.
Part of what we did there but it enabled us.
Have all three of those things really work together.
And add to the overall efficiency. So it's not really just one thing it was really those three key tenets that.
That allowed us to grow that quickly and have higher productivity on significantly higher head count.
Perfect that was very helpful and can you expand on sort of how you see the gear offerings and value based care initiatives and chance over what timeframe do you see that unfolding.
Sure.
A few brief comments on our kick it over to Bob again, we're big proponents as we've discussed before we think this is a great way to help consumers achieve better health outcomes.
We have aligned with numerous market leading care providers.
And we're serving right educator to our customers about the benefits of these innovative care models.
And so the publicly announced one partnership we've got for additional that are in place and we're building out capabilities. Bob is leading the suffered for the company. He is quite passionate about it I think you should hear from him firsthand.
Yes, we are really focusing on health care literacy and having value based care and other kind of heat of star rating activities.
As a portion of the portion of our offering and what's unique is our contact rate on the backend and all of the things that we're able to do there we are of great relationship with our customers Tim alluded to it we get a hold of over 85% of our customers after sale, which we feel like it is industry, leading as we talked for the carriers they remind us it's almost mind boggling how many.
The folks were able to get a hold of using data and then with that we are also just I'd say healthcare educators.
In general that's how you ultimately properly align with the Medicare advantage plans. So it's just a good further offering for us.
As Tim talked about it we see of big growth in that space and we think that we can help align the industry.
With our consumers and get them in the value based care solutions, and ultimately save them money and save our carriers money in the process, while improving star ratings and there is other activities that we're looking at that can do that as well.
Perfect. Thanks, so much.
And your next question comes from Chilean dressing with credit Suisse. Your line is open.
Yes, Thank you and congratulations on the very strong quarter.
I know, it's little too early for you guys to talk about fiscal 'twenty two guidance, but looking at the strong seniors enrollment growth the.
The experience during the AEP innovative puts and takes the industry the <unk>.
<unk> moved from Covid perspective, and from other factors I was wondering if you can discuss the future sustainability of some of these growth drivers.
Any of the potential incremental growth drivers you've seen for each of yours.
Yes, so I think.
With respect to 'twenty two guidance, we're not we're not giving any specific guidance yet.
I think we've said before that.
For the next several years, we can sort of look at the senior business and think about.
A revenue CAGR of over 40% with margins in the mid thirties, and other consolidated basis above 35% with margins in the mid Twenty's and I think thats sort of consistent with our thought process at least for now.
We are growing a little bit faster than that based on based on the current results for the last couple of quarters.
But we haven't updated that view going forward in terms of how sustainable some of these things that we're working on par.
I think for the agent perspective.
We don't model and increasing agent productivity.
We think thats prudent not to do I think we've shown that we've been able to do that year in year out, but that's not something that we necessarily model.
And.
I do think that as.
As we hire bigger bigger classes.
It does become harder to some extent to continue to push on some of the agent productivity.
He said that I think the changes that we made are very sustainable.
And maybe I'll hand, it to Bob with the has any other comments from that perspective.
No I would agree with that that the changes that we've made are very sustainable we are going to continue to try to optimize.
The increase our agents' ability to take more raw material.
RAF alluded to we are also going to make further investments in our core.
Group.
Which should really help us for next year, we still see higher productivity out of core than we do out of flex, even though we really dramatically increase the productivity of flex this year.
But.
Really.
Excited about the results that we see and again trying to model conservatively don't model and increases, but we see an opportunity still within our data to drive more increases.
Okay. That's helpful and for my follow up one of your peers recently flagged challenges in some of the marketing channels.
Particularly debt at the spot TV I was wondering if you could talk about your experience during the quarter for their spend some of these marketing channel that some particular marketing channels outperform or underperform in terms of lead for profitability.
Yes, Joe This is Tim I'll make some brief comments ill turn it over to our share of El Grant for comment specific to marketing.
So overall you did see marketing cost per submission increase this quarter margins went down a little bit from 49% last year to vary and we would say highly attractive 43% EBITDA margins for senior.
In that.
Push for marketing, we saw about half of that overall increase.
Come from growth of our choice model growing significantly faster than our carrier pod model, where in some instances we don't pay for those leads the other half of the increase in cost per sale was on the core business as we really intentionally leaned to end to the growth opportunity. This was.
Our conscious decision on our part and one that was more about kind of channel mix for us than the broader <unk>.
The trends so we think as we've talked about it before part of our express strategy is to grow absolute EBITDA dollars, while maintaining solid.
