Q1 2023 SelectQuote Inc Earnings Call
Persistency, which is encouraging for LTV in the future will speak more about that in a minute all in all a lot of good things happening with our strategy for our core some of your business.
Moving down the page, let me touch on this year's AEP and how select what has never been better prepared first as mentioned our agent workforce was hired license and on boarded by the end of July which Youll recall compares to last season when flex agents were on boarded much later in the season more important this year's mix of tenured core age.
<unk> is about 70%, which compares to roughly 20% last year.
Similar to our selective approach to best agents. We are also re segmented how we approach our marketing and customer acquisition and.
And we've armed our agents with enhanced tools to better serve customers.
The bottom line here of course is to drive better return and cash flow per policy as we've said before shareholders and analysts who will have to judge us based upon what we produce in the seasons ahead, but from our vantage point the strategy is indeed working.
Lastly, while not part of the strategy, we believe the headwind presented to our business by planned feature uniformity and Medicare advantage policies last year has been addressed aggressively by the insurance carriers. This season.
We believe the ongoing AEP season has a number of benefits to our business compared to last season first we believe enhanced plan options and benefits for policyholders will drive better customer engagement. Additionally, as you've heard from our carrier partners. There is an increasing focus on retention and quality as a result, we've partnered even more.
With our carrier partners in areas, such as health care services as well as targeted Medicare distribution and value based onboarding for our Medicare clients certainly aligned to the needs of our carrier partners, while strengthening our overall cash position again, a lot of positive trends and we are eager to execute this year.
Turning to our summary financials, Ryan will provide more detail, but the key takeaways here are one that our core senior life in auto and home divisions performed ahead of plan and with improving economics and cash flow to our healthcare services segment, which at this time is predominantly select Rx continues to grow rapidly which again.
Good luck cycle. It remains committed to driving improved returns and cash flow for Medicare advantage policy and believe there are a number of early signs that we are doing just that.
First we now have seen two consecutive quarters of improved early life policyholder retention and believe are targeted approach to growth should continue that trend.
Second with a heavier mix of tenured agents pursuing more selective and higher quality leads we expect to derive improving operating metrics like clothes rates and cost per policy, which all detail in a minute movie.
Moving to the Green column the team deserves thanks for simultaneously right sizing our business, yielding over $250 million in cost efficiency, while also preparing us very well for the upcoming season and some we believe fuckwit is significantly derisked, the operating leverage and season to season the risks in our business.
We moved to the right. There is no changed royalty the methodologies and we believe we remain appropriately conservative with a new reality Medicare advantage L. P base to that point, we're pleased to note that our 2022 cohort is performing in line with expectations and.
Additionally, as I alluded to the carriers are taking a similar approach the policyholder persistent fee, which we believe as well in line with our strategy specifically, we continue to drive revenue from existing services that we have been providing for years through enhancements to our sales customer care and Medicare customer onboarding that support the joint strategy.
In addition, we continue to work with our carrier partners to find center, just a glaze to drive incremental revenue through our healthcare services business, but simply select quote can generate cash flow faster and can be rewarded for our differentiated service quality.
Lastly, it right, we will talk more here as well, but our health care services strategy continues to succeed.
To our acts has more than 32000 members at the end of the quarter and we continue to expect revenues of $275 million for 2023, we anticipate that health care services Division will turn adjusted EBITDA positive by the end of 2023 again, a lot to be optimistic about strategy.
If we turn to slide five I'd like to take a second to detail some of the key operating metrics that we used to manage and evaluate the business.
As I noted at the top each of these four metrics or training positively, which is very encouraging given each as a building block the ultimate returning cash flow produced by our senior distribution business.
Started top left marketing expense per policy improved by 38% in the first quarter, which March three consecutive quarters of improvement. The driver here is our effort to optimize the best and highest return lead channels, which on a lower level of volume is performing exceptionally well moving right. Our efficiency per lead has also improved significantly.
With agent close rates, improving 14% year over year this quarter the strategy to overweight our core tenured agent forces the driver here and we expect that trend to continue any ongoing season.
At the lower left maybe the most encouraging metric is the improvement we've seen in a 90 day persistency, which has recovered meaningfully compared to the challenges from a year ago. While we expect season to season factors like plan design impact your system C. At the margin. We believe the actions we have taken in our tighter agent and marketing focus had driven.
