Q1 2022 SelectQuote Inc Earnings Call
Quarters and as a result, we plan to provide updates to our outlook as we get further through the season.
Third while the timing was delayed our strategic staffing is in place for the ongoing AEP season, and we believe we are well positioned for another year of strong growth. Despite the tighter labor market for our senior business. We have also implemented new tools that will enhance our core senior business and our final expense products. This year.
Fourth we're thrilled by the progress we've seen in our select Rx business, our daily enrollment rate has ramped sharply which continues to validate the power and synergy of our offerings. In addition, we acquired simple meds in the quarter, which is a medication management pharmacy. The platform will further accelerate the expansion of our select Rx business.
With complementary and additive operations capacity and infrastructure.
Also on our broader population health strategy, we've added in home care provider ready responders and behavioral health solution providers drive works and brain check to a growing network provider partners.
Randy responders provides on demand telehealth for patients that have non emergency health issues and had been recently discharged from an acute care facility.
Thrive works offers leading behavioral health and medication management services, both virtually and in person at over 300 locations rain check.
Provides cognitive testing to its members value based care providers and health plans.
It is used in primary care neurology and geriatric practices at some of the world's most renowned medical centers.
These partnerships underscore our potential to expand the population health platform and to new health care service areas that will benefit our patients and drive new revenues to select quote.
Lastly, we took advantage of the attractive debt market to raise an additional $200 million and committed capital through incremental delayed draw term loans RAF will give more color later in his remarks with the bottom line is we are very well positioned to pursue growth across our core distribution and population health strategies.
Before I turn to AEP, let me quickly put our recent results and growth in context over the past three years like what has driven our revenue and adjusted EBITDA CAGR of 68% and 31%, respectively, and we expect that growth will continue into fiscal 'twenty two.
The key point is despite some persistency headwinds and some recent cohorts in the tail adjustment impact liquid is delivering against our stated goal to grow aggregate EBITDA dollars at attractive and scaled unit economics.
Key takeaway is we have the agents we need but this will move the mix of earnings from <unk> and to the third and fourth quarter, Ralph will provide an update on our quarterly cadence a little later.
As you know select constantly looks to optimize and use the latest data and technology to enhance our business I'd like to highlight a couple of the enhancements we have made to our tools and approach for this year.
First we significantly enhanced our retention risk scoring.
We have risk or to our existing base of customers and are utilizing specialized retention tactics based upon each customer's risk profile.
Second we have also significantly enhanced our enrollment and customer onboarding processes, both to drive additional efficiency and to ensure enhanced customer awareness of <unk> benefits and satisfaction. In summary, we are well positioned for this year's peak selling season and look forward to sharing our results in the coming quarters.
Now if we turn to slide five I'd like to take a minute to provide an update on our exciting population health inflect Rx initiatives similar to the past two quarters, we continue to see strong consumer demand for these offerings, particularly for our select Rx pharmacy solution.
As you can see here, our select Rx enrollments of ramp sharply and we are now seeing daily enrollment volume that is about seven times the level of acquisition to put that in context that rate was closer to three times pre acquisition levels just last quarter.
That's M. A L T V for policy.
Revenue also increased as a result of revenue generated from our population health activities, specifically select Rx, where we've made good progress scaling the business this border.
In terms of expenses, we did ramp up our marketing expenses during the quarter to test and secure marketing channels and vendors and anticipation for a P and OAP. While this dragged on margins during the quarter, we felt like it made sense to secure the availability of those please and the quality of the lead forces going into our busiest quarters of the year.
We also incurred incremental costs to hire a flex agents in in rollers and to wrap up our activity and select Rx.
Moving on to senior Kpis on slide seven.
We grew our total approved policies, 60% and and May approve policy is 98%.
This growth was driven by 35% increase in average productive agents and a 30% increase and agent productivity agent productivity was driven by an increase in overall marketing cough and an increase in lead consumption with a big increase in the number of flex agents. We continue to expect that agent productivity will be down year over year.
During a P D and for the full year.