The margins, we certainly believe we accomplished that.
The revenue north of 127%.
We added $67 million of adjusted EBITDA year over year.
Ralph highlighted fourth consecutive quarter of over 100% channel revenue growth.
And at the end of the day, we grew.
About three <unk> EBITDA of about three X. What we did last year all at attractive margins revenue CAC north of three <unk>. So maybe I'll turn it over to bill to answer some of the specifics of your question, but I just wanted to provide that as a backdrop around kind of the essential nature of our strategy the bill.
Yes sure yes.
Tim and Ralph mentioned, I mean, we had a very intentional strategy about Ram.
The ramping up I'd say, our higher quality more efficient sources. So we knew that we were going to spend a bit more on marketing this year.
<unk> two years path, because we thought we were leaving some stuff on the table. We thought we could put more through the funnel, which is exactly what we executed on I would say the.
Part about.
This AEP maybe different than what we expected just a bit would be just the constant amount of breaking news that the election had on our marketing so as everyone knows there was.
Lots of surprises I would say is an understatement.
Certainly that did put some pressure on.
US during AEP getting clearance wherever it may be with that and I think we're extremely pleased that we were able to navigate through that and on days that I would call more normal days or kind of when news died down a little bit we feel really good about where we were with TV in particular and a lot of our channel, but the thing that I think we are the most.
Proud of us during that time, when there was really large breaking news and virtually no clearance on certain days, we could still make our model of highly functional by being able to turn the dials with kind of our omni channel approach and take other sources, but as it specifically relates to TV I would say certainly of the election had the biggest impact on television.
But I'd say, we feel very good that we were able to navigate through that still have TVD of huge source for us.
And feel really good about where we are when.
Some of that dies down post election.
The accenture it bill.
Yes, just to accentuate bills good points, there I would say us versus some of the competitors right. We can make TV of work because of our agent productivity and because of our Ltvs right. We are of a business model that can make these channels economical for us and you are hearing from some of our competitors' challenges.
So we feel like this is a very viable for us and the Bill's point.
In essence, why you need a one.
<unk> Omni channel approach because you can't just have dependency on a handful of channels, we like the ability if you will the fish and multiple pumps.
Great. Thanks, a lot.
Thank you.
And your next question comes from Frank Morgan RBC capital markets. Your line is open.
Good afternoon certainly.
Nice to see the improvement in the cash conversion and being ahead of schedule there.
Curious can you can you attribute that better result, you mentioned things like productivity and growth and final expense, but how would you sort of characterize of what was really the key driver of there and then really any thoughts around when you you does this make you change your view over when you think your enterprise kind of actually flip over to sort of the cash generation mode.
That'd be my first question.
Yes, so I think.
In terms of using cash more efficiently.
A couple of things that we've talked about certainly agent productivity as a driver of that starting to sell more of that final expense product.
Where we're receiving.
One year payback versus for plus and some of.
Of our other products.
Those are those are definitely the drivers we also when we talked about a little bit.
The restructuring some of our deals with the carriers.
To basically have a little bit more of our cash.
Come from sort of year one items.
So.
We've talked about that on the call that sort of went up to about 45% of our total revenue for the quarter and that's another component that just from a cash efficiency standpoint definitely helps having said that we are growing materially faster right and so that does require capital and so far we've been able to do it a little bit more efficiently.
As we think about the business.
We said we would raise enough.
Capital to grow the business of the types of growth rates that we've talked about for the next several years I don't think thats necessarily changed in terms of our expectations as the.
We work on sort of the fiscal 'twenty, two budget and our guidance for that as we flow in some of the assumptions around the final expense in value based care and some of the investments that we're making there I think one of a better perspective.
Of what some of that looks like and we'll update you over time is.
As we provide that guidance.
Got you and then I guess the follow up.
Yeah.
Any obviously you upped your updating your guidance.
Just curious what you built into your numbers for additional core agents that you'll be adding in the fourth quarter of this year ahead of the next annual enrollment season the tier.
Thanks.
In terms of the number of agents or the other question or.
Yes, yes.
For the.
For the updated guidance with regards of the growth of those core ranges that you called out into the in the opening.
Yes, so I won't go into too much detail, but I mean, we have several new hiring classes that are going to be spread out over several several months each of those hiring at classes of sort of a 100 or so each.
I would say that.
That obviously will then feed into next year and next year's AEP that one of the things that we'll look at that it will be part of the guidance that we gave for fiscal 'twenty two when we get there is.
How much of that class next year will be.