The lion's share of improvement.
Lastly, at lower right, our cost actions combined with more efficient agents and targeted marketing spent is driven a significant improvement in our cost per policy, which is down more than 35% compared to a year ago again, very encouraging and we're looking forward to running this playbook throughout a T.
As we turn to slide six let me emphasize the improvements we have made in cost structure March cash flow as we've said we took significant action not just the right size and your business.
Also reduce operating leverage through major policy production, better marketing efficiency and fixed cost optimization since undergoing our cost and operational improvement efforts earlier. This calendar year, we've seen significant year over year improvements in each of the last three consecutive quarters with Q1 per unit operating cost per.
Policy down 36%.
As I indicated earlier that carrier right plan environment seems favorable this AEP compared to last but regardless our margin in cash focused approach is yielding improving returns.
For a T. Let's flip the slide seven where I'll provide brief color I'm cyclists positioning heading into this season as.
As I noted a few times before where in excellent shape and I've already seen tangible benefits in the early weeks of this AEP compared to last year are higher mix of court tenured agents that roughly 70% has been hugely beneficial and better yet. These agents are more advantage than prior years across a number of factors first or giving.
Mm higher quality leads to pursue.
Second word arm them with the best set of desktop tools to deliver the most efficient and best level of customer service and our business.
Especially excited here is we feel we have met the market extremely well given the wide range of plan features offered by carriers this year.
Third so like what benefits from the breath of our services with over 32000 active sucked R X numbers I'll speak more to it a few minutes, but we believe select what is not only best prepared for the ongoing AP, but we've also had the competitive advantage as a uniquely capable connector across healthcare.
It's now I'll turn to my last page on slide eight we have given a lot of air time in these calls to select our ex and rightfully. So given the success of the business. While it remains the major driver of our health care services segment. We think it's important to provide context of why we're in the business and our philosophy on how select quote so well positioned to add value and.
Healthcare ecosystem.
The simple answer on why we're in the select our ex businesses at the recurring revenue in margin profile is highly attractive, which Ryan will speak to more than a minute.
That is the business scales over 2023, we want to make sure that our broader approach to health care services, you're population health isn't loss.
As you all know healthcare as an industry is in the midst of the shift towards outcome based care with a significant focus on best and most cost efficient service for patients the things you've heard us speak to including value base care.
At home versus that clinic customer individual focused health profiling are all part of each participant in the industry is moving health.
Health care providers, working with managed care insurance carriers working for the needs of the patient.
Like what since the middle of all of this with law.
Long held conviction that we are best positioned to add value to wide number of contact points and steps in the spectrum.
I'm reiterating the point here because while we're intensely focused on repositioning our core senior business. We believe the case study that is playing out in select our ex has broader application across many points in the right hand column of this page.
In certain cases, these patient needs present, a revenue opportunity preselect quote and more cases are information advantage offers tremendous value to our carrier partners and healthcare providers, which in turn makes us stickier and more important partner to them first of all the opportunities I am speaking about leverage existing infrastructure.
Instead.
The punch line here is stay tuned, but similar to our confidence in the strategy for Medicare advantage, we're seeing a lot of good things happen here as well with that let me turn the call over to Ryan to detail our financial results Brian .
Thanks, then.
Begin with a quick review of our results, where I can get some context on our senior Kpis.
And then review the results for growing health care services segment, including select R. X and then I will conclude with an update on our life and all that and homes diamonds.
First on consolidated results.
Noted consolidated revenue first quarter of fiscal year, 2023 was $162 million and consolidated EBITDA was negative $27 million as Tim noted we are pleased with our results, which were ahead of expectations across each of our segments.
One point, a detailed though as it relates to Arkansas EBITDA is that approximately $12 million of the total loss for the quarter can be attributed to the growing and ongoing scaling of our select a redfin health care services business.
As noted we are providing additional disclosure in this segment and we welcome feedback from our analysts and investors. If they mentioned we are pleased to invest in strong growth within our health care services segment, given the tremendous value in recurring cash flow, we will generate from this electronics customers.
Overall Echo 10 comment that we are very pleased with our results and our tracking ahead of our internal plan.
If we turn to five nine let me give an update on what we saw in a senior.
Segment and first quarter.
