SelectQuote, Inc. Q1 FY2022 Earnings Call

Thank you, and good afternoon, everyone. Welcome to SelectQuote's fiscal first 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 have our Chief Executive Officer, Tim Danker; and our Chief Financial Officer, Raff Sadun. Following Tim and Raff's comments today, we will have a question-and-answer session. As referenced on Slide 2, 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 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 Danker. Tim?

Thanks, Matt, and thank you to everyone joining the call. Today, we'll review our strong fiscal first quarter results. We'll also give a quick update on our preparation for the ongoing AEP season for our senior Medicare business. And lastly, we'll provide some color on our Population Health initiatives and SelectRx specifically. Then as usual, we'll wrap up with Raff's overview of our financial results. So let's begin on Slide 3, and I'll start with 5 key takeaways as we see them. First, our results in the first quarter were strong and ahead of internal expectations. Consolidated revenues of $160 million were up 29% year-over-year, driven primarily by higher MA-approved policies and growth in final expense premium. Our adjusted EBITDA loss of $44 million was driven primarily by the seasonal investment to onboard flex agents and accompanying support roles in anticipation of AEP and OEP. Second, our full year fiscal '22 outlook ranges remain unchanged at $1.25 billion to $1.4 billion in revenue and adjusted EBITDA of $255 million to $285 million, which also includes an unchanged $65 million placeholder for potential sale adjustments. While our first quarter results were ahead of our internal expectations, the pacing of our revenue and EBITDA for the year has moved given the timing of hiring coming into this AEP season. Both Raff and I will speak to this during the call. Additionally, it is important to reiterate that over 70% of our annual production will come over the next 2 quarters. 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 product this year. Fourth, we're thrilled by the progress we've seen in our SelectRx business. Our daily enrollment rate has ramped sharply, which continues to validate the power and synergy of our offering. In addition, we acquired Simple Meds in the quarter, which is a medication management pharmacy. The platform will further accelerate the expansion of our SelectRx 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, Thriveworks and BrainCheck to our growing network of provider partners. Ready Responders provides on-demand telehealth for patients that have nonemergency health issues and have been recently discharged from an acute care facility. Thriveworks offers leading behavioral health and medication management services both virtually and in person at over 300 locations. BrainCheck provides cognitive testing to its members, value-based care providers and health plans. It is used in primary care, neurology and geriatric practices in some of the world's most renowned medical centers. These partnerships underscore our potential to expand the Population Health platform into new health care service areas that will benefit our patients and drive new revenues to SelectQuote. Lastly, we took advantage of the attractive debt market to raise an additional $200 million and committed capital through incremental delayed draw term loans. Raff will give more color later in his remarks, but 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 3 years, SelectQuote has driven revenue and adjusted EBITDA CAGRs of 68% and 31%, respectively, and we expect that growth will continue into fiscal '22. The key point is, despite some persistency headwinds and some recent cohorts in the tail adjustment impact, SelectQuote is delivering against our stated goal to grow aggregate EBITDA dollars at attractive and scaled unit economics. Lastly, we'd say that we still see a very long runway for growth in our core senior Medicare Advantage distribution business and are clearly excited by the potential for Population Health and SelectRx to augment these trends as the business scales. Turning to Slide 4 on Senior. Let me provide a brief overview of the first quarter and our strategy heading to the upcoming annual enrollment period for Medicare Advantage. The first quarter was again another strong high-growth quarter. Our Senior segment revenues grew at 45%, driven by a 98% year-over-year increase in approved policies. Our final expense unit continues to demonstrate its attractive growth potential with another strong quarter driven by a 72% increase in premiums. As we are now in the heart of AEP, let me get some color on our preparation for the season. First, we'd reiterate that we believe we are well positioned to achieve the growth outlined in our full year outlook as evidenced by the fact that we have now exceeded our total flex agent hiring goal. That said, we now expect the timing and cadence of that growth will be delayed this year given some slower-than-expected hiring heading into the season. The beginning of this year's agent production ramp was delayed given the tighter labor market that I noted before. The key takeaway is we have the agents we need, but this will move the mix of our earnings from 2Q into the third and fourth quarter. Raff will provide an update on our quarterly cadence a little later. As you know, SelectQuote 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 story. We have risk scored 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 plan 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 5, I'd like to take a minute to provide an update on our exciting Population Health and SelectRx initiatives. Similar to the past 2 quarters, we continue to see strong consumer demand for these offerings, particularly for our SelectRx pharmacy solution. As you can see here, our SelectRx enrollments have ramped sharply, and we are now seeing daily enrollment volume that is about 7x the level of acquisition. To put that in context, that rate was closer to 3x pre-acquisition level just last quarter. As I noted a minute ago, we continue to build an additional distribution capability that should further this progress like our acquisition of Simple Meds. In fact, we are now selling in 47 states, which is up from 11 states at launch. While we're very encouraged by these trends to date, we continue to optimize the critical member onboarding and fulfillment process, including any patient falloff that naturally occurs during the migration. It is also important to note that drug sales and the resulting revenues for SelectRx will typically lag the enrollments by about a quarter as we work through this operational process. As a reminder, Population Health and SelectRx especially are truly significant revenue and return opportunities for SelectQuote with attractive cash flow dynamics. The strategy capitalizes on the best attributes of our company and our ability to leverage information at significant value for our policyholders as well as our carriers and caregiver partners. Best of all, the connectivity that SelectQuote provides between caregivers, payers, and patients improves health outcomes, which we are very proud of. With that, let me turn the call over to Raff to review our results. Raff?