Core versus flex agents that one of the things, we like about being able the higher during the course of the year.
Is it gives us.
More visibility into the flex hiring need once we get to that.
And so that's one of the reasons why.
We're doing that a little bit sooner this year.
Yes, I'll just add I mean.
Just add it is a combination of our out of additional investment into the the core platform around the head count as well as.
Investment and value based care kind of.
The platform of the future of if you will and I think that's one of the things about the company. So we've always been what I would say appropriately aggressive of around trying to find ways to add value to our client base. So we think we have a pretty decent track record. Both the senior final expense of growing new business opportunity. So I wanted to take it as an opportunity to reinvest.
Invest if you will of portion of the success we're seeing.
And to the model as we've got a lot of conviction around it.
Thanks, a lot of great quarter.
Thank you Frank.
Your next question comes from David Silo of Jefferies. Your line is open.
Hi, there good afternoon, thanks for that question.
Net echo congratulations for the quarter as well.
Wanted to ask a little bit about calendar year of 2000 to 2022 with the CMS rate notice now being out looks at commission rates are probably be up about 6% plus.
Can you talk a little bit about some of the opportunities you alluded to there earlier to improve the LTV over time, having having the 6% of the starting point.
For for a tailwind going into the next calendar year as well as things along the lines of care of mix.
Other opportunities that you have there with the insurers.
Yes, so I think the best way to describe that as maybe reiterate some of the comments we've made for around.
Persistency.
This quarter the per.
Assistant for 36 months of weighted average persistency right.
This quarter, 90% of that weighted average does reflect.
The persistency that we saw last last year, which was a little bit lower.
Of that basically has been offset by rate.
For the most part of this quarter, which is why Ltvs are flat in terms of going forward.
Don't model improving persist.
Persistency was sort of hold for the flat.
We have seen obviously rate increases and there is there is.
There are some rate increases that we sort of assume going forward.
So that all else being equal that would sort of drive.
Some of that sort of long term the LTV.
The tailwind that we've talked about but just from a modeling perspective, and when we set guidance, we do not assume that.
We're going to see.
So the improvement of nation of productivity from where we are now.
Okay great.
Great and then the follow up would be.
Gives me.
We're just beyond on your hiring and appreciate the comments there can you talk a little bit more about what that environment looks like what the unemployment rate steadily coming down now is getting a little bit harder to find.
Great candidates to bring in that fit the profile for what you guys are looking to versus a few months ago and theres more uncertainty of higher unemployment of the market.
Maybe that's being offset just because you can you can hire across the country now with being more remote that the love to hear the.
Puts and takes as you are looking to bring in new talent.
Sure Dave the system good to hear from you I'll make a few comments and turn it over to Bill who leads up our recruiting effort, but I would underscore this is our most successful.
Yes.
In company history, we are we do not see really any headwinds there I think our ability to move to a national hiring model. We are now recruiting and over we've got the associates in over 40 different states.
We recruited for pretty big step function increase of 2000 associates and support of AEP that was of 70% year over year left you've heard about the amount of improvements in agent productivity, which are a testament to the model and we're actually retaining a higher percentage of our flex agents than we did in years past.
We see a lot of tailwind in the sort of the huge.
The growth driver for us, but let me turn it over to Bill who is really responsible for the.
Yeah, I'd say the first thing is that it was kind of accelerated by by Covid was the work from home solution.
How fast that became a reality for us we thought that would be a couple of year transition, maybe even more when it related to the flex force and we were forced to modernize very quickly there and.
And I think the team did a great job of executing on that but what that means for recruiting is now we're able to recruit all 50 states.
All towns little tens of long day of high speed Internet, we can get them. So I feel like we feel like that.
Our tailwind in terms of recruiting there are way better than they were a year ago in terms of kind of the breadth of what we can recruit so I'd say that the number one.
I think that we feel really good about that just in terms of kind of where we can reach out to two I think success breeds success success and I think that we have great stories to talk about from all 50 states really and what we've been able to do with a lot of those folks in terms of what Tim just mentioned in terms of how successful they've been in our environment.
Winning kind of these national Best places to work all of those things really make it easier and easier for us to recruit people. So I think we feel really good about where we are and where it will be going forward.
Great. Thanks for the responses.
Yes.
Your next question comes from Daniel growth rate from Citi. Your line is open.
Hi, guys. Thanks for taking the question and I will add my congrats here.
Really great to see I, just wanted to focus in on the deposit performance the AEP.
It does seem like it was a little.
Under index relative to to the exchange performance.