With respect to email Tvs as discussed in our last call, we anticipated ltvs would be down for the full year by around 8% driven by the switch to policy level persistency lower overall persistency and hire provision rates for first year and renewal years somewhat offset by higher rates from.
From a quarter Ization perspective, the decline in Emma Ltvs is expected to be higher than 8% in the first three quarters and lower than that in the fourth quarter as we start to lastly impact of lower persistency and switch to policy, though persistent.
For our first quarter M Ltvs were down 16% year over year.
We said, we would update you on laps rates as we progressed through the year, we continue to see elevated lapse rates versus last year, having said that until we see the initial information from the renewal event in January we are not adjusting our $65 million placeholder for the potential of a cohort tail adjustment in the fourth quarter.
Lastly, before I turn to our balance sheets and give an update on the cadence of our growth for fiscal 22, Let me briefly comment on our life in Ireland home segments.
In 2021, we ended the quarter with $184 million of cash and $472 million of debt. We also ended the quarter with $1 billion of accounts receivable and short and long term commissions receivable balances.
During the quarter, we used $87 million of cash from operations driven by the seasonal investment to ramp up for AEP and.
In addition to the $11 million in Capex, we also used $7 million for the purchase of simple meds.
Other pharmacy medication management company, which gives us incremental capacity to scale select Rx and increases the number of states that we are licensed to sell them.
Lastly, we recently took advantage of favorable credit market conditions to raise an additional $200 million in committed capital through our credit agreement.
To limit the amount of incremental interest expense before we really need access to the capital we structured this new capital in the form of two delayed draw term loans.
$100 million tranche needs to be drawn by January of 'twenty two.
The second $100 million tranche needs to be drawn by January of 'twenty three.
We also increased our committed revolver to $100 million.
These additional commitments give us plenty of runway for the next several years based on the guidance, we gave last quarter on cash flow progression and with that I'll turn the call back over to Tim for some final thoughts.
Thank you and before we turn to your questions. Let me quickly summarize on slide nine.
First we believe <unk> has significant competitive advantages within our compelling growth industry, driven by demographic and secular trends. We've built a differentiated model that delivers value to Medicare advantage shoppers through significant technology capabilities paired with an agent might experience.
Second our returns on invested capital are highly compelling as we've detailed on previous earnings calls better yet. We believe these types of attractive returns are achievable in both our core strategies as well as our newer population health growth initiatives.
Third as we detailed earlier select Rx is ramping quickly and we are increasingly convinced that our unique value proposition for prescription drug management and distribution has tremendous potential.
Lastly, similar to select Rx, our population health initiatives represent our company is a unique opportunity and ability to unlock value for patients.
Caregivers and carriers, which also benefits our shareholders.
Let's turn to your questions operator.
Thank you Sir.
A reminder to ask a question you will need to press star one on your telephone keypad.
In the interest of time, we would we would also like to remind our participants to limit their questions with one follow up.
Our first question comes from the line of Heartland dressing from credit Suisse. Your line is open.
Yeah, Thanks, Jaylen dropping from credit Suisse.
Just wanted to follow up on the impact of delayed hiring.
Uh huh.
Last quarter. When you guys reported in late August you guys noted that you were on track.
Your hiring plan just curious what happened in the last two months that it is impacting your kind of positioning for AEP with respect with agents, especially when the basically what I believe.
We're starting the process much earlier, but so did you see any agent turnover like what exactly happened that glitch is impacting in the last few months hiring process.
Yes, Im happy to I'm happy to take that I think when we talked about last quarter.
We felt good about where we are we certainly noted that the labor market was quite different from last year, but we still had some additional hiring to do I'd say the biggest difference that we learned this year from last year, we experienced quite a bit higher rate of verbal offers accepted the start dates.
I'll take that.
Yeah, absolutely we still have the same strategy joinder, it's just relative to our hiring goals this year.
We were hiring more from the outside to actually fill.
That funnel of 80, and then ultimately fill after AP.
And our goals for Q3 and Q4.
We actually we ended up hitting the hiring goal to to Bill's point. It just delayed it because we we had a little bit more fall off in the summer classes. After our last call and then more folks kind.