As we noted in our strategic redesign our goal is to reduce operating leverage our business and pull back on policy production to improve our operational and financial performance, particularly cash flow in the quarter. We delivered over 83000 total Medicare advantage approved policies.
1% year over year has previously indicated we saw a significant improvement enclosed rate and marketing costs per policy.
Let me look at our operating metrics, we have growing confidence in our strategy operating costs declined more than 35% year over year, which matches the impact of lower LTV physicians as well for brought in economics at the business continues to stabilize.
One note on LTV first quarter is typically the lowest.
Four quarters within a given fiscal year.
R M. A L T V for the quarter was in line with our original outlets.
We continue to forecast M. A L. T V for the full year in the 875 dollar range for comments last order as a reminder, we maintain our 15 per cent constrained for EMEA LTV, even as we bake lower persistency assumptions from recent quarters. That's added Tim highlighted we're beginning to see encouraging trend persistency and we are optimistic about the upcoming.
Steven.
Again, we are focused on driving positive operating leverage in our core senior business and believe the early signs of our strategy are starting to show up in the results.
If we turn to slide 10, I'd like to expand on the revenue and profit timing priced electronics business, because we haven't spoken in detail in previous quarters.
First the levels that are selected <unk> business is a subscription revenue model serving in nondiscretionary need for our members.
The margins in cash flow scale, a strong and recurring that's that there is a tiny gap between investments in onboarding and revenue generation.
Hi, again here on slide 10 hits, the ramp of the collector X number which will help contextualize the timing attacks on our financials first in the enrollment age and used electric customers enrolled agents within our population health organization.
Next the Onboarding process employs pharmacy coordinators, who engage with our member physicians to align medications dosages and frequency for delivery.
Our target average member takes upwards of eight to 10 different drugs the process to coordinate that full set of prescriptions can take place while partial shipments have already begun delivery.
This transition between Onboarding and ramping generates revenue in scales margin.
Patients are most proper once you've obtained all prescriptions and reshaping full boxes.
Another way <unk> members that are fully onboard and hit the fourth part of this diagram drive margin accretion and are doing so with a sticky recurring subscription model.
So <unk> before with a rapid growth we have a significant portion of our select our ex patients in the earlier stages of the customer lifecycle, we believe the customer base will mature over time driving improved margins.
This is a trade will gladly make is the economics in castle maturity for these numbers are highly attractive.
Now if you're trying to fight 11th let me provide an update on our health care services segment Slacker.
<unk> members agreed to over 32000 in the quarter, which represents a year over year growth around 550 per cent and 28% growth over the past quarter, our queue and revenue from health care services are $43 million with seven times. What we are recognized in Q1 officially your 2022. This growth was largely on the back of the.
Strong electric membership is discussed on the previous slide the growth and onboard. These numbers requires modest upfront investment as a result, we expect to health care services business to inflict the positive EBITDA by the end of the fiscal 2023 again to be clear. This is welcome to spend on our part if you're thrilled with uptake in popular.
Grow into electric service, we will share more detail in the coming quarters, especially on the near term cash flow benefits from this business.
Lastly, if he slipped the slide 12, let me briefly update you on our life not at home segments admittedly.
Admittedly these businesses have been less featured in our commentary given their relative size and the organization that said they remained an important piece of select Coke and we're seeing many of the same benefits here we are in a senior segment.
Expected revenue decline in our life insurance statements given the lingering impacts from Covid and the shift that agent population, we have spoken about in previous quarters.
Revenues for auto and home business, where roughly flat year over year <unk>.
Despite consolidated revenue for both segments declining 18% year over year, even have more than tripled, resulting in a margin of approximately 17% for the quarter.
The key driver here similar to our senior business with <unk> management and improve efficiency within the final expenses, we pulled back somewhat on policy production to focus on optimizing our marketing spin and it proved agent which version they didn't do to improve margins.
Overall, it Tim mentioned the strategy being applied in senior has been applied elsewhere, it's still awkward and it is great to see the plan executed and evident in our financials with that let's get to your questions operator.
Absolutely if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please restock followed by two again to ask a question press Star one if you scream at today's call. Please dial any interest or one athlete.
<unk>, if you're using a speaker phone. Please remember to pick up your handset before asking your question, we will pop it briefly ask questions are registered.