The other years. So just curious if youre seeing any change at the carrier level and the usage of pods and it's they're relying more on their internal agents and sales force there.
And anything we can read into that going forward.
Okay.
In terms of its mix it does represent a lower mix of our volume.
This year.
I wouldn't read into that.
Anything in terms of carriers the interest in doing those types of relationships with us if anything, especially this year, we had very productive conversations with our carriers.
And they were looking to partners like us to help them grow I think it's just a function of the fact that.
Our choice platform is growing at.
Huge multiples relative to the overall market and so.
Our carriers by themselves are not growing at those types of rates and so thats basically what drives that dynamic so it's not that it was down.
Year over year, it actually grew quite a bit and probably faster than the overall market. It is just our our choice of platform actually drove an even faster.
Sure Bob if you want to add anything in terms of.
The types of the discussions we've been having with carriers.
Yes, absolutely.
We.
Don't model in for a ton of growth there given that if you think about the carriers themselves they grow at about.
10% of year, whereas we're growing at a significantly faster pace than that however, we're constantly negotiating with new folks that could.
Make that.
A larger growth curve year over year. It depends right. If you win a new large contract for the carrier.
And you may see outsized growth one year and then the next year not see quite as much growth because you may of the same relationships with those carriers that are growing at that kind of steady 10.
10% range. So we feel really good about our pod performance of the carriers continue to give us great feedback, but we are their top performing partner by a fairly wide margin will reduce the opportunity though is in our the way that we flex employees in the way that we staff our group we feel like we have some.
Opportunities to better partner with the carriers in the future in the final kind of weeks, where we can bring employees and from other parts of our business.
And bring them into Medicare for the really Big final question is kind of alluded to on the the opening that we see a lot more marketing volume of kind of the final week of our final two weeks.
And kind of help the carriers as they see the same thing we see so we do have opportunities to grow those but it's not going to be at the same pace that we grow our core business.
Understood very helpful. And then just on the cash.
Conversion.
It seems like you guys have been able to really improve that collection in year one.
From 34% to 45% are you kind of tapped out at 45% or can you grow the <unk>.
One cash collection higher.
There is obviously there.
As certain structural limitations on that just in terms of how.
Commissions are structured specifically on the biggest part of XL.
And the policies, where there are certain capture on the first year commission versus versus renewals. So.
I don't know that 45% necessarily as the.
As the Max, especially as we growth from other things that pay us for.
For the year one.
One of those value based care or some of our.
Advertising revenue, having said that it is.
Not going to go to.
75% of.
Of revenue so.
I think that there is.
Continues to be things that we're working on net.
That I think will improve cash efficiency.
But there are some ultimately from structural limitations on that.
Got it thanks again.
And your next question comes from Jonathan Huang with Barclays. Your line is open.
Hi, Thanks for taking my question on the congrats on a good quarter just on <unk> I was wondering if you could provide some color on kind of what youre seeing so far.
Volume.
How the volume is looking the persistent channel that you mentioned.
It's relatively in line with last year, but does that persist from T. Also going to is that in your working assumption for the rest of your fiscal year and then just the volume.
Yeah.
Okay.
So I guess with respect to OAP and we're not going to provide any commentary around that with the other then.
What we're seeing is embedded in the.
The updated guidance that we've given.
With respect to persistency specifically.
The renewal of event that happened in January does give us some visibility into that although it does take several months for that to really sort of play itself out until we really won't know for certain on some of those things until the end of March and effectively the way that debt.
Play into it.
So the LTV calculations is that once that's locked in that will then roll into a set of our of 36 month weighted average.
And the applied policies that were selling.
From that point onwards, so thats sort of how it.
How it gets impacted.
Great and then just on the value based care initiatives that Youre doing if I remember correctly I believe you mentioned that the economics there were relatively small I'm. Just curious how you guys are thinking about the investments that you're kind of making the back half of the year.
Whether the.
The economics change for you at non thanks.
I think the more value that we can prove that we.
Add to the carriers.
The more.
We'll be able to share.
Share in that value.
And so.
It is relatively small as a percentage of the revenue that's coming in now, but I do think that we think.
There is a lot of opportunity going forward to enhance.
This program is Bob.
Yes.
Direct economic impact as what we were alluding to before on the.
The.
The direct payments that we get a relatively small however, we do know through data that the.
The indirect.
Revenue could be higher than the other more value we provide you the consumer.
The more value we provide for the carriers the more economics there are for us the higher our retention rates can go up more satisfied consumers are and the more engaged we are in there kind of health care savings and.
