8-K
SelectQuote, Inc. (SLQT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
Form 8-K
Current Report
_______________
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 5, 2020
SELECTQUOTE, INC.
(Exact name of registrant as specified in its charter)
_____________
Commission file number: 001-39295
| Delaware | 94-3339273 |
|---|---|
| (State of incorporation) | (I.R.S. Employer Identification No.) |
| 6800 West 115th Street, Suite 2511 | |
| Overland Park, Kansas | 66211 |
| (Address of principal executive offices) | (Zip Code) |
(913) 599-9225
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: Common Stock | Trading Symbol | Name of each exchange on which registered |
|---|---|---|
| $0.01 par value | SLQT | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On November 5, 2020, SelectQuote, Inc. reported its financial results for the first quarter ended September 30, 2020. A copy of the related press release and earnings presentation are attached hereto as Exhibits 99.1 and 99.2, respectively.
These exhibits are being furnished pursuant to Item 2.02, and the information contained therein shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall either of them be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit No. | Description of Exhibit |
|---|---|
| 99.1 | Press Release |
| 99.2 | Investor Presentation |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SELECTQUOTE, INC.
| Date: November 5, 2020 | By: /s/ Raffaele Sadun |
|---|---|
| Name: Raffaele Sadun | |
| Title: Chief Financial Officer |
Document
Exhibit 99.1
SelectQuote, Inc. Reports First Quarter of Fiscal Year 2021 Results
First Quarter of Fiscal Year 2021 - Consolidated Earnings Highlights
•Revenue of $124 million, Up 91% Year-Over-Year
•Net Income of $0.8 million, improvement of $2.5 million Year-Over-Year
•Adjusted EBITDA of $12 million, improvement of $11.2 million Year-Over-Year*
•Raising Full-Year 2021 Revenue, Net Income and Adjusted EBITDA Guidance:
◦Revenue expected in a Range of $840 million to $880 million
◦Net Income expected in a Range of $130 million to $141 million
◦Adjusted EBITDA expected in a Range of $220 million to $235 million*
First Quarter of Fiscal Year 2021 - Segment Highlights
Senior Division
•Revenue of $73 million, Up 165% Year-Over-Year
•Adjusted EBITDA of $9 million, improvement of $11 million Year-Over-Year*
•Approved Medicare Advantage policies grew 130% Year-Over-Year
Life Division
•Revenue of $43 million, Up 55% Year-Over-Year
•Adjusted EBITDA of $10 million, Up 80% Year-Over-Year*
•Final expense premiums grew 397% Year-Over-Year
Auto & Home Division
•Revenue of $10 million, Down 5% Year-Over-Year
•Adjusted EBITDA of $4 million, Up 45% Year-Over-Year*
•Total Auto & Home premiums declined 2% Year-Over-Year
OVERLAND PARK, Kan., November 5, 2020--(BUSINESS WIRE)--SelectQuote, Inc. (NYSE: SLQT), reported consolidated revenue for the first quarter of fiscal year 2021 of $124.2 million, which was a 91% increase over consolidated revenue for the first quarter of fiscal year 2020 of $65.2 million. Consolidated net income for the first quarter of fiscal year 2021 was $0.8 million, which was a $2.5 million increase over consolidated net loss for the first quarter of fiscal year 2020 of $1.7 million. Finally, consolidated Adjusted EBITDA for the first quarter of fiscal year 2021 was $12.1 million, which was an increase of $11.2 million over consolidated Adjusted EBITDA for the first quarter of fiscal year 2020 of $0.9 million.
Chief Executive Officer Tim Danker commented, “Our First Quarter results continue to demonstrate SelectQuote’s significant growth potential during a quarter where we also invested heavily to prepare for this year’s upcoming AEP season. During the quarter we hired over 2,000 new associates, announced several new carrier partnerships and implemented significant improvements to our agent desktop and tools that drove an 8% increase in year-over-year Senior agent productivity. We are very well-positioned for AEP and with the power of our leading technology-enabled direct-to-consumer model paired with our 100% in-house agent-led customer service approach, we look forward to helping our customers find the right coverage for their specific needs. With so many plans to choose from this year, that choice is as important than ever.”
Chief Financial Officer Raffaele Sadun added, “Our results for the First Quarter demonstrated the strong growth in profitability in each of our divisions. This was particularly impressive given we also incurred over $11 million in costs associated with ramping up for AEP, costs that had no revenue tied to them this quarter but will drive revenue growth in AEP and OEP. Given the performance of our First Quarter, along with a strong start to AEP, we are raising our guidance for our fiscal year 2021.”
*See reconciliation from non-GAAP measure, Adjusted EBITDA, to net income on pages 11-12
Segment Results
We currently report on three segments: 1) Senior, 2) Life and 3) Auto & Home. The performance measures of the segments include total revenue and Adjusted EBITDA. Costs of revenue, marketing and advertising, and technical development operating costs and expenses that are directly attributable to a segment are reported within the applicable segment. Indirect costs of revenue, marketing and advertising, and technical development operating costs and expenses are allocated to each segment based on varying metrics such as headcount. Adjusted EBITDA is calculated as total revenue for the applicable segment less direct and allocated costs of revenue, marketing and advertising, technical development, and general and administrative operating costs and expenses, excluding depreciation and amortization expense; gain or loss on disposal of property, equipment, and software; share-based compensation expense; restructuring expenses; and non-recurring expenses such as severance payments and transaction costs.