Thanks, Tim. Turning to Slide 6 in our Senior division. We grew total revenue 45% to $106 million and generated an adjusted EBITDA loss of $33 million. As I'll discuss in a minute, the increase in revenue was driven by an increase in the number of MA-approved policies, somewhat offset by lower MA LTV per policy. Revenue also increased as a result of revenue generated from our Population Health activities, specifically SelectRx, where we made good progress scaling the business this quarter. In terms of expenses, we did ramp-up our marketing expenses during the quarter to test and secure marketing channels and vendors in anticipation for AEP and OEP. While this drags on margins during the quarter, we felt like it made sense to secure the availability of those leads and the quality of those lead resources going into our busiest quarters of the year. We also incurred incremental costs to hire our flex agents and enrollers and to ramp up our activity in SelectRx. Moving on to Senior KPIs on Slide 7. We grew our total approved policies 60% and our MA-approved policy 98%. This growth was driven by a 35% increase in average productive agents and a 30% increase in agent productivity. Agent productivity was driven by an increase in overall marketing costs 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 AEP and OEP and for the full year. With respect to MA LTVs as discussed on our last call, we anticipated MA LTVs would be down for the full year by around 8%, driven by the switch to policy level persistency, lower overall persistency, and higher provision rates for first year and renewal years, somewhat offset by higher rates. From a quarterization perspective, the decline in MA LTV is expected to be higher than 8% in the first 3 quarters and lower than that in the fourth quarter as we start to lap the impact of lower persistency and the switch to policy-level persistency. For our first quarter, MA LTVs were down 16% year-over-year. We said we would update you on lapse rates as we progress 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 sheet and give an update on the cadence of our growth for fiscal '22, let me briefly comment on our Life and Auto & Home segments. First, on Life. Revenue in the segment was primarily driven by a 72% increase in final expense premium, offset by an 18% decline in term Life premium. Our final expense business continues to mesh well with our core senior Medicare offering. And the favorable cash flow dynamics of the product continue to make the product a strategic focus for the business. Our term Life business, in contrast, continues to face headwinds from COVID, especially over this summer with the rise of the delta variant. If we turn to our Auto & Home segment, revenue totaled $7 million, which was down from last year, driven primarily by the lower mix of tenured agents within the segment. Now if we move to Slide 8, I'm going to provide an update on the cadence of our growth in fiscal '22 and then update our capital position. First, as Tim noted, the tight labor market delayed the hiring of agents heading into this year's AEP season. While our full year outlook remains unchanged with forecasted revenues in the range of $1.25 billion to $1.4 billion and adjusted EBITDA of $255 million to $285 million, this will move the mix of our earnings from the second quarter into the third quarter and fourth quarter. As we noted on last quarter's call, we expected second quarter revenue to be approximately 40% of our annual total. We now expect that mix to be a little higher than 35% and for the third quarter to be a little lower than 35%. Similarly, we expect our margin to shift given lower operating leverage in the second quarter and increased lead consumption over the third quarter. As a result, we now expect consolidated margins to be in the low 30% range for the second quarter and expect third quarter margins to move to the mid-30% range. We also anticipate the fourth quarter to be closer to breakeven. Let me conclude with a brief update of our capital position heading into AEP. As of September 30, 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. In addition to the $11 million in CapEx, we also used $7 million for the purchase of Simple Meds, another pharmacy medication management company, which gives us incremental capacity to scale SelectRx and increase the number of spaces that we are licensed to sell in. 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 2 delayed draw term loans. The first $100 million tranche needs to be drawn by January of '22. And the second $100 million tranche needs to be drawn by January '23. 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.