It came in that September timeframe. So we always rely on a lot of external hiring mixed with the shipping pokes, we still shifted a lot of folks.
Over in our senior really good results from that.
Just the delayed hiring put pressure on because of the number of bodies. We were talking about that ended up shifting.
And your lender one thing one thing that I would point out is while we are verbal offers accepted too.
To to start date was down.
One thing that we have learned here is the folks that are.
Please ask your question.
Hi, guys. Thanks, so much for the question I was just wondering if you could comment on the the factors that impacted the L. T V. In the corner you know maybe differentiate instead of the ones that might be a little bit transitory versus some of the some of the longer term trends things.
Sure Who's Rafal I'll, probably pick that one so I think on the call. We started with the L. T V down for and they policies with down 15% year over year, roughly one third of that was a function of the moves to policy level persecuting witches and reminders isn't that revenue neutral.
Impact of revenue beaches, exactly just to prove you know 50% more policy. So sort of it was that and then two thirds of it was really a combination of a lower overall person who can say based on the three year weighted average mm.
<unk> three year will leverage and then increase provision rates for both first year window. Your lapses offset by a little bit of commission right. So that's those are kind of the primary drivers of of the the 50 per cent decline.
So we.
We feel really strong about consumer demand and the demand for population health.
Membership has grown tremendously and the consumer experience and consumer feedback has been great.
But that will be a little bit of a delayed revenue on that Tim talked about on.
Medication side and others.
Yes that makes sense, okay. Thank you very much.
Your next question comes from the line of Jeff Garro with Piper Sandler Your line is open.
Yes. Good afternoon. Thanks for taking the question I wanted to maybe a little bit more about marketing costs in Leeds.
If you could just expand on cost trends you've seen for me then.
What you're able to tell us further about the quality of those leads whether it's through merger in rates or any other factors.
Ralph.
You want to comment on first quarter, and then I can comment on kind of the trends that we're seeing sure sure. Yeah. So first quarter, we did ramp up the marketing spend.
Really.
To make sure that.
We were testing certainly providers.
And add that basically disrupted a little bit of our ramp there.
Luckily, we've kind of our wide funnel approach, we're able to quickly pivot and get that back on track and subsequent they did approve all the things that I was really more of an industry wide thing. So really those are kind of the difference I'd say primary.
Primary two's consuming.
Other than that we feel good about the volume we're delivering all those things.
And think that we're on good track to a really strong finished AEP OAP.
IPhone, but really helpful. Maybe following up a little bit there on the industry Itchy you mentioned, it and just I guess more broadly clear.
Clearly, it's important to get people productive as fast as possible and former best within your control. So maybe if you could break down a little bit further what you're doing to accelerate the ramp of agents that within your control and then what are those things whether there.
Carrier quality goals or other regulatory headwinds or tailwinds that are outside your control as we think about productivity and growth over the important next four or five months.
Not only will knock about I'm concerned about that.
As soon as I Barbara at the operational side and I can cover some of the regulatory.
Perfect Yeah on the operational side, you've got some really good good point, we are constantly focusing on tools.
Try to create a faster ramp to make the job.
<unk> an.
Easier to understand for consumers gets benefits faster. So that we can really focus a lot of our attention on education.
And facilitation and then create tools that kind of guy people in their workflow.
We are continuing to make a ton of investments.
And that's and every year the plan design changes a little bit so we do make.
Kind of evolution throughout the process and that's exactly what we're doing this year as the as the carriers of come together a little bit more on plan design. There has been a little bit bigger emphasis on some ancillary that fits in there that are a little harder to find for people. So.
So we are building a lot of our technology to make that easier for people to understand and consume.
And get that ramp quicker. So we feel like we're making a ton of progress there, but we're always kind of evaluating that and and thankfully the platform that were on and the flexibility of our technology allows us to do a lot of releases any very unique stuff since we're on such modern technology that we've described before so we feel really confident about that.
We're already doing the things that actually kind of came out in terms of we were filing we were going through so really it was just the rework of things. So I would say what I believe was.
With the <unk>.