Senior Division
Financial Results
The following table provides the financial results for the Senior division for the first quarter ended September 30:
| (in thousands) | 2020 | 2019 | % Change | |||||
|---|---|---|---|---|---|---|---|---|
| Revenue | $ | 73,199 | $ | 27,584 | 165 | % | ||
| Adjusted EBITDA* | 8,902 | (1,939) | NM(1) | |||||
| Adjusted EBITDA Margin | 12 | % | (7) | % |
(1) Not meaningful
Operating Metrics
Submitted Policies
Submitted policies are counted when an individual completes an application with our licensed agent and provides authorization to them to submit it to the insurance carrier partner. The applicant may have additional actions to take before the application will be reviewed by the insurance carrier, such as providing additional information.
The following table shows the number of submitted policies for the first quarter ended September 30:
| 2020 | 2019 | % Change | ||
|---|---|---|---|---|
| Medicare Advantage | 47,991 | 20,851 | 130 | % |
| Medicare Supplement | 7,276 | 3,501 | 108 | % |
| Dental, Vision and Hearing | 20,042 | 9,925 | 102 | % |
| Prescription Drug Plan | 2,425 | 1,527 | 59 | % |
| Other | 1,883 | 669 | 181 | % |
| Total | 79,617 | 36,473 | 118 | % |
*See reconciliation from non-GAAP measure, Adjusted EBITDA, to net income on pages 11-12
Approved Policies
Approved policies represents the number of submitted policies that were approved by our insurance carrier partners for the identified product during the indicated period. Not all approved policies will go in force.
The following table shows the number of approved policies for the first quarter ended September 30:
| 2020 | 2019 | % Change | ||
|---|---|---|---|---|
| Medicare Advantage | 42,473 | 18,479 | 130 | % |
| Medicare Supplement | 6,325 | 2,626 | 141 | % |
| Dental, Vision and Hearing | 16,239 | 7,294 | 123 | % |
| Prescription Drug Plan | 2,632 | 1,502 | 75 | % |
| Other | 1,824 | 418 | 336 | % |
| Total | 69,493 | 30,319 | 129 | % |
Lifetime Value of Commissions per Approved Policy
Lifetime value of commissions per approved policy represents commissions estimated to be collected over the estimated life of an approved policy based on multiple factors, including but not limited to, contracted commission rates, carrier mix and expected policy persistency with applied constraints. The lifetime value of commissions per approved policy is equal to the sum of the commission revenue due upon the initial sale of a policy, and when applicable, an estimate of future renewal commissions.
The following table shows the lifetime value of commissions per approved policy for the first quarter ended September 30:
| (dollars per policy): | 2020 | 2019 | % Change | |||
|---|---|---|---|---|---|---|
| Medicare Advantage | $ | 1,168 | $ | 1,163 | 0 | % |
| Medicare Supplement | 1,274 | 1,275 | 0 | % | ||
| Dental, Vision and Hearing | 168 | 137 | 22 | % | ||
| Prescription Drug Plan | 240 | 264 | (9) | % | ||
| Other | 135 | (91) | NM(1) |
(1) Not meaningful
Per Unit Economics
Per unit economics represents total Medicare Advantage and Medicare Supplement commissions, other product commissions, other revenues, and costs associated with the Senior segment, each shown as per number of approved Medicare Advantage and Medicare Supplement approved policies over a given time period. Management assesses the business on a per unit basis to help ensure that the revenue opportunity associated with a successful policy sale is attractive relative to the marketing acquisition cost. Because not all acquired leads result in a successful policy sale, all per policy metrics are based on approved policies which is the measure that triggers revenue recognition.
The Medicare Advantage and Medicare Supplement commission per MA/MS policy represents the lifetime value of commissions for policies sold in the period. Other commission per MA/MS policy represents the lifetime value of commissions for other products sold in the period, including dental, vision and hearing, prescription drug plan, and other products, which management views as additional commission revenue on our agents’ core function of MA/MS policy sales. Other per MA/MS policy represents the production bonuses, renewals from policies originally sold in a prior period with insurance carrier partners whose contracts preclude us from recognizing variable consideration for estimated renewal commissions and updated estimates of prior period variable consideration based on actual policy renewals in the current period. Total operating expenses per MA/MS policy represent all of the operating expenses within the Senior segment. The Revenue to customer acquisition cost (“CAC”) multiple represents total revenue per
MA/MS policy as a multiple of total marketing acquisition cost, which represents the direct costs of acquiring leads which is included in marketing and advertising expense within the total operating expenses per MA/MS policy.