Thank you. And before we turn to your questions, let me quickly summarize on Slide 9. First, we believe SelectQuote has significant competitive advantages within a compelling growth industry, driven by demographic and secular trends. We have built a differentiated model that delivers value to Medicare Advantage shoppers through significant technology capabilities paired with an agent-led 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, SelectRx 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 SelectRx, our Population Health initiatives represent our company's unique opportunity and ability to unlock value for patients, caregivers and carriers, which also benefits our shareholders. With that, let us turn to your questions. Operator?

Our first question comes from the line of Jailendra Singh from Credit Suisse.

This is Jailendra Singh from Credit Suisse. Just wanted to follow up on this impact of the delayed hiring process. Last quarter, when you guys reported in late August, you guys noted that you were on track with respect to your hiring plan. Just give us what happened in the last 2 months that it is impacting your kind of positioning for AEP with respect agents? Especially when this year, I believe you were starting the process much early in the year, so did you see any agents turnover? Like what exactly happened, like, which is impacting the last 2 months hiring process?

Yes, I'm happy to take that. I think what 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 think the biggest difference that we learned this year from last year, we experienced quite a bit higher rate of verbal offers accepted to start dates. So basically, that's somebody who accepted our offer but didn't follow through entirely with the licensing process and just wasn't quite as motivated basically year-over-year to start. So those rates really were the primary difference, meaning the verbal offers at the start. As a result of that fall off, really, it kind of started to push our classes back, especially when you look at that September class, which is the beginning of September class is going to be a large class for us. We had a large number of folks basically pushed back. So in kind of response to that, we did a later class. And really, it was that, I'd say, that final push in terms of getting them over the finish line which really caused the delay.

But given your flex agent flexibility and then given how important AEP is for your business model, why not take advantage of moving more agents to your Senior business like you did last year from Life business, Auto & Home business? I mean do you not have that much flexibility this year? Just curious like why not take advantage of that?

Yes, we continue to follow the same strategy. In terms of our hiring goals this year, we focused more on external hiring to populate our AEP funnel and then process through to meet our goals for Q3 and Q4. We did achieve our hiring objectives, but it was delayed due to a higher dropout rate in our summer classes following our last call, and then more individuals joined around September. We depend on a significant amount of external hiring along with internal shifts. We have successfully shifted many individuals and are seeing positive results from that. The delay in hiring exerted pressure due to the number of personnel involved in these transitions.

Jailendra, I want to highlight that although the number of accepted verbal offers for start dates was down, we have observed that those who have joined are actually at a lower pay rate. We believe the individuals we are bringing on this year are very dedicated to their roles and are performing well, which positions us favorably. However, there is a ramp-up period for these new employees, and as we delay their start dates and move those classes later, they are entering the ramp-up process sooner than we would prefer. This is the main distinction. Nonetheless, we feel positive about their current performance and retention rate, which we believe puts us in a strong position moving forward.

Just a quick follow-up beyond the agency dynamics. In general, anything you can share about AEP in terms of cost around lead generation, any change in the focus from health insurance partners, anything different from what you saw in the prior AEPs?

Yes. Jailendra, this is Tim. I'll make a quick comment and turn it over to Bob. I think Bill hit on the biggest thing with respect to the hiring and the ramp into production, I think on the operational front, we feel very well positioned with some enhancements we've made to our process. Enrollment, notably as well as other things that I think will drive a lot of quality and efficiency throughout AEP and OEP. Bob, do you want to comment just in general around plan design, general market environment as you see it?

Yes. One thing on plan design, the carriers have definitely come together a little bit more on how largely networks are, OTC benefits, other things that we were seeing were quite differentiated last year. So we do see a little bit more of a competitive environment from each of the carriers as far as not being quite as differentiated from each other. So that's definitely an interesting start just watching that and adjusting kind of messaging and then lead buys based on that. But I feel really good about that plan design and the carriers did a great job putting the things that have been very important to people, especially through COVID in those plans.