And better alignment journey, which again, we're working on lots of different things.
Within that space to help consumers understand their plans better get into better economic solutions increase adherence for our carriers and then ultimately save both the carriers and consumers money through that education, we do think the transition to Medicare and the health care literacy associated with that is it's tricky and it's very different than the.
Being under 65, and we want to be of part of that journey in a bigger way than we are now so I.
I don't want to understate the.
The fact that there's not money there and just what we were talking about before is that direct dollars associated with it.
Sending somebody to the BDC.
The solution.
Yes, I would just underscore the scale the scalability of our platform the interactions that Bob mentioned.
We've got 150000.
Sure.
The conversations going on every month.
And Thats the continues to growth. So this is an effort where we.
We're making a lot more investment and will be kind of back of the market to share more in the very near future.
Thank you.
Your next question comes from non Chen with Morgan Stanley. Your line is open.
Thanks for taking my question.
Model one if I can wondering if you can quantify the magnitude of that the for the investments that you mentioned and I guess the impetus for the question as he raised the high end of your EBITDA guidance by 5 million, but the second quarter of beat by around $20 million. So just wondering if that $50 million million Delta if not more than all of the investments.
It kind of that wasn't really helpful.
So I don't want to be true.
True specific on the level of investment.
Is in the millions of dollars I think the best way to think about sort of.
The guidance.
And the reason why we provided a little bit more clarity with respect to sort of the third and fourth quarter as a percentage of the overall years debt.
The primary driver of the increase for the second quarter outperformance.
Or nothing has really changed internally with respect to our view of the third and the fourth quarter outside of these investments.
But given that we don't provide sort of quarterly guidance, we felt like it was appropriate to give a little bit more visibility into how that will come in during the course of the year.
Okay. Thank you.
Your next question comes from Meyer Shields with Keefe Bruyette <unk>. Your line is open.
Great. Thanks, if I can go back again to the year one revenue.
The negotiation stages should we assume that the <unk>.
45% of the rate base level going forward of that sort of object to.
The volatility.
We're always looking at ways of.
Collecting cash sooner right.
I think debt.
The.
I don't know that will guarantee the it'll be at that level, but.
That is something that we are focused on.
And I wouldn't I wouldn't expect it to be.
Just on what we have in place right now I would not expect it to dropped significantly from there.
Okay.
That's what I was looking for.
The question I think early in your comments you talked about monetizing from lead lag in AEP was hoping to just get a little color on what that means and what the opportunities are to recapture that next year.
Bill you want to take the.
Yeah, sure and I'll clarify what we mean by that this year I think we had we saw some of our spending.
In terms of how we are marketing relative to TV or where we might be spending.
I would say kind of.
Kind of Spike go up or down based on what was happening with the election. So the more of break the more news was breaking right. The more that we might not get clearance or of consumers might be paralyzed. The not respond. So what really happened that last week, because we spent based on what we thought it would take to generate.
Enough leads to keep us really busy and push us through so based on what we've seen.
And then.
Basically that week, we didn't have as much breaking news and the.
When you look at kind of what occurred we had the huge influx of leads over the last week. So I think there was a lot of pent up demand that last week.
And I think that our marketing, which bodes well for the future of our marketing with very efficient that weak because of that just happened to be a week or we didn't kind of see the same level of breaking news or the little calmer.
No.
Those type of things so I think overall we.
We feel really good about kind of.
Where we are there and exactly kind of what occurred.
During that time, and what we would expect really going forward.
Yes, just to piggyback on Bill's comments right.
It.
It was an absolutely great.
AEP season, it could have been even better right. There were a few kind of of anomalies. If you will around the election, and we talked about being overly flushed with the leads towards the end of AEP.
The great thing about our management team, we're always looking for ways to get better we're humble and hungry.
And we think the theres ways to make it an.
Even.
Better results next year, but we're very proud of.
This is really a fantastic AEP for us.
No clearly understood. Thank you very much.
Thank you Omar.
There are no further questions at this time I will now turn the call back over the Tim for closing remark.
Thank you all again for your support and interest in select quote I'll briefly close by re emphasizing how excited we are to present. These results first of its always nice to outperform your own expectation.
So hats off to the over for follow ups Lockwood associates, who made that happen equally exciting as we think about the future is the track record we are establishing the.
The continued validation of our unique model, we think given the long tailed opportunity in our core markets. Our constant focus on execution. We continue to see very bright days ahead. So thank you again for your time.
We wish you all of a great 2021, thank you very much.
This concludes today's conference call you may now disconnect.
Okay.
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