The following table shows per unit economics for the periods presented. Based on the seasonality of the Senior segment and the fluctuations between quarters, we believe that the most relevant view of per unit economics is on a rolling 12-month basis. All per MA/MS policy metrics below are based on the sum of approved MA/MS policies, as both products have similar commission profiles. These metrics are the basis on which management assesses the business:
| Twelve Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (dollars per approved policy): | 2020 | 2019 | % Change | |||||
| Medicare Advantage and Medicare Supplement approved policies | 271,199 | 132,089 | 105 | % | ||||
| Medicare Advantage and Medicare Supplement commission per MA / MS policy | $ | 1,282 | $ | 1,280 | 0 | % | ||
| Other commission per MA/MS policy | 48 | 65 | (26) | % | ||||
| Other per MA / MS policy | 171 | 159 | 8 | % | ||||
| Total revenue per MA / MS policy | 1,501 | 1,504 | 0 | % | ||||
| Total operating expenses per MA / MS policy | (924) | (850) | 9 | % | ||||
| Adjusted EBITDA per MA / MS policy | $ | 577 | $ | 654 | (12) | % | ||
| Adjusted EBITDA Margin per MA / MS policy | 38 | % | 43 | % | ||||
| Revenue / CAC multiple | 3.5X | 4.0X |
Life Division
Financial Results
The following table provides the financial results for the Life division for the first quarter ended September 30:
| (in thousands) | 2020 | 2019 | % Change | |||||
|---|---|---|---|---|---|---|---|---|
| Revenue | $ | 42,823 | $ | 27,607 | 55 | % | ||
| Adjusted EBITDA* | 10,477 | 5,818 | 80 | % | ||||
| Adjusted EBITDA Margin | 24 | % | 21 | % |
Operating Metrics
Life premium represents the total premium value for all policies that were approved by the relevant insurance carrier partner and for which the policy document was sent to the policyholder and payment information was received by the relevant insurance carrier partner during the indicated period. Core premiums are for term life and permanent life insurance policies while ancillary premiums are for various products, other than final expense. Because our commissions are earned based on a percentage of total premium, total premium volume for a given period is the key driver of revenue for our Life segment.
The following table shows core, final expense, and ancillary premiums for the first quarter ended September 30:
| (in thousands) | 2020 | 2019 | % Change | |||
|---|---|---|---|---|---|---|
| Core Premiums | $ | 18,565 | $ | 18,380 | 1 | % |
| Final Expense Premiums | 19,450 | 3,916 | 397 | % | ||
| Ancillary Premiums | 657 | 501 | 31 | % |
*See reconciliation from non-GAAP measure, Adjusted EBITDA, to net income on pages 11-12
Auto & Home Division
Financial Results
The following table provides the financial results for the Auto & Home division for the first quarter ended September 30:
| (in thousands) | 2020 | 2019 | % Change | |||||
|---|---|---|---|---|---|---|---|---|
| Revenue | $ | 9,538 | $ | 10,052 | (5) | % | ||
| Adjusted EBITDA* | 3,616 | 2,490 | 45 | % | ||||
| Adjusted EBITDA Margin | 38 | % | 25 | % |
Operating Metrics
Auto & Home premium represents the total premium value of all new policies that were approved by our insurance carrier partners during the indicated period. Because our commissions are earned based on a percentage of total premium, total premium volume for a given period is the key driver of revenue for our Auto & Home segment.
The following table shows premiums for the first quarter ended September 30:
| (in thousands): | 2020 | 2019 | % Change | |||
|---|---|---|---|---|---|---|
| Premiums | $ | 16,900 | $ | 17,286 | (2) | % |
Update on Fiscal Year 2021 Guidance
SelectQuote is raising the guidance originally provided for the full-year ending June 30, 2021. As a reminder, these expectations are forward-looking statements and actual results may be materially different and are affected by the risk factors and uncertainties identified in this press release and in our annual and quarterly filings with the Securities and Exchange Commission.
SelectQuote is raising guidance for the full-year ending June 30, 2021 as follows:
•Consolidated Revenue is expected to be in the range of $840 million to $880 million
•Consolidated Net Income is expected to be in the range of $130 million to $141 million
•Consolidated Adjusted EBITDA is expected to be in the range of $220 million to $235 million*
Review of Financial Results
SelectQuote, Inc. will host a conference call with the investment community today, Thursday, November 5, 2020, beginning at 5 p.m. ET. Interested parties may access the conference call live over the phone by dialing (833) 350-1343 (domestic) or (236) 389-2431 (international) and using conference ID: 8784794. The event will be webcasted live via our investor relations website https://ir.selectquote.com/investor-home/default.aspx. Interested parties should register at least 10-15 minutes prior to the start of the event.
*See reconciliation from non-GAAP measure, Adjusted EBITDA, to net income on pages 11-12
Non-GAAP Financial Measures
This release includes certain non-GAAP financial measures intended to supplement, not substitute for, comparable GAAP measures. To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our GAAP financial results, we have presented in this release Adjusted EBITDA and Adjusted EBITDA Margin, which are non-GAAP financial measures. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies. We define Adjusted EBITDA as income before interest expense, income tax expense, depreciation and amortization, and certain add-backs for non-cash or non-recurring expenses, including restructuring and share-based compensation expenses. The most directly comparable GAAP measure is net income. We monitor and have presented in this release Adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. In particular, we believe that excluding the impact of these expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance.
We believe that this non-GAAP financial measure helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of this non-GAAP financial measure. Accordingly, we believe that this financial measure provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.