The first question comes from the line of Daniel <unk>.
Gross like Citigroup you May proceed.
Hi, Thanks for taking the questions you mentioned that this AEP of work through some of the uniformity headwinds that you spoke about previously can you go into a little more detail around how plan design. This a P. A P has differed from previous years you know it gives you the confidence that you'll see in a.
<unk>. This AP and then coupled with that you know all of the carriers have been investing in their internal sales forces as well I'm just curious how competition with yeah carriers themselves has shaped up S. A.
Good morning, Daniel Great question, and I might ask Bob If you Wanna talk about what you're saying and plan to sign the sheer and attractiveness of it.
Yeah, absolutely. Thanks for the question as far as uniformity in plan is that I think we talked about before one of the challenges.
Previously is that in 2019, the carriers starting to introduce ancillary benefits as those will improve approved and the plans and then COVID-19 kind of changed a lot of the way people receive their healthcare. So there was a lot of learning through that and I think there were some messes and plan design last year. This year. It feels like the carriers are taking the learnings from the last few years.
Applying them really correctly, so where are they should invest in benefits.
And a really healthy competitive environment with with good plan design that seems to be very meaningful to clients. So that's what gives us a lot of confidence.
In in that plan design.
Discussion.
And Daniel I think you're <unk> related to.
Go ahead.
No no I was just gonna follow up on that second question.
Yeah. So I think the second question regarding kind of what we're here for something <unk> M. C OS and the strength of their internal channels, certainly edge, which is good to hear for them, but certainly for US you know.
As we alluded to early days of AEP were failing.
Very good about I think the groundwork that we laid over the last three quarters <unk> combined with the topic you just mentioned differentiated enrich applying benefit design setting up for good.
We continue to work with the carriers.
And are seeing you know very strong results I think we're extending beyond just R. M.
<unk> distribution platform.
Health care services and more broadly value added services. So I think that's very much in line with the overall needs of the managed care organizations and.
Certainly their commitment to us.
Has not waned even in.
And a year this year, where we're pulling back volume of that there continues to be very strong interest in demand from the carriers for our our high quality distribution and what we can do more broadly across self sir.
Got it Okay, and then I follow up on the health care services segment.
I appreciate all the color you have given us this quarter on that.
I'm just curious how you intend to kind of get that too EBITDA breakeven or positive by the end of the fiscal year you just put a finer point on how you intend to scale that profitably should we think about next quarter also being pressured on EBITDA, because you know you're going to add a lot of seniors during a P and and perhaps <unk>.
<unk> <unk> <unk>.
Sweat directs.
So just curious on the <unk>, you get two breakeven or positive.
Yeah, certainly great question Daniel.
Would say broadly.
Nothing's materially changed with respect to our long term EBITDA outlook for R X.
We're certainly very pleased with the continued strong growth.
As we indicated on the call 32000 members up 30 per cent sequentially. The team's doing an excellent job we wanted to provide.
Additional disclosure and visibility given the rapid growth of this particular line of business and so.
Shared before there's there's not a lot of significant incremental marketing spun right. We're leveraging descent from our distribution business, but there are some non marketing costs related to enrolling in onboarding and we've certainly seen a lot of significant growth in.
In this stage of the funnel and add those customers.
Mature to full shipments.
Mostly on average most of those will be contribution margin positive. So does that book matures higher mix of those will be.
Be fully onboard and and <unk> higher so we certainly think that this we're building a very valuable recurring margin business.
And we do expect it to turn profitable by the end of the year.
Got it thank you.
Thank you.
The next question comes from the line of Jonathan Gown with Credit Suisse. You may have.
<unk>.
[noise] hi, Thanks for taking my question I guess on select R. X I appreciate all the comments that just to get a better sense here.
Timeframe to reach a member generally hits breakeven timeframe too much call. It mature EBITDA per member patient and then similar and is there a specific amount of revenue orders needed on a per member basis.
For the member to the proper will just sneak college I will be appreciated.
Yeah, So I think you're leading to the customer lifecycle, obviously, we're in rapid growth in accumulating a lot of new members many of them sitting in kind of stage three of that diagram, we discuss.
That said you know as we move towards full boxes like the incremental value of each incremental drug at the margins at the drug level of 25% to 27% so getting those final dragged into the boxes dramatically improve the overall profitability.