Differentiated is the fact that this wasn't anything new.
And actually just reaffirm that we were doing the right things. It just with the timing of things. So I would say that's something that.
That was the differentiator in itself there was really no change just a little bit of a timing challenge, but it took a few days to get it.
To get everything actually it kind of shows how quickly we can adapt took us a few things.
A little bit too.
Both re file and being able to kind of turn the dials to make sure. We're getting the volume that we need so but all of that is kind of on track and feel good about where we are actually really Tim mentioned embraced those the changes to clarify to make sure that.
Everyone's playing by the same the same set of guidelines.
Got it thanks for taking my questions.
Your next question comes from the line of Danielle Graf Slide.
From Citi. Please ask your question.
Hey, guys. Thanks for taking the question going back to the labor issue and getting people ramped a little slower than initially expected incentivize people to really come on board right I get that you've got a lot of good verbal in early September and then.
They kind of rolled off did you have to increase wages or incentives.
Is there some cost pressure in that line item that we should be.
We should be building into our model.
Yes.
Nothing.
Nothing that we feel like in terms of.
Significance on.
What we had to do to get them on but we did offer some incentives.
To make sure that we would they would come on in terms of pushing that licensing through.
I believe though on a per unit basis that it will kind of come out in the wash as we look at okay, well what did we do to adjust later.
So really I think we thought that our offer was attractive in terms of.
Advantage can you remind us what your current recapture rate is and what you expect that to be for the full year.
Sure.
Recapture standpoint, it's instead of the the mid to high twenties, it is up year over year.
It does fluctuate seasonally just in terms of you know when the last of it happening and and went to whatever your cash activity does does occur, but that's kind of where it is now I don't know that we would expect it to be dramatically different than that we've continued to have could improvements city every year.
We're tracking for exactly where we need to be or want to be.
And our building our tools around what we see in those plants.
Okay. My follow up is on the.
The CMS.
The recent.
Memo about.
Providing more the advertising information.
It seems like something is bothering CMS I know they have made rumblings before this but is it.
Do you think they are in some way trying to push carriers to make make.
Maybe make plans more consistent yes, because it seems like maybe they're sort of worried about this churn issue that's going on in the industry as well so.
Do you have any thoughts about what CMS is real end game is here.
Thanks.
Yeah, I'll make a few comments.
Bob Chime in.
I think there has been some discussion over the past couple of quarters, just around kind of quality in general.
Thinking my questions one has there been.
Any impact on longer term employees in the context of what people are calling the great resignation.
[noise] I think.
Mayor, where we are seeing a very good employee retention across the board, especially with our.
Top level agents are there's been some some some modest nutrition, but nothing of any significance.
More importantly, I think are a career based opportunity. The fact that we've always paid significantly better than the industry has kept.
Very very high retention rate so.
We're well positioned that.
Okay. That's I think that's good to hear in in Sacramento last quarter, I think last you spend some time.
Differentiating between last week with most recent cohort years and some of the older you get that we're holding up better than I was just hoping for an update on that.
Yeah, So I think.
And Ah remarks, my remarks earlier I was sort of stated that we've seen higher lapstrake, but first here and we're not we're here.
There's two last year nothing has really changed during the last quarter on that so to either up or down to they they still remain elevated by about the same percent year over year, but that's kind of what we're seeing right. Now I think we also talked about and I think you know this that as you get into this part of the year just laughed.
Street in general.
Mail off you have a much lower than they are in the first half of the year. So.
Okay and by renewing you need something other than the stuff that with new last year.
Correct today, I think we see higher Lapstrake. That's on first your policies that are in their first year as well as honourable policies.
Okay perfect. Thank you.
We have no further questions at this time I will now turn nickel over back to Mister team Denker for closing remarks.
Thank you all again for your time and questions. We really look forward to executing another successful Medicare advantage season, I would also look forward to updating you on our progress under a select Rx on population health. Once you all have a great holiday season in the meantime, and will speak to you again.
And the new year have a good evening. Thank you.
Thank you again for participating this concludes today's conference call you may now disconnect.
[music].
Okay.
Okay.