Forward Looking Statement
This release contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: the ultimate duration and impact of the ongoing COVID-19 pandemic, our reliance on a limited number of insurance carrier partners and any potential termination of those relationships or failure to develop new relationships; existing and future laws and regulations affecting the health insurance market; changes in health insurance products offered by our insurance carrier partners and the health insurance market generally; insurance carriers offering products and services directly to consumers; changes to commissions paid by insurance carriers and underwriting practices; competition with brokers, exclusively online brokers and carriers who opt to sell policies directly to consumers; competition from government-run health insurance exchanges; developments in the U.S. health insurance system; our dependence on revenue from carriers in our senior segment and downturns in the senior health as well as life, automotive and home insurance industries; our ability to develop new offerings and penetrate new vertical markets; risks from third-party products; failure to enroll individuals during the Medicare annual enrollment period; our ability to attract, integrate and retain qualified personnel; our dependence on lead providers and ability to compete for leads; failure to obtain and/or convert sales leads to actual sales of insurance policies; access to data from consumers and insurance carriers; accuracy of information provided from and to consumers during the insurance shopping process; cost-effective advertisement through internet search engines; ability to contact consumers and market products by telephone; global economic conditions; disruption to operations as a result of future acquisitions; significant estimates and assumptions in the preparation of our financial statements; impairment of goodwill; potential litigation and claims, including IP litigation; our existing and future indebtedness; developments with respect to LIBOR; access to additional capital; failure to protect our intellectual property and our brand;
fluctuations in our financial results caused by seasonality; accuracy and timeliness of commissions reports from insurance carriers; timing of insurance carriers’ approval and payment practices; factors that impact our estimate of the constrained lifetime value of commissions per policyholder; changes in accounting rules, tax legislation and other legislation; disruptions or failures of our technological infrastructure and platform; failure to maintain relationships with third-party service providers; cybersecurity breaches or other attacks involving our systems or those of our insurance carrier partners or third-party service providers; our ability to protect consumer information and other data; and failure to market and sell Medicare plans effectively or in compliance with laws. For a further discussion of these and other risk factors that could impact our future results and performance, see the section entitled “Risk Factors” in the most recent Annual Report on Form 10-K (the “Annual Report”) filed by us with the Securities Exchange Commission. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as otherwise required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
About SelectQuote:
Founded in 1985, SelectQuote (NYSE: SLQT) provides solutions that help consumers protect their most valuable assets: their families, health and property. The company pioneered the direct-to-consumer model of providing unbiased comparisons from multiple, highly-rated insurance companies allowing consumers to choose the policy and terms that best meet their unique needs. Two foundational pillars underpin SelectQuote’s success: a force of more than 1,000 highly-trained and skilled agents who provide a consultative needs analysis for every consumer, and proprietary technology that sources, scores, and routes high-quality sales leads. The company has three core business lines: SelectQuote Senior, SelectQuote Life and SelectQuote Auto and Home. SelectQuote Senior, the largest and fastest-growing business, serves the needs of a demographic that sees 10,000 people turn 65 each day with a range of Medicare Advantage and Medicare Supplement plans from 15 leading, nationally-recognized carriers, as well as prescription drug plan, dental, vision and hearing plans.
Investor Relations:
Sloan Bohlen / Helen O’Donnell
877-678-4083
investorrelations@selectquote.com
Media:
Lisa Wolford
917-846-0881
lwolford@soleburytrout.com
Source: SelectQuote, Inc.
SELECTQUOTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
| September 30, 2020 | June 30, 2020 | |||
|---|---|---|---|---|
| ASSETS | ||||
| CURRENT ASSETS: | ||||
| Cash and cash equivalents | $ | 305,389 | $ | 321,065 |
| Restricted cash | 41,982 | 47,805 | ||
| Accounts receivable | 69,273 | 83,634 | ||
| Commissions receivable-current | 56,321 | 51,209 | ||
| Other current assets | 7,528 | 10,121 | ||
| Total current assets | 480,493 | 513,834 | ||
| COMMISSIONS RECEIVABLE—Net | 502,582 | 461,752 | ||
| PROPERTY AND EQUIPMENT—Net | 24,535 | 22,150 | ||
| SOFTWARE—Net | 9,339 | 8,399 | ||
| OPERATING LEASE RIGHT-OF-USE ASSETS | 30,142 | — | ||
| INTANGIBLE ASSETS—NET | 18,820 | 19,673 | ||
| GOODWILL | 46,456 | 46,577 | ||
| OTHER ASSETS | 1,438 | 1,408 | ||
| TOTAL ASSETS | $ | 1,113,805 | $ | 1,073,793 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||
| CURRENT LIABILITIES: | ||||