Our next question comes from the line of Elizabeth Anderson from Evercore.

I was just wondering if you could comment on the factors that impacted the LTV in the quarter, maybe differentiating some of the ones that might be a little bit transitory versus some of the longer-term trends.

Sure, this is Raff. I believe I can address that. During the call, we mentioned that the LTV for MA policies decreased by 15% year-over-year. Approximately one-third of this decline was due to the shift to level persistency, which is revenue neutral and does not affect our revenue as we effectively approved 6% more policies. The remaining two-thirds were primarily influenced by lower overall persistency based on a trailing three-year weighted average and increased provision rates for first-year renewal year losses, somewhat offset by a slight rise in commission rates. These are the main factors contributing to the 15% decline.

Okay. That's super helpful. And is it possible to just talk about sort of how much specifically Population Health contributed in the quarter from a revenue perspective?

Yes. Please go ahead, Raff, if you’d like.

Well, selectRx specifically generated around $4 million of revenue for the quarter. And that was probably the biggest driver of that. All the initiatives that we're working on there are ramping quite nicely. And again, they're expected to continue to ramp during the course of the year.

Okay. So you would say that Population Health is on track with your initial expectations for the year?

Absolutely.

Yes. Yes, absolutely. Maybe we can touch on that a little bit, Elizabeth, and ask Bob to chime in here. I mean I think as you've seen from the information we shared, we're very encouraged by the strength of the enrollment growth, just the overall consumer demand that we are seeing with our synergistic customer base. We feel very good about what we shared in the prior call and 25,000 members by the end of the fiscal year. Obviously, we made the acquisition with Simple Meds, which was a very cost-effective way for us to increase scale and some of the demand that we really see and some redundancy as well as picking up some great experts in medication management. Bob, what would you want to add to that?

Yes. I think one thing that sets us apart from other businesses is that we can't recognize revenue when we sign up a customer. They need to actually start filling their prescriptions and similar tasks. In contrast to other areas, we must ensure that the service is fully completed before we can book revenue. As we advance in areas like BrainCheck and cognitive exams, which have a shorter cycle, we still need to enhance the overall consumer experience before recognizing revenue. We are confident in consumer demand, especially in Population Health, where our membership has significantly increased, and the feedback has been excellent. However, this means there will be some delayed revenue. I'll let Tim discuss the medication side and other aspects.

Your next question comes from the line of Jeff Garro of Piper Sandler.

Yes. I want to ask maybe a little bit more about marketing costs and leads. If you could just expand on cost trends you've seen for leads and what you're able to tell us further about the quality of those leads, whether it's through kind of conversion rates or any other factors?

Raff, do you want to comment on first quarter and then I can comment on kind of the trends that we're seeing?

Sure. Sure. Yes. So first quarter, we did ramp-up some of the marketing spend really to make sure that we were testing certain lead providers both in terms of the quantity of leads that they could provide during AEP and OEP and also the quality of those leads. So that generated a little bit higher marketing spend during the course of the quarter, but I think sets us up nicely for the busiest part of the season here. Bill, do you want to talk about more generally marketing that we're seeing right now?

Yes, absolutely. The biggest factor in marketing right now isn’t the marketing itself, but rather who is consuming it. We’ve experienced slightly later start dates for our class than anticipated. While we met our goals, there is a ramp-up period, and the sooner we can get our team trained and on the phone, the better their conversion rates will be. We see varying close rates and conversion levels for classes starting in July, August, and September. Delaying these start dates puts more pressure on our marketing efforts. If you compare everything on an equal basis, we feel very positive about the marketing, but the consumption aspect is creating some challenges for our close rates. Nonetheless, during the AEP, we are seeing attractive returns on our investment, and we are confident about how the class will ramp up and the quality we have achieved. We also faced some challenges initially due to industry-wide issues with carriers, where some ad language was not approved, causing delays in our ramp-up. Fortunately, with our wide-funnel approach, we quickly adapted, and those approvals were ultimately granted, though this issue was more prevalent across the industry. Overall, we are pleased with the volume we’re delivering and believe we are on track for a strong finish to AEP and OEP.

Excellent. That really helps. Could you expand a bit on the industry issue you mentioned? It's clearly important to get people productive as quickly as possible, with some aspects being within your control. Could you provide more details on what you are doing to speed up the ramp-up of agents? Additionally, what factors, such as carrier quality goals or other regulatory influences, are beyond your control as we consider productivity and growth over the next four to five months?