<unk> you know, we expect over time that the book or mature certainly the growth of 30 per cent over the past quarter and doubling over the past.
Two quarters really loved.
I'd love to say that.
But that's you know probably unreasonable to assume so we do expect that the overall broke will mature and as time progressed towards the back after a year will move to keep it a positive.
The total health care services division level.
Okay, Great and then gone back to to senior and some of the benefits design changes in the marketplace. It does sound like some of <unk> are providing much richer benefits than others does this create a possible churn issue is.
Basically those M C O dot pulling members that some <unk> some of your other carrier partners Uhm that we're offering perhaps less rich benefits does that have any form of impact on you in terms of a member retention.
Yeah, Great question. Jonathan This is Tim we do think more competitive differentiated plant that can create some incentives for consumers to shop.
Including our customer base, but we certainly believe we've derisks the back book over the past several quarters and.
And we've been writing new business with higher constraints and lower L. T DS.
As we highlighted today.
Made a significant number of changes at the beginning of this calendar year focused on writing even higher quality higher L. T V business.
And we think that that minimally helps continue to build a stronger customer base.
We've also not let up on our efforts to.
Drive proactive and reactive retention efforts related to any of those customers who may decide that they may be in market. So in the event that they want to shop shop with us and they remain with <unk>. So we feel.
Well positioned there.
Great. Thanks.
Thank you.
Thank you.
The next question comes from the line <unk> K E. W. You May proceed.
Thanks, Good morning, all and I have received very positive commentary. One question. If I can can you walk us through what a normal year LTV progression looks like.
Yeah, It sounds like <unk> <unk> in the queue for timeframe outline 875 is our full your expectation for the year.
That is we alluded to on the call. There is a seasonality components of that right like we're looking at policy. They were written in the July to September timeframe, certainly right behind that you have an a P. In an open enrollment season or people have an opportunity. So there is seasonality as the year progressed as you would typically expect art.
Second quarter to yield a higher LTV than what we book today and the O P C. As in to be even say I heard that and then begin to come down a little bit, but I would say you know the 780 actually was very much in line with our expectations, maybe fractionally better and we're reiterating 875 days are expecting.
<unk> for the full year.
I just added that mayor I mean, an outstanding yeah.
Yeah, I just added that mayor I'm sorry go ahead, great question I mean, I think if you look at the underlying.
Operating metrics and what we shared on slide five.
A lot of reason to believe that those items will help us continue to improve ltvs overtime.
Certainly improve the margins and you know economics of the business.
Okay. Perfect. This is a smaller question I guess, but a lot of personal.
Personal P. C brokers I've noted that contingent commissions are going.
Going to be under pressure, because both auto and home are doing fairly poorly and I was hoping you could outline or maybe frame, how we should think about that and the contacts with the auto home segment.
Provide any comment on.
Yeah, an auto and home I know, we've been actually the businesses performing quite well, but any commentary on that'd be appreciate it.
Yeah, absolutely. It's great question, we've kind of overlaying the risk of where it's particular carriage received more pressures than others based on where they've written.
Keeping a close eye on.
Lately, what you mentioned it is spot on Luckily, we believe that the bulk of the pressure as carriers. Some of the characters that we don't right and an area that predominantly we haven't written as much but we'll certainly be keeping a close eye on it you know as we as we before.
We're here.
And you said extra money.
Alright, and a rising rate environment right. Those are all retroactive for us. So there's also a benefit to that as we move as we move forward in terms of you know those being kind of those one year contracts and we get the benefit of the premium moves as we move forward.
Right no absolutely that makes sense are you contact <unk> typically January to December .
Yes, typically they are typically they are.
Okay excellent. Thank you very much.
Thank you.
There are no question waiting at this time and now like the past the coffee I would like to Tim. Thank you for any closing remark.
Thank you Kate I want to thank everyone again for joining us on a call. This morning, as we noted last quarter.
It seemed firmly understands the need to deliver results to shareholders and we continue to work very hard to optimize each of our businesses.
That said the outperformance nurses our plan in the first quarter is very encouraging and we look forward to sharing more progress in the quarters ahead I want to thank you again for your time and we look forward to speaking to you again next quarter.
That concludes the conference call you May now disconnect your line.