| Accounts payable | $ | 10,184 | $ | 22,891 |
| Accrued expenses | 14,667 | 14,936 | ||
| Accrued compensation and benefits | 24,530 | 22,228 | ||
| Earnout liability | 31,571 | 30,812 | ||
| Operating lease liabilities—current | 4,685 | — | ||
| Other current liabilities | 22,406 | 4,944 | ||
| Total current liabilities | 108,043 | 95,811 | ||
| DEBT | 312,575 | 311,814 | ||
| DEFERRED INCOME TAXES | 104,547 | 105,844 | ||
| OPERATING LEASE LIABILITIES | 37,600 | — | ||
| OTHER LIABILITIES | 6,066 | 14,635 | ||
| Total liabilities | 568,831 | 528,104 | ||
| COMMITMENTS AND CONTINGENCIES | ||||
| SHAREHOLDERS’ EQUITY: | ||||
| Common stock | 1,625 | 1,622 | ||
| Additional paid-in capital | 546,815 | 548,113 | ||
| Accumulated deficit | (1,955) | (2,792) | ||
| Accumulated other comprehensive loss | (1,511) | (1,254) | ||
| Total shareholders’ equity | 544,974 | 545,689 | ||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,113,805 | $ | 1,073,793 |
SELECTQUOTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
| Three months ended September 30, | |||||
|---|---|---|---|---|---|
| 2020 | 2019 | ||||
| REVENUE: | |||||
| Commission | $ | 106,545 | $ | 57,822 | |
| Production bonus and other | 17,624 | 7,345 | |||
| Total revenue | 124,169 | 65,167 | |||
| OPERATING COSTS AND EXPENSES: | |||||
| Cost of revenue | 51,045 | 32,637 | |||
| Marketing and advertising | 49,800 | 26,101 | |||
| General and administrative | 12,202 | 5,126 | |||
| Technical development | 3,848 | 2,713 | |||
| Total operating costs and expenses | 116,895 | 66,577 | |||
| INCOME (LOSS) FROM OPERATIONS | 7,274 | (1,410) | |||
| INTEREST EXPENSE, NET | (6,761) | (705) | |||
| OTHER EXPENSES, NET | (780) | (13) | |||
| LOSS BEFORE INCOME TAX BENEFIT | (267) | (2,128) | |||
| INCOME TAX BENEFIT | (1,104) | (440) | |||
| NET INCOME (LOSS) | $ | 837 | $ | (1,688) | |
| NET INCOME (LOSS) PER SHARE: | |||||
| Basic | $ | 0.01 | $ | (0.05) | |
| Diluted | $ | 0.01 | $ | (0.05) | |
| WEIGHTED-AVERAGE COMMON STOCK OUTSTANDING USED IN PER SHARE AMOUNTS: | |||||
| Basic | 162,448 | 87,516 | |||
| Diluted | 165,192 | 87,516 | |||
| OTHER COMPREHENSIVE LOSS NET OF TAX: | |||||
| Loss on cash flow hedge | (257) | — | |||
| OTHER COMPREHENSIVE LOSS | (257) | — | |||
| COMPREHENSIVE INCOME (LOSS) | $ | 580 | $ | (1,688) |
SELECTQUOTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Three Months Ended September 30, | |||||
|---|---|---|---|---|---|
| 2020 | 2019 | ||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
| Net income (loss) | $ | 837 | $ | (1,688) | |
| Adjustments to reconcile net income (loss) to net cash, cash equivalents, and restricted cash used in operating activities: | |||||
| Depreciation and amortization | 3,347 | 1,440 | |||
| Loss (gain) on disposal of property, equipment, and software | 82 | (2) | |||
| Share-based compensation expense | 924 | 22 | |||
| Deferred income taxes | (1,214) | (445) | |||
| Amortization of debt issuance costs and debt discount | 822 | 24 | |||
| Fair value adjustments to contingent earnout obligations | 759 | — | |||
| Non-cash lease expense | 911 | — | |||
| Changes in operating assets and liabilities: | |||||
| Accounts receivable | 14,361 | 3,484 | |||
| Commissions receivable | (45,942) | (18,945) | |||
| Other assets | 1,790 | (721) | |||
| Accounts payable and accrued expenses | (8,718) | 4,933 | |||
| Operating lease liabilities | (995) | — | |||
| Other liabilities | 23,691 | 201 | |||
| Net cash used in operating activities | (9,345) | (11,697) | |||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||
| Purchases of property and equipment | (2,751) | (3,002) | |||
| Proceeds from sales of property and equipment | — | 3 | |||
| Purchases of software and capitalized software development costs | (1,585) | (1,282) | |||
| Acquisition of business | 121 | — | |||
| Net cash used in investing activities | (4,215) | (4,281) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
| Proceeds from revolving line of credit | — | 42,868 | |||
| Payments on revolving line of credit | — | (31,153) | |||
| Proceeds from other debt | — | 4,600 | |||
| Payments on other debt | (68) | (831) | |||
| Proceeds from common stock option exercises | 309 | 1,663 | |||
| Payments of tax withholdings related to net share settlement of equity awards | (2,509) | — | |||
| Payments of debt issuance costs | — | (885) | |||
| Payments of costs incurred in connection with private placement | (1,771) | — | |||
| Payments of costs incurred in connection with initial public offering | (3,899) | — | |||
| Net cash (used in) provided by financing activities | (7,938) | 16,262 | |||
| NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | (21,498) | 284 | |||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of year | 368,869 | 570 | |||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of year | $ | 347,371 | $ | 854 |
SELECTQUOTE, INC. AND SUBSIDIARIES
Adjusted EBITDA to Net Income Reconciliation
(Unaudited)
| 1Q FY 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Senior | Life | Auto & Home | Corp & Elims | Consolidated | |||||
| Revenue | $ | 73,199 | $ | 42,823 | $ | 9,538 | $ | (1,391) | $ | 124,169 |
| Operating expenses | (64,297) | (32,346) | (5,922) | (9,518) | (112,083) | |||||
| Other expenses, net | — | — | — | (21) | (21) | |||||
| Adjusted EBITDA | 8,902 | 10,477 | 3,616 | (10,930) | 12,065 | |||||
| Share-based compensation expense | (924) | |||||||||
| Non-recurring expenses | (438) | |||||||||