Yes. Bob, do you want to talk about?

Yes. I was going to say, Bob get the operational side, and I can cover some of the regulatory.

Perfect. Yes. On the operational side, it's a really good point. We are constantly focusing on tools to try to create a faster ramp to make the job easier and easier to understand for consumers get the benefits faster, so we can really focus a lot of our attention on education and facilitation and then create tools that kind of guide people on their workflow. We are continuing to make a ton of investments in that. And every year, the plan design changes a little bit. So we do make kind of evolutions throughout the process. And that's exactly what we're doing this year. As the carriers have come together a little bit more on plan design, there's been a little bit bigger emphasis on some ancillary benefits in there that are a little harder to find for people. So we are building a lot of our technology to make that easier for people to understand and consume and get that ramped quicker. So we feel like we're making a ton of progress there, but we're always kind of evaluating that. And thankfully, the platform that we're on and the flexibility of our technology allows us to do a lot of releases and very unique steps since we're on such modern technology that we've described before. So we feel really confident about that.

Yes. Jeff, this is Tim. So your second question, what Bill was alluding to and kind of the industry-wide change there, there was some late-breaking changes in the week proceeding to the launch of AEP, CMS, sending them out to carriers and distributors, essentially requesting that we file all of our various marketing materials that will be filed in the inventory with CMS, which we absolutely welcome and appreciate these efforts by CMS. We think this will provide additional transparency and consistency of marketing for the industry. We think it's a great important first step. It's in the long-term best interest. We've run a very highly compliant business. We have established marketing review processes. So we were able to kind of leverage our process to be able to meet this request on a very short timeline. It did apply a little bit of short-term pressure on some select marketing channels as we work with third parties and all industry players kind of work to interpret the regulations. I think that's materially behind us. I think folks will decide what's the practical application of these new requirements that, again, we reiterate, we think this is a very good move by CMS. I think it's going to improve the consumer experience, and that will be good for the industry in the long term.

Just one quick one there. Anything that's differentiated about SelectQuote's lead resources, preferred channels and then how you verify them? And what you do with them from there that's differentiated from the rest of the industry.

Bill, do you want to cover that?

Yes, I'm happy to. The positive aspect for us was that we were progressing through our filings, which was essentially a rework of existing processes. What sets us apart is that this was not something new; it actually affirmed that we were on the right path. The only issue was the timing. I believe that this is a distinguishing factor by itself. There was really no significant change, just a minor timing challenge. It took us a few days to address everything, and it demonstrates how quickly we can adapt when needed. We were able to refile and adjust our approach to ensure we were achieving the necessary volume. Overall, everything is on track, and I feel good about our position. As Tim mentioned, we welcomed the changes to ensure that everyone is adhering to the same guidelines.

Your next question comes from the line of Daniel Grosslight from Citi.

Going back to the labor issue and again people ramped a little slower than initially expected, what incentivized people to really come onboard? And I guess 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 building into our model?

Yes, we didn't find anything significant that we needed to do to bring them on board. However, we did provide some incentives to ensure that the licensing process would go smoothly. I believe that, on a per-unit basis, everything will balance out as we consider any adjustments we make later. We felt our offer was attractive and, as mentioned in earlier calls, we modified our base approach. Our top of the funnel performance was exceptionally strong, and we had no concerns regarding the number of verbal offers accepted and the interest level we generated. The main challenge seemed to be motivating people in the market to complete the necessary steps for the job. We offered some softer bonuses to facilitate this process, but overall, I don’t believe there were any major impacts from the full load we provided. Raff, do you have any thoughts on this?

Yes. I think we talked about it on our last earnings call, just the mix of some of the compensation, I think we restructured it a little bit to make it a little bit more appealing, especially for those going onboard to begin with before they start earning commissions. Having said that, I don't think there's anything that you need to do relative to the model to change expectations for sales calls. I think we for the last time that it would also be work within the range that we've had before.

Okay. That makes sense. Can you remind us what your current recapture rate is in Medicare Advantage and what you expect that to be for the full year?

Sure. Recapture standpoint, it's into the mid- to high 20s. It is up year-over-year. It does fluctuate seasonally just in terms of when the recast activity 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 good improvement on the year-over-year. And that's kind of where we are now.