| Fair value adjustments to contingent earnout obligations | (759) | |||||||||
| Restructuring expenses | (21) | |||||||||
| Depreciation and amortization | (3,347) | |||||||||
| Loss on disposal of property, equipment, and software | (82) | |||||||||
| Interest expense, net | (6,761) | |||||||||
| Income tax benefit | 1,104 | |||||||||
| Net income | $ | 837 | ||||||||
| 1Q FY 2020 | ||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (in thousands) | Senior | Life | Auto & Home | Corp & Elims | Consolidated | |||||
| Revenue | $ | 27,584 | $ | 27,607 | $ | 10,052 | $ | (76) | $ | 65,167 |
| Operating expenses | (29,523) | (21,789) | (7,562) | (5,413) | (64,287) | |||||
| Other expenses, net | — | — | — | (13) | (13) | |||||
| Adjusted EBITDA | (1,939) | 5,818 | 2,490 | (5,502) | 867 | |||||
| Share-based compensation expense | (22) | |||||||||
| Non-recurring expenses | (832) | |||||||||
| Restructuring expenses | 2 | |||||||||
| Depreciation and amortization | (1,440) | |||||||||
| Gain on disposal of property, equipment, and software | 2 | |||||||||
| Interest expense | (705) | |||||||||
| Income tax benefit | 440 | |||||||||
| Net loss | $ | (1,688) |
SELECTQUOTE, INC. AND SUBSIDIARIES
Adjusted EBITDA to Net Income Reconciliation
(Unaudited)
Guidance net income to Adjusted EBITDA reconciliation, year ending June 30, 2021:
| (in thousands) | Range | |||
|---|---|---|---|---|
| Net Income | $ | 130,000 | $ | 141,000 |
| Income tax expense | 44,000 | 48,000 | ||
| Interest expense | 26,000 | 26,000 | ||
| Depreciation and amortization | 11,000 | 11,000 | ||
| Fair value adjustments to contingent earnout obligations | 2,000 | 2,000 | ||
| Non-recurring expenses | 2,000 | 2,000 | ||
| Share-based compensation expense | 5,000 | 5,000 | ||
| Adjusted EBITDA | $ | 220,000 | $ | 235,000 |
12
selectquoteincseptember3
Exhibit 99.2 1st Quarter Fiscal Year 2021 Earnings Conference Call Presentation November 5, 2020
Disclaimer Forward-Looking Statements This presentation contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: the ultimate duration and impact of the ongoing COVID-19 pandemic, our reliance on a limited number of insurance carrier partners and any potential termination of those relationships or failure to develop new relationships; existing and future laws and regulations affecting the health insurance market; changes in health insurance products offered by our insurance carrier partners and the health insurance market generally; insurance carriers offering products and services directly to consumers; changes to commissions paid by insurance carriers and underwriting practices; competition with brokers, exclusively online brokers and carriers who opt to sell policies directly to consumers; competition from government-run health insurance exchanges; developments in the U.S. health insurance system; our dependence on revenue from carriers in our senior segment and downturns in the senior health as well as life, automotive and home insurance industries; our ability to develop new offerings and penetrate new vertical markets; risks from third-party products; failure to enroll individuals during the Medicare annual enrollment period; our ability to attract, integrate and retain qualified personnel; our dependence on lead providers and ability to compete for leads; failure to obtain and/ or convert sales leads to actual sales of insurance policies; access to data from consumers and insurance carriers; accuracy of information provided from and to consumers during the insurance shopping process; cost-effective advertisement through internet search engines; ability to contact consumers and market products by telephone; global economic conditions; disruption to operations as a result of future acquisitions; significant estimates and assumptions in the preparation of our financial statements; impairment of goodwill; potential litigation and claims, including IP litigation; our existing and future indebtedness; developments with respect to LIBOR; access to additional capital; failure to protect our intellectual property and our brand; fluctuations in our financial results caused by seasonality; accuracy and timeliness of commissions reports from insurance carriers; timing of insurance carriers’ approval and payment practices; factors that impact our estimate of the constrained lifetime value of commissions per policyholder; changes in accounting rules, tax legislation and other legislation; disruptions or failures of our technological infrastructure and platform; failure to maintain relationships with third-party service providers; cybersecurity breaches or other attacks involving our systems or those of our insurance carrier partners or third-party service providers; our ability to protect consumer information and other data; and failure to market and sell Medicare plans effectively or in compliance with laws. For a further discussion of these and other risk factors that could impact our future results and performance, see the section entitled “Risk Factors” in the most recent Annual Report on Form 10-K (the “Annual Report”) filed by us with the Securities Exchange Commission. Accordingly, you should not place undue reliance on any such forward- looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as otherwise required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. Certain information contained in this presentation and statements made orally during this presentation relates to or are based on