Okay. And one last one for me. I don't know if you track a stat like this, but with regards to SelectRx, is there any way to quantify of the seniors you're calling on that would be a good candidate for this product? What percent are actually choosing to switch their meds to SelectRx?

Yes, absolutely. So as far as percentage that are really ideal for this, it is not a massive percentage of our book, but big enough that we're making a really big impact, and then you kind of see the number of enrollments. As far as success of getting those members kind of, that say yes to it, it's about a little north of 50%.

Your next question comes from the line of Frank Morgan of RBC Capital Markets.

I guess I want to go back to the comments you made about some of the plans becoming more generic, for lack of a better term, less variation in the benefits. I'm trying to figure out if that's a good thing or a bad thing. In one sense, maybe it would help. Since you're hiring people later and you're going to be behind the 8 ball on the productivity, does this maybe help selling easier? Or does this make it more difficult? Or on the flip side, is the fact that all these plans are more uniform now does that in some way diminish sort of the value add you can bring by helping these clients pick plans? So just curious about your thoughts, if that's good or bad.

That's a really good question. It makes the experience a little bit more nuanced. We're adjusting to some of our, I guess, just call it, top-of-funnel marketing and things like that to adjust to finding consumers that really need to make that change and then also adjusting our tools to really go into what is different about the plans this year. Because there's always big differences, Frank, they just may be in different places. So it makes us feel a little bit more nuanced. But again, we're tracking for exactly where we need to be or want to be and are building our tools around what we see in those plans.

Okay. A follow-up question regarding the CMS and their recent memo about advertising information. It seems like there are concerns from CMS. They have hinted at similar issues before. Do you think they are trying to encourage carriers to create more consistent plans because they might be worried about the ongoing churn issue in the industry? What do you think CMS' ultimate goal is here?

Yes. I'll share a few thoughts and then have Bob add his input. There has been some conversation over the last few quarters regarding quality in general, and we feel confident about that. Quality has always been integral to our company and is a key topic in our discussions with carrier partners. We believe it is clearly demonstrated every day on the sales floor, making it a significant differentiator for us. Some organizations have mentioned that e-brokers play a crucial role in educating and raising awareness about MA, which we view positively. The increased focus on this issue is beneficial for us. We are seeing this reflected in our marketing efforts, as well as the effectiveness of our sales practices, which we believe greatly influence our success. Therefore, we feel very optimistic about our position. Bob?

Yes. I mean I think it's a good observation, Frank. And I think we sit in a really good position because we do have really low CPM rates, and we're partnered with our carriers to try to understand the market what leads to lower CPM rates, sales practices, marketing practices and I think CMS wants to understand the marketing materials that are out there, and we're very supportive of that. As Bill said, this wasn't a big change for us. I think it's a bigger change potentially for some others and things like that when we feel good about our positioning. And to your point, I think they just want to see the things that are out there more frequently so that they can understand if things are leading to churn due to marketing materials or anything like that, which again, we're very supportive of.

The next question comes from the line of Meyer Shields of KBW.

One, has there been any impact on longer-term employees in the context of what people are calling the great resignation?

I think on our end, Meyer, we are seeing very good employee retention across the board, especially with our top-level agents. There's been some modest attrition, but nothing of any significance. And more importantly, I think our career-based opportunity, the fact that we've always paid, I think, significantly better than the industry has kept very, very high retention rates. So I think we're well positioned there.

Okay. That's good to hear. And then second, I know last quarter, I think, Raff, you said some time differentiating between lapse rates of the most recent cohort years and some of the older years that were holding up better. And I was just hoping for an update on that.

Yes. So I think in our remarks, my remarks earlier, I should have stated that we've seen higher lapse rates both first year and renewal year relative to last year. Nothing has really changed during the last quarter on that, sort of either up or down. So 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, I think you know this, as you get into this part of the year, just lapse rates in general, tail off, are much lower than they are in the first half of the year.

We have no further questions at this time. I will now turn the call over back to Mr. Tim Danker for closing remarks.

Thank you all again for your time and questions. We really do look forward to executing another successful Medicare Advantage season. I would also look forward to updating you on our progress on both SelectRx and Population Health. We want you all to have a great holiday season in the meantime, and we'll speak to you again in the new year. Have a good evening. Thank you.

Thank you again for participating. This concludes today's conference call. You may now disconnect.