publications and other data obtained from third-party sources. While we believe these third-party sources to be reliable as of the date of this presentation, we have not independently verified, and make no representation as to the adequacy, fairness, accuracy or completeness of, any information obtained from such third-party sources. No Offer or Solicitation; Further Information This presentation is for informational purposes only and is not an offer to sell with respect to any securities. This presentation should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto included in the Annual Report. Non-GAAP Financial Measures This presentation includes certain non-GAAP financial measures intended to supplement, not substitute for, comparable GAAP measures. To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our GAAP financial results, we have presented in this presentation Adjusted EBITDA and Adjusted EBITDA Margin, which are non-GAAP financial measures. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies. We define Adjusted EBITDA as income before interest expense, income tax expense, depreciation and amortization, and certain add-backs for non-cash or non-recurring expenses, including restructuring and share-based compensation expenses. The most directly comparable GAAP measure is net income. We monitor and have presented in this presentation Adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. In particular, we believe that excluding the impact of these expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. For further discussion regarding this non-GAAP measure, please see today’s press release. 2
1st Quarter Earnings Summary SelectQuote drove top line and profit results for 1st quarter 2021 that were ahead of internal expectations. Results were primarily driven by continued strength in the Senior and Life divisions Consolidated revenue totaled $124 million, up 91% year-over-year Consolidated Adjusted EBITDA* totaled $12 million, up $11 million year-over-year Consolidated net income totaled $1 million or $0.01 per diluted share Senior revenue totaled $73 million, up 165% year-over-year, and Adjusted EBITDA* totaled $9 million, up $11 million year-over-year 1st Quarter Highlights: • 8% increase in Senior agent productivity with 100% increase in avg. productive agents • Successfully hired and onboarded over 2,000 new associates to support AEP • Added SCAN Health Plan and Devoted Health to our Medicare carrier platform Raising FY 2021 Revenue and Adjusted EBITDA guidance *See reconciliations from non-GAAP measure, Adjusted EBITDA, to net income on slides 16-20 3
Why SelectQuote is Different Market 10% 27M +20% Dynamics Estimated Annual MA Estimated 2021 Average Beneficiary Enrollment Growth MA Enrollees Plan Choices Marketing People Technology Pillars of Growth +30% >2,000 $25M+ YoY Increase in Associates Hired FY2020 Technology Per Unit AEP Rep Investment Appointments Differentiated +8% 25% Outcomes YoY Increase in Lower Intra-Year First Term Industry Leading 1QFY21 Agent Lapse Rates Recapture Rate Productivity Source: CMS 4
CCA is a Competitive Differentiator Policyholder SelectQuote Favorable Decision Factors Strategy Outcomes CCA 25% agents Recapture Rate Changing Medications 300+ up 2x over 2020 200+ Cross-sell opportunities / day Changing Locations Policyholder contacts per month Incremental 150,000+ revenue Changing Doctors opportunity 5
Final Expense Life Final Expense Premiums ($MM) • Growing total addressable market ◦ Up to $10Bn in annual revenue ◦ Similar growth tailwinds to Senior 50 • Strong unit economics ◦ ~1-year payback period ◦ Attractive margins • Cross-Sell opportunities ◦ Over 50% of enrollees are over age 65 ◦ Increasing our cross-sell efficiency with MA and MS policies ◦ Ability to generate zero cost Senior division leads 14 • Prime example of the power of 6 SelectQuote's approach and strategy 4 1Q FY2018 - 1Q FY2019 - 1Q FY2020 - 1Q FY2021 - LTM LTM LTM LTM 6
We have a High Growth, Scalable Business Model LTM 1Q Revenue(1)(2) LTM 1Q Adj. EBITDA(1)(2)(3) ($MM) ($MM) Adj. EBITDA 21% 29% 28% Margin(3) 591 41 165 10 CAGR: 56% 145 32 CAGR: 78% 347 101 38 9 244 25 111 32 52 157 407 9 102 26 86 199 110 37 (19) (19) LTM 1Q FY19 LTM 1Q FY20 LTM 1Q FY21 (34) Senior Life Auto & Home Corp LTM 1Q FY19 LTM 1Q FY20 LTM 1Q FY21 Senior Life Notes: Auto & Home Corporate 1. LTM represents Last Twelve Months financial results. 2. The sum of the segments may not equal the total due to rounding. 3. See reconciliations from Adjusted EBITDA to net income on slides 16-20. 7
SelectQuote – Consolidated Financial Summary Revenue Adj. EBITDA* ($MM) ($MM) 124 91% 12 65 1 1Q FY 20 1Q FY 21 1Q FY20 1Q FY21 Adj. EBITDA Margin 1% 10% *See reconciliations from non-GAAP measure, Adjusted EBITDA, to net income on slides 16-20. 8
SelectQuote Senior – Financial Summary Revenue Adj. EBITDA* ($MM) ($MM) Adj. EBITDA Margin (7)% 12% 73 165% 9 28 1Q 2020 1Q 2021 (2) 1Q 2020 1Q 2021 *See reconciliations from non-GAAP measure, Adjusted EBITDA, to net income on slides 16-20. 9
SelectQuote Senior – Policies Total Policies Submitted Total Policies Approved CAGR 79,617 CAGR 118% 129% 101% 125% 24,350 108% 141% 69,493 130% 130% 7,276 20,695 36,473 6,325 12,121 30,319 47,991 3,501 9,214 42,473 2,626 20,851 18,479 1Q 2020 1Q 2021 1Q 2020 1Q 2021 MA MS Other MA MS Other 10
SelectQuote Life – Financial Summary Life Premium Revenue ($MM) ($MM) 55% 43 CAGR 28 70% 31% Q1 FY2020 Q1 FY2021 397% 39 Adj. EBITDA* 1% 1 ($MM) 19 23 1 4 80% 10 18 19 6 Q1 FY2020 Q1 FY2021 Q1 FY2020 Q1 FY2021 Core Premium Final Expense Adj. Ancillary Premium EBITDA 21% 24% Margin *See reconciliations from non-GAAP measure, Adjusted EBITDA, to net income on slides 16-20. 11
SelectQuote Auto & Home – Financial Summary Net New Effective Premium(1) Revenue(1) ($MM) ($MM) (5)% (2)% 10 10 17 17 1Q 2020 1Q 2021 Adj. EBITDA* ($MM) 45% 4 2 1Q 2020 1Q 2021 1Q 2020 1Q 2021 Adj. EBITDA 25% 38% Margin 1. The percentage change may not correspond to the figures presented due to rounding. *See reconciliations from non-GAAP measure, Adjusted EBITDA, to net income on slides 16-20. 12
Capitalization Summary • Ample liquidity for growth and business model investment • Net cash position of $22 million ◦ $347 million of cash, cash equivalents, and restricted cash ◦ $325 million of term debt • Available borrowing capacity of $75 million on undrawn revolver • Accounts receivable, short and long term commissions receivable balance of $628 million Note: As of September 30, 2020 13
SelectQuote – FY2021 Consolidated Guidance ($'s in millions) Range Implied YoY Growth Revenue $840 - $880 58% - 65% Net Income $130 - $141 60% - 74% Adjusted EBITDA* $220 - $235 43% - 53% *See reconciliations from non-GAAP measure, Adjusted EBITDA, to net income on slides 16-20. 14
Strategic Focus and Competitive Differentiators ◦ Our strategy is to maximize absolute profitability at attractive returns on invested capital divisions ◦ Our choice model paired with highly trained, in- house agents and dedicated customer care teams was purpose-built to ensure customers buy the right plan for their specific needs which leads to high retention rates ◦ Our market-leading Lifetime Value and Adjusted EBITDA per policy are a function of the way we have built and refined our business over 35 years ◦ Predictable cash flows are driven by high quality of policies written ◦ We have a strong record of attractive returns on invested capital and have a long runway to replicate those returns at scale 15
Supplemental information 16
FY20-FY21 Adjusted EBITDA to Net Income Reconciliation 1Q FY 2021 (in thousands) Senior Life Auto & Home Corp & Elims Consolidated Revenue $ 73,199 $ 42,823 $ 9,538 $ (1,391) $ 124,169 Operating expenses (64,297) (32,346) (5,922) (9,518) (112,083) Other expenses, net — — — (21) (21) Adjusted EBITDA 8,902 10,477 3,616 (10,930) 12,065 Share-based compensation expense (924) Non-recurring expenses (438) Fair value adjustments to contingent earnout obligations (759) Restructuring expenses (21) Depreciation and amortization (3,347) Loss on disposal of property, equipment, and software (82) Interest expense, net (6,761) Income tax benefit 1,104 Net income $ 837 1Q FY 2020 (in thousands) Senior Life Auto & Home Corp & Elims Consolidated Revenue $ 27,584 $ 27,607 $ 10,052 $ (76) $ 65,167 Operating expenses (29,523) (21,789) (7,562) (5,413) (64,287) Other expenses, net — — — (13) (13) Adjusted EBITDA (1,939) 5,818 2,490 (5,502) 867 Share-based compensation expense (22) Non-recurring expenses (832) Restructuring expenses 2 Depreciation and amortization (1,440) Gain on disposal of property, equipment, and software 2 Interest expense (705) Income tax benefit 440 Net loss $ (1,688) 17
LTM Adjusted EBITDA to Net Income Reconciliation LTM 1Q FY 2021 (in thousands) Senior Life Auto & Home Corp & Elims Consolidated Revenue $ 407,288 $ 145,183 $ 40,674 $ (2,628) $ 590,517 Operating expenses (250,708) (112,712) (30,850) (30,986) (425,256) Other expenses, net — — — (38) (38) Adjusted EBITDA 156,580 32,471 9,824 (33,652) 165,223 Share-based compensation expense (10,400) Non-recurring expenses (3,326) Fair value adjustments to contingent earnout obligations (1,134) Restructuring expenses (177) Depreciation and amortization (9,900) Loss on disposal of property, equipment, and software (443) Interest expense, net (31,817) Income tax expense (24,351) Net Income $ 83,675 LTM 1Q FY 2020 (in thousands) Senior Life Auto & Home Corp & Elims Consolidated Revenue $ 198,610 $ 110,920 $ 37,521 $ (335) $ 346,716 Operating expenses (112,292) (86,132) (29,010) (18,333) (245,767) Other expenses, net — — — (26) (26) Adjusted EBITDA 86,318 24,788 8,511 (18,694) 100,923 Share-based compensation expense (90) Non-recurring expenses (2,306) Restructuring expenses (2,138) Depreciation and amortization (5,055) Loss on disposal of property, equipment, and software (220) Interest expense (2,098) Income tax expense (20,917) Net Income $ 68,099 18
LTM Adjusted EBITDA to Net Income Reconciliation (Cont.) LTM 1Q FY 2019 (in thousands) Senior Life Auto & Home Corp & Elims Consolidated Revenue $ 109,928 $ 101,864 $ 32,208 $ (272) $ 243,728 Operating expenses (73,048) (76,288) (23,180) (19,193) (191,709) Other expenses, net — — — (10) (10) Adjusted EBITDA 36,880 25,576 9,028 (19,475) 52,009 Share-based compensation expense (48) Non-recurring expenses (595) Restructuring expenses (2,969) Depreciation and amortization (3,861) Loss on disposal of property, equipment, and software (700) Interest expense (1,045) Income tax expense (7,560) Net Income $ 35,231 19
FY21 Guidance Adjusted EBITDA to Net Income Reconciliation (in thousands) Range Net Income $ 130,000 $ 141,000 Income tax expense 44,000 48,000 Interest expense 26,000 26,000 Depreciation and amortization 11,000 11,000 Fair value adjustments to contingent earnout obligations 2,000 2,000 Non-recurring expenses 2,000 2,000 Share-based compensation expense 5,000 5,000 Adjusted EBITDA $ 220,000 $ 235,000 20